Seven brand tiers
How, then, do you determine what is good value versus overpriced or too cheap? Consider the following seven brand tiers.
A niche brand that only makes or sells a specific type of product and is a market leader. Their focus is on one product type – for example, Rolex or Rolls-Royce.
A designer label: many clothing brands fit into this category. A shirt is a shirt; the design may vary slightly or use different materials but it does the same functional job as every other shirt. Generally, the designer label is considered a premium brand and therefore at the upper end in terms of cost (to buy). Originally, these were the big fashion houses such as Versace or Christian Dior, who crafted small runs of bespoke, often hand-made, clothing, but it has moved into more mainstream production where the name is heavily marketed but the manufacture is no longer particularly unique, nor the design anything special. I would also include instances where a brand is used across an alien product range. For example, Porsche build cars and if I were after a sports car, it would be one I’d consider. They don’t make watches, so I wouldn’t buy a Porsche-branded watch; I’d buy a watch from a company whose business is making watches.
A supermarket brand: functional (everyday) products that carry a retailer’s own brand labelling but are similar to other products. All the big supermarkets have these, as well as large retailers such as John Lewis or Screwfix.
A ‘boring’ brand: it does the job, isn’t overly expensive or exciting but just doesn’t have much in the way of street cred. These types of brands are often shunned due to peer pressure. These brands might be thought of as mid-range – neither perceived as high quality but equally not seen as budget nor cheap. They are normally related to long-term businesses, not newly formed start-ups. I’d put Vauxhall cars, Clarks shoes and Bic biros in this category.
A duplicate brand: this type of brand was originally seen in the car industry but is becoming more widespread in other markets. Volkswagen’s own brands range from Bentley and Audi through to VW, Škoda and Seat. In essence, they share much of the ‘internals’ of the product and benefit from shared support services in design, purchasing, supply chain, etc.
A pseudo brand: this type of brand is often historic and was previously successful but the underlying business has struggled and been bought out by another retailer. House of Fraser is a good example of this, having snapped up many traditional brands such as Slazenger, Everlast, Jack Wills, Evans Cycles, Gieves & Hawkes and many more. They’re recognisable names but are no longer independent.
An ‘unknown’ brand: regularly seen in online marketplaces with products that look similar to branded items but are produced by companies with more consonants in their names than a bad round in Countdown.
You may have concluded that tier 1 is the most expensive and tier 7 the least expensive. I’m using the word expensive carefully here to mean the price the customer pays. Aside from tier 1, the manufacturing cost (ie the effort taken to make the product) is broadly similar. There’s also the cost of the raw material and this does vary, notably for clothing and food. Clothing is straightforward: silk is more expensive than polyester, leather more expensive than plastic. Food is a little more complicated as most of us don’t have any technical knowledge about ingredients but it follows a trend of cost reduction. When I was a kid in the 1980s, Jacob’s Club biscuits were advertised with the jingle ‘If you like a lot of chocolate on your biscuit, join our club’. However, as the cost of cocoa soared, they reformulated the ingredients to include more fats, emulsifiers, sweeteners and flavourings (all cheaper) instead of cocoa, to the point where they might no longer be truly what we might think of as chocolate biscuits, but labelled as having a ‘chocolate-flavoured coating’. Although they were at the same price point and branded as the same biscuit, they had become a lesser-quality product. While this type of reformulation occurred with many food products, the current trend is to move back to more natural ingredients; indeed, McVitie’s Club Orange Chocolate Biscuit now cites ‘no hydrogenated vegetable oil, and no artificial colours or flavours’ in its ingredients.
Leaving aside tier 1 items, as these are placed at the luxury end and not really considered everyday nor frequent purchases, the concept of ‘shifting down a brand’ is often cited as a way of saving money (swapping your regular purchase to a ‘lower brand’ but getting a product of very similar quality and greater value) and I wouldn’t disagree with this. It’s particularly true in relation to supermarket or large retailer brands or those companies with multiple, duplicate brands.
