Case: Heinz Ketchup – Pricing the Product Line
Define the Problem:
Problem Case: The management team of Heinz needed to maximize net profit by increasing the sales of their highest-margin items, yet they were experiencing constant pushback from retailers, on top of that, their shelf space was being reduced, as well as the promotional support for their high margin products, the team needs to come up with a plan
List any outside concepts that can be applied:
- Pricing strategy (price orientation & price realization): they were having issues defining or setting the price, sales during the promotion on high margin products represented 50% of the total sales. They need to determine which strategy suits the product line better, whether it is cost-based pricing, competition-based pricing, and customer value-based pricing (this last one can have important benefits), they need to focus on relationship with their customers instead of a transaction, they had loyal customers as it was, but it seem that they were setting their prices with the only objective of making profit, that could apply a pricing strategy to create value. - PLC: the category and he brand itself was at the maturity phase of the PLC, they need to implement a strategy according to the characteristics of that phase, normally in this stage, the price experiments a decrease.
List relevant qualitative data:
Heinz practically leaded the market in the ketchup category since its introduction, to the point that it was not considered a commodity anymore but a brand, but by 2007 the category, which was saturated by then, was experiencing a decreased in its sales growth, Heinz strategy up to that point was based on innovations in promotion, packaging and pricing. However, because Heinz set the price as a brand and not a commodity, other commodity products has a negative impact on Heinz’s margins and, with the increased in production items, the brand sales declined non-stop for three year....
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