Common beliefs about pricing
Myth or Truth?
Price beliefs impacting
marketing strategy in the beer industry
Mini Kaliviana...
SKIM’s three pillars of expertise are: pricing and portfolio,
product innovation and communication research
200 pricing studies in the past 5 years
18
countries
7000
shopping
trips
500
products
45
categories
SKIM expertise in pricing
Set the right price: Strategies need
to be based on truths not beliefs
selling price operating p...
Women are more price
sensitive towards beer
than men
Beer bottles have a
lower price elasticity
than beer cans, in
superma...
Pricing belief 1
Consumers in emerging markets are more price
sensitive to beer than consumers in developed
markets
Example:
Raising the price of beer bottles in Nigeria will
result in a greater volume loss than raising the
price of beer ...
Behind the Myth
Consumers in developing countries have less
money to spend.
Therefore they are more focused on price,
henc...
Pricing belief 1
Consumers in emerging markets are more
price sensitive to beer than consumers in
developed markets
TRUE O...
Consumers in developing markets are
less price sensitive to beer than those in
developed markets
-1.31
-0.89
Average elast...
more choice
available in developed
countries, driving higher
PE: more switching
choice
consumption of
premium brands
for s...
Increase quality perceptions and brand equity
to decrease price sensitivity
SKIM’s recommendations
Pricing belief 2
Women are more price sensitive
towards beer than men
Example:
Raising the price of beer bottles will result in a
greater volume loss amongst women than
amongst men
Behind the Myth
Women are often in charge
of household budget, and hence more price sensitive
Men shop mostly for products...
Pricing belief 2
Women are more price sensitive
towards beer than men
TRUE OR FALSE?
FALSE!
Looking at beer, there is no difference in
price sensitivity between men and women
-1.05
-1.05
Average elasticity to up-pr...
Pricing belief 3
Beer bottles have a lower price elasticity than
beer cans, in supermarkets
Example:
Raising the price of beer bottles will result in a
smaller volume loss than raising the price of
beer cans
Behind the Myth
Bottles are more premium than cans, and
therefore they have a lower price elasticity
Pricing belief 3
Beer bottles have a lower price elasticity than
beer cans, in supermarkets
TRUE OR FALSE?
FALSE!
-0.8
-1.3
Cans
Bottles
Average elasticity to up-pricing
Beer bottles are more price elastic
than beer cans
Cans
Bottles
more switching
possibilities for
beer bottles
buyers is driving
higher PE
no cheaper
alternative for
beer cans, driving
lo...
SKIM’s recommendations
Consider the price architecture of
your whole portfolio
Pricing belief 4
It is better to decrease pack size
than to increase price
Decreasing pack size will result in less volume
loss than increasing price
Example:
Behind the Myth
Consumers notice less size changes than
price changes
Pricing belief 4
It is better to decrease pack size
than to increase price
TRUE OR FALSE?
TRUE and FALSE
-15%
-10%
-5%
0%
5%
10%
15%
20%
-10% 10%
Changeindemand
Change in price per litre
(executed by shelf price or pack size)
C...
Implications
easier to change
price than size
smaller sizes create
more switching
opportunities, due to
higher purchase
fr...
SKIM’s recommendations
Increase prices instead of decreasing sizes, but
be careful to not cross psychological price
barrie...
Pricing belief 5
Products belonging to lower tiers are more price
elastic than products belonging to higher tiers
Increasing price on lower tier brands will result
in a bigger volume loss than increasing price on
higher tier brands
Exam...
Purchasers of lower tier brands are driven by
price, and therefore more price sensitive
Behind the myth
Pricing belief 5
TRUE OR FALSE?
FALSE!
Products belonging to lower tiers are more price
elastic than products belonging to...
-0.87
-1.37
-1.03
Average elasticity to up-pricing
Medium tier brands are the most price
elastic
Low Tier
Medium Tier
High...
more switching
possibilities in
medium tier, driving
higher PE
high-end consumers
are more brand-loyal
and are less focuse...
