So you are a premium brand with a hallowed past. You have great equity among a certain kind of audience. That segment maybe a niche segment but very attractive in terms of size, long term potential, brand loyalty, influence, affluence and so on. The brand is known for innovative products, great design (not just in a decorative sense), focus, simplicity and putting user experience above all else. There are certain rules you play by: never undersell, always premium, healthy margins are a must, value over volume, bottom line over market share…are but a few.
Of late, the brand is facing a lot of competition but the brand health (growth YOY, profits) is absolutely fine. There is a choice that the CEO has to make: there is a growth opportunity in certain geographies traditionally referred to as value-for-money markets. Disposable income is relatively lower and many consumers cannot afford premium pricing in most categories. But the long term potential for growth is significant given the potential volumes.
You are the CEO and have to make a choice keeping in mind the long term business growth of the company:
Launch a cheaper variant with stripped down features and hope to gain market share, especially in geographies where the market for premium brands is small.
Short term gain: market share increase, potentially large volumes. Long term gain: increased market share in these VFM geographies.
Long term risk: reduction in profit margins, fall in profit, potential cheapening of the *overall* brand image (which may have repercussions on other product lines).
Don’t skimp on features but reduce input cost. Provide a full-feature phone at a cost lesser than your super premium variant. In big markets where subsidy is common, make it extremely affordable. In other markets where subsidy is not a practice, bite the bullet and sell it slightly cheaper than your super premium variant. It may still be unfavourable in pricing compared to other brands in market. Communicate clearly the fact that it is not a skimpy, cheap phone.
Short term gain: none in certain geographies. Huge gains where subsidy is a practice. Short term loss: piss of consumers who want a cheaper version. No growth in key VFM markets. Risk alienating the brand (arrogant, unaffordable, poor value) forever.
Long term gain: maintain healthy margin & profits, maintain premium image of the overall brand.
Which option should the brand choose? Both have pros and cons. Which option is best suited from a long term business growth and brand health POV?