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Brand Management

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Brand Management (MKT624)
VU
Lesson 37
PRICING
Introduction
We move on to the next learning block of pricing. The lecture discusses the concept for
developing premium pricing for your brand. The considerations that lay the ground for
developing such a model are a part of the lecture.
Pricing
Once you have determined the positioning of your brand, developed brand architecture, and
have plans in place to leverage it through the right channels and communication, the next most
important task is the determination of pricing. Pricing has to be done keeping in mind that your
brand is an asset that is going to provide you with the right contribution to enable you achieve
all your financial goals.
Raising or lowering the price point makes the difference between high or low contribution
margins. Pricing, in other words, determines the level of value that it adds to the company.
The ideal situation is that we try to command a premium price in relation to competition, but
idealistic set of circumstances is not what always prevails in the market. We, therefore, have to
take a realistic look at all the determinants of our brand architecture strategy in the light of
forces that define the market.
Strong umbrella lets you charge premium
If you are stretching a strong, powerful brand or following umbrella strategy to gain the
benefits of a strong brand, then you should be all set to go for a premium price.
Source/endorsing brand strategy also helps premium
Similarly, if you are introducing a new brand under the source brand or endorsing brand
strategy to gain the benefits of brand power, you again are in a position to charge a premium
price.
The question is what if you are a new company offering a new brand? It may be difficult to go
for a premium pricing. However, it is not impossible. You may co-brand and go for a decent
price point, if not premium.
There are so many different pricing models, but let's concentrate on the premium price model
and see under what conditions it works best? Some of the following conditions offer a good
ground for brands to stand on and enjoy the benefits of premium pricing1:
·  The stronger the brand, the greater the potential to charge a premium price. Customers
are always willing to spend more on a brand that is well established and commands
power.
·  A strong extension (line or brand) sets the stage for a launch that is less expensive and,
hence, offers you a platform from where you can extract better margins. This is a case
of lower costs!
·  By the same token, you can recover development and launch costs sooner if your
introduction is endorsed by a strong brand. Customers are willing to try a new product
under a familiar brand name than a new one. This also entails lower costs!
·  The larger the base of loyal customers, the greater the chances that those customers will
pay a premium price. That is why managers work so hard to retain their customers over
time. The longer customers stick to one brand, the more they are willing to pay, thus
enhancing value of the brand.
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Brand Management (MKT624)
VU
·
A strong brand allows all the members of the channel to make more money and make it
fast. It, therefore offers you the leadership role and you control the channel.
·
A strong brand offers opportunities like licensing, franchising, and co-branding.
Capitalized strategically, these offer companies value in financial as well as market
terms.
Three facts about strong brands
We can figure out three facts from the above conditions:
1. Brand strength, pricing, and costs are related
Brand strength, pricing, and costs have such a relationship that their combination allows
you to have a healthy bottom line either through charging a premium price or through
lowering costs.
2. Strong brands offer added benefits and hence premium
Another fact that is clear is that strong brands are superior products that offer you added
benefits. If you happen to be at the top of the value pyramid, there is nothing stopping
you from charging a premium price.
3. Brand loyalty brings you premium
Similarly, it becomes obvious that loyalty and premium pricing are also related.
Maintaining brand loyalty, therefore, is one of the prime jobs of brand managers who
must know what are the drivers of brand loyalty?
Factors that drive loyalty
General observations of marketing managers are substantiated by research findings that show
us that the factors that really drive loyalty carry weight in the order they are shown as
grtaphics2.
Drivers of Loyalty
Figure 42
The
order
is
significant,
and
convincingly reflects the fact that it is
not the price that a company should
Quality
focus on; it is the benefits that must get
concentration of managers. The more a
company can generate the drivers on top
Dependability
of the list, the better chances it has to
charge a premium.
Association
The concept of value pyramid is getting
a testimony for credibility here. The
need to be consistent all along the road
Value for money
from brand picture to contract to
Drivers
positioning to brand architecture and
In order of
weight
communication cannot be emphasized
Fits personality
anywhere more than here at the price
juncture.
The pricing, in other words, has to be
Solves problem
consistent with product development
strategy. Rest will fall in place. A good
Good customer
product that can offer customers the
service
benefits
illustrated
graphically,
preferably in the order shown has a great
Environmentally
chance to demand a premium pricing.
friendly
This applies to all brands, tangible
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Brand Management (MKT624)
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products and services, regardless of the category.
We have seen how a premium pricing model works, but then not all situations are conducive to
charging a premium pricing. What then is the right model? We shall discuss that in the next
lecture.
Summary
The discussion makes one strong point that in order for a brand to command a premium price
or a level of decent price, it has to make itself strong. Brand managers should consider brand
architecture both from the multiple standpoints of market acceptance, lower costs, and better
pricing. The stronger the brand, the better the price it commands.
Brand loyalty is the strongest ingredient of premium price. Customers tend to accept premium
pricing if they are loyal toward a brand. Loyalty is a function of so many factors that consumers
have rated in order of preference. Going by that it becomes clear that managers should work to
strengthen those factors and good pricing will fall in place.
