PRICING STRATEGYPRICING STRATEGY

Most Important “P”Most Important “P”

Price is the exchange value Price is the exchange value of the product. It is the of the product. It is the amount of money needed to amount of money needed to acquire a product/ service. acquire a product/ service.

Pricing is the most important Pricing is the most important strategy in rural marketing. strategy in rural marketing.

Factors affecting Pricing: Internal & ExternalFactors affecting Pricing: Internal & External Internal Influences: includes cost and company’s

pricing objectives. These are under the firm’s control to make compatible with external environment.

Cost:Cost: the company has no choice but to devote enough resources for production, distribution, production, distribution, proper packaging, credits andproper packaging, credits and communication communication strategiesstrategies suitable for marketing. Regional and local players take advantage of low distribution costs and focused marketing efforts to offer their products at competitive prices.

Pricing:Pricing: must be compatible with the marketing strategy, including target market selection and positioning. This should have a balance between quality on offer and price.

Pricing ObjectivesPricing Objectives

Objectives include: Objectives include: -profit maximizationprofit maximization in the long run (sell more

nos. and cheaper)-minimum returnsminimum returns initially till consumers get

hooked (recover distribution and production costs)

-deeper penetrationdeeper penetration of market (smaller packs)-keeping up with the competitionkeeping up with the competition (Videocon

radios) etc.-OthersOthers such as social & ethical reasons, Prestige

pricing etc.

Videocon StrategyVideocon Strategy

Videocon was one of the first companies to enter the rural market with a plethora of products in the home appliances category. It attacked market leader Philips by launching a radio set for Rs.180 (Philips radio costs Rs.250) and grabbed a major chunk of the market. It continued with a similar strategy for its black & white TV, ‘Washer’ washing machine and Walky range of cassette players.

External Influences:External Influences: The customers, suppliers, competitors and the legal environment are key issues that the company can do little about.

Customers: their price-sensitivity is what affects the company strategies. More than 90% of rural population earns less than Rs. 1 lakh per annum and income is seasonal for many.

Thus biggies like Samsung and LG promote their products during harvest season which also coincides with the marriage season. Others extend installment payment facilities to push sales during the lean period by collaborating with banks and finance companies.

Factors affecting Pricing: Internal & ExternalFactors affecting Pricing: Internal & External

Chik’s successChik’s success CavinKare realised that for a family of 5 members

at Rs.2 per sachet and a minimum of 4 hair washes/per person/ per month would mean a Rs.40 spend for shampoo alone. This the company knew was much beyond the reach of an average rural family.

Thus it re-worked its marketing formula and came out with a product that was priced at 0.50 paise. Today 65% of the company’s sales comes from rural markets.

Suppliers:Suppliers: Companies have to consider the compatibility with the retail format and mode of payment. Usually the retailer in a village is compelled to extend credit to his customers, while the retailer in a haat sells only on cash as his customers come from many surrounding villages. Companies may need to have sub-stockists to extend distribution but again this would increase channel costs.

Competitors:Competitors: With rural market showing lots of potential, every company has taken interest and stepped in to service the wants of the consumer. With such a huge number of firms in this market, both local players and MNCs find challenges from each other.

Eg. When the whole toothpaste market faced a slump and de-growth in 2001, Anchor switches was one company that braved the heat and brought out it’s Anchor ‘vegetarian’ toothpaste. Priced much cheaper than the rest of the lot, the company quickly seized 4% of the market.

Honda: Self finance strategyHonda: Self finance strategy That rural areas are still in need of

basics like electricity, water and roads is a known fact. Honda realized that though a generator was a product that shopkeepers would love to have, even the cheapest priced genset was Rs. 20,000, which was much beyond their reach.

So Honda came with a novel scheme of ‘self-management’ where every month the shopkeepers would put Rs.1000 into a lottery. The person who won the lottery would be gifted the Honda genset. The scheme was repeated every month till every shopkeeper who participated received a genset. Thus Honda got its profit and the shopkeepers were happy!

Pricing StrategiesPricing Strategies Before strategizing pricing for rural markets, we need to

understand rural income and occupation patterns as these have a direct relationship with pricing decisions.

CultivatorWage Earner

Salary Earner Petty

shopkeeperOthers

0

510

1520

2530

3540

45

Cultivator SalaryEarner

Others

Urban

Rural

Optional Product Pricing: is the pricing of optional or accessory products along with the main products. Eg. Mahindra can sell its tractors for a lower price but charge higher prices for servicing and spare parts. Consumer durable giants like LG, Samsung, Onida and Videocon are using this pricing strategy to penetrate into villages and small towns.

Captive Product Pricing: this is setting a price for products that must be used along with the main product (similar to Gillette’s strategy of pricing a ton for the blades). Also called two-part pricing there is a fixed fee and variable usage rates. Eg. BSNL offered free telephone connections to rural consumers. ITC also kept no charges for its net facilities but charged for other transactions when using its e-Choupal

Low Price Points:Low Price Points: Since 1/3rd of rural people are daily wage earners, they never have enough to invest in bigger pack products.

HLL sells maximum number of its products in sachet packs in rural areas. Its’ Pepsodent is available in packs of Rs. 4 (target consumer is rurals and travelers)

Chota Coke turned the fortune of Coca Cola. Nestle priced its Maggi noodles and Kit Kat at Rs. 5. Even a premium brand like Taj Mahal tea is available in

paise packs in rural areas with a sub-brand ‘Janata Blend’.

