 As-Salamu Alaikum Khawatin Hazrat, the Basim, as in welcomes you to lecture number 37 of the Brand Management, MKT 624 at the Virtual University of Pakistan. Today's topic is the pricing, which is step number 6 of phase number 3 of the strategic brand management process. We just finished talking about the previous step, which is communication and from there we now get on to pricing. After you have determined the brand's positioning and have decided about the right channels for distributing your brand, you also are clear about the brand architecture and you have crafted all the rightmost strategies for your communication. The next step is pricing. Pricing is very important and at the same time to dedicate to the topic because it is something which makes the difference between a higher level of contribution and a lower level of contribution. Let me tell you what contribution is because you have done the basic course on the continent finance. Contribution basically is the price minus your direct costs and whatever you get after subtracting costs, meaning direct costs, from the price you get contribution. So in other words, if you have a good level of pricing, your contribution will be higher. If your pricing point is lower, your contribution point also is going to be lower. Since we have to deal with the brand as an asset, we have to see to it that this asset is driven by a pricing strategy which gives the company the optimal level of contribution to be able to achieve all the financial objectives. I think it goes without saying if you have a good level of contribution to your objectives in terms of all the ratios to sales and investment and so on and so forth are going to be viable. Therefore, this is the wish of any company to go for a price which is the premium price. But that is not the case in the practical life and why is it that different brands command the different pricing levels and different companies have different strategies for pricing. One thing that we have to keep in mind is, and I keep repeating this thing, that all the marketing strategies relating to your brand are going to stem from two basic strategies, one being the strategy of segmentation and the other being the strategy of differentiation. Pricing also is a function of these two areas. I think it is obvious that if you have a higher level of differentiation then your pricing should be premium and if differentiation is the minimal then the price point will go down. But what is really important to discuss is despite the fact that we introduce brands which relate to certain segments and they are out there in the market trying to fulfill certain well established and well defined needs, they still do not go in the right way to determine the price point. Why is it that we have to look into that? Well, generally speaking there are companies which are aggressive in terms of pricing and there are companies which are quite very conservative. If you have introduced a brand with all the quality points and are not in a position or somehow decide not to go for the premium pricing, the font lies with the company, meaning with you. If you have introduced a brand which is not very highly differentiated and it has been created on the basis of a certain solid rationale and the pricing which you charge is premium again if you have gone wrong. So the objective is to go for the rightmost price so that you can achieve your financial objectives. In the worst possible case the operation has got to be viable and if the operation is not viable only because you did not charge the right price then again the font lies with the management. Pricing therefore is something which determines the level of value which it offers to a company and which a company generates by commanding a certain level of price. So pricing has to be worked out keeping in view first of all that every brand is an asset and the asset value of the brand has to be driven in the most practical way so that you can generate a decent level of contribution to be able to achieve your financial goals and pricing has to be worked out keeping in view the margins. You have to have the right margins and the higher the price point, the higher the margin and the lower the price point, the lower the contribution margin. The most ideal pricing of course is the premium pricing but then the question mark is can everybody go for the premium price because the practical sets of circumstances are hardly ever the most ideal circumstances and therefore going by the circumstances because you have to decide where the price point should really be located. In order to be able to do that we have to take the support of the brand architecture strategies that makes our job of pricing less difficult. In other words it makes the job very practical. If we are dealing with an umbrella strategy for example then essentially what we are doing is we are trying to gain power from the brand which already exists and we have an umbrella and that umbrella carries just one brand name and the reason we decided to extend of a brand or extend of a line your recall from the discussion on the brand architecture is that we want to give our new brand or an existing brand the overall power which the umbrella enjoys and if we are following the umbrella strategy it becomes less difficult or rather I would say it becomes easy for us to command a premium pricing. Now this goes without saying that we have to have a product and the relationship between the brand and the product which really defines the good quality. Unless we have offered something of very high quality which really offers customer value with a meaning good performance and with a good service we really cannot go for a premium pricing. Now let me tell you also that premium pricing is not something which is talked about by the customers in the marketplace. Premium pricing is a terminology for you people if you are charging a premium and the customer accepts that then in the eyes of the customer or by his perceptions