Contents

General Introduction of the Company.........................................................................................................2

Business Portfolio:...................................................................................................................................3
Paint Business:........................................................................................................................................4
Introduction /background of Industry in which the company operates........................................................4
Company’s Role in overall Economy / Industry role in overall economy...................................................5
Company’s Market landscape (Competitive forces, Customer base, Tax regime, regulatory bodies).........7
Pricing Strategy (General and specific).......................................................................................................9
Pricing objectives....................................................................................................................................9
Short term, Long term goals..................................................................................................................10
Link of Pricing to company’s overall strategy.......................................................................................10
Price setting Process..............................................................................................................................11
Estimating consumer response...............................................................................................................12
Price communication to the market.......................................................................................................12
Value Selling Approach (Tools, Methods, Processes)...........................................................................12
Competition...............................................................................................................................................13
Competitive Advantage.........................................................................................................................13
Managing Competitive information (Information collection, Evaluation).............................................13
Strategy to counter competition.............................................................................................................14
Price competition / Price war scenario (if any)......................................................................................15
Pricing across the segments.......................................................................................................................18
Techniques and tactics for segmented Pricing.......................................................................................18
Price offer configuration........................................................................................................................18
Types of pricing metrics used................................................................................................................19
Types of Fences used.............................................................................................................................20
Role of Promotions to achieve Pricing objectives.....................................................................................23
Products Pricing........................................................................................................................................23
Pricing multiple products.......................................................................................................................23
Complements and substitutes.................................................................................................................23
Cross-price elasticity.............................................................................................................................24
PRODUCT LIFECYCLE PRICING.........................................................................................................25
Pricing within a Differentiated Product Strategy...................................................................................25
Pricing within a Cost Leadership Strategy.............................................................................................26
Price Reductions in Growth...................................................................................................................27
Pricing the Established Product in Maturity..........................................................................................27
Pricing a Product in Market Decline......................................................................................................28
Role of Various costs in Pricing................................................................................................................28
Cost elements........................................................................................................................................28
How different costs affect pricing decisions..........................................................................................29
Legal and Ethical Issues in Pricing............................................................................................................30
Understanding the Constraints on Pricing..............................................................................................30
Ethical Constraints on Pricing...............................................................................................................30
Price-Fixing...........................................................................................................................................30
Other legal and Ethical issues in Pricing...............................................................................................30
Recommendations / Feedback / Key takeaways........................................................................................34
 General Introduction of the Company

Akzo Nobel’s first started business in Pakistan in 1973. Akzo Nobel was the world’s leading
paint manufacturer with stringent checks to ensure quality and ethical standards in all areas of its
business. An example of such compliance was the company practice to not produce yellow paint,
as it could not be manufactured without adding lead to regular chemicals. Lead was harmful to
health.

AkzoNobel is a leading global paints & Coatings Company and a major producer of specialty
chemicals. Calling on centuries of expertise, they supply industries and consumers worldwide
with innovative products and sustainable technologies designed to meet the growing demands of
our fast-changing planet. Headquartered in Amsterdam, the Netherlands, they have
approximately 48,000 people in around 80 countries, while our portfolio includes well-known
brands such as Dulux and Eka. Consistently ranked as one of the leaders in the area of
sustainability, we are committed to making life more livable and our cities more human.
Business Portfolio:

Today ICI Pakistan’s five businesses, Polyester, Soda Ash, Paints, Chemicals and Life Sciences

AkzoNobel
Pakistan

Performance Decorative Specialty

Coating Paints Coating
Paint Business:

The paints business in Pakistan operates in the Decorative, industry and the refinish segments. It
is the clear market leader in all the three segments. Quality of products and services, innovation
and a legacy of branding have been the foundations of this enterprise.

With opportunities arising within the country and contiguous markets, the business has
articulated grow aggressively strategy. The endeavor is to further strengthen AkzoNobel’s
position locally while expanding into near markets. The Decorative Business, with its dominant
position, aspires to restructure the market creating a super-premium category with innovative
products and services, leveraging the Dulux brand and capitalizing on the growing mid-tier with
a comprehensive channel strategy.

In OEM and Refinish segments the focus on services and technical competence will drive
differentiation supported by strategic Japanese partnerships.
 Introduction /background of Industry in which the company
operates

The paint and coatings industry in Pakistan has registered a steady growth on the back of strong
economic performance of the domestic economy in the last few years. With GDP growth at 5.3
percent for FY2017 (the highest in the past decade) with healthy growth in the construction
sector, continued growth in the manufacturing sector, and healthy contribution by the services
sector. For the first time, the size of the economy surpassed $300 billion.

