Broad Street Licensing Group Food News

Case Study in Brand Equity Sabotage via Discounting

Diamond Foods at one time believed that in order to rapidly accelerate growth and penetration for their Kettle and Emerald brands they needed to offer significant discounts and spend lavishly on promotions.

The problem with this is, while a company can gain a certain number of new trials, the loyal customers (who would have bought the product at its normal price because they believe in its quality/price relationship) are now rewarded for purchase at the expense of lower margins. In the case of Kettle, Brian Driscoll, Diamond Foods’ president and chief executive officer, saw the light just in time, stating “this approach to top-line growth was inconsistent with Kettle’s premium positioning, and was margin dilutive.” He went on, “the fundamental underpinnings and origin of this brand are its natural, authentic and premium quality credentials.” The shifting of strategy will be to not make the Kettle brand more expensive, but rather build its presence in channels that are not focused on heavy discounting.

In the mind of the consumer, quality and price are interrelated. Deep discounts can cause the consumer to believe that something is wrong. Frequent discounting serves to lower the value of the brand, because of the consumer’s perception that quality also has been lowered. Lastly, in a “value rebound,” consumers begin to perceive the everyday price as too high and the brand is then bought only on deal.

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