SKIM’s recommendations
There is more room to increase prices on low tier
brands than on medium tier brands
Pricing belief 6
Shoppers are more sensitive to
price increases on large formats
Example:
Increasing the price on a beer crate will result in
a greater volume loss than increasing the price
on a beer bot...
Large formats have higher prices, and price
increases are more easily noticed
Behind the myth
Increase: 20%
In absolute te...
Pricing belief 6
Shoppers are more sensitive to
price increases on large formats
TRUE OR FALSE?
TRUE!
-1.0
-1.2
Average elasticity to up-pricing
Singlepacks
Multipacks
Multipacks of beer are more price elastic
than individua...
Explanation
increasing price
decreases the relative
size benefit
higher price
increases in absolute
terms
SKIM’s recommendations
Apply price increases on single units,
offer competitive prices on multi-packs
Thank you
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Common beliefs about pricing for the beer industry - Myth or Truth?

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At the 2014 Canadean International Beer Strategies Conference in Rome, Mini Kalivianakis and Margot Pradon from SKIM presented "Common beliefs about pricing, Myth or Truth?" sharing price beliefs impacting marketing strategy in the beer industry.

In their presentation, Mini and Margot:
• Delivered insight on whether changing your pack size is a better idea than changing your price
• Showcased commonly-made assumptions in pricing strategy across the market
• Dispelled or confirm these myths, based on the knowledge gleaned from conducting over 200 pricing studies in over 25 countries
• Provided insights about consumer price perceptions and their implications for your marketing strategy

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Common beliefs about pricing for the beer industry - Myth or Truth?

  1. 1. Common beliefs about pricing Myth or Truth? Price beliefs impacting marketing strategy in the beer industry Mini Kalivianakis | Margot Pradon
  2. 2. SKIM’s three pillars of expertise are: pricing and portfolio, product innovation and communication research
  3. 3. 200 pricing studies in the past 5 years 18 countries 7000 shopping trips 500 products 45 categories
  4. 4. SKIM expertise in pricing Set the right price: Strategies need to be based on truths not beliefs selling price operating profit! McKinsey & Company
  5. 5. Women are more price sensitive towards beer than men Beer bottles have a lower price elasticity than beer cans, in supermarkets It’s better to decrease pack size than to increase price Products belonging to lower tiers are more price elastic than other tiers Consumers are more sensitive to price increases on large formats Consumers in emerging markets are more price sensitive than consumers in developed markets Price Beliefs: True or False?
  6. 6. Pricing belief 1 Consumers in emerging markets are more price sensitive to beer than consumers in developed markets
  7. 7. Example: Raising the price of beer bottles in Nigeria will result in a greater volume loss than raising the price of beer bottles in the United States
  8. 8. Behind the Myth Consumers in developing countries have less money to spend. Therefore they are more focused on price, hence they are more price sensitive.
  9. 9. Pricing belief 1 Consumers in emerging markets are more price sensitive to beer than consumers in developed markets TRUE OR FALSE? FALSE!
  10. 10. Consumers in developing markets are less price sensitive to beer than those in developed markets -1.31 -0.89 Average elasticity to up-pricing Developed Countries Developing Countries
  11. 11. more choice available in developed countries, driving higher PE: more switching choice consumption of premium brands for status in developing countries, driving lower PE: keep buying higher priced brand to maintain status lower quality perceptions in developing countries is driving lower PE: keep buying higher priced brands because do not trust quality of alternatives Explanation
  12. 12. Increase quality perceptions and brand equity to decrease price sensitivity SKIM’s recommendations
  13. 13. Pricing belief 2 Women are more price sensitive towards beer than men
  14. 14. Example: Raising the price of beer bottles will result in a greater volume loss amongst women than amongst men
  15. 15. Behind the Myth Women are often in charge of household budget, and hence more price sensitive Men shop mostly for products they are personally involved with, hence are less price sensitive.
