1. expect great answers
Winning the Olympic pricing
race…Are you ready?
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 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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3. 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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4. Pricing belief 1
German consumers are more price sensitive than
consumers in other European countries
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5. Example:
Given the high prices of Olympic souvenirs in
London, German consumers will buy cheaper
souvenirs than other Europeans
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7. Answer:
German are as likely to buy souvenirs at higher
prices as other Europeans
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8. Germany is not more price sensitive than other
European countries –Italy* is actually slightly
more price sensitive
Differences in price elasticities between countries to up-pricing
Italy -1.3
Spain -1.2
Germany -1.1
Netherlands -1.1
France -1.1
UK -1
0 -0.5 -1 -1.5
The difference of the price elasticity in Italy vs other European countries tested is statistically significant
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9. 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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10. Pricing belief 2
The lower the personal involvement of a category,
the higher the price elasticity
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11. Example:
Synchronized swimmers are less price sensitive
to waterproof make-up than when looking to buy
a burger
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13. 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!
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14. 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
0 -0.5 -1 -1.5 -2 -2.5
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15. 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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16. Pricing belief 3
When increasing prices, you lose volume at the
same rate as the volume you gain when lowering
prices
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17. 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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19. 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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20. Consumers are less sensitive to price increases
than to decreases
Demand (volume)
Av. price elasticity to down pricing SKUS: -1.4 Assumed
Measured
Price
Av. price elasticity to up pricing SKUS: -1.1
Elasticity
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21. Loyal consumers and switchers
Loyal
consumers Switchers
Price
Price
Less switchers More switchers
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22. Actions
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!
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23. Pricing belief 4
It’s better to decrease pack size than to increase
price
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24. 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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26. Answer:
Both strategies will lead to a similar change in
demand
(smaller size or price increase)
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27. A size change is equally, or even less effective,
than a price increase
Change in price per liter, executed by pack size vs by price increase
20%
Change in demand
Change pack size
Change price
-10% 10%
-20%
Change in price per liter (executed by shelf price or pack size)
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28. 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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29. Pricing belief 5
Price elasticity is higher for larger packages than
with smaller packages
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30. 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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32. 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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33. Price elasticity of large pack sizes is indeed
higher than of small sizes
Price elasticity by pack size
Small
Medium
Large
0 -0.5 -1 -1.5
Small is significantly different from large
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34. 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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37. 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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38. contact us or follow us online!
Sam Beauregard| Account Director
s.beauregard@skimgroup.com | +44 776 502 0805
Mario Coelho| Project Manager
m.coelho@skimgroup.com | +44 203 586 7239
