Brand Shorthand Square Marketing Podcast Icon

Ways to Differentiate: Low Price

Brand Shorthand

Before Mark and Lorraine dive into the latest discussion on ways to differentiate, they spend 15-ish talking about the food category with Campbell Soup's purchase of Rao's. How will this play as Campbell's goes up against Mondelēz and Kraft Heinz, the other big players in the market? Then Lorraine walks through the challenge of trying to claim a low-price position and what that really means for organizations. Several have tried, but few have been able to sustain a low-price position for very long. Learn the secrets to promoting a low-price position as the positioning gurus talk Geico, Progressive, and Liberty Mutual.

31 min

Mark Vandegrift:
Welcome to the latest episode of the Brand Shorthand Podcast. I'm your host, Mark Vandegrift, and with me is the best price and positioning strategy, Lorraine Kessler. Thing one. It's Halloween month already. Do you have your thing 1 costume ready or are you considering a different costume this year?

Lorraine Kessler:
Oh my gosh, that costume, Mark, when we dress like thing one and thing two, that was the best Halloween costume ever. So my granddaughter, who's eight, was just in the Dr. Seuss inspired play, I think it's called Seussical. And so she loved the characters. So I think you just reminded me, I think I'll dig that out and wear that at Halloween. She'll roar at that.

Mark Vandegrift:
That'd be great. I think we started a trend because after we did that, I don't know how long ago it was, but it was a long time ago. I started seeing that as a costume in stores. It's kind of like when you buy a car, you don't think anybody else has, you pulled off the lot and everyone else has it. But yeah, my thing 2 costume is gathering dust somewhere. I won't even be in town for our annual costume party. So I get a pass on choosing a disguise this year. But speaking of disguises, it seems to me that Campbell's Soup is fast disguising itself behind a lot of brands. Did you hear about their latest acquisition of Rao’s Sauces? Campbell's also owns for our audience that doesn't maybe know this, they own Prego, Pace, V8 and SpaghettiOs. And I get all those because they all have something to do with tomato ingredients, right? But they also own Goldfish. My daughter will be happy to learn that one. She loves Goldfish. Pretzel chips, Late July, which is a chip, Cape Cod Snacks, Lance, Swanson, and Snyders of Hanover. Seems like they're stretching their wings a little bit. Any thoughts on that?

Lorraine Kessler:
Well, I'm actually impressed with their brand portfolio, although they haven't done well in the last quarter in their stock. But they're not alone. They're not the only conglomerate in the food business. Their main competitors, and most people probably have never heard of, I think it's Mondelez International, which owns all sorts of things. They seem to be specialized in candy, cookies, and salty snacks. So they own Cadbury, Velveeta, those kind of airline cookies, Chips Ahoy, Oreos, Tang, Ritz. And then there's Kraft, Kraft Heinz now. That's another kind of mega competitor who has a portfolio of very food products. We all know Kraft Cheese and Heinz Condiments.

But they also own, surprisingly, Oscar Mayer, Jell-O, Kuwait, Classico, the Italian sauce. You know, they're competing with these Campbell's is competing with these kind of conglomerates like they are. And so they just buy Rayos. And, you know, I think what's interesting is if you give me a little time, maybe, to go through a little bit of Rao’s history, because I'm not sure all of our listeners, viewers know that much about Rayos, because it seems like they just jumped on the scene in the last, what, five years or so? But they've really been around. Yeah, they've really, really been around a long time. I mean, they got into the retail market around the early 90s. And a guy named Joe Marano used the recipes of the legendary New York restaurant owned by the Rao and Pellegrino family, which has been around since 1896 in New York.

And that restaurant was very famous. It was the stop for the rich and famous and the celebrity. And so they, Joe Marano used the recipes from Rao’s to create a retail product line in the early 90s. And it's based on kind of Southern Neapolitan cooking, which is Neapolitan is Naples. And Naples is the home city, supposedly, where pizza originated, Naples, Italy, not Naples, Florida. So, Sovos who sold this is a private equity firm and they sold Rao’s after investing quite a bit in expanding the pasta line and expanding to pastas themselves and really doing, I think, a nice job and hiring, I think, a California agency to do some really good advertising to the tune of like 10 million they sold Rao’s to Campbell's. And when they owned Rao’s, their objective was always line extension. That was part of the script, right? Because they wanted to capitalize on the super premium category in sauces and pasta, which has gone kind of unused. And there's a good reason, or underdeveloped.