it is just about the right price. So talking about the customer value you are offering a brand which offers good performance and just about the right price and it is serving its customers the way they want. So in other words if you have the right most channels through which your customers are being served the way they want and you also have the most practical branding strategy in terms of the brand architecture then the chances are the premium pricing is going to work. Source brand strategy or endorsing brand strategy also offers you the opportunity of charging premium because here also what we are trying to do is generate power with the help of a very strong source. So a strong source offers power to all the brands that source is endorsing and that makes things fall in place in terms of charging a premium pricing. Now again this is a strategy which is used by companies which are very well established and which really have brands of I would say great power and therefore these are the companies that easily find themselves in a position to be able to charge a premium and again the right most price for the product they are selling. The question emerges what is going to happen if you are a new brand and a new company? The chances are you may not be able to charge a premium price. A premium which you define as a premium. In other words the right most price. What can you do in that kind of a situation? Well you have to leverage your brands through other strategies. Not that you cannot leverage your brand with the help of pricing but the strategies which essentially are going to play an important role in terms of leveraging your brand are going to be communication strategy and channel strategy. So you can get into co-branding and that is the concept that we talked about in one of the lectures in the recent past. Co-branding really offers you the opportunity of leveraging your brand with the help of another brand which is stronger. Of course there are pros and cons and one of the cons that you are dealing with if you are a new brand is that the other brand is going to be a stronger brand or is a stronger brand and therefore it may try to seek greater part of the advantage that they generated through the relationship of co-branding. Well that is something that has to be looked into with the help of another strategy but the possibility remains that you really can join hands with somebody else in order to go for if not a premium pricing at least a decent level of pricing meaning a realistic price point which offers the company decent margins and keep your operation viable and enable you to generate ratios and financial results which may not be out of this world but which still are decent. So we can summarize this talk like the following that there are so many different conditions under which you are in a position to charge premium pricing. What are those conditions? Let's take a look at that. We are for the time being going to talk about a premium pricing model but don't lose sight of that fact. The stronger the brand the greater the potential to charge a premium pricing that goes without saying and that is very obvious up until now. The consumers are willing to pay more for a strong brand or a stronger brand because they feel very comfortable paying a premium or from their point of view they are paying a price which is right by their standards or by their perception. A strong brand extension or line extension also allows you to go for a premium pricing. Why? Because it allows you to go for a launch which is not very expensive and you recall that is one of the advantages of extending your brand because the launch costs are manageable and launch costs are not very high as those would be in case of a brand at which it was not extended meaning an all together new independent brand. So when you have these kind of costs under control whether they give you better margins and when you have better margins and you can control your costs naturally you go for a good price level and you go for a good price level because the brand name is already familiar and it is popular that is why you decided to go for that extension. So on the one hand what is happening is people are willing to pay a premium pricing for that familiar name and a quality product on the other hand you are controlling your costs keeping those at a lower level well I don't say at a low level I say at a lower level and thereby enabling you to extract better margins you are charging good pricing and you are generating good contribution margin because you are controlling your costs. So what is happening is you are gaining dual kind of benefits but by the same token when you are in a position to control your costs particularly because you have decided to go for brand extension or line extension you also are in a position to recover those developmental costs within a time frame which is shorter then it would have been otherwise and you know what I am talking about meaning if you had decided to go for a new independent brand which hadn't tailed higher costs then the margins would not have been that great and the differential between pricing and the costs would be on a lower side meaning lower contribution margin and also charging a premium pricing would have been much more difficult because the people generally hesitate to pay as much price as they are used to paying for a brand which is very well known and which is very well established. The larger the base of loyal customers the greater the chances that more and more customers or those customers will pay a premium pricing and it is precisely for this reason that the managers work so hard through so many different means to retain their customers because they know that retaining their customers cost much less as compared to creating the more customers meaning new customers and therefore retaining them leads to turning into loyal customers and loyal customers are the ones who in most cases do not bother about the pricing factor. Now this is not to