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Pricing
Professor Carl Mela
BA 460 Product Management
Fuqua School of Business
• Brand
Management
System
• On Building
A Brand
• Managing
Across
Brands
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Agenda
• Pricing to Build Equity
• Measuring the Effect of Price,
Promotion, and Advertising on Brand
Equity
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Pricing to Build Equity
• When attributes are based on
experience (new camera) or belief
(detergent), consumers often infer
quality from price.
• This leads to the notion of price tiers.
• Quality and price determine value.
Consumers will buy if value>cost.
– Increase quality
– Reduce price
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Pricing to Build Brand Equity
• Value pricing: Balance features and prices
to satisfy objectives of firm and consumers
– Design and delivery
• “Build a Better Mousetrap” article
– Product costs
• Do customers really want to pay for a feature?
– Product prices
• Willingness to pay measures (often an indicator of
equity) - match prices to willingness to pay
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Pricing to Build Brand Equity
• EDLP (Every Day Low Price)
– Is it better to cut price and reduce deals
• Train consumers to be price sensitive
• Inventory costs go up
• Production costs increase
– Or increase deals and price?
• Increase excitement for brand
• Price discriminate - “Cheaper than You” paper
– Jedidi, Mela and Gupta paper.
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Measuring the Effect of Price, Promotion,
and Advertising on Brand Equity
• Jedidi, Mela & Gupta
• Brand Sales = b0 + b1*price +
b2*deal
• b0 is brand equity
• b0=f (ads and discounting)
• b1=f (ads and discounting)
• b2=f (ads and discounting)
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Summary
• Price affects equity
– Inferences of quality
– Low price focuses attention away from brand
• Solutions to price competition
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Fighter brand
Differentiate brand
Lower costs and price
EDLP
Charge different prices
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