Saturday, November 10, 2007

Give them a reason to buy

Rarely can you find a position enjoyed by the likes of Under Armour or Apple (iPod) where people see value in your product well beyond the actual value. Under Armour (UA) has a shirt made in China using the same material that anyone else can use and sell it for a premium price. Just guessing here but the shirt costs about $1 to produce and ship to the retailer were UA sells is the retailer for $15 for a $30 retail. Nice business if you can get away with it. Apple is reportedly making $18 per month on iPhone user because they have the "IT" factor that allows them to demand a premium margin.

Both found willing partners to help them in promoting and profiting themselves in the process. The average sporting goods retail welcomes the addition of a line that promises both wide margins and fast turns. AT&T was looking for a way to increase the utilization of their network and drive down the average cost with the added benefit of driving huge awareness of their other products with little or no additional costs.

So, what does this have to do with college football? Both of these show smarts businesses working with the distribution channel to deliver their product with value (real or perceived) to the consumer. In Note to N.F.L.: High Prices Cut Demand Joe Nocera discusses the struggles that the NFL has had with its cable channel and not cashing in the way they had expected. The NFL Network and Big Ten Network overestimated the value of their brand and failed to realize that they had to work with the channel members to reach the consumer. Proctor & Gamble while it has tremendous brands like Tide or Bounty cannot go into Wal Mart and dictate the terms for the delivery of a new product.

There's an old story of a salesman sitting in front of a grocery chains buyer and insisting that his new item carry a particular retail price. The buyer grabs a pen, searches the fact sheet for the delivered unit price and crosses out the number writing in a figure rough half of that given. The proposal is then flung back at the bewildered salesman with the buyer saying assertively, "Here's your new selling price."

"Uh,...No!", the salesman responses with indignation.

Gruffly the buyer snorts, "You don't tell me and I won't tell you what to charge."

The lesson of the story is that you cannot dectate terms to other parties that you deal with without expecting some push back. Both the Big Ten and NFL clearly overvalued the product they are offering banking on the tremendous power that their respective brands have. This strength made them both blind to the weakness of the product (lack of quality content) being offered and resulting lack of value that could justify a premium price. Further, they did not consider the cable operators in the process by adding value for them.

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