Concept of Price Discounting and Its Prevalence in Businesses in the Corporate World - Coursework Example

Heading: Price Discounting and Brand Equity Your name: Course name: Professors’ name: Date Introduction This paper focuses on the concept of price discounting and its prevalence in businesses in the corporate world. It also explores ways in which a business can achieve its objectives by employing price discounting in its operations. In addition, the paper addresses the issue of brand equity and how it is affected by price discounting. Lastly, the paper explains how a brand manager can create a discounting strategy that promotes brand equity. Prevalence of price discounting According to Smith (2011, pp. 80-82), price discounts entail incentives used by businesses to attract repeat business from the consumers. Here, the primary idea is to offer customers a sense of getting an extra value by paying lower prices than the normal ones. Price discounting involves one of the pricing strategies used by businesses in order to improve their performance (Greene 2011, pp. 67-71). This strategy is majorly used by firms to create a competitive difference against its competitors. As a result, firms that use price discounting become value leaders in the market. The use of price discounting is prevalent today because of a number of reasons. To start with, price discounting is prevalent because it increases the consumer traffic when used as a short term plan. This is because the discounts used by retailers attract many clients in their stores (Greene 2011, pp. 67-71). Moreover, clients tend to shift to competitive commodities that are lowly priced. As a result, high consumer traffic increases the number of sales of a certain product under price discounting. Secondly, Smith (2011, pp. 80-82) says that price discounting is commonly used by businesses in order to enhance repeat customers in the organization. Customers are attracted to lower prices of competitive products. Price discounting helps a business win their confidence; hence having many repeat customers than its competitors. Thirdly, price discounting is beneficial in a business because of the increases in the amount of profits and revenues attained by retailers. This occurs whenever there is a short-term discount time, for it allows a firm to reduce inventory and temporarily increase revenues (Smith 2011, pp. 80-82). Additionally, price discounting prevalence in business lies on the retailers need to gain the consumers’ loyalty (Smith 2011, pp. 80-82). Moreover, price discounting model can be employed by businessmen as a public relations device. Ultimately, retailers gain more income in sales than it was prior to price discounting. Price discounting is also influential when a business wants to project future cash flow and plans. On the side of the buying business, there is a reduction in the costs of operations; hence, an increase in the company’s overall profit potential (Greene 2011, pp. 67-71). Besides, price discounting happens when retailers want to move products that are being stopped by the manufactures. They can also engage in price discounting when certain products have not caught the clients attention at the present labeled retail price (Wreden 2007, pp. 78-80). In this case, the key issue is allowing the retailer an opportunity to recover some part of the investment in the stock, for it is explicit that the products will no longer be generating the anticipated profits. With regard to the way a price discounting is applied on the merchandise, the retailer is most likely to recoup primary costs, and make little profit in the course of sales. Effectiveness of price discounting In business, the use of price discounting is aimed at the achievement of certain set objectives. Firstly, retailers use price discounting strategy to maximize both long-run and short-run profits in their business. Secondly, price discounting is applied by businesses in order to raise the volume of sales; hence increasing monitory sales. Smith (2011, pp. 80-82) postulates that companies also use price discounting plan as a device of widening its market share over its competitors. Moreover, the strategy is influential in obtaining projected rate of return on sales and rates of return on investment. What is more, the employment of price discounting strategy by businesses is aimed at maintaining price leadership (Baker 2010, pp. 20-25). Businesses also use it with an objective of discouraging new entrants in the market as well matching competitors’ prices. In addition, price discounting is useful in companies’ reduction of government intervention or investigation. Baker (2010, pp. 20-25) further says that maintenance of survival in the market is another objective of applying price discounting in a business. In addition, firms engage in price discounting in order to improve their growth, desensitize clients to price, and stimulate the removal of marginal companies from the industry. Lowengart & Yosef (2007, pp. 21-23) argue that businesses also employ discounting with an aim of building store traffic, make merchandise visible, and attain customers’ loyalty in the industry. Besides, firms use price discounting strategy in order to create a competitive advantage against its rivals in the market (Kapferer (2008, pp. 46-48). Price discounting plan is also used to discourage business rivals from reducing prices; hence maintenance of market leadership. Most importantly, the key goal of applying price discounting in a firm is to promote the image of the brand, product or the firm (Kotler (2009, pp. 24-25). Nonetheless, some of these goals are not well suited for price discounting strategy. For instance, the objective of preventing new entrants in to the market is inappropriate for this strategy. This is because many consumers are known to associate lowly priced products in the market with poor quality (Walsh & Ross 2010, pp.13-14). Therefore, there is a probability of another company to take advantage of the situation and introduce new products in the market. Besides, the objective of maintaining survival and market leadership may not succeed through the use of this strategy. This is because of the high probability of emergence of new entrants in the market (Dean 2004, pp. 24-26). Brand equity This entails the marketing influences and results that occur to a product that bears its brand name in comparison with those that would occur, if the brand of the same product is changed (Smith 2011, pp. 80-82). The knowledge of the consumer on brand enables firms to make appropriate marketing measures. Besides, brand equity, among other elements, is instrumental