Take one glance at the latest headlines and it’s easy to feel concerned and confused about the state of our economy.
On one hand, near record high interest rates are working to slow consumer demand, international conflicts are leaving companies unsettled, and our upcoming presidential election has us all bracing for what’s next. On the other hand, reports of accelerating economic growth and a healthy job market offer signs of resilience.
No matter which headlines you choose to read, one thing is clear for all brands: we’re in a state of economic uncertainty.
There are few terms thrown around as routinely as ‘value.’
At its core, it represents how much ‘bang’ customers feel they get for the ‘buck.’ It’s a concept that becomes particularly important in moments like the one we’re in. When times get tough, people tighten their belts and stick to the brands that offer something that’s worth every penny they’re asked to pay.
At Lippincott, we have a particular way of defining ‘perceived value’ which we’ve measured across over 2,000 brands as part of our Brand Aperture® approach to diagnosing brand strength. The brands that manage it well earn higher loyalty and grow much more rapidly than others.
The first component – the ‘bang’ (not the buck) – is measured as the strength of brand meaning. When brands establish emotional bonds with their customers and help them achieve things they otherwise couldn’t, they’re offering more than a product or service — they’re creating meaning in people’s lives. It’s where any brand seeking to offer value to their customers should start.
The second component – the ‘buck’ – is measured as how much more expensive customers perceive the brand to be than others like it. This isn’t just a pricing strategy. The smartest brands know that perception is reality and use tactics to earn credit when prices are low or to soften the blowback when prices are high. For example, look no further than airlines. Southwest has half as many flyers rating the brand as expensive compared to JetBlue’s flyers, despite having average fares just slightly cheaper than JetBlue1. Southwest’s focus on transparency and its reputation as the ‘airline with heart’ earns it more favorable cost perceptions.
The final metric comes from bringing together our two core components. By dividing brand meaning (the ‘bang’) by perceived cost (the ‘buck’), brands can track their value ratio. We see this ‘value ratio’ swing widely within industries, creating substantial advantages for those with favorable positions.
Based on a brand’s ‘value ratio’ and the financial confidence of its user base, there are four different strategies to consider.
Strategy 1: Reinforce existing value to deepen preference and loyalty
Brands with a high ‘value ratio’ and high customer worry should focus on supporting existing value to solidify customer relationships. These brands benefit from being perceived as offering high ‘bang for the buck’ to the people who need it most. During times of economic uncertainty, these brands are in an especially advantaged position to earn a spot-on users’ short-lists. This comes through in the data – among brands with a concerned base, those with high value ratios have an average of 52% of customers claiming loyalty to the brand as compared to 44% for brands with low value ratios2. These brands should continue highlighting their unique proposition in getting people more than what they pay for.
Strategy 2: Thoughtfully invest in enhanced benefits that customers would gladly buy
Brand with a high ‘value ratio’ and low customer worry should take advantage of the interest and stability of their customer base by serving them increasingly enhanced features. These brands can afford to invest in such improvements given the pricing power to pass costs along to their customers. This creates a win-win relationship – customers get more of what they want, and brands avoid leaving money on the table.
Strategy 3: Quickly strengthen value to protect against share loss
Brands with a low ‘value ratio’ and high customer worry are in a precarious situation. Their financially concerned customers are looking for ways to stretch their dollar further and these brands aren’t providing enough ‘bang for the buck.’ To close gaps, brands should prioritize strengthening their value ratio either by reducing perceived cost and/or by increasing brand meaning.
Strategy 4: Invest in offering and reputation to own ‘premium’
Brands with a low ‘value ratio’ and low customer worry can invest in their core offerings and overall reputation to own a more premium position. When at their best, these brands have a low ‘value ratio’ because they are seen as offering tremendous benefits – and charging appropriately high prices for it (i.e., they’re expensive, but worth it). And, their financially confident customers are willing and able to pay the high price being charged. The power of serving confident customers a ‘premium’ offer is seen in our data. Among the over 100 brands evaluated in Brand Aperture® with a low value ratio, those serving more financially confident customers have grown revenue +7pts faster as compared to those serving customers who lack financial confidence3. The opportunity for these brands is to recognize their privileged position and double-down on owning a ‘premium’ offer and brand.
So, as you look for ways to ensure your brand is prepared to weather a possible economic storm, consider more actively managing its perceived value.
- Do you know what your brand’s perceived value is in the minds of current customers, and how it compares to alternatives?
- What is the financial confidence of customers you seek to serve, and how well aligned is that confidence with your brand’s perceived value?
- How can you improve your brand’s value ratio by increasing ‘brand meaning’ through deeper emotional connections and enabling greater progress for customers?
- How can you improve your brand’s value ratio by influencing its perceived cost through strategies that highlight competitive pricing or earn forgiveness for higher prices?
¹Proportion of flyers rating brands expensive sourced from Lippincott’s Brand Aperture® 2023; Average fares sourced from the Consumer AirFare report from the U.S. Department of Transportation, 2018
²Vulnerable customers defined as consumers stating that they are not confident in their financial circumstances; high value ratio defined as brands above the median among over 200 brands diagnosed
³Revenue growth among 106 publicly traded brands evaluated in Brand Aperture® 2023 CAGR between ‘20-’22; low value ratio defined as brands below the median among over 200 brands diagnosed