PeppercomBlog

End the Inferiority Complex

Posted by Milos Sugovic

“Premiumization” was the buzz word in marketing until now. Consumers were bombarded with higher-priced, premium products capturing every possible niche. Now it’s on the sidelines as the economic downturn continues, which calls for major shifts in focus for consumer-oriented companies. 

What we see is consumer demand for trading down, and that’s causing headaches for marketers. Economists call them “inferior goods,” and they’re the hot commodity during hard economic times as consumer habits change. 

The demand for inferior goods actually increases when consumer income drops and they switch to low-quality products and services. This seems a bit counter-intuitive. Why would consumers increase purchases of particular goods and services in difficult times? 

Think instant ramen. One doesn’t yearn for ramen, nor does one search the cupboard for it and discover Campbell’s soup instead. It’s usually the other way around. When times are tight, ramen is the comfort food. For 16 cents worth of dried noodles and chicken-flavored MSG, one can enjoy the comfort of a hot meal. 

But many don’t realize that recessionomic consumer behavior creates superior opportunities for inferior products. Companies can maximize value in this environment, and here’s how: 

The Perfect Scam

Posted by Milos Sugovic

A company is bottling New York City tap water and selling it in stores for $1.50. Is that brilliant or brilliant? Say goodbye to outdated and unsustainable pyramid schemes, and greet the power of imperfect information and stupidity exploitation. 

Tap'd NY’s Craig Zucker (rhymes with “sucker”) founded a bottled water company he promotes as having a "local twist." What’s the local twist you might ask? The city's public water…oh, and the $1.50 price tag.

Bottled water might be the most creative business innovation, and Craig Zucker, with his “honest and local” company, is taking advantage of imperfect information and the negative publicity surrounding the costly importation of foreign bottled water. Consumers have no way of identifying purified water from regular tap water before consuming it, and surely the product would pass any taste test anyway. On top of that, the company is using corporate responsibility to stress its support of local economic growth and development via patriotic consumption. 

Asymmetric information is every economist’s fascination. It leads to sub-optimal, imperfect outcomes and paves the way for superfluous profits. Think about it: the cost of production for this “award-winning” water is miniscule because it equals Zucker’s city water bill plus a filter. The price, on the other hand, is the market rate.  

So next time you reach for the perfectly chilled bottle of Evian Spring Water, make sure you get Tap’d NY instead. After all, it comes with free refills.

Eat Fast, Think Fresh

Posted by Milos Sugovic

Are fast food chains forgetting that their niche can go beyond price?

Recession-busting meal deals are the new fad as fast food restaurants are shifting focus away from competitors to the common nemesis - the recession. Price is becoming the rule of the game, but positioning fast food meals as an integral component of the recession diet has inherent pitfalls. 

Nowadays, gas and lattes are luxuries, and fast food is trying to avoid following suit. With its 444 Deal, Domino’s offers three ten-inch pizzas for $4 each. Subway and Quiznos have elevated the rivalry to the $5 sandwich battleground. McDonald’s, KFC and Taco Bell have hosted national freebie events and revamped their value meals to attract the income-hungry consumer. 

So why are so many trying to tap into the limited haul of the recession-marketing bandwagon instead of creating a comparative advantage?

Marginal price cuts will attract consumers but not to the extent hoped for. First off, relative cross-chain meal prices remain constant as virtually every fast food restaurant has a recession special on the menu. So we’re unlikely to see an increase in sales for any particular chain vis-à-vis competitors due to price-based consumer switching. More importantly, home cooked meals and brown bag lunches are hurting the industry as Americans are resorting to lunchanomics. 

So how are these giants to win back consumers that have once helped maintain the obesity trend?

Their PR and advertising campaigns need to go beyond dollars. Look at Subway’s success and the strategies employed. Carving out a large chunk of the dietary market comes with convenience and calorie undercutting in tandem with price. Perhaps Taco Bell and KFC should look to Subway for some ideas to think fresh.

The King is Dead. Long Live the King

Posted by Matt Purdue

Roughly 650 years before German immigrant Eberhard Anheuser acquired a careworn, little brewery in St. Louis, the monks of Villers-la-Ville, Belgium, were already busy making that most sacred of beverages: beer. It continues to amaze me that every time a foreign entity takes an interest in a so-called American icon, pundits and politicos wail. This week, after weeks of hemming and hawing, Anheuser-Busch agreed to be acquired by Belgium-based InBev. One of the Show-Me State’s U.S. senators, Christopher Bond, crowed, "InBev buying Anheuser-Busch is as popular in St. Louis as $4 gas.” Bond has to say such things to have any hope of being re-elected, of course, but a guy with a BA from Princeton is certainly smart enough to realize that this is how commerce works. Capitalistic growth knows no geographic boundaries, heretofore to the enjoyment of many, many U.S. companies.

AB, after all, has been generating revenue overseas for decades. The company operates more than a dozen foreign breweries and owns huge stakes in Mexican and Chinese brewing companies. The name of their most popular product, Budweiser, is derived from the Czech city where the first true Budweiser beer was brewed at least 70 years before AB started marketing its brand in the States. Yet, despite all the rich history and brand power of BUD, the stock has been sotted for years. BUD hit nearly $54 in April 2002 and didn’t top that until earlier this year when rumors began pouring out about InBev’s interest.

Funny thing is, if you asked everyday Americans to name one beer, most would probably say Budweiser. But that awareness hasn’t really translated into shareholder value. It may seem anathema to the métier of a PR professional like me to suggest a disconnect between brand awareness and share price. But my point is that consumer reputation is only one component of a company’s value. All the positive media Budweiser got as it (disingenuously?) sought to fight off InBev meant very little in the end. Sometimes PR folks need to think less like consumers and more like shareholders. Exploiting both 9/11 and the ensuing “war on terror” to sell alcohol might play well on Main Street, but what types of deep communications strategies would AB have needed to raise its profile on Wall Street? Now we’ll never know.

As for the Belgians at InBev, if they can do for AB what they’ve doing for their homeland’s beer for centuries (not to mention chocolate, fries and waffles), then I say welcome to America.