Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
Article Type: Introduction From: Journal of Product & Brand Management, Volume 20, Issue 7
It is most fitting that research on pricing is included in a special section and a special annual issue of the Journal of Product & Brand Management since pricing and branding are joined at the hip. The primary goal of branding is to get a premium price. There are, of course, subsidiary goals such as increasing customer loyalty and ease of diversification. But getting a price premium is the main goal. It is so obvious a goal that the most common operationalization of brand equity is a measure of price premium. As an example of the premium, in our local market a 20 oz. bottle of Coke costs $1.49, but the same size no-name bottle costs only $ 0.99. Coke is getting premium of 50 cents due to their brand. It is clear that a good brand image commands a premium price.
Due to the price premium generated by a brand, companies are willing to invest literally billions on brand development. The costs to Unilever of developing the AXE brand have been estimated at some $2 billion (Ahmed, 2011). This includes all the product development, advertising, promotions and trade discounts since 1983. This investment was made with the expectation that it would be more than returned with the price premium.
Although companies operate confidently in the belief that a brand brings a higher financial return, the benefit is hard to verify empirically. The problem is exacerbated by the difficulty of defining brand equity. Back in 1992, Holbrook defined brand equity as “the financial impact associated with an increase in a product’s value accounted for by its brand name above and beyond the level justified by its quality (as defined by its configuration of brand attributes, product features, or physical characteristics)” (Holbrook, 1992, p. 72).
The Holbrook definition of brand equity reflected only a company’s financial measure of equity rather than the consumer’s perceived measure of the brand. Using this definition, Holbrook could not verify that having a recognized brand had any influence on price above and beyond the actual quality of a good. His problem was due partly to the low level of trust that consumers had in brands in the early nineties, a distrust that was based on brands not reflecting the consumer’s perception of quality. But in addition, his problem was compounded by the difficulty in determining a price. As Holbrook (1992, p. 72) wrote:
One cannot unambiguously interpret published prices in industries where discounts, dumping and special deals are common […] by focusing on selling prices, we neglect aspects of brand strategies (e. g., competitive short-run price-cutting tactics or prestige-enhancing price leadership) that may cause these prices to depart from those consistent with customer value.
The difficulty that Holbrook had in isolating the separate effects of quality and brand on price can be explained not only by the 1990s consumer distrust of brands and the researcher’s difficulty in determining the price but also by the close association of quality and brand. For example, when combining the effect of brand with that of quality, Holbrook (1992, p. 77) found that together they explained “over 80 percent of the variance in prices of the home-theater products”. This led researchers to question Holbrook’s definition of brand equity.
Since the early 1990s many researchers have broached various definitions of brand equity. The common considerations were (Lassar et al., 1995):
A concern with the perceptions of the consumer.
The perception of value that is associated with the brand name.
The positive associations of the brand name.
The comparative advantage the brand name has over competitors.
The benefit of the brand to fiscal returns.
Aaker (1996) in particular stressed the consumer’s perception of a brand, and he investigated the potential antecedents of those perceptions. He found that a brand’s image is determined by four factors:
awareness (a feeling of security and trust in a well-known name);
perceived quality (a belief in the product safety, etc.);
associations (positive or negative beliefs as to the brand’s association with social causes); and
loyalty (often habit or tradition).
Hence the Aaker definition was opposed to the Holbrook definition in that Aaker stressed the consumer’s perception of a brand and Holbrook stressed the company’s financial return.
Anselmsson et al. (2007) resolved the conflict between the Holbrook and the Aaker definitions of brand equity. They isolated “consumer brand equity” from “financial brand equity.” Consumer brand equity is the brand as perceived by the consumer; financial brand equity is the brand as determined by its price premium.
The research of Anselmsson et al. (2007), which was published in the Journal of Product & Brand Management, confirmed the Aaker antecedents of consumer brand equity but added the dimension of “uniqueness.” Their research indicated that at least one effect in the Aaker dimensions had to stand out as “special.” They found that “uniqueness is just as likely to be related to performance on quality aspects as top-of-mind awareness, associations or loyalty. A brand’s degree of uniqueness appears to be the most important dimension in order to achieve price premium” (Anselmsson et al., 2007, p. 412). They ask rhetorically (Anselmsson et al., 2007, p. 412): “Why would customers be willing to pay the higher price (a unique price within the category) for a certain brand if it not is unique in some way?”
