Would you like to know if changing your pack size is a better idea than changing your price? Do you wonder if price is more important for some categories than others? During a fun, interactive session, we showcased some commonly made assumptions in pricing strategy, and dispelled or confirmed these myths, based on the knowledge gleaned through conducting well over 100 different pricing studies.

1. expect great answers
Common beliefs about pricing
Myth or Truth?
Price beliefs impacting marketing strategy in Consumer Goods

2. Pricing & Portfolio
management
Product development
Communication
2

3. SKIM expertise in pricing
•
SKIM has carried out more than 200 pricing studies in the past 5 years
18
3
7000
500
45

4. SKIM expertise in pricing
Set the right price: Strategies need to be based
on truths not beliefs
4

5. Price elasticity of demand
Price elasticity of demand
Demand
80
0
0
5
Price
80

6. 1
Frequently
purchased
products are
more price elastic
3
2
Women are more
price sensitive
than Men
It’s better to
decrease pack
size than to
increase price
Low Tier Products
=
High Price
Elasticity
4
6
Low Personal
Involvement
=
High Price
Elasticity
5
End

7. Pricing belief 1
Frequently purchased products are more price
elastic
7

8. Example:
Raising the price of soft drinks (high frequency
purchase) will result in a greater loss in volume
sold than raising the price of batteries (low
frequency purchase)
8

9. Example classifications:
1-2 weeks:
3-4 weeks:
Pads, laundry detergent, peanuts etc…
2-3 months:
Face cream, deodorant, mayonnaise etc..
> 3 months:
9
Cigarettes, soft drinks, baby wipes etc..
Epilators, fragrance, pregnancy tests etc..

10. Behind the Myth
Frequently purchased products represent a
higher portion of the spending budget. Moreover,
consumers are believed to be more price aware
about these products
10

11. True!
11

12. Frequently purchased products are most price
elastic
Frequency of purchase
Average price elasticity to up pricing
> 3 Months
-1.04
2-3 Months
-1.09
3-4 Weeks
1-2 Weeks
-1.34
0.0
-0.5
Price elasticity (P.E.)
12
SKU level
-1.11
-1.0
-1.5

13. So What?
Frequently purchased products: Increase price in
multiple steps (to change reference point)
Less frequent purchased products: Increase
price in one go
MENU
13

14. So What?
MENU
14

15. Pricing belief 2
Categories dominated by women are more price
elastic than male-oriented categories
15

16. Example:
If you increase the price of beer, you should
expect a smaller decrease in volume sold, than if
you increase the price of lipstick
16

17. Behind the Myth
Women are often in charge of household items
and budget.
Men shop for products they are personally
involved with
17

18. True!
18

19. Categories dominated by women are more price
elastic
Average sensitivity to up-pricing
Men
-0.61
-0.99
Brand level
SKU level
Women
19
-0.78
-1.15

20. So what?
Focus more on up-pricing for categories
dominated by men
For categories dominated by women: Look into
category involvement to determine level of
up-pricing potential
MENU
20

21. Pricing belief 3
The lower the personal involvement of a category,
the higher the price elasticity
21

22. Example:
Synchronized swimmers are less price sensitive
to waterproof make-up than they are to laundry
detergent
22

23. Behind the Myth
Consumers who are highly involved with a
product give more consideration to other aspects
of the product besides price
23

24. partly True, partly False
24

25. Consumers seem more tolerant of price
increases in categories about taking care of
themselves (beauty or health)
Price elasticity range by category
Personal Beauty and Hygiene
Consumer Health
Food
Household cleaning
-2.5
25
-2
-1.5
-1
-0.5
0
Personal Beauty and hygiene
Consumer Health
Food
Household cleaning

26. So what?
Positioning your product as self ‘pampering’ to
increase consumers’ involvement in your product
helps driving down price elasticity and enables
you to increase price
MENU
26

27. Pricing belief 4
It is better to decrease pack size than to increase
price
27

28. Example:
To increase the price per litre of bottled water
sold to Wimbledon spectators, it is better to
decrease bottle size than to increase prices
28

29. Behind the Myth
Price is believed to be more important aspect of
a product than size. Consumers tend to notice
changes in price while a decrease in size might
go unnoticed
29

30. False!
30

31. A size change is equally, or even less effective,
than a price change
20%
Change pack size
Change in demand
Change price
-10%
10%
-20%
Change in price per liter (executed by shelf price or pack size)
31

32. Why?
1.
2. Unit Volume and Purchase frequency
3. Switching behavior
33

33. So what?
In normal situations, price up. Down-sizing may
lead to more volume loss than expected due to
the smaller size of the pack
But be careful about crossing (potential) price
barriers!
MENU
34

34. Pricing belief 5
Products belonging to lower tiers (including private
label) are more price elastic than other tiers
35

35. Example:
Price is a more important element in the
selection of basic private label detergents than of
premium branded detergents
36

36. False!
37

37. Medium tier products are most price elastic
Average elasticity to up-pricing
Lower Tier
High Tier
Medium Tier
38
-1.03
-1.17
-1.21
SKU level

38. Why?
High
1.
Up trade to Medium tier not driven by price
2.
Medium tier up-pricing encourages consumers
to switch to high tiers
3.
Large number of SKUs within Medium tier
Medium

Low
39

39. So what?
1. Low | Medium | Premium
2. Medium Tier = Value added
3. Medium Tier Up Pricing
MENU
40

40. So what have we learned?
41

41. Keep an open mind about pricing
42

42. Contact us or follow us online!
Sarah Cunliffe | Project Manager
Mario Coelho | Project Manager
s.cunliffe@skimgroup.com
m.coelho@skimgroup.com
+44 (0) 208 222 7707
+44 (0) 208 222 7703
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