Price Discounts and Brand Equity - Coursework Example

Price Discounts and Brand Equity (Presented by) Name (Presented to) Lecturer Topic Date Introduction: Marketing is a function that positions a brand or rather builds a brand equity; which to the minds of the consumers is the real value of a product. It is important for marketers to realize that the consumers evaluate brand equity or value in relation to the price being charged. Therefore, it is true that there is a link between prices charged to a commodity and its brand value (Kotler, 2006). Price Discounting and Why It Is So Prevalent: Price discounting refers to the prices incentives offered to consumers at given times as inducement to attract more buyers (Saktishree, 2011). This could be new buyers or repeat business buyers. It is usually used as a sales promotions tool which urges and persuades the customer to buy ‘now’ and not a later time. Price discounts encourage sales though there have been debates on whether the price discounts impact negatively on a brand. Retailers offer price discounts to increase and boost their sales, while other use price discounts to attract business customers who are loyal and build long term business relationships. The basic idea behind price discounts is to give the buyers a value-add (Aaker, 2004). It is seen as a way of rewarding the buyers when done in moderation and at the same time boost short term sales. Long term use of price discount may impact negatively on products value because the products quality is directly proportional to its price in the consumers’ minds. Products value is evaluated from the price and product quality. Price discounts are so prevalent due the competition in the business environment. Each businesses person does his best to attract new customers and retain the existing ones. Price discounts encourage people to buy today which increases the sales volumes (Kotler, 2006). businesses using price discounts as a sales promotion tool focus on the volumes of sales over other important factors, for instance in selling products that can not be stored, one would rather give price discounts and sell all the products rather than stick to the market price and have some goods go bad ,which would mean incurring business losses. Some price discounts are pegged on volumes such that the discount is only given when one buys goods of a specified volume within a given time. At the end of it all the price discounts are given to increases sales volume, maintain existing customers and attract new customers and thus out do the competitors. The ever dynamic consumer demands make price discounts prevalent with each business person trying to attract new customers and maintain old ones (Aaker, 2004). Effectiveness of Price Discounts In Meeting Set Objectives: Price discounts are meant to benefit both the sellers and the buyers; the buyers get more value for their money while the sellers make more sales. However price discounts should be used in moderation because long term use of price discounts affects the products brand image. In many situations, consumers relate low price to low quality, especially if the brand name is new or uncommon (Saktishree, 2011). In such cases, price discounts fail to increase sales volume by attracting new customers and instead customers are put off as they become suspicious of the products quality. Frequent use of price discounts raises the probability of having the products or brand being perceived as lower quality brand. There fore, the objectives of use of price discounts may not be fully achieved. One may be getting new customers while others and the existing one may choose to buy the competitors brand because of the perception that low prices go with low quality. There may be customers whose purchasing decisions are purely based on the prices charged, and are thus likely to be attracted by low prices (Kotler, 2006). In the short run, price discount do drive sales for a short period but it impacts negatively on customer loyalty. Customer loyalty comes with customers trusting a product or a brand, which can not happen with a brand that is always giving discounts since customers perceive brand quality to be reflected in its price. One can offer a price discount but get outdone by a competitor who competes by offering even a much lower price. When this happens, the discounted prices seem to be the normal price and it thus becomes difficult to increase prices again and worse the brand is already perceived as a low quality brand in the market. The hard earned market share may be permanently lost and sales volumes remain low. Thus, price discounts does not always work to the attainment of sales objectives and market share objectives though it at times raises the short term sales. Pricing strategies and discounts: Prices depicts to the target market the brand’s intended value positioning. Therefore, Price discounts impact on the brand equity negatively in most cases because it is seen as a low value positioning (Saktishree, 2011). However, responsible price discounts may work well in meeting sales objectives without harming the brand equity or brand value. This calls for brand manager to be very certain of the brand image of their product in the market compared to the competitors. New products may have few or none competitive points, and reduction in prices by way of giving price discounts would not really add any benefit to the brand or product. Quality of a brand is established over time and thus, care should be taken not to destroy the hard earned brand image by use of price discount in a bid to increases sales for a limited time. This is because all businesses thrive in long term business relationships with the consumers; the brand quality has to be tested to earn trust in the consumers’ minds. Regular discount may be suspicious in the minds of the consumers though there is a certain consumer group that is price-conscious. If a business is to use price as competitive strategy to position itself in a better place against the competitors, other important brand features have to be established and made clear to the consumer minds (Kotler, 2006). In marketing a brand, one needs to find out what the target consumer group regards important and a key influence on purchase decision. For instance, what the final consumers