Pricing: Is It Right Or Not?

1

Polina Strati

University of Groningen

Faculty of Economics and Business | MSc Marketing Management Student number: 2789388

Contacts: +31 0644436012 | p.strati@student.rug.nl

Supervisor: dr. J.E.M. van Nierop

Second Supervisor : Niels Holtrop

Pricing: Is It Right Or Not?

2

Preface

“Success is dependent on effort” Sophocles

With that quote in my mind I started pursuing my masters' degree in marketing at the University of Groningen almost one year ago. For the past five months the effort has become ample as the thesis project entered my daily program. I found this project as one of the most interesting I have ever undertaken, mostly because it concerns a field I have always been interested in. Coming across insights and findings I wish I knew before, were presented to me to explain the deep queries I have had during my job experiences on this direction. Completing the puzzle in my mind, I perceive this project to have made me more literate and ready to excel in my further professional goals, a significant stepping stone in my development.

However, the process was more than effortful and could not have been achieved without certain people. Therefore, first of all, I would like to express my gratefulness to my professor Dr. Erjen Van Nierop, for his extensive help and understanding during the procedure and for completely supporting me on my ideas and the perspectives I wanted to direct my research. My gratitude goes also to my thesis teammates for their helpful feedback as well as to everyone that contributed with answers to my research. Furthermore, I would like to thank deeply my best friends who supported me throughout this year and especially Katerina who supported me above and beyond and Akis for making even my most difficult days happier. A special "thank you" would go to Isabel; my sister, constant teammate and coordinator in all kind of projects this year and roommate in the University Library. Last but not least, above everything I owe my deepest gratitude to my parents, Mariana and Thanasis, for being my timeless cornerstone and most valuable assets in my life.

Polina Strati

3

Management Summary

Price is a very complex and multidimensional component for consumers. This notion drives firms to try different pricing strategies that could align with the consumers’ expectations as well as the retailers’ strategies. The present study aspires to study the moderating role of price sensitivity towards the direct effect of customer based brand equity on consumers’ willingness to pay for a price premium. Precisely, the goal of the study is to generate valid results regarding the firms’ capability in the Fast Moving Consumer Goods industry to impose premium prices and use them in their favor through customer –based brand equity. Moreover, the goal is to examine whether there is an enhancing role of price awareness to price sensitivity.

The aforementioned relationships are examined in several ways and the results indicate that customer-based brand equity can justify price premiums in certain subcategories of the personal care category, namely deodorants, shampoo and toothpaste. Moreover, it is demonstrated that price awareness significantly influences this relationship and might affect it negatively. Finally, it is identified that price awareness is not effective in enhancing or decreasing the levels of price awareness that consumers own.

Among the interesting insights of the present study could be acknowledged the fact that the participants indicated low levels of price awareness and moderate levels of price sensitivity.

4

Table of Contents

2.2 Pricing & Consumers’ willingness to pay ... 9

2.3 Customer – based brand equity ... 10

2.4 Consumers’ price sensitivity ... 11

2.5 Price Awareness ... 12 2.6 Conceptual Model ... 14 3 Methodology ... 14 3.1 Research Method ... 14 3.2 Measurement approach ... 15 3.3 Data Collection ... 16 3.4 Questionnaire design ... 17 4 Results ... 18 4.1 Descriptive Statistics ... 18 4.2 Variables Measurement ... 19 4.2.1 Preliminary Analysis ... 20

4.3 Moderated Moderation Analysis ... 20

4.3.1 Category Level Analysis ... 24

5

1 Introduction

It is widely known that price holds the strongest position between the elements of the marketing mix, as it is the only component that generates revenues for a firm and is a dominant determinant of the profits from sales. In short, “price is the amount of money which is needed to acquire in exchange some combined assortment of a product and its accompanying services" (Stanton William J. 1985). Research has shown that consumers not only do not have clear price knowledge of the products, but also, they do not have accurate sense of the level of the right price (Anderson T. Eric 2003). This, of course, does not suggest that consumers are not price sensitive, rather, that they make inferences of the prices offered based on several factors. These inferences, are crucial to marketers nowadays, in order to set a pricing strategy for the products along with other criteria, namely competitive prices, market conditions, manufacturing and operational costs and margins. Implementing a right pricing strategy for the products is crucial for a firm's success and can constitute a competitive advantage for it. A pricing strategy can also serve as a cue for the positioning of the products. There has been found that consumers' reactions to pricing strategies rely on cues from the price itself (e.g. starting price, price promotions) but also, cues that have no relation with the price, like brand familiarity, private labels and others (Grewal D. 2014). As Biswas concludes, brand familiarity is one of the cues that strongly influence the consumers' price perceptions (Abhijit 1992). In another study, Biswas argues that consumers are likely to support their reference price evaluations with available information, namely the brand name or some product benefits (Biswas Abhijit 1993). Nevertheless, little research has been on how all these different components of the brand equity can be used in order to allow to firms to set and settle higher prices for the products sold and consequently, generate more revenues.

6

as a moderator effect will be examined, moderated by consumers’ price knowledge of the products. More specifically, the aim of the research is summarized in the following problem statement:

“An examination of price sensitivity as a moderator effect on consumers’ willingness to pay a price premium in response of the customer based brand equity of the product, moderated by consumers’ price awareness.”

The purpose in the end is to come to a conclusion that will give specific directions to marketing managers on how the brand equity can be used in the firm's favor, if possible, and which are the specific elements that can justify a premium pricing strategy in consumers' minds and make them willing to pay for the price premium requested. Contributing to that, the ultimate goal shall be to provide a way to persuade consumers to detach from the price and focus on the service delivered along with the acquisition of the branded product.

1.1 Thesis Outline

7

2 Theoretical Framework

In order to proceed with the study, it is important to define the terms of the basic components of the research. The terms identified shall be the pricing strategies, and especially the premium pricing direction; the consumers’ willingness to pay and the proposed ways to be measured; the customer-based brand equity and whether there is a justified causal relationship to the consumers’ compliance to premium prices. Moreover, consumers’ price sensitivity will be examined as a moderator in the aforementioned relationship. Last, the price awareness that consumers own will be introduced along with its potential effect on the price sensitivity. Eventually, the conceptual model shall take place and the model specification to conclude the chapter.

2.1 Pricing Strategies

8

All taken into account, it is assimilated that a pricing strategy is of major importance to the survival and the sustainability of a firm and a complicated matter to the marketing managers. In the retail context the pricing is an even more intricate element as the manufacturers are facing intensive competition for several consumer goods due to the increasing power of retailers who market their own store brands, referred as private labels. These products were first introduced as low-cost substitutes but lately, they are rebranded as high-quality products, and sometimes with quality equal to the national brands. (Anselmsson, Vestman and Johansson,2014).