There's kind of a good reason for that, right? Because they looked at the space and they said the average sauce sells for like $2.22 a jar. And Rao’s is about $8 or more. And the profit, yeah, the profit difference mark is unreal. Those in the promotional or average price range are taking in about 40 cents on profit, where Rao’s per jar is taking in over $2. So it is huge. 

So I think they don't, I don't think that Stovos wanted to boil the ocean. I think they wanted to find a very lucrative niche and kind of own it and expand the line within that niche of the premium buyer. And they did all this before selling it to Campbell's.

Mark Vandegrift:
Yeah, well, you sent me an article about Rayo's branded pizza showing up in the frozen pizza section. So we kind of have some interesting brand management for Campbell's soup to figure out here. But Rao's moving into DiGiorno's and Red Baron's space. What do you think there?

Lorraine Kessler:
Well, it's interesting because in the study of Sovos, I found that they had tried to break into the frozen foods category, which I know from my experience, having worked with some food companies, that the frozen category has its own unique kind of competencies that are required. It's not as easy as you might think. You have to have cold storage.

So it's different distribution. There's some logistics on how to get the product there. The space is pretty tight, so it's hard to get entree. And so not surprisingly, Sovos wasn't too successful. They said they had a lot of headwinds breaking into this competitive space. So I think that Campbell's strategy with this might just be to create a beachhead, get a foot in the door, test out with pizza.

And again, they may still hit some headwinds. And some of them might be things like, if you think about the company DNA, like we always talk about that. Campbell's really doesn't have expertise in the frozen category. So that's going to be a little bit of a difference. I don't recall any of their brands being in the frozen category. From a competitive perspective, you're right, the category right now is led by specialists like DiGiorno, Red Baron, Totino's. And so we know from our positioning, and this is just kind of a principle, that it's really hard to overtake a specialist. Like if you have the Rao’s name on a broad extended line, it now goes from pasta and sauces and the stock shelf to the frozen case.

How are you going to, the brand-wise, and I'm just talking brand, the specialist is going to win the battle of the day in most cases. So I think it depends on what Rao’s wants from this move. If they just want more additional sales, revenue, profit, I mean, if Campbell's just is looking at this as a good sales thing, and their salespeople can go in and have a broad portfolio to sell, okay.

But long-term, and this is just a risk, it doesn't mean it's going to come true, but it is a risk, it could be potentially bad for the brand because it does what Jack Trout used to call the seesaw effect. Heinz used to stand for pickles, and then the more ketchup went up, pickles went down, they're number one in ketchup, but they're like nowhere in pickles. So this kind of happens when brands line extend.

So I'm not sure what Campbell's objectives are, but, you know, and I don't want to make a forecast, but I don't think it'll be as easy as they think.

Mark Vandegrift:
Yeah, I think logistically it'll be tough from a pure brand play. I guess I could understand it. We buy Mids and Mids only. And for our listeners, that's a more of a regional player, but their pizza sauce is, in my opinion, even better than their pasta sauces, which are already amazing. If you haven't tried them and you can get Mids, get it. But if Rayo's puts its sauce on a pizza, I can believe that because I guess, with my own bias, Mids, has really good pizza sauce, and we use it on all of our pizzas. And then given their premium position, I would assume the pizza will be pretty good. But DiGiorno's kind of holds the premium position, but it's expressed as just like delivery, which doesn't necessarily, delivery is not premium. It's just, I get delivery at home. So what do you think about Rao's taking that premium position?

Lorraine Kessler:
Well, I think it's going to be interesting to see if they take a super-premium position or a premium position that's very close to DiGiorno's, like, negligible. I'm not sure what that price strategy will be, but they'll definitely be in the premium tier, right? Because otherwise, they'll undermine the rest of the brand in the other areas. So I do expect them to be premium, but to do that, I, you know, it depends how they play it. I hope they're not lazy or cheap. I hope that they really put advertising behind the frozen pizza. 

And if it were me, I would position them based on the origin of Rao’s and its heritage, the restaurant, that these are historic New York restaurant recipes from the famed Rao’s restaurant brought to you kind of thing. And that there are the recipes for the home that you can't get anywhere else. So I would definitely go back to what we call the heritage position and use that to drive a premium perception. Cause you're going to be premium price and not have the perception. 

