Wednesday, January 19, 2011

ZIBSForum: Scott Neslin on P&G Value Pricing Strategy

The Scenario
In the early 1990's Procter & Gamble made dramatic and long-term changes in its pricing and promotion strategy. Procter & Gamble (P&G), a leading consumer packaged goods producer, instituted a "value pricing strategy" during which it boosted advertising while simultaneously curbing its distribution channel deals (in-store displays, trade deals), and significantly reducing its coupon promotions. This grand experiment leads us to a whole host of questions. What impact did the strategy have on brand loyalty? How did competitors respond? What was the "bottom line" impact on market share?
In response to these questions, Scott A. Neslin, the Albert Wesley Fry Professor of Marketing at the Amos Tuck School of Business at Dartmouth College, enlightened us in his presentation at the ZIBS Forum held in February. Scott Neslin performed extensive analysis on the topic along with colleagues Kusum L. Ailawadi and Donald R. Lehmann. For our ZIBS Forum, Scott revealed the secrets of their investigation, and this report covers the salient points he covered.
The Details
What inspired P&G to initiate this value pricing strategy? First was logistical efficiency. P&G was concerned with the cost of administering promotions, and the effect of up-and-down swings in demand on the production system. Second, P&G was concerned with the impact of promotions on brand loyalty, fearing that on one hand they attracted "cherry-picking" bargain hunters who could care less about the brand, and on the other hand they weakened the loyalty of their core customers. It is also thought that one of the prime architects of the strategy, senior executive Dirk Jager, personally disliked coupons with a passion. These factors inspired P&G to break with standard marketing practices. As a result, over the course of six years (1990 through 1996) P&G reduced its coupon expenditures by over 50%, reduced its distribution channel deal expenditures by 20%, and increased its advertising expenditures by 20%. This was truly a contrarian strategy as during the same period general market trends showed an increase in promotion (deals and coupons) by 15% and a decrease in advertising by 20%.
What were the goals of value pricing? First, it sought to improve efficiency. The administrative and production costs for promotions, deals, and coupons were becoming increasingly expensive and cumbersome for P&G, distributors, and retailers. Second, since the theory was that coupons and deals only invited brand switching and destroyed brand loyalty, cutting back on deals should leave P&G with a stronger brand franchise. And to top it off, coupon fraud was also growing at this time with supposed nefarious links to organized crime and terrorist funding. Cutting back on coupons would obviously sever this link.
The Experts Microscope
Analyzing P&G's Value Pricing Strategy, Scott Neslin and his colleagues investigated how their strategy affected brand loyalty, whether their customer base increased or decreased, how the competitors reacted, and how the strategy affected market share.
To determine this, Neslin broke market share into three components: Penetration (PEN), Share of Requirement (SOR), and Category Usage (USE).
PEN is the percentage of category buyers who buy the brand at least once; SOR measures brand loyalty and is expressed as the percentage of category purchases in which the consumer chooses the P&G product, among those who purchase the P&G brand at least once;
USE is an adjustment for heavy and light users. In summary, PEN is basically how many customers you have;
SOR is how frequently these customers buy the brand (a measure of loyalty), and USE is whether the brand's customers are disproportionately light or heavy users.
Using the following formula you can equate market share:
Market Share = PEN x SOR x USE
One could conjecture that, with their new pricing strategy, P&G's PEN would decrease, but SOR would increase more than PEN and improve market share.
Neslin created separate regression models for PEN, SOR, and USE. To achieve this, he used P&G's price, promotion, coupon, and advertising expenditures and the competition's price, promotion, coupon, and advertising expenditures as independent variabes. He quantified these as the net price paid for an item, percent sold on deal, percent sold with a coupon, and media advertising dollars. Neslin was unable to include a specific measure for distribution but distribution is captured indirectly in the catch-all "error term" of the model. Neslin's analysis shows that although price, advertising expense, deals, and coupons (from both P&G and competitors) affect PEN, SOR, and USE, price has the largest affect on the three market share components. Most interestingly, advertising had little effect on all three components, and deals and coupons actually a slight positive impact on SOR. While this is contrary to the view that promotions destroy brand loyalty, it may simply be due to the fact that promotions keep consumers in the brand, whether because they love the brand or because they can buy it at a decent price.
The Impact
From 1990 -1996, the net price paid by consumers of P&G products increased 20.4% (due to the decrease of coupons use by 54.3%, and reduction in price cuts). Meanwhile P&G increased advertising by 20.7%, and decreased channel deals by 15.7%.
What was the competitive reaction? During the same time period, the overall competition's (including companies such as Colgate, Unilever, and Gillette) net price paid increased 10%, advertising increased 6.3%, deals increased 13.1%, and coupons decreased 17.1%. Of the three competitors, only Gillette lowered prices and it increased coupons use by 127.6% -- far more than Colgate. Overall, the competition did not completely cooperate with P&G, but neither did it take full advantage in a mad grab for market share.