In the FMCG industry the competitive pricing concept is the most regular. Droege indicates three pricing decisions in this set; the products are sold in lower, the same or higher price compared to the competitors' (Droege B. n.d.). When a firm offers products in lower than competitors' price levels the pricing strategy is defined as penetration pricing, when the products' prices are on par with the competitors' it is defined as neutral pricing; which is the most common strategy, and when the products' prices are higher, it is defined as skim or premium pricing (Richards n.d.) This study will concentrate on the premium pricing direction and its benefits and characteristics.

2.1.1 Price Premiums

9

to these processes while manufacturers do. As Rao argued in his former research, consumers’ perceptions of quality are a crucial driver for implementing price premiums. He infers that consumers extract a certain amount of utility from the attributes of each product they acquire (Rao 1992). Moreover, that utility is inextricably linked to the quality of that product as wells as consumers’ inferred quality of it (Shapiro 1983). More precisely, he indicates that the inferred quality of a product is higher for quality-conscious consumers than for the ones who do not pay much attention to the quality, leading to the quality-conscious consumers involving more in research about the attributes of the products and being able to distinguish a proportional to the quality price (Rao 1992). Previous research about the factors influencing consumers to choose strong national brands instead of less strong, store brands indicated that there is a strong correlation between the quality of a product and it being premium priced and that consumers would be willing to pay for the price premium if they identified such a strong quality, especially in categories that contribute to their consumption pleasure (R. C. Sethuraman 1999). However, a more recent study demonstrated that this quality-price relationship can be overrated, as quality could only explain 20 per cent for the demanded amount of money consumers were actually willing to pay (Anselmsson, Johansson and Persson,2007). Actually, Sethuraman revealed that attributes not related with quality were stronger drivers for paying a price premium (R. Sethuraman 2003). Therefore, since perceived quality is one of the elements constituting brand equity, we can presume that the other elements play also an important role in the decision making process to pay a price premium, concluding that brand equity as a whole could be a more solid determinant of consumers’ willingness to pay a higher price for a product.

2.2 Pricing & Consumers’ willingness to pay

10

price is only one of the incentives a consumer comes across when he/she is in the decision making situation (B. K. Monroe 1973). Studies demonstrate that from a consumer’s perspective, price differences appear fair only if they can be attributed to quality differences (L. E. Bolton 2003). However, Steenkamp on a study about the consumers’ willingness to pay for a national brand instead of a private label identified several factors that influence positively the customers’ attitude towards choosing a national brand, namely product innovation as an indicator of better quality, advertising, packaging, the difficulty of the products’ production and other consumer components (Steenkamp 2010). Thus, in support of the research conducted by Monroe (1973), the consumers’ compliance to a price premium can be affected by the perceived value of the product as well as additional benefits he/she attributes to a product even more than price. Marketing managers depend on this measure to proceed in establishing optimal pricing strategies. To measure optimally the consumers’ willingness to pay, different types of approaches have been put into practice; the open-ended question format, the choice-based conjoint analysis, the Becker, DeGroot and Marschak’s mechanism, and the incentive-aligned choice-based conjoint analysis (Miller 2011).

2.3 Customer – based brand equity

11

Image. In different studies concerning related consumer decisions, researchers argued that consumer expertise or familiarity may mediate the effect of price on consumers’ perceptions of product quality (Biswas Abhijit 1993). According to Anselmsson (2014), the best single measure of the brand equity is the brand premium (Anselmsson, Vestman and Johansson, 2014). He suggests from previous studies that price premiums along with satisfaction and loyalty, constitute examples of general brand strength and outcomes of strong brand image. Explaining that, he suggests that “a brand obtains a price premium when the sum that customers are willing to pay for products from the brand is higher than the sum they are willing to pay for similar products from other relevant brands”. Another study suggests that a brand name “takes precedence over other attributes as an item of information in consumers’ decision-making processes” (Biswas Abhijit 1993). Thus, a strong brand name may drive a product purchase, and especially in low-involvement products, may be the only attribute to generate the sale of the products even if they are premium priced.

H1: Customer based brand equity will have a positive effect on consumers’ willingness to pay a price premium.

2.4 Consumers’ price sensitivity

12

demonstrate price sensitivity as the private labels (Hoch 1996). Moreover, it has been demonstrated that brands that are regularly on promotion have lower price (Danaher and Brodie 2000). However, given the past socio-economic circumstances, consumers turn to more low-priced products. As a matter of fact, in the Netherlands for example, the number of domestic purchases in hard discount retailers, namely Aldi or Lidl, has evolved from 30% in 2001 to 52% in fall 2003 (Gfk 2003). As Gale supports, during economic downturns, consumers restrain their budgets, waiting for inflations to increase their spending (Gale 1996). Subsequently, consumers' willingness to pay a price premium for a national, strong brand is anticipated to be pointedly limited during a recession.

H2: Consumers' price sensitivity will negatively affect the impact of customer based brand equity on consumers’ willingness to pay a price premium.

2.5 Price Awareness

13

have minor level of price awareness. (Aalto and Raijas 2003) (Kenning, et al. 2007) (Monroe and Lee 1999) (Schneider and Kelemci-Schneider 2006) (Vanhuele and Dre`ze 2002). For example, Dickson and Sawyer’s (1990) in-store price knowledge research provided support for this hypothesis by demonstrating specifically that only 47% to 55% of the participants were able to provide accurate prices of the products they had instantly purchased, while 19% to 23% did not even engage on presenting an estimation (Vanhuele and Dre`ze 2002). Further than that, there is evidence that subjective and objective price knowledge are low or moderately correlated, pointing out that consumers' own perception of price awareness is not aligned with the actual facts (Alba, Hutchinson and Lynch 1991). Useful for the sequence of the study, would be to identify the drivers of price knowledge and divide them into two categories, namely the category-level and the consumer-level as indicated by Vanhuele & Drèze (Vanhuele and Dre`ze 2002). According to their study and concerning the category-level dimension, it is suggested that depending on the category characteristics, consumers' competence to precisely save price information and make use of them, can be modified. If the case is that an item is the only representative of the category with a continuously stable price, the price recall would be effortless. On the contrary, if the category is represented by a wide range of items with varying prices, the price recall of any given item would be challenging. Regarding the consumers'-level dimension, it is advocated that consumers who broadly engage in price research would have a higher level of knowledge of prices, using it mostly as a decision stimulus. Given the facts above, it could be assumed that for the category of the current research which is represented by multiple components the price knowledge would be low and hence, it would not have a significant impact on the consumers' willingness to pay. However, it has been validated that consumers with high brand loyalty also pay attention to the prices (Krishnamurthi and Raj n.d.).Therefore, consumers being confronted with prices higher than the ones they are already strongly familiar with, could be impacted on their price sensitivity level. The hypothesis based on that shall be introduced as followed:

14

2.6 Conceptual Model

Based on the literature discussed earlier and the hypotheses outlined, a conceptual model can be introduced along with the hypotheses of the research. As already argued and indicated by the model, the main research questions shall be whether price sensitivity can effectively alternate the direct effect customer based brand equity has on consumers’ willingness to pay for a price premium. Along, the price awareness is introduced as a moderator that will enhance the moderating role of price sensitivity.

