Choosing the Best Pricing Techniques to Address Consumer Goods Pricing Challenges
CONSUMER GOODS S E CTO R
A Current Best Practices Paper
Curt Stenger
Senior Vice President, Ipsos Marketing, Consumer Goods Sector curt.stenger@ipsos.com
Research Challenge Identifying the optimal price for a new product is a critical step in the innovation process – and correcting the price of an existing product is a necessary component of successful brand management. With the wide range of pricing research techniques practiced in the industry, it is not always clear which technique best addresses the business issue at hand. This paper describes the most common methods used for consumer goods pricing research and offers guidelines on when – and when not
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(Figure 1). This continuum helps describe how pricing methods can best be used to address particular pricing issues based on the level of competition needed to be considered and the depth of pricing knowledge needed.
Custom research pricing methods fall into two main approaches: (1) pricing the total product (pricing for a complete concept /product) and (2) pricing elements of a variable concept /product offering such as branding or features. This discussion will focus on pricing the total product. We are focusing on this because pricing elements (which is largely accomplished through conjoint trade-off models) tends to focus more on the features as either equal or superior to price and often needs to be used in conjunction with another method to fully understand the impact of price on brand success. Specific techniques that price the total product and which are covered in this paper are Gabor-Granger, price sensitivity measurement, monadic concept, brand-price trade-off, and simple discrete choice. Fuller profile discrete choice will be discussed briefly along with the simple discrete choice approach.
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Choosing the Best Pricing Techniques to Address Consumer Goods Challenges
Pricing the Total Product: Pricing the Product Individually vs. Pricing the Product Competitively
The vast majority of custom research pricing research falls into
Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more
Pricing is important when marketing a product. The determining factor for the pricing is the material, time to make, amount spent on marketing and promotion of the product. The goal in providing such a product that is moderately
When trying to determine the correct price, a number of factors must be considered: the market and its segments, the size of each segment, the ability to reach each segment, what distribution channels to target, whether to vary price by segment, the usefulness of promotional offerings, and whether the goal is to skim or penetrate each market.
This assignment focuses on branding, pricing, and distribution of Clear-Springs, Inc.’s product and service. In this assignment, a domestic and global product branding strategy was created and the optimum pricing strategy was determined and discussed in detail. An examination on how the company’s pricing strategy supports its branding strategy was compelled and discussed in detail. A distribution channel analysis identifying the wholesaler, distributor, and retailer relationships; which included any e-Commerce was prepared. A justification of whether or not a push or pull strategy will be used was
However, due to the rising competition and growing innovative efforts, a pricing strategy may need to be revised at some point to assure customer affordability and maintain customer loyalty. Quality is firmly identified with return. Low quality items and benefit decreases consumer loyalty and prompts to regular returns, while great items and administration can fulfill the client and lessen the quantity of profits. In the meantime, top notch items and administration merit high offering costs in light of the fact that higher costs flag better quality (Li, Xu, & Li,
A trip to the mall seems to be a rather easy task; however do we, as people, truly think of the amount of retail establishments we visit, the amount of work utilized to maintain the establishment, or the marketing strategies implemented at said retail establishments. Establishments, especially leading apparel stores, implement various types of pricing strategies, including sales and price reductions to grab the attention of consumers to generate business. Pricing is one of the most difficult elements of the marketing strategy. Pricing is difficult to determine due to the impact it may have on the companies, or retail establishments, revenue or profits. However, how does a company determine what type or pricing strategy to utilize for their company?
As is known, pricing is one of the most important steps for business plan which needs good research, calculations and formulations. There are different pricing strategies to put into effect due to the market and product conditions, such as premium pricing, penetration pricing, economy pricing, price skimming(Voice Marketing, 2012). These four pricing strategies are main pricing policies. They form the bases for the exercise. However there are other important approaches to pricing. These pricing strategies are: Psychological pricing, product line
The strategy for setting a product’s price often has to be changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition.
Pricing is an important factor that determines retailers' profitability. Among many success stories, the airline industry is regarded as one prominent example in which pricing optimization techniques have successfully resulted in increased revenues \citep{Phillips:05}. Other examples include electricity pricing, hotels and rental cars, etc. According to \cite{Sullivan:05}, companies that employ price optimization technique were able to raise their gross margin ranging from one percent to three percent, and in some cases up to ten percent. \cite{Elmaghraby:03} point out the availability of customer data along with decision support tools for analyzing such data as well as new technologies that make price changes easy as the driver for the development of dynamic pricing strategies. %Such strategies change prices as a function of both inventory level and time remaining, allowing the sellers to maximize potential profit with sophisticated price model and to eliminate excess inventory quickly in response to higher inventory levels.
Even though, there has been considerable diversity in the past modelling efforts, there are noticeable patterns of the models’ objectives and variables taken into account (Monroe and Mazumdar, 1988). The pricing models can be broadly classified into six groups (Monroe and Mazumdar, 1988): (1) single-period pricing models (2) dynamic pricing models (3) price promotion and discount models (4) product line pricing (5) price and other marketing-mix variables and (6) price and individual choices.
Quite often, consumers purchase goods and services based on their perceived need. Upon making the decision that a need is present and a solution is available consumers are more equipped to react to that need. Although previously perceived that consumers will normally accept prices as presented by suppliers that remains to not be the case. Consumers assess and process prices based on past purchases and other psychological process they went through previously such as persuasive marketing strategies, accessibility of the goods or services and possibly information gathered from prior purchasers of a product. There are countless options that are available to consumers. Consumers are then faced with the choice of choosing the product that best fulfills their need at that given point. Consumers who are knowledgeable regarding prices will be aware of the approximated price for products (Zhao, Zhao & Deng, 2015).
Price interacts with all other elements of the marketing mix to determine the effectiveness of each and of the whole. The objectives that guide pricing strategy should be a subset of the objectives that guide overall marketing strategy. Thus, it is probably wrong to view price as an independent element of marketing strategy or to assert that price, by itself, is a central element in the marketing mix.” (Webster, 1979)
Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).
The me sage is clear. We must strive even harder to find efficient and valid ways of monitoring demand and price elasticity. This paper reviews some of the current techniques that attempt to directly measure price elasticity. It does not discuss the use of elegant econometric models fitted to historical data; data which may have little relevance to the realities of today's marketplace. A new method is then presented, called Entry-Exit Demand Analysis. It is a refinement of previous techniques and an advance in terms of its face validity, its operational ease, and its efficiency. PREVIOUS MEASURES OF CONSUMER RESPONSE TO PRICE Most of the early published work on measuring consumer's subjective response to price assumed that two price limits exist. The upper limit is the price above which the product was judged to be "too dear" and by implication too expensive to purchase. The lower limit is the price below which the quality of the product was inferred to be suspect and by implication not worth the risk of purchasing. Stoetzel (1969) established these price points for various commodities in studies undertaken in France in the late 1940's. The focus was on a product group such as "a radio set" and not on a particular brand or item that could be examined and whose quality could be directly assessed. Two price acceptance curves were generated from a sample of consumers and the difference between these curves enabled the calculation of
Considering the product as a whole is relatively inexpensive, the price difference between competitors is rarely over $1.00; therefore, the customer base is not price sensitive and focuses more on convenience, services, and atmosphere. An increase or decrease in price should encompass little effect on market share; therefore, we will consider the perceived