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And in This Corner, the Price-Fighter

While it's tempting to cut prices during tough economic times, a better approach may be to introduce a "fighter brand."

At first glance this may not seem like the ideal time for you to greenlight a new product launch. After all, consumers have neither cash nor credit, they fear for their jobs (if they still have them), and they’re waving the financial equivalent of white flags in record numbers (as of June, personal bankruptcies were up almost 30 percent over 2007). When they shop, they look at price first — and last. That’s why stores like Costco and Wal-Mart are still reporting robust results even as higher-end retailers suffer. Purveyors of posh such as Neiman-Marcus “are going underwater, and will stay there until we clean up this mess,” says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting firm in New York. But at least they’re still in business. Mervyn’s, Kohl’s, Linens ‘n Things, Steve & Barry’s, Sharper Image, and others have gone into Chapter 11, Chapter 7, or both.

Those still standing have managed to hunker down, hack costs, and hatch new schemes to remain viable. Both Wal-Mart and Target were touting $10 toys for the holidays while consumers were still anticipating the arrival of the Great Pumpkin. “You have to get your costs down so that your pricing reflects what this new marketplace will pay,” says Davidowitz. Odds are good that layoffs, capital-spending cuts, and product-line eliminations have moved to the top of your company’s to-do list as well. Unlike other downturns, this one is squeezing companies on both ends: even as consumers suffer from sticker shock, suppliers have jacked up prices as they pass along rising fuel and commodities costs.

That puts companies in a pricing bind. Many may decide that despite their own higher costs, they must cut prices to keep customers. But Rafi Mohammed, author of The Art of Pricing, warns that if you “keep lowering the price you’ll sell more units, but you’ll also devalue the product. For the sake of the short term, you can wreck the long-term value of your brand.” And price cuts can be hard to rescind when economic conditions improve.

So how can you keep business up without lowering profits? By introducing a “fighter brand” — a low-priced version of the flagship product, sold under a different name — that will satisfy the appetites of price-conscious consumers. “You bring this brand out just to cater to this recessionary environment,” says John Quelch, a marketing professor at Harvard Business School. “Others may have no option but to cut their price or fiddle with packaging on existing brands. But if you are a market leader, you can use your clout with retailers to get the shelf space for it.”

Fighter brands have to achieve a delicate balance: being identified with the premium brand without cannibalizing it. Anheuser-Busch, for instance, initially brought out the Busch brand to catch beer drinkers who refused to spill money on Budweiser. Procter & Gamble successfully developed Luvs to keep Pampers protected. Other brand-name companies that have unleashed fighter brands include Sony (Aiwa), Black & Decker (Dewalt), and Mars (Kal Kan cat food). In theory, fighter brands are distinct from “flanker brands,” which are intended to stay in the ring even after the economy has finished delivering its punches.

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