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Jorge Polanco

Advanced Marketing Management Heinz Ketchup Case


RIT Saunders College of Business
03/07/2017

- Assess the Heinz Ketchup marketing teams approach to product line planning and
pricing decisions.
A

- Based on the information provided in the articles, Is it Time to Rethink Your


Pricing Strategy and How to Price Your Products (at the above link), is it time for
Heinz to rethink their pricing strategy? Support your position.

- How could Heinz use the ideas in the article Pricing to Create Shared Value in
their pricing strategy?

Get Clear about Making Money


The first step is to get real clear about what you want to achieve with your pricing
strategy: You want to make money.

The biggest mistake many businesses make is to believe that price alone drives sales.

Under pricing. Pricing your products for too low a cost can have a disastrous impact on
your bottom line

"Many businesses mistakenly under price their products attempting to convince the
consumer that their product is the least expensive alternative hoping to drive up volume;
but more often than not it is simply perceived as 'cheap.

How to Price Your Products: Factors to Consider


Know Your Customer
Undertaking some sort of market research is essential to getting to know your customer,
Willett says.

Know Your Costs


A fundamental tenet of pricing is that you need to cover your costs and then factor in a
profit. That means you have to know how much your product costs.

Know Your Revenue Target


You should also have a revenue target for how much of a profit you want your business to
make.

Know Your Competition


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It's also helpful to look at the competition -- after all, your customer most likely will, too.
"Are the products offered comparable to yours?

Know Where the Market Is Headed


Clearly you can't be a soothsayer, but you can keep track of outside factors that will
impact the demand for your product in the future.

Your product price should vary depending on a number of factors including:


What the market is willing to pay.
How your company and product are perceived in the market.
What your competitors charge.
Whether the product is "highly visible" and frequently shopped and compared.
The estimated volume of product you can sell.

When to Raise Prices -- and How


You should always be testing new prices, new offers, and new combinations of benefits
and premiums to help you sell more of your product at a better price
But there is a right way and a wrong way to raise prices. You don't want to alienate your
existing customer base by raising prices too steeply, especially during a recession.
gradually increase your price 5 to 10 percent

By Elizabeth Wasserman, How to Price Your Products, http://www.inc.com/guides/price-


your-products.html

Evaluating the pricing capability grid it can be determined that the prices of products with
low margin are competition based. Also this prices have a week price realization,
meaning theres a price leakage since discounts/trade allowances are so high. At the
moment, since competition from private labels is so strong, Heinz price should occupy at
least the Zone of Good Intentions where price realization is medium and it stills a
competition based price, however a combination of the price orientations is
recommended. Costs should be taken in to consideration, a price that generates an
attractive margin is recommended and the company can take advantage of the brand
perceived value by customers. Then, it is recommended to gradually move towards the
Pricing power zone increasing prices.

What is Price Realization?


Posted on June 7, 2009 by Rags Srinivasan
https://iterativepath.wordpress.com/2009/06/07/what-is-price-realization/

How can we realize higher prices despite the competition?


How can we create additional customer value and increase their willingness to pay?

Set a price close to the value the product delivers

How to rethink the pricing strategy:


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1. How does the company set the prices?


2. Price realization
3. Change in the company culture.

Andreas Hinterhuber and Stephan Liozu, is it time to rethink your pricing


strategy? 2012

Case:
Is a symbol of the american innovation and prosperity. The product was everywhere,
always served with american favorites like hotdogs, hamburgers and fries. It was
distributed by all major grocery retailers in the US and many around the world. 95% of
US houses had ketchup, over half of those chose Heinz.

Since 1960, heinz was the leader of the ketchup category, advertising it as a Thick &
Rich leader in product quality.

Heinz tomato ketchup was the flagship brand of the company, its portfolio of 15 brands
generated around 10 billion in annual sales, more than 100 million per brand. Ketchup
represented over 30%.

The company was agresive in developing and acquiring brands that catered to tastes
around the worls.

North america, still represented the largest market for their products, about half of the
worldwide sales in 2007.

In 2007, it wa a saturated market in a mature category. They had relied for many years on
innovations in packaging, promotion, and pricing to maintain modest growth and to
provide value to shareholders.

High oil and natural-gas prices had significant cost implications for the ketchup category
starting in 2004.

Their most notably competitor was Hunts but its primary competitors were retailers that
developed their own private- label products. Retailers could acheive better margins by
devoting shelfspace to their own products. Heinz had preasure to offer trade deals to
retailers, cutting prices substantially on the most popular products, undercutting margins
and profitability.

Plastic bottle and red rocket (introduction of new presentations


Increased sales.

Red Rocket was successfull but it resulted in some problems. To block private labels,
heinz ran seven anual trade promotions discounting red rocket to 99 cents. When retailers
reduced their prices they would hope to increase volumes. Retailers supported this
promotions giving heinz spaces on their flyers. The problem was that this trained
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customers to wait until the 99 cent promotions, over 50% of retail volume was sold on
promotion. Retailers realized this promotion was good for blocking wallmart EDLP
promotion, which made heinz extend the red rocket discount periods.

Taking advantage of how people consumed the product was a tactic used by heinz in
developing innovations in packaging and promotions. They designed the EZ Squeeze
becasue people stored the botles upside down in order to empty them easier. It had a retail
price equal to the 24oz botle, but it was 20oz, this is a pricing strategy to get more
marging.

The challenge was delivering value that the customer was willing to pay for.

Customers wanted to make sure they were consuming the same ketchup, so the best way
was with a cleat bottle. Consumers preferred the upside-down botlle but sales did not
reflected that. It only represented 12% of the heinz business. Presumably because of the
launch of a similar peoduct by Hunts at the same time, the perfect squeeze.

the marketing team members began searching for another strategy for stimulating sales
through product innovation.

they looked to buyer behavior patterns to help guide innovations in packaging and
promotion. This is the rith thing, but pricing / trade allowance was wrong.

A modest increase in ketchup consumption seemed to result when people purchased


larger-size bottle.

Bigger packages need to have higher margins, because customers consume more when
using those, and are bought with less frequency. because ketchup was a storable product,
people in the tested focus groups were willing to purchase more ketchup at one time in
anticipation of future need, because of this, maybe people where willing to get more
packages.

Heinz would see sales and revenue growth if consumers could be persuaded to change
their behavior by purchasing larger bottles

Larger bottles were more difficult for consumers to handle and store, which reduced their
attractiveness (Maybe more small botles?) Giving them the option to choose.
Discounts only on larger bottlers?????

These bottles took up far more space on retail shelves and provided retailers with far less
margin on sales

Discounted prices on larger sizes induce consumers to switch, but restock was required
more constantly
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Heinz believed that promoting the very largest sizes (especially the Twin 50 oz.) was
unlikely to gain retail support.

Expanding shelfspace was not an option.

They need to increase profitability. Increasing sales of teir bigest margin products.
Customers developed a preference for the red rocket.

With the exception of the EZ Squeeze, products had between 18 and 34%, they both
should be priced different, the trade alowance is the thing taking money away.