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Webinar On Pricing Olympics


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Webinar On Pricing Olympics

  1. 1. expect great answers Winning the Olympic pricing race…Are you ready?Price beliefs impacting marketing strategy in FMCG
  2. 2. 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 types2
  3. 3. 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%.3
  4. 4. Pricing belief 1 German consumers are more price sensitive than consumers in other European countries4
  5. 5. Example: Given the high prices of Olympic souvenirs in London, German consumers will buy cheaper souvenirs than other Europeans5
  6. 6. False!6
  7. 7. Answer: German are as likely to buy souvenirs at higher prices as other Europeans7
  8. 8. Germany is not more price sensitive than other European countries –Italy* is actually slightly more price sensitive Differences in price elasticities between countries to up-pricing Italy -1.3 Spain -1.2 Germany -1.1 Netherlands -1.1 France -1.1 UK -1 0 -0.5 -1 -1.5 The difference of the price elasticity in Italy vs other European countries tested is statistically significant8
  9. 9. Action Pump your value adding innovation into hypermarket and supermarket channels, and choose high “value for money” SKUs to list in discount channels.9
  10. 10. Pricing belief 2 The lower the personal involvement of a category, the higher the price elasticity10
  11. 11. Example: Synchronized swimmers are less price sensitive to waterproof make-up than when looking to buy a burger11
  12. 12. partly True, partly False12
  13. 13. 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!13
  14. 14. Consumers seem more willing to pay higher prices for categories about taking care of themselves (beauty or health) Price elasticity range by category Personal Beauty and hygiene Personal Beauty and Hygiene Household cleaning Household cleaning Food Food Consumer Health Consumer Health 0 -0.5 -1 -1.5 -2 -2.514
  15. 15. Action Positioning your product as self ‘pampering’ to increase consumers’ involvement in your product helps driving down price elasticity and enables you to increase price15
  16. 16. Pricing belief 3 When increasing prices, you lose volume at the same rate as the volume you gain when lowering prices16
  17. 17. 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%.17
  18. 18. False!18
  19. 19. 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%”19
  20. 20. Consumers are less sensitive to price increases than to decreases Demand (volume) Av. price elasticity to down pricing SKUS: -1.4 Assumed Measured Price Av. price elasticity to up pricing SKUS: -1.1 Elasticity20
  21. 21. Loyal consumers and switchers Loyal consumers Switchers Price Price Less switchers More switchers21
  22. 22. Actions 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!22
  23. 23. Pricing belief 4 It’s better to decrease pack size than to increase price23
  24. 24. 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 prices24
  25. 25. False!25
  26. 26. Answer: Both strategies will lead to a similar change in demand (smaller size or price increase)26
  27. 27. A size change is equally, or even less effective, than a price increase Change in price per liter, executed by pack size vs by price increase 20% Change in demand Change pack size Change price -10% 10% -20% Change in price per liter (executed by shelf price or pack size)27
  28. 28. 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!28
  29. 29. Pricing belief 5 Price elasticity is higher for larger packages than with smaller packages29
  30. 30. 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.30
  31. 31. True!31
  32. 32. 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 beer32
  33. 33. Price elasticity of large pack sizes is indeed higher than of small sizes Price elasticity by pack size Small Medium Large 0 -0.5 -1 -1.5 Small is significantly different from large33
  34. 34. 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.34
  35. 35. Keep an open mind about pricing35
  36. 36. Stop self fulfilling prophecies36
  37. 37. We tested additional pricing beliefs which we could not cover in this session – contact us to learn more about it! Thank you for your participation37
  38. 38. contact us or follow us online!Sam Beauregard| Account | +44 776 502 0805Mario Coelho| Project | +44 203 586 7239