Wednesday, October 31, 2007

The joy of selling less

Today’s Wall Street Journal reports on General Motors’ decision to limit production of its Buick Enclave. By intentionally restricting supply GM has kept the car “hot” months after its launch and avoided brand-diluting rebates and 0% financing deals. How many times have we seen car companies launch shiny new models for which they’ve invested five years and hundreds of millions to develop only to resort to bribing buyers within months after the launch.

United Airlines, a client of Barrie D’Rozario Murphy, has exercised similar restraint by cutting capacity in an attempt to align supply with demand and regain pricing power – a feat almost unheard of in the airline business. Consequently, United’s earnings are healthy and it can now invest in new services for its profitable business travelers, such as its new international premium service, which will further grow profits.

Automotive and airlines are two categories in which, for years, capacity has grown faster than demand as companies competed for top-line revenue and market share at any cost. The same is true in many manufacturing-based businesses - particularly consumer electronics. It's refreshing to see two companies remember the fundamental premise of brand marketing -- branded products create unique value for customers at a premium price. That’s why we brand.

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