by : Peter M. Kort & Jonathan P. Caulkins
2005
2005
Vienna University of Technology, Department of Operations Research and Systems Theory, Vienna, Austria
Abstract
We develop a dynamic optimal control model of a fashion designer's challenge of maintaining brand image in the face of short-term pro…t opportunities through expanded sales that risk brand dilution in the longer-run. The key state variable is the brand’s reputation, and the key decision is sales volume. Depending on the brand’s capacity to command higher prices, one of two regimes is observed. If the price mark-ups relative to production costs are modest, then the optimal solution may simply be to exploit whatever value can be derived from the brand in the short-run and retire the brand when that capacity is fully diluted. However, if the price markups are more substantial, then an existing brand should be preserved.
It may even be worth incurring short-term losses while increasing the brand's reputation, even if starting a new brand name from scratch is not optimal.
1 Introduction
People pay more for brand-name products than they do for essentially identical products lacking brand identity. Sometimes this pertains to brand as a signal of quality (e.g., Maytag washing machines). However, brand-name markups are particularly pronounced in the fashion industry where functionality is less important than the brand's signal of style and exclusivity. If Gucci products are very expensive, then people who display their consumption of Gucci products are signaling their wealth to all observers (Bikhchandani et al., 1992; Coelho and McClure, 1993; Bagwell & Bernheim, 1996; Frijters, 1998; Corneo and Jeanne, 1999; Bianchi, 2002). From marketing textbooks we know that the price of prestige goods should not be too low, because demand could be lower at a lower price (e.g., Berkowitz et al., 2000; Boone and Kurtz, 1999; Perreault and McCarthy, 2000).
Physically attaching a brand-name to a product costs little, so the brand's capacity to command higher prices translates into substantial pro…t opportunities. This capacity is name-speci…c; merely sewing the name “Joe Smith”on a sweater won't increase its value to anyone, except perhaps Mr. Smith. Likewise, the price-raising capacity of any given name can vary over time. The name Ambercrombie & Fitch once was highly valued, being associated with the likes of Teddy Roosevelt and Ernest Hemingway. It fell upon hard times by the 1970s before being successfully resurrected by The Limited (Carbone, 2004).
Hence, a particular brand’s capacity to command higher prices is like a capital asset whose magnitude varies over time and that deserves to be managed carefully. This paper models a key issue in brand management, namely the preservation of “brand image” in the face of short-term opportunities that risk “brand dilution.” The basic ideas are familiar from brand management texts, but were deliciously described in a special Fashion Survey issue of The Economist (March 6-12, 2004, p.7), which used the term "brand integrity" rather than "brand image".......(baca_selengkapnya)
We develop a dynamic optimal control model of a fashion designer's challenge of maintaining brand image in the face of short-term pro…t opportunities through expanded sales that risk brand dilution in the longer-run. The key state variable is the brand’s reputation, and the key decision is sales volume. Depending on the brand’s capacity to command higher prices, one of two regimes is observed. If the price mark-ups relative to production costs are modest, then the optimal solution may simply be to exploit whatever value can be derived from the brand in the short-run and retire the brand when that capacity is fully diluted. However, if the price markups are more substantial, then an existing brand should be preserved.
It may even be worth incurring short-term losses while increasing the brand's reputation, even if starting a new brand name from scratch is not optimal.
1 Introduction
People pay more for brand-name products than they do for essentially identical products lacking brand identity. Sometimes this pertains to brand as a signal of quality (e.g., Maytag washing machines). However, brand-name markups are particularly pronounced in the fashion industry where functionality is less important than the brand's signal of style and exclusivity. If Gucci products are very expensive, then people who display their consumption of Gucci products are signaling their wealth to all observers (Bikhchandani et al., 1992; Coelho and McClure, 1993; Bagwell & Bernheim, 1996; Frijters, 1998; Corneo and Jeanne, 1999; Bianchi, 2002). From marketing textbooks we know that the price of prestige goods should not be too low, because demand could be lower at a lower price (e.g., Berkowitz et al., 2000; Boone and Kurtz, 1999; Perreault and McCarthy, 2000).
Physically attaching a brand-name to a product costs little, so the brand's capacity to command higher prices translates into substantial pro…t opportunities. This capacity is name-speci…c; merely sewing the name “Joe Smith”on a sweater won't increase its value to anyone, except perhaps Mr. Smith. Likewise, the price-raising capacity of any given name can vary over time. The name Ambercrombie & Fitch once was highly valued, being associated with the likes of Teddy Roosevelt and Ernest Hemingway. It fell upon hard times by the 1970s before being successfully resurrected by The Limited (Carbone, 2004).
Hence, a particular brand’s capacity to command higher prices is like a capital asset whose magnitude varies over time and that deserves to be managed carefully. This paper models a key issue in brand management, namely the preservation of “brand image” in the face of short-term opportunities that risk “brand dilution.” The basic ideas are familiar from brand management texts, but were deliciously described in a special Fashion Survey issue of The Economist (March 6-12, 2004, p.7), which used the term "brand integrity" rather than "brand image".......(baca_selengkapnya)
Artikel lengkap dikompilasi oleh/hubungi :
Kanaidi, SE., M.Si (Penulis, Peneliti, PeBisnis, Trainer dan Dosen Marketing Management).
e-mail ke : kana_ati@yahoo.com atau kanaidi@poltekpos.ac.id
Butuh Artikel/Jurnal lainnya ?, click di :
Tidak ada komentar:
Posting Komentar