The Arrogance of Brands Finally Meets The Perils of Purchaser Pushback
What do McDonald’s, Target, Walgreen’s, McCormack, Applebee’s, Campbell’s, Kellogg’s and other national brands have in common today? Each is having a comeuppance. This is long overdue.
Consumers are saying “no” to over-priced brands and for good reason. There is increased pushback from customers who have just had it with continual price hikes. Brands such as McDonald’s, Target, Walgreen’s, McCormack, Applebee’s, Campbell’s and Kellogg’s are impacted by consumers’ reluctance to pay the exorbitant prices that these brands are charging. According to Adobe Analytics, and reported in Axios, low priced items are accounting for a significantly higher share of online unit sales in numerous product categories compared to five years ago.
Brands were successful during the ravages of Covid-19 because brands had good reasons for raising prices to cover the high costs of manufacturing, distributing and selling during a pandemic. Now, post-pandemic, consumers notice that prices continue to be higher. And, data from NewsNation reveal prices are 26% higher than pre-pandemic.
The pandemic allowed brands to become greedy and reliant on the increasingly higher prices. Fueled by their success during lock-downs, post-pandemic, brands continued to behave as if coronavirus still existed. Brands continued to raise prices, publicly stating that their consumers are so loyal, these consumers will continue to pay whatever brands cost. Brands boasted that their consumers would continue to bear the brunt of high prices helping to preserve brands’ margins.
Newspapers such as The Wall Street Journal and The New York Times report the current news of high prices as “because of coronavirus.” These prestigious reporters seem to forget their own reporting. Yes, there were price hikes due to the pandemic. But, those days are gone. Reporters cited CEOs and CFOs discussing margin preservation and multiple price hikes quarter-to-quarter. Reporters described the kudos from Wall Street when brands raised prices.
Reporters should be reporting on the singular worst behavior that brands adopted: falling into the arms of arrogance.
Arrogance.
Arrogance is possibly one of the most destructive brand-business behaviors. And, so many of our favorite brands chose arrogance over deference, respect and esteem. These brands took their most avid customers for granted.
Nothing succeeds like success. Success is everybody’s aim; no one aims to lose. However, for some, nothing fuels arrogance more than success. Arrogance fosters an environment of “I can do no wrong.” Arrogance is at the core of the mind-set defined as “we will sell what we know how to make” rather than focusing on the customer-focused mind-set, “we will promise and deliver what customers want.” Or the mindset, “We will sell at the price we define” rather than “we will sell at the price customers perceive as value.”
In 2009, Jim Collins, the management and leadership guru, after studying success and failure, wrote, “When an enterprise becomes successful, it can cover up a lot of sins. It is not success that makes you vulnerable, it is when you respond to that success with arrogance.” He related arrogance to hubris, the great downfall within the Greek tragedies.
In an interview with The South Africa Star, Mr. Collins quoted a Classics professor’s definition of hubris, the ruin of many in Greek tragedies: that is, “an outrageous arrogance that inflicts suffering upon the innocent.” In contrast, Collins found that all the leaders he discussed in Good to Great displayed a common trait: a genuine humility about their success that Collins saw as “the real antithesis of arrogance.”
CEOs used to understand the perils of arrogance. CEOs understood that arrogance is a corporate killer.
In 1991, Pepsi CEO Wayne D. Calloway stated that arrogance was the single biggest reason people did not succeed at Pepsi. “He said that there is nothing wrong with having confidence, but arrogance is something else. Arrogance is the illegitimate child of confidence and pride. Arrogance is the idea that not only can you never miss [shooting] a duck, but no one else can ever hit one.” He said, “Arrogance is an insurmountable roadblock to success in a business where the ‘team’ is what counts. The flipside of arrogance is team-work, the ability to shine, to star, while working within the group.”
In 2015, Warren Buffet referred to business arrogance in his Berkshire Hathaway Annual Report letter to shareholders . He said, “It was arrogance, more than any other factor, that caused the banking crisis. In any area of life, arrogance is a damaging character defect, undermining interpersonal relationships, but in business it’s potentially lethal. A CEO who is arrogant will ignore the advice of col- leagues who may have a far better insight into risks threatening the company. That leads to bad decision-making, low corporate morale and loss of contact between senior management and employees. It destroys the culture of collegiality, of shared opinions and objectives that is crucial to the effective functioning of any organization. Once a CEO becomes isolated in a boardroom he has lost his ability to lead the company effectively.”
Arrogance is bad for business and bad for brands. Why? Because how you manage your brands is how you manage your business. When the CEOs of the Detroit automotive industry flew down to Washington, D.C., on private jets and then asked Congress for money (except Ford) to sustain their businesses, that was arrogance. Their stance affected their car brands’ perceptions as well as the perceptions of the brand Detroit and the brand “cars made in America.” When the CEOs of the U.S. cigarette brands stood in front of Congress and swore their brands were safe to use, even in the face of decades of data beginning with a landmark Surgeon General’s Report in 1964, that was arrogance.
Thinking that consumers will continue to buy your brands because you know best is arrogance. Thinking that consumers will buy your brands at any price you choose is arrogance. Thinking that consumers, no matter how loyal, will stick with your brand even if your brand is over 10% higher than a second choice brand or a store brand is arrogance.
Cereal brands continue to believe that consumers will wake up every morning and fill a bowl with sugared grains, no matter how high the price; that is arrogance.
And, thinking that consumers will continue to buy your brand because it is high quality and iconic rather than a high quality affordable store brand that tastes the same is arrogance. Food Industry Association data show 65% of shoppers choose store brands or private labels over big national food brands because of lower prices, according to a Wall Street Journal report. Research from Circana indicates that dollar sales of store brands increased 6% in 2023.
