Week 2.7 Pricing
Chapter 20
- Are there
any price-related promotions (such as price discounts or multi-pack
discounts) around your product?
I could not find any definitive data that suggests
that they do bulk discounts, however I think it is a natural assumption to say
that they do. Doritos is such a product that a supermarket would buy in bulk to
put in the shelves. So, I do not know what it would be like to buy Doritos from
Frito-Lay directly, but I took a look on amazon and they ship Doritos in bulk
such as a pack of 64 bags. The price for this large pack is roughly $35. And
the price of a bag in the supermarket is €1,25 ($1,32). This means that
1,32*64= $84,48 which means that buying it in a larger package would save you
$49,48. (Amazon, 2017) (Albert Heijn, 2017) (XE, 2017)
- Which
pricing tactics are being used use for your product?
I couldn’t find which strategies Frito-Lay uses for
their product, but I shall endeavour to make an educated guess. Frito-Lay will
be using mostly psychological pricing strategies as the others aren’t very
useful for them. One strategy they might apply is the multiple unit pricing,
which means they might offer two for the price of one kinds of deals. I know
from memory that Doritos used to cost 99 cents here in the Netherlands which
then was a kind of odd/even pricing, but now that the price is €1,25 they don’t
use this anymore apparently. Maybe this is because they have grown in
popularity and no longer need this sort of strategy. They might also use the
promotional pricing strategy “special event pricing” I think they do this
because they do many advertisements during the super bowl in the U.S.A. Which
means they probably sell the items at a discount during this period.
- Which
influence do other marketing mix elements have on the price of your
product?
-
Product
The product itself naturally determines how much it is
worth, but with this element I think the best thing is to look at other similar
products, since it is these products that affect the price of Doritos.
-
Promotion
Price can be determined by how well the promotion
went. If the promotion for a certain product went excellent the price can be
higher than otherwise would be accepted. And if it went poorly you must instead
sell them at a lower price.
-
Place
Placement is a very important part. As I have
previously stated in one of the questions, when looking at the price you can
see that the products placed at eye level or slightly above are usually more
expensive than the ones lower on the shelves. When you consider the store where
it is sold itself as a place you will also see that some stores are cheaper
than others, so this is also a factor of place having an influence on the
price.
- Describe
whether your company does use price differentiation.
I do not believe that Frito-Lay differentiates prices
in different regions. I cannot say this for certain because I could not find
any reliable sources on the internet. However, I myself have travelled around a
fair bit, and have seen Doritos just about everywhere at roughly the same
price. Of course, if you look at the exchange rates you might find some
inconsistencies but these are very minor indeed. Of course, some smaller stores
can possible sell the crisps at a different price than others, but again, these
differences are very small, and hardly noticeable.
- Estimate
the price elasticity for your product.
Price elasticity is dependent on several factors such
as the price of the product what kind of good it is (e.g. luxury goods) if
there are many substitutes available how often you buy it or if they are
addictive.
To look at Doritos, we know that in the past they did
have a rise in price from roughly €1 to €1,25; and let’s say that this caused
demand to drop with 15% (it probably didn’t drop this much in reality). So,
let’s use that example to look at the elasticity.
So, the calculation here is: -15/25= 0,6. This means
that the demand for Doritos is inelastic.
- How can
the manufacturer influence the consumer price?
Just as any part of the
supply chain a manufacturer influences the price by adding their own worth to
the product before it is sold to the consumer. Manufacturing costs, after all,
determine a large part of the final price.
