expect great answers

Winning the Olympic pricing race…Are you ready?

Price beliefs impacting marketing strategy in FMCG

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 types

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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%.

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German consumers are more price sensitive than

consumers in other European countries

Pricing belief 1

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Example: Given the high prices of Olympic souvenirs in London, German consumers will buy cheaper souvenirs than other Europeans

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6

False!

Answer: German are as likely to buy souvenirs at higher prices as other Europeans

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Germany is not more price sensitive than other European countries –Italy* is actually slightly more price sensitive

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-1

-1.1

-1.1

-1.1

-1.2

-1.3

-1.5-1-0.50

UK

France

Netherlands

Germany

Spain

Italy

Differences in price elasticities between countries to up-pricing

The difference of the price elasticity in Italy vs other European countries tested is statistically significant

Action Pump your value adding innovation into hypermarket and supermarket channels, and choose high “value for money” SKUs to list in discount channels.

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The lower the personal involvement of a category,

the higher the price elasticity

Pricing belief 2

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Example: Synchronized swimmers are less price sensitive to waterproof make-up than when looking to buy a burger

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12

partly True, partly False

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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!

Consumers seem more willing to pay higher prices for categories about taking care of themselves (beauty or health)

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-2.5-2-1.5-1-0.50

Consumer Health

Food

Household cleaning

Personal Beauty and HygienePersonal Beauty and hygiene

Household cleaning

Food

Consumer Health

Price elasticity range by category

Action Positioning your product as self ‘pampering’ to increase consumers’ involvement in your product helps driving down price elasticity and enables you to increase price

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When increasing prices, you lose volume at the

same rate as the volume you gain when lowering

prices

Pricing belief 3

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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%.

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18

False!

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%”

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Consumers are less sensitive to price increases than to decreases

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Demand (volume)

Price

Assumed

Elasticity

Measured

Av. price elasticity to up pricing SKUS: -1.1

Av. price elasticity to down pricing SKUS: -1.4

Loyal consumers and switchers

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Loyal

consumers Switchers

Price

Less switchers

Price

More switchers

Actions

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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!

It’s better to decrease pack size than to increase

price

Pricing belief 4

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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 prices

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False!

Answer: Both strategies will lead to a similar change in demand (smaller size or price increase)

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A size change is equally, or even less effective, than a price increase

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-20%

20%

-10% 10%

Change in d

em

and

Change in price per liter (executed by shelf price or pack size)

Change pack size

Change price

Change in price per liter, executed by pack size vs by price increase

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!

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Price elasticity is higher for larger packages than

with smaller packages

Pricing belief 5

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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.

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True!

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 beer

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Price elasticity of large pack sizes is indeed higher than of small sizes

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-1.5-1-0.50

Large

Medium

Small

Small is significantly different from large

Price elasticity by pack size

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.

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Keep an open mind about pricing

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Stop self fulfilling prophecies

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We tested additional pricing beliefs which we could

not cover in this session – contact us to learn more

about it!

Thank you for your participation

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contact us or follow us online!

Mario Coelho| Project Manager

m.coelho@skimgroup.com | +44 203 586 7239

Sam Beauregard| Account Director

s.beauregard@skimgroup.com | +44 776 502 0805