‘I’m afraid sales and profits have fallen again,’ said the Finance Director to her Managing Director.
‘But I felt sure our strategy was bound to work,’ replied the Managing Director scratching his head.
The Finance Director nodded and for what felt like the one hundredth time they talked through their plan.
Supersmart sold upmarket items from nicely presented shops with good service. It sold lines that overlapped with its competitors but its own label ranges were a cut above. The company had built an enviable reputation for itself and its advertising reinforced the fact that its aim was to sell good quality, better quality. But the economy was in a downturn and the Managing Director, Finance Director and the board had decided to cut the prices of their goods, as others had done.
‘We are more competitive than ever. Our price gap to the others is now under 10%, we have never achieved that before and yet we keep losing customers not growing them.’ the Finance Director mused.
‘Let’s see what the Marketing Director has to say,’ replied the Managing Director calling her to join them.
The Marketing Director came in armed with a number of papers and graphs and listened to the concerns of the Managing Director and Finance Director that millions had been invested in lowering prices but they were in fact selling less not more.
The Marketing Director smiled and explained that although millions had been spent in lowering prices, and Supersmart’s price were closer than ever to their competitors, customers had not noticed and in fact thought prices were being cut more dramatically elsewhere.
‘How is that even possible?’ asked a frustrated Finance Director.
The Marketing Director explained that the Commercial Director had cut prices, but on Supersmart’s own label higher quality goods, whereas the competitors had been dropping prices on the commonly stocked brands. As a result to its customers Supersmart looked even more out of line on price than before.
‘You see customers expect our own label to be better quality and cost more. We have been advertising that to them for years and they are happy to pay our premium. But when you can buy the same item for so much less elsewhere it erodes not only confidence in your pricing of that line but in the price you charge for everything else!’ concluded the Marketing Director.
‘Then it’s clear,’ said the Managing Director. ‘We should price commonly sold goods the same at Supersmart as elsewhere and charge more for those good where customers believe we have better quality. We won’t change our overall price differential but we will change where we invest on price.’
‘Yes,’ agreed both the Marketing Director and Finance Director.
‘And you need to find a way to tell customers our prices on common lines now match the market,’ said the Marketing Director.
And so that is what they did. Customers came to believe the prices at Supersmart were more competitive and sales and profits grew.
Perception is reality.