Although there are no formal figures of the paint and coatings industry value and volume in the
country, most of the stakeholders put the Pakistani paints and coating industry worth PKR 37
billion ($306 million). The industry has been growing in the range of four to seven percent (on a
value basis) for the past five years. In the last few years, there has been impressive growth in the
construction industry in Pakistan, which has given opportunities to all players in the architectural
segment.

Catered by about 20 organized sectors and about 110 unorganized sectors producers, the
Pakistani paint industry has multinational paint producers such as Jotun, Kansai, Nippon and
local companies Buxly, Brighto, Diamond, Happilac, Master and Nelson. Pakistan’s paint and
coating industry is expected to register steady growth rates in coming years on account of current
low per capita consumption, rising disposable income, growing economy and decreasing
repainting cycle.

Much like the other countries of South Asia region, the Pakistani paint and coating industry has a
huge unorganized sector, which caters to the price-sensitive consumers in the country. On a
value basis, the unorganized sector accounts for 34 percent of the total industry. There are about
110 small and very small paint producers in this segment. These producers cater to the vast
market of semi-urban and rural areas, where prices are the most decisive factor in buying the
paint brand. Organized sector producers often complain that these producers have lowered the
quality bar in the paint industry.
The architectural segment accounts for about 81 percent of the total paint consumed in the
country on a volume basis. New investments, especially China Pakistan Economic Corridor
(CPEC) are expected to give a much-needed fillip to the Pakistani paint and coatings industry in
coming years.

Company’s Role in overall Economy / Industry role in overall

economy

 Dulux- Top tier- target market: Niche

 Dulux Promise- Mid tier- Target market- Mass
 Paintax- Low Tier- Target Market: Mass

DULUX

Dulux is a renowned brand the world over, and here in Pakistan it’s no exception.

There are 6134 color shades available in DULUX brand. The range of DULUX consists of;

 Plastic Emulsion

 Wall putty

 Matt Enamel

 Weather Shield Enamel

DULUX PROMISE

Promise Dulux us another new brand launched in Pakistan in 2017.

These are alos available in more than 6134 shades

 Dulux promise interior

 Dulux Promise Exterior

  Promise Putty

 Promise Primar

Paintex

the best quality at reasonable price

Paintex, is a low-tier paint brand of ICI paints, provides with an opportunity to enjoy the finer
things in life while still spending your money sensibly.

Our Paintex range includes the following products:

 Paintex Emulsion
 Paintex Hi-Gloss
 Paintex Putty
 Company’s Market landscape (Competitive forces, Customer base,
Tax regime, regulatory bodies)

Threat of New Entry

High
-Barriers to new entry
-High tax by the govt
-High investment on raw material and manufacturing
-unstable economic

Threat of substitution
High
Multiple Options are available in the market
Low
-Wall paper
-low cost homemade remedies
Threat of supplier
High
-raw material is expensive.
-chemical raw materials.
-imported goods and raw materials.
Buyer power
High
-Different Prices
-Incentives for Painters
-Local Players catering different markets

Pricing Strategy (General and specific)

Pricing objectives

The main pricing objectives of ICI pricing are as follows

Achieving Market Share
Its prices should be low in cost so that they can achieve maximum market share
Prevention of Competition
Its prices should define its product differentiation to the customer
Increased Profits and Achieving a Target Return on Investments
Set prices that achieve maximum returns without any compromise
Price Stability 
Prices should be set in way that it can stay stable in a long run and factors such as raw material
cost and dollar fluctuation will not affect it hard

Short term, Long term goals

• INCREASE IN VALUE CREATION FOR THE DEALERS
• INCREASE IN VALUE SELLING WITH RESPECT TO LAST YEAR

Link of Pricing to company’s overall strategy

Strategy for competitors

“Ensure our products deliver maximum value to customers by maintaining dependable supply,
consistent quality, and reliability.”
Strategy for differentiation
● Ensure our products deliver maximum value to customers by maintaining dependable supply,
consistent quality, and reliability.
Strategy for customers
● Uphold excellent service levels to foster long-term relationships with customers and suppliers.

