©TNS

TNS Value Manager

A new method to predict consumer choice for optimal price strategies

©TNS

Overall, Russian consumers are…

More money conscious

Less happy about

standards of living

Are worried about the price

increase

1

©TNS

The shoppers are becoming more money conscious…

3

50%

58%

49%

43%

25%

35%

45%

55%

65%

2008/1 2009/1 2010/1 2011/1 2012/1 2013/1 2014/1 2015/1

% of population

+8ppSilly to spend money on luxury goods

–6 pp Do not go to cheap stores

2015 vs. 2008

Source: TNS, Marketing Index / TGI, Russia (cities 100+), Base: 18+ y.o.

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…and are better planning their purchases

4

48%

50%

37%

29%

47%

56%

25%

35%

45%

55%

65%

2008/1 2009/1 2010/1 2011/1 2012/1 2013/1 2014/1 2015/1

% of population

+2ppMake no unexpected expenditures

–9 ppSpend money without thinking

2015 vs. 2008

+9ppAlways read carefully the product ingredients

Source: TNS, Marketing Index / TGI, Russia (cities 100+), Base: 18+ y.o.

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Claiming changes in consumption people tend to save money in different ways:

5

reduce budget… …or leave categories

Focus on promo and sales

Change price segment

Lapse some categories

Switch to DIY

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Building a pricing system around better data

6

"When we started to take pricing seriously, we realized that we needed not only to collect better data but to be more systematic about using it.“

(Petr Partsch – sales chief for Linde Gases, Czech Republic)

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Better data with Technology Enabled Research

7

We’re listening, but are we learning?

We’re collecting data, but are we listening?

/ ˈlɪsn / [verb]

to hear what someone has said and understand that it is serious and important

/ lɜːn / [verb]

to improve your behaviour as a result of gaining greater experience or knowledge of something

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A behavioural framework of consumer choice

8By 2017, 87% of connected devices will be smartphones or tablets

Behavioural framework of

consumer choice

Choice Model

Intelligent interviewing

Behavioural Economics

The expanded model puts buying decisions into context:

Consumers actively “build” their choice sets

Buying habits, price knowledge and brand images inform sets and choices

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Intelligent communication with active consumers

9

...

Task 1

Intervieweemakes her choice

New scenario is designed on the fly

Task 2 Task 3

utilitybalance

utilitybalance

Individual context data - habits- knowledge- perceptions

Intervieweemakes her choice

Design algorithm computes a tailored choice scenario with relevant products

New scenario is designed on the fly

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Two-fold innovation

10

Behavioural Economics

Habits, heuristics and cognitive limitations of decision makers inform the design

Context information is treated as signal, not noise

Intelligent interviewing

Rather than survey passive respondents, we interact with individual consumers

We get better data from shorter, simpler interviews

Market simulations

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A case study

12

Market simulations are the key output of our pricing tool:

How strongly will buyers react to new pricing scenarios?

In our case study we look at the German beer market in

the first 26 weeks of 2015.

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Weekly market simulations for Krombacher 20x0.5 ltr

13

w1 w2 w3 w4 w5 w6 w7 w8 w9 w10 w11 w12 w13 w14 w15 w16 w17 w18 w19 w20 w21 w22 w23 w24 w25 w260%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

market share

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Weekly market simulations for Krombacher 20x0.5 ltr

14

w1 w2 w3 w4 w5 w6 w7 w8 w9 w10 w11 w12 w13 w14 w15 w16 w17 w18 w19 w20 w21 w22 w23 w24 w25 w260%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

market share

conventional method

Conventional choice models tend to overestimate the impact of price changes

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w1 w2 w3 w4 w5 w6 w7 w8 w9 w10 w11 w12 w13 w14 w15 w16 w17 w18 w19 w20 w21 w22 w23 w24 w25 w260%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

market share

conventional method

new method

Weekly market simulations for Krombacher 20x0.5 ltr

15

Mean deviation is reduced by

22%

The new method predicts the impact of price changes on consumer choice much more accuracy

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Listen to each respondent and learn

16

Our behavioural framework implies that the individual

context of choice matters:

Does the individual respondent know prices?

Which brands are in her purchase repertoire?

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The role of price knowledge

17

We expect that buyers with little or no awareness of

prices in the category are less price-sensitive.

Do we find that in our market simulations?

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The role of price knowledge

18

9.99 € 10.99 € 11.99 € 12.99 € 13.99 €

with awareness

without awareness

Conventional method

9.99 € 10.99 € 11.99 € 12.99 € 13.99 €

New individually adaptive method

25%

Differential impact leads to realistic predictions of price elasticity

Krombacher changes

in price, all others

remain constant

5%

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The role of brand repertoires

19

We expect that consumers do not change their habits easily.

They will be price-sensitive if a particular brand is in their

purchase repertoire. If they never bought a brand in the

past, they will ignore price changes of that brand.

Do we find that in our market simulations?

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The role of brand repertoires

20

9.99 € 10.99 € 11.99 € 12.99 € 13.99 €

occasionally bought

never bought

9.99 € 10.99 € 11.99 € 12.99 € 13.99 €

25%

Krombacher changes

in price, all others

remain constant

Differential impact leads to realistic predictions of switching behaviour

Conventional method New individually adaptive method

5%

©TNS

Better data in a mobile world

21

By 2017, 87% of connected devices will

be smartphones or tablets

When interviewed on mobile devices

50%interrupt the interview at least once.

After 10 minutes on a smartphone

40%drop out.

Mobile devices need shorter, smarter communication.

©TNS

Fewer data in a mobile world

22

Smaller displays, shorter attention spans

Fewer questions, fewer data per respondent

©TNS

Weekly simulations for Krombacher 20x0.5 ltr

23

w1 w2 w3 w4 w5 w6 w7 w8 w9 w10 w11 w12 w13 w14 w15 w16 w17 w18 w19 w20 w21 w22 w23 w24 w25 w260%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

market share

new method PC/Laptop

new method MOBILE

…Simulations from mobile data are slightly less accurate, but still very close to real market shares

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Building a pricing system around better data

24

Behavioural Economics

teaches us that context matters: Habits and heuristics inform buying decisions

helped us to build a behavioural framework around our choice models

Intelligent interviewing

Saves time and gives us better data

enables mobile surveys even for demanding prediction tools