Value Pricing at Procter & Gamble

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  • Topic: Pricing, Value-based pricing, Price
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  • Published : November 14, 2012
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EBS Business School EBS Universität für Wirtschaft und Recht

Case Study
Price Management (Managing Market Offerings) Fall Term 2012

Value Pricing at Procter & Gamble (A)

Group Members:

Abhir Bhomavat Akash Singh Amar Deep Singh Bin Zhang Pranaykumar Mahendra Jain

Submitted to: Submission Date:

Prof. Dr. Alexander Pohl 10 October 10, 2012

                       Value Pricing At Procter & Gamble (A)     1   

Table of Contents
List of Tables and Figures ................................................................................................................................................................. 2  Objective 1: Prisoner’s Dilemma ...................................................................................................................................................... 3  Objective 2: Organizational Problem ................................................................................................................................................ 4  Objective 3: Risks of implementing Value Pricing ........................................................................................................................... 5  Objective 4: Short Proposal for Value Pricing .................................................................................................................................. 6 

                       Value Pricing At Procter & Gamble (A)     2   

List of Tables and Figures
Table.1 Specific assumptions about the relationship between price changes and market share changes Table.2 Suggested Budget Requirements Fig.1 Value Price Result

                       Value Pricing At Procter & Gamble (A)     3   

Objective 1: Prisoner’s Dilemma
The P&G pricing system in the 70s and 80s was oriented towards market share. Please describe the prisoner’s dilemma in which those companies in the P&G’s markets got rewarded that maintained or increased their price promotions. For sake of discussion, let us use a single company (Unilever) as an example to illustrate how all the companies in P&G’s markets experience prisoner’s dilemma. Since Unilever and P&G operate in the same market, a lot of their actions are interdependent on one another. Initially, the two firms were engaged in a prisoner's dilemma. Major moves in product, pricing or policy without providing their intentions to the other would result in losses for both companies. Thus, a surprise move by any firm would yield lead to inefficiency. Ideally, both parties would prefer to escape the dilemma. This desire would give birth to a cooperative set of behaviour between the two players. This cooperation however would cease if Unilever (or P&G) decides to change its behaviour by increasing or maintaining its price promotions when P&G (or Unilever) chooses to cut back on promotions. Such a move by Unilever would lead to the adoption of a sequential games situation by both firms as the traditional cooperation would no longer exist. By looking ahead to the future response of P&G and reasoning back to the present, Unilever decides that this approach would be best for the firm. By increasing promotions without notifying P&G (which is planning to cut back on promotions), Unilever may see an advantage to the firm. This is referred to as opportunistic behaviour. Unilever may have the perception of P&G as being a bullying firm, and Unilever did not want to be left cooperating only to have P&G cheat. Since the two firms were cooperating, both firms would be expecting the other to react to such a move. P&G now faces a dilemma whether to increase its price promotions, or to devote funds to increase advertising on products, or to go ahead and cut back on promotions (original plan and the riskiest). Although it is uncertain how they respond, there is no doubt that Unilever would have analysed the probabilities of P&G's potential reactions. Since consumers had become increasingly price sensitive, P&G would lose out...
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