Your Brand Can Win Big If The Price Is Right

Brand building focuses on positioning, value, purpose, identity, and activation. But what about pricing? If handled wisely and strategically, it can be instrumental in the brand’s success.

How to price their brands is a question increasingly keeping marketers awake at night. Long berated as an enemy of brand equity, the global economic and political upheavals in 2016 have now added weight to the argument that pricing, if thoughtfully and strategically handled, can be a strong brand equity builder.

From global currency exchange rate fluctuations, a continued crisis in the banking and financial services sectors, Brexit, proposed US policy directives to the fluctuating state of Asian economies, multiple factors have impacted brand pricing strategies.

Pricing is not a child’s toy anymore. It was a big enough factor for a public dispute between Unilever and supermarket giant Tesco in the U.K, eroding brand perceptions of the FMCG company. It is significant enough for luxury manufacturers to start worrying about their brands’ exclusivity. Having an effective pricing strategy has become a boardroom conversation topic in organisations across the world.

In spite of all these developments, pricing is yet to catch the attention of those involved in building brands. This is precisely where the link between brand and business strategy is crucially missing. Brand building continues to focus on positioning, values, purpose, identity, and activation, with pricing being the weakest element. The vacuum is particularly strong in the wide space in which majority of brands operate, ignoring the luxury and ultra-cheap ends of a market.

Price Perceptions

Before looking in more detail at how pricing can be a strategic tool for brand equity building, let’s understand how it has evolved:

• More variety: In addition to discounts and promotions, consumers now have options that include PAYG, freemiums, subscription models, free trial periods, bulk pricing schemes, loyalty scheme-driven discounts, and so on.
• Higher levels of sensitivity: Consumers are now more sensitive to price differences due to widely available information and easy ways to research these online.
• Changing value perceptions: Price and associated perceptions of value always had a complex relationship. No single individual has a matching definition of “value,” but we do exhibit collectivist behaviour—think of overnight queues for iPhone or Xbox launches, or sell-outs of high street dresses when a celebrity wears them. We simply cannot ignore the global phenomenon of the Black Friday sales either. All these exemplify the fact that our value perceptions are very sensitive to external influences.
• Declining loyalty levels: Loyalty levels have dropped sharply in the last five years in most product categories. In the age of singularity (when our choices were linear, predictable, and made from smaller consideration sets), loyalty and pricing had a relatively sticky relationship. But in this promiscuous age, the loyalty-pricing relationship has become very sensitive to external influences.
• Openness to trade down/stubbornness to trade up: The popularity of supermarket own label brands, clothing retailers such as Zara and H&M, car brands such as Tesla, and discounted luxury brands have disrupted pricing dynamics. Consumers today are quick to trade down in terms of price-to-pay if their value perceptions remain stable. Getting consumers to trade up is a more difficult endeavour, where, for every one dollar in price, the value demanded increases multi-fold.

Pricing To Brand Build

All these factors influence the role pricing can play in strengthening brand equity. From a commercial perspective, pricing will continue to play a tactical role to leverage “low hanging fruits,” but that should not stop brands from using pricing as a deep brand-building tool. There are multiple avenues for brands to explore:

• Embedding pricing deeper during innovation: Innovation is the primary means for leveraging growth opportunities. Brand builders need to incorporate pricing at very early stages of the innovation process to address a three-pronged objective—“ strategic fit of new product pricing with that of the portfolio,” “ ability of the new product to add or take away from master brand price perception,” and “ commercial viability and competitiveness.”
• Deflecting attention from the price: This might sound counterintuitive, but pricing works well when it is not the centre of attention. An effective brand strategy that incorporates pricing at the core needs to deflect attention away from it. For example, Uber is comparatively cheaper than hiring a black cab or a mini cab in London (and in other cities), but the brand is being built on its ability to disrupt transportation (and not lower bills).
• Establishing a strong link with positioning: Pricing strategy for a brand needs to be strongly linked with its positioning. Consumer acceptance of price points for a brand that is transparent about its limitations, has grown (e.g. the fast fashion industry). But if a brand’s positioning pivots around the aspects of “being premium” and “exclusivity,” then its price points need to justify that positioning. It is important to keep in mind that consumer value perceptions for a product have no correlation with the relative importance of that product in the consumer’s life (aka “the diamond-water paradox”).
• Recognise the circular argument: If thoughtless tinkering with pricing has a negative impact on brand equity, then the opposite is also true. It is very hard to resist the lure of sales spikes that come as a result of discounting and promotion. But it is also important to realise that tactical pricing decisions should not contradict strategic ones. Offering a new variant or a new feature at initial discounted prices is a great way to build equity—consumers walk away with the perception that the brand has not offloaded all its risks on them.
• Adopt pricing strategies that last: Adopt pricing strategies to go hand in hand with medium and long-term brand strategy. If your intention is to challenge premium players in the market and you have supermarket-buying prowess to deal with, do not adopt “everyday low price” (EDLP) and other discount pricing strategies—your brand will be destined to the crowded, ultra-competitive, and sensitive middle and low tiers. In this scenario, pricing is effectively one of your differentiating platforms. If you intend to compete in the middle rung of the category, use pricing to compete effectively. But your core focus should be to establish the differentiated positioning of your brand. In this scenario, pricing’s main role is to sharpen and bring out a competitive advantage.

Pricing has a subdued relationship with brand strategy. It is vociferously blamed for debacles but not praised for contributing to success. Pricing strategy needs to accurately understand the value perceptions of a consumer, which, in turn, reflect the brand’s equity in the minds of the consumer. Depending on a brand’s positioning, category pricing dynamics, and the extent of a brand’s differentiation, an effective pricing strategy can go a long way in ensuring a brand’s success.