webinar on pricing olympics
TRANSCRIPT
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expect great answers
Winning the Olympic pricing race…Are you ready?
Price beliefs impacting marketing strategy in FMCG
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SKIM expertise in pricing
• Make sure your pricing strategies are based on truths not just commonly
held beliefs, to optimize your pricing strategy
• SKIM has carried out over 200 pricing studies over the last five years
• We created a database to understand consumer behavioral trends
between countries, categories and consumer types
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Some definitions to start with
• Price sensitivity describes consumer behavior. Consumers are
sensitive to price changes if they switch from one product to another as
prices move – consumers are price insensitive if they remain loyal to one
product despite price changes
• When we think and talk about products, we rather use the term price
elasticity. The elasticity of a product is said to be -1.0 when a change in
price of +1% leads in a change in volume sales of -1%.
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German consumers are more price sensitive than
consumers in other European countries
Pricing belief 1
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Example: Given the high prices of Olympic souvenirs in London, German consumers will buy cheaper souvenirs than other Europeans
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False!
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Answer: German are as likely to buy souvenirs at higher prices as other Europeans
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Germany is not more price sensitive than other European countries –Italy* is actually slightly more price sensitive
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-1
-1.1
-1.1
-1.1
-1.2
-1.3
-1.5-1-0.50
UK
France
Netherlands
Germany
Spain
Italy
Differences in price elasticities between countries to up-pricing
The difference of the price elasticity in Italy vs other European countries tested is statistically significant
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Action Pump your value adding innovation into hypermarket and supermarket channels, and choose high “value for money” SKUs to list in discount channels.
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The lower the personal involvement of a category,
the higher the price elasticity
Pricing belief 2
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Example: Synchronized swimmers are less price sensitive to waterproof make-up than when looking to buy a burger
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partly True, partly False
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Answer: Synchronized swimmers are not very price sensitive to price increases in waterproof make-up… As for the burger? It depends how much they are craving it!
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Consumers seem more willing to pay higher prices for categories about taking care of themselves (beauty or health)
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-2.5-2-1.5-1-0.50
Consumer Health
Food
Household cleaning
Personal Beauty and HygienePersonal Beauty and hygiene
Household cleaning
Food
Consumer Health
Price elasticity range by category
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Action Positioning your product as self ‘pampering’ to increase consumers’ involvement in your product helps driving down price elasticity and enables you to increase price
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When increasing prices, you lose volume at the
same rate as the volume you gain when lowering
prices
Pricing belief 3
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Example: When the price drops 10%, football clubs will buy 112 footballs instead of 100 .Conversely, they will buy 88 footballs if the price rises by 10%.
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False!
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Answer: Football clubs will buy 89 footballs (-11%) instead of 100 if the price rises by 10%, but they buy 114 (+14%) if prices are dropped by 10%”
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Consumers are less sensitive to price increases than to decreases
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Demand (volume)
Price
Assumed
Elasticity
Measured
Av. price elasticity to up pricing SKUS: -1.1
Av. price elasticity to down pricing SKUS: -1.4
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Loyal consumers and switchers
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Loyal
consumers Switchers
Price
Less switchers
Price
More switchers
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Actions
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1) To drive trial in a competitive market, price your product lower
than direct competitors
2) When introducing a new product to compete directly with a brand
with high loyalty, introducing it at a lower price will not necessarily
drive trial if you don’t invest in differentiating it
3) Your ability to price up a product is heavily dependent on your
loyal customers, so strive to build brand equity!
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It’s better to decrease pack size than to increase
price
Pricing belief 4
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Example: To increase the price per liter without losing too much sales from Olympic spectators, it is better to decrease bottle size than to increase prices
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False!
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Answer: Both strategies will lead to a similar change in demand (smaller size or price increase)
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A size change is equally, or even less effective, than a price increase
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-20%
20%
-10% 10%
Change in d
em
and
Change in price per liter (executed by shelf price or pack size)
Change pack size
Change price
Change in price per liter, executed by pack size vs by price increase
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Action In normal situations, price up. Down-sizing may lead to more volume loss than expected due to the small size of the pack But: be careful about crossing (potential) price barriers!
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Price elasticity is higher for larger packages than
with smaller packages
Pricing belief 5
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Example: Around the Olympic village, it is less harmful to increase the price of a “6 cans pack” of beer, than to increase the price of a “24 cans tray” of beer.
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True!
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Answer: You will lose more volume if you increase the price of a “24 cans tray” than if you increase the price of a “6 cans pack” of beer
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Price elasticity of large pack sizes is indeed higher than of small sizes
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-1.5-1-0.50
Large
Medium
Small
Small is significantly different from large
Price elasticity by pack size
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Action To drive trial, ensure you have entry size pack at low absolute prices; to drive consumption, ensure you have great value for money price positioning on your large pack sizes.
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Keep an open mind about pricing
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Stop self fulfilling prophecies
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We tested additional pricing beliefs which we could
not cover in this session – contact us to learn more
about it!
Thank you for your participation
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