Market Clearing Prices and Brand Allegiances
Market Clearing prices occur at the maximum price consumers are willing to pay for a certain product before switching to a cheaper product. Consumers are constantly trying to find the best price for the items they want to buy, regardless of which company they buy it from. A Chief Marketing Officer Council and Lithium survey in 2011 confirmed this fact, showing that the consumers only interacted with companies through ads and social media in order to gain promotions or deals from that company. It showed that consumers actively search out better deals, and that they find paying the best price for an item to be important.
This information leads us to believe that brand allegiances are a thing of the past. Brand allegiances affects market clearing prices because since consumers keep returning to a specific company, the company can count on these consumers, and can charge prices higher than market clearing prices. This is because they know the customers will return regardless of the price of their product.
However, brand allegiances are not necessarily a thing of the past, nor is it the only way to thrive as a business, and sell products at market clearing prices. Some brands will cost more because their product is of higher quality and therefore costs more to make. An example of this is LL Bean’s Bean Boots. They cost more than most other similar boots, but customers return year after year to the company because they trust that the boots will last and keep them warm in the winter. The company sells out their stock of boots every year, even having to turn customers away because they just don’t have enough boots. LL Bean has created a brand allegiance with its customers and can keep it because of the quality of their item. Customers are willing to pay more for the high quality of the item.
Fast fashion is another area where brand allegiance is still important. These stores target lower income consumers with fashion’s most current trends. Customers return to these stores because they are able to get clothes similar to high end fashion for lower prices than high end fashion.
Other companies, like Wal-Mart, do the opposite, and provide products for as cheap as possible. These low prices draw in many customers. Every hour of every day, $36,500,000.00 are spent at Wal-Mart. They make a profit of $34,980 every minute.
Although it seems like brand allegiances are starting to matter less to consumers, there are other ways for companies to forge brand allegiances, and there are other ways for companies to make money, without these allegiances. Both ways of attracting consumers allows companies to sell their products at market clearing prices.
http://www.digitalistmag.com/lob/sales-marketing/why-price-will-always-trump-brand-loyalty-028111
http://www.theatlantic.com/business/archive/2015/10/llbean-duck-boot-labor-shoes-maine/410863/
http://www.statisticbrain.com/wal-mart-company-statistics/