The other day I saw a tv ad from Nescafe (instant coffee brand owned by Nestle) that made me think for a while. The ad was basically explaining that the real cost per cup you had with Nescafe was only 5 cents and concluded with this statement: “Are you going to renounce to it? (just for 5 cents per cup). The following questions came to my mind: What is the real and perceived value that they have? Who are they competing with? Where do they want to position themselves? What has brought them to this position where they do not have a chance but to focus on the price per cup?
My thoughts brought me to other brands and the kind of approach they are following, and induced that eventually you can find these levels of value:
- Premium Value
- Optimal Value
- Safe Value – Value for money
- Reasonable value
- Price value
Premium value would be attained when you go beyond what is expected and come up with a differential and appreciated value proposition, for which the customers are willing to pay a premium price. Brand Equity, Customer Experience and Differentiation play for them a key role and let the obtain premium margins and attain high levels of customer loyalty. In this category you can find Brands like Gillette or Nexpresso, that have reinforced their Branding and Positioning in spite of the crisis.
The next step would be Optimal Value, which is closely related to what is called Total Cost of Ownership (TCO). TCO is considering all the explicit and hidden costs involved in a product and service (such as maintenance for a car or the cartridges for a printer), and assures the best value performance and return in the long run. Emotional perceptions are now interlinked with rational ones, and the brand promise in this case states that if you take the brand, in the long run you will be doing the best deal. Commonly implemented in B2B, it can also be found in B2C scenarios. It is not as good as the other one for you are exposed to rational advances from competition, but also positions the brand in a high differential level if achieved. Examples of this would be Canon at Office Equipment and Toyota (prior to the production problem they are facing).
After Optimal Value comes Safe Value. Alhough they are close, they are different to me. The first one requires a long term approach and therefore a stronger faith than the latter, that bluntly affirms that in the short and mid term the superior performance is bringing the best value for money. Again, emotional and rational perceptions are interlinked, but the rationale overweights the emotions. Safe value is the limit were a premium brand should play. For going beyond means playing hard on price. A good example would be found in P&G, that has launched a campaign for its product portfolio, that is certified with what they call “Safe Value”.
But the Value Spiral is merciless, and actually becomes a psycopath when recession comes. It pushes down every Brand irrespective of their awareness, market share or tradition. Being the only potential opponents real and perceived differentiation, combined with a consistent and innovative marketing mix.
Which are scarce resources in every industry, that has more and more brands pushed aggressively to the two lower layers: Reasonable Value and Value Price.
Reasonable Value is where Distribution Brands or Private Labels have traditionally played. We have written quite a few articles about them and would like to raise one additional thought: What if the ones invading others space were not Private Labels but Premium Brands suffering the destructive spiral of value? What if the fault were not in the ambition of Private Labels but in the inability of Premium Brands to create real and differential value? Whichever the case, if you are in this layer you are in trouble. Because, when you are in the layer of Reasonable Value, price becomes a key element and people will always look to rationally get the most of what they pay. And in this context, Distribution has more odds to succeed.
And last but not least, you may find yourself thrown at the marketing hell of Price Value. For here you stop doing marketing in itself, and put all your efforts in providing with the best price, provided you come up with a minimum quality. An area, therefore, with no space for differential value, where finance and production people reign.
And where has the destructive spiral of value brought Nescafe? I will leave this up to your comments and online discussion, but to me, closer to Reasonable Value than they want to admit.
THINK DIFFERENT!!!
Ignacio Gafo
















































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