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Low & behold

Brands are using low pricing strategically, irrespective of their positioning, drawn by the sheer numbers of potential Indian consumers, report Anita Sharan and Rachit Vats.

business Updated: Nov 16, 2009 00:16 IST

When products that are not necessarily targeted at mass consumers start playing the low price game, it’s noticeable. India’s promise of a massive consuming audience that’s still to be tapped, is seeing many brands either paring their prices down or creating lower-priced options in order to make an entry into consumer homes.

The effort is not really tactical — as in generating short term sales spikes. The idea is to get into consumer homes and then stay on there. Sharda Agarwal, director, MarketGate Consulting, expands: “India is a huge market but in consumption, we are a decade behind China. For brands, there are two options: drop prices and/or change

PRICE LANE

Parle: Pricing its cream, Marie and bourbon biscuits consistently lower than Britannia’s, Parle Products has managed to dent Britannia’s market share, while growing its own market share appreciably.

Cruze: General Motors India’s new launch from the Chevrolet stable, Cruze, is the lowest price car brand in the D segment, which has seen first month sales exceeding expectations.

Tata Sky: By offering its premium-end set top box at a 50 per cent discount during Diwali, while not reducing its service prices, Tata Sky stimulated a higher-end consumership that it expects will stay with it in the long` term.

Cadbury Perk: By adding more grammage and not increasing prices on the new glucose-enriched Perk, and supporting it with enhanced distribution, Cadbury is looking at expanding the chocolate market that it leads.

consumption habits. This can mean that manufacturers will redesign their products to suit acceptable price points.”

Essentially, it’s about stimulating consumption. Says Agarwal: “This effort by brand owners is set to continue till the Indian consumer gets comfortable with the idea of consumption.”

The lower price game could be played competitively, used as an entry strategy, or be directed at impulse or consumption stimulation. Parle Products, for example, is giving Britannia a tough run with its lower-priced products in the cream biscuits, Marie and the bourbon biscuit segments.

Krishna Rao, group product manager, Parle Products, says, “Parle has always gunned for the value seeking consumers. In the bargain, we have been able to snatch some of Britannia’s market share, despite the fact that its target group was different from ours.” In cream biscuits, Parle’s Cream Centre comes for Rs 5 for 80 gm against Britannia’s 72 gm at the same price. Parle Bourbon is priced at Rs 10 and Rs 20 for 70 gm and 167 gm respectively, while Britannia Bourbon is priced at Rs 10 and Rs 22 for 70 gm and 167 gm respectively in western India, while in the rest of India, it is priced at Rs 12 and Rs 22 respectively. And Parle Marie Gold is priced at Rs 10 for 143 gm in the north and south markets, Rs 13 for 169 gm in the east and Rs 15 for 230 gm in the west, against Britannia Marie’s Rs 13 for 171 gm.

As an entry strategy, General Motors India launched its luxury sedan, Cruze, last month at a much lower price — the lowest in the D segment — than competitors Honda Civic, Skoda Laura, and Volkswagen Jetta that are priced between Rs 12 lakh and Rs 18 lakh. Cruze’s two diesel variants are priced at Rs 10.99 lakh and Rs 12.45 lakh.

In a month since it launched, Cruze has sold 812 units — more than it had expected to sell. Explains P. Balendran, GM India’s vice president: “Cruze’s price is very competitive. As the last entrant in the segment, we had to do something different. We used lower price point as a strategy to penetrate the market. Cruze is all about value.”

DTH service Tata Sky, which has been gaining market steadily, offered a 50 per cent off on its premium – Rs 10,000 – product (set top box) Tata Sky Plus during Diwali, to expand its consumer base.

Growth in DTH households has been the highest in the television industry, with the compounded annual growth rate (CAGR) between 2004 and 2008 recording a whopping 208 per cent jump, to touch 11.5 million households, according to a PricewaterhouseCoopers report.

Vikram Mehra, the company’s chief marketing officer, explains, “Tata Sky comes at a premium of around 80 per cent over competition. Yet in July, we had a four million strong loyal customer base. We wanted to get a larger mass of people to experience what our product was about. The discount brought that sense of urgency in with consumers who were still the best quality. After that, we work to keep the customer with us over the long term. For us, price plays a strategic role.”

As for the Diwali discount of Rs 4,999 plus Rs 1,000 for installation instead of the regular Rs 8,999 plus Rs 1,000 installation, Mehra informs: “We were targeting eight-10 per cent of our monthly sales but we earned far more than that. On October 1, waiting time for new connections was 10 days.” Tata Sky also ran the Aamir Khan-endorsed ad campaign for Tata Sky Plus, which enables recording of programmes.

Impulse consumption stimulation is seeing a number of brands play with low pricing to induce a move from occasional impulse buys to habitual purchasing. The Rs 10 recharge option in mobile phone services is an example. Or Pepsi Foods creating a new Rs 3 price point for Kurkure and Lay’s small packs. Or Kellogg’s offering 100-200 gm packs at lower prices rather than its usual large packs that earlier dominated retail shelf space. Clubbed with advertising that positions Kellogg’s as an evening snack.

Cadbury, which relaunch-ed Perk in a new glucose variant, is offering more grammage for the same price — 21 gm for Rs 5 and 7.5 gm for Rs 2. The aim is to expand consumption and the market. Enhan-ced distribution, affordability and visibility are in focus.

V Chandramouli, executive director (strategy), Cadbury India, says, “The idea is to significantly increase consumption. We aim to increase our distribution outlets by 30 per cent in 2010 to reach newer markets.”

In the Rs 2,000 crore chocolate market, Cadbury leads competitors Nestle, ITC and SmithKline Beecham with a 70 per cent market share. Its share of advertising in the category is 74 per cent, way ahead of Nestle’s 16 per cent.

Undoubtedly, marketers are looking at where the numbers are. That’s India’s biggest pull. Price, therefore, cannot be all about short-term tactical gains, but will have strong strategic importance.