What was the total impact on P&G? P&G's Value Pricing Strategy showed no change in share of requirements or category usage, but it did end up with a reduced penetration rate, which declined 16%. This was because the cut in promotions resulted in fewer consumers buying P&G brands, and neither the cut in promotions nor the increase in advertising had any appreciable effect on SOR. Overall, P&G's market share decreased 16%. Although P&G lost market share, it is possible that its profits remained stable or even increased. It lost 16% of share, but made up for this through increased prices 20%, a lower cost of good sold, and efficiencies in production. However, the increase in advertising expenditures may have wiped out most of the cost savings. Despite gain or loss in profitability, P&G lost their strategic and esteemed position as the market leader in the consumer packaged goods industry. Traditionally, P&G had a sharp focus on market share leadership as the ultimate metric of success, and yet for the first time since the 1950s, Colgate overtook P&G's Crest as the market leader.
What happened to P&G's theory that price promotions reduce loyalty? Was this myth or fact? Analyzing P&G's value pricing strategy shows that promotion cuts decreased penetration but did not dramatically increase loyalty. So, P&G's initial beliefs were myths indeed. Additionally, increasing advertising had little effect on market share. Why? When you are the market share leader the effect of advertising is diminished. Market share leaders already have high awareness levels, and unless your advertising provides new compelling reasons to buy (usually rooted in innovative product differentiation) there is little upside beyond maintenance advertising.
What was the effect of the competitive response? The competitors reacted to P&G's strategy in a way that cushioned P&G's loss - the competition could have destroyed P&G, but P&G's losses were mostly self-inflicted. Of the competitors, Gillette was the only one to take a contrarian strategy and was fairly successful. What do you do about sharp competitors like Gillette? As we saw recently, P&G decided to buy this one.
In sum, sustained cuts in promotion result in lost share in the long run. Sustained mass advertising expenditure increases for mature, high share brands do not pay off in the long run. Mass advertising is better suited for immature, low share brands. Finally, competitors may not "eat your lunch" if a company chooses a strategy that makes them vulnerable. The competition likely faces the same challenges as your company and may follow suit with policy changes.
Market modeling is a powerful tool. Response modeling entails using mathematical models to translate the rich market environment into mathematical equations in an effort to quantify the impact of marketing initiatives. Modeling competitive market response to major policy changes is important to understanding the long-term results of those policy changes. The next major challenge for marketers is predicting, in advance, how the market will react to future policy changes. When a major policy change is implemented, it fundamentally changes the market; the rules of the game are changed. Therefore, it is inherently inaccurate to predict the results of major policy changes based on historical data because appropriate data does not exist.
It is interesting to note that P&G's value pricing strategy is quite a misnomer. During this period many stores were switching to EDLP (every day low pricing) policies, which meant that consumers would save on their overall purchase without having to deal shop. In contrast, P&G strategy essentially was a disguised price increase; coupons were cut by 50%, which contributed to an increase in the customer's price paid by 20%. It is possible that P&G lowered their wholesale price, but the retailer only enjoyed higher margins and did not pass the savings on to the customer. Another possibility is that retailers lowered retail prices consistently, following P&G's decrease in wholesale price, but once promotional trade deals are factored in those everyday lower wholesale prices did not result in a lower total price paid. For example, if P&G's old price was $20, but gave deals of $15, at which price 90% of purchases were made, the wholesale price equaled $15.7 (.90*$15 + .10*$20). If P&G set a "Value Price" point of $18, but 100% of purchases were made at that price, the retailer enjoyed no cost savings-only a cost increase. If P&G had truly offered price cuts, their results may have been much different.
The Big Picture
The insights into P&G's grand experiment demonstrate to us the importance of promotional pricing, and the diminished power of mass advertising for high share players. Analysis of P&G's value pricing strategy allows us to see how major long-term policy changes, not short-term marketing mix changes, affect market share and competitors' reaction. Studying P&G's value pricing strategy offers the unique opportunity for marketers to analyze major policy changes, obtain clearer understanding of how marketing mix changes affect brands, learn about long-term impacts of marketing changes, and inform future policy decisions. And it is also important to note that success can be measured more than one way. In essence, the P&G grand experiment may have been successful when measured by profits, and at the time those profits were being used to invest in new innovations. However, for a company that traditionally measured success by volume (market share) its value pricing strategy truly had a large enough adverse impact on share that it was eventually abandoned.