Tata Tea on the other hand launched ‘Agni tea’ to compete with loose tea powder.

Avoid sophisticated packaging: incurring high costs on good packaging will not do much as rural people are more concerned about what’s inside.

Refill and reusable packs: This would do wonders as rural people associate such products with more value. Thus Shell lubrication oil attracted a stream of truck owners with its high-quality reusable containers.

Highlight value, not price: Hero Honda CD 100 motorcycles Hero Honda CD 100 motorcycles are popular in rural areas as the company highlights are popular in rural areas as the company highlights mileage, maintenance costs and higher resale valuemileage, maintenance costs and higher resale value

Product-bundled pricing: by combining several products and offering as a bundle at a reduced price, the consumer again sees it as increased value. It is extensively used during the marriage season and festival times.

HLL launched combo packs of a Clinic HLL launched combo packs of a Clinic shampoo, Pepsodent, Fair& Lovely, Pond’s shampoo, Pepsodent, Fair& Lovely, Pond’s talc. Different sizes were marketed at talc. Different sizes were marketed at different prices. HLL hoped that by bringing different prices. HLL hoped that by bringing in new users the company could gain from in new users the company could gain from awareness and increased usage later.awareness and increased usage later.

Market Entry StrategiesMarket Entry Strategies

Penetration Pricing:Penetration Pricing: involves setting prices of products relatively low compared to those of similar products in the hope that they will secure wide market acceptance, which will allow the company to raise the prices at a later date.

This is done when the company is entering a market with strong competition and when production is large-scale enough to allow economies of scale in production and distribution.

Eg. Anchor White

Farmers in Jeans?Farmers in Jeans?

Arvind MillsArvind Mills did the same by revolutionizing the concept of Jeans pants. Studying the rural market it found that an average pair of jeans priced at Rs. 300 was much above the reach of the rural consumer. There was also scepticism in wearing ready-made fit clothing.

Thus Aravind brought out its Ruf n Tuf kit at Rs. 195 which was ready to stitch with zipper and buttons. The product was taken deep into villages and tailors were even trained. The strategy worked and within first 2 months, the demand crossed 10 lakh pieces.

Economy Pricing:Economy Pricing: no-frills low price. Cost of marketing and manufacturing are minimized with limited investments in branding. Targeting people who are not bent on brands. Best for commodities such as pulses, rice and spices.

Value Pricing:Value Pricing: Done when increased competition forces company to provide ‘value’ products at lower prices. Eg. Godrej soaps offered rose, sandalwood and neem ingredients at economic prices.

Coinage Pricing:Coinage Pricing: Best for rural markets. Very convenient for retailers and consumers avoidind problems of change. Usually it is directly proportional to pack size. Eg. HLL sells Pepsodent, Pond’s Dreamflower Talc, Pond’s cold cream, Rin, Taaza, Fair & Lovely, Clinic Plus and Lux at Rs.5.

Psychological Pricing:Psychological Pricing: Pricing Bata at Rs.199.95 can have tremendous results, although the consumer knows he is paying Rs. 200. Consumers on the other hand also tend to equate quality with pricing and so consider LG a better buy than most other TVs since it is costlier. Thus the snop appeal to R1 consumers also needs to be taken into consideration.

Discounts:Discounts: Since rural people are highly price sensitive, discounts are always a welcome sign to buy. But there might also be a risk that consumers start believing that the discounted price was the actual price and earlier the company was charging a higher price!

Thus a more effective discount would be Quantity discounts where the company offers a 120gm toothpaste at the price of 100gm. But here too in cases of flour, salt etc. the consumer might tell the retailer to keep the extra and adjust the price!

Free gift:Free gift: Most effective as a price adjustment strategy in rural India. Must ensure the compatibility of the gift. Eg. Toothbrush with toothpaste, cup with tea etc.

The problem is that with bigger companies, the gifts usually do not reach the end consumers. Retailers or stockists do not pass on the free gift to end consumers. As rural consumers are illiterate and ill-informed, they would not know even if it were printed on pack. In many cases the retailer replaces the gift with another substandard item which does more harm than good for the company image.

Eg. If a detergent were to gift a good quality bucket, the retailer replaces it with a low quality one and sells the other in the market.Thus only solution is to put the gift in the pack (where size permits), else show the picture of the gift on the cover.

Alternatively, paint the price as done by asian paints and nerolac on the pack itself for direct and easy communication.

Special event pricing – Ex: Hero Honda ran a van campaign before the harvest season in rural areas and took bookings against a token deposit of Rs. 500 and gave a watch free in return. At harvest time customers surrendered their booking coupons to purchase bikes at discounted rates.

Discriminatory pricingDiscriminatory pricing

Customer segment pricing – Ex: A hospital targeting the rural masses could charge lower fees for women and senior citizen.

Ex: Retailers do not pass information about schemes and sell products at MRP to people who buy on credit while offer the same product at lower prices to people who buy on cash.

Product form pricing – Ex: Mosquito repellant coils or mat packs are opened and sold piece by piece at a higher unit price compared to the pack price

Locational pricing – Ex: People can buy the product at a lower price in nearby towns as compared to the price they would be charged by the village retailer. The product is also sold at a cheaper price in haats.