MARKETING MANAGEMENT II CASE ANALYSIS

HEINZ KETCHUP : PRICING THE PRODUCT LINE

Under the Guidance of:

DR.D.D.SWAIN PROF MARKETING MANAGEMENT II DATE - 08.02.2012

Submitted by:
M.KAVITA ROLL NO. 11PGDM-BHU004 PGDM BATCH 2011-2013

INTERNATIONAL MANAGEMENT INSTITUTE

BHUBANESWAR

Declaration

I hereby declare that the project work entitled HEINZ KETCHUP : PRICING THE PRODUCT LINE submitted to IMI,Bhubaneswar, is a record of an original work done by me under the guidance of Dr. D.D.Swain, Professor of Marketing Management II, IMI Bhubaneswar. The results embodied in this thesis have not been submitted to any other University or Institute for the award of any degree or diploma.

Signed: Date: 08.02.2012

Acknowledgement

I have taken efforts in this case study. However, it would not have been possible without the kind support and help of many individuals. I would like to extend my sincere thanks to all of them. Firstly,I would like to thank IMI Bhubaneswar for giving me this opportunity to do this analysis. I would like to thank Dr. D.D.Swain for his support and guidance. I would like to thank all the people who have directly or indirectly helped in completing this work.

CONTENTS

1. ABSTRACT

2. BACKGROUND OF THE CASE

3. HEINZ PACKAGING, PRICING AND PROMOTIONS 4. ISSUES AND CHALLENGES

3 4

5. RECOMMENDATIONS

6. CONCLUSION

7. BIBLIOGRAPHY AND WEBLIOGRAPHY

Abstract
Heinz Tomato Ketchup is a brand of ketchup produced by the H. J. Heinz Company. It is the largest and fastest-selling product the company has ever distributed. The relatively high viscosity and pseudoplastic nature of ketchup can make pouring it from a glass bottle somewhat difficult and unpredictable.According to the Heinz trivia website ketchup exits the bottle at a speed of 0.0450 km/h. The website also notes that hitting the "57" mark on a glass Heinz ketchup bottle makes the ketchup pour out more quickly and easily. The New York Times also notes that Heinz placed the "57" mark on that particular spot of the bottle as the best place for consumers to hit for the ketchup to pour smoothly.The Heinz website claims that only 11% of consumers know this fact. In this case analysis, I have highlighted the pricing , packaging and promotional innovations adopted by Heinz which make it the undisputed leader in its category. I have also discussed a few issues and challenges faced by the company in context to this case ( upto 2007) and provided a few recommendations for its profitability.

Background of the Case

Heinz Ketchup is a classic American icon that has been a part of families' lives for more than 130 years now. Heinz launched its first Tomato Ketchup in 1876. Heinz was at the forefront of exploring natural preservation, and in 1906 was first to launch a Ketchup free from artificial preservatives. By 1907, Heinz was producing 12 million bottles of ketchup per year, exporting ketchup all over the world, including Australia, South America, Japan, New Zealand, South Africa and the UK. Heinz has divided its products into 3 categories and has around 15 brands in its portfolio:

Ketchup and Sauces Meals and Snacks

Infant/ Nutrition

Heinz Packaging, Pricing and Promotions

Heinz ketchup was available in a variety of pack sizes.As of 2007 it had 9 pack sizes. The company was innovative in its packaging, promotion and pricing strategy. Some bottles, sachets and other packaging styles are shown.

Heinz innovated in packaging inspired by the customer needs.It came up with the EZ Squeeze, upside- down bottle also shown above as it was easier for the consumers to use. Heinz pricing differed by region. However, it was not offered very high as it was for the masses. Heinz promoted its product with discounts (selling at 99 cents), offers . It also had challenges, games and sweepstakes featured on its website too to attract the customers. Gift hampers of tshirts with the Heinz logo, sportswear, cookware and toys were given to winners. Some promotions are shown below.

Issues and Challenges

Heinz is an synonymous with ketchup in U.S.In this case , we can see a number of issues faced by Heinz. High oil and natural gas prices increased the COGS by nearly 20% from 2004 to 2006 which decreased the operating profits in the 3 years as can be seen in Exhibit 1 and 2 of the case. The issue with retailers was a serious one. Retailers developed their own private brands of ketchup and marketed it which affected the sales of Heinz. Retailers were reluctant to give more shelf space to Heinz as they could get more margins from their own products.Heinz thus had to cut its wholesale prices to retain its position in the market.This eroded its profits. Heinz launched the Red Rocket 24 oz bottle in 2000.To block private labels from growing it offered heavy discount from 2000 to 2007. Red Rocket was thus sold at 99 cents.This strategy led to people waiting for the discount period to purchase ketchup and it was observed that 50% of the sales was made during this period affecting the sales. A major challenge faced by Heinz was persuading its consumers to change their purchase behaviours and buy larger bottles of ketchup as a research showed that larger sized bottles ensured more consumption. Retailers were unwilling to provide the extra space needed for the large sized packs.Moreover they did not get a fair margin on large packs. Replenishing the stock had to be done more frequently as the small shelf space could accommodate fewer large bottles and once sold the space would be empty.This led to dissatisfied customers who had to return empty handed or with another brand. Customers found it more difficult to handle and store.

Recommendations
Heinz should strengthen its distribution network just like HUL in India so that the replenishment takes place at a regular basis and the shelf is never empty. Retailers can be given some extra stock each time to keep as buffer at the back of the shop until the next lot arrives. Heinz has to provide retailers with incentives so that their products are displayed well and get a good shelf space. People are sensitive to prices. Heinz can promote its large packs by communicating to the people that large pack sizes will save them money. Door to door selling can be started and continued for a short duration until people get used to the brand and the idea of large packs. In organized retail outlets, Heinz can have a boy who will deliver at home large packs if inconvenient for consumers and also carry packs to the cars in the parking. In its advertising Heinz can target the kids by showing their joy in using the sauce to make faces on their sandwiches. Kids will persuade their parents to buy the ketchup. In addition, a small print on the pack can show the various shapes that kids can easily make on their sandwiches. This will attract the kids and boost sales. In its advertising, Heinz can also show the nutritional value of the ketchup along with the fun part. According to the Lavidge and Steiner model, we first educate the customers (cognitive) which leads to them forming a perception and liking (affective) and then buying the product (conative). This is the approach we need to build for the large packs. Once people are convinced of its benefits they will be bound to buy it. Creating brand loyalty is the key to fighting retailers private labels and gaining a market share.

Conclusion
Heinz is the leading maker of ketchup and has various other products and brands in its umbrella. I have provided a few recommendations above to increase the sales and market share of Heinz.

Bibliography and Webliography

Web en.wikipedia.org/wiki/H._J._Heinz_Company www.heinz.co.in