Presented by John Ashraf, Product Owner for Pricing & Portfolio Management at SKIM At first glance, setting your price seems like no sweat, but getting it right can be a real challenge. Consumers make their decisions in real-life, with all of its complexities. That said, the revenue you can make with strategic pricing is highly rewarding and the process can be fun and insightful. In this webinar, John Ashraf, Product Owner for Pricing & Portfolio Management at SKIM, brings practical and solid solutions for traditional and contemporary pricing issues. Pricing outcomes and insights are generally discussed across a wider group of stakeholders: finance and operations; marketing, brand, and category managers; and sales, account, or channel management. What does each of these stakeholders use in order to make a decision, what do they expect in a changing daily reality, how are they using the insights and outcomes, and what do they decide based on the outcomes or based on their mutation of the outcomes? We tackled how to fulfill the needs of your stakeholders and make them happy while sticking to the solidity of the insights. John also touched on the changing reality of strategic pricing. What’s new, what will change, and what it means for you as an insights professional in the context of generating and using pricing insights. We talked about e-commerce pricing, the mobile reality, and more new trends in pricing.

1. Pricing webinar
John Ashraf
Product Owner, pricing &
Portfolio management
Sharing Best Practices In Pricing Research

2. About SKIM
> Global pricing partner to many multinational companies
> Over 35 years of rigorous experience in pricing research
> Thorough understanding of the pricing challenges you face
> Innovative frontrunners in pricing research and methodologies
> We deliver actionable results during interactive pricing workshops

3. 200 pricing studies in
the past 5 years
18 7000 500 45

4. Pricing

5. Price management should involve
costs, customer demand (sales), and
assessment of competition.
Approach Based on Ignores Liked by
Cost – Plus Costs (+ profit) Competition, customers Finance
Market based
Competition (vs.
competitor prices)
Cost, customers Sales
Value based
Customers (willingness
to pay)
Cost Marketing

6. Cost – Plus
Pricing approach
• Oldest and (still) most popular
approach
• Simple: determine the cost of
each product and add a
markup
• Objective and financially
prudent but...
• Internally focused: has
nothing to do with the market
• May not optimize market
potential, nor profitability
• May lead to distorted prices
over time
+%

7. Market based
Pricing approach
• Based solely on the prices being offered by
competition (or in most extreme cases depends on
supply / demand ratio)
• Commonly applied in commodities
• Does not consider differences or changes in
customers’ value perception across competitors

8. Value based
Pricing approach
• Price is driven by customer value
• Frequently applied in CPG
• Based on customer research
• Heavily restricted by competition

9. Bottom line,
all three factors
should be taken
into account
when managing
price
customer
competition costs
price

10. Different stakeholders
and their priorities
How do I get my
products on the front
row of the shops?
Which features
should the 2015
models have
What will the
impact be on net
contribution?
What will be the
impact on volume?
We must go up 3
share points to
prove leadership

12. Evaluating
your price

13. Price / value mapping
Understand how customers
perceive products
Explain and predict
market share evolution
Immediately view of your
product competitiveness

14. Why price / value mapping?
1. Understand how customers perceive products
> Measure value of different product benefits of
products in the market
> Map this out against the sales price
> Draw a “Value Equivalence Line” (VEL) to indicate
whether the price of a product matches its perceived value

15. Price / value mapping
Start with determining the perceived value of product features
Rating (10-pt scale) Weight
Fast
Food
Brasserie Bistro Luxury
Michelin
Star
Food Quality 20% 3 5 5 7 9
Food Sophistication 25% 1 3 3 5 9
Restaurant Location 5% 5 8 6 4 3
Décor 20% 1 3 5 6 8
Service 30% 3 4 5 7 9
Total score 2.2 4.0 4.6 6.2 8.5
Average price 8€ 16€ 22€ 60€ 75€

16. Price / value mapping
Price is based on average price for 2-course dinner, excluding drinks.
0 €
10 €
20 €
30 €
40 €
50 €
60 €
70 €
80 €
0 1 2 3 4 5 6 7 8 9 10
Price
Perceived Product Value
Fast Food
Brasserie
Bistro
Luxury
Michelin Star
Value Equation Line

