One of the quickest, easiest, and most popular ways for brands to compete is price. However, price competition is a recipe for problems. Short-term pricing promotions deliver short-term results, but over time, those pricing promotions could drive sales down. There are many reasons for this phenomenon, and that’s the topic of Part 1 of my new series, Pricing Strategies and Brand Value Fundamentals.
The fundamental rule of pricing tells us that the price charged for a product must match the value consumers perceive that they get when they purchase that product. That’s where effective branding can allow “premium” branded products to sell at a premium price. The market will bear that price and consumers willingly pay it because they perceive the value the high-end brand delivers to be worth the high price tag.
In other words, if all brands were new and they all launched new products on the same day, all of those products would have the same value perception in consumers’ minds. There hasn’t been time to build brand value perceptions. Of course, each brand has its own unique tangible differentiators, but the intangible differentiators that lead consumers to become emotionally connected to brands take time to communicate and demonstrate consistently and persistently.
With that said, it’s easy for brands to price products according to tangible differentiators. For example, a high-definition television will have a higher price tag than a television without HD capabilities. These types of tangible differentiators can cause price differences across different brands in the same category as well as across different products under the same brand umbrella if that brand has launched extensions within the same category. For example, an iPad with wi-fi and 4G connectivity costs more than an iPad with just wi-fi connectivity.
Think of pricing strategy as it pertains to brand value in terms of consumer “reference prices.” Each consumer views a brand and its associated price tag in comparison to other brands and products available to them. Those other brands and products create a frame of reference for the consumer, and the consumer tries to fit each brand into a comfortable position in his mind based on that frame of reference. Brands and products with pricing that doesn’t fit well into that frame of reference are typically not even considered when it comes time for the consumer to make a purchase because they don’t make sense.
When creating a frame of reference for brands in a specific category, consumers consider a variety of factors to fit each brand into a position such as competitor prices, past experiences with brands in the category, past pricing experiences in the category, tangible differentiators (i.e., features), and perceptions. It’s the perceptions part of reference prices that gives brands the opportunities to set prices based on intangible differentiators. In other words, consumer perceptions enable brands to compete on more than price alone. Let’s face it. If price were the only factor that mattered in consumer purchase decisions, everything we buy would be a lot cheaper and everyone would buy the same brands and products.
Price is just one part of brand value and purchase decisions. The challenge for marketers is finding the right price point to achieve maximum sales without damaging consumers’ perceptions of the brand’s overall value. Any brand can compete on price. Successful brands don’t rely on pricing alone, but that doesn’t mean pricing strategy isn’t important. On the contrary, striking the right balance between profits, brand value, and consumer perceptions of the brand is an ongoing process.
Stay tuned for upcoming parts of the Pricing Strategies and Brand Value Fundamentals series where you’ll learn more about developing a pricing strategy, understanding the pitfalls of pricing, and using research to strike that price vs. brand value balance introduced above.
Image: Billy Alexander, Apple