Pricing is just as important to brand equity as other differentiators, because it is a source of meaning and identity. A solid pricing strategy can have a positive effect on brand equity, while a poor strategy can do the opposite. The various types of pricing strategies include premium pricing, discounted or competitive pricing, cost-based pricing, introductory or penetration pricing, everyday low pricing and bundle or bulk pricing. Finding the right pricing strategy is vitally important for the brand equity of your business.
Businesses usually adopt a strategy of differentiation or price leadership. Differentiation works for companies operating in luxury or niche markets, while price leadership works for discount stores. The effect of a discount or competition pricing strategy can create an image of second-rate products, which could have a negative effect on the brand’s equity. For example, Europe’s leading low-cost airline, Ryanair, created new routes to smaller airports to save on landing fees, which serve areas not covered by traditional airlines. This alienated some customers, but gained brand equity for the company in other target markets.
Everyday Low Pricing
This pricing strategy is the official positioning of most grocery store chains. Walmart successfully follows this strategy, which is imitated by stores in other countries. The chain’s approach of profitable and sustainable price differentiation has become a winning strategy and created significant brand equity, positioning the company as a low price, high value retailer. In addition, brands that successfully move into developing markets with a large number of less affluent customers, such as China and India, have their brand equity directly affected by the affordability of their products to the target market.
Power of Pricing
Pricing at both ends of the strategy spectrum can affect brand equity in different ways. Premium pricing is the principle of setting a high price point to reflect the product’s exclusivity and quality. With niche brands, such as Chanel, Mercedes Benz or Rolex, the price is an aspect that the customers of the brand enjoy. It adds meaning and value to their purchase and sets the product apart from its competition. This makes the pricing strategy an important and integral aspect of the product’s brand equity. If the product doesn’t have any other strong differentiators, however, lower prices are likely to sell better than more expensive ones.
In a 2011 Value-D study by brand research company Millward Brown, thousands of brands globally were compared and classified into groups based on their perceived value to customers. Different brands were considered the best value for the price, depending on the respondents’ countries. For example, in India, eight of the top 10 brands were considered good value, which is defined as both desirable and cheaper. In China, however, Starbucks charges the same price for its coffee as it does in the United States. This has resulted in the brand being considered an aspirational or luxury brand, so its premium pricing strategy has contributed to boosting its brand equity in this case.