Page 53 - Harvard Business Review, Sep/Oct 2018

A low-priced Good offering can make a product accessible to
price-sensitive or dormant customers, and it can limit the need
for discounts or sales on the existing offering.

product or service—a crucial advantage, because frequent sales flank. When faced with a low-cost rival, many companies’ knee-
can erode long-term pricing power. jerk response is to drop prices, but that’s often a mistake. When
Uber has shown continued creativity and success with its the price holds firm, 15% of sales, say, might be lost to a low-cost
Good versions. The company began in 2010 as a black-car luxury competitor, but 85% of customers are still paying full price—
service, and it still offers several high-end options. But in 2014, whereas if the price is cut, 100% of customers will be paying less.
hoping to lure price-sensitive riders, it launched uberPOOL, Another common response to cheaper rivals is to launch a “fighter
in which riders share a car with strangers going in the same brand”—a discounted product with entirely new branding.
general direction. Unlike the traditional uberX service (in which Classic examples include Procter & Gamble’s Luvs diapers and
riders have a midsize sedan to themselves and go directly to Intel’s Celeron computer chip. (See “Should You Launch a Fighter
their destination), uberPOOL trips involve multiple pickups and Brand?” HBR, October 2009.) That may work well, but the
drop-offs of other passengers, so there’s additional travel time; resources needed to create a new brand can be enormous.
in exchange, the service is priced as much as 50% below uberX. In many cases, creating a new Good product is a better
UberPOOL now accounts for 20% of all Uber rides—and in some defensive strategy. Two of my B2B clients (in financial services
cities it accounts for more than half of all trips. The company has and industrial parts) held significant market share and enjoyed
begun experimenting with Express POOL, which costs 30% to healthy profit margins when new entrants began offering
50% less than uberPOOL and requires riders to walk a few blocks inferior products at rock-bottom prices. Customers seized on
to a central pickup location. Uber’s story shows that even after the disruptive entry as an invitation to negotiate, threatening
implementing a G-B-B strategy, companies should continue to defect from my clients unless granted a discount. Although
exploring innovations that might lead to new, lower-priced reluctant to lose any market share, both clients resisted the
versions of Good. impulse to discount their core offering. Instead, they quickly
A third way that G-B-B can increase revenue is through a rolled out cheaper Good versions that closely matched the new
new Best offering that boosts the entire brand. In 2015 Patrón entrants’ stripped-down products. When offered those op-
Spirits debuted a line of Roca Patrón tequilas made by the tions, most customers backed off their demands for a discount
tahona process, which uses a two-ton wheel hand-cut from and continued buying their existing offering at full price; they
volcanic stone to extract juice from cooked agave. The result is had been bluffing and weren’t actually willing to trade down
a sweeter, earthier, more complex spirit than tequila produced to a lesser product. Implementing a Good version calls such
by automated means. Even at $69-plus a bottle, Roca Patrón has bluffs—something a straight discount can’t do.
exceeded sales expectations: It is projected to sell 60,000 cases A caveat: This defensive maneuver can have mixed results. In
in 2018, which would make it the world’s seventh-best-selling 2015 Town Sports International, a chain of fitness centers whose
premium tequila brand. memberships averaged $40 to $90 a month, began losing custom-
And the benefits go beyond that revenue: Sales of lower- ers to competitors such as Planet Fitness, whose monthly fees are
priced Patrón tequilas have risen sharply. Lee Applbaum, as low as $10. To fight back, TSI retained its existing membership
Patrón’s chief marketing officer, cites research showing that plan and prices while launching a new plan—priced as low as
Roca has boosted perceptions of the overall Patrón line as $19.99 a month—that excluded or restricted some benefits, such
artisan- crafted (from 60% of consumers surveyed to 64%), as towel service and access to fitness classes. This staunched the
made by a small-batch producer (47% to 58%), and fitting an membership decline: TSI gained 64,000 new customers in 2015.
image people want to convey (59% to 65%). “The details of But the stock price plummeted, same-club revenues fell, and the
the expensive and laborious way that Roca Patrón tequilas are CEO resigned. Still, the new Good membership may have been
manufactured create a brand halo that reinforces important the best possible response in a tough environment. By steering
attributes…for the entire Patrón line,” he says. clear of a simple discount or a price war, TSI ensured that many
Fourth, a lower-priced Good version can spark ancillary members continued to pay their existing monthly fees, and the
revenue from related or complementary goods and services. company avoided a devaluation of its primary offering.
Consider Apple’s SE phone, which sells for just $349 (roughly a Drawing on consumer psychology. Some G-B-B strategies
third as much as the iPhone X). Every SE sale stimulates addi- aren’t specifically aimed at luring new customers or defending
tional revenue through purchases on iTunes and the App Store, against competitive threats; they’re more-general responses to
payments for iCloud storage space, and sales of cases, chargers, consumer psychology.
and other accessories. For instance, companies often jam multiple features and
Playing defense. Sometimes G-B-B isn’t about aggressively attributes into a single product, but this can confuse and over-
seeking new revenue—it’s about protecting a brand’s exposed whelm customers. A G-B-B plan helps potential buyers focus

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