Mark Ritson on Branding: hold your line and don't cut your price

Mark Ritson
Mark Ritson

Burt Lancaster's confidence in his own value as an actor provides a valuable lesson for marketers.

One of my favourite movies is Local Hero. It is the story of a Texan oil firm that attempts to buy out a small Scottish town and turn it into an oil refinery. From the very beginning, writer and director Bill Forsyth had only one man in mind to play Felix Happer, the head of the oil company, who eventually falls in love with the town and saves it from destruction.

He wanted Burt Lancaster.

This presented the producer, David Puttnam, with a problem. Lancaster loved the script, but wanted $2m to play the role. That was a third of the film's entire budget, and far more than the producers could afford.

So negotiations began. For six months, Puttnam tried every tactic he knew to get the price down. Each time, Lancaster reconfirmed his desire to make the film and pointed to the only stumbling block: his $2m fee. With only days left before filming began, the Local Hero production team admitted defeat and agreed to the star's demands. At the film's silver anniversary celebrations last year, Puttnam recalled Lancaster's recalcitrance: 'The bugger would never, ever, ever break his price. We ended up paying him the price he quoted at the very first meeting.'

It's a story I retell to my MBA students when we get to the subject of pricing to illustrate one of the topic's most important lessons: you must hold the line. If your quality is good and your targeting and positioning are right, have confidence in the price you have set and do not consider dropping it. It's a lesson that has been drummed into me over the years by many of the senior executives of the top luxury brands that I have worked for. Something cannot be good and cheap. Don't be afraid of a premium price or maintaining it in the face of market pressure.

Too many marketers contradict their brand's positioning either by launching at too low a price or dropping that price too easily at the first sign of trouble.

The consulting firm McKinsey has long observed that between 80% and 90% of incorrect pricing decisions are made by managers who charge too little for their products. That's a stunning fact and comes with an even more astonishing implication: these organisations could have enjoyed better margins and unit sales - as well as stronger brand equity - if they had only followed the Burt Lancaster School of Pricing.

As the recession drags on into its second painful year, it's a philosophy that becomes ever harder for marketers to believe in. Every week sees another brand drop its prices and walk away from the challenge. Last week it was the London Evening Standard announcing that it will become a free paper - how about that for capitulation? But for every Standard there are the heroic brands that continue to hold the line. The Champagne brands, for example; they are busy destroying millions of litres of bubbly in the face of dismal sales this year, rather than discounting price, damaging their brands and destroying their long-term prospects.

It's certainly the approach that Lancaster would have endorsed. He was a man who knew his value and ensured that his customers knew it too. A few weeks after he signed on with Local Hero, US TV channel CBS called the film's producers to confirm that, because of Lancaster's presence in the key role, they would be paying $2.2m for the rights to show it.

Lancaster's 'outrageous' fee had actually made money for the picture. Puttnam recalls it as a 'powerful lesson' on pricing and value, and it's one from which  many marketers could also benefit.

Mark Ritson, PPA columnist of the year (business media), is an associate professor of marketing and consultant to some of the world's biggest brands

30 seconds on brands that have cut their price - and brands that won't

  • The Champagne houses and growers agreed last month to cut production of the 2009 vintage in response to falling sales and retail price cuts.
  • Nintendo cut the price of its Wii games console in several markets last month. It had resisted such a reduction since the console launched in 2006. The Wii has sold more than 50m units to date.
  • In August, Sony reduced the price of its slimmed-down PS3 console by 25%. How-ever, Andrew House, head of Sony Computer Entertainment Europe, denied the cut was a response to slow sales. 'Consumers are watching their euros and pounds more carefully... but it would not be fair to say this is a reaction to current market conditions.'
  • Steven Downes, finance director at premium fashion brand Reiss, said last December that while trade had been 'challenging', he was looking to a long-term pricing strategy rather than discounts to attract consumers. 'I can understand why retailers are doing [promotions] now, but... the high street can't discount forever,' he said.

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