GILLETTE : SEARCHING FOR

THE RIGHT PRICE IN A

VOLATILE MARKET
ĐỘI TRỜI ĐẠP ĐẤT
LỚP : 49K01.1
KEY TERMS
Price-Demand Relationship and
I. Price V. Price Elasticity

Customer value-based New Product Pricing

II. pricing
VI. Strategy

Cost-based pricing and Types

III. of Costs VII. Product Mix Pricing
Experience curve;Cost-plus Strategy
pricing; Break-even pricing

IV. Competion-based Pricing Adjustment

VIII.
pricing Strategy
 I.

Price
 PRICE
DEFINITION
Narrow sense Broadly sense
Price = the amount charged for a Price = the total value that customers
product or service. exchange/give up to obtain the benefits of
having or using a product or service.

The role of price:

The only element in the marketing mix that produces revenue
One of the most flexible marketing mix elements
Create customer value and build customer relationships (part of overall value proposition)
Tool for capturing customer value (impact a firm's bottom line).
 CASE STUDY
For each product line, Gillette's marketing strategy has a different price point,
serving a variety of consumer groups

Gillette Fusion Proglide 5-blade razor Gillette Mach 3 Turbo 3-blade razor
245,000 VND 139,000 VND
 Customer value-based pricing
II. Good-value pricing
Value-added pricing
Customer value-based pricing

Setting price based on buyers’ perceptions of

value rather than on the seller’s cost.

Buyers’ perceptions of value (not the seller’s

cost) = The key to pricing.

Price is considered along with all other

marketing mix variables before the marketing
program is set.
 Good-value
pricing

Customer value-based
pricing
Value-added
pricing
 Good-value pricing
Introducing less-expensive
versions of established, brand-
name products
Strategy
Redesigning existing brands
Definition (more quality or the same
quality for less)
Offering the right
ombination of quality and
good service EDLP: charging a constant , everyday
at a fair price low price with few or no temporary
price discounts.
Include
High-low pricing : charging higher prices on
an everyday basis but running frequent
promotions to lower prices temporarily on
selected items.
 Value-added pricing

Attaching value-added features and services to differentiate a

company's offers and charging higher prices (rather than cutting
prices to match competitors)
Case study

Gillette has operated on value-added

pricing because the company has
always focused on innovation, and
adding advanced technology or more
features per new product
The TRAC II

The TRAC II—the first twin-blade shaving system.

That innovation launched convincing consumers that more blades
make for a better shave.
 The FUSION5
The first razor system with five blades…
Beyond its ‘ more is better’ product developments, in
pursuit of the perfect shave, Gillette’s each new razor
generation with innovations such as pivoting heads,
lubrication strips, and even vibrating mechanisms. And with
each product it has a different price.
The MACH3

The first three-blade cartridge—and again

in 2006 with its
 Cost-based pricing and Types of Costs
III. Experience curve;Cost-plus pricing;
Break-even pricing
 Cost-based pricing

Establishing a price based on the costs for producing,

distributing, and selling the product plus a reasonable
return/profit ratio for the effort and risk.

Cost is an important component of a pricing strategy.

Cost - plus pricing

The simplest valuation method.

Adding a standard margin to the cost of the product.
 Advantages

Sellers are often more Minimize price

Simple More fair for both
certain about costs than competition when all
buyers and sellers.
about demand. businesses in the
industry use this
method.

Disadvantage
Does not consider competitors' demand and prices -> Ineffective.
 Case study
In Gillette's case, the cost of
manufacturing a razor includes the
materials used to make the blade,
handle, packaging, labor,
manufacturing overhead, and other
related costs. Once the total cost is
determined, Gillette will add a margin
to cover the desired profit margin.
Markup percentages may vary based
on factors such as market conditions,
competition and perceived value of the
product.
Experience curve/
Learning curve
The drop in the average per-
unit production cost that comes
with accumulated production
experience
 Benefits

Has a number of advantages compared to The height of the learning curve It provides usefull
its competitors -> can develop a can let people know what tasks comparison information
penetration pricing strategy by setting they should focus upon.
low prices to attract many customers.
 Limit

The growth of a learning Complacency: The Inability to The learning curve isn’t
curve is only as good as experienced curve makes measure its a reflection of future
the mentor that helps it market leaders complacent impacts potential.
to grow with their achievements,
companies become less
motivated to continuously
innovate and reduce unit
costs because of their
experience.
 Break-even pricing/
Target profit pricing

Setting a price to break even the production and

marketing costs for a product or setting a price to
create a desired profit (target profit).
 Formula to calculate break-even volume

Fixed costs: are costs that do not change compared to output, such as
rent, salaries, construction machinery, etc.
The break-even volume is the price at which that unit or product is sold.
Variable costs per unit or product are prices where units or products
are variable costs incurred to create a product or unit.

