Pricing strategies and Kinder Surprise discounting

Price related promotions

Different kind of sales promotions help to boost the sales. Such promotions can vary depending on the type of the product, marketing objectives of a company, competition, total costs. Two examples of such promotions of Kinder Surprise are on-pack promotion and price discount. Multi-pack promotion is a psychological pricing that involves two or more identical products packaged together. Another type, price discount takes place when a purchase of a product being made involves large quantity, and based on that, discounts are given to the buyer.

These sales promotions generate short-term sales, unless a manufacturer or a retailer always uses multi-packaging for a specific product. In the case of Kinder Surprise, the following promotions are used: two-for-one pack, chocolate eggs with reduction in price, buy 3 – get each egg with 20% discount, buy one get one free. In some cases, there are stands in supermarkets or hypermarkets, to which a person promoting those goods is assigned. Sometimes, companies also do such promotions, that when you buy a certain quantity of a product, there will be a guaranteed gift given to you. With Kinder these kind of promotions take place a lot, because it encourages the Kinder consumers. This can be the case with “best picture competition” or “Buy 5 Kinder Surprise eggs and 2 packs of Kinder Chocolate and get a pair of home slippers”.

30% discount on 6 chocolate eggs

-50% discount if you buy two Kinder Surprise Maxi

The first ever on-pack promotion of Kinder Surprise was launched on September 4^th in 2012 which offered its consumers the chance to win a trip to the home of Kinder Surprise.

Use of price tactics

Selection of a pricing strategy is the seventh stage in the process of establishing prices. The are many pricing strategies that can be used when establish the price of a product.

Differential pricing – charging different prices to different buyers for the same quality and quantity of product. This group of strategy includes four others, which are related to price negotiations, early-bird marketing, periodic discounting. Such do not apply for Kinder Surprise. However, there is one more strategy that suits the product well – random discounting. In the pictures above, there are examples of discounts which were made randomly, not on a specific occasion. Usually, retailers (such as Jumbo, Plus etc) set product discounts on different occasions in order to attract customers. They believe if they have some products with low prices, those customers will be attracted not only to those but also to other products, higher in price.

Product-line pricing – establishing and adjusting prices of multiple product within a product line. If you relatively compare the costs of Kinder product line (Kinder Chocolate, Kinder Pingui, Kinder Bueno etc.), you will notice that the price fluctuations are minor. Kinder uses price lining pricing – having limited number of prices for selected products in a product line. This is done in order to sell the products within a line steadily. If Kinder Surprise was much cheaper than Kinder Delice, than the sales of Kinder Delice would drop a lot in comparison to current sales.

Psychological pricing – designed to encourage purchases based on emotional rather than rational responses. Adjusting prices psychologically becomes a dangerous and a powerful tool. Among them, we see multiple unit pricing practices, prestige pricing and odd/even pricing. Multiple unit pricing practices were explained above in the beginning. Prestige pricing involves setting high prices for quality product. Even though Kinder Surprise chocolate egg is expensive comparing to its cheaper analogues, buyers usually “close their eyes” on this fact, assuring themselves that they pay such a high price for the quality. As for odd/even pricing, the visual example above includes a price of €3.78. A customer is rather to pay €3.78 than (suppose) €4.12. The difference, which is not that high, affects the buyer because it is a psychological price.

Influence of other marketing mix elements

The are many factors to be considered before setting a price of a product. A few of them are related to marketing mix variables: product, promotion and place. I will discuss them in depth.

Product: a price should be set taking into account product quality, its packaging, overall outlook, advantages over comptetitors/substitutes, brand positioning. Kinder Surprise is a product of a valuable brand. It is expected not to be cheap, but slightly expensive for confectionery department. Moreover, the fact that it includes a toy, increases the price of a product. Before setting a price a calculation was made including the price of packaging for a unit, average price of a toy inside the egg, a plastic container to put the toy inside, average cost of chocolate, average cost of paper instructions.

Promotion: a price should be set taking into account the value of all the types of advertisements. Kinder is a mass user of different types of advertisements. All costs spent on telemarketing, newspaper and journal marketing (when such take place) should be added together and divided over the total number of Kinder chocolate eggs produced in a month (if fees are to be payed monthly).

