SKIM at Marketing Week Live 2013: Preempting Pricing Preconceptions

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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.

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SKIM at Marketing Week Live 2013: Preempting Pricing Preconceptions

  1. 1. expect great answers Common beliefs about pricing Myth or Truth? Price beliefs impacting marketing strategy in Consumer Goods
  2. 2. Pricing & Portfolio management Product development Communication 2
  3. 3. SKIM expertise in pricing • SKIM has carried out more than 200 pricing studies in the past 5 years 18 3 7000 500 45
  4. 4. SKIM expertise in pricing Set the right price: Strategies need to be based on truths not beliefs 4
  5. 5. Price elasticity of demand Price elasticity of demand Demand 80 0 0 5 Price 80
  6. 6. 1 Frequently purchased products are more price elastic 3 2 Women are more price sensitive than Men It’s better to decrease pack size than to increase price Low Tier Products = High Price Elasticity 4 6 Low Personal Involvement = High Price Elasticity 5 End
  7. 7. Pricing belief 1 Frequently purchased products are more price elastic 7
  8. 8. 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
  9. 9. Example classifications: 1-2 weeks: 3-4 weeks: Pads, laundry detergent, peanuts etc… 2-3 months: Face cream, deodorant, mayonnaise etc.. > 3 months: 9 Cigarettes, soft drinks, baby wipes etc.. Epilators, fragrance, pregnancy tests etc..
  10. 10. 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. 11. True! 11
  12. 12. Frequently purchased products are most price elastic Frequency of purchase Average price elasticity to up pricing > 3 Months -1.04 2-3 Months -1.09 3-4 Weeks 1-2 Weeks -1.34 0.0 -0.5 Price elasticity (P.E.) 12 SKU level -1.11 -1.0 -1.5
  13. 13. So What? Frequently purchased products: Increase price in multiple steps (to change reference point) Less frequent purchased products: Increase price in one go MENU 13
  14. 14. So What? MENU 14
  15. 15. Pricing belief 2 Categories dominated by women are more price elastic than male-oriented categories 15
  16. 16. 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
  17. 17. Behind the Myth Women are often in charge of household items and budget. Men shop for products they are personally involved with 17
  18. 18. True! 18
  19. 19. Categories dominated by women are more price elastic Average sensitivity to up-pricing Men -0.61 -0.99 Brand level SKU level Women 19 -0.78 -1.15
  20. 20. 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 MENU 20
  21. 21. Pricing belief 3 The lower the personal involvement of a category, the higher the price elasticity 21
  22. 22. Example: Synchronized swimmers are less price sensitive to waterproof make-up than they are to laundry detergent 22
  23. 23. Behind the Myth Consumers who are highly involved with a product give more consideration to other aspects of the product besides price 23
  24. 24. partly True, partly False 24
  25. 25. Consumers seem more tolerant of price increases in categories about taking care of themselves (beauty or health) Price elasticity range by category Personal Beauty and Hygiene Consumer Health Food Household cleaning -2.5 25 -2 -1.5 -1 -0.5 0 Personal Beauty and hygiene Consumer Health Food Household cleaning
  26. 26. 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 MENU 26
  27. 27. Pricing belief 4 It is better to decrease pack size than to increase price 27
  28. 28. 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
  29. 29. 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. 30. False! 30
  31. 31. A size change is equally, or even less effective, than a price change 20% Change pack size Change in demand Change price -10% 10% -20% Change in price per liter (executed by shelf price or pack size) 31
  32. 32. Why? 1. 2. Unit Volume and Purchase frequency 3. Switching behavior 33
  33. 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! MENU 34
  34. 34. Pricing belief 5 Products belonging to lower tiers (including private label) are more price elastic than other tiers 35
  35. 35. Example: Price is a more important element in the selection of basic private label detergents than of premium branded detergents 36
  36. 36. False! 37
  37. 37. Medium tier products are most price elastic Average elasticity to up-pricing Lower Tier High Tier Medium Tier 38 -1.03 -1.17 -1.21 SKU level
  38. 38. Why? High 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 Medium  Low 39
  39. 39. So what? 1. Low | Medium | Premium 2. Medium Tier = Value added 3. Medium Tier Up Pricing MENU 40
  40. 40. So what have we learned? 41
  41. 41. Keep an open mind about pricing 42
  42. 42. Contact us or follow us online! Sarah Cunliffe | Project Manager Mario Coelho | Project Manager s.cunliffe@skimgroup.com m.coelho@skimgroup.com +44 (0) 208 222 7707 +44 (0) 208 222 7703 skimgroup.com linkedin.com/ company/skim twitter.com/ skimgroup facebook.com/ skimgroup youtube.com/ skimvideos

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