say that they are willing to pay prices which may be unreasonable because the one fact which you must never lose sight of is that you've got to be within the mainstream of pricing the people will have a perception of the lowest possible pricing within that segment and they have the perception of the uppermost limit of pricing within that segment and you've got to stay within those two limits whether you decide to be at the bottom or to be at the top or somewhere in between that is your choice but you just cannot afford to be outside of the upper limit. So loyal customers are the ones who always are willing to pay a premium pricing. A strong brand charges premium and the people are willing to pay that premium and when I say people what I mean is not only your final consumers ultimate consumers but also your customers in the form of intermediaries why is that? They accept that the pricing pattern despite the fact that their investment level goes higher when the price of a brand is higher they are willing to do that because a strong brand that has the ability to charge premium offers good profitability to all members of the trade and when everybody is making good money of course everybody is happy and therefore it becomes easier to charge your premium on a strong brand. Another thing you know what happens here is I'm going to talk about something which is a little away from this topic that a strong brand gives you a leadership role and because of that leadership role you become much more effective within the community of your general members and you can call the shots meaning you really can influence the intermediaries into following your decisions and it is because of this strong brand which commands a premium pricing that you assume that legitimate power you will recall from one of the lectures and it is the legitimate power which really gives you the power to influence others so when you are having a strong brand not only you are charging a premium but it also leads to so many other avenues which really have the highest level of potential to take you to the destination which is your brand vision. A strong brand also offers opportunities like licensing, franchising and go branding. It goes without saying that if you are licensing your brand it happens to be a strong brand and that strong brand is going to charge a premium pricing because if it is not in a position to charge a premium pricing the mechanism of licensing and franchising is not going to work. You will agree with me that the mechanism of licensing and franchising has an inherent character of jacking the cost up. You license out with your good brand to somebody else and you make your profits and the licensee or the franchisee has taken your brand because of its power and potential and therefore he knows or she knows that they really can sell that brand at a price after adding their margins and in those kinds of cases their margins almost always are pretty well padded and this is not to say that you must fleece the customer never. You have to serve the customer but what I am saying is that a powerful brand or a strong brand has the power to offer so many different opportunities in terms of licensing, franchising and also co-branding. I was talking about co-branding from the point of view of your being a new brand and therefore your being a weak brand or a weaker brand with a strong or a stronger brand in order to leverage yours. Now here is a situation in which you are talking about your brand which is a strong brand with a lot of power and you therefore are there to offer weaker partners to come join you on a platform which offers potential to both of you in terms of leveraging. So, opportunities like licensing franchising and co-branding if capitalized very strategically offer you a lot of value in terms of the financials and also the marketing goals meaning financial value as well as market value. We can figure out three facts from the conditions that are going to offer us the opportunities for premium pricing and those three facts can be summarized as the following. Number one being that there is a very strong relationship between the brand's strength pricing and costs. These really are very closely related because when the brand is strong you go for a high price or a higher price and when you go for a higher price it gives you a better opportunity to go for better margins and even if you're not in a position because of the competitive pressures to go for a price which is as much high as you would have liked you at least are in a position to control your costs if your brand happened to be very strong. So the margins are going to give you either through a good level of pricing or your ability to control your costs. Number two fact that we really can extract from the conditions which we just discussed is that strong brands offer added benefits and since strong brands generally sit at the top of the value pyramid customers are more to the big premiums for those strong brands because they really can associate with different kinds of values the brand offers. So strong brands that offer superior benefits always have a chance to charge a premium pricing. Another fact that we can extract from the conditions is that there's a very strong brand loyalty and premium pricing. It is obvious that loyal customers are more willing to pay a premium pricing than those who are not really loyal with your brand or with their respective brands that they usually will buy in the marketplace. And it becomes the responsibility of the brand managers to keep on working along with their colleagues in the sales department of course they will never lose a moment to talk about the importance that sales people have and the significance of the relationship which you must strengthen all the time. So you people along with the sales managers and their staff have the responsibility of seeing to it that your customers could become more and more loyal to the brand because loyal customers are the ones who come