Risk to premium brand equity

Q: Your column once dealt with the risk of cannibalization if a premium brand should enter the economy price category. We’re a premium brand of vitamin supplements. Because of the tremendous growth of generics, we’re tempted to participate in the economy price segment with our own “branded generics” like Unilab’s RiteMed.

Our worry is not cannibalization. We believe what you said about cannibalization that it only is true of a small fraction of our consumers. This fraction would shift brand no matter what. So it’s better if it’s our brand that will catch them in the economy price segment instead of the competitors’.

But our concern is the risk of the likely damage to our premium brand equity. Should our consumers learn that we’ve entered the economy price market, they could say that we’ve lost our premium exclusivity. That loss could eventually lead to more market share loss for our brand. Isn’t this premium brand equity damage the greater and more real risk if we enter the economy price category?

A: You’re right in saying that you should worry about the risk of premium brand equity damage. But that same worry should serve as your call to action. One of the more effective ways to do this is to benchmark against what other premium brands did after they entered the economy price market and succeeded without any premium brand equity damage.

You mentioned RiteMed.  Let’s analyze what Unilab did to successfully participate in the subeconomy price market segment without any damage to its brand equity for quality.  Note that the market segment that RiteMed entered is not only an economy price segment but one that’s below the economy, the subeconomy.

First, Unilab priced RiteMed on the average at 50 percent less than its branded equivalent. It went even down to as much as 75 percent lower.

In its packaging and advertising materials, Unilab positioned RiteMed as the “right medicine, priced right.” In its product literature, Unilab was even more explicit saying that RiteMed is “effective and safe medicines at half the cost.”

In launching RiteMed, Unilab created a new category which it called “branded generic.”  The idea was to associate RiteMed with Unilab’s reputation as a quality drug manufacturer. The RiteMed advertisement highlighted this association by attaching to its positioning the words, “Gawa ng Unilab ito (This is made by Unilab)!”

There’s every evidence to show that Unilab not only managed to enter the subeconomy price market segment unscathed, its premium brand equity was even enhanced by it. In fact, in 2008 the UNDP recognized and honored Unilab with a publication entitled “Unilab’s RiteMed Initiative: Making Medicine Acessible to the Poor.”

Unilab’s RiteMed strategy served to assure quality for its economy price medication. Also, it maintained the quality of its premium brand.

Here’s a case to explain this: Johnnie Walker has a premium brand, “Johnnie Walker Black.” The company also has a successful participation in the economy price market with “Johnnie Walker Red.” What Johnnie Walker did was to advertise more its premium brand. Its advertising said: “When you are dealing with something quite extraordinary, price somehow seems irrelevant or even irreverent.”

What’s the intention? It’s to affirm and protect the premium quality of Johnnie Walker Black and assure the quality of its economy brand, Johnnie Walker Red. There’s also the companion objective targeting the consumer. The advertisement is expected to render the Johnnie Walker Black drinker even more price insensitive. That should take care of the related risk of cannibalization from Johnnie Walker Red. That’s effectively hitting two birds with one stone.

The risks of  brand equity damage and cannibalization exist side by side.  But, as you have seen, there are two ways to handle and minimize the risk of brand equity damage. One is to assure consumers that your economy price brand has the quality guarantee of your premium brand. You saw how this was done in the case of Unilab’s RiteMed. The other is to further assure consumers about the quality of your premium brand. This was illustrated in the case of Johnnie Walker. Its strategy has 2 significant effects: It gets your premium brand consumers to be even more price insensitive; and, because your consumers have become more price inelastic, cannibalization by your economy price brand is minimized.

Keep your questions coming.  Send them to me at [email protected].