Comparing the Price Sensitivity Measurement Effectiveness for New vs. Established brands

Elena Salamandic, Sonata Alijosiene, Rasa Gudonaviciene

Abstract


Purpose of the article: The Price Sensitivity Measurement (PSM) evaluates consumers’ expectations to set the optimal price. Applied to a brand’s different lifecycle stages, it can show different feasibility. The aim of this paper is showing that PSM is more effective for newly introduced brand products compared to established ones.
Methodology: The difference in PSM effectiveness is tested for a newly introduced Lithuanian cosmetics brand, Ziede, and a well-known vitamin distributor brand, Jamieson. The authors selected 3 products, based on product category, consumer segment and product lifecycle stage. PSM was applied for different consumer categories by differentiating respondents who were familiar with the brands from those who weren’t.
Scientific aim: Empirical results show that optimal prices are higher for brand-familiar consumers, since they incorporate the brand value in their perception of optimal price (Salamandic, Alijosiene, Gudonaviciene, 2014). However, as the brand moves along the lifecycle stages, the price perceived by consumers as optimal moves closer to the actual market price. The scientific problem is to find how to reach maximum effectiveness of PSM when setting the optimal price.
Findings: Empirical research confirmed two important recommendations for PSM applications. Firstly, since price sensitivity decreases with increasing brand awareness, PSM should be applied for different consumer categories. Secondly, product lifecycle advances together with brand awareness; therefore, PSM is more effective for newly introduced brand products.
Conclusions: By comparing PSM feasibility for new vs. established brands, it was obtained that PSM is more effective when applied at the early stage of a brand’s lifecycle. Mispricing is detected more accurately when information is collected from more respondents who are unfamiliar with the brand, which happens more often when the brand is newly introduced. To avoid future losses, price must be set according to the brand-familiar group, while investing into building brand awareness.

Keywords


Price Sensitivity Measurement (PSM), Optimal Price Point (OPP), new brand, established brand

JEL Classification


D11, D12, L66

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Online: 2015-04-13