Trade Marketing - Pricing Management

Pricing Management

• Value: Benefit received vs. paid amount.
• Satisfaction: Received vs. Expected.
• Value = Benefits / Price (Benefits = Functional + Emotional)

Category Roles & Pricing Management

• Destination: Retailer strategy dependent.
  • Low prices: Cost leadership.
  • Higher prices: Differentiation and category mix.
• Core / Routine: Competitive pricing.
• Occasional / Seasonal: Higher prices at the beginning, lower prices towards the end.
• Convenience: Competitive pricing, higher prices when convenience is a benefit.

Pricing and Promotion

• High Price, Frequent Promotion (Hi-Lo).
• Competitive price for acceptable performance.
• High Price, Low/No Promotions (EDLP).

Retail Strategy Pricing Approach

• EDLP (Every Day Low Price): Low price, high value.
• Hi-Lo: Frequent, aggressive promotions from higher regular prices.

Defining Pricing Positionings

• Consider business objectives & consumer dynamics.

Price Setting Methodologies

• Psychological Behavior: Non-rounded prices, prices ending in 9 or 5.
• Competitor Marketing: Analyze competitors' pricing strategies.
• Profitability: Profitability = Margin x Rotation.

Price Elasticity

• Examines what happens when price changes occur.
• Economic theory: Equilibrium between supply and demand.
• Supply >> Demand: Prices decrease.
• Demand >> Supply: Prices increase.
• As price increases, volume decreases.
• Price_Elasticity_of_Demand = \frac{\% \ Change \ in \ Volume}{\% \ Change \ in \ Price}
• Elasticity of demand is typically negative (inverse relationship).
• Regular price elasticity of -1: 1% increase in price results in a 1% loss in volume sales.
• Promotional price elasticity of -1: 1% decrease in price results in a 1% gain in volume sales.

Price Elasticity vs Market

• Market Leaders: Maintain brand equity, no need to respond to value brands.
• Price-Focused Brands: Follow price decreases, take advantage of volume share.
• Low Equity Brands: Respond to key competitor price changes, build brand equity.
• Niche Brands: Respond only to value brands entering the niche, market the niche benefit.

Consumer Pricing Approach by Channel

• Petrol Stations: Product availability is more important than price.
• Convenience Stores: Consumers are less price-focused, purchases are needs-driven.
• Hypers/Supers: Shelf price position is critical; wide range increases price sensitivity.