GILLETTE SEARCHING FOR THE RIGHT PRICE IN A VOLATILE MARKET

High-low pricing : charging higher prices onan everyday basis but running frequentpromotions to lower prices temporarily onselected items.Good-value pricingOffering the rightombination o

ĐỘI TRỜI ĐẠP ĐẤT

LỚP : 49K01.1

GILLETTE : SEARCHING FOR

THE RIGHT PRICE IN A

VOLATILE MARKET

II Customer value-based

pricing VI. New Product Pricing Strategy

I.

PRICE

Price = the total value that customers exchange/give up to obtain the benefits of having or using a product or service.

The role of price:

Gillette Fusion Proglide 5-blade razor Gillette Mach 3 Turbo 3-blade razor

CASE STUDY

For each product line, Gillette's marketing strategy has a different price point,

serving a variety of consumer groups

Customer value-based pricing

Good-value pricing Value-added pricing II.

Customer value-based pricing

Setting price based on buyers’ perceptions of value rather than on the seller’s cost.

Buyers’ perceptions of value (not the seller’s cost) = The key to pricing.

Price is considered along with all other marketing mix variables before the marketing program is set.

High-low pricing : charging higher prices on

an everyday basis but running frequent promotions to lower prices temporarily on

selected items.

Strategy

Good-value pricing

Definition

Offering the right

ombination of quality and

Introducing less-expensiveversions of established, brand-name products

Attaching value-added features and services to differentiate a company's offers and charging higher prices (rather than cutting

prices to match competitors)

Value-added pricing

Gillette has operated on value-added

pricing because the company has always focused on innovation, and adding advanced technology or more

features per new product

Case study

The TRAC II

The TRAC II—the first twin-blade shaving system.

That innovation launched convincing consumers that more blades make for a better shave

The FUSION5

The first razor system with five blades…

Beyond its ‘ more is better’ product developments, in pursuit of the perfect shave, Gillette’s each new razor generation with innovations such as pivoting heads, lubrication strips, and even vibrating mechanisms And with each product it has a different price.

The MACH3

The first three-blade cartridge—and again

in 2006 with its

Cost-based pricing and Types of Costs Experience curve;Cost-plus pricing;

Break-even pricing

III.

Establishing a price based on the costs for producing, distributing, and selling the product plus a reasonable return/profit ratio for the effort and risk.

Cost is an important component of a pricing strategy.

Cost-based pricing

The simplest valuation method.

Adding a standard margin to the cost of the product.

Cost - plus pricing

Sellers are often more

certain about costs than

about demand.

Simple competition when allMinimize price

businesses in the industry use this

In Gillette's case, the cost of manufacturing a razor includes the materials used to make the blade,

handle, packaging, labor, manufacturing overhead, and other related costs Once the total cost is determined, Gillette will add a margin

to cover the desired profit margin Markup percentages may vary based

on factors such as market conditions, competition and perceived value of the

product.

Case study

The drop in the average unit production cost that comes with accumulated production experience

per-Experience curve/

Learning curve

It provides usefull comparison information

The height of the learning curve can let people know what tasks

they should focus upon.

Has a number of advantages compared to

its competitors -> can develop a

penetration pricing strategy by setting

low prices to attract many customers.

Complacency: The experienced curve makes market leaders complacent with their achievements, companies become less motivated to continuously innovate and reduce unit costs because of their

experience.

Inability to measure its impacts

The learning curve isn’t

a reflection of future

potential.

The growth of a learning

curve is only as good as

the mentor that helps it

to grow

Limit

Break-even pricing/

Target profit pricing

Setting a price to break even the production and marketing costs for a product or setting a price to create a desired profit (target profit).

Formula to calculate break-even volume

Fixed costs: are costs that do not change compared to output, such as rent, salaries, construction machinery, etc.

The break-even volume is the price at which that unit or product is sold.

Variable costs per unit or product are prices where units or products are variable costs incurred to create a product or unit.

Formula to calculate volume to achieve target profit

Break-even point chart

A chart showing total costs and estimated total revenue

at different output levels

Competition - based pricing

Is setting prices based on competitors' strategies, costs, prices and products.

"What price should I sell at compared to competitors' prices?"

Consumers will judge the value of a product based on the prices that competitors charge for similar products.

During Gillette's decline period, Direct sales competitors and retailers launched new offerings to outpace the competition, typically when many users were unable to notice What's the difference between shaving with a MACH3 blade and shaving with a similar 3-blade blade sold under Walmart's Equate brand or Costco's Kirkland Signature brand With store brand prices falling to just $1 per blade, many customers have no reason to pay a high cost for Gillette's product.

Case study

The value of the company's products compared to competing products+ The value of the company's products is lower than that of competitors => Lowerprices and change customer perceptions to increase selling prices

+ The value of the company's products is higher than that of competitors =>Selling at high prices

How strong are your current competitors and what are their current pricingstrategies?

+ Many small competitors, selling at high prices => The company must apply lowerprices => Pushing competitors out of the market

+ Large competitors, selling at low prices => The company targets niche marketswith value-added products at higher prices

Evaluating your competitor’s pricing strategies

As its company grows, Gillette has seen its declinecome from a new generation of direct-to-consumercompetitors, startups like Dollar Shave Club andHarry's have released quality blades at a fraction ofthe price, with the convenience of online shopping andhome delivery, and Gillette also faces fiercecompetition from retailers, they sold each blade for $1,which left many customers seeing no reason to payGillette's high price In response to challenges fromDTC and store brands, Gillette has launched its ownonline service – currently called Gillette On Demand –that sells similar products at the same price withhigher product quality And it was quite successfulwhen people who loved Gillette responded to purchasingthrough this channel.

Case study

Price-Demand Relationship

and Price Elasticity

V.