Place: a price should be set taking into account the rent paid for the place of production. It should also include all the transportation costs. In the case of Kinder Surprise wholesalers impose transportation costs on products as they transfer large amounts of different products. Here come also storage fees (rent for a place where Kinder Surprise is stocked). The price of a Kinder Surprise egg is not the same in each country, nor it fluctuates too much from country per country. Transportation costs, warehouse, rent prices differ per country. So do promotion costs and prices of raw materials for producing the product.

Kinder Surprise elasticity of demand

Elastic demand refers to that demand in which % change in quantity demanded is more than % change in price of that commodity. Elastic products/services are usually those which can be replaces, or which when not used, won’t affect the life of an individual. Kinder Surprise is a product that can be substituted, plus consumers do not have strong will for it.

Suppose a retailer shop (Jumbo) sells 25 Kinder Surprise eggs per day with a price of €0,80 per egg. A week later, they receive new goods from the customer and they find out Kinder Surprise has risen in price. Adding their expenditure to the price of Kinder, one egg now costs €1,30 and its sales drop to 10 eggs per day.

Price elasticity of demand=40%/61,5%=0.65

How can a manufacturer influence consumer price?

Price is a dangerous marketing instrument. There are multiple ways to influence the consumer price.

When pricing a new product, manufacturers can use price skimming or penetration pricing. Price skimming – charging highest possible price that buyers who most desire the product will pay. This strategy is widely used as a pricing strategy for smartphones.

Penetration pricing – setting a price below that of the competing price (applied when demand is highly elastic).

Misleading pricing practices which applied in order to intentionally confuse consumers.

Changing the terms of sale – manufacturers may begin to charge for previously free transportation or stop providing free telephone support for example.

Changing the quality of a product – manufacturers may cut on services in order to reduce the expenditures on a produced product. This implies that the quality of the product will go down, nevertheless, it might generate higher profits for the company, because consumers are likely to purchase more. Changing quality of a product can be widely used when competing with a substitute.

Increasing/decreasing the quality of material received – when a price on raw materials increases, manufacturer may either increase the price of the product or decrease the product quantity. For instance, when prices on chocolate go up, a manufacturer may reduce the size of a chocolate bar.

hidden services Kinder Surprise provides

It seems difficult to discuss Kinder Surprise as a product offering services, because intangible products are considered to be services and tangible dominant products are classified as goods. As the product intended for consumers, it is considered to belong to consumer services and not to business services as it doesn’t not have any purpose to satisfy businesses. Consumer is the type of market Kinder Surprise serves.

Firstly, Kinder offers personal service, as it offers consumers an extensive range of toys which are inside Kinder, providing themed toys or those made for the population higher in age. Giving a possibility to buy the product in various package sizes can also be referred to providing personal service. Another service that Kinder Surprise manufacturer provides to a customer is entertainment. Although it cannot be fully accessed like that, but the main idea of a Kinder Surprise is to entertain children, bring some courtesy and delight. Service quality is a customer perception of how well a product meets their expectations (Dibb, Simkin, M. Pride, & Ferrell, 2012, p. 390).

Secondly, Kinder is a well-known brand with a good reputation. It provides assurance as a service quality where consumers can be absolutely confident they get what they want to.

Thirdly, as was already mentioned above, Kinder provides an opportunity for children to show themselves and their talents in drawings or by organising a competition for them. This is an example of empathy, when they care and provide individual attention to each child.

A consumer is not involved in the production process, so consumption of the service takes place separately from production. The services provider is the manufacturer – Ferrero company.

The nature of services has led the marketers to further adapt the marketing mix. There are seven characteristics of it, which altogether determine the level of the service provided to a customer.

