PRICING

Case Study-
HEINZ KETCHUP: PRICING THE PRODUCT LINE

Submitted By,
Ankita Beniwal
F20124
Q1. How profitable are the current SKUs in the product line for both Heinz and for
retailers? Consider the profitability of both regular and promotional pricing.

The table given below, depicts the profitability for the current SKUs in the product line for
both Heinz and the retailer with promotional and regular pricing

PARAMETERS 14 oz 20 oz 24 oz 32 Oz 36 oz 46 oz Twin 50 64 oz
Unit / Case 24 12 20 12 12 12 6 9
Price / Case $ 23.72 15.18 25.3 22.88 22.88 29.06 30.44 29.84
Trade Allowance $ 6 6.5
Net Price $ 23.72 15.18 19.3 22.88 16.38% 29.06 30.44 29.84
Cost ofgoods $ 15.65 11.44 18.74 15.41 16.14 20.51 25.01 21.02
Gross Margins $ 8.07 3.74 0.56 7.47% 0.24 8.55 5.43 8.82
% gross margin 34% 25% 2% 33% 1% 29% 18% 30%

price / unit 0.98833 1.2650.965 1.90667 1.365 2.42167 5.07333 3.31556

Retail price without promo 1.49 1.79 1.69 2.59 2.49 3.09 5.99 4.19
Retail price with promo 0.99 1.5
Retail margin without promo 0.50167 0.525 0.725 0.68333 1.125 0.66833 0.91667 0.87444
% Retail margin without promo 33.67% 29.33% 42.90% 26.38% 45.18% 21.63% 15.30% 20.87%
Retail margin with promo 0.025 0.135
% Retail margin with promo 2.53% 9.00%

From the analysis, we can conclude that

• The highest profit margin for Heinz is 34% from 14oz bottle followed by 32oz bottle
at 33% and 64oz bottle at 30% with 24oz and 36oz bottles having lowest profit
margin at 2% and 1% respectively. This low profit margin is due to trade allowances
being permitted.
• The highest profit margin for retailers without giving promotions is 45.18% for 36oz
bottle followed by 24oz bottle with 42.90% profit margin.
• For retailers giving promotions, the profits are 9% for 36oz bottle and 2.53% 24oz
bottle.

Q2. What is the current retail pass through for Heinz 24-oz and 36-oz sizes? Explain.

The retail pass through given to the retailers for Heinz’s 24-oz and 36-oz cases is 233.33%
and 182.77% respectively.

Parameters 24 oz 36oz
Units/ Case 20 12
Price/ Case $ 25.3 22.88
Trade Allowance $ 6 6.5
Net Price $ 19.3 16.38
Retail Price without promo $ 1.69 2.49
Retail Price with promo $ 0.99 1.5
Manufacture reduced pricing $ 0.3 0.542
Retailer reduced pricing $ 0.7 0.99
Retail pass through 233.33% 182.77%
From this table, we can observe that the retail pass through for 24-oz bottle is more from
retailer to customer while from manufacturer the retail pass through to retailer for 36oz is
more than that of the 24-oz.

Q3. What’s the consumption adjusted margins for different sizes of ketchup bottle and
from this tell which size we should promote?

CAM for various SKUs as per the given expandability rate is given below

Parameters 32 oz 36 oz 46 oz Twin 50 64 oz
CAM for manufacturer 9.88% 0.24% 5.76% 8.70% 10.54%
CAM for retailer without promo 10.85% 13.50% 5.41% 8.81% 9.40%
CAM for retailer with promo 10.85% 1.62% 5.41% 8.81% 9.40%

From this table, we can conclude that the CAM for manufacturer is high for 64oz which is
10.54/ unit while for retailer the CAM is high for 36oz without promotions and 32oz
promotion with margin of 13.50% and 10.85% respectively. The CAM for 32oz and 64oz
seems to better on comparing with the other variants.

Q4. What is the SKU you should be promoting and why?

From the above analyses it could be concluded that the consumption adjusted margin (CAM)
of 36-oz seems profitable at the current price of $29.84, even after promotions, 36-oz bottle is
more profitable compared to 24-oz. The rate of promotion offered should also be reduced to
gain better profit margin for both retailers and manufacturers. Among the less quantity
segment, the cost of goods sold (COGS) for 32-oz is lesser compared to 24 oz and 36 oz,
therefore a slight promotion offered over those SKUs would result in better sales volume
(owing to optimal size) along with better profits than the current offerings.