The Wall Street Journal reported on 20 categories of grocery items where store brands have out-powered national brands. Retail establishments have spent resources on ensuring that their store brands are credible, delicious, high quality alternatives to national brands. And, this strategy is paying off. So, thinking that just because your mustard brand is French’s will appeal to consumers at a high price while the store brand is perceived to be affordable quality that tastes the same as French’s is arrogance.
Brands see the same patterns in casual dining and fast food. Starbucks is perceived to be too higher priced. Analysts at Deutsche Bank report that, “Among the 45% of consumers buying less or no longer buying from Starbucks, the top reason was related to price, with 47% saying ‘it’s become too expensive.’” Apparently, the cost at Starbucks is “well above every other reason indicated.”
Dine Brands’ brands, Applebee’s and IHOP, are generating deals to attract customers who have been unwilling to pay the higher prices at these establishments. At an analyst meeting, Dine Brands said publicly that lower income diners were shunning Applebee’s and to a lesser extent, IHOP. To combat the decreased frequency and loss of diners, Applebee’s and IHOP are doing deals. Applebee’s is hoping that its deals will attract customers who will then order something else at the high price.
McDonald’s is also dealing. McDonald’s CEO echoed Dine Brands by saying that McDonald’s was losing its lower income customers. Even with the furor over the $5 meal deal only lasting for one month, Burger King copied the idea and started selling prior to McDonald’s rollout. And, it did not help that the president of McDonald’s US publicly addressed the viral price issues plaguing McDonald’s by saying McDonald’s prices were not 50% higher but just 20%-21% higher.
Campbell Soup has put emphasis and resources behind its snack portfolio. Now, according to CEO Clouse, consumers are moving from Campbell’s expensive snacks to similar, less-expensive alternatives. The snacks division fell 2%for the last quarter according to The Wall Street Journal.
You do start to wonder on which planet these CEOs are living. It is as if these CEOs do not see the perils of their pricing policies.
First, price and value are not the same thing. The brand sets price but the customer perceives value. Consumers are saying that the value of the brand is not as high as the brand thinks. Price is a cost, as are time and effort. Cost is the denominator of a consumers’ value equation. The numerator is total brand experience. The higher the costs with the same brand experience, the less customer-perceived value. And, of course, there is trust.
Second, trust is a must. Once trust is busted, it takes time to rebuild. Consumers are not dumb. Consumers see that their favorite brands are the same, only price has changed and changed. In fact, consumers have been quite aware of the continual price hikes so brands can make more money (to protect profit margins and keep shareholders happy). Since trust is part of a brand’s value equation, losing trust greatly impacts brand value. Without brand value there is no shareholder value.
Third, deal loyalty is not the same as brand loyalty. Deals are nice and make money. But, deals attract deal loyal consumers who are loyal to a deal. Once the deal is gone, these customers are gone. They are leaving for the next deal. And, deal loyal customers are very price sensitive. Loyal customers are not. Brands need to be smarter by finding the best price for the brand and communicating, “Great brand at a great price” rather than “Great deal.”
Fourth, taking advantage of your loyal customers by continually raising prices is mismarketing at the highest level. Losing loyal customers affects profitability. Data are clear on this. Over the past 2 years, brands have been shooting themselves in the pocketbook by raising prices.
Fifth, while brands were happily reporting huge profits to Wall Street, the competitive sets changed. Now, brands are facing serious high quality contenders challenging them for market share. Brands such as 365 (Whole Foods), Market Pantry by Target, Aldi, Great Value by Walmart, Kroeger Simple Truth and private Selection are high quality, affordable alternatives. It is not just price. Store brands have greatly improved quality.
Sixth, focusing on satisfying analysts at the expense of customer satisfaction is death-wish marketing.
Not every brand is receiving the message that continually raising prices is bad brand business. According to The Wall Street Journal, Spotify “… is testing the loyalty of its customer base by raising prices for the second time this year as it aims to become more consistently profitable, sending shares higher in early trading.” Wall Street is probably the only entity other than the executive suite at Spotify who think this is a good idea. It appears that Spotify continues to promise Wall Street that it will be more predictable in profitability.
And, even as the leader in its category, adding millions of subscribers, Spotify still needs to increase profits. Spotify sees the only way to satisfy Wall Street is to dissatisfy customers. Focusing on shareholders at the expense of customers is another tendency for trouble and that tendency for trouble is wrapped tightly around Spotify. The risk of losing customers, especially loyal ones is high when a brand sees its analysts as tis customers.
Seventh, offering discounts at the expense of the brand promise and provenance can be deadly.
Do not stray from the brand’s promise and provenance. Revitalize but do not ditch what your brand means to customers. Some brands like Starbucks never had value in its promise .
“There is a difference between putting a deal out there and how it relates to the totality of the brand,” said Todd Sussman, chief strategy officer at FCB New York told Ad Age. “Creative done right can make value part of a brand’s story and not just a reaction to the economic times. You should be reacting, but in a way that does not discount the brand … You need to have a higher empathy for the moment and not just give a deal, but a value exchange. Consumers don’t want to feel like you’re giving them a handout.”
Peter Drucker, the respected management guru, once said, “The purpose of business is to create a customer.” Losing customer focus is a certain path to trouble. The future will belong to customer-focused businesses that are best at attracting and retaining customers resulting in sustainable, profitable share growth.
As for brands that are finally seeing the results of their bad behavior, it will take more than deals to drive enduring profitable growth.
Avoiding arrogance takes character and effort on the part of leaders. It is a test of true great leadership to fight the inclination of focusing on oneself rather than the brand and its customers. The leader who creates a ego-trip culture of arrogance, letting success go to the head, is a leader who is more committed to self than to brand. There are perils to arrogance. Some brands are feeling the pressure now. Brand responses of deals and a race to the price-bottom will probably not be the answer.