The research into the antecedents and consequences of consumer brand equity is confused by the direction of causality. Loyalty is an example of the confusion in the antecedents. Because consumers are loyal to a brand, they value that brand more. And because they value it more, they stay loyal to it. Confusion is also evident in the consequences of a brand. A good brand image can lead to a price premium, but a price premium can also lead to an enhanced brand image. For example, the price of a Jaguar implies that it is a superior brand. Because Jaguar is a superior brand, consumers are therefore willing to pay more for it. Hence the direction of causality is a continuing problem.
The difficulty of untangling the relationships among quality, brand and price is a problem that has not yet been resolved. This problem is an on-going concern of the Journal of Product & Brand Management and the pricing section within it. This special pricing issue makes a contribution to this effort. The six articles in this issue address various aspects of prices which all tangentially affect (or are affected by) brand equity. Each of these articles is based on research finds that add to our knowledge of how prices and brands are intertwined.
Grewal, Roggeveen, Compeau and Levy reflect on new directions in pricing research. They provide a unique perspective on how the practice of pricing has changed over the years especially in light of business models that have in recent years evolved as a result of new technologies such as social media and the development of previously untapped markets. The authors provide a perspective on where research in this area should advance and also reflect on their views of three papers included in this special issue of JPBM which were presented in the 2010 Behavioral Pricing Conference hosted by the authors at Babson College: Damay, Guichard and Clauzel’s work on price perception formation by children, Meng’s work on cross-cultural pricing, and Petrescu’s work on price dispersion on the internet.
One of the papers presented in the Behavioral Pricing Conference held at Babson College was by Damay, Guichard and Clauzel. The authors examine the price perception process of a unique consumer group, namely children between the ages of six and 12. The research specifically focuses on how product selection for this group is affected by price presentation tactics. The authors use a survey-based approach on 224 school-aged children, covering 18 product categories. and find that price format variations such as use of non-decimal prices rather than decimal prices as well as specific price endings affect the choices made by children. Their findings also suggest that children prefer round prices (those with 0 endings and that this preference pattern becomes stronger with education level and is also affected by the child’s level of price knowledge within the product category. The preference for round prices is also found to be affected by the price level and the role the child is asked to take on -– price-setter versus consumer. The significance of this work to behavioral pricing research is the focus given to this highly vulnerable consumer group. Children in the age range studied in this research have limited cognitive and numeric processing abilities and can therefore be a manipulated through price communications tactics. Understanding the dynamics by which price perceptions are formed by children is also important since children play an influential role in the purchase decisions of their elders.
A second paper presented at the Babson conference is the work of Petrescu on price dispersion. Petrescu examines how seller characteristics influence the degree of price dispersion in the context of online shopping malls. She specifically examines influence of predictors such as average price, number of stores, variations in shipping charges, number of reviews filed by customers and product type on the degree of price dispersion. The context for the study is watches and point-and-shoot digital cameras sold through Amazon.com. The study results show that the degree of price dispersion in an online shopping mall is positively affected by the average price and number of customer reviews. Consistent with earlier research, shipping charges and product type are also found to influence price dispersion. This work is significant to behavioral pricing research since in contrast to conventional thinking and economic theory, the number of stores does not affect price dispersion, while the number of customer reviews does. The finds indicate that the number of customer reviews helps establish the quality of the offering and reduces price confusion in the marketplace thereby reducing the degree of price dispersion. Petrescu’s work suggests that marketers must pay close attention to online reviews of their offerings to understand and possibly manage the degree of dispersion in market prices.
Another paper in this issue, by Meng, was also presented at the Babson conference. Meng’s work broadens behavioral pricing research by examining cross-cultural differences. In her study, Chinese and American consumers are empirically contrasted utilizing large-scale survey data and a structural equations modeling framework. Pricing constructs such as value consciousness, price consciousness, promotion sensitivity, price-quality schema and prestige sensitivity were contrasted between the two groups. Meng’s work finds that both Chinese and American consumers’ price perceptions are negatively affected if internal reference prices are high. However, variations in this relationship are found for goods versus services and for durables versus non-durables. In both cultures, for durable goods, product quality is found to be a stronger driver of price perceptions. This research also shows that consumers in the two cultures have different perceptions of price. Consumers in China which is a more collective culture are more value-conscious and therefore marketing focus should be on cost reduction and highlighting the product’s value proposition in consumer communications. Meng suggests that in such a context, marketing focus is also needed on competitive price benchmarking. Her work helps inform global pricing practices, especially for products where cultural and national boundaries may have to be crossed.