And I don't think, I don't think you can count on people who buy frozen pizza, which in my mind is kind of a convenience product, really understanding all of the cred that's behind the Reyes name.

Mark Vandegrift:
The problem is frozen pizza in my mind doesn't equate. Like I wouldn't go out and get that and say, this is the best pizza in my life. So like you said, premium is a hard thing to express. Heritage might help, but I don't know, we'll see. I think it could work. It's obviously going to be priced higher. And at that point in time, you say, gee, is it worth making my own or ordering delivery or something, but there's never shortage of brand news, is there?

Lorraine Kessler:
No, and I do want to make the point that in the food category, even though I said go back and claim something to do with the 1896 restaurant and their, you know, and it was Southern Neapolitan type cooking, which is Naples and pizza originated, there's some vein there. While we say to go back to that, you have to make sure that you convey taste.

Taste is kind of table stakes because it is so subjective. So it's not like I would leave taste out. It's like taste the, you know, taste Naples, taste something, you know, or it's just how you do the commercial where you make the product visually look fantastic and you can, you know, you can taste it with your eyes. In other words.

Mark Vandegrift:
Well, there's no shortage of brand news, but we need to get to our topic of the day. We're already halfway through our 30 minutes. So this continues our series on ways to differentiate. And today we're going to cover low price. This is what we would say our least interesting position, but there's more to it than meets the eye. And you've written some of our PositionView blog posts on Southwest and Walmart. So let our listeners know why this isn't the easiest position to own.

Lorraine Kessler:
Well, we're really not just talking about a low price, right, amongst a group of low prices. When you talk about owning a low price position, it's really owning the lowest price. And it's difficult because you have to be willing to go lower than any competitor at any time that comes in the market. And this isn't just about cutting costs, right? I mean, it's, you know, then you cut margin and then you cut profit and pretty soon you're out of business, because a business needs profit. That's the lifeblood.

So the only way you can really own lowest price is by making structural differences or changes to the whole operation of the business that is very different than your competitors. That allows you to pass along the same margin, even a greater margin, because your cost structure has been managed. And that's what Southwest did when they did their short routes and they only had one type of aircraft. So they didn't have to train pilots on all different aircraft and other structural changes. And Walmart too, I mean, Walmart literally invented kind of computer on time warehousing and inventory management and were the first to really apply software to the intelligence of how they ran the business, which cut a lot of waste and cost out of their system. And then they drove… they were strong buyers. I mean, I remember in the day, my client, Champion Spark Plug, they didn't have any hand. You either went to Walmart, and this is when they were small, they only were still in C&D markets. But Sam Walton was like, I don't need you. You need me. Any minute. So it worked.

Mark Vandegrift:
Well, let's provide our dictionary definition like we always do. So the rules of play for low price, price is often the enemy of differentiation. When price becomes the focus of a message or a company's marketing activities, you are beginning to undermine your chances of being perceived as unique. What you are doing is making price the main consideration for picking you over the competition.

As Michael Porter says, cutting prices is usually insanity if the competition can go as low as you can. Here is the key. You can differentiate, start with price if you have a structural advantage that puts you way ahead of the competition. Dell built a super e-commerce site before anyone else. Walmart created the technology and supplier muscle to leverage their position.

Southwest changed the rules of play for airline travel. By using one kind of airplane, they saved on training and maintenance costs. By not offering advanced seating, they saved on expensive reservation booking systems. By offering no food, they eliminated expense and time. By avoiding expensive hubs and using less expensive smaller airports, they avoided high gate charges. To offset the cattle car version of air travel they created, they made it fun.

So Lorraine, this position isn't sexy, but some big brands have lived and died by it. Southwest isn't perceived as low price anymore. Why? Because when I price compare, they're never the low price. And when you look at their website, they don't even seem to stand for anything. We might call them a survivor of all the airplane mergers, but that's about all they got. So if you have a good route option, they might be your saving grace. Where do they go next?