3 Methodology

3.1 Research Method

15

category. Three representatives of the category were chosen, namely shampoo, deodorant and shower gel. This category was selected as it includes low involvement products and consumers tend to rely more on heuristics in the time of decision making rather than to systematic processing (Fennis 2010). The heuristic in the case of our research will be represented by the customer-based brand equity. In addition, the price awareness is examined as another independent variable that could possibly affect the price sensitivity. Therefore, a multiple moderation model is proposed. Principally, moderation analysis allows for investigation of the relationship between an independent variable (predictor) and the dependent variable (dependent) to rely upon the degree of another independent variable (moderator) (Irwin and McClelland 2009). In the present research, in order to confirm that the price sensitivity and price awareness in fact moderate the relationship between the customer based brand equity and consumers' willingness to pay for a price premium, it has to be demonstrated that the size or the direction of this relationship changes when the value of the two proposed moderators differentiates. Respectively, it has to be confirmed that the weight of the moderation of the price sensitivity on the aforementioned relationship, increases when price awareness levels are higher. In the end the Gabor Granger technique will be used to measure for consumers’ willingness to pay the price premium mentioned.

3.2 Measurement approach

In order for the variables' measurement to be reliable, previously strongly tested and valid scales will be used almost entirely.

For the Customer based brand equity measurement, a tested scale will be used, introduced by (Yoo and Donthu 2001). Related questions will be requested to be answered by each participant for his/her preferred brand of each product. Each consumer-based brand equity item shall be evaluated through a seven-point Likert scale anchored at 1 = ``strongly disagree'' and 7 = ``strongly agree".

16

the level of the price sensitivity of each respondent and accordingly be compared to their answers in the pricing questions.

In order to have an indication of each respondent's price awareness, three questions are asked in a seven point Likert scale, likewise. The score should point out how aware consumers are about the prices and whether they actually have knowledge of the items purchased.

Finally, in the same context, the measurement of willingness to pay will take place using the Gabor-Granger technique (Gabor and Granger 1979). Participants, along with evaluating the brand equity of each product, will be asked how much they would be willing to pay for that through a number of different, but still relevant prices, presented in random order. The first price they are presented, accounts for the average price of the products of their preferred brand within the category. Afterwards, they are inquired to answer whether they would be willing to pay for a plus 10%, a minus 5%, a plus 15%, a minus 5%, a plus 20% and a plus 5% in this order, all of the prices adjusted to the average one. The randomization was selected in order to avoid creating pricing cues in consumers' minds. The outcome of the pricing analysis of the technique should be able to indicate where is the point that consumers are not eager to pass when paying, and consequently, set the higher possible price for manufacturers.

In order to define price premiums, real prices from supermarkets are used from existing strong and less known brands accordingly. The prices were in accordance with Albert Heijn, the dominant retailer in the Netherlands, in the position of the market leader with a market share accounting for approximately 34% and a wide range of products (25.000) (EFMI Business School 2014).

3.3 Data Collection

17

to be residents of the Netherlands or have resided in the past, although the survey was distributed in other countries too with identical pricing levels within the categories.

3.4 Questionnaire design

18

4 Results

4.1 Descriptive Statistics

The total participation number sums up to 206 respondents of whom 174 successfully finished the survey. Of the total number of valid responses, 42 participants were excluded from further analysis as they were not the main shoppers of their personal care products. Therefore, 132 answers proceeded to be analyzed. Separately in the categories, 117 respondents chose a deodorant from the presented options and not “other”, 87 chose a shampoo from the presented options and 121 chose an option from the presented toothpaste brands. The final sample is composed of 64 females (49 %) and 68 males (51 %), where 68 are between 18 to 25 years old, 47 of them between 26-35 years old,12 of them 36-45 years old and 5 of them 46-65 years old. The country of residence mostly observed is the Netherlands counting for 79 respondents. On average 56% of the sample consists of students (74 participants) and 36% consists of employees (48 participants). Of the total sample 61 participants have at least completed a bachelors’ degree and 64 have at least completed a masters’ degree. Concerning the gross annual income, the greater percentage is observed to be in the range of 0-10.000 € (58% of the respondents). Overall, the preferences indicated by the distribution per category are presented below.

Figure 1: Distribution of brands – Deodorant Category Figure 2: Distribution of brands – Shampoo Category 19,7% 26,5% 2,3% 17,4% 16,7% 3,0% 2,3% 12,1% 0% 20% 40% AXE Dove Fa Nivea Rexona Sanex Supermarket Label Other

Distribution of brands - Deodorant Category 6,1% 3,8% 15,2% 14,4% 9,8% 1,5% 14,4% 34,8% 0% 20% 40% Andrelon Elvive Head & Shoulders Nivea Palmolive Supermarket Label Syoss Other

19

Figure 3: Distribution of brands: Toothpaste Category

4.2 Variables Measurement

In order to demonstrate a legitimate measurement of the components, namely customer based brand equity, price sensitivity and price awareness, a factor analysis was conducted with the use of principal component analysis and Varimax rotation. Concerning the adequacy of the sample, the results were supporting (KMO= .876; .735; .646 respectively). Moreover, the significance of the study was confirmed indicating the validity of the present study (Bartlett’s Test of Sphericity: p < .001).

