principles of international marketing

8/8/2019 principles of international marketing

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PRICING STRATEGY

OFPROCTER & GAMBLE

PRESENTED BY:

ABHISHEK CHAKRABORTY

ANU SHRIVASTAVA

NIDHI BHALLA


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PRICE DETERMINATION IS A KEYRESPONSIBILITY IN ANY ORGANIZATION AND THESTAKES AT GETTING IT RIGHT ARE VERY HIGHFOR ANY ENTREPRENEUR. ONE NEEDS TO TAKEINTO ACCOUNT A HOST OF FACTORS BEFORENARROWING DOWN ON NOT JUST THE METHODTHAT THE COMPANY WOULD FOLLOW IN THELONG TERM FOR ITS PRICING DECISION BUTALSO FOR THE ACTUAL SHORT TERM-REAL TIME-

PRICE. ITS ALL ABOUT BEING COMPETITIVE INTHE MARKET TODAY WITH AN EYE ON THEFUTURE.


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PRICING OBJECTIVECURRENT PROFIT MAXIMIZATION

CURRENT REVENUE MAXIMIZATION

MAXIMIZE QUANTITY

MAXIMIZE PROFIT MARGIN

QUALITY LEADERSHIP

PARTIAL COST RECOVERYSURVIVAL

STATUS QUO


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THE SCENARIOIn the early 1990's Procter & Gamble made dramatic and

long-term changes in its pricing and promotion strategy.

Procter & Gamble (P&G), a leading consumer packagedgoods producer, instituted a "value pricing strategy" during

which it boosted advertising while simultaneously curbing

its distribution channel deals (in-store displays, trade deals),

and significantly reducing its coupon promotions. This

grand experiment leads us to a whole host of questions.What impact did the strategy have on brand loyalty? How

did competitors respond? What was the "bottom line"

impact on market share?


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Procter & Gamble made dramatic and long-term

changes in its pricing and promotion strategy

during which it boosted advertising whilesimultaneously curbing its distribution channel

deals (in-store displays, trade deals), and

significantly reducing its coupon promotions.


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UNDERSTANDING:-

WHAT INSPIRED P&G TO INITIATE THIS

VALUE PRICING STRATEGY?

WHAT WERE THE GOALS OF VALUE

PRICING?

WHAT WAS THE COMPETITIVE REACTION?


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WHAT WAS THE TOTAL IMPACT ON P&G?

WHAT HAPPENED TO P&GS THEORY THAT

PRICE PROMOTIONS REDUCE LOYALTY?

WHAT ARE THE EFFECT OF THE

COMPETITIVE RESPONSE?


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WHAT INSPIRED P&G TO INITIATE THIS VALUE

PRICING STRATEGY?

First was logistical efficiency, and

Second, P&G was concerned with the impact

of promotions on brand loyalty.


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WHAT WERE THE GOALS OF VALUE

PRICING?

First, it sought to improve efficiency. The

administrative and production costs for promotions,

deals, and coupons were becoming increasinglyexpensive and cumbersome for P&G, distributors,

and retailers.

Second, since the theory was that coupons and

deals only invited brand switching and destroyed

brand loyalty, cutting back on deals should leave

P&G with a stronger brand franchise.


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WHAT WAS THE COMPETITIVE

REACTION?During the same time period, the overall

competition's (including companies such as

Colgate, Unilever, and Gillette) net price paidincreased 10%, advertising increased 6.3%, deals

increased 13.1%, and coupons decreased 17.1%. Of

the three competitors, only Gillette lowered prices

and it increased coupons use by 127.6% -- far morethan Colgate. Overall, the competition did not

completely cooperate with P&G, but neither did it

take full advantage in a mad grab for market share.


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WHAT WAS THE TOTAL IMPACT ON

P&G?P&G's Value Pricing Strategy showed no change in share of requirements orcategory usage, but it did end up with a reduced penetration rate, which declined16%. This was because the cut in promotions resulted in fewer consumersbuying P&G brands, and neither the cut in promotions nor the increase inadvertising had any appreciable effect on SOR(Share of Requirement). Overall,

P&G's market share decreased 16%. Although P&G lost market share, it ispossible that its profits remained stable or even increased. It lost 16% of share,but made up for this through increased prices 20%, a lower cost of good sold,and efficiencies in production.

However, the increase in advertising expenditures may have wiped out most of

the cost savings. Despite gain or loss in profitability, P&G lost their strategic andesteemed position as the market leader in the consumer packaged goodsindustry. Traditionally, P&G had a sharp focus on market share leadership as theultimate metric of success, and yet for the first time since the 1950s, Colgateovertook P&G's Crest as the market leader.


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WHAT HAPPENED TO P&GS THEORY THAT PRICE

PROMOTIONS REDUCE LOYALTY?

Analyzing P&G's value pricing strategy shows thatpromotion cuts decreased penetration but did notdramatically increase loyalty. So, P&G's initial

beliefs were myths indeed. Additionally, increasingadvertising had little effect on market share. Whenyou are the market share leader the effect ofadvertising is diminished. Market share leadersalready have high awareness levels, and unlessyour advertising provides new compelling reasonsto buy (usually rooted in innovative productdifferentiation) there is little upside beyondmaintenance advertising.


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WHAT ARE THE EFFECT OF THE

COMPETITIVE RESPONSE?

The competitors reacted to P&G's strategy in

a way that cushioned P&G's loss - the

competition could have destroyed P&G, butP&G's losses were mostly self-inflicted. Of

the competitors, Gillette was the only one to

take a contrarian strategy and was fairlysuccessful. What do you do about sharp

competitors like Gillette? P&G decided to buy

this one.


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THE IMPACTFrom 1990 -1996, the net price paid by

consumers of P&G products increased 20.4%

(due to the decrease of coupons use by54.3%, and reduction in price cuts).

Meanwhile P&G increased advertising by

20.7%, and decreased channel deals by15.7%.


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MARKET PERFORMANCE

FRAMEWORK

PEN = PENETRATIONSOR = SHARE OF REQUIREMENT

USE = CATEGORY USAGE


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THE EXPERTS MICROSCOPEAnalyzing P&G's Value Pricing Strategy, Scott

Neslin and his colleagues investigated how their

strategy affected brand loyalty, whether theircustomer base increased or decreased, how the

competitors reacted, and how the strategy affected

market share.

To determine this, Neslin broke market share intothree components: Penetration (PEN), Share of

Requirement (SOR), and Category Usage (USE).


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PEN is the percentage of category buyers who buy the brandat least once; SOR measures brand loyalty and is expressed

as the percentage of category purchases in which the

consumer chooses the P&G product, among those who

purchase the P&G brand at least once;

USE is an adjustment for heavy and light users. In summary,

PEN is basically how many customers you have;

SOR is how frequently these customers buy the brand (a

measure of loyalty), and USE is whether the brand's

customers are disproportionately light or heavy users.


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Using the following formula you can equate market share:

Market Share = PEN x SOR x USE

One could conjecture that, with their new pricing strategy,

P&G's PEN would decrease, but SOR would increase more

than PEN and improve market share.

Neslin created separate regression models for PEN, SOR,

and USE. To achieve this, he used P&G's price, promotion,

coupon, and advertising expenditures and the competition's

price, promotion, coupon, and advertising expenditures as

independent variabes.


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He quantified these as the net price paid for an item, percent

sold on deal, percent sold with a coupon, and media

advertising dollars. Neslin was unable to include a specific

measure for distribution but distribution is captured

indirectly in the catch-all "error term" of the model. Neslin's

analysis shows that although price, advertising expense,

deals, and coupons (from both P&G and competitors) affect

PEN, SOR, and USE, price has the largest affect on the threemarket share components.

Most interestingly, advertising had little effect on all three

components, and deals and coupons actually a slightpositive impact on SOR. While this is contrary to the view

that promotions destroy brand loyalty, it may simply be due

to the fact that promotions keep consumers in the brand,

whether because they love the brand or because they can

buy it at a decent price.


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CONCLUSION / RESULTThe insights into P&G's grand experiment demonstrate to us

the importance of promotional pricing, and the diminished

power of mass advertising for high share players. Analysis

of P&G's value pricing strategy allows us to see how major

long-term policy changes, not short-term marketing mix

changes, affect market share and competitors' reaction.

Studying P&G's value pricing strategy offers the unique

opportunity for marketers to analyze major policy changes,obtain clearer understanding of how marketing mix changes

affect brands, learn about long-term impacts of marketing

changes, and inform future policy decisions.


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It is also important to note that success can

be measured more than one way. In essence,the P&G grand experiment may have beensuccessful when measured by profits, and atthe time those profits were being used to

invest in new innovations.However, for a company that traditionallymeasured success by volume (market share)

its value pricing strategy truly had a largeenough adverse impact on share that it waseventually abandoned.


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PRODUCT COVERAGE

AIR FRESHNER: FRBREZE AIR FRESHNER

ANTIPERSPIRANTS & DEODORANTS : OLD SPICE, SECRET

BABY & CHILD CARE : CHARMIN, CHILDRENS PEPTO, CLEARBLUE EASY, PAMPERS, PUFFS.

BATTERIES: DURACELLBODYWASH & SOAPS: CAMAY, OLAY, OLD SPICE, SAFE GUARD, ZEST.

COLOGNES : OLD SPICE

COSMETICS : COVER GIRL, MAX FACTOR

DISH WASHING: CASCADE, DAWN, IVORY, JOY.

ORAL CARE:- BRAUN, CREST, SCOPE, ORAL-B.

LAUNDRY AND FABRIC CARE:- TIDE, ERA, GAIN, BOUNCE.

HEALTH CARE: ALIGN, PEPTO-BISMOL, VICKS

HAIR CARE: AUSSIE, HEAD & SHOULDERS, INFUSIUM 23, PANTENE

SKIN CARE: BARUN, GILLETE COMPLETE SKINCARE, OLAY.


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principles of international marketing

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