The work by Redden and Hoch focuses on the effects of price complexity arising from the use of two-part tariffs. Two-part tariffs are commonly used in the pricing of services. For example a cell phone calling plan might have a fixed monthly fee and a per-usage fee for calling minutes beyond a certain limit. The authors examine the decision process of how consumers choose between various two-part tariff offers, and also study the effects of a decision aid to help consumers choose the lower cost offer. Their findings suggest that consumers have difficulty choosing the right price especially under usage uncertainty, and as a result of their inability to correctly anticipate their usage level may not make optimal decisions. When usage is uncertain, instead of incorporating their usage rate into a total cost computation, consumers conduct a simple one-on-one comparison of the components of the two-part tariff and fail to compute the economic value of each offer. The consumers’ failure to conduct the correct computations opens profit-generating channels for sellers, by for example offering generous usage allowances (which most likely would not be used by most consumers) and low overage rates (which would be irrelevant to most consumers since they will most likely not exceed the usage allowance). Such practices may also present ethical and regulatory challenges to pricing practices associated with two-part tariffs. Redden and Hoch also demonstrate the positive effects on decision quality arising from consumer use of an online calculator. This is a very significant finding since consumers’ decision quality has been under much public scrutiny recently, and regulatory and public policy measures to improve consumer decisions in complex markets where two-part tariffs are used are taking center-stage in many economies worldwide. The work of Redden and Hoch can therefore inform some of the public policy decisions in this context.
As associated editors of JPBM, we are thankful to Dhruv Grewal, Anne Roggeveen, Larry Compeau and Michael Levy for having organized the 2010 conference and having created a venue for the sharing of research in the field of behavioral pricing. We also would like to thank our editorial board which has provided us with invaluable support and insights during the review process of this Special Issue as well as the regular issues of the Journal of Product & Brand Management: Fabio Ancarani, Sundar Balakrishnan, Margaret Campbell, Rajesh Chandrashekaran, Amar Chema, Keith Coulter, Devon DelVecchio, Sujy Dutta, Ellen Garbarino, Eric Greenleaf, David Hardesty, Andreas Hintenhuber, Kostis Indounas, Sharan Jagpal, Frédéric Jallat, Biljana Juric, Monika Kukar-Kinney, Rob Lawson, Joan Lindsey-Mullikin, Rajesh Manchanda, Ken Manning, Pete Nye, Hans Pechtl, David Sprott, Rajneesh Suri, and Lan Xia. It is because of their efforts that the Journal of Product & Brand Management has succeeded in becoming a primary outlet for the dissemination of behavioral pricing research, and we cannot thank them enough for this. We also gratefully acknowledge the continuing support of our advisory board: William Bearden, Dipankar Chakravarti, Dhruv Grewal, Sunil Gupta, Donald Lehmann, Kent Monroe, Robert Schindler, Joe Urbany and Russell Winer. Many thanks are also due to Richard Whitfield for his continued encouragement as we advance the pricing coverage of the Journal. Richard’s support and thoughtful suggestions over the years have helped us establish JPBM as a choice outlet for authors conducting research in the field of behavioral pricing. We also thank the Emerald Group Publishing Ltd. for providing the venue for the global dissemination of behavioral pricing research though the publication of JPBM.
Sarah M. Maxwell
Aaker, D. (1996), “Measuring brand equity across products and markets”, California Management Review, Vol. 38 No. 3, pp. 102–20
Ahmed, A. (2011), “What was the rough cost of building the AXE brand?”, Unilever 2010 Annual Report, January 11, available at: www.quora.com
Anselmsson, J., Johansson, U. and Persson, N. (2007), “Understanding price premium for grocery products: a conceptual model of customer-based brand equity”, Journal of Product & Brand Management, Vol. 16 No. 6, pp. 401–22
Holbrook, M. (1992), “Product quality, attributes, and brand name as determinants of price: the case of consumer electronics”, Marketing Letters, Vol. 3 No. 1, pp. 71–83
Lassar, W., Mittal, B. and Sharma, A. (1995), “Measuring customer-based brand equity”, Journal of Consumer Marketing, Vol. 12 No. 4, pp. 11–20
Aaker, D. (1991), Managing Brand Equity, The Free Press, New York, NY