06/07/2005 08:34:00 AM 
In the past, classic marketing rules suggested that it was much easier for a premium brand to trade down, than it was for a value brand to trade up. The strong association with low prices makes it hard for consumers to imagine expensive quality products coming from the same company.
What's changed in the theory?
It's now all about value. It's not about low prices, but what you are getting for your money. Both Dell and Wal-Mart have proved remarkably astute and ensuring they sell quality products and lower prices than the competition. The reputation of both brands for quality makes it easier when they want to trade up.
The other thing that's changed is the consumer. Today, there aren't low price and luxury shoppers in separate compartments; there are just shoppers who make the decision on what to buy at premium price and what to buy at lower prices. They manage their discretionary expenditure in the form of checks and balances determining the essential and non-essential purchases. This is constantly changing across consumers.
Because of this, vast numbers of consumers have shopped at Wal-Mart and Dell and trust them to deliver value, even at more premium prices.
BUT..Brands still matter
However, both brands recognize that they can't do all the heavy lifting alone and that they need to develop sub-brands to make this a reality. The task will probably be easier for Dell, who uses the Lexus/Toyota analogy, to describe its sub-branded initiative.
However, in fashion, consumers want a brand name in the mid-tier for reassurance. Target's success has come from making big-name designers accessible. This will now become much easier for Wal-Mart to do. The company now firmly believes in the strategy and as proof Wal-Mart will soon open a New York office, to be closer to the upicenter of the fashion business. Another strategic option for Wal-Mart could be to invest some advertising dollars in its George brand to built that up.
It's probably not a question of how much fee and royalty will they have to pay designers compared to the cost of building their own brand, since Wal-Mart can probably afford to do both.
In the end, both Dell and Wal-Mart have the potential to defy marketing's rules and extend their brands upwards. Their mid-tier competitors should be worried.
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