Acknowledgements and References:
Ailawadi, Kusum L., Donald R. Lehmann, and Scott A. Neslin (2001) "Market Response to a Major Policy Change in the Marketing Mix: Learning from Procter & Gamble's Value Pricing Strategy", Journal of Marketing, (January) 44-51.

Sun, Baohong, Scott A. Neslin, and Kannan Srinivasan (2003) "Measuring the Impact of Promotions on Brand Switching When Consumers Are Forward Looking", Journal of Marketing Research, (November) 389-405.
Ailawadi, Kusum L., Praveen K. Kopalle, and Scott A. Neslin (2005) "Predicting Competitive Response to a Major Policy Change: Combining Game Theoretic and Empirical Analyses", Forthcoming Marketing Science.

Manufactures are MAD over Extreme Couponing

I was looking around on the other blogs today... Thanks to Coupons, deals & More I foun d this on her site.  I will be very distraught if the manufactures limit us to  useing coupons.  I only buy what I need!!!!

Word on the street *cough* is that the reaction to the Extreme Couponing show has really disturbed the manufacturers. As in really, really, REALLY disturbed them. There are a number of changes that are being considered to dial-back the massive savings people can enjoy, including the end of National Catalina offers. Apparently one of the manufacturers was unhappy with paying someone a ton of cash (the manufacturer reimburses the store for those Catalinas) to buy their products, and having that shown over and over nationwide, and they want to change how they offer Catalinas.
Safeway has already begun one of the changes being considered on a national level across all manufacturers:
If you have a shopper’s club card, and get an alert for an offer, you are allowed to do that Catalina deal. There is a limit of 4 sets of deals for those who have been offered the deal. If you do not get an alert for a particular offer, you will not receive a Catalina for the offer (note: this is currently limited and not all Safeway offers are like this).
Apparently this will soon be a coming to a store near you for the tiered offers. The National Catalinas are tiered offers (b3 get $1, b4 get $1.50, etc). This may soon be the end of national offers for all.
There are also a few other overreactions being bandied about by the manufacturers including following P&Gs lead to put coupon redemption limits per customer on each coupon. The ones we now see as “limit 1 per customer”? They want to word more coupons like that AND have it hard coded into the coupon (which is a doable beginning this year) so the machine will beep after more than the limit of alike coupons are used, regardless of whether or not the person purchase the correct items.
Believe it or not overreactions like this from the manufacturers have happened before. In the early 90s, a woman was doing a massive rebating business selling forms + (reproduced) CRTs (called complete cash tape deals) and ended up going to jail for it. The manufacturers put a stop to lucrative rebate offers for a number of years after her arrest and conviction. What we see now is a fraction the rebates we enjoyed 20+ years ago, and it was laid at one person’s feet. She wasn’t the only person doing it, I am sure, but she was the one that got caught and blamed.
Apparently the same thing is happening now… manufacturers were vaguely aware that there are “extreme” couponers out there (their definition of extreme and my definition of extreme are not in the same zip code), but never realized people could profit from grocery shopping. Apparently the TLC show brought home to them that getting paid to shop is real, and they are unhappy about this. Instead of embracing the idea that people coupon, the manufacturers are upset and distraught over the situation.
The show has been given 12 more episodes, which I am certain did not please the manufacturers. Maybe TLC plans on dialing it back to the original concept of teaching people how to reasonably save money weekly? Or maybe they will not be able to resist continuing the buzz the show has generated, and we will see even more extreme examples?
Stay tuned, this is going to be a bumpy coupon ride in 2011 as manufacturers, retailers and customers collide, adjust and readjust to the Wonderful World of Couponing. We will see what, if any, of the discussed changes will be implemented.