From the results of the factor analysis and regarding the customer based brand equity, it is indicated that all the variables load successfully on one factor except for one: (7) I have difficulty in imagining the brand in my mind). Therefore, it was excluded. Reasoning the decision to proceed with capturing customer based brand equity in one factor, the intention was to comply with one of the prerequisites of a good model which is to be parsimonious and “explain a lot by means of little” (Leeflang, Bijmolt and Wieringa 2015). Regarding the price awareness, all the variables load successfully in one factor and for the price sensitivity, four items had to be excluded: (5) When I buy something that is on sale I feel like a winner, (6) I have favorite brands but I typically buy products that are on sale, (7), Purchasing expensive products makes me feel stylish, (8) I enjoy the prestige of owning products of well-known brands). Following, the reliability analysis presented internal consistency with adequate values of Cronbach’s alpha; α= .906 for customer based brand equity, α= .764 for price sensitivity and α= .721 for price awareness, supporting the decision to

17,4% 29,5% 3,8% 15,9% 2,3% 2,3% 16,7% 3,0% 9,1% 0% 20% 40% Aquafresh Colgate Elmex Oral-B Parodontax Prodent Sensodyne Supermarket Label Other

20

proceed with these items instead of the original ones. The descriptive statistics, as well as the individual Cronbach’s α, are presented in the table 1.

Component No.

of items Mean

Std.

Deviation Min Max Cronbach's α Customer Based Brand

Equity

8 4.916 1.342 1.00 7.00 .906

Price Awareness 3 4.592 1.284 1.00 7.00 .721 Price Sensitivity 4 4.591 1.294 1.00 7.00 .764

Table 1. Descriptive Statistics, Cronbach’s alpha

4.2.1 Preliminary Analysis

With respect to the customer-based brand equity that respondents of the present study hold, interesting patterns can be identified as a quite big proportion of the sample demonstrated positive associations to the chosen brand. Overall, the sample cannot be recognized as price sensitive as calculating the mean values for each statement, it is found that the results are around the mean value of the scale (value = 4). Concerning the price awareness that respondents were tested for, it is indicated that although the majority checks for the prices before purchasing a product, having accurate knowledge about prices and recognizing the price differences between retailers is not true. This is aligned with the finding that respondents, although may purchase some products on average prices, they were not willing to comply with price premiums as indicated by their answers.

4.3 Moderated Moderation Analysis

21

reflects the minus 10% is used. At first, a simple linear regression was performed to test for the main effects of the explanatory variables and whether the variables as such have a significant effect on the consumers’ willingness to pay, not taking into account the interactions between them. As outcome, a normalized variable related to the average was used in order to find out if a more robust relationship can be reached WTP= (High/Ave)*100). Moreover, since the price premium is a subjective matter, a more relative measure should be used. The outcome of the regression can be summarized in table 2 below:

WTP

B SE t-value p-value R2 _Adjusted

Intercept 105,705 2,702 39,125 .000

Customer based brand equity 1.786 .414 4.318 .000

.057 Price sensitivity -1.162 .462 -2.516 .012

Price Awareness -.369 .447 -.825 .410

Table 2: Main effects results on WTP

22

Figure 4: Statistical diagram of model 3 (Hayes, 2013)

The variables shown in the diagram are represented as shown below: X = Customer based brand equity

Y = Consumers’ willingness to pay a price premium M = Price Sensitivity

W = Price Awareness

According to the statistical diagram and based on the proposed conceptual model, the equation that will specify the relationship of the variables in research can be presented as follows:

WTP= β0 + β1CBBE + β2PA + β3PS + β4CBBE * PS + β5 CBBE* PA + β6PA*PS + β7CBBE*PA*PS

23

WTP

B SE t-value p-value LLCI ULCI R2

Adjusted Intercept 103.234 11.647 8.863 .0000 80.317 126.150 .081 CBBE 1.204 2.365 .5089 .6112 -3.449 5.857 PS 2.085 3.592 .508 .5621 -4.982 9.151 PA -2.802 2.976 -.942 .347 -8.656 3.052 CBBE*PS -0.367 .651 -.565 .573 -1.647 .913 CBBE*PA 0.696 .576 1.209 .228 -.437 1.830 PS*PA -.010 .753 -.014 .989 -1.491 1.470 CBBE*PS*PA -.051 .135 -.375 .708 -.316 .215

Table 3: Interactions effects, Hayes PROCESS model 3

Given the results of the PROCESS the need to test for multicollinearity between the variables is necessary. Therefore, an examination for that will be performed.

WTP

B Std. Error p-value Tolerance VIF Intercept 1,032 0,116 0 PA -0,028 0,03 0,347 0,019 52,606 PS 0,021 0,036 0,562 0,013 77,842 CBBE 0,012 0,024 0,611 0,028 36,302 CBBE*PA 0,007 0,006 0,228 0,009 108,097 CBBE*PS -0,004 0,007 0,573 0,006 154,52 CBBE*PA*PS -0,001 0,001 0,708 0,004 273,429 PA*PS 0 0,008 0,989 0,005 198,525 Table 4: Regression analysis, Interaction effects

24

customer-based brand equity and price sensitivity solely. The main effects of the model were presented earlier, therefore, in the next sections, the analysis will be conducted for each product category for more specific insights.

4.3.1 Category Level Analysis

4.3.1.1 Deodorant Category

Regarding the relationships proposed in the conceptual model but specifically for the deodorant category the main effects can be summarized in the table 3 below:

WTP

B SE t-value p-value R2 _Adjusted

Intercept 106.322 4.832 22.004 .000

Customer based brand equity 1.479 .722 2.049 .043

.036 Price sensitivity -.276 .724 -.382 .703

Price Awareness -1.040 .700 -1.487 .140

Table 5: Main effects on WTP for the deodorant category

Regarding the deodorant category customer based brand equity seems to have a significant direct effect on consumers’ willingness to pay a price premium (p < .001). This means that for these specific products, in a state that no other factors exist, consumers are eager to pay more in order to acquire their favorite brand. More specifically, taking into account the overall answers in the survey we can identify some guiding patterns to this conclusion. The graph 1 illustrates the purchasing tendency of the respondents for the different levels of prices when customer-based brand equity is positive taking into account all the brands in the category included in the questionnaire.

25

The x-axis represents the prices that the participants were presented with, ordered from the lowest to the highest and the average. The y-axis represents the number of positive answers to the prices. One can conclude that even though there is a decreasing trend while the price is increasing, participants who indicated higher customer-based brand equity tend to be more tolerant to the price increases even if it happens in a slight degree especially in price levels between +5% until 10%.

In order to support that customer-based brand equity is a justified driver of price premiums even when price sensitivity is present, the latter has to be examined too. Thus, an analysis for the moderating role of price sensitivity has to be conducted. The outcome presented in table 5 below shall be able to explain whether price sensitivity significantly impacts the aforementioned positive relationship.

