30 years ago when housebrands were making their first inroads into Australian supermarkets, I took over management of Fountain tomato sauce. At the time it was a runaway market leader in NSW, but was being badly hurt by emerging cheap housebrands, priced a few cents less, 0.69 cents Vs 0.73 cents. Clearly to consumers there was not much difference in the products, they may as well take the few cents for themselves.
We lifted the price of Fountain significantly, the shelf price difference was then sufficient to suggest to consumers that Fountain was substantially better than any cheap housebrand, which was in fact, the case. Lo and behold, not only did our margins improve, so did our volumes.
The perception of the value delivered by Fountain overcame the rational response that sauce is sauce. Test yourself on this next time you walk into a liquor store, and consider a purchase of wine. Obviously, the greater the price, the better the wine?
In this great TED talk, Rory Sutherland, a big cheese in British advertising makes the point beautifully that decision making has three components.
- The technical considerations
- The cost/benefit considerations
- The psychological considerations.
The first two have a range of widely used and well understood models, whilst the third is often the province of the mavericks, creatives, and other assorted ratbags, and is therefore often dismissed as having a valid role in decision making. However, the best decisions are made at the intersection of these three perspectives.