Price Point Strategy: Risky for the Long Term

The coffee wars are on, and according to The Boston Globe, McDonald’s is making headway.

The fast food giant launched its “McCafé” coffee chain in Melbourne, Australia with plans to offer the coffee brand in all of its 14,000 U.S.-based stores by the end of this year. Public reception of the McCafé brand has been surprisingly positive. In fact, McDonald’s has unseated Dunkin’ Donuts from the donut chain’s Number Two slot as the most-preferred coffee retailer. No surprise that Starbucks holds the top position.

Many attribute the rise of McCafé coffee to McDonald’s marketing strategy: “All the taste and quality of a coffeehouse with the convenience and price of McDonald’s.”

In other words, great tasting coffee on the cheap.

Perhaps it is not surprising that, given the current economic situation, McDonald’s is opting for a price point marketing strategy. After all, its Number One competitor in the coffee space, Starbucks, was born out of the 1990’s – a period of economic prosperity. It doesn’t have a “slogan,” per se, but instead relies on consumer recognition of its logo – the “Siren’s Eye” – and its brand, which positions Starbucks as a high-class dining experience for the sophisticated coffee drinker. That strategy may be a detriment to the chain during the current economic recession, as some price-conscious consumers have come to view Starbucks as an expensive luxury, causing profits to drop and the chain to close 200 U.S.-based stores.

So McDonald’s is wise to employ a marketing strategy that is based on price-point, right?

Not necessarily.

There are pros and cons. It’s true that, in an economic recession such as the one the world is currently facing, consumers seek out less-expensive alternatives to some of the products and services they consume. Thus a price-point strategy might seem advantageous in some cases (just ask Wal-Mart), but there can also be disadvantages with basing your entire brand on cost effectiveness.

The fact of the matter is, economic recessions are temporary. Customers may be clinging to their wallets now, but as the economy improves, so will consumer confidence. When that happens, it stands to reason that companies like Starbucks that provide a “customer experience” rather than just a product, will stand to gain.

The danger, in essence, is that customers will eventually abandon the “cheap imitation” for what they see as “the real thing.” Thus any gains achieved through a price point marketing strategy are likely temporary, based entirely on fluctuating consumer confidence. Price point marketing might be a good idea for the short-term, but there is a danger of losing out on long-term goals when making it the foundation of your company’s brand.

NOTE: Price point marketing is a particularly bad choice if your business is providing high end personal services, like senior care services at home. Consumers might be willing to go cheap on soda they purchase at Wal-Mart, but prefer quality over cost when it comes to the idea of someone “cheap” taking care of mom or dad. It’s best to base one’s brand on quality of care. To find out how to start end effectively run a care managed in-home care agency, check out corecubed’s Private Duty Business Manual offered for sale on our product site