WTP

B Std. Error p-value Tolerance VIF Intercept 103.668 5.593 .000

CBBE 1.999 .908 .030 .603 1.657 PA -1.064 .701 .132 .851 1.175

PS .450 1.57 .671 .384 2.605

CBBE*PS -.012 .012 .347 .300 3.328 Table 6: Moderation analysis for Deodorant Category

It can be concluded from the outcome, that there are no interactions effects between customer based brand equity and price sensitivity, therefore price sensitivity does not affect the relationship examined. What is more, it can be identified that the accepted levels of VIF scores (< 4) can allow for that conclusion.

4.3.1.2 Shampoo Category

Likewise, the same steps followed for the deodorant category, will be pursued for the shampoo category. In table 5, the main effects can be identified.

WTP

B SE t-value p-value R2 _Adjusted

Intercept 104,446 5,480 19,058 0,000

Customer based brand equity 1,896 0,814 2,331 0,022 .037

Price sensitivity -1,269 0,919 -1,381 0,171 Price Awareness -0,083 0,959 -0,087 0,931

26

For the shampoo category the same patterns as for the deodorants can be observed. The customer-based brand equity likewise, does have a direct effect to consumers’ willingness meaning that also for this category, when strong associations exist consumers invest on the products. The graph 2 will show how this compliance to the prices is distributed.

Figure 6: Purchasing frequencies for Low & High CBBE – Shampoo Category

Also for the shampoo category, the same tendency can be observed. Obviously, respondents who presented higher customer-based brand equity were more willing to pay for a price premium than the ones with lower. Likewise, in order to observe if there is a moderating role of price sensitivity in the relationship, an analysis was performed including the interaction examined. Table is indicative of the outcome.

WTP

B Std. Error p-value Tolerance VIF Intercept 99.451 5.788 .000

CBBE 2.746 .879 .002 .751 1.332 PA -.086 .936 .927 .831 1.204 PS -.025 1.053 .981 .571 1.752 CBBE*PS -.014 .006 .027 .522 1.915 Table 8: Moderation analysis for Deodorant Category

27

Again, no multicollinearity problems can be observed, thus, it is safe to interpret the results. In the shampoo category, contradicting the results of the deodorant ones, a significant moderating effect can be found of price sensitivity to the relationship between customer-based brand equity and consumers’ willingness to pay (p= .027).

As expected, price sensitivity negatively influences the relationship. This conclusion is supported from the negative signs in the B. In other words, when consumers have higher levels of price sensitivity, they tend to be more reluctant to price increases and react negatively, refusing to pay for a price premium.

4.3.1.3 Toothpaste Category

The last category analyzed in the same ways is the one that includes the toothpaste products. Again the main effects can be found individually below:

WTP

B SE t-value p-value R2 _Adjusted

Intercept 106.417 4.197 25.358 .000

Customer based brand equity 2.025 .678 2.984 .003 .066

Price sensitivity -2.051 .808 -2.538 .012

Price Awareness .076 .741 .103 .918

Table 9: Main effects on WTP for the Toothpaste category

28

Figure 7: Purchasing frequencies for Low & High CBBE – Toothpaste Category

Here, an interesting insight is observed. Consumers with higher customer-based brand equity again tend to comply with the price premiums in a wider rate than those who have lower. However, it is demonstrated that consumers in every level of customer-based brand equity tend to comply more with the average prices than the decreased ones. In a try to explain this weird outcome, it could be possible that consumers’ most important aspect of customer-based brand equity is the one of the quality. Thus, it could be the case that consumers tend to believe that lower price for a product that is connected to health might indicate lower quality and refuse to purchase it.

Once again, in line with the scope of the study, analysis was performed in order to examine whether there is a moderating role of price sensitivity in the main relationship in the toothpaste category.

WTP

B Std. Error p-value Tolerance VIF Intercept 102.544 4.520 .000

CBBE 2.712 .743 .000 .659 1.518

PA .061 .730 .934 .835 1.197

PS -1.214 .889 .175 .583 1.715 CBBE*PS -.014 .007 .036 .531 1.885 Table 10: Moderation analysis for Deodorant Category

29

For the toothpaste category, as with the shampoo category there can be identified a significant interaction between the price sensitivity and the customer-based brand equity (p = .036). Again as expected, and in accordance with the B, it is the case that price sensitivity negatively impacts the main relationship meaning that when price sensitivity is present, customer-based brand equity’s strength is lower. Once more, the VIF scores allow for proper interpretation of the results as they indicate very low and acceptable levels of multicollinearity (< 4).

5 Discussion

30 Hypotheses Results Deodorant Category Shampoo Category Toothpaste Category Customer-based brand equity will have a

positive direct effect on consumers' willingness to pay a price premium

Supported Supported Supported

Consumers' price sensitivity will negatively affect the impact of customer-based brand equity on consumers' willingness to pay for a price premium

Not supported Supported Supported

Price awareness will have an impact on price sensitivity enhancing its role on the customer-based brand equity to consumers' willingness to pay for a price premium

Not supported Not supported Not supported

Table 11: Hypotheses Evaluation

In line with the theory analyzed, the present study’s observations indicate that the customer-based brand equity is capable of driving consumers to pay more than expected for their favorite brand in the personal care category. Consumers that hold favorable, positive associations to the brands they are loyal to, are eager to pay a higher cost to acquire a product from the brand they are loyal to. As indicated by the preliminary analysis and the patterns in the graphs of the study, participants who revealed a higher level of brand equity held stronger tolerance to price increases and complied more than the participants that scored lower on the independent variable. Therefore, the first hypothesis was supported by the results of the present survey in all three sub-categories, namely deodorant, shampoo and toothpaste.

31

is reasonable that consumers might not be willing to pay more for a product with low life cycle. The only exception to the categories examined in the present study is the deodorant one, which apparently has still strong brand effects. Thus, the hypothesized relationships were supported but only for two of the categories.

Finally, it was hypothesized that price awareness would have an upgrading effect on the moderating role of price sensitivity. It was hypothesized, based on previous research findings that consumers with better price knowledge would tend to be more price sensitive. This would be a reasonable assumption since when one has already true price perceptions, it is expected that he would not agree to be willing to pay a price premium for a brand. For example, if a consumer is strongly aware of the prices in a store, it would be quite difficult to comply with a price higher than the average. However, no such interaction was found, basically because it was not possible to test for moderated moderation effects, since the variable that represents the price awareness seemed to represent a problem with high multicollinearity outcome. Therefore, it can be stated that the hypotheses with regard to the price awareness were not supported for any of the three categories. Overall, most of the results were consistent with the theory and generated significant insights for the brands that are represented in the categories examined.

5.1 Managerial Implications

32

33

5.2 Limitations

The present study has a few limitations that need further reporting. For further discussion they shall be assorted in three different domains, namely the methodology, the data collection and the products.

