Assignment Debrief: Retailer Margin Justification

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Pricing Strategy in Practice

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University of Virginia

Pricing Strategy in Practice

65 оценок

Курс 4 из 4 — Specialization Pricing Strategy Optimization

In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you through a real-world case, from problem statement to detailed analyses. You'll use all three lenses (cost, customer value, and competition) to recommend an optimal price—and then adjust to market disruptions. Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic techniques of economics to knowledge of customer segments, willingness to pay, and customer decision making to analysis of market prices, share, and industry dynamics—you will practice setting profit maximizing prices to improve price realization. You'll finish the course with a portfolio-building project that demonstrates your pricing prowess.

Из урока

Retail Market Dynamics

Welcome to the course! We'll kick off the week with an overview of the project, which centers around Philips introduction of an eco-friendly light bulb. Once you've read the case, Thomas and Ron will guide you as you apply the cost lens to analyze the economics of the LED light bulb Philips has introduced to the market. After you've analyzed the economics of the case, Ron and Thomas will debrief to make sure you are on the right track. You will also hear from BCG pricing experts, who will share their lessons and tips gleaned from years of helping clients in multiple industries optimize their prices and improve the bottom line.

Assignment Debrief: Superbulb Failure3:05

Assignment Debrief: LED Price Considerations3:43

Assignment Debrief: Retailer Margin Justification5:23

Assignment Debrief: Customer Economics4:42

Познакомьтесь с преподавателями

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs
Marketing
Thomas Kohler
Associate Director, Pricing
Marketing, Sales & Pricing Practice

So we're coming now to question number 3 of week one.

And we will need to discuss, is a retail margin of 55% for

the LED light bulb really justified?

>> Yeah, and I think to start that conversation, we should

probably ask ourselves the question, what really drives retailer margins?

So I'm going to put up, here what drives margins?

And we know we're talking about retailer margins here,

it's that 55% we're concerned with.

>> Well the first thing I would say is, The power of a brand,

of my brand as a manufacturer, if it's really strong, then I know there will

be a lot of demand and the retailer wants to have it on their shelf.

>> Right, all right, right, so if your big big name brand stuff that's right.

I think price awareness probably figures into this as well.

So if you have a product on the shelf that people buy a lot of,

they may remember the price, or maybe its a very large price so remember, but

we all know there's some prices we remember and some prices we forget.

And if they remember, the retailer has to be competitive with the price.

>> So that is mostly for items that you buy very often, like the milk,

and the butter, and the bread.

>> Yeah, yeah, I think that's true.

What about shelf?

I bet that that plays into it.

>> There's a lot going on, because I know retailers really have to think hard about

how do they make best use of their shelf space.

And when you think about it, if you dedicate a certain

space of your shelf to an item, you want it to turn fast.

>> Right, okay, so turn over. >> Where people kind of take it out often,

and you replace it often.

>> Yeah.

>> Then there is a piece around, do you have a big item,

a big box of diapers is not very expensive, but

it takes a lot of space, as opposed to a small thing.

>> Yeah, so they're going to have to take bigger margins if it's real big.

>> Right.

>> Yeah. >> And then, there is also something going

on with different types of shelf space come at different costs, right?

I mean a freezer cabinet is totally different than just a shelf.

>> Right totally understood.

All right so you've got cost perspective, I'm going to add one more to that.

I think we've got a lot of it, but

I also think there's differences in cross-selling capability here.

And what I mean by that is, there's some items that if you see

somebody buy the item at the store, you could tell something about that consumer,

and maybe something about all the other items that they're likely to buy,

so is this a signal of profitable consumer, or an unprofitable consumer?

>> It might be even an item that attracts the customer in the first place,

to the store.

>> Right, right.

Well, I guess we should look at what this kind of means for Philips.

>> Hm, so, here's an idea.

>> All right.

>> Let's give each of these drivers a smiley or frowny.

>> Okay, I can go in that direction.

>> If they do well or not so good in this dimension.

>> A brand, well, they're not a no-name brand.

I mean a lot of people would have heard of Philips.

So, I mean, I would go for a smiley face on that one.

>> I agree.

>> And that smily face means that Philips is in a good position to get that retailer

margin down, and negotiate it down.

>> Maybe that smily is a little bit too big.

>> Yeah, yeah, that is a really really happy character up there Thomas.

>> [LAUGH] >> Price awareness, so you know, for

an incandescent bulb, I would probably buy regularly, but with the LED bulbs

having such a long lifetime, I probably wouldn't recall what I paid the last time.

>> Yeah, I totally agree.

I think that's a frowney.

Now on the shelf, turn over has gotta be frowney

because that bulb lasts 18,000 hours, right?

So they're not going to be buying it too often.

>> But size is pretty good.

>> Yeah, and I think cost is good too, because this is cheap shelf space,

you certainly don't have to refrigerate it.

Now, what about cross-selling?

>> So I don't think you only go to buy a single lightbulb to a store.

It's usually something that you would buy in combination with other things.

>> Yeah. So I think there's a cross-selling upside.

It might even attract certain customers who are able and

willing to spend more than the average customer.

>> I'd buy that, because I bet you that some of the people that are paying a bunch

of money for an LED lightbulb, are environmentally conscious, and

they are going to the store, and buying the organic chicken, and the organic kale,

and other things on which the retailer might be making a large margin.

>> So, let's take tally here.

How many smileys do we have, and how many frownies?

>> I don't know, I got one smiley, two, three, four.

>> Two, three, four.

>> I got two frownies.

>> So, looks like to me a like a good case to at least give it a shot, and

start negotiating with the retailers to lower their expectations.

>> Yeah, you might have a case with them.

Now, realize if you think you've got a case with them, and

you think you can get that retailer margin down, that

impacts the kind of analysis you would have done in the second question, right?

And it makes these prices have different profitability implications,

both for the retailer, but also for Philips as well.

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