![]() Marketing managers who seek a benchmark that captures differences in the scale and strength of brands’ distribution might weight each brand’s price in proportion to a numerical measure of distribution. Average price displayed: The display-weighted average price in the category One benchmark conceptually situated between average price paid and average price charged is the average price displayed. Large and small competitors are weighted equally when calculating average price charged. It also treats all competitors equally in the calculation of the benchmark price. It captures the way a brand’s price compares to prices set by its competitors, without regard to customers’ reactions to those prices. For this reason, this benchmark serves a slightly different purpose. As a consequence, the price premium calculated using this benchmark is not affected by changes in unit shares. This benchmark requires knowledge only of prices. A much simpler benchmark is the average price charged – the simple unweighted average price of the brands in the category. Average price charged: The simple (unweighted) average price in the category Calculation of the average price paid requires knowledge of the sales or shares of each competitor. If value share is greater than volume share, then there is a positive price premium. If value and volume market shares are equal, there is no premium. To calculate the price premium using the average price paid benchmark, managers can also divide a brand’s share of the market in value terms by its share in volume terms. ![]() This, in turn, will reduce the price differential between that brand and the market average. The reason: a market share gain by a premium-priced brand will cause the overall average price paid in its market to rise. Similarly, if a brand is priced at a premium, that premium will decline as it gains share. This would cause a firm’s price premium (calculated using the average price paid as a benchmark) to rise, even if its absolute price did not change. If a low-price brand steals shares from a higher-priced rival, the average price paid will decline. Changes in unit shares will affect the average price paid. The market Average Price Paid includes the brand under consideration. This average can be calculated in at least two ways: (1) as the ratio of total category revenue to total category unit sales, or (2) as the unit-share weighted average price in the category. Average price paid: The unit-sales weighted average price in the category Another useful benchmark is the average price that customers pay for brands in a given category. When assessing a brand’s price premium vis à vis multiple competitors, managers can use as their benchmark the average price of a selected group of those competitors. There are at least four commonly used benchmarks: The price of a specified competitor or competitors This is the simplest calculation of price premium and involves the comparison of a brand’s price to that of a specified direct competitor. Typically, the price of the brand in question will be included in this benchmark, and all prices in the benchmark will be for an equivalent volume of product (for example, price per liter). In calculating price premium, managers must first specify a benchmark price. Price premium (%) = / Benchmark price ($) Fully 63% of firms report the relative prices of their products to their boards, according to a recent survey conducted in the US, UK, Germany, Japan, and France. Indeed, price premium – also known as relative price – is a commonly used metric among marketers and senior managers. By comparing a brand's price with a market average, managers can gain valuable insight into its strength, especially if they view these findings in the context of volume and market share changes. Purpose Īlthough there are several useful benchmarks with which a manager can compare a brand's price, they all attempt to measure the 'average price' in the marketplace. In a survey of nearly 200 senior marketing managers, 54 percent responded that they found the "price premium" metric very useful. Changes in price premiums can also be signs of product shortages, excess inventories, or other changes in the relationships between supply and demand. ![]() Marketers need to monitor price premiums as early indicators of competitive pricing strategies. Price premium, or relative price, is the percentage by which a product's selling price exceeds (or falls short of) a benchmark price.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |