GILLETTE SEARCHING FOR THE RIGHT PRICE IN A VOLATILE MARKET

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<b>ĐỘI TRỜI ĐẠP ĐẤTLỚP : 49K01.1</b>

<b>GILLETTE : SEARCHING FORTHE RIGHT PRICE IN A</b>

<b>VOLATILE MARKET</b>

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pricing; Break-even pricing

II.Customer value-based

pricing^VI.^{New Product Pricing}^Strategy

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PriceI.

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PRICE

<small>Price = the total value that customers</small>

<small>exchange/give up to obtain the benefits ofhaving or using a product or service.</small>

The role of price:

<small>The only element in the marketing mix that produces revenueOne of the most flexible marketing mix elements</small>

<small>Create customer value and build customer relationships (part of overall value proposition)Tool for capturing customer value (impact a firm's bottom line).</small>

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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

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Customer value-based pricing

Good-value pricingValue-added pricingII.

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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 marketingprogram is set.

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<small>High-low pricing : charging higher prices onan everyday basis but running frequentpromotions to lower prices temporarily on</small>

<small>selected items.</small>

Good-value pricing

Offering the right

ombination of quality and good service

at a fair price

EDLP: charging a constant , everyday low price with few or no temporary

price discounts. Redesigning existing brands (more quality or the same quality for less)

Introducing less-expensive

versions of established, brand-name products

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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

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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

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The TRAC II

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

That innovation launched convincing consumers that more bladesmake for a better shave.

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The FUSION5

<small>The first razor system with five blades…</small>

<small>Beyond its ‘ more is better’ product developments, inpursuit of the perfect shave, Gillette’s each new razorgeneration with innovations such as pivoting heads,lubrication strips, and even vibrating mechanisms. And witheach product it has a different price.</small>

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The MACH3

The first three-blade cartridge—and againin 2006 with its

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

Break-even pricing

III.

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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

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The simplest valuation method.

Adding a standard margin to the cost of the product.

Cost - plus pricing

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<small>Sellers are often morecertain about costs than</small>

<small>More fair for bothbuyers and sellers.</small>

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<small>In Gillette's case, the cost ofmanufacturing a razor includes thematerials used to make the blade,handle, packaging, labor,manufacturing overhead, and otherrelated costs. Once the total cost isdetermined, Gillette will add a marginto cover the desired profit margin.Markup percentages may vary basedon factors such as market conditions,competition and perceived value of theproduct.</small>

Case study

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

Experience curve/Learning curve

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<small>It provides usefullcomparison informationThe height of the learning curve</small>

<small>can let people know what tasksthey should focus upon.</small>

<small>Has a number of advantages compared toits competitors -> can develop a</small>

<small>penetration pricing strategy by settinglow prices to attract many customers.</small>

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<small>Complacency: The</small>

<small>experienced curve makesmarket leaders complacent</small>

<small>with their achievements,companies become lessmotivated to continuously</small>

<small>innovate and reduce unitcosts because of theirThe growth of a learning</small>

<small>curve is only as good asthe mentor that helps it</small>

<small>to grow</small>

Limit

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Break-even pricing/ Target profit pricing

Setting a price to break even the production andmarketing costs for a product or setting a price tocreate a desired profit (target profit).

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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

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Break-even point chart

A chart showing total costs and estimated total revenue at different output levels

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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 productbased on the prices that competitors chargefor similar products.

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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

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The value of the company's products compared to competing products

+ The value of the company's products is lower than that of competitors => Lower prices 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 pricing strategies?

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

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

Evaluating your competitor’s pricing strategies

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As its company grows, Gillette has seen its decline come from a new generation of direct-to-consumer competitors, startups like Dollar Shave Club and Harry's have released quality blades at a fraction of the price, with the convenience of online shopping and home delivery, and Gillette also faces fierce competition from retailers, they sold each blade for $1, which left many customers seeing no reason to pay Gillette's high price. In response to challenges from DTC and store brands, Gillette has launched its own online service – currently called Gillette On Demand – that sells similar products at the same price with higher product quality. And it was quite successful when people who loved Gillette responded to purchasing through this channel.

Case study

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Price-Demand Relationship and Price Elasticity

V.

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Demand curve

<small>Each price the company might chargewill lead to a different level of demand=> Demand Curve </small>

<small>A curve that shows the number of units themarket will buy in a given time period, at differentprices that might be charged</small>

<small>Demand curves differ by:</small>

<small>-Type of product (normal vs luxury)</small>

<small>-Type of market ( Monopoly vs Competition)</small>

Demand curve

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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 demanded decreased from 100 to 87.What is the price elasticity of demand for CDs?

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NEW PRODUCT PRICING STRATEGY

Marketing-Skimming PricingMarketing-Penetration Pricing

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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

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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.

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Introducing new products at high prices while

reducing the prices of existing Gillette razors

Case study

Expensive price tag but attracted

a customer base

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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

Conditions of application

The market must be highly price sensitive so that a low price produces more market growth

Market-penetration pricing

Production and distribution costs must decrease as sales volume increases

The low price must help keep out the competition, and thepenetration pricer must maintain is low price position

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PRODUCT MIX PRICING STRATEGIES

Product line pricing

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Setting the price steps between various products in a product line

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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

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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$

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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

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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 morecompetitive

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products and offering the bundle at a reduced price

The combined price must be low enough to get them

to buy the bundle

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A straight reduction in price on purchases during a started period of time or of larger quantities

Forms of discount

<small>Cash discount</small>

<small>A price reductionto buyers who paytheir bills promptly</small>

<small>functions, such as selling,storing, and record</small>

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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

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 rewarddealers for participating in advertising ansales support programs

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Segmented pricing

Must be legal.

The selling of a product or service at two or more different prices even though this difference in price is not based on a difference in cost.

The costs of segmenting and reaching the

market cannot exceed the extra revenue

obtained from the pricedifference.

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<small>pay different prices</small>

<small>for the same</small>

<small>A firm varies itsprice by the season,the month, the day,</small>

<small>and even the hour</small>

Time-based pricing

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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}

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Zone pricing:

<small>Businesses determine manydifferent regions and customers inthe same region pay the same total</small>

<small>price, the more distant the zone,the higher the price.</small>

pricing strategies

FOB-origin pricing:

<small>Pricing in which goods are placedfree on board a carrier; the</small>

<small>customer pays the freight from thefactory to the destination </small>

Uniform-delivered pricing:

<small> Businesses charge the same priceplus freight to all customers,</small>

<small>regardless of their location.</small>

Basing-point pricing:

<small> Seller designates a certain</small>

<small>location/city as the basing point andfreight costs are charged for allcustomers from that location to the</small>

<small>customer's location.</small>

Freight-absorption pricing:

<small>The seller absorbs all or part of thefreight charges in order to get the</small>

<small>desired business.</small>

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Dynamic pricing

The continuous adjustment of prices to meet the characteristics and needs of individual customers and each situations

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

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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.

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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.

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Case Study Discussion

Based on the concept of consumer-value based

pricing, explain Gillette'srise to market dominance.

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• 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 interviews

have 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

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Thanks for listening

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