Also let's think about the cereal business, right?
Cereal is a great habit.
You go there, you buy always their same cereal, the corn flakes, the same.
And breaking the habit is a torture for the family.
No, hey mommy, where are the cereals that I like?
So you're not going to spend 4,
5 euros on a big box of a new cereal that you don't know you're going to like.
So what do they do many times?
They create a small box of 1 euro, yeah, that says hey,
you know, try our new cereal, only 1 euro, a small box.
And the cost is 1 euro, it's nothing.
If you don't like it,
you probably don't have any more to eat even if you won't like it.
So it's a great thing they do, and by the way, just check the unitary price of those
boxes, it's actually higher than the unitary price of the 4 euros box.
So at the end you make a lot of money on those.
It's not that the company's losing money.
And the last example that I want to mention here,
is imagine a company like Netflix, that now is getting into Spain.
What they've done is they said, first month free.
First month is on us.
So what they are doing?
They are lowering a lot the barrier to entry,
so if you were thinking should I sign up for Netflix or not, it's 10 euros?
10 euros is not a lot, but for many people it's a stopper.
So what they say?
Hey, we give you the first month for free.
You say okay, why not?
I'll try it, I'll watch like 30 movies.
And then if I like it I will stay.
And the thing about that is that they are playing also the reciprocity game, right?
They give you something for free at the beginning and
then you feel bad if you don't give them something, your money, right?
So it's a really good promotion mechanic that they are using there, yeah?
>> So before, you already mentioned that timing seems to be important.
You highlighted, for instance,
that especially before Christmas, companies are doing promotions.
Can you tell us a little bit more about the important of
timing when it comes down to price promotions?
>> Of course. I mean,
let's put an example of this Christmas, yeah?
When you say this Christmas, the Black Friday became crazy, in Spain at least.
So look at all of the many of the popular retailers they're starting doing
promotions as of November, when typically it was seventh of January, no before.
So you have different retailers,
some of them have the theory that I should start promotions, the earlier the better.
I know I won't sell as many items at regular price, but I will steal
all of the spend that many people want to spend in apparel and clothes.
Instead of going wherever, to they will come to me, right?
So, yes, my margin percentage will be lower, but my volume will be much higher.
So at the end my total profit will be much higher.
So that's what we have seen the last years, promotions come earlier and
earlier in the year.
Another thing that I mentioned is what you just said.
Within the month, yeah,
you will see at the beginning of the month as people just got their paycheck,
you'll have lots of volume promotion, say four for three, three for two.
And as the months move people are starting to get short in cash,
you will see more like pure price discounts towards the end, right.
Like 30% discount on this, 40% discount.
Because people cannot afford to do volume promotions, so
they will go on the price discount ones.
>> So before you mentioned as well that promotions, to a large extent,
could be targeted at gaining customers from the competition.
So it seems to me a little bit like a loser's game.
Could we actually win,
or is everybody losing because everybody engages in price promotions?
>> Of course, but before,
let me tell you that this growth is the toughest to achieve, right?
Because you're not talking about your regular consumers that
already have a habit.
Your new consumers, see, they're new to the category or coming
from competitor you need to change the habit, which is really, really difficult.
So it's always easier to grow from existing consumers than from new ones.
Having said this, you need to give them an incentive, right, to lower the barrier.
Typically some very aggressive price discount.
Let me give you an example.
Yesterday I was walking down the street and I passed a Taco Bell and
just in front Someone gave me a flyer.
2 euros for your nachos, come and enjoy right?
It was right after in front of the store, in the moment of consumption,
and I felt like okay, 2 euros, this is cheap, they are not making much profit.
But in the end they give you this, you are with your girlfriend, with your friends,
okay let's go here.
Just 2 euros, let's enjoy.
You go there, give me this, please?
Would you like some beers with it?
Okay, why not?
Would you like a burrito?
Okay, let's have a burrito here to share.
And at the end you're not spending 8, 10 euros, yeah?
And they're making a lot of profit.
So the idea of these offers is, again,
what I said before, is you need to choose the right offer that does not cannibalize
your source of revenue, but that is like bait for people, yeah?
So that at the end they go to you this is nothing and
they kept spending money and money.
Either in drinks or in other food.
So this is a great example that I wanted to share.
Also when you think about this is price this is not as much promotion, but
it's pricing as a business strategy.
Think about Amazon, what they do with their tablet, right?
It's 40, 50 euros.
It's one-tenth of the price of an iPad.
Why do they do they do this?
Because their main source of revenue is not selling tablets,
it's selling content, yeah?
So if you don't have the tablet, they cannot sell you content.
So of course you don't make much profit in selling the tablets, but
they make all of profit in selling the content.
So this is not the promotion but the pricing of the study.
The same as gas stations, yeah?
When you go to fill the tank of your car the Carrefour gas station,
are they making any profit?
Probably not, yeah?
Because it's typically 10% cheaper than when you go to any other company.
But the idea is that once you're there, you will say, why I shouldn't get
groceries for the entire week here at Carrefour once I'm here.
So yes they are not getting any profit in the gas station but
they're getting a lot of money making the final destination Carrefour, yeah?
>> Fantastic Alejandro, it was a pleasure having you today.
Thank you so much.
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