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- Assess the Heinz Ketchup marketing teams approach to product line planning and
pricing decisions.
A
- How could Heinz use the ideas in the article Pricing to Create Shared Value in
their pricing strategy?
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.
It's also helpful to look at the competition -- after all, your customer most likely will, too.
"Are the products offered comparable to yours?
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.
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.
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
Jorge Polanco
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.
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
Jorge Polanco
Heinz believed that promoting the very largest sizes (especially the Twin 50 oz.) was
unlikely to gain retail support.
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.