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.
  • PriceElasticityofDemand=% Change in Volume% Change in PricePrice_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.