Lorraine Kessler:
Honestly, I really, I don't know where they go because they're no longer those lower cost kind of, you know, legs and gate charges. They really fly to big markets. And this is exactly what the definition you read points to, right? Is that low cost or lowest cost works for a while, can give you a big headwind. And of course, they got caught it. But it's some point in time, it catches up with you and it has caught up with them. So I really don't know, but it definitely, I think they need to reposition. 

And I haven't heard any advertising for them or anything that gives me a sense of who they are. I don't even recall now even kind of the slapstick, you know, kind of humor they used to have with their customers, right? So I think they're late to the gate in repositioning, but they need to do it. They need to figure out what they can own uniquely within a very commoditized space that has become all about price and destination.

Mark Vandegrift:
Yeah, we have, I can name three just at our little regional airport here, Allegiant, Breeze, and at one point Frontier was here. And all three of them had moved in after Southwest was known for low price and undercut them significantly in cost. And then Southwest bought AirTran, which was a low cost carrier. And they never matched pricing. They left our airport around here. 

And I think they just, it's almost like they backed into the same kind of company as Delta or American Airlines or United or any of the other survivors of the mergers. And there's really no difference going on there. 

But one of my favorite studies of a low price position is the insurance industry. And there's three that our listeners will be really familiar with because they are advertising nonstop. I actually enjoy all of the commercials and it's because they're sticking to their position. So Geico, Progressive, and Liberty Mutual all push low price, but they each do it differently. Geico is 15 minutes saves you 15% or more. So that equals a position of time plus savings will quickly save you money. Progressive has the price checker dramatize with Flo. You may not always save money. So they're not always low price, but they're challenging to shop them and they're hoping they'll find their low price with Progressive. And then finally, Liberty has a low price position focused on only pay for what you need. So customization of your plan. Three brands, same category, all pushing somewhat of a low price, but like you said, only one can be lowest price. And interestingly enough, all with some sort of a mascot: the gecko, you have Flo and friends, you have the limu emu and Doug. Lorraine, sort this all out for us.

Lorraine Kessler:
Yeah. Well, you know, what you're seeing in play is a commoditized market, right? And it's partly to be expected in the sense that all these companies are of large size and scale. So they should be able to have some sort of price based position. That's not to say they're all lowest price. I mean, I think you could say I think the closest is Geico with the save 15%, I think progressive, as you mentioned, although I haven't seen them do this in a while, the price check, but people remember that as driving, okay, as driving comparison. And what that did for them is create trust and transparency because they admit we might not be the lowest. So, but it's a help. It's a real benefit to the person looking for insurance. And I think Liberty's position of don't pay for, don't pay more for what you really need, or what you need is just promoting value, right? And expertise, because what it's saying is, it's creating doubt that the others are really acting in your best interest, or have the expertise to help guide you. So I think it's kind of has an expertise field. And the bottom line is they're all based around some sort of price nuance, but they're distinctly different in those respects.

So the entire category being commoditized, what do you do? You create a mascot, you create a personification because it's really hard for people to sort out how you're different. You know, I'm coming to the point of view that to differentiate in today's highly or hyper competitive markets, and this is insurance is definitely one of them, is harder and harder and almost in some cases near impossible.

So sometimes you have to have a gimmick. And the gimmick in insurance is find a Flo, find, Geico has many of them, but they have the Gecko. Find the Emu, which makes no sense to me at all. But there is association and familiarity with that. So

Mark Vandegrift:
Yeah, it's interesting because when you go to their websites, and I just checked this out this week, they all start with that very thing. So if you go to Geico, it says, you know, quickly go through this and you get your information, boom, it's supposed to return something. Progressive has the price checker and Liberty, theirs is a questionnaire that starts to say, you know, what do you really need?

They're living that promise at least. And two of the three, Geico shows the gecko, Liberty shows Doug actually. And I think that might toggle through. Progressive doesn't show anything. And I think part of that is they have Flo and friends, but they're also doing the, when you become a parent…

Lorraine Kessler:
Don’t become your parents kind of thing, right? Yeah, should we park closer to the stadium? Right. Don't become your parents.

Mark Vandegrift:

Yeah, I like the elevator one. Why are you standing backwards?

Lorraine Kessler:
Yeah, yeah. And the guy in the grocery store, which says the guy in meat, he's doing great, or whatever that is. So they're very good.

Mark Vandegrift:
Yeah, yeah. And they're doing one now with social. The guy says, just because there's fruit emojis doesn't mean they're talking about fruit. 

