Exclusivity strategies in pricing and brand extension.

Abstract

The primary goal of this research is to explore the issue of brand exclusivity. It focuses on why and under what circumstances consumers value exclusive brands, as well as on the strategies by which managers can best create and maintain brand exclusivity while using it to maximize profits. The dissertation consists of two studies. In the first study, exclusivity is examined as a function of limited supply, and the research (a) identifies the conditions under which limited supply is valued most by the consumers, and (b) determines the optimal quantity and price for limited-edition brands. We model the goodwill transfer from an exclusive, limited-edition brand to a lower-end brand with the same family brand name. This goodwill transfer results in the optimal supply level for the limited-edition brand depending not only on its price-demand curve, but also on the price-demand curve of the lower-end brand. The model is analyzed to develop hypotheses regarding consumer choice behavior for different consumption motivations and consumption situations. We test these hypotheses in an experiment. The experiment shows that limited supply for the high-end brand results in a transfer of status symbolism and a higher preference for the lower-end brand extension. In the second study exclusivity is examined as a function of high price and the research (a) explores how the diffusion of the brand in different social groups affects exclusivity perceptions and value among members of these groups, and (b) determines the price that maximizes profits given the interdependence of diffusion in the two populations. In the second study, we model the adoption of a price-based exclusive brand by two populations that represent two distinct social groups with different price-demand elasticities. The brand is targeted to the upper income group (target group), but is exclusive for the lower income group (outside group). The diffusion of the brand in the two populations is interdependent and is affected by the social distance between the target group and the outside group. This process is modelled using an extension of the Bass model. The interdependence of the diffusion process is tested in an experiment where relative diffusion in the two groups and the social distance between them are manipulated.

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