Bibliography:
1. Scot M. Davis: "Brand Asset Management ­ Driving Profitable Growth through Your
Brand"; Jossey-Bass, a Wiley Imprint (200-202)
2. Scot M. Davis: "Brand Asset Management ­ Driving Profitable Growth through Your
Brand"; Jossey-Bass, a Wiley Imprint (206-207)
Suggested Readings:
1. Scot M. Davis: "Brand Asset Management ­ Driving Profitable Growth through Your
Brand"; Jossey-Bass, a Wiley Imprint (199-207)
148
Table of Contents:
  1. UNDERSTANDING BRANDS – INTRODUCTION:Functions of Brand Management, Sales forecast, Brand plan
  2. INTRODUCTION:Brand Value and Power, Generate Profits and Build Brand Equity
  3. BRAND MANIFESTATIONS/ FUNDAMENTALS:Brand identity, Communication, Differentiation
  4. BRAND MANIFESTATIONS/ FUNDAMENTALS:Layers/levels of brands, Commitment of top management
  5. BRAND CHALLENGES:Consumer Revolt, Media Cost and Fragmentation, Vision
  6. STRATEGIC BRAND MANAGEMENT:Setting Objectives, Crafting a Strategy, The Brand Mission
  7. BRAND VISION:Consensus among management, Vision Statement of a Fast Food Company, Glossary of terms
  8. BUILDING BRAND VISION:Seek senior management’s input, Determine the financial contribution gap
  9. BUILDING BRAND VISION:Collect industry data and create a brand vision starter, BRAND PICTURE,
  10. BRAND PICTURE:Brand Value Pyramid, Importance of being at pinnacle, From pinnacle to bottom
  11. BRAND PERSONA:Need-based segmentation research, Personality traits through research
  12. BRAND CONTRACT:The need to stay contemporary, Summary
  13. BRAND CONTRACT:How to create a brand contract?, Brand contract principles, Understand customers’ perspective
  14. BRAND CONTRACT:Translate into standards, Fulfill Good Promises, Uncover Bad Promises
  15. BRAND BASED CUSTOMER MODEL:Identify your competitors, Compare your brand with competition
  16. BRAND BASED CUSTOMER MODEL:POSITIONING, Product era, Image Era, An important factor
  17. POSITIONING:Strong Positioning, Understanding of components through an example
  18. POSITIONING:Clarity about target market, Clarity about point of difference
  19. POSITIONING – GUIDING PRINCIPLES:Uniqueness, Credibility, Fit
  20. POSITIONING – GUIDING PRINCIPLES:Communicating the actual positioning, Evaluation criteria, Coining the message
  21. BRAND EXTENSION:Leveraging, Leveraging, Line Extension in detail, Positive side of line extension
  22. LINE EXTENSION:Reaction to negative side of extensions, Immediate actions for better managing line extensions
  23. BRAND EXTENSION/ DIVERSIFICATION:Why extend/diversify the brand,
  24. POSITIONING – THE BASE OF EXTENSION:Extending your target market, Consistency with brand vision
  25. DEVELOPING THE MODEL OF BRAND EXTENSION:Limitations, Multi-brand portfolio, The question of portfolio size
  26. BRAND PORTFOLIO:Segment variance, Constraints, Developing the model – multi-brand portfolio
  27. BRAND ARCHITECTURE:Branding strategies, Drawbacks of the product brand strategy, The umbrella brand strategy
  28. BRAND ARCHITECTURE:Source brand strategy, Endorsing brand strategy, What strategy to choose?
  29. CHANNELS OF DISTRIBUTION:Components of channel performance, Value thru product benefits
  30. CREATING VALUE:Value thru cost-efficiency, Members’ relationship with brand, Power defined
  31. CO BRANDING:Bundling, Forms of communications, Advertising and Promotions
  32. CUSTOMER RESPONSE HIERARCHY:Brand-based strategy, Methods of appropriations
  33. ADVERTISING:Developing advertising, Major responsibilities
  34. ADVERTISING:Message Frequency and Customer Awareness, Message Reinforcement
  35. SALES PROMOTIONS:Involvement of sales staff, Effects of promotions, Duration should be short
  36. OTHER COMMUNICATION TOOLS:Public relations, Event marketing, Foundations of one-to-one relationship
  37. PRICING:Strong umbrella lets you charge premium, Factors that drive loyalty
  38. PRICING:Market-based pricing, Cost-based pricing
  39. RETURN ON BRAND INVESTMENT – ROBI:Brand dynamics, On the relevance dimension
  40. BRAND DYNAMICS:On the dimension of knowledge, The importance of measures
  41. BRAND – BASED ORGANIZATION:Benefits, Not just marketing but whole culture, Tools to effective communication
  42. SERVICE BRANDS:The difference, Hard side of service selling, Solutions
  43. BRAND PLANNING:Corporate strategy and brands, Brand chartering, Brand planning process
  44. BRAND PLANNING PROCESS:Driver for change (continued), Brand analysis
  45. BRAND PLAN:Objectives, Need, Source of volume, Media strategy, Management strategy