Formula to calculate volume to achieve target profit

 Break-even point chart
A chart showing total costs and estimated total revenue
at different output levels
Competition - based pricing
Is setting prices based on competitors'
strategies, costs, prices and products.

"What price should I sell at compared to

competitors' prices?"

Consumers will judge the value of a product

based on the prices that competitors charge
for similar products.
Case study

During Gillette's decline period, Direct sales

competitors and retailers launched new offerings to
outpace the competition, typically when many users
were unable to notice. What's the difference
between shaving with a MACH3 blade and shaving
with a similar 3-blade blade sold under Walmart's
Equate brand or Costco's Kirkland Signature brand.
With store brand prices falling to just $1 per blade,
many customers have no reason to pay a high cost
for Gillette's product.
Evaluating your competitor’s pricing strategies

The value of the company's products compared to competing products

+ The value of the company's products is lower than that of competitors => Lower
prices and change customer perceptions to increase selling prices
+ The value of the company's products is higher than that of competitors =>
Selling at high prices

How strong are your current competitors and what are their current pricing
strategies?
+ Many small competitors, selling at high prices => The company must apply lower
prices => Pushing competitors out of the market
+ Large competitors, selling at low prices => The company targets niche markets
with value-added products at higher prices
 Case study
As its company grows, Gillette has seen its decline
come from a new generation of direct-to-consumer
competitors, startups like Dollar Shave Club and
Harry's have released quality blades at a fraction of
the price, with the convenience of online shopping and
home delivery, and Gillette also faces fierce
competition from retailers, they sold each blade for $1,
which left many customers seeing no reason to pay
Gillette's high price. In response to challenges from
DTC and store brands, Gillette has launched its own
online service – currently called Gillette On Demand –
that sells similar products at the same price with
higher product quality. And it was quite successful
when people who loved Gillette responded to purchasing
through this channel.
 V.
Price-Demand Relationship
and Price Elasticity
 Demand curve

Demand Demand curve

A curve that shows the number of units the
Each price the company might charge market will buy in a given time period, at different
will lead to a different level of demand prices that might be charged
=> Demand Curve
Demand curves differ by:
-Type of product (normal vs luxury)
-Type of market ( Monopoly vs Competition)
 Price elasticity
Definition: A measure of sentivity of demand to changes in price

Example: When the price of CD increased from $20 to $22, the quantity of CDs demanded
decreased from 100 to 87.What is the price elasticity of demand for CDs?
Calculating a Percentage
The price increases from $20 to $22. Therefore % change = 2/20 = 0.1 (10%)
0.1 = 10% (0.1 *100)
Quantity fell by 13/100 = – 0.13 (13%)
Therefore PED = -13/10
Therefore PED = -1.3
 PRICNG STRATEGY

NEW PRODUCT
PRODUCT PRICING
MIX
PRICING ADJUSTMENT
PRICING
STRATEGY STRATEGY
STRATEGY
NEW PRODUCT PRICING STRATEGY
Marketing-Skimming Pricing
Marketing-Penetration Pricing
VI.
MARKET-SKIMMING PRICING

Setting a high price for

a new product to skim
maximum revenues
layer by layer from the
segments willing to pay
the high price.
Conditions of application:

The product’s quality and The costs of producing a Competitors should not
image must support its smaller volume cannot be able to enter the
higher price, and enough be so high that they market easily and
buyers must want the cancel the advantage of undercut the high
product at that price. charging more. price.
Case study
Introducing new products
Expensive price
at high prices while
tag but attracted
reducing the prices of
a customer base
existing Gillette razors
 Market-penetration pricing
Setting a low price for a new product a large number of buyers and a
large market share (penetrate the market quickly and deeply)
The high sales volume results in falling costs, allowing companies to cut
their prices even further

The market must be highly price sensitive so that a low

price produces more market growth

Conditions of Production and distribution costs must decrease as

application sales volume increases
The low price must help keep out the competition, and the
penetration pricer must maintain is low price position
 PRODUCT MIX PRICING STRATEGIES

VII. Product line pricing

Optional-product pricing
Captive-product pricing
By-product pricing
Product bundle pricing
 Product line pricing
Setting the price steps between various products in a product line
based on

Cost Customer Competitors’

differences evaluations prices
between the of different
products features
Case study
The Increase and Various price through out Gillette's Products

5$ 12$ 14.49$
 Optional product pricing
The Pricing of optional or accessory products alone with a main
product.

