skim at marketing week live 2013: preempting pricing preconceptions
DESCRIPTION
Would you like to know if changing your pack size is a better idea than changing your price? Do you wonder if price is more important for some categories than others? During a fun, interactive session, we showcased some commonly made assumptions in pricing strategy, and dispelled or confirmed these myths, based on the knowledge gleaned through conducting well over 100 different pricing studies.TRANSCRIPT
expect great answers
Common beliefs about pricing Myth or Truth?
Price beliefs impacting marketing strategy in Consumer Goods
2
Pricing & Portfolio
management
Product development
Communication
SKIM expertise in pricing
• SKIM has carried out more than 200 pricing studies in the past 5 years
3
18 7000 500 45
SKIM expertise in pricing
4
Set the right price: Strategies need to be based
on truths not beliefs
Price elasticity of demand
5
0
80
0 80
Dem
an
d
Price
Price elasticity of demand
6
Frequently
purchased
products are
more price elastic
Women are more
price sensitive
than Men
Low Personal
Involvement
=
High Price
Elasticity
It’s better to
decrease pack
size than to
increase price
Low Tier Products
=
High Price
Elasticity
1 2 3
4 5 End
Frequently purchased products are more price
elastic
Pricing belief 1
7
Example: Raising the price of soft drinks (high frequency purchase) will result in a greater loss in volume sold than raising the price of batteries (low frequency purchase)
8
Example classifications:
9
1-2 weeks: Cigarettes, soft drinks, baby wipes etc..
3-4 weeks: Pads, laundry detergent, peanuts etc…
2-3 months: Face cream, deodorant, mayonnaise etc..
> 3 months: Epilators, fragrance, pregnancy tests etc..
Behind the Myth Frequently purchased products represent a higher portion of the spending budget. Moreover, consumers are believed to be more price aware about these products
10
11
True!
Frequently purchased products are most price elastic
12
-1.34
-1.11
-1.09
-1.04
-1.5-1.0-0.50.0
1-2 Weeks
3-4 Weeks
2-3 Months
> 3 Months
SKU level
Average price elasticity to up pricing
Fre
quency o
f purc
hase
Price elasticity (P.E.)
So What?
Frequently purchased products: Increase price in multiple steps (to change reference point) Less frequent purchased products: Increase price in one go
13
MENU
So What?
14
MENU
Categories dominated by women are more price
elastic than male-oriented categories
Pricing belief 2
15
Example: If you increase the price of beer, you should expect a smaller decrease in volume sold, than if you increase the price of lipstick
16
Behind the Myth Women are often in charge of household items and budget. Men shop for products they are personally involved with
17
18
True!
Categories dominated by women are more price elastic
19
-1.15
-0.99
-0.78
-0.61
Women
Men
Average sensitivity to up-pricing
Brand level
SKU level
So what? Focus more on up-pricing for categories dominated by men For categories dominated by women: Look into category involvement to determine level of up-pricing potential
20
MENU
The lower the personal involvement of a category,
the higher the price elasticity
Pricing belief 3
21
Example: Synchronized swimmers are less price sensitive to waterproof make-up than they are to laundry detergent
22
Behind the Myth Consumers who are highly involved with a product give more consideration to other aspects of the product besides price
23
24
partly True, partly False
Consumers seem more tolerant of price increases in categories about taking care of themselves (beauty or health)
25
-2.5 -2 -1.5 -1 -0.5 0
Household cleaning
Food
Consumer Health
Personal Beauty and Hygiene
Personal Beauty and hygiene
Household cleaning
Food
Consumer Health
Price elasticity range by category
So what? Positioning your product as self ‘pampering’ to increase consumers’ involvement in your product helps driving down price elasticity and enables you to increase price
26
MENU
It is better to decrease pack size than to increase
price
Pricing belief 4
27
Example: To increase the price per litre of bottled water sold to Wimbledon spectators, it is better to decrease bottle size than to increase prices
28
Behind the Myth Price is believed to be more important aspect of a product than size. Consumers tend to notice changes in price while a decrease in size might go unnoticed
29
30
False!
A size change is equally, or even less effective, than a price change
31
-20%
20%
-10% 10%
Ch
an
ge
in
dem
and
Change in price per liter (executed by shelf price or pack size)
Change pack size
Change price
Why? 1. 2. Unit Volume and Purchase frequency 3. Switching behavior
33
So what? In normal situations, price up. Down-sizing may lead to more volume loss than expected due to the smaller size of the pack But be careful about crossing (potential) price barriers!
34
MENU
Products belonging to lower tiers (including private
label) are more price elastic than other tiers
Pricing belief 5
35
36
Example: Price is a more important element in the selection of basic private label detergents than of premium branded detergents
37
False!
Medium tier products are most price elastic
38
-1.21
-1.17
-1.03
Medium Tier
High Tier
Lower Tier
Average elasticity to up-pricing
SKU level
Why?
1. Up trade to Medium tier not driven by price
2. Medium tier up-pricing encourages consumers
to switch to high tiers
3. Large number of SKUs within Medium tier
39
Medium
High
Low
So what? 1. Low | Medium | Premium
2. Medium Tier = Value added 3. Medium Tier Up Pricing
40
MENU
So what have we learned?
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Keep an open mind about pricing
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Sarah Cunliffe | Project Manager
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