Pricing strategies How to price the ultimate commodity

Pricing strategies How to price the ultimate commodity Dalina Ferrante Ralph Ho Yoji Suetsugu Daniel Hall Ernesto Ferrero Stian V Lofstad Group A 2 27 March 2003

Introduction

What will we present today? Our presentation is divided into two parts: 1. We will try to answer two questions: – – Why do people pay for water? What decides how much people will pay? 2. How do you price a new product in a mature market? – Using Kotler’s six-step pricing model to price a water product

Why pay for water? • Physical reasons – Convenience of carrying water in bottles – Tap water is polluted in some regions – You may be unaccustomed to the bacteria flow in the water – Other water sources may be unavailable

Why pay for water? (contd) • Psychological reasons – Fear of impure tap water – Spring water is conceived as healthy – Status from using certain brands • Consumer survey =>

Interview in the supermarket

Is bottled water all the same? CATEGORY SOURCE I. Spring Natural Spring II. Treated Natural Spring or Artesian (well) III. Tap Processed Municipal BRANDS

How is tap water processed? The Service The Process Municipal Processing + • Reverse Osmosis • Carbon Filtration • Added Minerals The Product

The product Introducing Dasani

So what is Dasani anyway? 1. Produced by Coca-Cola 2. Ranked 2 nd in the US 3. Unique character 4. “State-of-the-art” bottling techniques

How to price Dasani in France? 1. Pricing objective 2. Demand 3. 4. 5. 6. Costs Competitors’ offers Pricing method Final price

1. Pricing objective VALUE Where should Dasani be priced? PRICE

3. Costs Quick Revision on Costs…. • Fixed Costs (High) • Variable Costs (Low) • Total Costs (Low) • Average Costs (Very Low)

2. Demand Prestige Good - Dasani D P Q

4. Competitors’ offer Direct competitors: bottled-water brands 0. 57 1 Liter bottle (6 ltr bundle-price) 0. 17 €/liter Price range 0. 17～ 0. 57 €/liter

4. Competitors’ offer (cont’d) 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

5. Pricing method • Perceived-value pricing – Educate customers about the value of Dasani • Quality: = or > • Price : < • Psychological pricing – Set price higher than that of water filtration • Higher price may imply higher quality • Avoid mixing the image with water filtrations

6. Final price Price 0. 17 1 Liter bottle (6 ltr bundle-price) Psychological pricing 0. 08 Perceived pricing Value

Conclusion • Price is the only component of the component mix affecting revenues • To price a commodity, brand status must be achieved • Kotler’s six steps provide a good framework • Price must be flexible and adjustable

Questions?

Backup slides

World Consumption

Cost Structure Miscellaneous Production Raw Material

Estimating Demand Actual % Potential Population …. . Bottom Up

Charts Pricing objective Demand Costs Competitors’ offer Pricing method Final price

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