Marketing mix for services (7P’s)

Component	Description
Product	Developing custom design for the packaging and the every toy inside a Kinder.
Promotion	Advertising is focused on characteristics that Kinder believes customer wants from its product. Kinder says: “It will bring joy to your child” or they also say “more milk, less cocoa”, where they emphasise their differential advantage.
Price	In general the price for a Kinder Surprise is higher comparing to its substitutes. However, higher price affects psychological behaviour of consumers, because they think Kinder is better than other substitutes. This is also related to the image of the brand Kinder. The entertaining services that Kinder provides for children reflects on the price of the product. Therefore, when discussing higher price of Kinder, we don’t think about services provided by the company which are included in the price.
Place/distribution	It is a low context service as service providers are separated from consumers by wholesalers (supermarkets, shops, etc.)
Process	The manner in which the service is processed becomes customer’s experience. The way the process takes place so it reaches the end customer. The goal of Kinder is to deliver a chocolate egg which is not broken to the wholesalers. After that, wholesalers play an important role on the customer, because their service/staff is important. Therefore it is not Kinder’s job to provide a service just before reaching the customer.
Physical evidence	Delivering a product in a suitably respectful setting. This includes décor, layout, appearance. For example, Kinder might provide additional printed highlighters for in-shop advertising. However, such do not exist, as Kinder products are just represented on a shelf.
People	Kinder provides a service of customer satisfaction. There is a number in each country to which you can call and talk to the trained staff of Kinder if something has occurred.

The tendency of people buying Kinder Surprise is also likely to change if it happens that a consumer, in this case a child, is not satisfied with the toy a couple of times in a row. To ensure that the possibility of a consumer liking the Kinder Surprise toys is as high as possible, the company should always know what is popular in the market, such as movies, cartoons other toys so they can attract the larger number of buyers. More customer contact will improve this aspect.

Kinder might introduce something like questionnaires, which they can send to their customers by e-mail asking about their favourite character. This can be done as a set of multiple choice questions. By doing so at least once a month in different manners, Kinder can improve its sales by knowing what the customer preferences are.

Another idea, is for Kinder to develop their apps. There is an app where a child can create his own character to play. It could be interesting if a child could add all the toys he has to the collection so he can play with the Kinder toys not only in the real life but also virtually. In the digital era it will become extremely popular.

Knowing from my personal research, Kinder provides a service to the chains of bakeries and cafes by selling pastry products. However, it could be nice if Kinder opened its selling points offering all the chocolate products plus other products they provide to their B2B consumers.

There are certain characteristics that can be used to evaluate the degree of product’s quality. For instance, one of the qualities, intangibility, involves difficulty in evaluating, accessing, feeling before the purchase. Applying it to our product, we do not know to what extent a child we buy a Kinder for, will be happy with the surprise, because we do not know what the toy inside is. Given the intangibility of services, marketing them becomes a challenging risk. Kinder should market Kinder Surprise that way so consumers are ensured they get a better service from it then from its cheaper substitutes.

Related to intangibility, inseparability is a quality where production of the service cannot be separated from its consumption. In the case of Kinder Surprise, this quality cannot be performed.

Variability, or heterogeneity, implies quality of services provided by the personnel. A consumer calling to Kinder hotline, can be assisted by different staff. A person might be rude or answering in a way a consumer does not like. As a consequence, the image of Kinder Surprise will fall in the eyes of the consumer. Therefore, it is difficult to control service quality.

Another quality for evaluation is called perishability that happens when an unused service or good cannot be used for future occasions. To deal with the difficulty, a company should think on how to maintain supply and demand for the services. Kinder can keep its demands by introducing new packaging styles or making new sets of a certain product. For instance, Kinder introduced a package of 3 Kinders, or a limited edition of Kinder Surprise with aeroplanes. In other words, the company always thinks of possible ways to keep the consumers be interested in the product even after so many years.

There are five classifications of services where they can be analysed. These are: type of market, degree of labour intensiveness, degree of customer contact, skill of the service provider and goal of the service provider.

Degree of customer contact is important in service marketing as it makes a crucial influence on the customer. If the degree of customer contact is high, it should be of high quality because it will be judged by consumers. Kinder Surprise should train their employees for them to deliver high quality communication.

Degree of labour intensiveness. It is important that consumers know how The product purchased was produced, by which person. Maybe Kinder Suprirse could write the name of the person whose shift it was to use the technology of LASH – a cosmetic brand. This way consumers closely engage with those people who develop the product they buy.

