The power of brands and the price they command

In the fast-paced consumer-packed goods (CPG) sector, brand strength is critical in determining the pricing products may command on the market. Through their strength, great brands can change the traditional rules of supply and demand. Well-known household names like Kellogg's, Kraft-Heinz, Pepsi, Coca-Cola, Tyson Foods and Nestlé have readily available products that maintain high demand because of their brand reputation and consumer devotion.

Still, it's more about the perceived value than availability alone. Consider premium goods: a high-end wine like Caymus. Although they compete with private-label and value brands, Caymus charges premium prices for the perception of value their brand offers.  

In this article, we’ll further explore the relationship between brand power and pricing and highlight how negotiations can be impacted by suppliers, retailers and consumers alike.  We’ll also identify successful strategies employed in the marketplace along with key takeaways to implement in your own business.

This knowledge and implementation of advisement are a core part of The Gap Partnership’s consulting and training services.

The relationship between brand power and price

Strong brands drive consumers’ loyalty and confidence. This often leads to a willingness to pay more at the register. Consistent quality, cutting-edge marketing and unmatched storytelling create an image in the mind of the consumer that generates brand power. 

In the wine industry, a bottle of Dom Perignon demands a higher price point than its competitors due to its reputation for quality and the brand's legacy. Dom Perignon has made significant investments in being seen as a symbol of excellence to build its image. This image is so powerful that consumers are willing to pay a premium for it, even if another product from a less prestigious brand is available at a lower price.

Negotiation dynamics

Strong, well-known brands give suppliers a great advantage, often setting the terms with retailers eager to carry popular products. Retailers benefit from the popularity of these brands as well since they drive foot-traffic, therefore increasing sales. Retailers can, however, also support developing brands by providing them wider reach and distribution, therefore increasing their market share. Simultaneously, consumers, influenced by brand image, are a major participant in this negotiating dynamic since their choices and buying patterns eventually determine the direction of the market.

For suppliers, brand strength can be used as a lever during retailer negotiations. Well-known suppliers can set higher prices and secure beneficial terms since retailers understand the importance of carrying high demand consumer products. If you walk into any grocery store and look at the endcaps, premium space at the end of aisles, they are dominated by well-known brands that consumers seek.

Retailers understand the necessity to negotiate terms that will secure these high-demand products for their shoppers. Carrying well-known brands drives overall revenue by attracting loyal consumers and increasing foot traffic. The joint business planning (JBP) negotiation process shapes this mutually beneficial relationship between suppliers and retailers since terms depend on brand power. Beyond this, retailers have significant influence in creating brand awareness. Through their extensive store networks and prime display space, they can elevate newly emerging brands into household names by leveraging their reach to increase the market presence of a brand.

Consumer impact is especially clear in the CPG industry, where brands like Tide or Coca-Cola demand premium pricing because of their deep-rooted brand loyalty and perceived value. Strong brands can influence consumer decisions, therefore increasing demand and allowing suppliers and retailers to negotiate from a strong position. Although they do not sit at the negotiation table between suppliers and retailers, consumers have a significant impact based on their purchase choices.

For example, Bud Light faced backlash and a consumer boycott over a marketing controversy, demonstrating how consumer attitude may affect brand power and change market dynamics. To maintain their market share, companies must not only satisfy consumer needs but also align with their values. To preserve market share, companies must carefully evaluate the impact of their initiatives, recognizing how consumer belief systems influence the brands they ultimately choose to support. 

Case study: sports drinks

In the sports drink category, consumer preference and brand strength significantly affect the outcomes of supplier and retailer negotiations. PepsiCo’s Gatorade, the market leader, demands a premium from both retailers and consumers because of its long-standing market presence, high-quality reputation and targeted sports marketing campaigns. Gatorade's brand strength could allow them to negotiate better terms like exclusivity, prominent in-store positioning, and wide distribution. Often Retailers agree to these terms because they understand that Gatorade’s reputation for performance will attract consumers, boost traffic and drive sales.

On the other hand, Coca-Cola’s Powerade lacks the same degree of consumer confidence and brand awareness. Although Powerade presents a competitive product, as a challenger brand it could be seen as negotiating from a lower position, offering discounts or promotions to secure display space and capture market share. Retailers carry Powerade to give consumers a choice but it doesn't guarantee the same demand or loyalty.

