A brand is what allows a product to rise above “parity” pricing and commodity status; to be sold for more than an equivalent product that lacks the brand. If a customer is considering only the price when buying a product, then the item is a commodity. If a customer is buying because of other factors—design, quality, features, ease of use, glamour, pleasant associations, a recommendation, personal memories— and is willing to pay more because of them, then the brand is working. The more a seller can charge, and still have customers clamoring for the product, the stronger the economic value of the brand.
Price setting is often the domain of corporate marketing departments. This is because pricing is widely recognized as an integral part of a brand strategy. Firms don’t just charge what they need to recover costs of production, nor do they charge “whatever they can get for it,” although both of those tendencies are strong. In ideal circumstances, the price is set to take into consideration factors such as how the price affects brand perception, where the price will position the product in relation to its competitors, and what pressures will develop on the price as the market matures.
What effect does price have on how a brand is perceived? In A New Brand World, Scott Bedbury describes the so-called “Marlboro Friday,” the day in 1993 when the tobacco giant Philip Morris announced it would have to slash the price of its world-famous Marlboro cigarettes in order to compete against lesser brands. This decision sent shock waves through the marketing world, since it represented a blunt admission that the Marlboro brand had little value. The new pricing strategy seemed to undermine the rationale for all brands.
The problem with Marlboro, Bedbury explains, was that the product itself wasn’t innovative enough to distinguish it from competing cigarettes. There was nothing in the user experience to support the brand image that Philip Morris had spent millions promoting worldwide. Stripped of its brand, the product appeared to have no perceived extra value.
Of course, cigarettes suffer from other issues, such as enormous lawsuits, declining sales, loss of social standing, and so on. Brands such as Marlboro might have been in trouble anyway. But the lesson is that price is an excellent bellwether of brand strength; the canary in a coal mine that signals imminent disaster. When marketers are forced to cut the price of any premium item, whether cigarettes, cell phones, hair coloring, or brokerage services, the demise of the brand cannot be far off.