But what keeps the consumers to be continuously interested in Kinder Surprise? What is special about it that even its rivals cannot offer? Nowadays it becomes more and more difficult to maintain customers on your side due to high competition. There are so many eggs introduced by other companies, mainly by local ones in almost each country. Still yet, consumers choose Kinder Surprise over other cheaper substitutions. In Russia for example, there are at least 2 companies which also produce eggs with a toy inside and which are sometimes twice as cheap as their rival Kinder. Also, because of the type of product the company delivers, there is little communication between a customer and the company itself which makes it difficult for a product to be competitive as you don’t know the preferences of consumers. Some other regulations may apply making it restrictive for a company to sell the product. For instance, the ban law in the United States, which doesn’t let Ferrero, put Kinder Surprise on market for many years already.

Kinder surprise distribution and marketing channels

Today Ferrero is one of the largest confectionary companies in the world. Ferrero has product sales all over the world. Kinder Surprise is one of the best-sellers of the company and is at the heart of Ferrero’s success. Kinder Surprise is sold around the world and has a great market power.

Why  distribute?

When a commodity is produced and packed, the next procedure is to distribute it to customers rapidly and widely. The most important decision to be taken is which distribution channels should company use to sell its products.

How distribute?

In fast moving consumer goods (FMCG) market, most company choose channel C to sell their products. Channel C is a long-standing channel, especially for consumer products, it takes goods from a producer to a wholesaler, then to a retailer, and finally to consumers. This is called marketing intermediary, when there is a middleman, who links producers to other middlemen or to those who ultimately use the products (Dibb, Simkin, Pride, & Ferrell, 2012, p. 415). There are two types of middlemen: functional and merchants. In this case functional middlemen resell products of Ferrero as they do not take title to the products.

Looking at the channels of distribution, the one that is used is an indirect one, which implies the fact that the product is being distributed to the consumer through intermediaries (agents/wholesalers/retailers). The direct one does not take place since a teenager cannot purchase a Kinder Surprise himself from the company, and cannot order it from their webpage either, since Ferrero sells only to other businesses. In its turn, indirect channel length can be long and short. Long indirect channel is applied to Kinder Surprise.

Global distribution makes Kinder Surprise spread in every corner of the world. Products flow from manufacturers to retailers freely and fast accelerating the speed of final transaction. Except that, internet has a powerful distributor too. Shopping online becomes a fashion trend. Professional websites such as Ebay, amazon provide formal platforms to sell goods. One example of the online retailer I found is Brand Distribution – the source of best FMCG brands and services (B2B brand distribution, 2016), where other businesses such as supermarkets can purchase Kinder products in large quantities.

Which type of marketing does this category fall to?

The type of marketing that is used selling Kinder Surprise or other Ferrero products is retail marketing. In retail marketing it is the retailer who promotes awareness and sales of the company’s product. Supermarkets, hypermarkets, small shops use in-store promotion, various stands, in order to show Kinder Surprise products and make them attractive to the customer. The promotion expands to use of billboards, TV advertising and magazine/newspaper advertising by the supermarkets.  

How do retailers influence consumers’ decisions?

As it was mentioned above, Kinder Surprise sales, when in the supermarket, directly depend on a retail store, its promotions and influence this brings to a consumer. People are less likely to buy a product if the shelf is disorganised and a few items are left, for instance. The display cues and product quantity are directly controlled by the managers.

Consumers are influenced by the retail environment, whether there is another competitor’s chocolate eggs next to Kinder Surprise, or whether there is a promotion stand, whether the shelf is directly visible for a consumer or he has to look for it, whether the stand for Kinder is directly next to the cashier so the child can take it on the way out.

Successfully organised shelves and promotions gain more customers and subsequently more profit. When they sell a lot of Kinder eggs, Ferrero would prefer that retailer in particular to any other one.

The choice of a distribution strategy

There are three distribution strategies: intensive distribution, selective and exclusive. The one that is used in Kinder sales is the intensive one (Dibb, Simkin, Pride, & Ferrell, 2012, p. 427). It is used commonly to distribute low priced products or impulse purchases. Soft drinks, chocolate, snacks, bread are a few examples, which belong to this category.

Marketing channel functions

Marketing channels serve many functions. The function of creating utility is fulfilled by the retailers as they are the ones who make products available in the places where consumers would like to purchase them.