Stater Bros sales 1/19 - 25th

Jose Ole Burritos 4-5oz 2/ $1.00
Thomas English Muffins 1.99
Farmland Bacon or Deli Ham 2/$5.00

Sat 22nd - Mon 24th SALES
Farmer John  Sausage links .69
Stater Bros Shredded or Block Cheese 8oz  $1.49

Coupon Match ups
Jose Ole Burrito 5/$1.00
Thomas English Muffin MF $1.00
Farmland Ham .75

Deal Idea
10 Jose Ole Burittos $5.00  (.30 ea)
1 Thomas English Muffins 6ct  1.99 (.17 ea)
2 Farmland Ham 16oz  5.00  (.11 oz)
Total 11.99
Use 2 1.00 Jose Ole
1.00 Thomas English
2  .75 Farmland = 1.50
Coupon Total = 4.50

Friday, January 7, 2011

CVS 1/9 Hot Buys

CVS   HOT HOT BUYS!!!!!  starting sun 1/9/2011

Pepsi Products 12 pks miz n match 6/ 20.00 get 10.00 ECB

Reese's King Size or Hersey Drops King size $1.59  get 1.59 ECB
Snickers singles .89 get .89 ECB

Look for stickers saying "take 50% off or Take 75% off"
Last year i bought all my make up i needed for the whole year during this sale.  Plus you get to use coupons on the products to make it even a sweeter deal.

Deal Idea
Transaction #1
6 12 pks Pepsi 20.00 + CRV 3.60 =23.60
1 reese 1.59
1 Snickers .89

Use 5/25 CVS ( Some got with there quarterly 2% back)
Pay 21.08
Get $10.00 ECB
1.59 ECB
.89 ECB

Transaction 2
2 Scotts $10 ea
1 Cottonelle $2.00
1 Kellenex 3pk $3.00
= $25.00
Use $10.00 1st trans
.50 Cotonelle MF Q
.50 Kellenex 3pk mf Q
2 .40 Scotts MF Q
OOP = $13.20
n Recieve $10.00 ECB for buying $25.00

Sunday Coupon Preview 1/9

1-9 Smartsource Coupon Preview
All Natural Almond Accents Save $.50/1 (5/31/11)
Barilla Plus Save $.55/1 (3/7/11)
Benefiber Save $2/1 (2/26/11)
Benefiber Stick Save $2/1 (2/26/11)
Bic Disposable Shaver B1G1F to Save $6.99 (2/6/11)
Cold Buster Warming Syrup Save $2/1 (4/3/11)
Cream of Wheat Hot Cereal Save $1/1 (3/31/11)
Depends Guards for Men Save $1/1 (2/19/11)
Depend Underwear in Prints and Colors 6 ct Save $2/1 (2/19/11)
Dole Fruit Crisp Save $.75/1 (3/31/11)
Excedrin 20 ct Save $.75/1 (2/26/11)
Excedrin 80 ct Save $1.50/1 (2/26/11)
Finish Dishwasher Cleaner Save $1/1 (3/6/11)
Finish Jet-Dry Rinse Agent or Turbo Dry Save $.40/1 (3/6/11)
Garnier Herbashine Save $3/1 (4/9/11)
Gas-X Save $1/1 (4/30/11)
Gas-X Prevention Save $1/1 (4/30/11)
Jello Pudding, Gelatin or Mousse Snacks 6 packs Save $.60/2 (2/9/11)
Ken’s Dressing 16 oz Save $1/1 (2/28/11)
Ken’s Marinade Save $1/1 (2/28/11)
Ken’s Dressing 8 oz Save $1/1 (2/28/11)
Lysol No Touch Hand Soap System Starter Kit Save $3/1 (2/8/11)
Lysol NeutraAir Fabric Mist Save $1/1 (2/8/11)
Lysol NeutraAir Aerosol Can Save $1.50/1 (2/8/11)
Maalox Save $5/1 (3/1/11)
MidNite or MidNite PM Save $1/1 (7/31/11)
Olivio Save $.55/1 (3/9/11)
Philips Sonicare FleCare+ or FlexCare REchargeable Toothbrush Save $15/1 (4/30/11)
Philips Sonicare Rechargeable Toothbrush excludes Xtreme battery Save $10/1 (4/30/11)
Philips Sonicare Brush Heads or Philips Sonicare Xtreme Battery Toothbrush Save $5/1 (4/30/11)
Post cereals Save $1/2 (2/20/11)
Post cereals kids Save $1/2 (2/20/11)
Prevacid 24HR Save $3/1 (2/12/11)
Purina Chef Michael’s canine Creations dry dinner 4.5 lb bag Save $2/1 (2/6/11)
Purina Chef Michael’s Canine Creations Dry DInners 11.5 lb bag Save $4/1 (2/6/11)
Purina Chef Michael’s Canine Creations cans Save $1/4 (2/6/11)
Resolve High Traffic Foam Save $1/1 (2/20/11)
Resolve Save $.75/1 (2/20/11)
Sinus Buster or Allergy Buster Nasal Spray Save $3/1 (4/3/11)
RedPlum Coupon Insert

