Jeremy Hoyland

European Pricing ManagerPepsiCo Europe

The next 25 minutes, 13 slides and 10 pictures….

- What is “Pricing” all about ?

- Why bother looking at Price ?

- Why is a supplier talking about Pricing anyway ?

- What is Value based pricing and Value Progression ?

- How do you work out what the price should be ?

- Category price sensitivity and channel pricing

- A few challenges for you !

“The Value of Pricing”

What is Pack Price all about ?What is Pack Price all about ?What is Pricing all about?

Why is a supplier talking about In store Pricing anyway?

Why bother looking at Pricing?

0 5 10 15Ove

rhea

dMar

ketin

g

Volume

Price

operating profitmargin increasefor a 1%improvemmentin….

Source: PSL: Cross section of fmcg suppliers

“Price is what you pay, value is what you get”Value Pricing is about matching price with value

Value

Esteem

Differentiation

Image

Awareness

Availability

Adoption

Absolute Liking

Competition

Consistency

Product

Promotion

Emotion

For Shoppers, it is all about charging them no more than they are

willing to pay, but no less either.

Value should be progressive and needs to be fair.

288 @ £5

72 @ £2.50(£1.25 on offer)

2 x 72 @ £3.99

24 @ £1.39

2p per sheet

6p

4p

3p On average 23% of SKU’s have a

quantity surcharge. When Shopper’s

perceive this, it is the brand and not the

retailer that is blamed.

(Journal of Retailing studies)

So, how do you work out your Product Value ? Perceived Value Research….

What would be the What would be the

maximum price youmaximum price you

would consider would consider

paying for thispaying for this

product?product?

DemographicsDemographics

EndEnd

StartStart

What would be What would be

a fair price to pay a fair price to pay

for this product?for this product?

What would be What would be

An attractive price An attractive price

that would encourage that would encourage

you to buy more you to buy more

of this product?of this product?

Perceived Value is a simple and inexpensive test --- 3 basic questions per SKU ---

Perceived Value is a simple and inexpensive test --- 3 basic questions per SKU ---

PV / FairPV / FairPV / FairPV / Fair MaximumMaximumMaximumMaximum AttractiveAttractiveAttractiveAttractive

All Aided with structured price list

Look backwards with Econometric modelling

SIMULATION

% Regular

Price Change

Average

Weekly

Base

Sales (litres)

Average

Weekly

Base

Sales (value)

Average

Weekly

Manufacturer

Profit

Average

Weekly Retail

Margin

PEPSI 500ML PET SINGLE -4.0% 8.6% 4.2% -8.5% 4.2%

PEPSI 1,5L PET SINGLE 5.0% -9.3% -4.8% 8.9% -4.8%

COKE 330ML CAN 10PK 0.0% 0.0% 0.0% 0.0% 0.0%

COKE 500ML PET SINGLE 0.0% -0.4% -0.4% -0.4% -0.4%

COKE 1,5L PET SINGLE 0.0% -0.4% -0.4% -0.4% -0.4%

COKE 1,5L PET 2PK 0.0% 0.0% 0.0% 0.0% 0.0%

TOTAL -0.5% -0.3% -0.5% -0.3%

PEPSI -1.8% 0.7% -1.6% 0.7%

COKE -0.3% -0.4% -0.4% -0.4%

Item

Store level modelling allows us

to isolate and measure the

impact of price and promotion

activities on sales at store level

1 2 3 5 6 8 9 10 11 12 52#1

#4

#5

#67

#99

Weeks

Stores

Competitor activity

Competitor activity

Free GiftFree Gift

Price CutPrice Cut

MultibuysMultibuys

1 2 3 5 6 8 9 10 11 12 52#1

#4

#5

#67

#99

Weeks

Stores

Competitor activity

Competitor activity

Competitor activity

Competitor activity

Free GiftFree Gift

Price CutPrice CutPrice CutPrice Cut

MultibuysMultibuys

Or forwards, with Multiple Conjoint analysis

• Output provides the relative attractiveness of each SKU at different price points

• A model is then constructed that allows ‘What if?’ scenarios to be played, e.g.

Research gives an understanding of price sensitivity by pack but also category

AIG Grocery Elasticity Study, 2005-PCNA

-1,7 -1,2 -1,0-0,5

Elastic In-elasticHighly Elastic

HighlyIn-elastic

ModeratelyElastic

Super Premium Alcohol

-0,4

Saled Toppings

-0,4

Mouthwash-0,5

Condensed Soup-0,5

Household Cleaners

-0.8

Spaghetti Sauce -0,9

Chocolate Bars -1,0

Snack Nuts-1,1

FrozenBreakfast

-1.1

Baby Food -1,2

Red Wine -1.4

Butter -1,5

SaltySnacks

-1,6

Frozen Dinners

-1,7

Pet Food-1,9

CSDs -2,1

Ketchup -2,6

2L2L--2,12,1

24z6pk 24z6pk --2,32,3

12pk 12pk --2,22,2

24pk 24pk --3,03,0

20z 20z --1,11,1

What would you use your extra display for?

Or…

The more they see the more they buy...the more they buy the more they consume

100

50

10

CSD's

Toothpaste, Ketchup,

Light bulbs.

Avg. Purchase Quantity per Trip per Household (Oz)

Avg.

Da

ily C

on

sum

ption

pe

r H

H (

Oz)

Source: Syndicated data analysis - PCNA

Shoppers have a different perception of value by channel

US Pricing by channel for Coke cans.

0.00

0.50

1.00

1.50

2.00

2.50

Hyper Super Bakery Vending -

Uni

Gas Vending -

street

Newstand Airport Train

station

$US

Some questions for you ?

As a supplier…

- Do you know the value of your products by channel?

- Do you know which packs are the most sensitive to shelf price changes

- Is your value/pack progression fair?

- Which packs drive volume, revenue and profit?

And as a retailer…

- Which are the expandable categories and how are you supporting them?

- Are your supplier’s giving you Pricing insights and making Pack as well as Product recommendations?

What is Pack Price all about ?What is Pack Price all about ?Go Shopping more !!!

Jeremy Hoyland

European Pricing ManagerPepsiCo Europe