Strategies for cost

● achieve the highest possible operating efficiencies and lowest costs, and expand the business
through selective capacity increase and new product launches.
 STRATEGY AND PRICNG OBEJCTIVES

Pricing Pricing
Pricing Pricing for
objectives objectives Strategy
Strategies for
objectives Strategy for Strategy for objectives
differentiatio
cost competitors customers
n

Prevention
Achieving Increased
of PRICE
Market Profits
Competition STABILITY
Share
Price setting Process

initial price Competitor’s Import Dollar Raw Material

range pricing duties fluctuation Cost

Estimating consumer response

Consumer response can be measured as their willingness to pay for the product.

The more consumer is price sensitive the more he evaluate the product and its benefits

Following are some drivers of consumer willingness to pay for paint that AkzoNobel consider the most

 Quality
 Durability
 Brand image
 Recommendations
 color range

Price communication to the market

AkzoNobel communicate its prices through its sales channel, brochures, letters and digital media
Increase or decrees in prices are communicated immediately and effectively. ICI also categorize
each product and its prices on the bases of demand (dynamic pricing) and popularity thus
products with higher demand get more attention
Value Selling Approach (Tools, Methods, Processes)

Trade offers
They frequently project their pricing to them and provide them trade offer letters
Contractor’s point scheme
They provide point schemes to the contractors on their purchases
Research and Development
They do continuous research and improvements their products
Compliant system
Customer assistance is the priority they are responsive to the queries of customer
10 years warranty
They provide 10 years warranty on their product
Variants
They have three variants for the three different segments (paintex is for the price sensitive
customer)

Competition

Competitive Advantage
Competitive advantage in the light of porter’s theory
Cost leadership:
ICI paints have low-cost competitive advantage with multinational competitors by providing
quality product at low lost
Differentiation:
ICI uses differentiation strategy for local competitors by providing a quality products

Other variables:
 ICI’s Positive Image
.
 Financial Strength Of The Business

 Established Nation- Wide dealers network

• Affiliation with Akzo Nobel and global existence

• Technology
• Customer service and offers

Managing Competitive information (Information collection, Evaluation)

Information collection
 Most of the information competitive pricing is collected through sales channel
 There are regulatory bodies in the industry but they don’t control prices
Example of competitive information collected via sales channel:-
Strategy to counter competition

Competitive price analysis

Strategy to counter competition

Following are some variables which ICI considers when making strategy to counter competition
 Credit and Payment terms to dealer
 Discounts to the dealers
 Promotions to customer

Price penetration (multinational competitors)

 For multinational competitors ICI paints follows price penetration strategy. ICI Paints
sets its prices lower than competitors.
 Price skimming strategy (local competitors)

 For its local customers ICI paints follows, price skimming strategy, it local it competes
with clear communication of differentiation.

Price competition / Price war scenario (if any)

There are two types of competitor in the industry

 Local manufacturers
 Multinational manufacturers

ICI competes with both local and multinationals with different strategies

ICI VS MULTINATIONAL

 Jotun paints placed their products with high pricing than any other in the market
 ICI competes with Jotun with low cost pricing strategy
 ICI provides paints with finest imported raw material at low cost

ICI PAINTS JOTUN PAINTS

VT 4,105 Gallon Rich Matt 4620 Gallon
Premium
Premium Pentalite 3,160 Gallon Hygiene Emulsion 5,100 Gallon
Interior
Interior Easy Care 3,800 Gallon Smooth Silk 4,025 Gallon
Mass
Paintax Ultratex1160 Gallon Matt Emulsion 3,570 Gallon
Mass
Promise 2350 Gallon Premium Colour xtreme Matt5,303 Gallon
Exterior
Powerflex 4,400 Gallon Mass Color Last 4,400 Gallon
Premium
Exterior Weathershield3,375 Gallon
Mass Promise 2,500 Gallon

ICI VS Local:-

 Nelson claims a highest market share in the market:

 Due to low pricing local paints have higher market share then multinationals
 ICI competes with local paints with high cost pricing strategy.
  They compete with local brands with quality but they charge more , which makes their
market is very niche
ici nelson
VT 4,105 Gallon Matt Special 3,500 Gallon
Premium Pentalite 3,160 Gallon Premium Gloss Enamel Extra
2,900 Gallon
Interior Easy Care 3,800 Gallon Interior Emulsion Extra2,300 Gallon
Paintax Ultratex
1,160 Gallon Gloss Enamel Trends
1,900 Gallon
Mass Mass
Promise 2,350 Gallon Emulsion trend1,300 Gallon
Powerflex 4,400 Gallon Premium Weather Shead 3,200
ExtraGallon
Premium Exterior
Exterior Weathershield3,375 Gallon Mass Weather Shead 2,400
Bold Gallon
Mass Promise 2,500 Gallon Premium Wall Putty Extra
1,200 Gallon
Bases
Bases Premium Dulux Putty 3,585 Drum Mass Wall Putty Bold 800 Gallon

Raw material cost is the most important factor in price setting process.