A value or brand choice?
Early in our careers, when Lou and I worked for the same company, we were both offered a company car at the same time. We had different jobs but were at the same level and had the same budget. Lou chose a 1.6 petrol VW Golf hatchback and I chose a 2.0 diesel Škoda Octavia estate. Comparing the two cars, mine had the higher specification: climate control over air conditioning, leather over cloth seats and a more powerful and economical engine. But inside the car, aside from the badge and a few minor details, it was exactly the same – the same door handles, dashboard dials and switchgear. You’d be hard pressed to spot the difference, yet the perception of the brands was very different and I got a lot of stick from friends and colleagues for driving a Škoda. At the same time, one of the account managers chose an Audi A4 saloon from the same price bracket. Although perceived as a higher quality brand, he had to contend with wind-up windows and couldn’t afford metallic paint or alloy wheels! As a side note, when I left the company and handed back the car, they ran it as a pool car for a further six years. Proof, if needed, that it was a value for money decision.
With an understanding of how brands are marketed as well as downshifting brands, I’d also recommend shopping in the middle tiers (3 to 6). I’d avoid the ‘unknown brand’ unless the frequency/price ratio is low enough that you’d consider it a throwaway item rather than something you’d want to last for a reasonable period of time. This frequency of use is related to an earlier concept in the previous chapter, or £/use as a mechanism of evaluating the cost of an item against how many times you’re going to use it. In this case, the argument is that if you’re going to use something often, then it’s worth buying a better quality product rather than something cheap and cheerful that might not last as long. However, don’t confuse better quality with higher price; seek to understand the underlying quality of the product, not what the marketing hype is telling you.
Raw material cost, performance and product quality
So how do I know that less well-known brands are often just as good as other, better-known brands? It comes from spending many years working in manufacturing and distribution/retail where I learned how contract manufacturing operates. Some of you might be familiar with the ‘biscuit argument’. Most supermarkets sell an own brand version of, say, Rich Tea biscuits, so there are maybe a dozen variations. They’re often made in the same factory, perhaps with a small tweak to the ingredients and of course the outer wrapper. But the production line, the ovens, the temperature control, hygiene standards, mixing bowls, quality checks, packing and storage are all the same, leading to very similar end products. While many will argue that you can’t beat the original McVitie’s or Waitrose Rich Tea, in taste tests there’s often little difference to those from Tesco or Aldi. Added to this, there’s always personal taste and a preference for one over another, so there will never be a universally agreed ‘best product’.
Now we get onto the technical make-up of products – the core ingredients and how they influence performance. One company I worked for had an own brand range of maintenance aerosols (lubricating oils, degreasers, cleaners, etc) and one year we decided to relaunch it with a new can design so that the sales team had a ‘new, improved’ product to sell. We were already using a contract manufacturer, so we agreed a funky new can design and had meetings to discuss what we could change in the formulae to be able to claim the products were indeed ‘new and improved’. One product was a graphite spray (a lubricant), which we tweaked a little and sent samples out to the sales team for customers to test. The feedback was universal – it was rubbish and worse than the old one. We hadn’t changed much and couldn’t understand the reaction but after a discussion with the manufacturer, they pointed out that the new product was clear and suggested that some people might not associate this with graphite. We tweaked it a little more and sent out the new samples, only to get a similar universal response, albeit a totally different one, which was ‘excellent’ and ‘so much better than the last lot’. What had we done? We’d added some black dye to the product. It was technically no different (in terms of lubrication) but the customer perception was that this was a good quality graphite spray and we even managed to increase the price of this new, improved version.
