Brand Credibility Impact on Consumer Price Sensitivity - Essay Example

Brand credibility impact on consumer price sensitivity al Affiliation: Brand credibility impact on consumer price sensitivity Introduction Brands affect consumer choice of a product at various stages leading to varying consumer utility functions. Previous empirical and conceptual work has focused on how consumer perceives product attributes which affect brands. This paper extends to work on economic principles behind brand effects by analyzing whether price sensitivity or rather the weight attached to a price of a product in evaluation of a product overall attractiveness, is affected by brand credibility. While exploring the impact of brand credibility on consumer price sensitivity, product analysis of four brands was done on; frozen concentrate juice (Dole, Sunkist, Minute maid, Welsh and Tropicana and Welsh), shampoo (Clairol, Pantene Pro-V, Herbal Essence, Salon Selective and Pert Plus), jeans (Calvin Klein, Lee, Wrangler’s, Gap and Levis), and personal computers (Apple, Dell, Compaq, IBM and Gateway). These products have varying degree of potential consumer uncertainty about their attributes, and in other category-specific features that affect consumer sensitivity to uncertainty. Results indicated that brand credibility decreases price sensitivity and although the direction of the impact is the same, brand credibilitys impact magnitude on choices of consumers and price sensitivity varies across various categories of products. Impacts of brands Brands usually play many roles that affect consumer’s choice behavior. More importantly, consumer uncertainty about product attributes and/or benefits that arise from the condition of imperfect and asymmetric information characterizing many product markets because firms are better informed about their own products than consumers. Brands may play key roles in determining how consumers learn, translate and evaluate brand information or attributes. Brands may also influence how consumer evaluates the relative values of attributes/levels, perceptions of risk and information costs, attribute combination rules, and the decision rules used to make marketplace choices. (Erdem & Swait, 2002) A great concentration has been established to capture the effects of brands on consumer choices and the effects of the price premiums for the strong brands with little systematic research to determine whether and how brands affect consumer price sensitivity. Price premium research only demonstrated consumers’ willingness to pay a bit higher price for brands with higher quality or brands with positive associations and the like. Meaning even if consumer price sensitivity is constant for all brands, the stronger brands command price premiums like PCs in our case. Many firms have tried to affect valuations of consumer price by varying their marketing mix, which is an advertising and price promotions strategy on price sensitivity. However, it is not obvious or well established whether brands change consumer price sensitivity. Researchers have well tried to understand what really determines consumer price sensitivity because of its fundamental importance to inform and assist managers of various firms on product design, strategy of pricing and management of brand equity. However, despite all these advances, there has been little done to reveal the effects of consumer uncertainty about a brand or product attributes on price sensitivity. Thus, the primarily purpose of this paper is to explore whether and how brands affect consumer price sensitivity when there is uncertainty about product attributes. (Erdem & Swait, 2002) The impact of brand credibility on consumer price sensitivity In particular, I investigate the effects of brand credibility on consumer price sensitivity under uncertainty. Credibility of a brand is defined as a signal to be the believability of the product position information contained in a brand (Erdem & Swait, 2002). This however, this depends on a brand’s willingness and ability to offer what it promises to consumers. The importance of brand credibility to the effectiveness of a brand as a signal of product should be well established. Brand credibility on price sensitivity differs across product categories to some extend specifically, using the four product categories representing different degrees of potential uncertainty and sensitivity to such uncertainty (frozen concentrate juice, jeans, shampoo and personal computers). These categories vary in: (1) The length of history of consumers’ consumption of the product to perfectly evaluate the product attributes or significantly reduces uncertainty. (2) Product and brand knowledge extend that consumers have acquired purely from search activities to significantly reduce their uncertainty. The longer the history of consumption for a consumer need, as well as the less a consumer depends solely on search to perfectly evaluate a brand and ascertain its quality, ceteris paribus the more the degree of uncertainty experienced by a consumer. This in turn may affect the impact of credibility on consumer utility and price sensitivity as well. Firms may use various individual marketing mix elements to signal product quality, such as charging higher prices or offering extended warranties or even distributing via high-end channels. The signal conveyed by a brand differs from other mix elements because it represents a firm’s past and current marketing mix strategy, activities as well as brand investments. Similarly, brand credibility differs from the credibility of individual signals of marketing mix quality signals like advertising because brand credibility represents the collective effect of the credibility of all the other previous marketing actions taken by that brand. Credibility has two main dimensions, that is, trustworthiness and expertise according to Erdem. A brand is perceived to be credible if it is willing and able to deliver what is promised. Trustworthiness on the other hand implies that a brand is willing to deliver what is promised, while expertise implies its capability to deliver. (Erdem & Swait, 2002). A brand may imperfectly communicate product position through brand investments such as product design, advertising, community involvement and so forth. Sellers who invest heavily in their brands should provide truthful product position information to avoid future long-term loses in their investments. If a brand is credible and well signals its positioning, consumers lower their perception of risks, gather less information about the product and lower processing costs they need to incur when making decisions. Ceteris paribus, higher signal credibility may also increase consumer perceptions of quality as consumers may conclude that more credible brands’ quality is higher than the less credible brands. Finally, consumers’ quality perceptions may be increased by credible brands because brand signals may affect the process from which objective quality levels are converted into perceived levels. This means two brands with quality-tier may be associated with different perceived quality levels due to difference in brand credibility levels. The credibility of a brand should increase the expected utility by; (1) Increasing the apparent quality and/or raising the expected quality. (2) Decreasing perceived risk and information costs. (Erdem and Swait, 2002) Erdem and Swait investigated and established the importance of credibility in brand equity, but they did not integrate brand prices in their analysis, brands and prices. The potential impact of brand credibility on price sensitivity and whether category-specific factors moderate the impact of credibility on consumer choices, have yet to systematically examined. Evaluation I find the research by Erdem reliable because they directly clarify their research methods and explain all the factors of creating a brand as a researcher. As Erdem mentioned in the introduction of their article, the successful creations and managements of brands will be the hallmark of business in the twenty-first century. Erdem recognized that the world today is way different from what it was a couple years ago, and the new systems have placed brands to be the keys of business success. Therefore, Erdem give examples of existing brands from the position of knowing of these companies’ strategies in the twenty-first century. I would personally use Erdems research to understand how a brand can convince people to buy and be proud of having a brand. I like the way Erdem explain the factors and gives examples for better understanding. In addition, I like the way that they talk about the most powerful Brands and their growth in the twenty-first century. Erdem covers most of the impacts of brand. Erdem question and talk about the importance of brand, and how we conduct our economic lives. Brand generally plays significant roles that affect consumer’s choice to buy a product. Mario’s ideas assured me that brand could affect various stages of consumer choice processes, and several of consumer utility functions. For example, Apple is ideal brand for many people however; apple did put its brands name as number one preferable brand to many people around the world. Marios examples are reliable. Conclusion Price on consumer utility impact may be moderated by the credibility of the brand when there is consumer uncertainty about it and asymmetric information in the market. Brands that are more credible benefit consumers who are rewarded by decreased price sensitivity. Managers should make pricing decisions that take into account the value of consumer’s brands. Findings regarding the effects of brand credibility on price sensitivity suggest that brand managers should be enthusiastic about managing and protecting the credibility levels of their brands. Management of brand should include all aspects of credibility, such as consistency of all brands’ marketing mix elements, strategies over time, negligible changes to a product quality level of a brand, and/or carefully considering the consequences of extensions to brands. (Erdem & Swait, 2002). Reference Erdem, T., & Swait, J. (2002). Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 7 (2), 131– 157. Read More