Price increase or decrease decision

 ICI imports raw material from foreign markets,

 The increase and decrease in pricing is based about other factors such as dollar
fluctuation.
 Local manufacturers have a competitive advantage in cost because they produced by
using local raw material
 Thus multinationals increase decrease prices more frequently than other but they keep
check and balance of their competitors.
 Any increase or decrease in price communicated with letter head and sales channels to
the market

In paint industry competitors compete on by providing discounts / token and commission to the
distributor in order to gain market share. Increase / decrease in prices is subject to raw material
cost mostly

An example of price war scenario from 2012

Source competition commission of Pakistan
 Pricing across the segments
Techniques and tactics for segmented Pricing

Price offer configuration

Interior Emulsion paints
1. Product Type
i. Filler
ii. Paint
iii. Primer

2. Project Type:
i. Bathroom
ii. Bedroom
iii. Children’s Room
iv. Dining Room
v. Hallway
vi. Home Office
vii. Kitchen
viii. Living Room

3. Surface
i. Aerated
ii. Masonry
iii. Metal
iv. Walls
v. Wood

4. Finish
i. Featured Finishes
ii. Gloss
iii. High Matt
iv. Matt
v. Soft Sheen
Exterior Emulsion paints
1. Product Type
i. Paint
ii. Primer

2. Project Type:
i. Bathroom
ii. Bedroom
iii. Children’s Room
iv. Dining Room
v. Hallway
vi. Home Office
vii. Kitchen
viii. Living Room

3. Surface
i. Aerated
ii. Masonry
iii. Metal
iv. Walls
v. Wood

4. Finish
i. Featured Finishes
ii. Gloss
iii. High Matt
iv. Matt
v. Soft Sheen

Types of pricing metrics used

 Per Liter
 Per Gallon
 Per Drum
 Per Bucket
 Per Quarter
 Color
Types of Fences used

BUYER INDENTIFICATION FENCE

ANPL LOYALTY PROGRAM

ANPL Loyalty Program is “points/liter” basis on the following products:

Products

Products Points/Liter Products Points/Liter

Dulux EasyCare 2.25 Dulux Woodcare Gloss Lacquer 1.50
Dulux Velvet Touch 2.25 Dulux Woodcare Matt Lacquer 1.50
Dulux Pentalite 2.25 Dulux Synthetic Varnish 1.50
Dulux Pentalite Classic 2.25 Dulux Woodcare Sealer 1.50
Dulux Light & Space 2.25 Dulux Woodcare Thinner 1.50
Dulux Weathershield 2.25 Paintex Star Emulsion 0.65
Dulux Weathershield 2.25 Paintex Ultratex 0.65
Powerflexx
Dulux Weathershield Roof 2.25 Paintex Star Synthetic Enamel 0.65
Dulux Gloss Enamel 2.25 Paintex Ultraprime 0.65
Dulux Matt Enamel 2.25 Dulux Prime-On 0.35
Dulux EasyCare POST 2.25 Dulux Rex Oxide Primer 0.35
Dulux Velvet Touch POST 2.25 Dulux Weathershield Primer 0.35
Dulux Pentalite POST 2.25 Promise Primer 0.35
Dulux Weathershield POST 2.25 Dulux Aqua Prime 0.35
Dulux WS Powerflexx POST 2.25 Dulux Putty 0.35
Dulux Gloss Enamel POST 2.25 Dulux Weathershield Putty 0.35
Dulux Matt Enamel POST 2.25 Promise Putty 0.35
Promise Interior Emulsion 1.50 Paintex Putty 0.35
Promise Exterior Emulsion 1.50 Paintex Sheesha Putty 0.35
Promise Gloss Enamel 1.50 Dulux Synthetic Undercoat 0.35
Promise Interior POST 1.50 Dulux Aluminium 0.35
Promise Exterior POST 1.50 Dulux Aquashield WP Ba 0.35
Dulux Woodcare PU Lacquer 1.50 Far Away Places 0.35

