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Colgate-Palmolive

Colgate-Palmolive. 1.What changes are taking place in the toothbrush category ? Assess Colgate-Palmolive’s competitive position. 2. How is the tooth brush market segmented? 3.What are the arguments for launching precision as: A. niche product ? B. A mass market product?

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Colgate-Palmolive

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  1. Colgate-Palmolive 1.What changes are taking place in the toothbrush category ? Assess Colgate-Palmolive’s competitive position. 2. How is the tooth brush market segmented? 3.What are the arguments for launching precision as: • A. niche product ? • B. A mass market product? 4. What should they do?

  2. PRICE AND PRICING STRATEGIES What is the Role of Price? 1. cover costs 2. positioning variable (cue to quality) 3. incentive to channel members 4. barrier/gateway to entry 5. demand manager

  3. Figure 8-2 Pricing Strategy Process Template

  4. Figure 8-3 Pricing Orientations

  5. Cost Based Strategies • Cost plus • Break-even • Target return • Floor Pricing • Penetration Pricing • Low-Cost Leader Pricing • Competitive Bid Pricing • Harvest Pricing

  6. Competitor-based market structure price leadership

  7. Demand-basedStrategies - demand backward - marginal cost = marginal revenue   % Δ Quantity elasticity = ----------------- % Δ Price

  8. Elasticity Estimation: - test marketing - consumer surveys - awareness - market structure • product importance • conjoint analysis

  9. Ease of Customer Switching Product Differentiation Cost of Switching Suppliers Customer Loyalty Ease of Switching Index Forces that Shape Price Elasticity • Supply/Demand Conditions • Supply Conditions • Demand Conditions • Substitutes • Supply/Demand Index

  10. Price Elasticity and Performance

  11. Market-Based Pricing Strategies • Skim Pricing • Value-in-Use Pricing • Market-Based Value Pricing • Segment Pricing • Strategic Account Pricing • Most favored customer

  12. Pricing Strategies and the Product Life Cycle

  13. Price-Quantity Discounts QuantityPrice 1 - 19 5,795 20 - 49 5,095 50 - 99 4,095  price for 18 units = $ 104,310  price for 20 units = $ 101,900 price for 45 units = $ 229,275  price for 50 units = $ 204,750

  14. Break-even Analysis • Determines the number of units that need to be sold in order to break even Breakeven volume is the volume needed to cover fixed expenses on the basis of a particular margin per unit • Break-even Volume = Fixed Expenses/ Margin per Unit

  15. List Price Less: Discounts Quantity Seasonal Cash Less: Allowances Trade-ins Damaged goods Product: Physical Service Assurance of quality Repair facilities Packaging Credit Premiums Place / availability Price to a consumer Price equals Something

  16. List Price Less: Discounts Quantity Seasonal Cash Trade /functional Less: Allowances Advertising Push money Damaged goods Product: Branded Guaranteed Warranted Repair facilities Convenient Packaging Place availability Margin (Price) Promotion Aimed at consumers Price in the Channel Price equals Something

  17. Channel pricing Manufacturer Cost = $ 21.60 = 90% Markup = $ 2.40 = 10% Selling Price = $24.00 = 100%

  18. Channel pricing Wholesaler Cost = $ 24.00 = 80% Markup = $ 6.00 = 20% Selling Price = $30.00 = 100%

  19. Channel pricing Retailer Cost = $ 30.00 = 60% Markup = $ 20.00 = 40% Selling Price = $50.00 = 100%

  20. Taxonomy of Strategies Objective of Firm

  21. Segments and Search Costs • Random Discounting • Maintain high price regularly • Randomly cut price • The uninformed will buy randomly –usually high • The informed will wait • Hence, we don’t lose either

  22. Segments and low reservation • Periodic Discounting • Start at high price • Lower price (predictably) over time • High reservation folks buy early • Low reservation people buy later

  23. Segments and transaction costs • Second market Discounting • Requires excess capacity over regular market • Fixed costs covered in original market • Generics • Store brand • dumping

  24. Competition & search costs • Price signaling • Goods are produced at two quality levels • Experience or credence search properties • Three strategies • Produce low quality – sell low price • Produce high quality – sell high price • Produce low quality – sell high price

  25. Competition and reservation • Penetration / experience pricing • No threat of immediate entry • Gains from high volume • Amass market share

  26. Competition and Transaction costs • Geographic pricing • A combination of second market discounting and penetration • Usually the same price in two separate markets even though the costs differ.

  27. Product Line and Search • Image Pricing • Bring out an identical product to first but with different name and higher price • Price signals quality to high search cost group • Use excess profits to subsidize other version of the product whose price can be lowered.

  28. Product line and reservation • Price bundling • Perishable products (no periodic discounting) • Can’t discriminate • Theater 1 Theater 2 • Movie 1 12 18 • Movie 2 25 10 • Charge 18 for movie 1; 25 for movie 2 • 28 for both

  29. Product line and reservation • Premium Pricing • Two versions of product • Make money on premium • Lose money on standard • Take advantage of economies

  30. Product Line and Special Transaction costs • Complementary Pricing • Captive pricing (razor and razor blades) • Two-Part Pricing (same as captive but for services) Mickey Mouse pricing • Loss leader pricing – reduces special transaction costs for many other products

  31. Break-even Market Share • Framework for judging potential profit and risk • Break-even Market Share = Break-even Volume * 100/ Market Demand

  32. Figure 8-13 Break-even Volume

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