The function of facilitating exchange efficiencies is related to the intermediaries (wholesalers and retailers) because they are those who can regulate the additional price on the product (transportation costs etc.). The function of alleviating discrepancies is related to the retailers because they are the ones who provide to the consumer the necessary quantity of Kinder Surprise in one pack and the assortment in which the consumer is interested.

The function of standardizing transactions belongs to both retailers of Kinder Surprise and the manufacturer – Ferrero. This is because a retailer can change the price according to specific season: if it is Christmas, the prices will go up, for instance. The prices can also go down, when Kinder Surprise becomes not that salable, however, there should be specific price Kinder sets, which Kinder Surprise cannot go lower than, as it will be a bad image for the company. For instance, a retailer will never be allowed to sell a Kinder Surprise at a price of 30 cents.

Providing customer service function is done by the Ferrero company, however there will be rare cases when it will be done. In such cases such as choking hazard by a child or when a toy inside a chocolate egg is damaged/malfunctioning.

Secrets of merchandising

I visited almost all the supermarkets in Deventer, the Netherlands to complete my marketing assignment by comparing how my chosen product (kinder Surprise) is sold in each one of them. The stands were compared, the level of product’s position, supermarket’s decorations, staff clothing etc.

Jumbo and Albert Heijn were ones of those which had Christmas decorations all around the shop. Jumbo had even more of them, including multiple Christmas trees around the supermarket, decoration at the entrance and various Christmas tree branches on horizontal stands. The atmosphere these two shops create is also brought by Christmassy music that puts customers “in the mood”. Plus and Dirk van de Broek had more chilling music, slow and hasteless. Low-cost shops, like Aldi and Lidl, had no decorations, nor music. What attracts the eye as soon as you come to Aldi, however, are the advertisements, which are attached to the ceiling.

As for personnel’s clothing, Jumbo’s stuff wears yellow and black shirts, which are the colours of the supermarket logo, shelves and other representative parts of the outlook. On their backs, there is the name of the shop written in capital letters, which makes it visual for the customers. Same way, Albert Heijn provides their employees with blue shirts (the logo of AH is blue). The abbreviation of the name of the shop is on one of the hands in small letters.

At Plus, staff wears green shirts and is always concentrated (from my experience) in one of the sides of the shop because they are more a collectivistic society (talking and doing everything together). At Dirk, all the staff are assigned at their specific areas. They wear red clothes with “DIRK” in capitals written at the back. At Lidl they have very little staff and they wear navy blue clothes. In Aldi, the only person I saw from the staff was a cashier, which was surprising for me.

At Jumbo, Kinder Surprise was located straight in the line after the entrance in the chocolate/jelly beans department. This location was chosen along with department allocation, and is followed by cookies shelves, jams, soft drinks, so-called sweet stuff. Jumbo also has Kinder at the till, which attracts children’s attention on the way out of the supermarket. In Plus, Kinder Surprise is placed exactly at the same places as in Jumbo: in the confectionary department and at the till. Only confectionary department in Plus is located almost on the way out of the supermarket.

In Dirk Kinder is located only in the confectionary department, which is on the way out of the supermarket. There are no products at the till. In Aldi it was hard for me to find Kinder Surprise because there, everything was mixed together. Eventually, I found it at this place:

Interesting to notice how on these three pictures of different shops  Kinder Surprise is positioned. Firstly, it is always placed at the bottom, with a possible purpose of attracting young consumers due to their height. Secondly, it is always placed “on the shelves on the edge”.

Thirdly, chocolate boxes are always put together with Kinder on one vertical shelf. The most known brands are located on the level of the average consumer height, following the rule eye level is buy level (Zaretckaya, 2016),

Three following supermarkets were compared: Dirk, Jumbo and Plus. Certain value brands are offered: Twix, Mars, Snickers, Bounty, MilkyWay, Kit-Kat, Toblerone, Merci, Milka, Cote d’Or, Ferrero. From own-label offerings, there is a substitute to Kinder eggs (2^nd picture), truffles, various chocolate bars, fudge, formed chocolate.

