Saboon No.

1
Assignment-2

Managerial
Section - A Group - 09
Economics
Mr. Marketwala has been posted to Chhajjarpur to observe the consumer behaviour and the
reasons for the failure of their product Saboon #1 and to suggest any modifications in pricing
strategy if required. The major reasons which were responsible for the failure are as follows:

High Price of the product: Although Saboon #1 can be used for multiple purposes,the
price was set 3 times the price of a local brand soap. People who are inclined towards
cheaper goods will always purchase the same good no matter how well your product
maybe.
Product viewed as a luxury item: People of Chhajjarpur viewed it as an added expense
because it was being endorsed by Salman Khan, a big movie star and because of its high
pricing.
Influence of city lifestyle on the people: Ignoring the fact that people are well connected
to the cities and aware about the products in the market.

To overcome these problems, we need to devise a strategy which can lower the price of Saboon
#1.

First of all, Etch-LL being a big, reputed company has superior technology as compared to the
local brand soaps company, due to which, when produced in bulk, the cost of production is low.

Assuming that the cost of production of a local brand bathing and washing soaps are Rs. 5 each
and they are selling it for Rs 10 each. Now due to the better technology the cost of production for
Saboon #1 is Rs 8 and they are selling at a price of Rs. 30. Even in terms of value, people can get
1 bathing and 1 washing soap for Rs.20 whereas Saboon #1 will be costing them Rs. 30.
Therefore people will not go for the expensive Saboon #1 even because of its added features.
Therefore Etch LL needs to apply Penetrative pricing strategy and reduce the price of Saboon
#1 in the range of Rs. 15 so that the people might see it as a possible substitute for the local
brand soaps. This strategy will yield lesser profits in the beginning but will help the product to
get a foothold in the market and give competition to the other brands.

Secondly since many close substitutes are available in the market, it can be viewed as
monopolistic competition. The fact that there are close, not perfect substitutes available implies
that it faces a downward sloping demand curve. To sell more of its product, the firm must lower
its price. Also, since the price is high, it is in the elastic region of the demand curve. To increase
its total revenue, it needs to move down along the demand curve where the curve is unitary
elastic and total revenue is maximum. Hence to increase revenue, we need to decrease the price.
Then, there is also the case of a big movie star endorsing the brand due to which it is being
viewed as a luxury item. Now taking into account that majority of the people have T.Vs and are
aware of the outside world through T.Vs, we can endorse Saboon #1 with the help of a TV star
rather than a movie star. Through this it will be easier for the people to connect and relate with
these personalities. Also hiring a TV personality will cut the cost for Etch -LL to some extent.

We also need to take notice of the fact that city lifestyle has a big influence on people of
Chhajjarpur. Therefore we first need to endorse Saboon #1 in the nearby cities from where it can
catch on with the rural market keeping in mind to endorse it as a common mans product with
added features and advantages.