The Wall Street Journal recently ran a feature about C.F. Martin & Co., the storied guitar maker based in Nazareth, PA. It seems Martin is responding to the slack in demand for discretionary products like premium guitars by manufacturing a solid-wood model for under $900 (compared to the normal price of $2,000 – $3,000). Chris Martin, the company’s CEO, admits, “We needed something so we wouldn’t have to start laying people off.”

On that score the new guitar can already be called a success. Launched in April, over 8,000 copies of the instrument have been sold. One grateful music store owner said, “It was really smart of Martin to come out with these in the current economy. They seem to be filling the niche quite well.” No doubt they have.

While the new guitar is clearly a hit, I have to wonder what long term impact its launch is going to have on the Martin brand. It’s always easy for a premium brand to grab a quick handful of market share by going downmarket, but it’s often a mistake (Mercedes is a prime example, the case for which I make in When Growth Stalls). As the music store owner above went on to say about the new guitars, “Soundwise, for the money, they’re very good, but aren’t necessarily comparable with the more expensive models.”

There’s the rub. While longtime brand loyalists may be somewhat forgiving of Martin for its move to cope with the downturn, other (especially younger) guitar aficionados won’t have the same context and may think of the Martin brand in lesser terms than they normally would. Especially when competitors like Taylor are determined to maintain their quality and price points. It could change the perceptual playing field for some time.

Martin does already offer some cheaper, laminated guitars, which may soften the effects of this decision. And Chris Martin hearkens back to a similar strategy his great-grandfather pursued during the Depression (building guitars for tens of dollars rather than hundreds) as evidence that this was the right move. But the brand landscape in the early 1930s was nowhere near what it is today, nor was the level of consumer sophistication. It’s a different game now, and there’s no guarantee that the rules haven’t changed.

I hope Martin not only survives, but thrives, as it’s a legendary brand. I just wonder if the company considered the potential unintended consequences. And whether it will be able to cope with them as economy–and the guitar industry–shakes out.

When 2008 came to a close, Nestle looked up and saw that revenues were up ten percent, fueled in part by higher prices. Procter & Gamble reports that its premium products are doing just fine, despite being priced 60 percent (Tide Total Care) or 70 percent (Clairol’s Perfect 10) higher than its base brands. Pepsi is stepping up support of its Rockstar energy drink, which sells for five or six times as much per ounce (according to Beverage Digest) as regular soda. Even Gucci Group reported healthy revenue gains in 2008.

What’s going on here? Aren’t we experiencing the worst economy in generations? Indeed we are, but the companies above (and others) understand that their customers are making a flight to value, not merely to cheap. Sometimes value means “less expensive” (GameStop is projecting double-digit sales growth this year based on its used offerings and perception of videogaming as affordable entertainment), but value can also mean “more for your money,” which, through a variety of approaches, Nestle, P&G, Pepsi and Gucci are managing to provide ($2.2 billion in R&D last year at Procter & Gamble, to cite one example.)

The easiest strategy to follow in tough times is discounting. But it can also be the most deadly (see Sprint Downhill below). Every company should be taking a hard look at its value equation in this environment. But no company should forget that equations always have more than one variable. Providing more value for the money is almost always a better strategy than asking less money for the value.