Carbona tough acting Oven Cleaner Save $1.00/1 (4/9)
Carbona 2-in-1 Oven rack and grill cleaner Save $2.00/1 (4/9)
Endust Product Save $1.00/1 (2/20)
Garnier Cleanser or Moisturizer Save $1.00/1 (6/1)
Get One Gatorade Perform or G2 FREE When you buy One Gatorade Prime (4oz) AND One Gatorade Recover (16 oz) value Save $1.29 (3/31)
Hillshire Farm Deli Select lunchmeat (8oz or larger ) Save $1.00/2 (2/12)
Keebler and/or Sunshine 100 calorie Right Bites Snacks 6 ct or larger any flavor mix or match Save $1.00/2 (3/6)
Kellogg’s cereals any packages Save $1.00/3 (2/20)
L’Oreal Preference any shade Save $3.00/1 (3/6)
Maybelline New York Mascara Save $1.00/1 (3/9)
Met-Rx bars Buy One Get One Free value to Save $2.39 (2/20)
OneTouch Delica Lancets any Save $3.00/1 (2/5)
OneTouch Ultra Meter Save $10.00/1 (2/5)
Pedigree Jumbone treats for dogs any size or pack Save $1.00/1 (3/5)
Pedigree Marrobone treats for dogs any size Save $1.00/1 (3/5)
Pure Protein powder or shake Save $1.00/1 (2/20)
Pure Protein Bars Buy One Get One FREE value to Save $1.69 (2/20)
Renuzit Adjustables air fresheners buy TWO 2 or 3 packs and get ONE of the same size FREE (B2G1FREE) value Save $4.17 (1/23)
Renuzit Adjustables air fresheners ALL SINGLES Buy 3 of the same size get 3 FREE (B3G3FREE) value Save $4.17 (1/23)
Sara Lee pre-sliced meat Save $1.00/1 (2/28)
Scotties facial tissues 5 boxes or 2 multipacks Save $1.00 (2/15)
Buy TWO Secret Flawless Scent Expressions, Fresh Effects or Smooth Effects Deodorant GET One Secret FREE (excludes Clincial strength, soothing effects and base deodorant) value to Save $5.00 (2/28)
Soft Scrub products Save $1.00/2 (2/19)
Temptations Treats for cats Buy One Get One Free value Save $2.19 (2/21)
Uncle Ben’s Plain White or Brown Rice product Save $1.00/1 (3/6)
Whole Fruit Fruit bars Save $.50/1 (3/1)
Whole Fruit Sorbet Save $.50/1 (3/1)

Wednesday, January 5, 2011

Stater Bros Buy 4 save $4 01/05/2011

Stater Bros. is having a HUGE sale.....  Buy 4 Save $4 (PAPERLESS COUPON)
1 per transaction...  But you can do it in multiple transactions.  I know I will be doing it a couple times my self...