17. Why price / value mapping?
2. Explain and predict market share evolution
> Compare products in the market to see if they offer more or
less value vs. the VEL and vs. competition
> If performing lower, the product is a ‘share-loser’. If
performing higher, the product is a ‘share-gainer’

18. Price / value mapping
Price is based on average price for 2-course dinner, excluding drinks.
0 €
10 €
20 €
30 €
40 €
50 €
60 €
70 €
80 €
0 1 2 3 4 5 6 7 8 9 10
Price
Perceived Product Value
Fast Food
Brasserie
Bistro
Luxury
Michelin Star
Value Equation Linevalue
disadvantage
value
advantage
share ‘losers’
share ‘gainers’

19. Price / value mapping
What if something happens that ‘disrupts’ the market?
0 €
10 €
20 €
30 €
40 €
50 €
60 €
70 €
80 €
0 1 2 3 4 5 6 7 8 9 10
Price
Perceived Product Value
Fast Food
Brasserie
Bistro
Luxury
Michelin Star
old value
new value

20. Why price / value mapping?
3. Immediately view of your product competitiveness
> For existing products: if performing below competition, a
price change or benefit upgrade may be in order
> For new products: assessing the right price based on the
value map
> Depending on the product costs
> Depending on the position vs. the VEL
> Depending on the position vs. competition

21. Price / value mapping
Adjusting your position
0 €
10 €
20 €
30 €
40 €
50 €
60 €
70 €
80 €
0 1 2 3 4 5 6 7 8 9 10
Price
Perceived Product Value
Fast Food
Brasserie
Bistro
Luxury
Michelin Star
1
2
3
Option 1:
improve product value, increase Decor
by remodeling (currently ‘6’) and/or Food
Sophistication by changing Chef
(currently ‘5’)?
Option 2:
reduce prices
Option 3:
a combination of option 1 and 2

22. Price
elasticity

23. Price elasticity
Price
Demand
Revenue
Δ Demand
Δ Price
PS =
P2 P1
D2
D1

24. Price elasticity
Price
Demand
Price <
Revenue >
PriceDemand
Price >
Revenue >
-∞ < PS < -1 -1 < PS < 0
High price sensitivity Low price sensitivity

25. Example of Price-Demand curve:
20.00
40.00
60.00
80.00
100.00
120.00
140.00
27.95 29.95 31.95 33.95 35.95 37.95 39.95 41.95 43.95 45.95 47.95 49.95 51.95 53.95 55.95 57.95 59.95
Volumeindex
Price

26. Depending on what changes in
the market, PE can be different!
The more products change in price in tandem, the lower the PE
– Within the same brand: consumers are more inclined to stay
within the brand they like but search for the best deal within the
brand.
– Competitive response: if competition (especially if it is a main
competitor of your brand) changes in price as well, there will be
less incentive to switch

27. Pricing
Research
methods

28. 2 basic types of pricing
Research methodologies
rear view forward looking

29. Rear View
Research methodologies
> Marketing mix modeling
> Store level modeling
> Consumer tracking studies

30. Marketing Mix
Modeling
• Developed in the 1950’s, but very popular in the last ten years
• Uses syndicated point-of-sale data and companies’ internal data
• At least 2 years of weekly data by store is usually recommended
• Estimates the effectiveness (ROI) of each marketing element: TV Ads, GRP levels,
Promotions, Featuring, Price, Distribution, Competitive activities
• Applies regression models on time series (linear and non-linear)
• Price elasticity is usually modeled as one PE figure per brand
• Assumes factors affecting future price sensitivity will remain constant

31. Rear View
Research methodologies
Pros
> If detailed data is available (weekly,
by store), rather accurate model of
what happened in the past
> Excellent tool to determine ROI on
marketing efforts
Cons
> Data often not available
> Limited to events from the past
> Rarely accounts for changes in price
sensitivity due to e.g. changing economic
cycles (e.g. inflationary periods), new
market developments (e.g. new
competitive entries), or increased brand
equity.

