Question

Topic: Strategy

How To Introduce A New Brand In The Lower End Of T

Posted by Anonymous on 8/22/2005 at 7:02 PM ET 250 Points
My company designs and manufactures a range of technical “system” products under the name NOVA that are sold to customers who fabricate and assemble them into the finished product. These medium and premium grade products are then sold to the construction industry under supply and installation contracts.

Our company name is well known in the industry and has a reputation for good quality and design innovation. The core products of the system are priced in £ per pound weight.

We wish to introduce a new range, NOVAlite, for the lower end of the market that will be at a lower price point and will mainly be sold to companies which are not currently buying from us.

By reducing the specification slightly and charging a lower price per pound weight we can achieve the target price for the market segment and meet the required, although reduced, gross margin.

The problem:
1) How to protect the perception of our brand and prevent existing customers trading down, where they can, to the lower cost NOVAlite range and the consequent reduction in our gross margin.

2) How can we justify the new NOVAlite range to existing customers which is made of the same basic material but is priced at a lower cost per pound weight than the existing NOVA products.
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RESPONSES

  • Posted by wnelson on 8/22/2005 at 7:12 PM Accepted
    Many times, a company will see a threat in the marketplace from a competitor to their product from a low price supplier and combat this threat with a flanking - low cost product. If the lower cost product is of lesser quality and/or features, the flanking product can be lower quality/features.

    In cases where you really can't differentiate the product on features, or you simply don't want to change your manufacturing line to bring out a truly inferior product, a company can produce one product under two brands, but introduce a different features/specification sheet which lowers the quality/features. This would seem to fit your case. With NOVAlite - you can bring out a datasheet with the specified tolerances wider than NOVA, but still within a useful range for your customers. If sn existing customer asks about NOVAlite, you can explain that the "lite" version is not guaranteed to the same range as the NOVA product. If these customers can get away with a reduction of specifications, they can switch. While you lose their "premium" business, you prevent them from going to the competition.

    I hope this helps.

    Wayde
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