Regarding the methodology, it is acknowledged that the Gabor Granger technique used is only one way to measure the consumers' willingness to pay for a price premium (Gabor and Granger 1979). As identified in previous studies, a conjoint analysis could also be performed in order to demonstrate the key aspects of brands that consumers find attractive and thus, the attributes and levels of the products can be measured (Miller 2011).

Concerning the data collection performed as well as the sample acquired, it is important to consider that the prices of one distinct retailer was studied as well as the products offered in the specific chain. However, as the study was performed in the Netherlands and the majority of the sample resides/ has resided or has knowledge of the pricing circumstances in this domain, it is safe to conclude the validity of the research. Furthermore, given the timing restrictions of the study and the effort for the results not to be biased, it could not be possible to control for specific answers in order to have an adequate sample of all the brands referred in the questionnaire. The same limitation is present for the age, occupational, educational level, residence and income parameters of the study, although it cannot be seen as a typical student segment. Hence, the results could not be generalized for the universal population; it could rather be seen as an indication for this categories and a direction for further research.

34

perceptions than for other types of products. Lastly, it cannot be overcome that several other brands exist, especially for products that can be found by consumers in various stores apart from retailers like Albert Heijn.

Concluding, the present study, besides the aforementioned limitations could be recognized as well founded, as very common products were chosen to be researched, the brand list was quite extensive, the retailer appointed is dominant in the categories and holds similar prices to the ones that the sample is used to find. Furthermore, the option that was given to the respondents to state whether the purchases are performed in promotional conditions, allowed for the control of this environmental variable. With respect to the research technique, it can be argued that it can introduce credible conclusions as it has already been suggested that hypothetical approaches can still generate valid results and be leading material to right pricing decisions (Miller 2011).

5.3 Further research

As already indicated by the limitations of the study, some fields could be investigated further. First of all, it would be interesting to examine whether different results would be generated if the research was based on scanner data with the use of specific prices in every product category instead of average prices of all the products from a specific brand. Furthermore, a wider variety of brands in every category with a more extended sample could be more indicative for the concepts hypothesized. Another aspect of the study that could be improved in further research, would be based on prices from various retailers instead of one and also including prices from promotional stores, which have a wide presence in the Dutch market.

35

6 References

Aaker, D.A. «Measuring brand equity across products and markets.» California Management

Review, 1996, 38 εκδ.: 102-120.

Aalto, Seta ̈la ̈ V., και A Raijas. «Actual market prices and consumers.» Journal of Product and

Brand Management, 2003, 12 εκδ.: 180-190.

Abhijit, Biswas. "The moderating role of brand familiarity in reference price perceptions."

Journal of Business Research, 1992.

Alba, Joseph W., J. Wesley Hutchinson, και John G. Jr. Lynch. «Memory and Decision Making.» Στο Handbook of Consumer Behavior, του/της Thomas S. Robertson και Harold H. Kassarjian, 1-49. Prentice-Hall,Inc, 1991.

Anderson T. Eric, Simester Duncan. www.hbr.org. 2003. https://hbr.org/2003/09/mind-your-pricing-cues.

Anselmsson, Johan, Niklas Vestman, και Bondesson Ulf Johansson. «Brand image and customers' willingness to pay a price premium for food brands.» Journal of Product

& Brand Management, 2014, 23 εκδ.: 90-102.

Anselmsson, Johan, Ulf Johansson, and Niklas Persson. “Understanding price premium for grocery products: a conceptual model of customer-based brand equity.” Journal of

Product and Brand Management, 2007, 16 ed.: 401-414.

Bearden, William O., και Richard G. Netemeyer. Handbook of marketing scales. Sage Publications Inc., 1998.

Bell, David R., Jeongwen Chiang, και V. Padmanabhan. «The decomposition of promotional response: an empirical generalization.» Marketing Science, 1999, 18 εκδ.: 504-526. Biswas Abhijit, Sherrell L. Daniel. "The Influence of Product Knowledge and Brand Name on Internal Price Standards and Confidence." Psychology & Marketing, 1993, 10 ed.: 31-46.

Bolton, Lisa E. Luk Warlop, and Joseph W. Alba. «Consumer Perceptions of Price (Un)Fairness.» Journal of Consumer Research, 2003: 474-491.

Bolton, R.N. «The relationship between market characteristics and promotional price elasticities.» Marketing Science, 1989, 8 εκδ.: 153-169.

Boonghee Yooa, Naveen Donthub,. «Developing and validating a multidimensional

consumer-based brand equity scale.» Journal of Business Research, 2001, 52 εκδ.: 1-14.

Burt, S. «The strategic role of retail brands in British grocery retailing.» European Journal of

36 Cameron, Trudy A. and Michelle D.James. «Estomating willingness to pay from survey data:

an alternative pre-test-market evaluation procedure.» Journal of Marketing

Research, 1987: 389 - 395.

Christian Homburg, Nicole Koschate, & Wayne D. Hoyer. «Do Satisfied Customers Really Pay More? A study of the relationship between customer satisfaction and willingness to pay.» Journal of Marketing, 2005, 69 εκδ.: 84-96.

Danaher, Peter J., και Roderick J. Brodie. «Understanding the Characteristics of Price Elasticities for Frequently Purchased Packaged Goods.» Journal of Marketing

Management, 2000, 16 εκδ.: 917-936.

Droege B., Scott. Reference for Business. n.d.

http://www.referenceforbusiness.com/management/Or-Pr/Pricing-Policy-and-Strategy.html.

EFMI Business School. «Market Shares Dutch Food Retailers.» 2014.

Estelami, Hooman, Donalrd R. Lehmann, και Alfred C. Holden. «Macro-economic determinants of consumers price knowledge: a meta analysis of four decades of research .» International Journal of Research in Marketing, 2001: 341-355. Fennis, Bob, Stroebe,Wolfgang. The psychology of advertising. 2010.

French, Alan Gareth Smith. «"Measuring brand association strength: a consumer based brand equity approach".» European Journal of Marketing, 2013: 1356-1367.

Gabor, André, and C. W. J. Granger. "Price as an Indicator of Quality: Report on an Enquiry."

Management Decision 17, no. 8 (1979): 590 - 618.

Gale, Douglas. «Delay and Cycles.» Review of Economic studies, 1996: 169-198.

Gerard, Tellis J. «Beyond the Many Faces of Price: An Integration of Pricing Strategies.»

Journal of Marketing, 1986: 146-160.

Gfk. Growth from Knowledge. 2003.

