YOU DO HAVE
A CHOICE
I’ve
said it before: You can either compete on value or you can compete on
price. If you choose not to compete on value, you will have no choice
but to compete
on price and that is likely to cost you dearly in the long run.
Some people understand that and some don’t.
An example of people who get it are the creators of Zespri, a premium brand
of kiwifruit, and an example of people who don’t are Barnes and Noble,
the world’s largest book retailer.
You may have read in The New Zealand Herald recently that Zespri was launched
in 1996 to help the struggling kiwifruit industry. In spite of the fact that
prices had sunk to $4.29 per tray, people laughed at the idea of trying to
establish a premium brand for kiwifruit. After all, the furry green fruit was
now nothing more than a commodity item thanks to abundant cheap competition
from South America and Europe.
Undaunted by their critics, the managers of the fledgling company positioned
their brand at the quality end of the market. As a result of a strong marketing
philosophy (as opposed to the trading philosophy adopted by Zespri’s
competitors) and considerable investment in R & D, advertising and promotion,
Zespri Gold, a variety of kiwifruit that did not exist in 1996, is now New
Zealand’s fourth biggest horticultural export. Growers are receiving
$10.37 per tray and the company’s revenue for 2001-2002 was 800 million
dollars, almost all from exports. You won’t be surprised to know that
Zespri recently won Trade New Zealand’s Supreme Exporter of the Year
award.
The moral of the story: Create superior value, price your product to reflect
that value and then sell the value.
Then there’s Barnes & Noble.
You will recall that Hilary Clinton’s tell-all tale of life with Bill
and his White House playmates was recently published. The initial print run
was one million copies, an unprecedented number for a book of that genre.
The morning the book was released in America, I listened to a radio interview
with the VP of Communications for Barnes & Noble. Not surprisingly, this
VP was as excited as Monica must have been during her sessions with Bill in
the Oval Office. Apparently, people queued outside Barnes & Noble stores
all night to make sure they got a copy. Hilary Clinton had intended to be on
hand for only one hour to autograph copies in the company’s Rockerfeller
Centre store in New York City but so great was the demand that she was there
for over three hours. “And people didn’t just come to her with
one book to sign, they came with armloads,” gushed the VP. It was the
same across America and indeed, around the world.
“How much does the book sell for?” asked the interviewer.
“It normally sells for $29.95,” replied the VP, “but we
had it on special for $21.95.”
There was a moment of silence as the interviewer attempted to understand the
stroke of marketing genius implicit in this pricing policy.
“I don’t understand,” the interviewer finally admitted,
recognizing that she was dismally ignorant when it came to understanding corporate
strategy. “Why would you discount the book when you knew it was going
to sell so well?”
“Oh, we always discount our best-sellers,” the VP replied cheerily.
Brilliant! Who would have thought of it? Discount books that people really
want to read and charge full retail for books people aren’t interested
in!
I wonder how much that stroke of brilliance cost them? I also wonder if people
who queued all night would care whether they paid $21.95 or $29.95, or even
$39.95 for that matter.
The moral of the story: If you create superior value, don’t give it
away.
Like I say, some people get it and some people don’t.
Which group are you in?
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