Pricing Strategies and Firm Performances Under

Alliance Brand

4

1

5

2 3

Preamble

Framework

Conclusion

Literature Review

Brands Alliance and Game Theory

Agenda

Preamble

Alliance Brands

• Alliance Brands vs Competitive Products • Strategic Alliance • More and more opportunities for each other

Building Alliance Means

• Share Resources • Joint Activities • Unchartered Terriritory in Brand Management

Game Theoretical Models

• Competitive & Alliance Pricing • Optimal Pricing and Brand Mangement

Optimal Pricing

• Alliance Branding • Intense Competition

In detail

• Stackelberg and Bertrand Competition • Alliance Branding • Value of Alliance Branding

Literature Review

Competitive Brands Alliance Brands

Literature Review

Competitive Brands

•Competition between private labels

and national brands

•Asymmetric Brands Competition and Its Measurement

•Consumer Perception about Store Brands vs nationall brands

•Build store loyalty through store brands

•Quality store brand is valuable

•Store Loyalty & Store Profitability

•Performance of Competitive Brands is different in retail chains

Choi

Coughlan

Sivakumar/Wulf

Corstjens & Lal

Kumar & Arun

• Focus solely on brand competition • Didn’t address strategic role played by alliance brands

Alliance Brands

Literature Review

•Economic benefits of airline alliance leads to cost effectiveness and enhanced efficiency

•The airlines and consumers both benefit from brand alliance

•More similar the brand alliance partners, more successful the brand alliance

•Value of each partner brand impacts consumer attitude towards the brand alliance

Vandar

Krats

Park and Zhang

James at All

Simonn & Ruth

• Only covers branding alliance • No emphasis on pricing strategy

Model Framework Under Lying Ecosystem

Firm # 1 Firm # 2

Firms Decision Variables

Own Price Own Demand

Compt. Price Compt. Demand

Own Price Sensitivity

Compt. Price Sensitivity

Own product competition

Compt. Product competition

Stackelberg Bertrand Alliance

1 2 3

Duopoly Economics

Price Leader

Price Follower

Leader Reduces Price

Follower Reduces Price

Avoid Prices Sensitivity

Differentiation Quality Service Functionality Customer Experience

Duopoly Economics

Perfect Competition

Choose Price Simultan.

No Leader and Follower

Only objective Profit Max.

Independent Price Decision

Emphases on Price

Previous emphases on qty.

Strategic Alliance

Act like single firm

Maximum Synergy

Independent Firms

Benefit from each others Resources Capabilities Core Competencies

Stackelberg

1

Duopoly Economics

Price Leader

Price Follower

Leader Reduces Price

Follower Reduces Price

Avoid Prices Sensitivity

Differentiation Quality Service Functionality Experience

Firm

B P

rice

Firm A Price

3 $

3 $

3 $

2 $

Monopoly Price

Competitive Price

Mo

no

po

ly

Pri

ce

Co

mp

etit

ive

Pri

ce

2 $

3 $

2 $

2 $

Stackelberg

1

Duopoly Economics

Price Leader

Price Follower

Leader Reduces Price

Follower Reduces Price

Avoid Prices Sensitivity

Differentiation Quality Service Functionality Experience

Firm

B P

rice

Firm A Price

3 $

3 $

3 $

2 $

Monopoly Price

Competitive Price

Mo

no

po

ly P

rice C

om

petitive

Price

2 $

3 $

2 $

2 $

F1 and F2 are in Stackelberg Competition

Any firm can increase profit by decreasing price and by increasing market share

Any of the Firm will decrease its price if and only if there exists intense competition

Decrease in price means decrease in profits as firms reacts to each others price change

Price War/Negative Performances

In Price Centric Markets Differentiation has no value

More Intense is the competition, Intense Price War More useless product differentiation is

Firm

B P

rice

Firm A Price

3 $

3 $

3 $

2 $

Monopoly Price

Competitive Price

Mo

no

po

ly P

rice C

om

petitive

Price

2 $

3 $

2 $

2 $

F1 and F2 are in Stackelberg Competition

Any firm can increase profit by decreasing price and by increasing market share

Any of the Firm will decrease its price if and only if there exists intense competition

Decrease in price means decrease in profits as firms reacts to each others price change

Price War/Negative Performances

In Price Centric Markets Differentiation has no value

More Intense is the competition, Intense Price War More useless product differentiation is

Prevent Market

from being

Very Price Sensitive

By

Differentiation Enhancing Quality

Enhance Product Functionality Focus on Customer Experience

Stackelberg

1

Duopoly Economics

Price Leader

Price Follower

Leader Reduces Price

Follower Reduces Price

Avoid Prices Sensitivity

Differentiation Quality Service Functionality Experience

Bertrand

Firm

B P

rice

Firm A Price

3 $

3 $

3 $

2 $

Monopoly Price

Competitive Price

Mo

no

po

ly P

rice C

om

petitive

Price

2 $

3 $

2 $

2 $

F1 and F2 are in Stackelberg Competition

Any firm can increase profit by decreasing price and by increasing market share

Any of the Firm will decrease its price if and only if there exists intense competition

Decrease in price means decrease in profits as firms reacts to each others price change

Price War/Negative Performances

In Price Centric Markets Differentiation as no value

More Intense is the competition More useless product differentiation is

Prevent Market

from being

Very Price Sensitive

By

Differentiation Enhancing Quality

Enhance Product Functionality Focus on Customer Experience

Duopoly Economics

Perfect Competition

Choose Price Simultan.

No Leader and Follower

Only objective Profit Max.

Independent Price Decision

Emphases on Price

Previous emphases on qty.

Bertrand

Duopoly Economics

Perfect Competition

Choose Price Simultaneosly

No Leader and Follower

Only objective Profit Max.

Independent Price Decision

Emphases on Price

Previous emphases on qty.

F1 and F2 are in Bertrand Competition

Both firm change price simultaneously

Both firms don’t know if the price change will maximize Profit or not

Eventually firms will set the price equal to the Marginal Cost where maximum market can be served

Significant change in price ll make market competition Intense and product differentiation ll diminish

Bertrand Paradox Rare to exists

Extreme Form of Game Theory

2

Alliance F1 and F2 are in Alliance Brand

Handshake among both yet separate entities

Elimination of competition or mitigation of competition

Control over Market Price and Profit Maximization

By only improved Market Coordination and alleviates competition

Maximized Profit

Strategic Alliance

Act like single firm

Maximum Synergy

Independent Firms

Benefit from each others Resources Capabilities Core Competencies

3

01

Pric

e

02

P

rofi

t

03

Bran

d V

alu

e &

Co

mp

etit

ion

01

02

03

Alliance Brands

Price(Alliance) > Price(StackelBerg) > Price(Bertrand)

Alliance Brands

Profit(Alliance) > Profit(StackelBerg) > Profit(Bertrand)

Alliance Brands

Alliance : Directly Proportional StackelBerge : Inversely Proportional Bertrand : Inversely Proportional

Comparisons