look for in a brand may differ with what a wholesaler looks for in the same brand. A consumer may be interested in the performance of the brand or a specific product while a wholesaler may be keen on trade discounts or credit facility. A consumer may be concerned with the packaging while a wholesaler may be concerned on the price. The wholesalers’ goal is to buy at the fairest price possible to increase his profits while as a consumer interest is in the production ability to satisfy his real and perceived needs. The wholesaler may not be only interested in one brand unless he is an exclusive distributor; he may be interested in all brands in the market because he may focus on positioning his shop against competitors as a shop with variety. Modern distributors are aware of the concept of brand image and strategically place themselves in position that attracts the most competitive advantage. As a brand marketer, one has to identify with the needs of the target consumers before settling on price discount as a sales promotions strategy. Different types of products require different market positioning strategies (Drypen.in, 2010). For example, when fast food restaurants give price discounts and other offers such Buy One Get One deals, the consumers may react differently. There some majority who will not purchase on any other day till the day of offer while there others who will associate such with a reduction quality and stop purchasing any more, may be due to perceived drop in quality or because it becomes so affordable to many that the restaurants becomes flooded. The trick is to identify a sustainable target market segment. The youth and students may enjoy offers on pizzas while a different group may not. Should one find the students and the youth able to sustain profitable business, price discounts strategy can be employed, if the market can not sustain the business and enhance growth, other strategies that do not chase away the older consumers should be embraced. The fact is in pricing strategies, different products need different strategies. Consumers tend to be price sensitive for products that are frequently purchased and are expensive. On the other hand, ego-sensitive products such as luxury cars and perfumes needs image pricing where the consumers are satisfied with getting the most expensive brand (Kotler, 2006). There is a risk of having the consumers expecting deep discounts and perceiving the discounted prices as the actual product prices in frequent price discounts. Brand mangers should be able to create a relationship between high quality and high price in the consumers’ perceptions. Some times price discounting can be used as a trade lever but even then, there is a need to have the quality increase in the consumer minds. This ensures that the equation of brand value is equal to quality over price remains relatively un-tampered with. Brand quality may be enhanced by physical features such as new –packaging, in such cases the prices may be increased with much reactions from the consumers (Aaker, 1991). A change in price should come with a change in quality in the consumers’ minds or a direct reasonable cause for the change. For example consumers can excuse price increase when there is more advertising and publicity events of a brand. Brand Equity: Brand equity is the brand’s image in the consumers’ eyes. It is very hard to quantify but it represents the value attributed to the products (NetMBA.com, 2010). Branding is done and customers find it easy to identify the products from other substitutes in the market thus branding is like giving identification or a name (Aaker, 2004). Brand equity is reflected in the market outcomes that accrue to a product due to its brand name in contrast to the same product without a brand name. Brand image is created over time and organizations find brand equity as the most important asset they can capitalize on in marketing plans and strategies. A brand image gives the consumers a reason to purchase one product and ignore another one. Brand equity can be evaluated on elements such as market share, profit margins, consumer recognition of the brands name, logos, color and other visual aspects, consumer perceptions on quality and value among other elements (Killian Branding, 2011). Conclusion: ‘Know your customers’ is a key concept in marketing that can never be outdated. It refers to understanding their purchasing motives and patterns their life styles, attitudes, social beliefs and cultures, trends in terms of style fashion and health sensitivity issues, among other areas (Kotler, 2002). Brand equity should be guarded at all cost since it is not cheap to create it; it consumes material and time resources. It is thus an important business asset that should not be comprised by use of sales promotion tactics like price tactics (Marketing Wharton, 2011). The secret in perceived-value pricing is to deliver more brand value than the competition and to demonstrate clearly this value to the target market. Pricing affects brand image as the majority consumers perceive price as the indicator of quality thus the Product value (Kotler, 2006).   References: Aaker David, 2004, Brand Portfolio Strategy: Creating Relevance, Differentiation, Energy, Leverage, and Clarity, New York: Free Press Aaker David , 1991, Managing Brand Equity, New York: Free Press Drypen.in, 2010, Market Share Equalization as a Method for Evaluating Brand Equity Available from: http://drypen.in/branding/market-share-equalization-method-for-evaluating-brand-equity.html Killian Branding, 2011, The Impact of Discounting on Brand Equity Available from: http://www.killianbranding.com/whitepapers/the-impact-of-discounting-on-brand-equity/ Kotler, Philip et al, 2002, Marketing Management, 13th edn. New Jersey: Pearson Prentice Hall Kotler, Philip et al, 2006, Principles of Marketing, 11th edn. New Jersey: Pearson Prentice Hall Marketing Wharton, 2011, Product Pricing and Brand Equity available from: http://marketing.wharton.upenn.edu/ideas/pdf/Green/Monograph/Adventures%20-%20Part%20II%20-%20Chapter%205.pdf  NetMBA.com, 2010, Brand Equity. Available from: http://www.netmba.com/marketing/brand/equity/ Saktishree, 2011, Impact of price on brand image Available from: http://saktishree.blogspot.com/2010/04/impact-of-price-on-brand-image.html Read More