back to the brand and buy it over and over again. Factors that drive loyalty are the ones that we must talk about because loyal customers are the ones who are going to come back and back to buy your brand over and over again that we must try to look into what are the factors to which drive loyalty because loyalty for the brand is one of the ultimate objectives of any marketing people it is because of that loyalty that you multiply your sales and you multiply your sales at a premium pricing that's the basic fact and when that happens well it automatically leads to better profitability meaning better margins and better financial results and better market value. Looking into the privers which are the backbone of loyalty we have to talk about those one by one after all we must understand what those are and is it that one is more important than the other is it that all of those have to work at the same time in order to generate loyalty so let us take a look at all those factors with the help of graphic illustration. The first one as you can see from the illustration is the high quality performance now keep in mind that these drivers which I already have started talking about are going to be talked about in terms of their importance now this doesn't mean that the first one which I am going to talk about right now the meaning of the performance is important and the one I am going to talk about as the last one is not important no they are all very very important that is to be underlined the only thing is some are more important than the others so the first one is high quality performance these drivers are the ones in which the marketing people always have believed and the marketing people never believed that you can charge a premium pricing only because you are a big company or you can charge a premium pricing only because the package looks out of this world and you have been charged a premium pricing because the channels that you have at your disposal are among the best within your national market no marketing people always believed in the drivers in the order of importance I am going to talk about and the beauty of these drivers in relation to the order of importance is that this order has been testified to a research model so this is the finding of a research model that performance of the brand in terms of quality is the most important to customers so in other words there is nothing else which is as important to customers as the quality now this holds true not only in terms of consumer consumables or FMCGs this applies equally well to consumer durables it has been found through the scientific research that customers always keep the quality and the performance factor on top of the list and that is something which really drives loyalty toward the brand the second factor as you can see from the illustration is dependability with consistency your brand has got to be very dependable something consumers can depend on whether they should not be devoid of confidence while they think of buying the brand they should be full of confidence that the brand they are going to buy is dependable and that is the persona to create because if you have succeeded in creating that persona and the people have started proceeding in the same way it means that you have achieved the positioning for the brand and that is something which makes it dependable and dependability also has to have the element of consistency it is not that the brand is dependable today the quality standards have got to be very consistent and your standards have got to be so stringent that nothing goes unattended during the manufacturing or during the processing process if you are dealing with food items or whatever you see the third factor in terms of importance is the long association the people who were interviewed cited their association with the brand that they have been buying over a period of time meaning over a long period of time as one of the drivers towards loyalty now it is it may not be as simple as it looks on the face of it long association, what is it? well long association also high performance on part of the brand very high quality of the brand and dependability with consistency if you have all these factors built into the brand the customer is bound to have a long association the moment the function gets disturbed something negative is going to happen and the customer is going to sever this association with the brand this is driver number 3 driver number 4 you will be amazed to know driver number 4 is value for money so value for money in most of the cases is not right on top it may be right on top in certain segments which really are very price conscious and which carry products with minimal differentiation but overall as part of the findings of an authentic research model it has been found that value for money is driver number 4 and the value for money doesn't really mean that you have a low price it means that the customer must be satisfied and the customer must perceive and the customer must realize that he or she has gotten full value the brand offers and I keep repeating the definition of customer value but price the way they think and performance and service never lose sight of these three basic determinants of customer value number 4 driver has been cited by respondents as fits personality and this is one of the reasons why people choose to the one brand in preference to another because they think they are buying a brand which really fits their personality and I recall a discussion on this factor which really actuates loyal customers to start referring their brand to others because they think that they really are in a position to influence their peers into the following them I mean brands are so strong and become so powerful in the process that they influence your psyche as a customer and you start behaving just because you are buying and using a certain brand as kind of a leader within your own social circle and you at times suggest and at times you start prescribing