Demand curve

Demand

Each price the company might charge

will lead to a different level of demand

=> Demand Curve

A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged

Demand curves differ by:

-Type of product (normal vs luxury) -Type of market ( Monopoly vs Competition)

Demand curve

Price elasticity

Definition: A measure of sentivity of demand to changes in price

When the price of CD increased from $20 to $22, the quantity of CDs demandeddecreased from 100 to 87.What is the price elasticity of demand for CDs?

Calculating a Percentage

The price increases from $20 to $22 Therefore % change = 2/20 = 0.1 (10%)0.1 = 10% (0.1 *100)

Quantity fell by 13/100 = – 0.13 (13%)Therefore PED = -13/10

Therefore PED = -1.3

Example:

MIXPRICINGSTRATEGY

NEW PRODUCT PRICING STRATEGY

Marketing-Skimming Pricing Marketing-Penetration Pricing

Setting a high price for

a new product to skim

maximum revenues

layer by layer from the

segments willing to pay

the high price.

MARKET-SKIMMING PRICING

Conditions of application:

The product’s quality and

image must support its

higher price, and enough

buyers must want the product at that price.

The costs of producing a smaller volume cannot

be so high that they cancel the advantage of

charging more.

Competitors should not

be able to enter the market easily and undercut the high

price.

Introducing new products

at high prices while reducing the prices of existing Gillette razors

Case study

Expensive price tag but attracted

a customer base

Setting a low price for a new product a large number of buyers and a large market share (penetrate the market quickly and deeply)

The high sales volume results in falling costs, allowing companies to cut their prices even further

PRODUCT MIX PRICING STRATEGIES

Product line pricing Optional-product pricing Captive-product pricing By-product pricing

Product bundle pricing

Setting the price steps between various products in a product line

based on

Product line pricing

Cost differences between the products

Customer evaluations

of different features

Competitors’

prices

Case study

14.49$ 12$

The Increase and Various price through out Gillette's Products

5$

Optional product pricing

The Pricing of optional or accessory products alone with a main

product.

Companies must decide

Which items to include in the base

price

Which to offer as options

By selling new, innovative products only through the Gillette On Demand website, Gillette Proglide 5+1 Power product is priced up to $200 plus an additional $25 for a 6-pack replacement blades

Case study

25$

Captive-product pricing

Setting a price for products that must be used

along with a main product

Finding the right balance between the main

product and captive product prices

2 parts

In the case of services

The price of the service is broken into:

A fixed fee + a variable usage rate

Seeks a market for by-products

Having no value and getting

rid of them is costly

Turn out to be profitable Offset the costs of disposing of them

Make the main product’s price more

competitive

bundle at a reduced price

The combined price must

be low enough to get them

to buy the bundle

PRICING ADJUSTMENT STRATEGY

Discount Allowance Segmented pricing Psychological pricing Reference pricing

Promotional pricing Geographical pricing Dynamic pricing Personalized pricing

A straight reduction in price on purchases during

a started period of time or of larger quantities

Trade discount

A price reduction to channel members who perform certain functions, such as selling, storing, and record

keeping

Seasonal discount

A price reduction to buyers who buy merchandise or services out of season

Promotional money paid by manufacturers to retailers in return for

an agreement to feature the manufacturer's products in some way Another type of listed price reduction

Forms

Trade-in allowance:

A discount if returning an old product when

purchasing a new product Usually applied

to durable goods (cars, cameras)

Promotional allowance:

Payments or price reductions to reward dealers for participating in advertising an sales support programs

The costs of segmenting

and reaching the market cannot exceed the extra revenue obtained from the price

difference.

to differences in their costs

Company charges different prices for different locations, even though the cost

of offering each location is the same

Different customers

pay different prices

for the same

product or service

Forms of segmented

Time-basedpricing

Geographical pricing

Setting prices for customers in different areas

within a country or around the world.

Decision: High prices for far away customers to offset shipping costs Prices are the same for all customers, regardless of location

Zone pricing:

Businesses determine many

different regions and customers in

the same region pay the same total

price, the more distant the zone,

the higher the price.

Geographical pricing strategies

FOB-origin pricing:

Pricing in which goods are placed

free on board a carrier; the

customer pays the freight from the

factory to the destination

Uniform-delivered pricing:

Businesses charge the same price plus freight to all customers, regardless of their location.

Basing-point pricing:

Seller designates a certain location/city as the basing point and freight costs are charged for all customers from that location to the

Dynamic pricing

The continuous adjustment of prices

to meet the characteristics and

needs of individual customers and

each situations

Eg:

Online shopping ( real-time pricing ) Bidding on auction sites (eBay )

Pricing that considers the psychology of prices, not simply economic factors.

The price says something about the product.

When purchasing, consumers do not have enough skills, resources, capabilities, and information necessary to evaluate all products.

Assessing the buying situation Sellers can influence or use consumer’s prices when setting prices

Promotional pricing

Temporarily pricing a product below the listed price, or sometimes even lower

than the cost, for the purpose of increasing short-term sales (creating

excitement and urgency for product purchases)

Personalized pricing

Adjusting prices in real time to fit individual customer's needs,

situations, locations, and purchasing behaviors.

Case Study Discussion

Based on the concept of consumer-value based pricing, explain Gillette's rise to market dominance.

• Understanding the customer: Gillette's marketing team has completely shifted its focus to understanding

customers and the obstacles they face every day Extensive market researching and focusing group interviewshave highlighted the key issues consumers in each market face when shaving Once a brand understands what

customers want, delivering that product becomes easy

• Besides offering a customized product, the brand also ensures that the product is affordable for the consumers

• Never be afraid to innovate and invest The better customized the product, the higher the consumer satisfaction

and the higher the revenue

Answer

Thanks for listening