Grewal D., Roggeveen A., Nordfalt J. "Pricing in the modern world: the role of price-related and non-price related cues." Journal of Product & Brand Management, 2014: 397-400.

Hayes, A.F. «Introduction to mediation, moderation and conditional process analysis: a regression-based approach (Methodology in the social sciences.» 2013. Hoch, Stephen J. «How Should National Brands Think about Private Labels?» MIT Sloan

Management Review, 15 January 1996: 1.

37 Jensen, Birger Boutrup, και Klaus G. Grunert. «Price Knowledge During Grocery Shopping:

What We Learn and What We Forget.» Journal of Retailing, 2014, 90 εκδ.: 332-346. Keller, Kevin Lane. «Conceptualizing, Measuring, and Managing Customer-Based Brand

Equity.» Journal of Marketing, 1993: 1-22.

Kenning, P., H Evanschitzky, Vogel, V., και D. Ahlert. «Consumer price knowledge in the market for apparels.» International Journal of Retailing, 2007, 35 εκδ.: 97-119. Kenning, Peter, Vivian Hartleb, και Helmut Schneider. «An empirical multi-method

investigation of price knowledge in food retailing.» International Journal of Retail

and Distribution Management, 2011, 39 εκδ.: 363-382.

Krishna, Aradhna. "Effect of dealing patterns on consumer perceptions of deal frequency and willingness to pay." Journal of Marketing Research, 1991: 441- 451.

Krishnamurthi, Lakshman, και S.P. Raj. «An Empirical Analysis of the Relationship between Brand Loyalty and Consumer Price Elasticity.» Marketing Science, n.d., 10 εκδ.: 172-183.

Leeflang, P.S.H., T.H.A. Bijmolt, και J. Wieringa. Modeling Markets. Springer Publishers, 2015. Miller, Klaus, Reto Hofstetter, Krohmer Harley, Zhang John. «How consumers' willingness to

pay be measured? An empirical comparison of state-of-the-Art approaches.» Journal

of Marketing Research, 2011: 172-184.

Monroe, B. Kent. «Buyers' Subjective Perceptions of Price.» Journal of Marketing Research, 1973, 10 εκδ.: 70-80.

Monroe, Kent B., και Angela Y. Lee. «Remembering vs. Knowing: Issues in Buyers’Processing of Price Information.» Journal of the Academy of Marketing Science, 1999, 27 εκδ.: 207-225.

Raju, J.S. «The effect of price promotions on variability of product category sales.»

Marketing Science, 1992, 11 εκδ.: 207-220.

Rao, R. Akshay and Mark E. Bergen. «Price Premium Variations as a Consequence of Buyer's Lack of Information.» Journal of Consumer Research, 1992, 19 εκδ.: 412-423. Richards, Debbie. think about pricing. n.d. www.thinkaboutpricing.com.

Schneider, H., και G. Kelemci-Schneider. «Consumer price knowledge in Turkey – before and after the changeover of the national currency.» Journal of Product and Brand

Management, 2006, 15 εκδ.: 450-457.

38 Sethuraman, R. «Measuring national brands’ equity over store brands.» Review of Marketing

Science, 2003, 1 εκδ.

Shapiro, Carl. «"Premium for High Quality Products as Returns to Reputations.» Quarterly

Journal of Economics, November 1983: 659-679.

Stanton William J., Miller Kenneth E. "Fundamentals of Marketing." In Fundamentals of

Marketing, by Miller Kenneth E. Stanton William J. 1985.

Steenkamp, Jan-BENEDICT E.M. , HARALD J. VAN HEERDE, and INGE GEYSKENS. "What Makes Consumers Willing to Pay a Price Premium for National Brands over Private Labels?" Journal of Marketing Research, 2010: 1011-1024.

Urbany, Joel E., Peter R. Dickson, και SawyerAlan G. «Insights into cross and wthin-store price search: Retailer estimates VS. Consumer self-reports.» Journal of Retailing, 2000, 76 εκδ.: 243-258.

Van Ittersum, Koert. «Brand & Product Management .» 2014.

Vanhuele, M., και X Dre`ze. «Measuring the price knowledge shoppers bring to the store.»

Journal of Marketing, 2002, 66 εκδ.: 72-85.

Wakefield, Kirk. L., και J. Inman Jeffrey. «Who are the prices vigilants? An investigation of differentiating characteristics influencing price information processing.» Journal of

Reatiling, 1993: 216-233.

39

7 Appendices

1. Questionnaire (Adapted to the first brand in alphabetical order, the rest of

47 2. Descriptive Statistics Frequency Percentage Age 18-25 68 51,5% 26-35 47 35,6% 36-45 12 9,1% 46-55 4 3,0% >55 1 0,8% Gender Female 64 48,5% Male 68 51,5% Nationality Dutch 39 29,5% Other 93 70,5% Residence The Netherlands 79 59,8% Other 53 40,2% Education High School 4 3,0% Bachelors' Degree 61 46,2% Masters' Degree 64 48,5% PhD 3 2,3% Occupation Student 74 56,1% Employee 48 36,4% Unemployed 7 5,3% Retired 1 0,8% Other 2 1,5%

Gross Annual Income

48

3. Measurement Scales

Customer Based Brand Equity Scale

I consider myself to be loyal to Brand A Brand A would be my first choice

I will not buy other brands if Brand A is available at the store The likely quality of Brand A is extremely high

I am aware of Brand A and I can recognize it among other competing brands Characteristics like symbol/logo quickly come to my mind for Brand A I have difficulty in imagining Brand A in my mind

It makes sense to buy Brand A instead of any other brand, even if it contains the same ingredients and formula

Even if another brand has the same features as Brand A will prefer to buy Brand A

Price Awareness Scale

I always check the prices before I proceed to the purchase of a personal care product I have accurate knowledge of the store prices of personal care products

I can recognize the price differences between supermarkets in the personal care product

Price Sensitivity Scale

I keep up with sales being offered by department stores in my area I feel that I can save a lot of money using reward programs coupons I always want low prices but I am equally concerned about product quality

When I buy personal care products, I always want to make sure that I am getting my money's worth

When I buy something that is on sale, I feel like a winner

I have favorite brands, but I typically buy products that are on sale Purchasing expensive products makes me feel stylish

July, 2015

Polina Strati

MSc Marketing Management | University of Groningen

dr. J.E.M. van Nierop | Niels Holtrop

Pricing; Is it right or not?

The effect of the customer-based brand equity of a product on consumers’

willingness to pay a price premium moderated by consumers’ price sensitivity,

moderated by consumers’ price awareness.

Agenda

1.

