Brand Management (MKT624)
VU
the costs down. This model is workable in markets with minimal differentiation, price sensitivities, a large number of manufacturers, a large number of substitutes, and easy entry. The one with the highest volume and share is in a position to cause a shake out and hence discourage new entrants from coming in. Harvest pricing: This model applies to products at the decline stage when volumes are falling. You increase the price and try to reap higher margins on costs. When volumes further slide, margins compensate for that until the product fades away and makes way for another one. We have seen that market-based pricing starts with the market, competitive situation, and product positioning and from there it works backward to arrive at margins. Cost-based pricing starts from the company and reaches its final stage by adding mark-ups at every stage of the chain. It is wonderful to command a premium price and make more margins, but volumes may not be that high. Conversely, it is prudent to follow a conservative approach that generates benchmarks for the company to charge prices almost bare minimum. But then, you may be grossly under-pricing and denying yourselves the opportunity of charging the right price. There is no one answer to a variety of situations you may find yourselves in while pricing your brand. However, following are a few guidelines for you to be sensible in pricing your brand. Differentiation: Level of differentiation does offer guidance into the kind of model you should follow. Market-based model for differentiated products and cost-based model for those with minimum differentiation seem to be one guideline. Touch both the bases: Within the generalized guidelines, you should look into the positive aspects relating both the bases while pricing your brands. Don’t forget contribution: One important factor that you must not lose sight of is that of total contribution. You have to arrive at a combination of volume and margin that increases businesses’ total contribution. High volume and low price affect contribution negatively: Going for high market share and high volumes at the cost of price may not be a good strategy, for it affects contribution negatively. However, if there is a pressing argument for doing so, then consensus among marketing and other colleagues must be achieved to make the best possible decision. Assess the perceived value: The perceived value your brand offers to your customers must neither be over-estimated nor under-estimated. Stay within the mainstream price: Customers will never pay a price they think is beyond what they assess as the added-value your brand carries. Staying within the mainstream price is the answer. You should try to see how close or far off that is from both the models and what kind of contribution that offers. Subsequent to that consider the factor of contribution margin to have confidence in your decision.
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