Pricing Strategies and Brand Value Fundamentals - Part 3

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Posted May 09, 2012
Susan Gunelius

So far in the Pricing Strategies and Brand Value Fundamentals series, you've learned about the relationship between price and brand value as well as important pricing strategy considerations. Now, it's time to learn about how consumers' sensitivities to pricing can affect their perceptions of your brand as well as short- and long-term sales.

brand pricing

It is absolutely critical that you understand the impact that pricing has on your business due to consumer price sensitivity. Price changes affect sales, revenues, profits, future brand extensions, product launches, geographic expansion, and so much more. However, it's not the price that matters as much as it's the way that consumers react to those price changes that matters. In other words, consumers' perceptions toward brands and products can be fundamentally altered when prices change, and those changes aren't always positive.

Bottom-line, it's never a good idea to lead with price despite the fact that it's one of the quickest and easiest marketing tactics available in a marketer's toolbox. When you compete on price, you're minimizing the uniqueness of your brand and its value to consumers. If you don't believe in your brand enough to avoid reactionary pricing promotions, then why should consumers believe in it and buy it?

Price discounting can lead to a variety of business problems. For example, a price discount could deteriorate a brand's value to consumers. It can cannibalize profits by driving less revenue from loyal customers who would buy the brand anyway while not generating enough new business to make up for those losses. It can create an expectation that the brand should always be sold at a discount, and if it's not, consumers will feel like they're not getting a good value for their money. The list goes on and on, but still, pricing promotions are extremely popular.

jcpenney logo 2012

Fortunately, some brands are starting to notice that putting in some more effort up front to identify the differentiators that position a brand against competitors and drive value in consumers' minds is a better long-term strategy for growth than price cutting. Recently, JC Penney launched a rebranding that will eliminate continuous pricing promotions as part of its pricing strategy. Analysts expect other companies to follow.

When you compete by price alone (or first), you're telling consumers that there is no need to consider any other feature or benefit that your brand brings to the table other than price. Leading with price takes the emotion out of purchase decisions. Most product and brand choices are motivated by feelings, not just numbers and data. When you take emotions out of the equation, you're removing one of the most important aspects of brand development from your marketing plan. That's a huge mistake!

Leading with price and continually offering pricing promotions can turn a brand into a commodity. Remember, if you have nothing else to communicate to consumers about your brand other than its price, then you're telling consumers that all brands and products are the same. That should never be the case or your brand is doomed. There is no point in investing time and money into building a brand if you're going to throw all of that work in the garbage by reducing it to a commodity. Why should consumers care about anything other than price if you don't give them a reason to care?

That leads us back to the need for comprehensive consumer research so you can understand what matters to consumers and how to position your brand to increase its value in their minds. That's the subject of Part 4 of the Pricing Strategies and Brand Value Fundamentals series, so stay tuned to the AYTM blog for all the details In the meantime, you can follow the links below to read previous parts in the series:

Image: Billy Alexander, JC Penney

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