Growing Down: When Less Really is More

Can you extend your premium brand to a “less-premium” price point?

Offering a slightly less expensive version of a well-known premium brand can make all the difference in a tough market. When store brands and generics began to cut into Procter & Gamble’s market share, the company took such an approach, launching mid-tier products like Bounty Basic and Tide Basic. And in the automotive industry, the mid-tier brands are key to managing the lifecycle of a customer. Toyota doesn’t expect anyone to trade up from a Yaris to a Lexus without passing through a Camry or two. But there are risks too. Done poorly, a mid-tier product can cannibalize sales of the premium brand.

NPD has been working with a client that faced just such a reward-risk scenario. And it’s important that you know what they went through. But as is often the case when talking about our clients, we can’t really talk about our clients. So let’s try to get around that by making everything about their story, except for the most pertinent parts, somewhat vague.

The company, let’s call them WidgetCorp, is a manufacturer. For decades, it made widgets that were sold to consumers through specialized retailers. Then, several years ago, it began making a higher-end version – an organic, high-tech, active-lifestyle, super widget. That product, and let’s call it WidgetCorp Gold, commands a premium price. And its sales have grown steadily.

Over time, competitors entered the space, offering premium-priced super widgets of their own. And, over time, the entire premium widget segment grew, even as the overall sales volume of widgets declined.

But when NPD looked at point-of-sale data from our Retail Tracking services, a disturbing trend became clear: One of the fastest-growing segments of the widget market was a new, still-emerging mid-tier. Competitors were finding growth by selling widgets that were pricier than traditional widgets, but less expensive than WidgetCorp Gold.

Does Silver tarnish Gold?

WidgetCorp decided it would meet the challenge by creating a mid-tier super widget of its own: WidgetCorp Silver.

The launch of that product posed questions: Would WidgetCorp Silver cannibalize WidgetCorp Gold? Or could the new product turn out to be good for WidgetCorp, the segment and retailers?

WidgetCorp and NPD decided to find out.

As WidgetCorp Silver moved into distribution, NPD’s analytics and modeling team began analyzing Store-Level Enabled data. The initial results were enlightening.

In stores where sales of the full range of super widgets were already strong, the introduction of WidgetCorp Silver made little difference to overall sales. But in stores where sales of super widgets were weaker than average, the introduction of WidgetCorp Silver grew the segment.

In stores where sales of super widgets underperformed, the evidence from the analysis showed that the introduction of Silver would boost sales for WidgetCorp, the segment and the retailer.

With those numbers in hand, NPD recommended that WidgetCorp proceed with its plans for a wider rollout of Silver. We’re glad they took us up on our recommendation.

  • In the slightly more than two years since NPD conducted its initial study, the distribution network for WidgetCorp Silver has more than tripled to almost 11,000 stores.
  • WidgetCorp Silver’s share of the super widgets segment has risen from 1 percent to 2.5 percent.
  • WidgetCorp Gold is doing even better than before. Its share of the segment has risen by 0.2 points to 49 percent.
  • WidgetCorp’s total share of the super widget market is now 51 percent, and overall sales have climbed 11 percent in dollar volume.

For WidgetCorp, the mid-tier proved to be a valuable opportunity. But not all premium brands have the equity to thrive in the mid-tier market without cannibalizing sales.

If you want to know if your Gold brand is ripe for the Silver treatment, let us know. Together we can find the answer by applying the appropriate testing and evaluation methods to Store-Level Enabled data.

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