With aerosols, it’s sometimes not just the active ingredients, it’s what else makes the product work – this time, brake cleaner. To understand this, you need to know how aerosols work; there’s the can (obviously), the active ingredients, compressed air and a product known as the carrier or propellant – generally a liquified gas that the active ingredients are mixed with to make the product spray out of the nozzle without clogging. Typically, a good brake cleaner has a powerful spray that gets the active ingredient onto the surface you’re trying to clean, so for this product we increased the percentage of compressed air and propellant, the two cheapest ingredients. Again, we received excellent feedback that the new product was ‘way better’ than the old version and ‘literally blasted away brake dust’, when all we’d done was effectively reduce the amount of active ingredient in the product to reduce the cost. This time, we kept the selling price the same but increased our margins as well as increasing overall sales volume since it was seen as a top-performing product.
I’m sharing these two examples to demonstrate that product quality isn’t defined solely by the brand or the manufacturer and that often an unbranded (or a brand with a lower perceived quality) product might well be just as good. It goes back to the basic concept that any company is in business to make money; it buys or makes a product for a certain cost and has to sell it to the customer at a higher price to make a profit and thus sustain its business. If a company is spending a lot on marketing, it must either sell it at a higher price for the same ‘quality’ of product, or make it at a lower cost, at the risk of lower product quality. So when you’re buying a higher branded product, you need to think about how much of that purchase price you’re prepared to pay for the actual product and how much of it is purely funding the marketing or celebrity endorsement.
Brand reputation
At the other end of the scale, there are the completely unknown and unrecognisable brands, typically seen listed in online marketplaces and often at the lowest price against comparable products. I’m not a fan of these unless you’re making a disposable one-off purchase. Despite what I’ve said above about managing product cost, there’s a limit to how far you can trim cost and margin without compromising product quality. The adage ‘if it sounds too good to be true, it probably is’ fits here. Plus, there’s often no reputation behind the brand and no guarantee of longevity of supply. I believe it’s important to buy from a trusted retailer or a brand you know because you’ll have additional recourse if the product fails. A larger brand will more likely support you with better aftercare – and this is true of all those middle brands from the list above; it’s just the complete unknowns I’d steer clear of, despite the lure of a cheap price.
Of course, I’m not infallible and also get tempted by a bargain. I was looking for a carry-on rucksack for a flight and didn’t want to spend a huge amount as I wasn’t a regular flyer. I chose cheap – two for £16 online; they looked OK when they arrived and we duly set off on holiday. While walking through Tenerife airport, one of the straps tore away, so I went back online to see that the product was ‘no longer available’ so it wouldn’t have been much help to others to leave a review of what I’d experienced. When I contacted customer services, the seller was a distribution company that at least offered a partial refund. After all, the strap could be re-sewn and Lou’s was still intact. Although the retailer covered the poor quality, I was annoyed with myself that I’d fallen into the trap of buying ‘too cheap’. As the saying goes, ‘buy cheap, buy twice’ and this is true of the bottom end of the market.
Technology
There’s one product category that you also need to be careful with and that’s technology. Primarily this is down to Moore’s Law, which states that the number of transistors on a microchip doubles every two years, which in layman’s terms means we can expect the speed and capability of our computers to increase every two years, yet we’ll pay less for them. The challenge here is that product lifespan is getting ever shorter and we’re being encouraged to buy the latest version each time it’s launched, when the existing model is still doing a reasonable job. Part of the marketing approach here is to include an element of built-in obsolescence (typically by not providing technical support for older models) and part is down to Moore’s Law itself: for example, if you have 25 apps installed on your phone, it might start off being well within the available storage. As apps are developed, more functionalities generally require more space and as these are updated you may find that, after a year or two, the storage required by your 25 apps now exceeds what’s available. It’s good practice to keep apps updated rather than saving space by not updating them, so you end up needing a new phone with more capacity just to stand still.
While I love technology, I do have a challenge with this shorter lifespan and the near constant push to replace perfectly serviceable products ever more frequently. Coming back to financial management, if you fall into the trap of investing in too much technology too often it’s a potentially huge drain on your personal finances. It would be unrealistic of me to try to convince you to shun all technology but as with other themes in this book, if you want to take control of your finances, you need to challenge yourself with the question, ‘Do I really need this?’