ANPL Loyalty Program consists of three categories:

1. Platinum Tier
2. Gold Tier
3. Silver Tier
PLATINUM TIER

GOLD TIER

SILVER TIER
PURCHASE QUANTITY FENCE

PURCHASE LOCATION FENCE

 2.5% discount on direct purchase by calling on Toll Free Number 0800-DULUX (38589)
 Free Home Delivery on purchasing directly by calling on Toll Free Number 0800-DULUX
(38589)
 Role of Promotions to achieve Pricing objectives
• Word of mouth through its sales representative
• ICI gives free samples to its different customers. Recently ICI give free sample to many
hotels for the purpose of the promotion.
• ICI offers discount price to increase the no of dealers.
• ICI gives the prizes to the painters to increase its sales.
• ICI gives the Singapore return ticket to the most leading dealers for the purpose of
encouragement of more sales.
• For the purpose of advertisement ICI makes the signboards of their dealers and sometime
ICI advertise their brands commercials on television

Products Pricing

Pricing multiple products

Most of the businesses offer multiple products either in the same category or otherwise, they are
faced with a decision relating to how to price their multiple products. The decision is a complex
one mainly due to the fact that the fact that some products may be complements or substitutes to
the others produced by the Company.

There are many other finished goods that also produced by the Company. It has been noted that
the company set different prices on the basis of quality and quantity offered to the retailers.
Company’s product portfolio is divided into three different category. Premium category which
includes Dulux paints are expensive as compared to other categories and are targeted towards
SEC A, people who prefers to have superior quality product that lasts long for a longer period of
time and is durable in different weather conditions. In mid-tier category, company offers Promise
brand which is reasonably priced and are targeted towards SEC B class of the target market. In
low-tier category, Paintax is offered by the company at a much lower price range which are
targeted towards small dealers and painters.
With the help of quality and price range, the company tries to diverse its product portfolio and
cater the mass market having different set of preference and requirements when it comes to
paints.

Complements and substitutes

In the particular case of ICI paints, wallpapers, ceramic tiles and wood panels can be used as
replacement of paints but these alternative are considered to be expensive as compared to paints
and tends to have similar image as of luxury goods. Whereas paints from various categories such
as Premium, Promise or Pain tax can be considered as complementary goods can be used with
one another.

Cross-price elasticity

Price Elasticity of Demand=percent change in quantity/ percent change in price

Dulux Promise Putty- Price Elasticity of Demand

Percent change in quantity=Q2−Q1/(Q2+Q1)÷2×100
Q1= 115 gallon, Q2= 110 gallon
P1= 695, P2= 730
Percent change in quantity=Q2−Q1/(Q2+Q1)÷2×100= 110-115/(110+115) ÷2×100=-
5/112.5*100=-4.44
Percent change in Price=P2−P1/(P2+P1)÷2×100=730-695/(730+695) ÷2×100=35/712.5*100=
4.91
Price Elasticity of Demand=percent change in quantity/ percent change in price
=-4.44/4.91= -0.905
Dulux Promise Putty & Paintex Putty- Cross Price Elasticity of Demand

Cross-Price Elasticity of Demand=percent change in quantity of Paintex Putty demanded/

Percent change in price of Dulux Promise Putty
Q1= 120 gallon, Q2= 115 gallon
Percent change in Quantity= Q2−Q1(Q2+Q1)÷2×100 =115−120/(115+120)÷2×100=
-5/117.5×100=-4.255

The percent change in the quantity of Paintex Putty demanded is -4.255%.

The percent change in the price of Dulux Promise Putty is the same as above, or 4.91%

Therefore:

Cross-Price Elasticity of Demand=-4.255/4.91=−0.866

The cross-price elasticity suggests how the price of one product can affect the demand of rest of
the products offered by a company. It can be stated that due to substitution effect in ICI’s
product, the cross-price elasticity between the products offered by the company is negative
implying that an increase in price of one product causes a decline in the demand for other
products.
Because the cross-price elasticity is negative, we can conclude that Dulux Paintex Putty and
Dulux Promise Putty are complementary goods. Intuitively, when the price of Dulux Promise
Putty goes up, consumers purchase less Dulux Promise Putty. Because they’re purchasing lesser
Dulux Promise Putty, they also purchase lesser Paintex Putty.
Considering the above facts, it can be stated that the ICI must perform due diligence before
increasing price of any of its products as it can have repercussions on other products offered by
the business.

