Table of contents

Pricing:
Fundamentals Practical Applications

New Products 01 Assumptions v/s Reality 02 Solutions & Examples

(Pricing for Value) Upgrade Consumers Future Focused

03 Earn more from same consumer 04 Keep tomorrow in mind even while
working for today

Amit K.

Pricing: Key Stakeholder

01 Whose stakes are high in pricing? :

●
●
Finance – Managing P&L
Purchase – Cost control
Fundamentals ● Marketing – Brand Image / Profit
● R&D – Savings / Cost cutting / Profits

Assumptions v/s Reality ● All

???

Marketing looks into various aspects even to arrive at

'pricing approach'
 MRP Fixation: Simple formula MRP Fixation: Simple formula

MRP = All Costs + Profit:

Yes No

MRP Fixation: Key Aspect Q&A

Due to Global Crisis, there is sudden & significant increase
in input costs. You are selling ₹5/- & ₹10/- MRP chocolates
MRP = and biscuits in rural market. What will you do? :

● All costs + profit ● MRP increase

● Brand Imagery ● Substitute high cost RM

● Maintain MRP
● Affordability
● Reduce channel margin (retail, distributor, etc)
● Managing distribution (inflated MRP)
● Cut advertisement and other overheads
???

Is altering the MRP only way to impact pricing and

profitability?
 Blurring Boundaries Looking Beyond

Then Now Then Now

"Need to look beyond defined Packaging solves many problems

boundaries even for pricing –
“Work was compartmentalised
Packaging, Freight (eg - pre-form
– brand means marketing
bottles, localised production),
team, profit means finance
Distribution, Time Cost, Resource
team, employees means HR,
Cost (query settlement on
etc”
Zomato,etc), Replacement by
FMCG.
now, other than storage & Shelf
life. It is a mode of communication
Example – Packaging was
(label declarations), convenience
earlier seen as storage and
(handle, pouring, measuring, re-
shelf life solution.
use), container (storage), Delight
(Kinder Joy), Retaining Freshness
for long (RTE, ambient milk) etc

We need to understand other processes and their impact on cost, other Look beyond to solve marketing problems, which includes cost as well. Liscious Egg
than brand imagery packaging is costlier to save cost.

Margin Levers

Question
02
MRP COST
Are they the same (can use
any)? Can we use them
Practical Applications
randomly?

Situations and Examples

Used basis situation. Can you give examples when to use which one.
 Purpose of Pricing Monitor & maintain Profits

Monitor & maintain profits Impacts the Brand Image

Affordability (consumers) Maintain MRP - Popular price points

Minimise loss / Cost control PRICING Inflated MRP (trade)

Absolute % Margin
Upstocking consumers Encouraging trials
Absolute profitability which impacts Gross margin management as
the organisation’s revenue, a percentage of sales value
Portfolio Management Strengthen a new launch EBITDA, share prices, etc per unit

1. Monitor at company, brand and sub-brand level // 2. Portfolio mix – hi

margins lo absolute & vice versa

Impacts Brand Image

Monitor & maintain Profits

Assume sales mix is 30% Assume sales mix is 5% and

and Margin is 15% Margin is 25%

What if these organisations started selling at much lower MRP with good
margin? It would be ‘more affordable’. Is ‘affordability’ a concern here? Will
Company would be getting higher absolute revenue from the 1st pack even the pricing strategy similar to, say Oppo, Maruti and Pantaloons?
though it is low on %margin
 Brand Perception, not absolute MRP
Brand Image & Pricing (MRP)

Premium = MRP?

Dove is the largest premium

brand of Unilever though it
comes at even ₹2/- MRP.
as low as possible High price

Brand like Jio, D Mart, want to Brands like apple, BMW don’t
be known as ‘sabse sasta’ or want to be seen as ‘low priced’
the lowest priced brand.
Premiumness is NOT a function of absolute MRP. A residential apartment
priced at Rs.10Lac is economical whereas a matchbox priced at Rs500 is
too costly. Note: We are NOT talking about the product performance. Assume it’s the
best in all examples above.

Brand Image & Pricing (MRP) Affordability of Consumers

In many categories we begin with consumer’s expectations
from the category – the right balance between the value and
performance, like:
● Commodities like pulses, spices, dairy, etc
● Impulse categories – snacks, biscuits, beverages, etc
In such categories, try to balance the MRP, profit,
competition / market rates. In such cases we have some
‘references’ to comply with – meaning the MRP must be
within the operative market rates, the distribution margin must
be competitive, popular price points can’t be changed, etc.