32. Forward Looking
Research methodologies
> Van Westendorp
> Conjoint analysis

33. Van Westendorp
Price Meter
1976
Introduction Respondents
Identify
Price points
Optimal
Price range
Respondents are
capable of
envisioning critical
price points

34. 4 open questions
to assess when the product is
iPhone 4
Cheap?
€ …….
iPhone 4
So cheap you would
doubt its quality?
€ …….
iPhone 4
Expensive?
€ …….
iPhone 4
So expensive you
would never buy it?
€ …….

35. Analysis of data
0%
20%
40%
60%
80%
100%
€0.00 €100.00 €200.00 €300.00 €400.00 €500.00
Too cheap
Not cheap
Not expensive
Too expensive
IPP
OPP
PMC
PME

36. “A word of caution is in order:
price-consciousness of this
nature should never be equated
with propensity to buy.”

37. Pros and cons
Van Westendorp Price Meter
Able to identify optimal price points.
But:
Does not take competitive products
into consideration
Is very cognitive (not intuitive)
When to use.
So far, one of the best method for
new products, which are new to the
market, and for which there is no
competition (yet).

38. Conjoint analysis as a
decision-making tool

39. Discrete Choice Modeling
> Widely used consumer choice model
> Uses ‘utilities’ to indicate consumer sensitivities towards product
characteristics such as price, pack size, features, brand, etc.
> Utilities are estimated at an individual level through Hierarchical
Bayes estimation
> Utilities are used to estimate ‘share of preference’ or
‘share of choice’ for products given a certain competitive set.

40. Which product would you buy?
€ 699€ 499€ 469
iPhone 6Samsung Galaxy S4Nokia Lumia 1520
A B C

41. Which product would you buy?
€ 649€ 699€ 399
iPhone 6Samsung Galaxy S4Nokia Lumia 1520
A B C

42. Price Elasticity measured via CBC
>
Conjoint choice
tasks
Calculate utilities
of attributes
Create
simulation model:
Run millions of
scenarios
> >

43. Choice-based Conjoint
Intuitive method that takes competition into consideration
Changing other product characteristics is also possible
• Portfolio management
• Different executions of price changes (e.g. via pack size changes)
• Feature optimization
When to use?
• For a thorough read on sensitivity towards price, brand, and other
product characteristics in a competitive market.
• You can investigate price interactions, cannibalization effects and
optimize your offering

44. CBC Which would you choose?

45. CBC Product composition
Attributes
Levels

46. Pricing research
Same input > different outcomes
27% or 34%

47. CBC virtual shelf environment

48. Different from econometric analyses
CBC indicates price changes for which
no historic data exist
+20%
-20%
€3.99
+20%
-20%
€4.99

49. Tips for setting up a pricing study
with conjoint
> Ensure you include the whole relevant competitive set
> Ensure you cover at least 70% of the market, to cover the interactions
for main products
> Display brands in the proportions they are available in the market (e.g. if brand
A has 40% of shelf share, 40% of the products shown should be of that brand)
> In each choice task, show a good portion of the market, ensuring consumers
can make the choices they would in reality
> And of course, use visuals and actual pack shots to enhance realism

50. 50
Whopper $3.50 California W. $ 4.50
Omega3 $3.75 Chicken Deli $ 3.50
Cheddar $0.50 American cheese
$ 0.75
Crispy Onions
$1.50
Bacon
$1.50
Curly fries $1.25
French fries $1.05
✔ ✔
✔
✔
✔
Total price $ 8.50

51. How menu-based conjoint works
>
Select
Multiple items
Selections can
be restricted
Multiple items
or bundles on
each menu
Prices of
individual items vary
> >

52. Testing a LOT of attributes - ACBC
ACBC should be used in complex
markets with a large amount of
products available - so that
customers need to define an
evoked set for themselves.

53. What have we learned so far
1. Price elasticity acts as a compass to guide your pricing activities
and is a reflection of your brand and portfolio strengths
2. Market-mix modeling is great for modeling activities that were done
several times before but lack when testing new hypotheses
3. Conjoint analysis allows for market simulation and understanding
choice drivers allowing optimization on the product, brand and
portfolio levels and simulating competitive what-if scenarios

54. Pricing and e-commerce

55. Go to www.skimgroup.com/webinars
for today’s presentation slides and more!
#skimwebinar
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John Ashraf
Product Owner, pricing &
Portfolio management