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Price Change from $3.49 to $2.99: The Value of a Brand Part 2.

August 2010 Pricing

How much is a brand worth?  For Whole Foods, a premium grocer, it represents the difference between a $3.49 canister of Quaker Oats rolled oats and $2.99 canister of 365 store brand oats.

While many consumers of oats may conclude Quaker Oats are of superior consistency, taste, texture, and nutrition, others are unconvinced.

It is important to realize that there is no discernable difference between the two brand designations prior to eating.  In both cases, the canister contains rolled oats, and hence the same bowls of porridge, plates of cookies, or form of breading could be produced. Hence, the difference in the valuations should be attributed directly to the brand association and nothing more.

It is not uncommon for the price of a consumable product to be related to the name associated with the product.  Oats, like other consumables, are experience goods.  One does not know the quality of the food until one has consumed the food.  Once consumed, the eater can evaluate the value.  Prior to consumption, the eater must infer value from the brand.  After consumption, the eater will rely upon prior experience to anticipate the value of future experiences.  Likewise, this instance of pricing a canister of oats does demonstrate the value of a brand.

For Whole Foods, the ability to designate a canister of rolled oats depresses their price from $3.49 for Quaker Oats brand to $2.99 for 365 brand.  Simply put, brands have real value.

Reference

Anjali Cordeiro, “PepsiCo Pushes Breakfast in Bid to Heat Up Oatmeal,” The Wall Street Journal, (28 July 2010).



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

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