What’s pricing rule in premium price segment?

Q: We appreciate your answer to last Friday’s (June 27, 2014) question regarding the issue of raising prices in an economy price segment without suffering a revenue fall.

We’re in the used car dealership.  We sell economy as well as premium car brands.  We’d like to raise a similar question about premium car pricing.  Now that most car buyers are into lower or discounted car prices especially for used cars, please tell us: “Should we maintain the high prices of the premium cars we sell without the risk of their overstaying their inventory status?”

A: Here’s this column’s diagnosis and Marketing Rx.

We begin our diagnosis by quoting from a qualitative survey interview.  One of my MBA students did an IDI (in-depth interview) of owners of Mercedes-Benz, a premium car.  Here’s the pertinent portion of one such interview where the MB owner was narrating about his response to another car dealer who was selling him a Lexus:

“You say that as a premium car, Lexus has all the features of my Mercedes Benz but lower in price by several thousand pesos.  For me, that comparison is misleading.  There’s so many other things in my Mercedes Benz that almost defy comparison.  So I don’t really mind my Benz’s higher price.”

So what was this premium car owner talking about?  In the brand equity literature, this is about the Benz referring to his perceived value of the Benz in comparison to the Lexus.  According to the inventor of the brand equity concept, Professor David Aaker, “perceived value” is the first among the four “pillars” of brand equity.

In relation to pricing, the higher the brand equity is, the more a brand’s consumers become price insensitive.  Behaviorally, that means the higher the price of the premium product, the more the consumer would want to buy.  This is not to say that to the consumers in the premium segment, price is not important.  It is but it is secondary to perceived quality and value.

So if the choice as in the above case is between a higher perceived value Benz but that’s higher in price than Lezus which is lower in price but also lower in perceived quality and value, the purchase and owning decision will favor the Mercedes-Benz that has a higher perceived value.

Another insightful way of tackling the issue is to relate premium pricing to the strategy of “product source imagery positioning.”  In a previous MRx column, I explained this positioning strategy by referring to its advocates like Gucci, Prada, Louie Vuitton, and other signature brands.

In their advertisements, packaging, product literature and in-store postering, these brands often do not talk about their product or service.  For example, in the Gucci print ad for its bags or apparel, the ad simply shows an elegant looking lady wearing obviously a Gucci dress and underneath this photo, all that’s said is the Gucci brand followed in the next line with the brand’s incomplete address, “Florence, Italia.”

What sort of priority consumer value is being tapped by this user source imagery positioning?  It’s all about product or service quality.  My positioning research on premium brands has shown that where premium consumers do not have the technical qualification to judge quality, they resort to “product cues” to infer it.  One such product cue is price.  Here’s how this price product cue works in the consumer’s mind: “The higher the price of this brand, the higher must be its quality.”

The second and other product cue for inferring quality is product source or company reputation for quality.  This is true in the case of signature brands like Gucci.  The reputation for product quality in Gucci has several dimensions.  One is its ranking in 2009 as Interbrand’s no. 41 in its “Top Global 100 Brands.”  A second is another award.  This time it’s Forbes’ “List of Most Valuable Brands” where Gucci ranked in 2013 as no. 38.  A third dimension is its recognition in the global fashion community as among “the most copied in the world.”

Here’s how this product cue of company reputation plays out in the premium consumer’s mind:  “The wider is the company’s recognition and reputation, the higher must be its product quality and value.”  What about in the local scene?  How are our local brands doing in this scorecard?  In the fashion industry where the Philippines is gaining more and more accolades, we have, to mention a few, the Jaco’s brand in handbags, and Bench and Penshoppe in apparel.

So here’s our Marketing Rx in response to your question: “Should we maintain the high prices of the premium cars we sell without their over staying their inventory status?”

First.  Build, deepen, express and evolve the perceived value of the brand equity of the premium brand.  Building and deepening are your first twin steps for brand equity’s perceived value.  Expressing is communicating verbally and visually the perceived value.  Evolving is your response for resonating the consumers’ changing of their priority perceived value.  Since you’re in the used car dealership, you have to relay these Rx’s to the original makers of the premium car brands you carry.  Learn the practical details of these steps in my brand equity seminar-workshop.

Second. Attend to your brand’s product source imagery positioning.  Do this by benchmarking against competition especially your consumer-defined competitors.  Go after or encourage your premium car brand sources to go after product quality awards and peer emulation ranking.

Keep your questions coming.  Send them to me at [email protected].