Raising Prices Can Be A Winning Recession Strategy

What do Crest Whitestrips, Carl’s Jr.’s Six Dollar Burgers and Toyota’s Lexus all have in common? By strategically and substantially raising the price and quality of their brands, these companies all delivered remarkable growth and added significant value to the category for the consumer, the retailer and the brand.

Surprisingly, what these three brands also have in common is that they were all launched during or shortly before a recession. Crest Whitestrips, for example, launched at retail in May 2001, two months into the last recession, at a whopping $44 per box. In spite of a price tag seven to eight times higher than Crest’s other products, the brand still managed to gain rapid consumer acceptance. Lexus weathered the recession of 1990 during the first year of its launch to go on to quickly become the No. 1 luxury car in America.

It’s not hard to understand how going upscale can make sense when the economy is humming along and consumers are feeling confident, but is it smart strategy when the economy is plagued by recession – or did Crest, Carl’s Jr. and Lexus just get lucky?

Today, a number of brands are right in the midst of becoming more upscale – J. C. Penney with American Living, McDonald’s with its Premium Roast coffee and McCafes and Banana Republic with its Monogram Collection. In today’s trying economy, can branding up work for these brands too?

Even in the sunniest of economic climates, going more upscale can be risky business and must be well-conceived and executed in order to succeed. Recession, however, need not be a barrier to Branding Up and, in fact, can even help fuel its success. Here are a few reasons why:

• In times of recession, consumers are always on the lookout for compelling alternatives to premium. When Carl’s Jr. launched its Six Dollar Burger (so named because it was meant to offer six-dollar quality) at $3.95 in 2001, it was more expensive than most fast food burgers. But importantly, it was less expensive than burgers one tier up at restaurants like TGI Friday’s or Applebee’s. With high quality Angus beef, The Six Dollar Burger wasn’t considered expensive fast food, but very reasonably priced sit-down restaurant food. Likewise, Crest Whitestrips may have been outrageously expensive relative to other oral care products on mass retailers’ shelves, but Whitestrips were an exceptional value versus professional whitening at a dentist’s office.
• A recession may be a time when consumers want to trade down in price, but it’s also a time when they want to trade up in value. Lexus is a perfect example. Lexus brought outstanding value to the luxury car market partly because it brought the reliability of Japanese engineering and manufacturing to a sector that had not emphasized this steadfast trait before. Even luxury car consumers can appreciate avoiding the hassle and cost of car repairs.
• A recession can be a surprisingly good time for generating trial, even for brands moving up in price. Because consumers are out there actively looking for the best value they can find, they can be far more open to trying something new than they might be otherwise – and they just might find that they like what they try. With consumers currently debating over whether or not to spend their hard-earned money on that next cup at Starbucks, McDonald’s has a perfect opportunity to prove that their Premium Roast coffee—a step up in price for McDonald’s, but still cheaper than Starbucks—is a pretty tasty brew.

Recession or not, creating an upscale appearance is one of the most powerful ways to achieve growth because it represents an investment in a brand’s quality and future. When executed with excellence, it incites intrigue, loyalty and passion from consumers – behaviors and emotions that power a brand’s long-term health, even when the economic environment is less than good.

Carol Davies is a partner at Fletcher Knight.