Why marketers need to grow penetration at a profit

Growing penetration is the main growth driver available to marketers, but unless that growth is achieved at a price point that generates profit it may prove self-defeating. Over-reliance on price promotion to bolster volume sales has led many companies to fall into the price promotion trap.

So how do you grow penetration at a profitable price point? Obviously, you need to start by knowing what that price point is, but then you need to understand what can be done to encourage consumers to pay that price rather than only buying the brand on deal. As I noted in this post, while Professor Sharp and colleagues have a lot to say about growing penetration, price is one aspect of marketing on which they are strangely silent, so let's fill the gap.

Over the years Millward Brown and then Kantar have conducted extensive research to examine what attitudes seem to best support sales at a specific price point. Importantly, while they find that a measure of Needs-Based Salience correlates very nicely with Volume Share, they find that it has no correlation at all with price paid. All the work done to link brand equity with sales finds that if you want to explain price paid, you must take into account whether people perceive the brand to be Meaningful and Different.

An important point to note is that this work has not just looked at relationships in aggregate data but has integrated attitudes and behavior at an individual level to understand how people's attitudes encourage them to pay the price asked. Take, for instance, the R&D work reported here which finds if people believe that brands are important, they will pay far more for a brand they perceive to be meaningful and different. Even people who believe that getting a good price is more important than choosing the right brand will pay more for meaningfully different brands.

I think one of the fundamental reasons that price tends to be ignored as a factor by many marketers is that it is often perceived to be outside their control, and they are not rewarded for supporting price; only pursuing short-term volume sales. So, unfortunately, unless more CEOs and CFOs realize that profit growth depends on growing penetration at a profit, not just chasing volume, and set specific margin goals, we will continue to see undifferentiated brands entering the death spiral and ending up bankrupt.

So, what do you think about the importance of growing penetration at a profit?