Optimal pricing in tiered markets

Purpose – This article aims to extend the price‐quality trade‐off framework to derive new results for differential pricing strategies for brands in different brand tiers. The results are demonstrated for different market configurations. Design/methodology/approach – A conceptual framework based on the quality‐price trade‐off from existing literature is used to analytically derive research hypotheses regarding pricing strategies. The results are demonstrated empirically by extending previously published results. Findings – The study reveals that optimal pricing strategies are dependent on the tier to which the brands belong. Promotional pricing is better for high‐tier brands, while everyday low price is better for low‐tier brands. Similarly, deep and infrequent price promotions are better for high‐tier brands, while shallow and frequent promotions are better for low‐tier brands. Practical implications – The findings offer some important implications of the brand‐tier competition framework for determining optimal pricing strategies and can inform pricing strategies for brands in different tiers. Originality/value – Asymmetric inter‐tier competition is demonstrated for different market configurations, and the framework is used to derive optimal pricing strategy implications for brands in different tiers.