The document discusses value pricing and reducing list prices for P&G products. It analyzes profit margins for LDL (26.5%) and Coffee (6.5%) and determines LDL's price can be reduced while Coffee needs cost reductions. A 11% price reduction is calculated. Risks of frequent price changes include reduced topline, retailer compromise, and customer frustration/brand dilution. The approach for LDL should be price reduction while Coffee focuses on cost cuts.

1. Section 1 ,Group – 2
FT 12113 Anuja
FT 12102 Abhay
FT 12189 Pramod
FT 12127 Harendra
FT 12168 Tushar
FT 12104 Abhilash
PAAATH Group 2,Section 1 1

2. OBJECTIVE
• Value pricing
• Reduction in list price
• Pricing or costing
• Customer reaction
• Effect and risks post price change
• Approach for LDL or Coffee
PAAATH Group 2,Section 1 2

3. Value Pricing
• The concept of value pricing is basically about
giving the customer a product on the basis of
his perception of its value.
• Value being subjective, perception of value
varies from customer to customer.
• The same product will have different
intonations for different customers, with
resultant varying values.
PAAATH Group 2,Section 1 3

4.  Reduction in price should not compromise with the interest of
retailers whose competitive advantage was on the “buy side”
 It should not initiate a “Price war” in the market
 It should motivate customers
 Profit margin of LDL is 26.5%
 Profit margin of Coffee is 6.5%
 Therefore, list price of LDL can be reduced whereas the same
is not possible for coffee
PAAATH Group 2,Section 1 4

5.  List Price of P&G (per Oz) = 0.92
 List Price of Lever Brother’s (per Oz) = 0.81
 Reduction allowed = 0.11
 % Price Reduction
= 0.11/0.92
= 11%
PAAATH Group 2,Section 1 5

6.  The Decision is to be looked at from the pricing perspective as it
has been assumed that it’s the pricing that’s hurting P&G’s brand
loyalty.
 The pricing should have a strong Correlation with the Costs
incurred in manufacturing the products.
 The frequently pulsating prices is a cause of concern. This needs
to be accompanied by proportionate cuts in promotional
spending so that the impact on Top Line can be minimized
 The Top line should not be hit by more than 1 % by these
changes.
 From exhibit 5 it is evident customers in LDL segment are highly
price sensitive and price is ranked second in the overall
characteristics of consumer tastes.
PAAATH Group 2,Section 1 6

7.  The consumer will become more value conscious.
 The consumer will become angry if he/she sees that the
product that he/she bought last week has come down in price
to half the original price.
 Decrease in brand loyalty.
 Exhibit 5 ranks price as second most important attribute for a
consumer in LDL segment. Hence, value pricing is to help
capture more sales.
PAAATH Group 2,Section 1 7

8.  Reduction in the Topline
 Compromise with the interest of the retailers
 Brand Dilution
 Frustration to loyal customers
 Price war
 Arbitrage.
PAAATH Group 2,Section 1 8

9.  Approach for the both the products should be different:
◦ For LDL, the profit margin is high.
◦ Therefore, the price can be reduced
◦ For Coffee, the profit margin is low
◦ Therefore, the concentration should be on cost reduction
PAAATH Group 2,Section 1 9

10. PAAATH Group 2,Section 1 10