Management Notes

Reference Notes for Management

If a company introducing a new brand under the source brand or endorsing brand strategy to gain the benefits of brand power, you again are in a position to charge a _________.

If a company introducing a new brand under the source brand or endorsing brand strategy to gain the benefits of brand power, you again are in a position to charge a _________.


A. Premium price
B. Skimming price
C. Market based price
D. Retail price

The Correct Answer Is:

A. Premium price

Correct Answer Explanation

When a company decides to introduce a new brand under the source or endorsing brand strategy, it aims to tap into the existing brand equity and leverage the trust and recognition that consumers associate with the parent brand.

This strategic move provides the company with a unique opportunity to charge a premium price for the new product or service.

This essay will delve into the reasons why choosing a premium price is the correct approach in such a scenario, followed by detailed explanations of why the other options (B. Skimming price, C. Market based price, and D. Retail price) are not as suitable.

A. Premium Price:

The Correct Approach Charging a premium price when introducing a new brand under the source or endorsing brand strategy is a well-founded decision for several compelling reasons.

i. Capitalizing on Brand Equity:

The parent brand already holds a position of trust, credibility, and value in the eyes of consumers. By associating the new brand with this established reputation, the company instills confidence in potential buyers.

This increased trust justifies a higher price point, as consumers are willing to pay a premium for a product or service they believe is backed by a reputable brand.

ii. Perceived Value and Quality:

A premium price conveys a perception of high quality and value to consumers. When customers see a higher price tag, they often associate it with superior features, better materials, or enhanced benefits.

This perception encourages them to view the product or service as a worthwhile investment, further reinforcing the brand’s image.

iii. Competitive Differentiation:

Charging a premium price sets the new brand apart from competitors in the market. It signals that the company believes its offering is unique and superior, allowing it to stand out in a crowded marketplace.

This differentiation can lead to a more dedicated customer base and increased customer loyalty over time.

iv. Margin for Innovation and Improvement:

The additional revenue generated from premium pricing provides the company with resources to invest in research, development, and innovation. This enables the company to continuously enhance the product or service, maintaining its competitive edge and ensuring long-term success.

Why Other Options Are Not as Suitable:

B. Skimming Price:

Skimming pricing involves setting a high initial price and gradually lowering it over time. While this strategy can be effective in certain situations, it may not be the best choice when introducing a new brand under an established one.

Skimming may deter potential customers, as they may not be willing to pay a high price for a brand they are not yet familiar with. Additionally, it may not fully leverage the existing brand’s equity, as it doesn’t emphasize the association between the two brands.

C. Market-Based Price:

Market-based pricing relies on analyzing the prices of similar products in the market and setting a price that aligns with or slightly deviates from the prevailing rates. While this approach is valuable for determining competitive prices, it may not fully exploit the potential of the parent brand.

Market-based pricing doesn’t emphasize the unique advantages of associating with an established brand and may not fully capture the premium value.

D. Retail Price:

Setting the retail price is a critical aspect of pricing strategy, but it does not specifically address the unique scenario of introducing a new brand under an established one. Focusing solely on retail pricing may lead to missing out on the opportunity to leverage the power of the parent brand, potentially undervaluing the new brand’s potential.

In conclusion, when a company adopts the strategy of introducing a new brand under an established one, charging a premium price is the most effective approach.

This strategy leverages the existing brand equity, communicates high quality and value to consumers, differentiates the brand from competitors, and provides resources for continuous improvement.

While other pricing strategies have their merits in different contexts, they are not as well-suited for this specific scenario. By carefully considering the advantages of a premium price, companies can maximize the potential of their new brand and ultimately achieve greater success in the market.

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