-By Kenneth Hein

The Dollars & Consumer Sense 2009 study, released today, finds that consumers often have a negative reaction when they see the price slashed for their favorite product or service.

In fact, 70 percent of respondents to the Yankelovich poll said such cuts probably mean the brand was overpriced in the first place. And, 62 percent said they assumed that the product was old and they were just trying to get rid of it.

“People are suspicious if you significantly discount your brand,” said J. Walker Smith, president of Yankelovich Monitor and executive vice chairman of The Futures Company. “If you make significant changes in your value proposition it can confuse them. You have to give them reasons to buy stuff as opposed to just lowering prices as a knee jerk reaction to the economy.”

Earlier this year Saks Fifth Avenue announced it was retreating from a discounting strategy after it lost nearly $100 million in Q4. CEO Stephen Sadove said the chain would add a mix of lower priced items instead. The assumption became “they are just overpriced all year long,” said Smith.

Brands that do not discount achieve a positive halo among many consumers, per the study, which polled 1,0002 consumers in January. Sixty-four percent of those polled said they assume the product is either extremely popular or a good value if they maintain their price.

Earlier this month, Brand Keys announced similar findings among the 26,000 consumers it polled for its Customer Loyalty Engagement Index. Consumer expectations regarding brand value went up 20 percent. In other words, many aren’t looking for lower-priced brands rather they are looking buy products that they consider a good value.

A potentially more damning result of lower pricing is deflationary expectations, per Yankelovich. This means consumers are postponing purchases in anticipation of prices falling further. Up to 60 percent of those polled believed companies that cut prices would continue to do so. “People are sitting around waiting for more discounts. That’s a really bad thing,” says Smith. “The deflationary cycle is very difficult to remedy once it takes hold.”

-By Kenneth Hein

The idea sounds so terrific when it’s pitched in the boardroom that nobody would dare object. “This,” says the marketing chief, his voice assuming a solemn tone, “is a time of need for so many Americans. Let’s give something back.”

Oh yes, by all means, let’s. A free meal? Great idea! And why not? Paycheck-stretching Americans will love you for it. Heads nod in agreement around the polished table. The number-crunchers figure out how much free grub they can give away while still getting solid publicity without the margins going to hell. They think about the short-term bump in store traffic, then those ancillary purchases once the offer “drives trial.” The numbers don’t look too bad, and so they go for it.

This scenario is imaginary, but I’ll bet something awfully similar to it has been happening in conference rooms around the country. In roughly the past month alone, Denny’s, Quiznos, IHOP, Jack-in-the-Box, Arby’s and others have offered free food or drinks in an effort to build both store traffic and good will for their brands.

So what’s wrong with handing a guy a free sandwich? Let me count the ways. First off, so many chains are handing out free grub that the novelty’s worn off—so much so that what had been a premium is fast becoming an expectation. First it was: “Wow, I get a free burger!” Today, it’s: “Hey, where’s my free burger?!”

But the larger issue is that food giveaways—aside from bringing X number of curious people into your units—have few strategic benefits in the long run. OK, sure, you did bump up your foot traffic. But when your customers have showed up just for the giveaway, it’s hard to engender a true brand experience that’ll make a lasting impression or deliver a quality message for the products offered. After all, people are only in there for the freebie.

This is especially counter-productive if your brand is trying to send a quality message. Giveaways have this way of cheapening a brand’s image, and that’s never a good idea. Don’t just take my word for it, either. “The fact is that 99-cent value menus and food giveaways are bad for business,” says Andy Puzder, CEO, CKE Restaurants. “At Carl’s Jr. and Hardees, we have stayed the course with premium-quality burgers—not low-quality gut fill—while containing restaurant operating expenses. CKE, by the way, boasts the second-best margins in the industry behind McDonald’s.”

But, OK, let’s just say that our marketer knows that his giveaway is just a short-term strategy. Isn’t it still good for a little PR? Sure it is—and it’s also an invitation for the unavoidable mistakes that happen with mass giveaways to turn into complaints. Oh, I’m being a pessimist, huh? Well, let’s just start with what happened to Dr Pepper a few months back.

When the Unabridged History of Brands is finally written, Dr Pepper is very likely to go down as the creator of the most ill-advised giveaway ever. Of course, it had some help—namely, Guns N’ Roses. Just in case you missed it, the soft drink brand made a bet with all Americans: If reclusive vocalist Axl Rose ever came out of the recording studio with the band’s forever-deferred album, Chinese Democracy, every citizen gets a free Dr Pepper.

Execs were probably high-fiving until the album actually came out in November. Then the havoc began. Dr Pepper’s make-good took the form of coupons, but the redemption window was tiny and the Web site that dispensed them crashed repeatedly. What started out as a mean-spirited joke pointed at a singer named Rose only ended up getting millions pissed at a drink named Pepper.

hen there was Denny’s. Denny’s made a strong statement during the Super Bowl by giving away a free breakfast. It received a massive amount of press attention and, for the most part, came off looking pretty good. Denny’s CEO Nelson Marchiloi said in a statement after it was over: “We were hoping to reconnect with millions of Americans today . . . and we did.”

