Hi-Lo: How You Can Target Both Ends of the Market

Think Less in Terms of Company and More in Terms of Brands

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In certain circles, "Hi Lo" is a popular poker game. One particularly good Hi Lo strategy is to try to scoop the pot by winning at both the high end and the low end.

Not a bad strategy in marketing circles either. Developing two brands, one at the high end and one at the low end, is probably an easier task than trying to take on the market leader in the middle of the market.

Procter & Gamble has been playing this game for a number of years. "As the middle class shrinks," reported The Wall Street Journal recently, "P&G aims high and low."

At the high end, P&G is moving its Olay skin-care brand upmarket. In 2009, the company introduced Pro-X with a starter kit costing about $60. Previously, the Olay line sold for no more than about $25. At the low end, P&G launched Gain dish soap last year. It sells for half the price of Dawn, its premium brand.

Where I would differ with the Journal is the reason for the developing opportunities at the ends of the spectrum. It's true, the middle class is shrinking. But that 's only a partial reason for adopting a Hi Lo strategy.

Every consumer is an individual who doesn't necessarily buy what he or she is supposed to buy. Typically, a consumer might buy an expensive automobile, but then the cheapest brand of paper towels. It's a category issue, not a branding issue. Some consumers care an awful lot about what brand of automobile they drive. Others don't.

As a glittering generality, if you care about the category, you want the "best" you can afford. If you don't care about the category, you want the "cheapest."

Nobody says, "I want something mediocre. Not too cheap. Not too good."

That's why at the high end, you want to load your brand with as many goodies as you can think. And at the low end, the opposite is true -- you want to strip your brand to sell at a low price.

The slow start of the Fiat 500
In seven months, less than 16,000 Fiat 500s have been sold in America, a rate that is about half the 50,000-a-year goal for the Fiat brand.

The least-expensive Fiat 500 is $15,500, about $2,600 more than a Toyota Yaris. The top of the line, the Fiat 500 Lounge edition, is $19,500.

Why the high price for a cheap car? According to industry reports, Fiat management thinks American buyers want deluxe interiors and other added features that economy-car buyers in Europe do not.

And it's true. They do, but not necessarily on a cheap car.

Then there's the marketing program. Jennifer Lopez in a Fiat 500? That's almost as bad as Tiger Woods in a Buick.

Then there's the advertising theme: "Simply more."

"Simply less" with a stripped-down car and a lower price would have been a better direction.

So what is Fiat doing next? Introducing a souped-up version of the car, the Fiat 500 Abarth arriving next spring. Estimated price: $23,000.

What's a Fiat 500? Another Volkswagen Beetle or another marketing disaster? I'd say the latter.

Compare the Kindle Fire with the Fiat 500. Amazon obviously aimed the product at the iPad, and I think it's going to be a big winner.

Everything about the Kindle Fire is "simply less." A smaller size (4.7 by 7.5 inches) as compared with the iPad's 7.3 by 9.5 inches. No cameras, half the memory and less battery life.

The killer feature of the Kindle Fire is its price: $199 vs. $499 for the cheapest iPad.

Upping the price at the high end
Even though it was the first high-end Japanese import in the market, Acura lost out to Lexus because its cars weren't expensive enough.

In its introductory years, Acura automobiles sold for an average price of about $20,000 vs. $29,000 for the vehicles sold by Lexus. You can't build a high-end reputation unless your vehicles are expensive enough.

Look at the success of Rolex. Years ago, the high-end watch market was dominated by Longines-Wittnauer, whose watches were priced at about $200. Then Rolex came into the market at substantially higher prices and became the market leader.

And look at the success of Vertu, the high-end smartphone introduced by Nokia. In the past 10 years, more than 300,000 Vertu smartphones have been sold at an average price of $6,800.

I'm not suggesting you inflate the price of your products to appeal to high-end markets. What I am suggesting is that you inflate the value of your high-end products with better materials and added features.

Lexus marketed only six and eight-cylinder cars while Acura was selling only four and six-cylinder cars. Vertu phones use a sapphire crystal as their screen surface.

One analyst said buying a Vertu is more like buying jewelry than buying a mobile phone, which is exactly what has happened with Rolex watches.

In the decades to come, I predict that what happened in watches will also happen in smartphones. If so, then a high-end brand like Vertu will become an even more profitable operation for Nokia.

The problem with a Hi Lo strategy
Hi Lo is unlikely to be widely adopted because most managers are company-oriented, not brand-oriented. (At Walmart, they think of themselves as a low-end company. At Tiffany, they think of themselves as a high-end company.)

For a high-end company to launch a low-end brand and vice versa is going to be difficult. That's not the way managers think of their companies.

That's why we have been trying to get managers to become more brand oriented and less company oriented.

The future belongs to brands, not companies. And to play the Hi Lo game, you have to think brands first, company second.

Al Ries is chairman of Ries & Ries, an Atlanta-based marketing strategy firm he runs with his daughter Laura.
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