Pricing

1. Professor Carl Mela BA 460 Product Management Fuqua School of Business Brand Management System On Building A Brand Managing Across Brands Pricing

2. Agenda • Pricing to Build Equity • Measuring the Effect of Price, Promotion, and Advertising on Brand Equity

3. Pricing to Build Equity • When attributes are based on experience (new camera) or belief (detergent), consumers often infer quality from price. • This leads to the notion of price tiers. • Quality and price determine value. Consumers will buy if value>cost. • Increase quality • Reduce price

4. Pricing to Build Brand Equity • Value pricing: Balance features and prices to satisfy objectives of firm and consumers • Design and delivery • “Build a Better Mousetrap” article • Product costs • Do customers really want to pay for a feature? • Product prices • Willingness to pay measures (often an indicator of equity) - match prices to willingness to pay

5. Pricing to Build Brand Equity • EDLP (Every Day Low Price) • Is it better to cut price and reduce deals • Train consumers to be price sensitive • Inventory costs go up • Production costs increase • Or increase deals and price? • Increase excitement for brand • Price discriminate - “Cheaper than You” paper • Jedidi, Mela and Gupta paper.

6. Measuring the Effect of Price, Promotion, and Advertising on Brand Equity • Jedidi, Mela & Gupta • Brand Sales = b0 + b1*price + b2*deal • b0 is brand equity • b0=f (ads and discounting) • b1=f (ads and discounting) • b2=f (ads and discounting)

7. Summary • Price affects equity • Inferences of quality • Low price focuses attention away from brand • Solutions to price competition • Fighter brand • Differentiate brand • Lower costs and price • EDLP • Charge different prices