Pricing

Pricing is an important aspect of the marketing and branding strategy as it is one of the first indicators of a brand's positioning to consumers. It is also the most flexible of the Six Ps as it can be easily modified.

Luxury and prestige brands have traditionally adopted the premium pricing strategy to emphasize the brand strength, high quality and exclusivity associated with luxury goods, and also to differentiate them from the massmarket fashion brands. The luxury target audience is less price-sensitive and actually expects luxury goods to be premium-priced rather than economically priced. Pricing forms a part of the branding process as consumers often judge the position of a brand and the value of a product in terms of price.

To explain further, luxury brands are those brands whose ratio of functionality to price is low while their ratio of intangible and situational utility to price is high. This means that the price of luxury products is significantly higher than the price of products with similar tangible features but the high intangible characteristics and benefits of luxury goods justify the high price.

Pricing is the most elastic element of the marketing and branding mix as it can be changed at will. However, the strategy behind pricing decisions for luxury products requires meticulous evaluation and control. Pricing is also the only direct revenue generator among the Six Ps. This gives it a delicate position

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Key: Traditional luxury goods pricing strategy H Extended luxury goods pricing strategy

Price

Key: Traditional luxury goods pricing strategy H Extended luxury goods pricing strategy

Figure 5.14 The extended strategic pricing model

Source: Adapted from Principles of Marketing by Brassington and Pettitt (2003).

and calls for a clear set of objectives behind its strategy. Overall, companies set prices to maximize profitability, return on investment, increase cash flows and market share as well as optimize the production capability. Since luxury brands are premium priced, the pricing objective and emphasis is on profitability and return on investments. This is because prices between premium and economy differ by at least a factor of ten and the profit margins are even higher.

The process of calculating and equating costs to pricing is not very simple. This process is often done using the 'Extended Strategic Pricing' model, which is presented in Figure 5.14. It indicates a high, medium and low level of measurement in pricing versus product quality. This model is appropriate for luxury brands especially in the current luxury market context where offerings from several brands currently feature a gradual gravitation from premium-pricing towards the medium-pricing range for certain products.

The pricing strategy also includes an evaluation of the key objectives behind the chosen strategy to determine its success potential. The elements of this analysis consist of the pricing for the brand's products, the features of its customers, and the stance of its competitors. The customer aspect involves ensuring that there is a ready consumer market willing to pay the set price for the products and services offered. Price and cost are relatively different. The total cost of purchasing a product for a consumer incorporates the price-tag on the product as well as several other 'costs' such as time, energy, transport, mental effort and psychological costs. These factors are important in evaluating consumer responses to pricing. In the case of luxury brands, customers generally accept the premium pricing strategy.

Secondly, pricing has to be checked against those of competitors. For example, the classic Hermès Birkin bag retails for approximately €4,000 while its considered equivalent at Chanel costs about €2,500. For some customers, this could mean that the Hermès bag has more value than the Chanel bag while others might perceive the Hermès bag as overpriced. Thirdly, the overall costs of obtaining the product must be evaluated. In addition, the pricing strategy could be utilized as a publicity generation tool. An example is the one-off Eunis bag produced by André Ross, which was sold for US$88,888

Another important factor in pricing decisions is analysing the external market demand factor. This involves the responsiveness of the level of demand to changing or increasing prices. In technical terms, it is done through checking the price elasticity of demand. This is a measure of the degree of change in demand for a product when the price changes. If the change in demand is high in proportion to the change in price, demand is said to be elastic. If the change in demand is low in proportion to the change in price, demand is said to be inelastic. In order to implement an effective pricing strategy, these essential factors including costs, customers, competitors and demand ought to be thoroughly evaluated.

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  • marina
    What is a fashion pricing policy?
    9 years ago

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