PRODUCT LIFECYCLE PRICING

ICI paints competes with both multinationals and local competitors thus it uses different
strategies for both

Pricing within a Differentiated Product Strategy

 For local competitors ICI uses differentiated product strategy
 They place their product mostly at high prices in the market (price skimming).
 for some products they also uses price penetration strategy as well

PRICE COMPARISON

800
wall putty vs paintax putty
640

2400
wheater shead bold vs promise
2,500

1900
emuslion vs promise
2,350

1300
gloss enamel vs paintax
1,160

- 500 1,000 1,500 2,000 2,500 3,000

BLUE ICI ORANGE NELSON

Pricing within a Cost Leadership Strategy

Pricing within a Cost Leadership Strategy:
 For multinational competitors ICI uses cost leadership strategy
  They place their product mostly at low prices in the market (price penetration).

ICI VS JOTUN
3375
color last vs wheather sheild
4400
4400
color matt vs powerflex
5303
2350
matt vs promise
3570
3800
smooth vs easy
4025
4105
rich matt vs vt
4620

0 1000 2000 3000 4000 5000 6000

PRODUCT LIFE-CYCLE

Product life cycle of the paints is very short, this shortness of lifecycle I because of many reason
some of which are as follows
 Technological improvement
 Direct and indirect competitors
 Manufacturing improvements
Price Reductions in Growth
 When initial prices are set for the paint it moves to second stage which is growth
 In the growth stage ICI usually reduces the price of paints by price reduction or through
other channels such as token, promotional offering and painter discount. During this time
ICI Tries to capture maximum market share
 The product in the growth stage is the product which is accepted by the consumers in the
introduction stage thus by this acceptance both manufacturing and sales are in growth
phase also which brings economies of the scale and profit.
 The main aim is to survive till maturity stage.

Pricing the Established Product in Maturity

 As the product enters in maturity stage ICI starts reducing its prices and focus on steady
price levels but these price levels are subject to raw material cost and currency
fluctuations
 Retain market share is the most important thing for ICI when product is mature.
 At maturity stage there is increases in competition and price sensitivity
ICI uses two approaches

1 launch new marketing campaign for the product

2 New product / variant launch so it can cover the any loss market share.
3 Cost reduction
Pricing a Product in Market Decline
 In the decline stage product demand starts falling this is because of technological
improvement customer preferences, new product introductions by competitors
 ICI initially cut off its production as per the demand
 They also cuts price which ultimately increase demand
 Here the main goal is to survive this stage as profitable as possible
 The strategy depends upon situation but as the life cycle is short for paint ICI mostly uses
harvesting strategy.

Role of Various costs in Pricing

Cost elements
For all companies of the paint industry, costs have been rising massively over the last months
and especially raw materials prices did change a lot.
Commodities costs are very important for paint manufacturers, because more than 50% of
operating costs are allotted to raw materials. There are various factor involved while deciding the
prices of paints.
1) Raw Material cost
2) Packaging Cost
3) Dollar Fluctuation cost.
4) Cost of Pigments
5) Distribution cost
6) Manufacturing cost
7) Labor Cost

In 2019, there was a trade conflict between India and Pakistan. A lot of imports of pigments for
white bases mixing were imported through India at a lower cost. But due to trade conflict,
AkzoNobel was not allowed to import the pigments. Therefore we have to find a new and
cheaper seller from the market. The company found out that Uruguay, as South American
Country, was able to manufacture the same pigment with similar configuration the company
required here in Pakistan. The cost of transportation from Uruguay was higher as compared to
India, the costs have to be adjusted in the pricing and we face a hike in price of the pigments.

Increase in dollar rate in Pakistan has impacted a lot of businesses. Similarly paint industry was
also impacted. The major imported raw materials include pigments, zinc oxide and titanium
oxide. The drastic change in dollar has impacted the cost of imported raw materials. As a
multinational company the company have to show their profits is dollar, and the profits were also
dip due to devaluation of local currency.

Increase fuel prices have also impacted the cost of distribution from production (Lahore) to other
cities like Karachi. Recent transport strikes have also disturbed the supply of the product to
Karachi, due to which the existing stock was increased due to high demand.

