How to price products is a wide knowledge for many corporations, it depends on many factors. First and most obvious is the calculation of the actual costs of production and distribution; then there are less tangible factors such as profit margin, brand value as well as personalities and attitudes for different consumers.
For companies, especially those famous companies, the importance of brand value in pricing products can never be underestimated. Brand value includes a series of assets that can be grouped into many multidimensional constructs, which interact in a complex way: brand loyalty, name recognition, perceived quality and brand identity. This value can then be incorporated into pricing the end product.
A consumer’s perceived value of a product is equal to the perceived value divided by the perceived price. The perceived price is the sum of ‘costs’ they incur to obtain the product. This not only includes the monetary cost of the product but also cognitive costs as well. Simply say, the value of the product is not only worth of the use value when the purchase is done, but also the total benefits of the product over its lifetime. Therefore, brand value will help increase the perceived value of the product, as the consumer would perceive the product to be of a good quality and would be more likely to purchase a product with a higher level of brand recognition than a competing product with less or even no brand recognition.
As for our cheap POLO, the great brand takes full use of this advantage, but didn’t using its brand to set a higher profit margin, but a much lower margin, thus, almost every customer that relatively financially well-off consumers are willing to pay a little extra for the perceived value of their brand. The POLO Ralph Lauren brand seems to adopt a stability pricing objective that most luxury goods seem to adopt, setting a price similar to that of its competitors and using the power of their brand to try and appeal to potential consumers rather than initiating price wars. Thus, competition is focused on product development, distribution factors and promotional programs instead of price penetration. This makes the whole market in a better order.