When I first saw the game show The Price is Right in the US
in the early ‘80s I thought it was incredible that to win ‘...a brand
new car!’ you didn’t have to know the middle name of Abraham Lincoln,
you just had to know the price of a pack of Mac & Cheese. Who were
these people who knew nothing except the price of everything?
Well, times have moved on, and today everyone is playing The Price is Right.
People seem to know not just the price of everything, but what they
believe is the right price of everything – and until the product or
service appears at that price, they just won’t buy it.
In a major
recent revamp, US department store chain JCPenney moved from having
dozens of confusing catalogue offers and complicated sales to an
incredibly simple pricing strategy. They did this because their
customers weren’t being fooled anymore, they knew the right price of the
hoodie and until that hoodie was being sold at the right price, they
just weren’t buying it.
Like many of the readers of this
magazine, I talk to a lot companies and I hear a common story: times are
tough. But behind this is often another story: volume is holding up,
but value is slipping.
While the populace likes to whinge about
the rising cost of living, they’re also learning that prices are coming
down in so many categories. I recently saw a story in the paper showing
that in 1998 it cost you around $16,000 to get into the
bottom-of-the-range Toyota (the Starlet). Thirteen years later, you can
get into the bottom-of-the-range Toyota (now the far superior Yaris) for
about the same price. I was in Aldi the other day and I could have
picked up an LCD telly for the same price as a packet of ‘own brand’
ginger nuts. (One of these stories is not quite true, but you know what I
mean.)
Then there’s the effect of the internet – the massive
global price comparison machine. You don’t have to be a tough negotiator
to get the best price anymore, you just have to spend 10 minutes on
your smartphone on the bus on the way home. Consumers want more for
less, and they are getting their way. Look no further than the latest
offers at KFC and Maccas.
Inevitably, advertisers have followed
consumers’ desires and the effect has trickled down to the way most
advertising talks. Coles are ‘down-downing’ every night and the public
is being reassured that they were right – things just don’t have to be
as expensive as they once were.
Sometimes people even get a bit
overexcited. I was in a car dealership recently where an eager young
couple was trying to negotiate the purchase of a car. While I was
waiting to be attended to I ear-wigged their conversation. The salesman
told them the price was $30,000. They came back with a ‘final offer’ of
$22,000 (the dealer’s margin on the car in question would be less than
$2,000). The couple stuck to their guns and walked off telling the
salesman that if he changed his mind, he should call them. Presumably
they either skulked back and paid closer to the real price, or bought a
Yaris.
Life for marketers is just not as simple as it was. For a
long time, purveyors of brands had it nice and easy. Compared to other
markets around the world, margins were decidedly plump here in Australia
and ‘the price was the price’. I was told by one large FMCG marketer
that at his headquarters in Europe, Australia used to be referred to as
‘Treasure Island’.
Well that’s coming to an end now and only dumb
companies are waiting for the old days to return. Smart ones are
developing new products, services and strategies. It’s going to be a
more competitive market from now on. The punter is whooping in his seat
and waiting to be invited to ‘...come on down!’ to play The Price is Right!
Tom Moult is executive chairman of Ogilvy Australia
tom.moult@ogilvy.com.au
@tommoult_ogilvy
This article first appeared in the 18 May 2012 edition of AdNews. Click here to subscribe for more news, features and opinion.