“Price-off deals are a drug. Ask a drug-addicted brand manager what happened to his share of the market after the delirium of the deal subsided. He will change the subject. Ask him if the deal increased his profit. Again he will change the subject.”
from Confessions of an Advertising Man, by David Ogilvy
David Ogilvy, of the great advertising firm Ogilvy and Mather, describes price-off deals as a drug because the competition in the marketplace often becomes addicted to seeing who can undercut their neighbor in price. Once the frenzy has subsided, and a new standard has been set for what the price will be, what is left? According to Ogilvy, there will be less share of the market and less profit. In this economy, it may be tempting to undercut the competition in price but ultimately this is not a good idea. Once the new standard is set, it becomes more difficult to profit from the enterprise.
“The time has come to sound an alarm, to warn manufacturers what is going to happen to their brands if they spend so much on deals that there is no money left for advertising to build their brand. Deals don’t build the kind of indestructible image which is the only thing that can make your brand part of the fabric of life.”
(from Confessions of an Advertising Man, by David Ogilvy)
What’s most important during a recession is not to cut your advertising budget. As tempting as it may be, recessions are the time to build your brand. It’s true that there may be a price correction as the industry adjusts to what the market will bear. But do not get bogged down in trying to get ahead of your neighbor by lowering your prices alone. What’s better is to build the perceived value of your brand, so that at any price your company seems like the better bargain.