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At the 2014 Canadean International Beer Strategies Conference in Rome, Mini Kalivianakis and Margot Pradon from SKIM presented "Common beliefs about pricing, Myth or Truth?" sharing price beliefs impacting marketing strategy in the beer industry. In their presentation, Mini and Margot: • Delivered insight on whether changing your pack size is a better idea than changing your price • Showcased commonly-made assumptions in pricing strategy across the market • Dispelled or confirm these myths, based on the knowledge gleaned from conducting over 200 pricing studies in over 25 countries • Provided insights about consumer price perceptions and their implications for your marketing strategy
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Common beliefs about pricing
Myth or Truth?
Price beliefs impacting
marketing strategy in the beer industry
Mini Kalivianakis | Margot Pradon
SKIM’s three pillars of expertise are: pricing and portfolio,
product innovation and communication research
200 pricing studies in the past 5 years
18
countries
7000
shopping
trips
500
products
45
categories
SKIM expertise in pricing
Set the right price: Strategies need
to be based on truths not beliefs
selling price operating profit! McKinsey & Company
Women are more price
sensitive towards beer
than men
Beer bottles have a
lower price elasticity
than beer cans, in
supermarkets
It’s better to decrease
pack size than to
increase price
Products belonging
to lower tiers are more
price elastic
than other tiers
Consumers are
more sensitive to price
increases on large
formats
Consumers in
emerging markets are
more price sensitive
than consumers in
developed markets
Price Beliefs: True or False?
Pricing belief 1
Consumers in emerging markets are more price
sensitive to beer than consumers in developed
markets
Example:
Raising the price of beer bottles in Nigeria will
result in a greater volume loss than raising the
price of beer bottles in the United States
Behind the Myth
Consumers in developing countries have less
money to spend.
Therefore they are more focused on price,
hence they are more price sensitive.
Pricing belief 1
Consumers in emerging markets are more
price sensitive to beer than consumers in
developed markets
TRUE OR FALSE?
FALSE!
Consumers in developing markets are
less price sensitive to beer than those in
developed markets
-1.31
-0.89
Average elasticity to up-pricing
Developed Countries
Developing Countries
more choice available in developed
countries, driving higher PE: more switching
choice
consumption of premium brands
for status in developing countries, driving lower PE: keep buying higher
priced brand to maintain status
lower quality perceptions in developing countries is
driving lower PE: keep buying higher priced
brands because do not trust quality of
alternatives
Explanation
Increase quality perceptions and brand equity
to decrease price sensitivity
SKIM’s recommendations
Pricing belief 2
Women are more price sensitive
towards beer than men
Example:
Raising the price of beer bottles will result in a
greater volume loss amongst women than
amongst men
Behind the Myth
Women are often in charge
of household budget, and hence more price sensitive
Men shop mostly for products they are personally
involved with, hence are less price sensitive.
Pricing belief 2
Women are more price sensitive
towards beer than men
TRUE OR FALSE?
FALSE!
Looking at beer, there is no difference in
price sensitivity between men and women
-1.05
-1.05
Average elasticity to up-pricing
Men
Women
Pricing belief 3
Beer bottles have a lower price elasticity than
beer cans, in supermarkets
Example:
Raising the price of beer bottles will result in a
smaller volume loss than raising the price of
beer cans
Behind the Myth
Bottles are more premium than cans, and
therefore they have a lower price elasticity
Pricing belief 3
Beer bottles have a lower price elasticity than
beer cans, in supermarkets
TRUE OR FALSE?
FALSE!
-0.8
-1.3
Cans
Bottles
Average elasticity to up-pricing
Beer bottles are more price elastic
than beer cans
Cans
Bottles
more switching possibilities for
beer bottles buyers is driving
higher PE
no cheaper alternative for
beer cans, driving lower PE
Explanation
SKIM’s recommendations
Consider the price architecture of your whole portfolio
Pricing belief 4
It is better to decrease pack size
than to increase price
Decreasing pack size will result in less volume
loss than increasing price
Example:
Behind the Myth
Consumers notice less size changes than
price changes
Pricing belief 4
It is better to decrease pack size
than to increase price
TRUE OR FALSE?
TRUE and FALSE
-15%
-10%
-5%
0%
5%
10%
15%
20%
-10% 10%
Chan
ge in d
em
an
d
Change in price per litre (executed by shelf price or pack size)
Change pack size
Change price
Consumers are more sensitive to size
changes than to price changes
Implications
easier to change price than size
smaller sizes create more switching
opportunities, due to higher purchase
frequency
Introducing smaller sizes poses risk of decreasing
consumption volume
SKIM’s recommendations
Increase prices instead of decreasing sizes, but
be careful to not cross psychological price
barriers
Pricing belief 5
Products belonging to lower tiers are more price
elastic than products belonging to higher tiers
Increasing price on lower tier brands will result
in a bigger volume loss than increasing price on
higher tier brands
Example:
Purchasers of lower tier brands are driven by
price, and therefore more price sensitive
Behind the myth
Pricing belief 5
TRUE OR FALSE?
FALSE!
Products belonging to lower tiers are more price
elastic than products belonging to higher tiers
-0.87
-1.37
-1.03
Average elasticity to up-pricing
Medium tier brands are the most price
elastic
Low Tier
Medium Tier
High Tier
more switching
possibilities in
medium tier, driving
higher PE
high-end consumers
are more brand-loyal
and are less focused
on prices, therefore
less price sensitive.
Explanation
low-end consumer,
mainly driven by price
have little cheap
options to switch to
when uppricing,
driving lower PE
SKIM’s recommendations
There is more room to increase prices on low tier
brands than on medium tier brands
Pricing belief 6
Shoppers are more sensitive to
price increases on large formats
Example:
Increasing the price on a beer crate will result in
a greater volume loss than increasing the price
on a beer bottle
Large formats have higher prices, and price
increases are more easily noticed
Behind the myth
Increase: 20%
In absolute terms: + € 0,24
Increase: 20%
In absolute terms: + € 1,34
Pricing belief 6
Shoppers are more sensitive to
price increases on large formats
TRUE OR FALSE?
TRUE!
-1.0
-1.2
Average elasticity to up-pricing
Singlepacks
Multipacks
Multipacks of beer are more price elastic
than individual units
Explanation
increasing price
decreases the relative
size benefit
higher price
increases in absolute
terms
SKIM’s recommendations
Apply price increases on single units,
offer competitive prices on multi-packs
