Chapter 8

Chapter Objectives
Internal factors for pricing External influences determining the prices for rural

markets Pricing strategies based on understanding of rural income and occupation patterns, optional product and captive product pricing Market entry strategies based on pricing

RMB 08

PRICE
Price represents the market value of a product or

service Customers see it as a value which should be paid to acquire the item Companies see it as a point where they cover costs and make a reasonable surplus Governments may see it as a welfare measure support price or ration price Understanding of internal and external factors to be considered in the process of decision making
RMB 08 3

Internal Influences
Cost rural markets require huge efforts and costs
Multiple intermediaries are required in rural for effective

distribution Customers and retailers require credit in rural Cost control through use of promotion at haats, mandis and melas and limiting mass media

Companies will have to devise some innovative

distribution and control costs

communication

strategies to

RMB 08

PRICING OBJECTIVES
OBJECTIVE Profit Sales Competition Development TYPES Profit maximization Return on Investment Sales increase Market share Meet or prevent competition Deeper penetration of existing markets Entering new markets

RMB 08

External Influences
Impact of price on demand Effect of branding and the different stages of

product life cycle Key external issues in pricing are:

Customers Suppliers Competition Legal environment

RMB 08

Customers
Need to understand price sensitivity of target

customers in rural Low and seasonal income Pricing and mode of payment is decided by this Marketers would have to look at self managed installment schemes Lower prices should not be achieved by making a compromise on product features in rural Purchase of items at time of marriages involves prestige. Premium pricing can be set for such items

RMB 08

Competitors and Legal Environment

Competition was from regional brands in the past Entry of multi-nationals has increased the level of

competition of national brands Competitors are now being driven to non-price factors to capture share in rural Legal
Price advantage to small scale manufacturers Lower rates of interest on purchase of agricultural

implements Subsidies on inputs

RMB 08

Pricing Strategies
Optional-product pricing differential pricing policy

for main item and spares/accessories to penetrate into villages and small towns Captive-product pricing setting prices for products that must be used along with the main product Low price points to ensure inclusion of item in daily basket of purchase Highlight value not price

RMB 08

Pricing Strategies
Avoid fancy packaging since rural customers more

interested in sturdiness Companies also need to go in for refill or reusable packs Need to introduce product sharing services in rural (especially for durables) Price bundling Combo pack by HUL for shampoo, toothpaste, cream and talcum powder at attractive price points

RMB 08

10

Market Entry Strategies

Penetration pricing to secure wider market acceptance

and take advantage of economy of scale Economy pricing by minimising marketing costs. This is used largely by regional brands Value pricing based on changed economic situation Coinage pricing by setting prices at coin value 1, 2, 5, 10 Psychological pricing to take advantage of price quality relationship

RMB 08

11

PENETRATE OR SKIM?
FACTOR
Demand Elasticity Cost of production and marketing compared to competitors Economies of scale Ease of entry of competitors Rate of acceptance of concept Type of market Firms financial resources

SKIM IF
Inelastic Higher No No Low Segmented High

PENETRATE IF
Elastic Lower Yes Yes High Mass market Low

RMB 08

12

Marketing Strategies
Discounts and Allowances Cash discount Quantity discount Free gifts Popular in rural Ensure that gifts are complementary to the main product Difficult to monitor in rural with retailers pocketing the free gifts due to limited reach of media and literacy levels

RMB 08

13

TRADE DISCOUNTS
DISCOUNT Trade Volume DESCRIPTION
Basic discount given to wholesalers and retailers Based on higher quantity off-take

OBJECTIVE
Channel motivation Push

Cash
Seasonal Promotion
RMB 08

For payment on time

Discounts in low demand periods For participation in localised promotion

Reduce receivables
Order smoothening Demand stimulation
14

PRICING BY RETAILERS
Two types of retailers in rural:
Retailers in feeder towns Retailers in villages

These retailers:

Sell smaller quantities Sell mainly loose products Sales cycle is daily or weekly Sell to people with comparatively lower purchasing power

Malpractices
Weights and measures Adulteration Cheating on prices and calculations

RMB 08

15

PRICING STRATEGY
Three tests of effectiveness

Is it in tune with customer expectations? 2. Is it consistent with the other Ps? 3. Is it competitive enough to give the target market share
1.

RMB 08

16

 Look at rural more as value conscious Understand the power of the retailer Keep track of the competition Rs. 1 and Rs. 5 are strong price points

RMB 08

17