Various local companies have placed token in their boxes. The price of token is from 200 to
1200PKR. These token amounts are adjusted through MRP on the boxes. Akzonobel maximum
token price is 400PKR which is available in the lower tier (Paintax brand), while the local brand
token price is 1200PKR.

How different costs affect pricing decisions

Raw material cost is the major cost that helps the company to decide the cost. Pakistan
currency is also devaluating, due to which cost of raw material increases. Pigments, zinc
oxide and titanium oxide are the major components imported from various countries.
These components are the major composition while manufacturing the paint.

Taxes imposed by the government keep increasing. This is another major variable cost,
which company has to keep in mind while pricing the paints.

Manufacturing cost is another major cost. In 2012 AkzoNobel launched a POST machine
plan. Every dealer will be equipped with the POST machine which cost approximately
 around PKR 18 lacs. AkzoNobel provided white bases to the dealer, and the dealer can
make any color shade with the help of the POST machine and entertaining the customer

AkzoNobel Manufacturing plant is in Lahore, the distribution cost from Lahore to

Karachi and other cities keeps changing because of the monthly increase or decrease in
oil prices.

All the above mentioned cost plays a major role in deciding the price of the product

Warehouse cost in Karachi is fixed and does not play a major role in deciding the price of
the product. In Karachi we have a permanent warehouse registered an AkzoNobel asset.

Legal and Ethical Issues in Pricing

Understanding the Constraints on Pricing

Price setting is highly dependent upon the dealers and retailers in the market because they are the one
who is in direct contact with the end consumers. Their opinions and views bring in the actual sales which
mean that their recommendations play a very important role in changing the buying preference of the
consumers.

While setting price for a particular product, the company must keep the interest of the local vendors in
the process in order to achieve desired sales volume.

To maintain a strong position in the market, prices of the competitive products must be taken into
consideration because it is one of the main factors on which the company can differentiates its product
from the rest.

Ethical Constraints on Pricing

In order to entice dealers and retailers to sell more of their product, the company offers lucrative
rewards such as loyalty points which can be used to buy even a car, domestic or international trips and
discount promotions to premium dealers or to those who achieve the sales target by highest margin as
compare to other competitors to in the market.

Prices are offered to the local market on the basis of their economic class. The group with low
purchasing power will be offered low quality paint in a reasonable price range.
Well performing dealers get discounts on the price they purchase the products from the company. It
depends upon them to pass this discount to the consumers or not. In this way dealers enjoy less price
but charge high prices to the customers.

Price-Fixing

Setting the price of a product or service on your own in liaison with competitors, rather than allowing it
to be set on naturally determined free-market forces is called Price Fixing. It is illegal and promotes
unfair competition in the industry as well as imposes high prices on consumers 1. In Pakistan, we have
The Competition Act, 2010 (Act), which regulates laws related to competition in Pakistan and ensures
free competition is prevalent in our country, to enhance economic efficiency and ensure all market
forces are playing naturally. For this purpose, the Competition Commission of Pakistan (CCP) is
established2.

Two years back, Diamond paints and its dealers in Multan were accused of price fixing and cartelization
downstream. They had entered into an agreement (violation of Section 4 of the Competition Act, 2010)
whereby they fixed the retail and wholesale pricing. This agreement included dealers imposing
“Minimum Resale Price Maintenance (RPM)”- a restrictive trading condition that facilitate cartelization
in the relevant market. The CCP issued Show Cause Notices to Diamond paints 3.

Similar whipping was done by CCP on Reliance paints for alleged price fixing and prohibited agreement
with its dealers. Show Cause Notice was issued to Reliance paints for forcing its dealers to sell at a fixed
price and penalizing them in case of noncompliance.

Thus, in order to avoid litigations and ensure economic growth of the country, Dulux paints should avoid
such activity and ensure fair prices are set as per natural market forces and competition.

