How to price tea?

Case Analysis and Discussion

G ro u p P

Priya n ka d e
N o ro n h a
R ish iR a j
S a u m itra
A m b e g a o ka r
S re ya G h o se
Agenda
Part 1: Company Introduction
Introduction
Industry analysis
Marketing analysis
Part 2: Pricing Strategy

Pricing Objectives
Quality-Price Inferences
Determining Demand
Estimating Costs
Competitor Analysis
Positioning Duncan
Recommendations
 Part 1

COMPANY INTRODUCTION
 Introduction
Duncans Industries:


Founded by Walter Duncan in

1859
Today spearheaded by the G.P.
Goenka Group
Based in Kolkata
16 tea estates in the Dooars and
Terai regions
Brands
•

Source: BSE

No. 1 Shakti Double Sargam Runglee

Diamond Rungliot
Industry Scenario
Market size of Rs. 10,000 crore Production , Consumption &
Exports in India

Growth at 2% Y-o-Y
Major players include: HLL
(currently Hindustan Unilever
Ltd.) and TLL (currently Tata
Global Beverages Ltd.)
Smaller players include: Wagh Source: ICRA
Bakri, Golden Tips and Godfrey Research
Tea production in
Philips India

Market Shares in the Tea

Industry in India

* Others signify Wagh Bakri, Golden Tips, Godfrey

Philips
Major Competitors
Hindustan Lever Limited
(HLL)
Market leader
Extremely strong distribution
network
2 umbrella brands: Brooke Bond,
Lipton

Tata Tea Limited (TLL)

Dominant market position
Price warrior – value-for-money
offerings
Wide range of products


SWOT Analysis
Porter’s Five Forces
Marketing Analysis: The 5
Cs
STP Analysis
 Part 2

PRICING STRATEGY
The Duncans Advantage
5 established brands – market players for 3
decades
Good quality tea at reasonable prices
Company already known for high quality tea
exports
 Leverage this reputation
•
The Pricing Process
The Pricing Process
The Pricing objective
“Placing 1 or 2 brands in


order to create long-term

position in the domestic
packaged tea market and
increase market share”
Defining ‘Quality’
Low Quality Medium High Quality
Numbering 1-3 Quality
4-6 7-9
Price range Rs. 29 – Rs. 36 Rs. 38 – Rs. 59 Rs. 60 – Rs.
Type 250
Dust, fanning Granules, CTC Leaves, tea
Characteristics bags
: Strong Strong Delicate –
Taste Strong Strong strong
Colour Weak Medium Light
Aroma High

Q u a lity - P rice re la tio n sh ip : G re a te r q u a lity

= Higher price
Forward
 Duncans: Quality-Price
Matrix
Quali
ty
Rs .
89
Hig
h

Rs .
Rs . 45
Medium 43

Rs .
35
Rs .
33
Low

Price
Rs . 85 – Rs . Rs . 38 – Rs . 29 –
250 Rs . 58 Rs . 36
Determining Demand
 Price sensitivity
Low quality segment: high price sensitivity
Medium quality segment: medium price sensitivity
High quality segment: low price sensitivity


 Price elasticity of demand

Elastic demand for tea (since coffee is a substitute)
Elasticity (Low quality segment) > Elasticity (High
quality segment)
Estimating Costs
 Types of costs
Fixed costs: machinery costs, wages for factory
workers and tea pickers
Variable costs: Packaging costs
Other costs: Marketing costs


 Accumulated production
Greater experience = lower costs (learning curve


concept)


 Target costs
Desired function of product + selling price – desired


profit margin
Analyzing Competitors’
Quality
Quality Number of
firms There are 27 competing brands
1 1
2 5
out
3 4
of 38 in the quality range 2 to
4 8 6
5 6 Very high competition in this
6 4 quality range
7 5
Mainly attracts the growing
8 2
middle class
9 3
Analyzing Competitors’
Price
Price Band Number
0-29 0of brands There are 11 brands in the low
29-34
34-39
7
4
cost segment (Rs. 29 to Rs.
39-44
44-49
8
4
39)
49-54
54-59
3
2
15 more brands in medium
59-64 0 price range (Rs. 30 to Rs. 54)
64-69 0
69-74
74-79
0
0
Duncans’ 2 brands including
79-100 4 Double Diamond (fastest
100-150 2
150-200 1 growing brand) in the
200-250
250-300
3
0 medium price segment
Majority of competitors
focusing on low to medium
cost tea Back
Competitors’ reaction to price
changes
Low quality segment:


Moderate to high reaction from competition (section

dominated by loose tea players)
Customers will move away to lower priced teas
Medium quality segment:


High reaction from competition (pricing is important

to maintain market position)
Customers may be incentivised to move to better-
valued tea
High quality segment:


Low reaction from competition (brand position is

important)
Customers are brand-conscious and prefer to remain
loyal to a brand
 Cost-Benefit Analysis
Low Quality Tea Segment
Medium Quality Tea Segment
High Quality Tea Segment

Pros Pros
Very strong Duncans’ brand Highly
in thisprofitable
segment segment
ompetition High demand of products Fewer brands - relatively low competi
et visibility – leverage on existing brands
Can offer high quality tea at low prices
unorganized sector


Cons
Cons High risk resulting from low dema
High competition from Tata Tea and HLL
me required for profitability 
Little differentiation between products
into market share of existing brands
Positioning Duncan
Year
1998
1999
2000 5.693
GDP
5.979
6.916
High competition in
Growth low to medium
quality and
Rs. 29 to Rs. 54
price band
Pricing Method used:
Economy growing at  Going Rate
around 6% Pricing
Increasing  (based on prices
purchasing power of of major
the middle class competitors)
Target quality level 7
(lower high quality)
at a higher-medium
price (Rs. 55 to Rs.
Recommendations
 Low quality segment:
Focus on strengthening position of existing brands
– No. 1 and Shakti


Medium quality segment:



Strengthen Duncans’ Double Diamond (the fastest-

growing brand)

 High quality segment:

Focus on increasing volumes and profitability of
Runglee Rungliot
Increase geographic reach and popularity
Thank you!