Yeah, well this touches on our five ways to differentiate a commodity. The first one being identify with a symbol and you can think of like the Prudential Rock or Pacific Life Blue Whale if you want within insurance and investments. Number two, personify with a character. So that's what we were just talking about. Number three, create a new generic. Number four, change the name. And number five, reposition the category.

So create a generic, that isn't used very often. But when you think about it, each of these five options involves a major decision. A symbol could easily tank as could a character, especially if it's not executed right. I like to use the Aflac duck as the example. Imagine seeing that on a billboard before we ever saw it on TV. You wouldn't know the shenanigans of the duck, you wouldn't know its personality, you wouldn't know the auditory connection of Aflac as the sound the duck makes. So there's a lot of clients that come and say, oh, I need a character. Well, the question there is, are you going to invest the amount of money necessary to develop that mascot so that people pay attention to it? So that's, I think, really a warning for those that might pick number one, identify with a symbol, or number two, personify with a character.

But maybe walk us through changing the name, which is the fourth item, and number five, repositioning the category.

Lorraine Kessler:
I'm glad you didn't ask me about how to create a generic, because I really don't know what that is. So I'd have to do that in another podcast.

Mark Vandegrift:
Well, I think that goes to when you look at Walmart, for instance. They have Great Value, right? So they created a generic and you can go to paper products. You can go to cleaning products. You can go to even some food stuff and they have the Great Value brand. So it's almost the generic of the low price guy. And I think maybe that's when we're talking about it. That's a new generic that is owned by Walmart.

Lorraine (29:32.303)
Okay, well that's better than I would do on that one. But, but change the name is always a really good way to go. I think listeners and viewers just very quickly won't, will, do not know, for example, that Orville Redenbacher Gourmet Popcorn was first named RedBow. Nike was first named when it first marketed, Blue Ribbon. So I think anyone just hearing the names, and I don't think it's just because they've been advertised, I think that Orville Redenbacher is just naturally engaging. And of course, it had a person, a personification with it too, that helped. And Nike being a Greek goddess, is it a goddess or god, is just much more powerful and kind of you know, tickles the imagination a little bit more than Blue Ribbon, which sounds like butter. 

So renaming, renaming can be a good way. Another way is to reposition the category. And you said that, like, again, going back to Redenbacher, just because it's on my mind, there's so many examples. But there was before they came to the market, renamed, rebranded, there wasn't gourmet popcorn. So they were the first to say this is gourmet. It's kind of like Rao’s with super premium, right? It's a gourmet sauce. So, and then we did this for insulated vinyl siding or insulated siding, new category. And we, as consumers are aware of like performance engines, performance fabrics, high performance anything, composite decking, these are all new categories. And how you know it's a new category is, when you can say composite decking versus ordinary wood decking. And often what's a real tell to a category reposition is that you can characterize the old as ordinary, whatever it is. And so that works really well. And you think about M&Ms, right? M&Ms was the first chocolate that didn't melt in your hands, right? So, melts in your mouth, not your hands. Well, that repositioned chocolate bars and lead-free gas, repositioned regular gasoline. Intel inside made it seem like if you didn't have that inside, if you didn't have a computer with Intel inside, that was one category, then you had something deficient or inferior.

Mark Vandegrift:
Good. Well, low price, just to sum up, is not just slapping a price on something, but it literally is a structural change to the organization, or it's going to be very unlikely you're going to be able to sustain the lowest price over a period of time. As we saw with air travel, we had a lot of new entrants that could come in and it cost them a lot less money to enter the market. So of course, their prices were lower.

And insurance here, we're seeing a very crowded commoditized market. And there's, if not three, there's probably 10. They're going after low price, depending on how you look at their marketing and stuff. 

But I think that's a good discussion for today. I think it's time for you to go figure out and find your thing one costume. You have just four weeks. Just four weeks. Yeah.

Lorraine (33:07.051)
Just four weeks. Yeah, let's put the pressure on. Yeah.

Mark Vandegrift:
Well, thanks Lorraine and thanks to our audience for viewing and listening. Please like, share, comment, tell your best friends, subscribe, go shout it from the mountaintops. Then join us for our next episode of Brand Shorthand as we discuss the core concepts of positioning. Until then, have an amazing day.

More Episodes