Prices in the Shampoo and Conditioner Categories

The hair care market is a highly competitive market. This market is part of the Personal Care industry which includes, in addition to hair care markets, markets such as cosmetics, face care, perfumes, deodorant, toothpaste and mouthwashes, and soap and shaving preparations. The US personal care industry includes more than 800 companies with combined annual revenue of $50 billion.

Cosmetics products such as makeup and nail products account for 20 percent of global industry revenue, face care products such as face creams for 18 percent, perfumes about 13 percent, hair products for 9 percent, deodorants for 8 percent, toothpaste and mouthwashes for 8 percent, and soap and shaving preparations for about 5 percent.

Generally speaking the hair care market is integrated by different categories such as hair conditioners, hair colorants, perms and relaxers, shampoo, and styling agents. There are many companies and brands competing in all categories of the hair care market. In particular, there are many competitors in the shampoo and conditioner categories. Brands such as Dove, Garnier Fructis, Head and Shoulders, LOreal, Axe, Pantene, TRESemme, private label brands and many other brands integrate the shampoo and conditioner categories.

In Table 1, we can observe information of some brands competing in the shampoo and/or conditioner categories. By and large, brands offer shampoo or conditioner in two type of packages, one smaller and one bigger. The presentation of each package depends on the brand. The small package of Dove shampoo for example contains 355 ml while the small package of Head and Shoulders contain 384 ml of shampoo. The same difference in content is applicable to big package of shampoo. Garnier Fructis big packge of shampoo contains 750 ml while the one of Pantene contains 675 ml.

From Table 1, it can also be noted that brands offer shampoo, conditioner or 2 in 1 products. For instance, the Safeway brand seems to offer only Shampoo promising to eliminate dandruff. Some brands such as Dove and Garnier Fructis offer either shampoo or conditioner. Brands such as Head and Shoulders and Pantene offer not only shampoo or conditioner but also 2 in 1 products. The depth of the shampoo product is large. There are shampoos for eliminating dandruff, others for normal hair, for oily hair, for straight hair, for frizzy hair, for coloured hair, for fine hair, for blondie hair, for dry hair, for damaged hair, etcetera. The good thing for consumers is that if they you do not like buying 2 in 1 products, then they can buy a shampoo for their type of hair and find a conditioner that matches that shampoo.

Price of shampoo or conditioner varies according to the brand and the packaging. Table 1 shows prices of different brands of shampoo, conditioner, or 2 in 1 products observed in one Safeway store of Edmonton, Canada on May 26, 2011. Price strategies followed by brands, at retail level, seem to differ. Companies know that when selecting an approximate price level, they can opt for demand-oriented, cost-oriented, profit-oriented or competition-oriented approaches. At a retail level, managers of supermarkets for example have such a large number of products that estimating the demand for each product as means of setting the price is impossible. They add a

fixed percentage to the cost of all items in a specific product class. Supermarkets such as Sobeys, Safeway and Loblaws, have different markups for staple items and discretionary items. The markup on staple items, such as sugar, flour and dairy products, varies from 10 to 23 percent, whereas markups on discretionary items, such as snack foods and candy, range from 27 to 47 percent. These markups must cover all the expenses of the store, pay for overhead costs, and contribute something to profits. Often, supermarkets set typical prices that will give the firm a profit that is a specified percentage say, 1 percent of the sales volume.

The brand soft-hair launched a new shampoo in January 2010 with an initial retail price of $5.10 for a bottle of 370 ml. The Marketing manager of the brand decides to reduce the price by 8% which according to her estimations will yield an approximately 16% increase in sales units. The manager considers that competitors will respond to soft-hair brand price reduction. According to her estimations, competitors will reduce their shampoo price in 5%. It seems that competitors are expected to change their prices in the same direction and by a smaller percent. Furthermore, she also assess that consumers of soft-hair will react to price changes by competitors. Actually she estimates that 4% of soft-hair consumers will switch to competitors brands (in other words soft-hair brand will lose 4% of consumers by a 5% reduction of price by competitors).

Table 1: Shampoo and Conditioner Brands, Packaging, and Prices at Safeway

Brand	Package	Price of Shampoo	Price of Conditioner	Price of 2 in 1
Dove	355 ml	$4.94	$4.94	-
	750 ml	$9.72	$9.72	-
Garnier Fructis	384 ml	$4.94	$4.94	-
	750 ml	$8.28	$8.28	-
Head & Shoulders	420 ml	$7.31	$7.31	$7.31
	700 ml	$9.72	$9.72	$9.72
LOreal	385 ml	-	-	$5.99*
Axe	355 ml	$5.93	$5.93	$5.93
Pantene	375 ml	$5.59	$5.59	$5.59
	675 ml	$9.29	$9.29	$9.29
TRESemme	900 ml	$5.44	$5.44	-
Safeway Brand	400 ml	$5.49	-	-

Note: Prices observed on May 26, 2011 at Safeway of Oliver Square, Edmonton, Canada. Prices are in Canadian dollars. ml refers to millilitres (1000 ml = 1 liter).

* This price is for 2 in 1 or for 3 in 1.

QUESTIONS

1. Based on the case information provided, what is a markup? What is the price strategy (approaches) that Safeway may follow to set prices of shampoos, conditioners or 2 in 1 products? (2 MARKS)

1. Compute the price premium of Pantene vis a vis its multiple competitors at retail level. Interpret the result. (10 MARKS)

1. Compute the priced premium of Pantene using the average price charged method. Which is the brand with the highest price premium? Interpret the result. (6 MARKS)

Consider this:

1^st step: Compute the simple average price of brands in the category, including the price of the brand under analysis.

2^nd step: Compute price premium using the average price charged method:

Price Premium vis a vis (%)=(PriceBrandBPriceBrandAPriceBrandB)100 n(%)=(AveragePricePriceBrandAAveragePrice)100