Pricing strategies How to price the ultimate commodity Dalina Ferrante Ralph Ho Yoji Suetsugu Daniel Hall Ernesto Ferrero Stian V Lofstad Group A2 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 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 Psychological reasons –Fear of impure tap water –Spring water is conceived as healthy –Status from using certain brands Consumer survey => Consumer survey =>

Interview in the supermarket

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

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

The product Introducing Dasani

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

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

1. 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. Costs

Prestige Good - Dasani P Q 2. Demand D

bottled-water brands Direct competitors: €/liter Price range 0.17 ～ 0.57 €/liter 1 Liter bottle (6 ltr bundle-price) 4. Competitors’ offer

Substitutes: tap filters, water filtration € (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 (cont’d)

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

6. Final price Price Psychological pricing 0.08 Perceived pricing Value Liter bottle (6 ltr bundle-price)

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

Questions?

Backup slides

World Consumption

Cost Structure Raw Material Production Miscellaneous

Estimating Demand …..Bottom Up Population Potential Demand Actual %

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

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