How a $220 toaster explains why some brands struggle

Does Breville's Australian operations indicate the slow death of differentiation?

'A new world of bread needs a new world of toasting' claims Breville (ASX:BRG). For only $220, its new 'the Smart Toast' toaster can 'toast any type of bread just the way you like it'. You can even follow the toasting progress with an LED countdown.

It sounds impressive, but does anyone care?

Harvard strategy guru Michael Porter published his three generic competitive strategies in the 1980s. Breville's smart toaster is a textbook case of one of Porters three strategies — differentiation.

Differentiation works by making customers believe that one company's product is different in quality to its competitors and justifies a higher price tag. It is a key foundation in the development of many of the world's biggest brands.

For many companies, differentiation has been a very successful strategy.

A Hyundai (KOSE:A005380) can drive you to the same place as a BMW (DB:BMW) but customers are still happy to pay a much higher price for the perceived quality of the German brand.

A gift of jewellery that comes in the iconic aqua blue box of Tiffany & Co (NYSE:TIF) will impress the receiver far more than if in a simple black box from your local generic jeweller.

The fashion industry have perfected it with many brands such as Chanel and Hermes (ENXTPA:RMS) selling the idea of quality and exclusivity through its range of products including handbags that cost more than some cars.

Despite being one of Australia's most well-known brands, however, Breville appears to be finding the ability to differentiate difficult and recently announced that operating profit for its Australian division fell over 30%.

Breville's products don't offer customers what I like to call 'the brag factor'— some type of intrinsic or emotional benefit to the buyer that makes them want to show it off. I've never heard anyone say to their friend 'check out my awesome toaster' for example.

Nowhere is Breville's struggle more obvious than in your local Kmart. If you look at their options of kitchen appliances you will not find many brands. What you will find is a range of cheap private label products including toasters priced no higher than $39.

In fact, Wesfarmers (ASX:WES) appears to be betting on the death of differentiation for kitchen appliances in general. A quick search for 'Breville' on the websites of Bunnings, Coles, Kmart and Target resulted in only three items. Both Target and Kmart are increasing the amount of private label products in their stores.

If you want a Breville toaster, you'd better hope there's a Big W, Harvey Norman, Myer or David Jones near you (not always a sure thing).

This has real consequences for Breville, or any company who relies on branding generic products in competitive markets. The more customers focus on price, the more the brand of a company becomes irrelevant and the ability to differentiate disappears.

If this happens, then at least in this country, we might be saying goodbye to the Breville brand. 

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