Coca Cola: Pricing Strategies Across Markets

22,399 views

Published on

Published in: Business, Education
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
22,399
On SlideShare
0
From Embeds
0
Number of Embeds
13
Actions
Shares
0
Downloads
451
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Coca Cola: Pricing Strategies Across Markets

  1. 1. © Imperial College Business School Tutorial: Coca Cola Strategic Marketing – SUMMER SCHOOL 2013 1 Pricing Strategies in Different Market Contexts
  2. 2. © Imperial College Business School Today’s Session 2 What we are going to cover… • Three things from last week’s lecture on pricing? • Case Study Analysis: Coca Cola – What were the main differences between pricing strategies in USA, India and China? – Which strategies out of cost-based, value-based and competitor-based pricing do you believe work best in the soft drinks market and why? – What further actions do you recommend Coca Cola should take to improve its differentiated pricing strategies?
  3. 3. © Imperial College Business School Last week’s Session 3 Key Marketing Concepts Three things from last week’s lecture on pricing? 1) Name TEN factors which influence pricing decisions? (Draw the Perceptual Positioning Map) 2) What is price elasticity? 3) Describe THREE key and SIX alternative pricing strategies
  4. 4. © Imperial College Business School Price Decision Influencers 4 Internal and External Influences • Organisational / Marketing objectives • Pricing objectives • Costs • Other Marketing Mix variables • Channel member expectations • Buyer’s perceptions • Perceived value for money • Competition • Legal and regulatory issues • Inflation / Currency fluctuations INTERNAL EXTERNAL (Market & Environment)
  5. 5. © Imperial College Business School The Big Mac Index 5 What’s right and wrong with the Big Mac Index? The Big Mac index is a light-hearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that global exchange rates should eventually adjust to make the price of identical baskets of tradable goods the same in each country.
  6. 6. © Imperial College Business School The Big Mac Index 6 What’s right and wrong with the Big Mac Index? Important consideration for pricing across markets: PURCHASING POWER - Law of one price: Big Mac should cost the same across different markets (currency differences factored in). The fact this isn’t the case suggests currencies are over/under valued (side point) - The important question is: Is it a reliable indicator? YES: Standardised product. Includes inputs from range of local economy sectors i.e. labour (white and blue), agricultural commodities, advertising, real estate, transportation. NO: In some emerging economies, western fast food represents an expensive niche product price. Hence product differentiation isn’t factored in. Also, the variety of input prices could be result of government regulations
  7. 7. © Imperial College Business School Perceptual Positioning Map 7 Determining Price Positioning QUALITY PRICE L L H H
  8. 8. © Imperial College Business School Price Elasticity 8 How Price affects Demand Price Quantity Price Quantity
  9. 9. © Imperial College Business School Price Elasticity 9 How Price affects Demand Price Quantity ELASTIC INELASTIC - Small change leads to significant increase/decrease. - Low customer loyalty - Easy to switch (alternatives) e.g. Cereal - Large change upwards or downwards leads to small increase/decrease. - Willing to pay any price e.g. Luxury Price Quantity
  10. 10. © Imperial College Business School Key Pricing Strategies 10 Three Basic Strategies SKIMMING PENETRATION PRICING MARKET PRICING H L - Charging premium price, top end of market - New, Unique or Luxury products - Risky when strong competition or low perception of value - Set as going market rate (by competitors) - To preserve stability. Activity focused on product, distribution and promotions e.g. Coca Cola / Cereals - Charging a low price to achieve highest possible sales. - Facing high competition & low incomes - Long term profit if high market share. - Can result in low profits / undermine brand image.
  11. 11. © Imperial College Business School Alternative Pricing Strategies 11 Six Alternative Strategies • Cost plus: Cost of manufacturing plus small margin • Target Profit: To achieve specific % profit (margin) • Breakeven: Price at which revenue covers cost • Perceived Value: what customer will pay • Sealed bidding: b2b / house purchases • Internet based: comparison with others ILLEGAL: Grey market / Dumping / Price Fixing
  12. 12. © Imperial College Business School Ryan Air’s Pricing Strategy 12 ‘Debundling’ vs. Differentiation
  13. 13. © Imperial College Business School Case Study Analysis 13 The importance of context What were the main differences between Coca Cola pricing strategies in the USA, India and China? 10 MINUTES: DISCUSS IN PAIRS
  14. 14. © Imperial College Business School INDIA 14 Cost-Plus (Penetration) Pricing Strategy RURAL CONTEXT – Untapped market due to: • Low incomes, geographically dispersed • Lower purchasing power compared to urban consumers – Strategy motivated by COST-REDUCTION • Low price strategy • Packaging? Smaller bottle size  Reduces cost (and price) • Penetration pricing i.e. increase per capita consumption Wall Street Journal on Coca Cola’s Growth Strategy in India
  15. 15. © Imperial College Business School FMCG EXAMPLES 15 Cost-Plus (Penetration) Pricing Strategy Nestlé Popularly Positioned Products - PPP strategy focuses on lower income consumers by offering them relevant, high-quality nutritious products at daily affordable prices. Sales = £7.5bn/year Hindustan Lever (Unilever) - Sachet marketing involves selling shampoos, soapa etc. in smaller more affordable packet sizes, suited to rural distribution channels.
  16. 16. © Imperial College Business School CHINA 16 Value-based Pricing Strategy URBAN CONTEXT – Consolidating position in big and medium sized cities: • Higher incomes. Focus on buyers perception. • Convince them that product’s value justifies price. HOW? – Strategy motivated by VALUE-BUILDING • Loyalty created by high level of marketing/advertising campaigns • Local companies like Wahaha (Future Coke) focus on low priced product for rural consumers.
  17. 17. © Imperial College Business School USA 17 Value and Competition-based Pricing Strategy MATURE MARKET CONTEXT – Competing with Pepsi: • Mature carbonated drinks market with limited growth opportunities • Checks price/quality of each major branded competitors’ offer. – Strategy motivated by COMPETITION • Indirect & direct discrimination in pricing strategy vs. competition • BEWARE: Pepsi winning back restaurant business by combinign fountain drinks with Frito Lays snacks • BEWARE: low-cost private labels from Wal-Mart. • Brand maintains high customer loyalty through marketing activity
  18. 18. © Imperial College Business School Case Study Analysis 18 Pricing Strategies for Soft Drinks Which strategies out of cost-based, value-based and competitor-based pricing do you believe work best in the soft drinks market and why?
  19. 19. © Imperial College Business School Case Study Analysis 19 Pricing Strategies for Soft Drinks What further actions do you recommend Coca Cola should take to improve its differentiated pricing strategies across the three different markets? 10 MINUTES: DISCUSS IN PAIRS
  20. 20. © Imperial College Business School Case Study Analysis 20 Pricing Strategies for Soft Drinks What further actions do you recommend Coca Cola should take to improve its differentiated pricing strategies across the three different markets?
  21. 21. © Imperial College Business School How ‘Value’ Determines Price 21 How do you value a company? • Market defines aggregate perceived value, hence the share price of a company • Instagram (private company) was bought by Facebook for $1bn last year. • A pre-revenue company (peanuts on its income statement), a small office in Silicon Valley with about twelve people. Q. Use pricing concepts to explain Zuckerberg’s willingness to pay such a high price for Instagram Kevin Systrom & Mike Krieger (Founders of Instagram. Stanford University Graduates)

×