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Jan Barkhed

Published on 27 September 2023

The pricing power of brands

Startups are in a hopeless position from the start. Large competitors use their resources to shut out potential competition and keep the market to themselves; if a startup against all odds should become a real threat, it will be acquired. Mark Ritson, a marketing expert with more than 25 years in brand building, is candid and outspoken about the chances of building a brand in the startup world. He was an Associate Professor at London Business School and the University of Minnesota, and worked as a brand consultant for a large number of clients, including the mobile phone maker Sony Ericsson, where ”good people worked but the context was completely f*cked”. He learned his craft working for many LVMH companies, which he still holds in high respect, but it also taught him that business schools are largely ignorant. ”They haven’t got a clue what they are teaching”, he says. His view of American marketing is not kinder: off-track and mostly lost, and an opportunity for outsiders to seize. One of them is Germany, he believes, a rising star on the heaven.

Despite the grim circumstances, startups need a strategy; and they can’t ignore targeting, positioning and objectives. Startups can position themselves as ”the alternative”, especially if there is a dominating rival. They are the cooler, more fun choice, never engaged in greenwashing or monopolistic behaviour. From their small and innovative position, they are allowed to challenge and poke fun at their huge competitors, but it must be done with much wit and finesse. Apple launched the ”Get a Mac” campaign with Mac vs PC in 2006. Many thought the PC guy was more fun than the Mac guy, and we missed them when they ended in 2009. When British Airways had technical difficulties to erect the London Eye in 1999, Richard Branson seized the moment to fly an airship over the site with the slogan ”BA can’t get it up!!”. Microsoft didn’t make fun of Apple, and BA ignored Richard Branson, and for very good reasons. Companies who have a dominating position can’t afford to ridicule smaller rivals, it will only be perceived as bullying.

A B2B startup needs reference customers, clients that will give honest and useful answers to how the product works, and who could spread the word. Selecting a reference that is right is therefore crucial. The B2B startup must be able to say ”no” to clients, even if they are easily persuaded. It’s all part of targeting, and it will influence the sales and marketing strategy. Mark Ritson thinks the difference between B2B and B2C are not that important. ”They have more in common than what separates them”, he says. Silicon Valley ignored the B2B market for decades, because it was costly and difficult to cultivate clients that only trusted IBM. A few exceptions, like Digital Equipment, Sun Microsystems and Apollo Computer, dared to challenge Big Blue, but they needed government contracts to survive the rookie years. Only to be beaten by Microsoft in the ’90s.

Startups should have a pricing model that starts high. It’s easier to go low, but very hard to set a higher price later on. The price tag will also influence where a decision is made in an organisation. The higher the price is, the more senior position is involved in the decision process, which is only good as senior positions have more influence over how a product is received in an organisation. Market analysts believe as much as 90% of all products are underpriced, a testimony to how little pricing power most companies have. Profit is the lifeblood of a startup, not sales, and it will decide if a startup succeeds or fails. Increasing the price by 1% is more important than making cost reductions, which most CEOs engage in. Startups should avoid discount models entirely; there is no turn back from using them. Freemium models also don’t work for the enterprise market. They are capital intensive, and startups need Investors with deep pockets before a freemium product shows profitable returns. Brand building is important for pricing power. The stronger a brand is, the more pricing power it has. Les Binet, who works for adam&eveDDB, describes marketing as two main undertakings: activation and brand building. Activation is essentially sales – making calls, setting up meetings, doing demos and events. Activation is short-lived, customers tend to forget as soon as the sales person leaves the room, but brand building lasts for up to three years. Although activation undisputedly results in sales, brand building is different, because it creates living memories. And ads don’t have to be about products. Building a brand is about positioning – the values of the brand, and having a different view of the world. Brand building targets both existing customers and people who only have the faintest knowledge of what the brand offers. Besides boosting pricing power, it also increases sales. There are mechanisms that put a startup in a hopeless position from the start, and those mechanisms can’t be changed. The impact of advertising depends on how big market share a company has. A branding campaign from a large company with a large market share is more effective than from someone who doesn’t have a market share. Startups benefit therefore a lot less from advertising and building their brand.

New brands don’t have to obey all the rules that marketing usually teaches, such as consistency. They can move and change their position as they discover what works and what doesn’t, but they must be clear about what their brand promises. Consistency may be indisputable amongst most companies, but startups don’t have a brand to protect – they are still searching. There are other strategies a startup can use, such as branding the founder. People are usually more interested in the adventures of a founder, than in the startup itself. Branding the founder doesn’t mean they should forget their products or mission, but adventures are more interesting than offices.