Which items to include in the base

price
Companies must decide

Which to offer as options

Case study
By selling new, innovative
products only through the
Gillette On Demand website,
Gillette Proglide 5+1 Power
product is priced up to $200
25$
plus an additional $25 for a
6-pack replacement blades
Captive-product pricing
Setting a price for products that must be used
along with a main product
Finding the right balance between the main
product and captive product prices
In the case of services
2 parts
The price of the service is broken into:
A fixed fee + a variable usage rate
 By-product pricing
Having no value and getting
rid of them is costly
By-products are generated in
producing products/services Turn out to be profitable
Offset the costs of disposing of them
Setting a price for
by-products to Make the main product’s price more
competitive
Seeks a market for by-products
 Product bundle pricing

Combining several
products and offering the
bundle at a reduced price
The combined price must 177.000
be low enough to get them VNĐ
to buy the bundle

155.000
VNĐ
 PRICING ADJUSTMENT STRATEGY

VIII. Discount
Allowance
Promotional pricing
Geographical pricing
Segmented pricing Dynamic pricing
Psychological pricing Personalized pricing
Reference pricing
DISCOUNT
A straight reduction in price on purchases during
a started period of time or of larger quantities
Forms of discount

Cash discount Quantity discount Trade discount Seasonal discount

A price reduction A price reduction A price reduction to A price reduction to
to buyers who pay to buyers who channel members who buyers who buy
their bills promptly buy large volumes perform certain merchandise or
functions, such as selling, services out of
storing, and record season
keeping
 ALLOWANCE
Promotional money paid by manufacturers to retailers in return for
an agreement to feature the manufacturer's products in some way
Another type of listed price reduction

Forms
Trade-in allowance:
A discount if returning an old product when
purchasing a new product. Usually applied
to durable goods (cars, cameras)
Promotional allowance:
Payments or price reductions to reward
dealers for participating in advertising an
sales support programs
Segmented pricing
The selling of a product or service at two or more different prices even
though this difference in price is not based on a difference in cost.

Conditions of application

The market must be The costs of segmenting

and reaching the
Must be legal.
segmentable and
market cannot exceed
segments must show
the extra revenue
different degrees of
obtained from the price
demand
difference.
 Forms of
segmented
pricing

Customer-segment Product-form Location-based Time-based

pricing pricing pricing pricing
Different version of Company charges A firm varies its
Different customers
the product are different prices for price by the season,
pay different prices
priced differently different locations, the month, the day,
for the same
but not according even though the cost and even the hour
product or service
to differences in of offering each
their costs location is the same
 Geographical pricing
Setting prices for customers in different areas
within a country or around the world.

High prices for far away customers to offset shipping costs

Decision: Prices are the same for all customers, regardless of location
 FOB-origin pricing:
Pricing in which goods are placed
free on board a carrier; the
customer pays the freight from the
factory to the destination
pricing strategies
Zone pricing:
Businesses determine many
different regions and customers in
the same region pay the same total
price, the more distant the zone,
the higher the price.
Uniform-delivered pricing:
Businesses charge the same price
plus freight to all customers,
Geographical regardless of their location.
Basing-point pricing:
Seller designates a certain
location/city as the basing point and
Freight-absorption pricing: freight costs are charged for all
customers from that location to the
The seller absorbs all or part of the
customer's location.
freight charges in order to get the
desired business.
 Dynamic pricing
The continuous adjustment of prices
to meet the characteristics and
needs of individual customers and
each situations
Eg:
Online shopping ( real-time pricing )
Bidding on auction sites (eBay )
 Psychological pricing
Pricing that considers the psychology of prices, not simply economic factors.
The price says something about the product.

When purchasing, consumers do not have enough skills, resources,

capabilities, and information necessary to evaluate all products.
Base
Price = 1 hint/signal

A small difference in price can signal a large difference

in product.
Visual quality and symbolic quality of numerals
Reference price
Prices that buyers carry in their minds and refer to when they look at a
given product
Formed by

Noting current Remembering Assessing the

prices past prices buying situation
Sellers can influence or use consumer’s prices when setting prices
 Promotional pricing
Temporarily pricing a product below the listed price, or sometimes even lower
than the cost, for the purpose of increasing short-term sales (creating
excitement and urgency for product purchases)

Personalized pricing
Adjusting prices in real time to fit individual customer's needs,
situations, locations, and purchasing behaviors.
Cas

Case Study Discussion

Based on the concept of

consumer-value based
pricing, explain Gillette's
rise to market dominance.
 Answer
• Understanding the customer: Gillette's marketing team has completely shifted its focus to understanding
customers and the obstacles they face every day. Extensive market researching and focusing group interviews
have highlighted the key issues consumers in each market face when shaving. Once a brand understands what
customers want, delivering that product becomes easy.
• Besides offering a customized product, the brand also ensures that the product is affordable for the consumers.
• Never be afraid to innovate and invest. The better customized the product, the higher the consumer satisfaction
and the higher the revenue.
Thanks for listening