Assignment: Parle G

- Group 5 (Section A)

Q 1) What should Parle do in present and in future?

Context:
Parle Group’s flagship product ‘Parle- G’, a Value for Money product, has a market share of
84% in the Glucose category. It alone contributes 68% of Parle’s revenue. Increasing input
prices has decreased the margins of Parle to 10% from 15% and price sensitive customers
are not letting parley pass this increase towards them. However low price is undermining
Parley-G’s quality. Hence it is analysing options to increase margin back to 15%

Present:
 Parle had been reducing grammage to accommodate increasing input costs. It should
continue doing that as increasing price is quite risky considering price sensitive nature of
Parle’s consumers.
 As Parle G is already playing with volumes for its benefit, it should go for bundling offers.
For pushing bundled SKUs sales, it can offer another low margin parle product for free e.g.
Chocolate, candies etc

Future
 It should launch a new SKU of Rs. 5 and advertise it as how it has more no of biscuits and
how it still have that Value for Money factor.
 It should incentivise its retailers to push for SKU of Rs 5 instead of Rs 4. It should analyse
sales figure for 2 months and if he observes any reluctance from consumers it can always
switch back to its volume reduction strategy. However this time there is lesser chance of
getting reluctance from consumers as the Socio economic split in India is improving with
deprived segment having lesser households and improved incomes of middle class, the
target customer group of Parle-G.
 Parle-G can expand its distribution network, to get more out of the untapped potential the
retail market has.

Q 2) How can firms insulate themselves and increase in input costs?

 Firms can focus on developing long term relationships with the raw material suppliers.
Through which they can enter long term Forward Revenue sharing contracts. Also the
manufacturer’s bargaining power plays an important role in making the supplier to agree
with the terms which will enable him to enter such contracts.
 In case of Parle G, the raw materials were commodity products hence there is huge chunk
of suppliers who will like to take advantage of being in a long term contract with a reputed
and sustainable brand like Parle-G.
 Also companies can pass these increase in input costs to customer if the customer behaviour
isn’t price sensitive. However in case of value for money products like Parle G this may not
give favourable results.
 When the customers are price sensitive the best way is to work on the volumes. As Parle-G
used reducing grammage strategy. Also it can bundle its products in a way that will make
customer see his benefit and thus will prefer buying the bundled products instead of single
SKU

Q 3) What is the role of cost in pricing ?

 The role of cost is very important in pricing. The cost is of different formats such as cost of
manufacturing, production, administration, transportation. Depending upon how much
costs are involved, the pricing of the product is then decided.
 The pricing and costs which are involved also depend on the supply and demand in the
market for a particular product. The research data for the demand and supply can also
trigger the manufacturer to decide the raw materials and what features are included in the
product and accordingly then the pricing of the product is decided.
 In the Parle-G case, the manufacturer is in a dilemma whether to increase the price of the
biscuits in order to recover the margin and to recover all the costs which are involved in the
production of biscuits.
 Since here the Value For Money perception among people is also an important factor to
consider while taking a decision and at the same time the margin of less than 10% is not a
good sign for the brand and that has to increase up to 15 to 20%, the role of cost in deciding
the price is important.
 In one instance as mentioned in the case when Parle had increased the price of 100gm pack
form Rs 4 to Rs 4.5, the sales of 100gm had dropped by more than 40% within 6 months.
 Also the company had taken several measures such as in the packaging, in reducing supply
chain cost by consolidating buying and entering into forward contracts with vendors of raw
materials, reducing distribution costs, to control the costs in order to maintain the same
price for the product.
 But as in 2008 the company has invested Rs 500 million in manufacturing facility, the
increase in the price of product is needed in order to recover the margin but the perception
amongst people is important.
 The company can launch different variants of Parle-G, which can offer the same value but
slightly in different formats of biscuits and can increase the price slightly in order to recover
the margin.