Relevance & Objective

2.

Research Questions

3.

Theoretical Framework

4.

Conceptual Model

5.

Methodology

6.

Results

7.

Discussion

8. Managerial Implications

9.

Limitations and Further Research

Relevance & Objective



Price is a very complex and multidimensional component for consumers.



Retailers and firms try different pricing strategies.



Consumers’ willingness to pay differentiates under circumstances and for different levels of

price sensitivity and price awareness.



In practice, it is generally assumed that price sensitivity decreases the consumers’ willingness

to pay and price awareness enhances price sensitivity.



In practice, price premiums are justified by customer-based brand equity.

To gain a deeper understanding of how price sensitivity affects the relationship between

customer-based brand equity and consumers’ willingness to pay a price premium in the

FMCG industry.

Research Questions

The main objective is to study customer-based brand equity, price premiums and consumers’

willingness to pay in relation to price sensitivity and price awareness which leads to the main

research questions:

RQ

– Does customer-based brand equity has a positive impact on consumers’ willingness to

pay a price premium?

RQ

– Does price sensitivity have an effect on the aforementioned relationship?

RQ

– Does price awareness enhance the price sensitivity ?

Theoretical Framework

Pricing Strategy

refers to the reasoned choice from a set of alternative prices (or price schedules) that aim

at profit maximization within a planning period in response to a given scenario (Gerard,1986).

Price Premium

is identified as the excess price paid, over and above the "fair" price that is justified by

the "true" value of the product” (Rao,1992).

Consumers’ willingness to pay

can be defined as the maximum amount of money a customer is willing to

spend for a product or service” (Cameron 1987) (Krishna 1991).

Measurement: Gabor Granger technique

Customer-based brand equity

involves consumers' reactions to an element of the marketing mix for the

brand compared to their reactions to the same marketing mix element attributed to a fictitiously named or

unnamed version of the product or service” (Keller 1993) and is inextricably related to the associations of

the consumers with the product (Van Ittersum, 2014).

Measurement: Customer- based brand equity scale by Yoo and Donthu (2001) (adapted)

Price Sensitivity

refers to the degree of which a product’s price can differentiate consumers’ demand for the

product.

Measurement: Price sensitivity scale (Bearden and Netemeyer 1998) (adapted)

Price Awareness

refers to the accuracy of recalled prices in a given product category, in which consumers

Conceptual Model

H1: Customer based brand equity will have a positive effect on consumers’ willingness to pay a price premium.

H2: Consumers' price sensitivity will negatively affect the impact of customer based brand equity on consumers’

willingness to pay a price premium.

H3: Price awareness will have an impact on consumers’ price sensitivity enhancing its role on customer-based

brand equity towards consumers’ willingness to pay for a price premium.

Methodology



Personal Care category – 3 products (deodorant, shampoo, toothpaste)



Online Questionnaire



Online distribution & face to face interviews

•

Respondents’ residence in Netherlands or country with identical price levels



Scales for measurement (7 point Likert)

•

Customer based brand equity

•

Price Sensitivity

•

Price Awareness



Gabor Granger technique for consumers’ willingness to pay



Price premium as the highest price agreed to pay

•

Price levels : -5%, -10%, Average price, +5%, +10%, +15%, +20%



Respondents choose their preferred brand in each category



Extra statement for shopping frequency in promotion stores

Methodology

Research Method: Moderated Moderation Analysis



PROCESS macro from Hayes (2013) – Model number 3

X = Customer based brand equity

Y = Consumers’ willingness to pay a price

premium

M = Price Sensitivity

W = Price Awareness

Sample Description

•

132 analyzed responses

•

Deodorant – 117

•

Shampoo – 87

•

Toothpaste – 121

Results – Factor Analysis - PROCESS

Deviation Min Max Cronbach's α

Customer Based Brand

Equity 8 4.916 1.342 1.00 7.00 .906

Price Awareness 3 4.592 1.284 1.00 7.00 .721

Price Sensitivity 4 4.591 1.294 1.00 7.00 .764



Every variable represented as one factor after excluding items that do not

load sufficiently.

Results – Deodorant Category

11



Customer-based brand equity

has a significant effect on

consumers’ willingness to pay

for a price premium.



Products with higher

customer-based brand equity have higher

resistance to price increases.



Price sensitivity does not affect

the aforementioned

relationship (VIF scores <4).



For this category there are

higher margins for price

increases.

Results – Shampoo Category

12



Customer-based brand equity

has a significant effect on

consumers’ willingness to pay

for a price premium.



Products with higher

customer-based brand equity have higher

resistance to price increases.



Price sensitivity does affect the

aforementioned relationship

(VIF scores <4).



When consumers are price

sensitive there are lower

margins for price increases.

Purchasing frequencies for Low & High CBBE – Shampoo Category

Results – Toothpaste Category

13



Customer-based brand equity

has a significant effect on

consumers’ willingness to pay

for a price premium.



Products with higher

customer-based brand equity have higher

resistance to price increases.



Price sensitivity does not affect

the aforementioned

relationship (VIF scores <4).



When consumers are price

sensitive there are lower

margins for price increases.

Purchasing frequencies for Low & High CBBE – Toothpaste Category

Discussion

Customer-based brand equity will have a positive direct

effect on consumers' willingness to pay a price premium Supported Supported

Supported

Consumers' price sensitivity will negatively affect the impact of customer-based brand equity on consumers'

willingness to pay for a price premium

Not supported

Supported Supported

Price awareness will have an impact on price sensitivity enhancing its role on the customer-based brand equity to

consumers' willingness to pay for a price premium

Not supported

Not supported Not supported



Findings in line with theory in the examined category.



Consumers with favorable associations are more tolerant to price increases.

Managerial Implications



Marketers can rely partially on customer-based brand equity as a justifier for price premiums.



Managers should invest on creating stronger brands to reduce the impact of price premiums in

consumers’ minds.



Pricing executives can take advantage of the restrained price knowledge of consumers both for the

stronger and less strong brands.



Price sensitivity levels should be taken into account by marketers when imposing a price premium

strategy.



Shampoo & toothpaste brand managers have to acknowledge the lack of margins when implementing

price premium strategies.



Deodorant brand managers have the advantage of implementing a price premium strategy when

investing on strong brands.

Limitations and Further Research

Limitations



Various pricing levels across retailers – Albert Heijn was studied



Not generalized results for the population



Not generalized results for industries & categories

Further Research



Scanner data sample could be more representative (Intention vs. Behavior)



Focus on the multidimensional Dutch market



Consumers’ compliance differences due to the randomization of prices

Thank you for your attention!