Follow the NPD process to increase the MRP / command Premiumness Consumers don’t want to spend more money in such categories.
Maintain MRP:popular price points Minimise Loss / Cost Control

Pricing objective is just to minimise loss or / cost control. It is

Change the RM PM reduction / applicable in:

01 Example, butter with palm oil, low cost

substitutes
02 innovation ● NGO / Development sector

Example, mineral water ● New Launch at loss to encourage trials / new market
bottles, flexi packs, reduction penetration / distribution.
in glass bottles ● Trial promotions
In such cases the objective is to minimise loss by savings on all costs
Logistics / Operations Design changes for optimum performance product and keep the loss within the budget.
03 04
Example, Glucose biscuits, Swiggy, Example, biscuit stencil / dye,
Uber, etc

Inflated MRP / Trade Upstocking Consumers

It is very applicable in commodities where the market rate changes very
frequently, almost daily. It’s not possible to change MRP on daily basis. like: Categories like commodities, tea, snacks, and other very
● All edible oils competitive categories try to Upstocking their consumers
to block competition and increase their brands
● Rice & Pulses
consumption for long by offering:
For such products, the MRP is kept a bit higher and company announces
the rates on daily basis. ● Family / Super saver packs, eg, toothpaste, soap
It is also applicable in case of durables where the affordability changes in ● Extra grammage in tea, rice, detergent, etc
market. Eg, mobile, printer cartridges, etc
For such products, there are frequent offers to woo
consumers to upstock
 Encouraging Trials Encouraging Trials

Pricing strategy to encourage Trials:

● McDonald Burgers communicate about low priced
● Free trial packs (cogs+distribution+taxes)
burgers and meals, though they have costly
upgrades. ● Cross Promo (above + gst implications)
● The idea is to get a ‘friendly’, low cost, value for
money perception and at the same time maintain ● Paid trials, (keep selling price very low for short
the profitability. period), e.g. M.I. mobile launch
Must evaluate from overall perspective not just ‘low cost
option’. Reaching the right audience at little extra cost is
better that reaching incorrect audience at lower cost.

Tata Tea Gold Price Comparisons Portfolio Mgt: Consumers behind the pack

Tata Tea Tata Tea Tata Tea

Tata Tea 1kg
100g 250g 500g
MRP ₹40/- ₹145/- ₹285/- ₹620/-

Trial Pack Family Pack Special Flavour

Gram 100g 250g 500g 1000g
Not fixed on taste, single, Habituated, addicted, frequent Addicted, Look for unique aroma, flavour,
infrequent consumption, consumption, (huge consumer base),
occasionally shift
experience, (significant consumers),
loyal
₹0.40/- ₹0.58/- ₹0.57/- ₹0.62/- seek low price
₹/g
Understand consumption purpose before pricing. It’s much more than
price / unit relationship.
 03
Upgrade Consumers

Earn more from same consumer

a. Rs529/16 = Rs33.06
b. Rs895/24 = Rs37.29

Show they deserve something better

Upgrade
Strategy
Q: What is consumer upgrade strategy and
what’s the role of pricing in that?
 Consumer Upgrade: Tata Salt Consumer Upgrade: Maruti

Super
Lite
Ertiga

Lite Swift

Salt Plus Wagon R

Basic White Salt Alto

Price and performance increases up the pyramid Consumers looking for different features and willing to pay a suitable price
for it.

Waterfall model iPhone 12

Cascade iPhone 11 PRO

Category iPhone 11

Price & Performance Older Models keep iPhone X

sliding down and

finally, out.
iPhone 8

iPhone 5
Static Hierarchy

FutureFocused
Keep tomorrow in mind even
Products are static. while working for today

Consumers may
choose different
performance at
different times

04
Future Focused
Anticipate future and start working backwards. We don’t know:
“We are currently preparing students for
● What will be the future of ‘retail’ in fmcg?
jobs that don’t yet exist … using
technologies that haven’t been invented ● Future public and commercial transport?
… in order to solve problems we don’t ● Future of advertising?
even know are problems yet.”
● Future of mobile technology?

—Richard Riley, former Secretary of Education” ● Influencers? – Humans or Technology?

● Future of A.I.?
Understand the forces that will influence the consumer behaviour in
future.
 Thanks!
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