Running head: Discussion Board Forum 5 - Price 1
Discussion Board Forum 5- Price
Dean E Parsons
Liberty University
BUSI-745
Marketing for Competitive Advantage
Dr. Brunson
08/06/2020
Discussion Board Forum 5 - Price 2
Worth the Price?
In the analysis of price as a component of the 4Ps, it is important to understand the
drivers that facilitate consumers’ acceptance of price. To uncover a greater understanding of
price and pricing power in general, the question should be asked as to what makes a product or
service “worth” the price asked for it? Is it happiness or utility, or something else? Related
specifically to happiness, when analyzing luxury automobiles, and their respective price
premium, a study reveals that people consuming luxury cars are reported to be less happy than
those consuming frugal cars (Okulicz-Kozaryn et al., 2015). If happiness does not justify
pricing, what does?
It is important to note that happiness is just one aspect connected to a luxury vehicle
purchase and that there are other motivators, such as prestige or image to account for in the
analysis of a luxury vehicle being “worth” its price. Luxury vehicles often include the aspect of
exclusivity that is perceived by the customer. Exclusivity can offer an image of social status and
product quality, which are both attributes that influence buyer behavior and can improve the
profitability of the product or service to the luxury vehicle manufacturer (Upshaw et.al., 2017).
Consumers are also reported to be increasingly interested in the social links that come from
brand affiliations outside of just consuming the products or services from the brands themselves.
Strong brand communities increase customer loyalty, decreases marketing costs, defines brand
positioning and can assist in justifying a higher asking price for all luxury items, especially when
related vehicles (Fournier & Lee, 2009).
It has also been uncovered that increasing the affordability of a luxury branded vehicle
through platform and technology sharing has had a negative effect on aspects of uniqueness and
has eroded a brand and its overall perceived luxury. Platform and technology sharing are
Discussion Board Forum 5 - Price 3
motivated by cost reduction and increased value, which appear to be beneficial to a company as
they can create more customers at a lower cost. The reality is that for luxury brands, the opposite
is true. Exclusivity, and the high relative price to obtain it, is more important to a luxury vehicle
buyer than the financial benefits are to the company instituting platform and technology sharing
to lower prices and create new customers (Strach & Everett, 2006).
Scarcity Strategy
The concept of introductory scarcity has a history of impacting consumers’ willingness to
pay and can affect a firms pricing strategies and profitability. There are two primary types of
scarcity, described as real scarcity and fake scarcity. A fake scarcity strategy is implemented
through a firm releasing products in the first period being accompanied by a “fake scarcity
signal”. Though all consumers would likely be able buy the product during this period, and there
is no real scarcity related to supply, the fake scarcity strategy can positively impact consumers’
valuations. Real scarcity strategy is implemented through the initial product launch period being
designed to include a restricted supply of the product, which creates an environment where
consumers cannot obtain it (Chen & Jia, 2020).
It is suggested that a scarcity strategy is more appropriate for luxury products as there are
few substitutes in that segment and that the same strategy in low-quality products is largely
unprofitable. This is mainly due to the scarcity having no signaling effect on the perception of
quality for products that are already determined to be low quality. This fact inhibits the ability to
improve consumers’ valuations and ultimately, low-quality products have numerous alternatives
(Chen & Jia, 2020). Before a scarcity strategy is implemented, a firm should analyze their target
market and the probable response to scarcity prior to implementing such a strategy
Discussion Board Forum 5 - Price 4
Price and Country of Origin
It is concluded that vehicle prices primarily depend on characteristics related to
performance, luxury, comfort, fuel efficiency and safety. Additionally, luxury vehicle pricing is
impacted by exclusivity, scarcity and perceived value of the vehicle and brand. There is,
however, another determinant of price that relates to the vehicles country of origin (COO). An
automotive brand’s country of origin (COO) is said to play a significant role in the determination
of price related to vehicles. A recent study reveals that the COO of a vehicle has a statistically
significant impact on the ability for a company to have pricing power and the COO plays a
meaningful role in price formation for all vehicles the company produces. COO premiums
increase as the manufacturers home country moves away from countries such as Russia, China,
and Korea to countries with an established tradition and proven expertise in car manufacturing,
such as Germany, USA, and UK (Saridakis & Baltas, 2014).
Discussion Board Forum 5 - Price 5
References
Chen, S., & Jia, J. (2020). Pricing and introductory scarcity strategies based on consumers’
response, International Transactions in Operational Research, 27, 2081–2111. DOI:
10.1111/itor.12761
Fournier, S., & Lee, L. (2009, April). Getting Brand Communities Right. Harvard Business
Review, April 2009, 105-111.
Okulicz-Kozaryn, A., Nash, T., & Tursi, N.O. (2015). Luxury car owners are not happier than
frugal car owners, Int Rev Econ, 62, 121-141. DOI 10.1007/s12232-015-0223-2
Saridakis, C., & Baltas, G. (2014). Modeling price-related consequences of the brand origin cue:
An empirical examination of the automobile market, Mark Lett, 27, 77–87. DOI
10.1007/s11002-014-9304-3
Strach, P., & Everett, A.M. (2006). Brand corrosion: mass-marketing’s threat to luxury
automobile brands after merger and acquisition, Journal of Product & Brand
Management, 15(2), 106–120. DOI 10.1108/10610420610658947]
Upshaw, D., Amyx, D., & Hardy, M. (2017). The Nature of Exclusivity, Journal of Marketing
Development and Competitiveness,11(2), 46-63.
