P&G was considering adopting a value pricing strategy to modify its pricing approach. This involved setting consistent list prices rather than spending huge amounts on trade and consumer promotions. The document discusses P&G's marketing budget breakdown and the inefficiencies of high trade spending. It also analyzes the impacts of long-term promotions in P&G's laundry detergent (LDL) and coffee categories, finding that customers were not strongly brand loyal and profits decreased. The document considers list price reductions for these categories and the potential effects and risks of making changes to P&G's pricing strategy.

1. Value pricing at
Procter & Gamble
Team Members
Aditya R: DM16102
Aditya V: DM16154
Shalini : DM16141
Akash K:DM16104
Himanshu:DM16118
Vijay:DM16156

2. P&G: A brief overview
• P&G is a multinational American corporation
headquartered in Cincinnati, Ohio
• Founded in 1837 P&G is well known for
brands like Tide, Crisco,& Crest
• It has four broad product categories
1) Laundry & cleaning
2) Personal Care
3) Food & Beverage
4) Paper

3. P&G “Value pricing” strategy
• The setting of a product price, based on the
benefits it provides to consumers is value
pricing.
• P&G wanted to modify its pricing to consistent
list prices requiring any promotional spending.
• Value pricing bandwagon in LDL (Light duty
liquid) & coffee

4. Consumer
confidence
Product safety
Consistent
Quality
Core elements of value pricing for P&G that Durk Jager wanted instead
of huge spending on trade and consumer promotion.

5. P&G marketing budget
Category of spending 1981 1991
Trade deals 36% 50%
Consumer promotion 22% 25%
Advertising 42% 25%
Trade promotion Retailer promotion Consumer promotion
Advertising allowance Price cuts Couponing/sampling
Trade coupons Displays Price packs
Financing incentives Feature advertising Value packs
Contests Retailer coupons Premiums
Case allowance Contests Bonus packs

6. Marketing swamp: Inefficiencies
of trade spending
• Increased trade spending of $2.5 billion in 1991
by P&G lead to the following
1) Lower profits due to decreased brand loyalty
because of wide fluctuations in shelf prices.
2)Informational advantage for powerful retailers
3)Threat of delisting with promotion cuts
4) Arbitrary tactics like forward buying &
diverting

7. Impact of long term promotions:
LDL
• In LDL segment there was 1% decline in sales
volume due to ADWs.
• Although total market share increased from 50% to
53% no significant shift in market share of individual
brands.
• In 1991 even though DAWN had 25.9% market share
only 25% of sales were purchased on promotion.
• Customers were not strong brand loyal with value
proposition losing transparency.

8. Impact of long term promotions:
LDL
• Elimination of price packs to avoid deep
discounting
• $5 million after tax budget for special coupon
programs
• Huge allocation for off-invoice discounts
• Attempts to reaffirm purchase decisions by
90% budget allocated for television campaigns

9. Impact of long term promotions:
Coffee
• From 1965 to 1991 per capita coffee
consumption decreased by 50%.
• Coffee was highly price sensitive segment with
28% consumption accounting away from home
• Highly fragmented market across geographies
• Huge advertising spending from General foods
to over $70 million /year with a 48% SOV

10. Impact of long term promotions:
Coffee
• Emerging competitors like Chase & Sanborn
offering substantial savings with low prices
and huge promotions (78% sold on deal)
doubled market shares to 2% nationally.
• Hence Coffee segment can attract increased
volume by adopting long term promotional
strategy

11. List price reduction
Pricing LDL COFFEE
Average unit price 19.34 56.25
Sales ( In million $) 580.31 964.12
Realization 340.31 432.78
Marketing expenditures 186 377.08
Advertising 30 58.28
Coupons 36 53.13
Derived profit 154.31 55.70
Since the profit margin in LDL is higher list price reduction of
about 10-15% is possible unlike in Coffee segment where derived
profit is low because of high marketing expenditures

12. Pure pricing or pure costing?
• For reclaiming category leadership P&G must
resort to pure pricing to ensure customer
loyalty in terms of value pricing
• Potential reductions in BDF and off invoice
with sustainable deal promotions and low list
prices in both LDL and coffee segment
• Top off line profit targets could met with less
riskier credible price cuts around 10-20%

13. Customer attitude to radical price
change
In segments like LDL radical
price changes will lead to
increased sales in short run
but will not be sustainable in
long run with competitors
following the same pricing
But in segments like Coffee which
is price sensitive radical price cuts
will help in achieving increased
sales & customer loyalty

14. Effect of changes & risks
• The price reductions & various value pricing
strategies will result in the following
1) Constant price wars in LDL category
2) Low ring of margins for retailers will bear the
risk of delisting of products
3) Low profits in Coffee segment
4) Constant brand switching of customers

15. Approach for LDL & Coffee
LDL: 1) Lowering of list prices because of high profit
margins
2) substantial reduction in trial purchases with
increased display space > 80%
Coffee: 1) Increasing market share through savings deals
2) As profit margins are low, cost cutting expenditures
on feature/display expenditures will help increase margins
& shares

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