In all the shops from the pictures Kinder Surprise was presented in a box of three eggs. At the tills of Jumbo and Plus, there were also Kinder eggs that were sold as a sole item. The number of facings of Kinder Surprise was two in Jumbo and Dirk, and only one facing in Plus. Other products of competing brands have even more facings – 3, 4 and even 8, however in some shops it is relatively the same.

In Jumbo, the share of space allocated for Kinder products is relatively big: about 2 metres, which makes Kinder win the majority of brands, except Milka, which place is 3 times as large – 6 metres long!!!! In Plus, Kinder only takes about 60 cm, losing to Milka, Cote d’Or, Tony’s, Plus brand. At Dirk Kinder as a brand has the majority of space – 1 metre. They say that facing should take at least 40 cm on a shelf, otherwise it is not effective. It also should not be too long.

At the till in Jumbo, Kinder again takes the majority of space – about 30 cm from the given 70 with 3 other brands. Three facings here this time (more), because the product is presented in a less bulky package.

Kinder is a brand-wholesaler. They have their own branch where from they sell their products to businesses such as hypermarkets, shops etc. Nevertheless, as they are a huge global company they depend on their distributors.

All those supermarkets are retailers.  A retailer is a business that purchases products for the purpose of reselling them to the ultimate consumers, the general public, often from a shop or store, but increasingly also online (Dibb, Simkin, Pride, & Ferrell, 2012). It includes all transactions in which the product is purchased with the goal to be consumed by the family/household.

Kinder Surprise can also be bought through non-store retailing (online), however then it will be ordered in larger quantities.

Transportation of the products is done by distributors and not by Kinder itself. The company is too large to handle such activities. One of the distributors of Kinder is Atlantic Grupa which distributes Ferrero products throughout Eastern Europe (Atlantic Grupa, 2016).

If anything happens to the product, Kinder is the one responsible for it. In this case Kinder takes title to the products and not a convenience store. An example of it can be a 4-year old child cutting a finger because of the toy where Ferrero becomes liable due to the imperfection of the product.

Example of a brand positioning questionnaire and a perceptual map

Brand positioning questionnaire is useful in order to follow the preferences of the chocolate lovers. What it can also be used for is to determine which features people find to be the most important when buying chocolate, for instance price, quality or package deals...
I made up a questionnaire in order to then determine these points and preferences with the help of a perceptual map.

1.       What is your age? ________________

2.       Rate the following attributes (1 to 5) based on their importance when purchasing a chocolate for your child. (5 being most important and 1 being least important).

	5(most important)	4(important)	3(neutral)	2(not that important)	1(unimportant)
Flavour
Colour
Price
Brand name
Sales and package deals
Quality

3.       Rate the following brands (1 to 5) according to your preference. (5 being very favourable, 1 being unfavourable).

	5(highly favourable)	4(favourable)	3(not of strong preference to a product)	2(unvafourable)	1(highly unfavourable)
Kinder
Mars
Snikers
Milka
Bounty
M&M’s
Kit-Kat
Nuts
MilkyWay

4.       Rate the following brands (1 to 3) according to its affordability. (3 being affordable, 1 being unaffordable).

	3(affordable)	2(neutral)	1(unaffordable)
Kinder
Mars
Snikers
Milka
Bounty
M&M’s
Kit-Kat
Nuts
MilkyWay

5.       Rate the following brands according to the frequency of purchasing.

	1(once a week)	2(twice a week)
Kinder
Mars
Snikers
Milka
Bounty
M&M’s
Kit-Kat
Nuts
MilkyWay

6.       Select a number of brands you would rather choose for a child.

Kinder
Mars
Snikers
Milka
Bounty
M&M’s
Kit-Kat
Nuts
MilkyWay

This questionnaire was filled in by 3 of my classmates. I won't publish their results in here to not take a lot of space, but they will be taken into account in order to make the perceptual map. Perceptual map can determine the position of a company's product in relation to those of the competitors.

It means that Milka has the highest preference between the chocolate consumers. The second most preferable brand is Kinder. Brands going to the left have less preference among consumers. M&M's is the most expensive chocolate brand comparing to the other eight. All those brands above the line are relatively on the same price level with minor fluctuations.