This document discusses common myths about pricing strategies in fast-moving consumer goods. It analyzes 5 pricing beliefs: 1) frequently purchased products are more price elastic, 2) categories dominated by women are more price elastic, 3) lower involvement categories have higher price elasticity, 4) decreasing pack size is better than raising prices, and 5) lower tiers are more price elastic. The document finds that the truths often contradict these myths, and provides recommendations for pricing strategies based on empirical evidence from over 140 pricing studies.

1. expect great answers
Common beliefs about pricing
Myth or Truth?
Price beliefs impacting marketing strategy in FMCG

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 more than 140 pricing studies in the past 5 years
• Our studies covered 18 different countries, more than 7,000 SKUs and
about 500 brands in 45 categories
18 7,000 500 45
2

3. SKIM expertise in pricing
Set the right price: Strategies based on truths not
only beliefs
3

4. 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 -1.3 when a change in
price of +1% leads in a change in volume sales of -1.3%.
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5. 1 Frequently
2 3 Low Personal
Women are more Involvement
purchased
price sensitive =
products are
than Men High Price
more price elastic
Elasticity
It’s better to Low Tier Products
decrease pack =
size than to High Price
increase price Elasticity
4 5 End
5

6. Pricing belief 1
Frequently purchased products are more price
elastic
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7. Example:
Raising the price of soft drinks (high frequency
purchase) will cause a bigger loss in volume sold
then raising the price in batteries (low frequency
purchase)
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8. Example classifications:
1-2 weeks: Cigarettes, soft drinks, baby wipes etc..
3-4 weeks: Pads, laundry detergent, peanuts etc…
2-3 months: face cream, deodorant, mayonnaise etc..
More than 2-3 months: epilators, fragrance, pregnancy test etc..
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9. Behind the Myth
Frequently purchased products represent a
higher portion of the spending budget.
In addition, consumers are believed to be more
price aware about these products
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10. True!
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11. Frequently purchased products are most price
elastic
Average price elasticity to up pricing
-0.71
Less than 2-3 Months -1.04
-0.77
2-3 Months -1.09
Brand level
-0.79
3-4 Weeks -1.11 SKU level
-0.91
1-2 Weeks -1.34
0.0 -0.5 -1.0 -1.5
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12. So What?
Frequently purchased products: Increase price in
multiple steps (to change reference point)
Less frequent purchased products: Increase
price at once
MENU
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13. Pricing belief 2
Categories dominated exclusively by women are
more price elastic than categories dominated
exclusively by men
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14. Example:
If you sell beer, you should expect a smaller
decrease in volume sold when increasing prices
than if you were selling household cleaners
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15. Behind the Myth
Women are often in charge of household items
and budget.
Men shop for products they are personally
involved with
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16. True!
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17. Categories dominated exclusively by women are
more price elastic
Average sensitivity to up-pricing
-0.61
Men
-0.99
Brand level
SKU level
-0.78
Women
-1.15
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18. So what?
Focus more on up-pricing for categories
dominated exclusively by men
For categories dominated by women: Look into
category involvement to determine level of up-
pricing potential
MENU
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19. Pricing belief 3
The lower the personal involvement of a
category, the higher the price elasticity
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20. Example:
Synchronized swimmers in the Thames are less
price sensitive to waterproof make-up than when
looking to buy a laundry detergent
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21. Behind the Myth
Consumers who are highly involved with a
product consider more aspects of the product
than just price
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22. partly True, partly False
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23. 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
-2.5 -2 -1.5 -1 -0.5 0
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24. 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
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25. Pricing belief 4
It’s better to decrease pack size than to increase
price
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26. Example:
To increase the price per liter of bottled water
without losing too much sales from Wimbledon
spectators, it is better to decrease bottle size
than to increase prices
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27. 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
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28. False!
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29. A size change is equally, or even less
effective, than a price change
Relative value change
Decrease Price Per Liter Water Increase Price Per Liter Water
Bigger Size 0% Smaller Size 0%
Lower Price +9% Higher Price +1%
20%
Change in demand
-10% 10%
Change pack size
-20%
Change price
Change in price per liter (executed by shelf price or pack size)
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30. Why?
1. Consumers do notice changes in sizes, especially because changes in
size tend to be large and physically noticeable
2. Smaller sizes implies less volume sold and unless purchase frequency
increases in a similar fashion, this affects total volume sold in a year
3. Furthermore, if purchase frequency does increase consumers are more
likely to switch to other products (i.e. due to promotions)
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31. 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
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32. Pricing belief 5
Products belonging to lower tiers (including private
label) are more price elastic than other tiers
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33. Example:
When buying laundry detergent, price is a more
important element in the selection of standard
liquid detergent than of concentrated liquid
detergent
33

34. False!
34

35. Medium tier products are most price elastic
Average elasticity to up-pricing
-0.86
Lower Tier -1.03
-0.76 Brand level
High Tier -1.17
SKU level
-0.93
Medium Tier -1.21
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36. Why?
1. The price gap between lower tier and medium
High
tier products is too big to make lower tier
consumers switch to medium tier and vice
versa
Medium
2. Medium tier up-pricing encourages
consumers to switch to high tiers

3. Large number of SKUs within Medium Low/Private
tier, encourages consumers to switch within
the tier
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37. So what?
Position brands across different tiers, including a lower
tier product, which serves as an entry-level product to the
brand
To up-trade customers to the middle tier, focus on value
added and not on price
Focus on up-pricing in middle tier to drive up-trading and
increase margins MENU
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38. So what have we learned?
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39. Keep an open mind about pricing
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40. Stop self fulfilling prophecies
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41. contact us or follow us online!
Marko Kalis | Senior Project Manager Mario Coelho | Project Manager
m.kalis@skimgroup.com m.coelho@skimgroup.com
+31 1028 23530 +44 (0) 208 222 7700
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