Pricing Pricing strategiesstrategies

How to price How to price the ultimate the ultimate commoditycommodity

Dalina FerranteRalph HoYoji SuetsuguDaniel HallErnesto FerreroStian V Lofstad

Group A227 March 2003

IntroductionIntroduction

What will we present today?What will we present today?

Our presentation is divided into two parts:Our presentation is divided into two parts:

1.1. We will try to answer two questions:We will try to answer two questions:– Why do people pay for water?Why do people pay for water?– What decides how much people will pay?What decides how much people will pay?

2.2. How do you price a new product in a mature market?How do you price a new product in a mature market?– Using Kotler’s six-step pricing model to price a water Using Kotler’s six-step pricing model to price a water

productproduct

Why pay for waterWhy pay for water ??

• Physical reasonsPhysical reasons– Convenience of carrying water in bottlesConvenience of carrying water in bottles– Tap water is polluted in some regionsTap water is polluted in some regions– You may be unaccustomed to the You may be unaccustomed to the

bacteria flow in the waterbacteria flow in the water– Other water sources may be unavailableOther water sources may be unavailable

Why pay for water? Why pay for water? (contd)(contd)

• Psychological reasonsPsychological reasons– Fear of impure tap waterFear of impure tap water– Spring water is conceived as healthySpring water is conceived as healthy– Status from using certain brandsStatus from using certain brands

• Consumer survey Consumer survey =>=>

Interview in the Interview in the supermarketsupermarket

Is bottled water all the Is bottled water all the same?same?

CATEGORYCATEGORY

I. SpringI. Spring

II. TreatedII. Treated

III. TapIII. Tap

SOURCESOURCE

Natural SpringNatural Spring

Natural Spring or Natural Spring or Artesian (well)Artesian (well)

Processed Processed MunicipalMunicipal

BRANDSBRANDS

How is tap water How is tap water processed?processed?

The ServiceThe Service The ProductThe ProductThe ProcessThe Process

Municipal Processing +Municipal Processing +

• Reverse OsmosisReverse Osmosis

• Carbon FiltrationCarbon Filtration

• Added MineralsAdded Minerals

The productThe product

Introducing Introducing DasaniDasani

1.1.Produced by Coca-ColaProduced by Coca-Cola

2.2.Ranked 2nd in the USRanked 2nd in the US

3.3.Unique characterUnique character

4.4.““State-of-the-art” State-of-the-art” bottling techniquesbottling techniques

So what is Dasani anyway?So what is Dasani anyway?

How to price Dasani in How to price Dasani in France?France?

1.1. Pricing objectivePricing objective

2.2. DemandDemand3.3. CostsCosts

4.4. Competitors’ Competitors’ offersoffers

5.5. Pricing methodPricing method

6.6. Final priceFinal price

1. Pricing objective1. Pricing objective

PRICE

VALUE

Where should Dasani be priced?

Quick Revision on Costs….

• Fixed Costs (High)

• Variable Costs (Low)

• Total Costs (Low)

• Average Costs (Very Low)

3. Costs3. Costs

Prestige Good - Dasani

P

Q

2. Demand2. Demand

D

bottled-water brandsDirect competitors:

0.17

0.57

€/liter

Price range 0.17 ～ 0.57 €/liter

1 Liter bottle(6 ltr bundle-price)

4. Competitors’ offer4. Competitors’ offer

Substitutes: tap filters, water filtration

€ 17.99 (including one filter for 100 liter) € 5 per additional filter for 100 liter

Assume we use 400 liters (Person average consumption/year )=€ 0.08 /liter

4. Competitors’ offer 4. Competitors’ offer (cont’d)(cont’d)

5. Pricing method5. Pricing method• Perceived-value pricingPerceived-value pricing

– Educate customers about the value of Dasani Educate customers about the value of Dasani •Quality: = or >Quality: = or >•Price : <Price : <

• Psychological pricingPsychological pricing– Set price higher than that of water filtrationSet price higher than that of water filtration

•Higher price may imply higher qualityHigher price may imply higher quality•Avoid mixing the image with water filtrationsAvoid mixing the image with water filtrations

6. Final price6. Final pricePrice

Psychological pricing

0.08

Perceived pricingValue

0.17

1 Liter bottle(6 ltr bundle-price)

ConclusionConclusion

• Price is the only component of the Price is the only component of the component mix affecting revenuescomponent mix affecting revenues

• To price a commodity, brand status To price a commodity, brand status must be achievedmust be achieved

• Kotler’s six steps provide a good Kotler’s six steps provide a good frameworkframework

• Price must be flexible and adjustablePrice must be flexible and adjustable

QuestionsQuestions??

Backup slidesBackup slides

World ConsumptionWorld Consumption

Cost StructureCost Structure

Raw Material

Production

Miscellaneous

Estimating DemandEstimating Demand…..Bottom Up

Population

Potential

Demand

Actual %

ChartsCharts

Demand

Pricingobjective

Finalprice

Pricingmethod

Competitors’offer

Costs

Bloopers – it’s not easy Bloopers – it’s not easy making making videos…videos…