But at what cost? The TV spot cost the company $3 million. And while many people no doubt enjoyed a good meal on the house, there were still plenty of complaints on the Web about long lines and accounts of people leaving before they were served. There’s a saying that it takes 10 compliments to undo one complaint. That tends to get magnified when you weave the reach of the Web into the equation.

And so we return to Quiznos, which promised to give away a million free subs. All people had to do was visit a Web site and sign up—and then the troubles began. Allegedly, headquarters expected franchisees to foot the bill. Then it set a quota to lighten the blow. Finally, it just pulled the plug. Quiznos rep Rebecca Steinfort wrote off the complaints as a product of the blogosphere: “Certain blog sites think that everyone in the country had a bad experience, but the number of issues was very low. That’s one of the things about the Internet.”

It certainly is—and that’s the problem. Many people give equal weight to a blog post and a balanced news article. What kind of impression about Quiznos did they come away with?

According to Steinfort, Quiznos accomplished its goal of alerting customers to the fact that the chain has less expensive menu items to enjoy. She also points out, that brand can now uses the e-mail addresses it captured for direct-marketing efforts. So it’s not all bad.

Still, the fact remains that giving away free food is harder than you think. And which would you rather have: Customers coming in to spend money with a brand they love, or ones merely there to demand the latest freebie?

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-By Kenneth Hein

There is a moment before the moment when you get “Amped up” to race a car, get your first tattoo or take the stage. Amp Energy is trying to own that moment, that nervous energy, in its new ad campaign which broke during the Daytona 500.

The brand positioning is apropos for the hard-charging PepsiCo-owned energy drink. The No. 4 brand in the category continues to make its move with the help of a big budget media spend (it will shell out in excess of $20 million this year ) and its high-profile partnership with Dale Earnhardt Jr. 

Will it ever reach the moment where it gets to occupy the No. 1 pole position currently held by Red Bull? Amp’s marketing director Maurice Herrera thinks so. “We’re working on that. I’m very much anticipating that.”

Meanwhile, rival Monster Energy has other plans. The brand is currently No. 1 in volume by virtue of the fact that its primary product comes in a 16-oz. can. Red Bull, best known for its 8.3-oz. can, is still No. 1 in terms of sales, however.

Monster, which helped reinvent the category by rolling out the larger size can, is hoping to do it again. Only this time it is looking to go smaller by focusing on a 3-oz. energy shot. It has already introduced the Monster Hitman Energy Shooter and is prepping a Monster branded item instead of the current sub-line. “Not to be arrogant, but when we innovate, the category follows,” said Monster Beverage president Mark Hall. He said other new “novel innovations” are also ready to debut.

The energy shot category leader is currently 5-hour Energy, a brand owned by Living Essentials, which by Hall’s summation is “a direct response company that sells [penis enlargement pills] and the Chaser hangover pill. They are currently the leader by a wide margin, but they don’t have the distribution system, product or packaging to sustain it.”

In October, Monster signed a distribution deal with Coca-Cola that will greatly expand its reach. The agreement dealt a blow to No. 3 Rockstar, which had previously been carried by the Coke system.

Rockstar’s volume was already down 3 percent for the first nine months of 2008, per Beverage Digest. It was the only brand in the top four to see a decline. 

The energy category overall was up 7.9 percent for the period, making it and enhanced waters the only major beverage segments to experience growth. Red Bull grew 11 percent, Monster was up 18 percent while Amp surged 57 percent. “This year we are poised to do as well or better,” said Herrera.

Amp “has done very well, but with a great deal of marketing support and numerous line extensions,” said Gerry Khermouch, editor of Beverage Business Insights. “Some in the segment wonder how well it will do if Pepsi ever takes its foot off the pedal.”

That certainly isn’t going to happen this year. Amp launched three new flavors: Lightning (lemonade), Rebuild (black tea) and Defend (green tea). 

Three new Dale Jr. ads, from BBDO, New York, are currently on air. “Moment” kicks off the new positioning that will be extended to situations Amp’s high-energy consumers experience. “Shotgun” introduces a behind-the-scenes short film Dale fans can watch at Ampenergy.com. “Get in gear” debuts a code-based promotion where consumers can win prizes like Dale Jr. Amp #88 gear.

“Last year was about driving awareness,” said Herrera. “This year is about generating relevance and touting ourselves as a lifestyle brand.”

But will it be able to overtake Red Bull who just signed pro football’s Reggie Bush as a spokesperson? Said Khermouch: “If anyone dethrones Red Bull in the U.S., the betting is that it’s more likely Monster than Amp.” 

http://www.brandweek.com/bw/content_display/news-and-features/direct/e3i6266a3e7e491921c55f07a046e2d4cf5?pn=2