Twenty years ago, Lou bought me a watch as a wedding present – a Seiko Kinetic (self-winding) – for about £150, which tells me the date and time. I’ve worn it every day and had it serviced once to replace the internal battery, so in today’s terms, it’s an investment of approximately £300. Looking online today, a series 8 Apple iWatch is around £400 and I’d put money on whoever buys one will not be wearing it in three to four years’ time, let alone 20. Of course, it’s your money to spend however you like but I’m hoping to give you some insight into how to value your money (and your spending) so that you have more confidence in planning a more stable financial future.
That’s not to say I’m immune to making decisions that don’t work out, at least from a financial perspective. About ten years ago, I bought a digital SLR camera. It cost about £400 and I’ve taken some great pictures with it but my phone (at around £200) now takes better photos and, more to the point, is always with me and fits in my pocket. Looking on eBay, I’d struggle to sell the camera for £50. Frustrating as this is, we can’t all be perfect at predicting how technology will develop. I just try not to let it happen too often and, more often than not, I’m not an early adopter of any new technology, preferring to wait until it matures.
Behavioural biases and quality perceptions
To wrap up this section on marketing and value I’d like to share a couple of examples to show how positioning a price (or discount) can influence our decision to buy, separate from product ‘quality’. I’m not going into detail about all the various pricing strategies but Figure 6 demonstrates a couple of examples of behavioural biases from Dan White of Smart Marketing; they nicely demonstrate how positioning the price of a product influences how we perceive its ‘value’ and therefore whether we’re prepared (or convinced) to buy it. I remember an old sitcom from my childhood, Terry and June, where the hapless Terry bought a new TV because it had 50% off. He tried to reason with his wife that the discount meant he’d saved £20. And since the TV now only cost £20, it was effectively free. We might laugh at the absurdity of this logic but as the table demonstrates, our brains can be misled.
The power of free: people don’t like ‘cheap’ but they love ‘free’
Two bars of chocolate; priced at 1p and 15p – 73% will choose the 15p bar. The penny bar is considered inferior.
Same two bars, dropped in price by a penny, 69% now choose the free bar over the 14p one.
Rule of 100: we perceive discounts differently on products costing more or less than £100
On a £1,000 TV, £200 off sounds more attractive than 20% off, yet it’s the same amount.
While on a £10 shirt, 20% off is more attractive than £2 off.
Framing effects: highlighting a positive attribute makes a product more attractive
75% lean minced beef is seen more positively than advertising 25% fat.
Rather than quoting a vehicle’s poor 20mpg economy, say that it’s best in its class.
Figure 6: Behavioural biases (source: Dan White, smartmarketing.me)
So what am I really saying about marketing? You might think I don’t hold that profession in particularly high regard; while I love some of the creativity, I’m not keen on the underlying idea of trying to sell you something that you don’t really need. Making your buying decision purely based on function would in many cases reduce what you spend. Due to the way manufacturing technology has advanced and the development of larger, global supply chains, what used to be considered a premium, high-quality, low-volume product has become mainstream. Brands have retained their premium tag but they are now more mass market. For example, when I was growing up, the best-selling car was the Ford Cortina, which sold millions. Much less common was the BMW 3-series, with the early two-door models giving 1970s junior management ‘a chance to enjoy a prestigious badge and a touch of exclusivity’. For the price of a Cortina 2.0 Ghia in 1977 (around £4,000) you could have had an entry-level BMW 316 – a car that was smaller, more basic and less powerful. About ten years ago, I drove a Mondeo, the successor to the Cortina, and at the time, more people drove a BMW 3-series than a Mondeo; I was now driving the ‘rarer’ car, while the BMW had become mainstream. I’m not saying it’s not a great car – it is, and I have one – but it has now lost that ‘premium exclusivity’ that it once had, while retaining the price premium.