  16. 16. Pricing belief 2 Women are more price sensitive towards beer than men TRUE OR FALSE? FALSE!
  17. 17. Looking at beer, there is no difference in price sensitivity between men and women -1.05 -1.05 Average elasticity to up-pricing Men Women
  18. 18. Pricing belief 3 Beer bottles have a lower price elasticity than beer cans, in supermarkets
  19. 19. Example: Raising the price of beer bottles will result in a smaller volume loss than raising the price of beer cans
  20. 20. Behind the Myth Bottles are more premium than cans, and therefore they have a lower price elasticity
  21. 21. Pricing belief 3 Beer bottles have a lower price elasticity than beer cans, in supermarkets TRUE OR FALSE? FALSE!
  22. 22. -0.8 -1.3 Cans Bottles Average elasticity to up-pricing Beer bottles are more price elastic than beer cans Cans Bottles
  23. 23. more switching possibilities for beer bottles buyers is driving higher PE no cheaper alternative for beer cans, driving lower PE Explanation
  24. 24. SKIM’s recommendations Consider the price architecture of your whole portfolio
  25. 25. Pricing belief 4 It is better to decrease pack size than to increase price
  26. 26. Decreasing pack size will result in less volume loss than increasing price Example:
  27. 27. Behind the Myth Consumers notice less size changes than price changes
  28. 28. Pricing belief 4 It is better to decrease pack size than to increase price TRUE OR FALSE? TRUE and FALSE
  29. 29. -15% -10% -5% 0% 5% 10% 15% 20% -10% 10% Changeindemand Change in price per litre (executed by shelf price or pack size) Change pack size Change price Consumers are more sensitive to size changes than to price changes
  30. 30. Implications easier to change price than size smaller sizes create more switching opportunities, due to higher purchase frequency Introducing smaller sizes poses risk of decreasing consumption volume
  31. 31. SKIM’s recommendations Increase prices instead of decreasing sizes, but be careful to not cross psychological price barriers
  32. 32. Pricing belief 5 Products belonging to lower tiers are more price elastic than products belonging to higher tiers
  33. 33. Increasing price on lower tier brands will result in a bigger volume loss than increasing price on higher tier brands Example:
  34. 34. Purchasers of lower tier brands are driven by price, and therefore more price sensitive Behind the myth
  35. 35. Pricing belief 5 TRUE OR FALSE? FALSE! Products belonging to lower tiers are more price elastic than products belonging to higher tiers
  36. 36. -0.87 -1.37 -1.03 Average elasticity to up-pricing Medium tier brands are the most price elastic Low Tier Medium Tier High Tier
  37. 37. more switching possibilities in medium tier, driving higher PE high-end consumers are more brand-loyal and are less focused on prices, therefore less price sensitive. Explanation low-end consumer, mainly driven by price have little cheap options to switch to when uppricing, driving lower PE
  38. 38. SKIM’s recommendations There is more room to increase prices on low tier brands than on medium tier brands
  39. 39. Pricing belief 6 Shoppers are more sensitive to price increases on large formats
  40. 40. Example: Increasing the price on a beer crate will result in a greater volume loss than increasing the price on a beer bottle
  41. 41. Large formats have higher prices, and price increases are more easily noticed Behind the myth Increase: 20% In absolute terms: + € 0,24 Increase: 20% In absolute terms: + € 1,34
  42. 42. Pricing belief 6 Shoppers are more sensitive to price increases on large formats TRUE OR FALSE? TRUE!
  43. 43. -1.0 -1.2 Average elasticity to up-pricing Singlepacks Multipacks Multipacks of beer are more price elastic than individual units
  44. 44. Explanation increasing price decreases the relative size benefit higher price increases in absolute terms
  45. 45. SKIM’s recommendations Apply price increases on single units, offer competitive prices on multi-packs
  46. 46. Thank you
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