Emerging brands like BODYARMOR and Prime show how new entrants can successfully gain share by targeting shifting consumers tastes and partnering with retailers. For example, BODYARMOR’s positioning as an alternative to established sports drinks by including ingredients like 10% coconut water plays on the increasing demand for healthier choices in the category. This focus on health-conscious consumers let BODYARMOR get the attention of the market resulting in Coca-Cola purchasing the brand to compete directly with PepsiCo’s Gatorade.

Prime took a different approach to penetrate the market. By leveraging social media and partnering with stars like Logan Paul and KSI, Prime was able to engage with a younger, more online audience to build brand loyalty and generate awareness. With the support of strategic retailers like Wal-Mart in combination with digital influence, Prime became a new rival in the saturated sports drink market.

Key takeaways

• Leverage brand power: Take advantage of a strong brand’s consumer loyalty when negotiating to secure favorable terms. For emerging brands, focus on niche positioning or innovative partnerships to penetrate the market.
• Stay on the cutting edge: Pay attention to shifting consumer preferences, such as health-consciousness or online engagement, and adapt your brand strategy to stay competitive. Brands must be on the cutting edge of consumer trends to stay ahead of their competitors.
• Be different: Unique ingredients, branding or partnerships are all ways to differentiate your product offering. A value proposition like this can attract new consumers to the category, drive growth among existing consumers and justify premium pricing.

Conclusion

Navigating the CPG landscape requires an understanding of how brand strength influences negotiations. For suppliers, this means leveraging brand power to set terms equivalent to the value the brand is providing. For retailers, building partnerships with these brands can boost their own foot traffic and sales, leading to sustained growth. The decisions of suppliers, retailers and consumers each impact the other’s positions. Examining these relationships through the lens of negotiation helps us identify the strategies and tactics that guide effective brand management in the CPG industry.

Want to dive deeper into the realm of brand power?

We’ll continue to explore the effects different counterparties have on brand power and pricing. Our next article will focus on how suppliers use brand power to negotiate favorable terms and demand premium prices. 

More reading and listening

Tariff-proof strategies: Elevating CPG negotiations article by James Kennerdale, Regional Commercial Lead, The Gap Partnership and Mike Kamins, Partner, The Gap Partnership

Chris Prahler | Inside my head podcast hosted by Michael Perlish, Principal, The Gap Partnership, featuring Chris Prahler, Vice President Global procurement & CPO, a seasoned professional with a 25-year journey spanning from Target to Chewy and Lowe’s

Buying alliances: Coming to a market near you article by Chris Atkins, Partner, The Gap Partnership

Inflation: It’s all in the words article by Scott Chepow, Partner, The Gap Partnership

About the authors

Nick Capuano is a Manager at The Gap Partnership, with over a decade of expertise in business development, account management and strategic leadership. As National Business Development Manager and National Account Sales Manager at PepsiCo, Nick spearheaded new business initiatives and secured high-impact deals with industry giants like Papa John's and Dairy Queen. Nick consistently delivers exceptional results and fosters a culture of excellence, driving transformative growth for his clients.

Chris Potestio, Senior Consultant at The Gap Partnership, has over 20 years of experience in Corporate Grocery, Wine & Spirits and Consulting. He previously managed $1B+ in sales at Southeastern Grocers, expanded global suppliers at Stew Leonard and oversaw an EBITDA growth of between $1M and $100M across other projects. Chris has received industry recognition, including the HEB Merchant of the Year and a Retail Innovator awards for his strategic and operational contributions. 

About The Gap Partnership

The Gap Partnership is a management consultancy specializing in negotiation. We help organizations drive profitability, increase efficiency and reduce cost. 

We provide development programs and negotiation training to our clients. We work with you to understand your challenges and performance needs. Our negotiation consultants come from your industry and will support you with a 'complete' solution that embeds learning, measures capability and delivers sustainable change.We hold ourselves accountable for your success. 70% of our business comes from clients we have worked with for over five years. 

If you require further information on how we can help you and your teams make the most of every negotiation, or simply need to ask us a question - just call, email or complete the form.