Unit 4

• Trademark


  Gives legal protection to the owner to have exclusive use of the brand name
• Penetration pricing allows businesses to compete against existing firms in the industry and to gain market share
• Penetration pricing is often shown as a form of heavily advertised discounted price offer in order to attract numerous customers in a short period of time
• Aspects of branding


  • Awareness
  • Development
  • Loyalty
  • Value
• Low prices in penetration pricing allow firms to create brand awareness and brand recognition, thus the price can be raised
• Penetration pricing is suitable for mass market products that sell in large enough volumes to sustain low profit margins, such as fast-moving consumer goods sold in supermarkets
• Brand awareness


  Measures the extent to which people recognize a particular brand
• Penetration pricing is suitable for products that have high price elasticity of demand (PED) whereby lowering price leads to proportionately higher sales volume
• Loss-leader pricing


  Involves selling a good or service below its cost value
• Brand awareness


  Plays a major part in the buying decision of consumers
• Loss-leader pricing is often used by retailers (such as supermarkets) through the heavily advertising the loss-leader such as toilet paper or carbonated drinks in order to attract customers
• Higher level of brand awareness


  The higher sales revenue will be
• Brand switching


  Consumers turn to alternative brands mainly because the original brand has lost some of its former appeal
• Customers perceive owning premium priced products as a symbol of success, wealth, status, or prestige
• For premium products, the price itself is not the main concern or factor in the purchasing decision
• Customer loyalty schemes


  Forms of sales promotion used to entice customers to stick to the brand by rewarding devoted customers
• The demand for premium priced products tends to be price elastic as the unique selling point over other rival products and/or the lack of suitable substitutes
• Brand value


  Refers to the premium that customers are willing to pay for a brand name over and above the value of the product itself
• Advantages of premium pricing

  • Generating higher profit margins
  • Create higher barrier to entry for competitors if it can establish a loyal customer base
  • Increase brand value for all products
• Brand awareness, brand development and brand loyalty


  All have a role in improving an organisation's brand value
• Disadvantages of premium pricing

  • Limit the number of customers due to the relatively high price
  • Premium brands may lose their status if they appeal to the mass market
  • Can be expensive to establish and maintain
• Advantages of high brand value

  • Higher market share
  • Premium prices
  • Higher barriers to entry
• Dynamic pricing (HL only)

  The practice of varying the price of a good or service to reflect changing market demand, often with price changes throughout the day
• Cash cow


  Products with high market share operating in a low-growth (mature) market
• Dynamic pricing (real-time pricing or surge pricing) involves selling the same product at different prices based on the changing dynamic of the market for a particular product
• Slogans


  Memorable catch phrases used to gain and retain the attention of customers
• Examples of businesses and industries that use dynamic pricing

  • Airline operators
  • Cinemas
  • Hotels and accommodation providers such as Airbnb
  • Taxi operators and ride-sharing services such as Uber and Lyft
• Logos


  A form of branding that uses a visual symbol to represent a business, its brand or its products
• Advantages of dynamic pricing

  • Greater control over their pricing methods, with real-time data enabling firms to set the right (optimal) prices for different products
  • Enables firms to maximize its profits
• Branding is a form of differentiating an organisation's products from those of its competitors
• Disadvantages of dynamic pricing

  • Customers are often unhappy about not knowing just how high a price they have to pay for the good or service
  • Customers often feel exploited (being overcharged)
  • Can damage reputation of the business and/or harm future sales
  • Can lead to price wars as firms try to undercut each other during off-peak periods to attract more customers
  • Not sustainable in the long-term and can lead to bankruptcies
• Research shows most well-known brands can be so influential that they actually alter the customer's feelings and/or their perceptions of the product
• Competitive pricing (HL only)


  The practice of a business setting the price of its goods or services at the same or similar level to that of its competitors
• Branding as a legal instrument


  Brand names create a legal identity for a product by giving it a unique and recognizable name and image to differentiate it from other
• Options for the use of competitive pricing

  • Pricing above the competition
  • Pricing on the same level as the competition
  • Pricing below the competition
• Branding as a risk reducer


  Brands give new products a better chance of survival, create a sense of value for money and encourage brand loyalty, customers remain devoted to the purchase of well-known brands, help to prolong the life cycle of a product
• Advantages of competitive pricing

  • Simple and requires minimal effort
  • Can remain competitive
  • Commonly used method
• Branding as an image enhancer

  Allow a business to charge a premium price because customers are often willing to pay a substantially higher price for a 'good' brand, allows the business to earn higher profit margins
• Disadvantages of competitive pricing

  • Needs another way to attract customers by using non-price methods to differentiate itself in a highly competitive market such as advertising (to raise brand awareness)
  • Providing superior customer service
• Branding as a revenue earner


  Encourages brand development (including extension strategies) and brand loyalty, customers have a preference over other rival brands, customers might also perceive the brand as superior to others so will not tend to but substitute products, demand for the firm's product is price inelastic (less sensitive to changes in prices), enables the business to charge a proportionately higher price without losing customers, so it earns higher sales revenues despite charging higher prices