The interaction between price and long-run variables in a multinational brand market

Abstract

This study examined how long-run variables and pricing decisions interacted to affect market shares of multinational brands. By applying a brand market share model, the study focused on how price sensitivity was affected by long-run variables such as product quality, advertising expenditure, and country names, within the U.S. subcompact car market. This study generated three major findings: (1) the advertising effect on price sensitivity was positively related to competitive reactivity, (2) only the reliability factor reduced price sensitivity, whereas other less important product dimensions (such as performance and size factors) worked differently, and (3) country image reduced price elasticity for premium pricing. Important managerial implications for pricing decisions were discussed in relation to the interaction with the long-term variables.