in increasing the number of financial worth of its owner. Some of the measures used in the determination of brand equity include profit margins, market share changes, brand language, customers’ perceptions, visual elements, and logos recognition by clients (Walsh & Ross 2010, pp.13-14). According to Smith (2011, pp. 80-82), many businesses have formed brand equity for their merchandise in various ways that include making them easily recognizable, memorable and superior in reliability and quality. They also achieve it through mass promotion campaigns. Brand equity can either be positive or negative depending on the circumstances surrounding it. Brand equity is quite indispensable for a firm that wants to widen its product line (Wreden 2007, pp. 70-80). Positive brand equity enables a company to increase the possibility of customers buying its new commodity through its association with the old successful brand. Wreden (2007, pp. 78-80) further asserts that brand metrics are vital in the effective measurement of brand value. A brand comprises of image, logo, and perceptions that creates identity of a service, product, or provider, in the client’s mind. Besides, Greene (2011, pp. 67-71) argues that a brand is shaped by the packaging, advertising, and other promotional communications. Effective pricing strategy In the promotion of brands, it is vital that the managers devise pricing strategies that have positive effect on their brand equity (Indrayani, Siringoringo & Saptariani 2008, 17-23). In case brand mangers want to employ price discounting in their marketing measures, they should create a strategy that promotes the brand of the company. Kapferer (2008, pp. 46-48) says that one of the ways of achieving this is through pricing in terms of value rather than cost. This implies that brand managers should only go for the prices that create long-term profits for the company. They should not also focus on cost of pricing because that will harm its brand equity (Kapferer 2008, pp. 46-48). Moreover, effective pricing strategy should focus on prices that are neither too low nor too high. This is because too high prices can injure the volume of sales in the company because customers will switch from the brand to another that is priced normally (Indrayani, Siringoringo & Saptariani 2008, pp.17-23). On the other hand, setting too low prices is risky for the business in that it will make consumers lose their confidence on the brand. This is because people tend to associate very low prices to poor quality of products. Therefore, brand and product managers should ensure that they set prices that are moderate in order achieve their objectives (Smith 2011, pp. 80-82). Moreover, Kotler (2009, pp. 24-25) says that in their pricing strategies, product managers should ensure that they use appropriate terms. For instance, when they want to offer complimentary services and products to their clients, managers should avoid the use of the term ‘free’ and use the term ‘no-fee’. This is because the ‘free’ term can harm the brand equity as customers will perceive it as valueless (Walsh & Ross 2010, pp.13-14). On contrast, the use of the term ‘no-fee’ is beneficial in that it gives consumers a perception that it has customer value, but the product is just offered to them as a gift (Kotler2009, pp. 24-25). Besides, effectiveness of pricing strategy lies on the maintenance of the customer loyalty and commitment to company products. Managers can achieve this through creation of smart discounting. According to Indrayani, Siringoringo & Saptariani (2008, 17-23), this implies that managers should discount prices of the products that promote a client’s commitment. For instance, product managers can discount sugar prices when selling coffee. This is because customers tend to buy sugar and coffee concurrently. This will increase the volume of sales of the products at the same time maintaining the products’ brand equity value. Another example of using a price discounting that does not harm brand equity is selling is seen in the case of Nokia phones. The company can lower the prices of the old technology and increase the ones for the latest technology in order to increase its sales. This is effective because customers tend to exhaustively purchase the old technology phones in avoidance of the highly priced latest Nokia phones. Conclusion Price discounting entails the reduction of prices of products and services in order to increase the sales, promote growth, maintain leadership in the market, cost recovery, marketing, and maximizes profits. Brand equity involves the influences and results of promotion of a product that bears its original brand as compared to the ones with a different brand. Nevertheless, price discounting strategy can have negative effects on brand equity in a company. For instance, clients can view the brand as valueless and switch to other brands. Discounting can also attract new entrants in the marketing; hence the loss of market leadership. Therefore, brand managers should choose strategies that promote a firm’s brand equity. References Baker, W 2010, The Price Advantage, Wiley, Hoboken, N.J. pp. 20-25. Dean, DH 2004, ‘Consumer Reaction to Negative Publicity: Effects of Corporate Reputation, Response, and Responsibility for a Crisis Event’, The Journal of Business Communication, vol. 41, no. 2, pp. 24-26. http://www.questia.com/PM.qst?a=o&d=5002649669 Greene, C 2011, Entrepreneurship: Ideas in Action, South-Western Cengage Learning, Mason, OH. Pp. 67-71. Indrayani, E, Siringoringo, H & Saptariani, T 2008, ‘Impact of Price on Brand Loyalty Sensitivity’ Delhi Business Review X, vol. 9, no.2, pp. 17-23. Kapferer, M 2008, The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term, Kogan Page, London Philadelphia. Pp.45-48. Kotler, P 2009, Chaotics: The Business of Managing and Marketing In the Age of Turbulence, American Management Association, New York. Pp. 24-25. Lowengart, O & Yosef, R 2007, ‘Modeling Customer Equity: a Stochastic Modeling Approach for Arrival and Departure of Customers’, Journal of Business and Management, vol. 13, no.4, pp. 21-23. http://www.questia.com/PM.qst?a=o&d=5045028732 Smith, T 2011, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, South-Western Cengage Learning, Mason, OH. Pp. 80-82. Walsh, P & Ross, SD 2010, ‘Examining Brand Extensions and Their Potential to Dilute Team Brand Associations’, Sport Marketing Quarterly, vol. 19, no. 5, pp. 13-14. http://www.questia.com/PM.qst?a=o&d=5047398124 Wreden, N 2007, Profit Brand: How to Increase the Profitability, Accountability & Sustainability of Brands, Kogan Page, London Philadelphia. Pp. 78-80. Read More