Buy 4 Save $4.00  Mix n Match any combonation,  * In a single Transaction.
Prices are stated
****** .99 each *******
Bettry Crocker Fruit Snacks 4.5 to 8oz
Chex mix 7 to 8.75 oz
Pillsbury Cresent or Cinnamon Rolls 8 to 13.9 oz
Yoplait Splitz Yogurt 4/3.25 oz

*******$1.49 ******
General Mills Cereal 8.9 oz to 16.2 oz
Nature Valley or Fiber One Bars 5 to 6 ct
Yoplait kids yogurt 6/4 to 8/2.25 oz
Pillsbury Toaster Strudel 6 ct 10to 11.5 oz

******* $1.99 *****
Pillsbury Cookie Dough 14 to 16.5 oz
Green Giant Vegtables 17 to 24 oz
Totino's Pizza Rolls 19.8 oz

Coupons to use
$1.00/3 Fruit Gushers
.75/2 Yopait Splitz
.40/2 Pillsbury Cresent
.50/2 Cinnamon Rolls
.40/2 Chex miix
$1.00/2 General Mills Cereal
.35/1 Toaster Strudel
.75/2 Go Gurt
Nature Valley and Fiber one  I cant remember the coupon but there are some printables out there
$1.00/2 Pillsbury Cookie Dough
.60/3 GreenGiant
.40/2 Totino's

<*Deal Idea*>
buy 4 Cresents .99 ea
use 2 .40/2 = -.80
=3.16 or .79 each

or buy 4 Cinnamon Rolls
= 3.96
use 2 .50/2 = 1.00
=2.96 or .74 ea

or Buy 2 Toaster Strudel 1.49
2 Go Gurts
use 2  .35/1 
use 1 .75/2
= Q's -1.45
Total $4.51 or $1.12 ea

or Buy 4 Gm Cerea=
use 2 $1.00/2
(get the ones that have more per oz.)
=3.96 or .99 a box 
(hightest oz is 16 oz  so divide it by .99 a box comes out to .06 cents and oz.)

Food 4 Less 01/05/2011

Here are some price Match ups for Food 4 Less for this week...  Starts today!!! 01/05/2011

Yoplait Yogurt (Original or Light) 2/ .88
Buy 14 = 6.16
Use 1 $1.00 off 8 Yoplait Yogurt Printable &
Use 1 .40 off 6 Yoplait Yougurt Printable
=4.76  is .34 each 

Mix n Match  (wyb 4) Buy 4  Save $4
All prices refelt the discount

Downey Liquid Fabric Softner $1.98
Gain Powder or Liquid Detergent 8.98
Charmin Bath tissue or Bounty Paper Towels $5.98
Dawn Liquid Dish Soap $1.48
Pantene Condition or Shampoo or Head n Shoulders $4.98
Always Pads $1.98
Balsam Ligquid Hair Color or Zest 3 Bar or Olay 2 bar soap $ .98
Herbal Essenaces Shampoo conditioner or Styler $1.98
Good News or Daisy Disposibles Razors $4.98
Old Spice or Secret Deodorant $1.28
Pampers Dry or Cruisers 18.98

<*Deal Idea*> #1
2 Herbal Ecsance 
1 Always pads
1 Secret deodorant
= 7.22
Use B1g1 Q Herbal (-1.98)
1 $1.00 Always Pads
1 .50 Secret Deodorant
=3.48 Q
Total OOP $3.74 or .93 ea

<*Deal Idea*> #2
2 Old Spice Deodorants $1.28 ea
2 Always pads 1.98 ea
= 6.52
USe  1 Old Spice $1.00/2
use 2 $1.00 ALways
=3.52 or .88 each

Saturday, January 1, 2011

Good Bye 2010 & Hello 2011

Happy New Year to all you Bloggers!!!  I want to wish a a Prosperous FRUGAL New Year!  I just want to Thank all for following me.  My New Year is going to be the BEST year Yet.  I know I have been away for about 2 weeks not really blogging.  BUt that is going to change  I will be on and giving you updates of sales and coupon match ups.  I also going to be adding a Month to date section to the blog to track my spending and savings!   So to all a Very Happy Frugal New Year!   God Bless!!