Brand Equity and its Relationship with Price

Being rapid consumers of goods and services in a fast paced and technologically advanced era, the name, value and reputation of the brands of products we use are as important as the products’ purposes. When we think of aerated drinks, Coca Cola comes quickly to mind. When we think of sportswear, the ubiquitous tick mark logo of Nike is what pops up often. This is what brand equity essentially is — the perceived social worth and value of a brand solely as a result of its name and reputation.

What does price have to do with it? Perceptions about a brand’s values, personality, and heritage all factor into consumer sentiment toward a brand. Typically, price is seen as something separate and distinct from other elements of brand equity: it’s a factor that consumers weigh against their feelings about a brand. The perception of price is emotional rather than intellectual.

But in reality, a brand’s price is just as important and integral to a brand’s equity as any other association. Price is a source of meaning and identity for a brand, not a separate countervailing factor. However, considering many traditional marketing practices, it is not difficult to see how this fundamental truth has been obscured. Price promotions are often used to gain short-term volume that has little positive impact over the long term. Reckless price competition can erode meticulously and painstakingly built brand value. While consumers may enjoy the reduced prices that result from these actions, they may not be getting a bargain in the long term if brands are unable to invest in innovation, or worse, if they go out of business due to disappearing margins.

Price as Equity

When price is recognised as a critical element of a brand’s association set, it’s usually in relation to a luxury brand. The status of brands such as Rolls Royce, Ferrari, Prada, or Lamborghini is underpinned by the price at which it is sold. Their high price sets them apart and makes them exclusive; it is an integral part of their brand equity. The high price is part of the brand value that the brands customers enjoy.

But a brand’s price doesn’t have to be high to provide an emotional benefit to users. A mid-priced brand that offers a satisfactory brand experience can be loved as much as an expensive one that offers a superior experience. A brand that gives us a good deal evokes a strong positive emotion in most of us.

Profitable and sustainable price differentiation can be more than a tactical manoeuvre; it can be a winning strategy for a brand. Everyday low pricing (EDLP) has been an acknowledged part of grocery retailer positioning for many years. Big Bazaar’s daily lowest price offering is a good example. Various car brands have positioned themselves as low-price/high-value options around the world: Kia in the United States, Fiat in Brazil, Skoda in the Czech Republic, and Tata in India.

Low Price as Identity

In India, 8/10 of the most desirable brands are Good Value, while the other two are Expensive. This suggests that the price of the brands is a powerful part of their appeal. For brands with the highest ratios of desire to price (the highest Value-D scores), 6/10 globally are Good Value, while all of the top 10 in India are Good Value.

Pricing is a genuine and relevant differentiator in virtually every market. In the absence of any other perceived differentiation, a lower-priced brand is highly likely to win out over a more expensive one. Some consumers will willingly choose the less expensive brand, while others will simply lack the means to pay more.

Value

Here’s where it gets a little technical and theoretically heavy: the issue of value and the question of how people come to determine that a brand is a Good Value.

Brands are classified into one of four groups. The four groups are:

  • Good Value (desirable and cheaper),
  • Justified Premium (desirable and more expensive),
  • Poor Value (less desirable and cheaper),
  • Expensive (less desirable but higher priced).

At the global level, out of the 10 brands with the highest level of desire, 4 are Good Value (including Amazon, the most desired brand overall), 5 are Justified Premium, and 1 is Expensive. Pampers, the second-most-valuable CPG/FMCG brand in the world, is one of the brands in the Justified Premium group. It is clearly a brand that represents excellent value to consumers, even if its premium price would deter people from talking about it as a Good Value.

The Value Equation: Making Brands Affordable

In developing markets, it often happens that even when multinational companies reduce production and distribution costs as much as they can, the absolute cost of their brands remains high in relation to the income of the local population. In these instances, the brands can still be made available to aspiring consumers using creative approaches to pack sizing and payment options. For example, in India, Levi’s offered consumers the option of buying jeans on a monthly instalment plan, thereby making the brand seem more affordable without actually reducing the absolute price.

Managing the Role of Price

Marketers need to actively manage the role of price in the equity of their brands. Ignoring it will not minimise its importance. Price will affect brand perceptions; marketers need to shape those effects. The chosen strategy relating to price and value must be executed through the full range of marketing activity. If a value positioning is chosen, especially one that promises the lowest price, the management must ensure that basic quality standards are maintained and promises kept. Should a value brand have a crisis or need to undertake a product recall, consumers may be quick to assume that the company cut too many corners to support the brand’s low price.

CONCLUSION

Perceptions of price are inextricably woven into brand association, both rational and emotional, that are created and reinforced at every consumer touchpoint. A brand’s price, whether it’s low or high, is as much a part of a brand’s identity as the brand name or the packaging. To price a brand appropriately and to effectively build relevant and motivating associations around that price is to harness the power of one of the most important factors in the decision-making process for consumers.