Other legal and Ethical issues in Pricing

Token
in the mid-1990s, when a small boom in construction, combined with a large number of new
entrants in the paint manufacturing market, led to a serious increase in the level of competition in
the paint market in Pakistan. Companies were desperate for market share and willing to offer
massive discounts in order to be able to get it.
According to market research conducted by Nippon Paint Pakistan, 60% of paint buying in
Pakistan is conducted by the laborer doing the actual painting. Another study found that 70% of

1
https://www.investopedia.com/terms/p/pricefixing.asp
2
https://www.globallegalinsights.com/practice-areas/cartels-laws-and-regulations/pakistan
3
https://propakistani.pk/2018/02/16/diamond-paints-dealers-issued-showcause-notices-price-fixing/
consumers and painters stated that the advice of the painter was critical to the decision of which
paint was purchased for a paint job.
Under these circumstances, while offering a discount on the wholesale or retail price of the paint
would help somewhat, the companies looking to entice more buyers of their paints had to find a
way to make sure that it was the laborer who got the discount, even though he was not the one
paying for it.
The token was an innovative practice invented in the mid-1990s, and it was meant to solve the
decision-maker/purchaser dichotomy. Before the anti-token campaign by Master paints, which
was followed by litigation in Competition Commission of Pakistan, tokens were strictly speaking
not illegal and soon every company realized the sheer genius of the scheme. Paint manufacturers
started placing tags or stickers on each paint box with an amount of money written on it. That tag
or sticker came to be known as the token, and could be redeemed at any paint retailer or
wholesaler for cash.
In order to ensure that it is the painter and not the homeowner who gets the cash from the token,
paint companies place the token inside the paint bucket at the bottom, in a concealed packet
underneath the actual paint. This is designed to ensure that the person doing the painting would
be the first person to be able to access the token.
With the introduction of the token, the laborer all of a sudden saw their incentives flipped. Prior
to the advent of the token, the laborer would either buy the cheapest paint or the one with the
highest quality, or else a good combination of price and quality, depending on the needs and
ability to pay of the person getting their house painted. Now, however, the laborer did not care
about price or quality, but instead about which Paint Company was offering the highest
redemption value for the tokens on their paint boxes. In other words, the painter was being
offered a bribe.
“In other industries, you have promotions geared towards the end consumer, not the retailer. But
in the paint industry that does not happen. Paint manufacturers are selling tokens, not their
paint,” said Farooq Amin Sufi, Director Marketing of Master Paints, one of the largest paint
manufacturers in Pakistan and the only company that does not use tokens to promote any of its
products.
In 2011, the Competition Commission of Pakistan, then chaired by activist chairman Khalid
Mirza, decided to take action against the practice of placing tokens that were clearly designed to
benefit the laborer at the expense of the end consumer.
After three hearings over a period of seven months, the Commission issued an order on January
13, 2012, and found that the use of tokens without proper disclosure constituted deceptive
marketing practices, and was a violation of Section 10 of the Competition Act of 2010. The
commission ordered paint manufacturers to begin prominently disclosing both the existence and
the redemption value of tokens on the paint buckets. The order read as:
“The disclosure with respect to the token on the paint pack as mentioned at (i) above should be
made with the use of bright/conspicuous colors distinct from the color of the packaging of the
paint pack and should be printed in clear, bold and legible size.”
Defrauding the government

Tokens are not the only questionable practice used by some of the local paint manufacturers in
the country. Another common practice involves taking advantage of poorly written and poorly
enforced tax rebate laws with respect to import of raw materials and export of paints to
Afghanistan.
In a bid to promote Pakistani exports of value-added industries, the Musharraf Administration
introduced a policy measure called the Duty and Tax Remission (DTRE) scheme in June 2001.
Using a statutory regulatory order (SRO) to amend customs regulations, the government decided
to allow the exporters to claim tax rebates on the value of customs duties and taxes paid on any
imported raw materials used to manufacture goods for export.
The DTRE tax fraud occurs in two separate ways. The first is the more commonly known
practice of over-invoicing of exports: companies claim they have exported far more paint to
Afghanistan than they actually have so that they can claim a rebate on the taxes paid on a larger
share of their imported raw materials.

In the
second scenario, companies claim a high proportion of their most expensive imports are used to
manufacture their exported products. Specifically, some companies, according to Sufi, claim that
as much as 60% of the cost of the exported paint consists of the cost of titanium dioxide, a very
expensive metallic ore. In reality, less than 20% of the cost of high-end paints consists of the cost
of titanium dioxide.
This has two effects. Firstly, it allows these paint manufacturers to produce their products at a
lower cost as compared to other paint manufacturers who are importing titanium dioxide the
proper way and at a higher cost due to import duties. Secondly, it also yields revenues for them
as they sell it at a higher price in the local market than the cost they had to incur in purchasing it.
Since many companies already understate their sales in the local market, it is not very difficult
for them to brush the effect of Titanium dioxide sales under the carpet and put the revenues
under export revenue category.

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