Pricing Strategies and Brand Value Fundamentals - Part 2

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Posted May 08, 2012
Susan Gunelius

In Part 1 of the Pricing Strategies and Brand Value Fundamentals series, you learned how pricing strategy and brand value affect consumer perceptions of a brand and vice versa. Now, it's time to learn how to develop a pricing strategy for your brand so it aligns with the perceptions you want consumers to have of your brand as well as with your revenue and growth goals.

brand pricing

There is more to pricing strategies than deciding how much money you want (or need) to make. Of course, you need to set a price that covers your costs to make the product available to consumers, but you also need to understand the types of pricing tactics, so you can develop a comprehensive, long-term pricing strategy.

Following are several of the most common pricing strategies and tactics:

  • Prestige Pricing: A brand and products under that brand umbrella are priced higher than other brands in the market. Prestige pricing creates the consumer perception that each product with that brand name is a luxury item, high quality, or prestigious in an emotional way, making it worth a higher price. This is a long-term pricing strategy rather than a tactic to boost short-term sales.
  • Odd-Even Pricing: When products are priced at $9.99 instead of $10.00, odd-even pricing is at work. Psychologically, consumers perceive the odd price tag to be a lot cheaper and a much better value than the even price tag.
travelocity gnome
  • Variable Pricing: Products or services might have a low price tag one day and a higher price tag the next only to revert back to lower pricing a week later. In other words, the price is a moving target and fluctuates based on changing environmental, economic, market, competitive, and consumer factors. Constantly changing airfares provide the perfect example. Variable pricing is why websites like Travelocity are so popular and successful.
  • Segment Pricing: Products have one price tag for one audience segment and different price tags for other segments. This only works when audience segments have no chance of learning what other people pay for the same product and is often used in geographic pricing strategies.
  • Bundled Pricing: Products are grouped together and sold for a single, bundled price in an effort to persuade consumers to buy more but still feel like they're getting a better value than if they purchased those products (or similar products) separately.
  • Quantity Pricing: Quantity discounts (the more a consumer buys, the bigger the discount, buy-one-get-one-free, etc.) encourage consumers to buy more than they intended because they perceive the discounted price as increasing the value that the purchase provides to them.

There are many more pricing tactics available to marketers to boost short-term sales of products and services, but each of these tactics can affect the way consumers perceive your brand. You must tread carefully or a discounted price can undo all the work you've done to build your brand promise and position in consumers' minds.

The 3 C's of Pricing Strategy

Setting prices for your brand depends on three factors: your cost to offer the product to consumers, competitors' products and pricing, and the perceived value that consumers place on your brand and product vis-a-vis the cost. These three factors can be referred to as the 3 C's of Pricing Strategy:

  • Costs: Comprehensive understanding of all costs related to offering the product, including development, creative, production, distribution, storage, advertising, manpower, and so on.
  • Competitors: Comprehensive and up-to-date analysis of your competitors' products, brand, and prices as well as where your brand is positioned relative to those competitors.
  • Consumers: Comprehensive research providing insight into consumers' wants and needs as well as their perceptions of the value of your brand and products and your competitors' brands and products.

Prices should never be picked out of thin air or set simply because "that's what the competitor charges." Only after you've collected enough data related to costs, competitors, and consumers should you consider developing your brand pricing strategy and setting prices for the products under your brand umbrella.

In Part 4 of the Pricing Strategies and Brand Value Fundamentals series, you'll learn more about conducting market research to learn about consumer perceptions and setting prices based on perceived brand value. Up next in the series, you'll learn how consumers' sensitivities toward pricing can and should affect price vs. brand value. And if you missed Part 1 in the series, follow the preceding link to read it now.

Image: Billy Alexander, Travelocity

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