you go also to that limit but you start telling you think you really can influence well why don't you buy such and such product or such and such brand it really will fit your personality and well who refers the brand to somebody else they may not really talk in these terms but that's what I mean the communication that will take place between the two parties I'm basically referring to the brand power and the ability of a brand to influence you into influencing somebody else only because it really affects your personality and anybody else who is not using that brand is not your cup of tea in terms of fashions in terms of thinking in terms of different facets of your social behavior another the driver which generates the loyalty toward the brand and cited by the respondents is that it solves problems effectively well if the need has been rightly identified your brand is going to be full of character meaning it will have the right identity and it will be positioned right there are very strong chances very strong chances that it will happen that way and once it has positioned it well and it carries the right set of promises and it also delivers those promises then what is happening is it is solving the problem effectively and that is one of the prime objectives of the reason for being of any brand I mean a brand exists for that particular purpose good customer service has been cited as the next driver that generates loyalty toward a brand it may look kind of on the low side of the list of important drivers but it still remains very important and like I pointed out in the beginning of the discussion although some of the drivers may look from your perspective on the low side of the list but nevertheless they still remain very very important this is a finding and if you were one of the respondents you might have looked at the questions in a little different way but the fact remains that this is the finding of a collective effort so a good customer service in terms of transaction service in terms of after sales service the factors that I talked about while discussing the channels of distribution are of utmost importance and you have got to see to it that a good service is delivered because that is part of the customer value that you generate and that is something which customer holds very dear to himself or herself the last factor which was cited by the respondents is environmentally friendly this is one of the new things which has come to the surface over the last I would say a couple of decades and it is gaining more and more importance all over the world we keep talking about products which are not really friendly with the environment in particular the shopping bags in relation to our market setup that is one example there are so many other things which really add to the solid waste in the absence of effective solid waste management they become isores customers really would like to see to it that a product is produced in a way that its consumption final consumption does not really lead to kind of a waste which is an isore or which really disturbs the ecology of the environment that is one factor which the customers hold dear to themselves although at the bottom of the list in relation to the research that was carried out and I will again say if you were to carry out this research you might have added a few more questions but the basic idea of talking about these the drivers is what is it drives the loyalty and generating loyalty on part of the customers is the responsibility of the brand managers while creating the brands and while planning executions of so many different strategies have got to be fully mindful of these drivers and if they really can build in and their implications into the planning and execution process the chances are they will not fail the order is significant and very convincing to the like I mentioned and I hope you could find it convincing because it is part of a well structured research model so what is it that you should do you are wanting to determine the price of your brand you have to keep a very sharp focus on all these drivers and try to relate all these drivers to the segment or the segmental requirements in relation to your brand again you have got to be clear about the strategy of segmentation and the strategy of differentiation and if you are clear about those two strategies you know who the target market is and you know what the level of differentiation is and then you know how much focus you have to give on these drivers individually and then relate all those with the pricing which you are going to build into the process the more a company can generate the better drivers the stronger it is in terms of charging a better price that is the conclusion in a way of the discussion that we have had so far and another thing in which really this discussion testifies is the concept of value pyramid I mean why is it that all the way to the top and there are certain brands that stay within the the middle area of the pyramid still offering good benefits to their customers but not really succeeding in creating those emotional values which really involve customers emotionally toward themselves meaning the brands and these drivers if understood very clearly and if generated very smartly are the ones which really testify the concept of brand value pyramid in other words we can also say that we have got to be very consistent all along the road from the brands innovation to the picture to contract to positioning to brand architecture to communication and to pricing unless we are consistent and are able to develop the right kinds of relationships between the different phases and different stages we really cannot achieve the right strategy of pricing and I would go to the extent of saying that the importance of being consistent cannot be emphasized more than here at the juncture of pricing so when it comes to pricing you start realizing all of a sudden how important was it for you to have been consistent and if you really