Revenue and Competitive Implications
Revenue and Competitive Implications
of becoming
a Charitable Supermarket Brand
1
Who We Are – Frontier Pricing
• Frontier Pricing is an independent research Firm specialising in applying
best-practice quantitative techniques to help our clients optimise pricing to
maximise revenue. We provide accurate estimates of:
• Demand curves, revenue curves and price elasticity.
• Accurate estimates of the optimal price point
• Modelling of the impact of “framing” through advertising and marketing,
on consumer choice, willingness to pay, demand and brand preferences
• A generic example of our output is set out in Slide 3
Current Price
Optimal Price
3
Revenue: +10% to +40%
Profit Margin: +60% to +400%
Optimising Pricing to Maximise Revenue
REVENUE
PRICE
The Cliff
Who We Are – Percent
• Percent is a for profit/for purpose Company that provides software, platform
and infrastructure solutions that:
• Allows Companies to close the purpose/awareness gap with their
customers and stakeholders
• Enables “doing good” in every financial transaction
• Works with Companies to provide bespoke and preferred methods to
achieve these objectives
• www.poweredbypercent.com
Imagine: Your preferred supermarket has just released an advertising
campaign which communicated that for their homebrands, at the
checkout, they will donate an amount of the total purchase price of the
homebrands to the charity you prefer.
Three Different Experimental Conditions
0 1 2
Placebo Condition
5
Imagine: Your preferred supermarket has just released an advertising
campaign which communicated that at the checkout, you will be able to
make a donation to the charity of your choice simply by tapping your card.
What We Did
• We utilised discrete choice modelling (DCM) methods embedded within framing
conditions (see slide 5), thus fusing methods from behaviour economics and
econometric modelling. Discrete choice analysis presents customers with tradeoffs among competing products or services.
• DCM works on the basis that all transactions involve a choice.
• This choice includes trade-offs between price, features, brand, advertising (interalia)
• DCM models the probabilities that consumers with given profiles buy/don’t buy
products with certain configurations in a competitive marketplace
• DCM also provides estimates of marginal utilities
What We Did – 2
• We sampled 500 consumers who frequently buy cornflakes in Australian
supermarkets
• We assigned participants to one of the 3 framing conditions outlined in Slide
5 to the subject’s preferred supermarket
• After being exposed to the framing conditions, participants moved to the
choice experiment
• We measured output variability in relation to subsequent price curves and
shift of preferred supplier of cornflakes pursuant to the various framing
conditions.
What did the Control Establish
• The purpose of the control condition is to establish consumers’ price sensitivity as
a result of their current knowledge (no framing).
• Here we discovered that house brand 1 is currently underpriced. If the price was
increased by 20%, demand would only decrease by 5%, resulting in a 14% increase
in revenue.
• The optimal price is most probably even higher, however we only tested a price
range of +-20% in this research.
9
“House Brand 1” Cornflakes: Control Condition
REVENUE
$2.50 $3.00
(+20%)
DEMAND
PRICE
Revenue: +14%
Optimal Price
Control Revenue Control Demand
100%
115%
100%
95%
Volume: -5%
Current Price
Condition 1 – What happens when the
supermarket donates?
• Having established the control curve, we can see that a donation on the part
of the supermarket will result in the entire demand curve being uplifted
considerably.
• At the current price, consumer demand increased by 22%
• Even at the higher (+20%) price, consumer demand still increased by 17%
• Overall, we can see consumers are far more likely to chose the House Brand
Cornflakes over the competition, due to the positive brand effects of “doing
good.”
Revenue: +34%
11
“House Brand 1” Cornflake: Condition 1
REVENUE
$2.50 $3.00
(+20%)
DEMAND
122%
135%
112%
122%
Optimal Price
PRICE
Control Revenue Control Demand Cond 1 Revenue Cond 1 Demand
100%
115%
100%
95%
Current Price
Volume: +17%
Volume: +22%
Revenue: +22%
Condition 2 -What happens when the supermarket
makes it seamless for you to donate?
• The ability to provide frictionless facilitation for the consumer to donate to
their choice of charity also creates an increase in demand though this is
(unsurprisingly) effected by any subsequent price increase for the underlying
product.
• At the current price, donation facilitation would result in a 13% increase in
demand however this does reduce to 0% as price is increased by 20%.
• There is however a benefit/attraction for the consumer to allow ease of
donation, subject to end price.
Volume: +13% Volume: +-0%
13
“House Brand 1” Cornflake: Condition 2
REVENUE
$2.50 $3.00
(+20%)
DEMAND
113%
Revenue: +15%
Optimal Price
PRICE
Control Revenue Control Demand Cond 2 Revenue Cond 2 Demand
100%
96%
100%
115%
113%
Current Price
Revenue: +13%
Market Share Implications
• The results of the experiment not only reveal an uplift in shopping preference to that
Supermarket (Supermarket 1), which offers a donation but importantly, this share also
includes an active “switch” from the main competitor (Supermarket 2) not offering the
donation.
• In the control condition Supermarket 1 (green) only had 13.5% market share for Cornflakes
whereas Supermarket 2 (red) had 15.2%. However, if Supermarket 1 commits to donate an
amount of the total purchase price of the housebrands to the buyers preferred charity
(Condition 1), its market share of cornflakes jumps up by over 20%. At the same time, the
market share of the main competitor (Supermarket 2) drops by 22%
• This demonstrates that charitable giving can be seen as a method to increase consumer
demand and at the same time an “offensive” competitive strategy to weaken rivals and
capture their market share.
Control
Woolworths CondiNonn 2
0.0% 7.5% 15.0% 22.5% 30.0%
16.4%
13.5%
11.9%
15.2%
Coles Woolworths
Condition1
Market Share: Control vs Condition 1
28.7%
28.3%
Supermarket 2 Supermarket 1
AssignmentTutorOnline
——–
Implications for Revenue and Competition
The Financial and Competitive Consequences of Becoming
a Charitable Grocery Store
1
Frontier Pricing – Who We Are
• Frontier Pricing is a private research firm that specializes in the use of
Quantitative strategies that are best-in-class to Help our clients in optimizing pricing
maximization of revenue We provide reliable estimations for the following:
• Price elasticity, demand curves, and revenue curves.
• Accurate predictions of the best pricing point
• Simulations of the effects of “framing” in advertising and marketing
impact consumer desire, willingness to pay, supply, and demand
• Slide 3 shows a generic example of our output.
Price at the moment
Optimal Cost
3
Revenue: +10% to +40%
Profit Margin: +60% to +400%
Optimising Pricing to Maximise Revenue
REVENUE
PRICE
The Cliff
Who We Are – Percent
• Percent is a for profit/for
