The coronavirus pandemic is forcing brands to raise prices. General Mills, Chipotle, P&G and others are planning for or already implemented price increases. With fraught supply chains, climatic distresses and overall uncertainty, brands face hits to profitability as important parts and ingredients are less available.
Raising prices can be problematic. If a brand raises its price too high, customers will reassess that brand’s value. Is this brand really worth what I will have to pay? Is this brand a good value? Or, is this brand not worth the money? Is my second choice brand a better value now?
In order to make create and implement the correct pricing strategies, businesses must calculate their brands’ Trustworthy Brand Value. This is an imperative.
When it comes to value, customers have a mental value equation. This mental value equation kicks in when making a purchase. This customer value equation is not math: it is a mindset. It is a mental process where customers evaluate a brand’s benefits relative to its costs. As a mental construct, this value equation has a denominator (bottom) of costs and a numerator (top) of benefits.
Over decades, the basic understanding of customer value has been and continues to be the same: value is what you expect to receive and what you do receive (benefits) for what you expect to pay and do pay (cost). However, how business specifically defines benefits and costs has undergone an extraordinary evolution. Brands must be cognizant of these changes in order to satisfy customer needs profitably.
In the 1950’s, business understood the value equation simply as features for the money. But, in the 1960’s, the numerator’s definition changed to reflect the fact that customers do not actually buy features. Customers buy the benefits (needs) of these features. Marketing’s purpose became the way in which brands profitably satisfied customer needs.
The social upheaval of the 1960s also gave brands permission to not only focus on functional needs but to make choices based on emotional needs. The customer perceived value equation’s numerator was now more than just features and functions. Emotional benefits were also relevant.
In the 1980’s, with the proliferation of two income families and the beginning of busy, over-scheduled lives, the value equation’s denominator changed. Price was no longer the only cost that people considered when evaluating value. People looked at time as a cost. The denominator of the value equation evolved to include both money and time.
By the turn of the 21st Century, there was again another evolution in customer perceived value. In addition to money and time, consumers added a third cost: effort. Customers started assessing a brand’s costs in terms of money, time and effort, where effort means the physical and mental energy cost. Even if I have the money and the time, this purchase requires too much effort on my behalf.
Technological and social changes including the seismic changes from coronavirus have forced the value equation to evolve again. Consumers now look at the numerator of the value equation as a total brand experience defined in terms of functional, emotional and social benefits, such as sharing, belonging, self-image, status and respect.
This means that customers now assess a brand’s worth based on its total brand experience (functional, emotional and social benefits) relative to the costs of money, time and effort.
However, there is now a very important new component to the value equation. It is a value multiplier. That value multiplier is trust.
Trust is the customer’s belief that the brand will deliver the experience relative to the costs in a quality manner. Trust is the customer’s evaluation of the future experience with the brand: How confident am I that this brand will deliver this experience for these costs?
The new customer perception of value is total brand experience relative to total experience costs all multiplied by trust. This is the new Trustworthy Brand Value equation.
If trust in the brand is high, then as a multiplier, the perceived brand value is increased. If trust in the brand is low, then the perceived brand value is decreased. If there is no trust in the brand – if trust in the brand is zero – then it does not matter what the promised brand experience is relative to the costs. Anything multiplied by zero is zero.
Brand trust significantly affects consumer commitment. This influences price tolerance. Brand trust is a critical piece of the decision process. If you want a strong, enduring, loyal relationship with a customer, you must have brand trust. Trust is essential to the calculative process of brand acceptance. It is not enough any longer to be just a good price; your brand must be a trustworthy value.
If your customers perceive your brand to be a trustworthy value, they will increasingly opt-in to share personal information. But they will do this in exchange for the brand’s ability to deliver on its promise. This exchange of information will enhance the relationship. And, research shows that the stronger the relationship, the stronger the preference and this drives revenue.
Recent research from Deloitte indicates that 62% of people who report highly trusting a brand buy almost exclusively from that brand over competitors in the same category.
Understanding value is much more than asking people whether they believe your offer is good value. Asking customers if your brand is a good value is a hopeless quest for a useless answer. Trustworthiness is incredibly multi-dimensional. Adopt an analytic metric that assesses each of the components of the Trustworthy Brand Value equation.
As an analytic construct, the Trustworthy Brand Value equation integrates all the elements that customers expect to receive – functional, emotional and social benefits and the costs they expect to pay for this experience: money, time and effort. Research from as far back as 2004 indicates that total brand experience and cost characteristics and qualities of the brand have meaning and add value for the customer. Brand value is more than satisfaction with the functional performance of the brand. Brand value is a function of the customer’s relationship with the brand. Trust is one of the most critical components of this relationship.
Value is not absolute; it is relative. Calculate Trustworthy Brand Value for each brand in the customer-defined competitive set. A specific brand’s Trustworthy Brand Value is indexed to the average of the competitive set. This is the Relative Trustworthy Brand Value.
Recent research indicates that as Relative Trustworthy Brand Value increases, the willingness to pay more also increases, as long as the price is perceived to be fair value. This is common sense. Building Trustworthy Brand Value builds preference, loyalty, sales and profit margins. And, Trustworthy Brand Value is the basis for enduring profitable growth.
The essential imperative for marketers today is to incorporate the Trustworthy Brand Value equation into brand management. Trustworthy Brand Value is a critical tool in the 21st Century-marketers’ toolbox. Trustworthy Brand Value is not a mere marketing theory, it is major management metric.
Today’s biggest marketing challenge is to build Trustworthy Brand Value, in every market in which your brand chooses to compete.