have been consistent in terms of your strategic thinking relating all the factors that I just mentioned then your pricing problem is going to be solved quite very amicably I would say another factor which we really should talk about is that we have got to be very consistent in terms of product development and this also is a summarized form of what I talked about the importance of being consistent now this is the product development without consistency again in relation to product development how can you be consistent in relation to developing a product well you can be consistent if you are right in identifying the target market that you want to reach and then make all those factors that I just talked about fall in place one by one and you will come up with a product which really is very consistent and which is the one that you want and therefore you will go for the right most price so in other words relating this consistency this may not mean and this does not mean as a matter of fact that you have to go for a segment which is the top segment or you have to go for a price which is the premium price in terms of consistency you can take into consideration is the one offering opportunity and the one not being served very effectively by the competition and you are the one who would like to fill that void and therefore would like to come up with a price which really belongs there and the right price may not be a very high price it may be a kind of a premium price in relation to that particular segment but it may not be a very high price so you have got to be very sensitive to the importance of being consistent in relation to developing your products and products and brands are to be created in relation to your segments and those segments are a function of differentiation so if you are in a position to develop these relationships rightly and very honestly and practically then your decisions about pricing will also be the right ones we have seen how a premium pricing model works and under what conditions it works and what is it that powerful brands have to themselves which really allow them to charge that premium pricing we now have to look into what really is the right model for your brand because not everybody has a situation which offers conditions for the premium pricing so the question is what is the right model and what is the right price for your brand well before we develop an understanding of the right model we have to know the common practice being undertaken by most of the businesses all over the world in the marketplace and that practices what you call cost based pricing so in most of the cases most of the businesses in other words go for pricing which is cost based what this basically means is that you work out your cost in the first place this is in order to develop this product the direct costs and you also take into account the indirect costs and then you come up with a certain level which you think should be okay in terms of making the operation viable and in terms of achieving your financial objectives that is one of the standard practices undertaken by most of the businesses all over the world the question is whether you should start with that or not well I will not give you any absolute answer but my suggestion to you will be you must not jump to it immediately there are so many different factors which you have to take into account before you start working out that pricing model even on the basis which I have just talked about the basis which is involved by most of the companies this is not to say what most of the companies are doing is wrong all I am saying is that you have got to have one objective while working out your price that you must not make any mistakes in working out the pricing which doesn't really give you good margins so in other words even if your model is you know the cost based you have to go for the A price which offers you a decent level of margin I mean if you were to sell something for the 100 rupees and by getting into the market you realize within a few months of introducing the brand that the price should have been something like 110 just look at the difference that the additional 100 rupees would have made in terms of the totality of the contribution margin on the yearly basis and on the basis of your long term plan which is 3 years because any the price increases that would have that would have come into existence would have come into existence on the basis of that 110 and not 100 which you now realize was not the right price so this is what I meant by do not jump to something which is based on your costs and do not make something a basis of your pricing which just enables you to go for the minimal level of returns that may be a viable strategy but then that may not be a very good strategy the right kinds of moves that we should be making and before we make those moves what are the fundamentals just a few fundamentals which we should have in our mind before proceeding further I am going to talk about in the next lecture because the time for this lecture seems to be coming to an end and before I proceed further I would like to give you a recap of what I have talked about in today's lecture do not lose sight of the fact that you have got to go for a price because of which is a decent price now this is a very generalized kind of a terminology that you should try to go for a premium price the way you define a premium and that you should try to go for a margin because of which is a good margin not only generate good returns meaning just about viable returns but profitable numbers and there are certain conditions which have to be there to allow you to go for that premium pricing and after having understood what really are those conditions to go for that premium we just started discussing what could be the right model when we have to cut our discussion here so let us wait until the next lecture and I will I thank you for the patience and I look forward to talking with you in the next lecture Allah Hafiz