Pricing Strategies and objectives in Rural Market27th March 2021
Companies should not only price their products competitively, but also offer their rural prospects the maximum value for money spent. Indian companies can do this by putting in place an aggressive cost structure. Re-designing of products for the rural market should be done in a manner to maintain a low cost for the products. Refill packs are a good example in this case.
Law of demand says ‘Higher the price of the products, lower will be the demand of the product and lower the price of the product, higher will be demand for that product’. This law is totally applicable in the rural markets. Because of the relatively lower income, the rural consumer is more sensitive towards price. Marketers have to plan their activities in order to bring down the cost of production. They have to bring down the price in order to attract the customers e.g. Nirma Washing Powder.
The price decision must be influenced not just by the income received but also on when it is received and how it is allocated as rural consumers either get daily wages or the farmers get major income during the harvest season.
Companies must follow the strategy of penetration pricing with the backup of a good quality product to be successful in the rural market. As ‘two for one’ deal and coupons are not very effective marketing tools, it is far better to price the product as low as possible in the first place.
FMCG companies can cut cost to maintain the price points through reducing the net weight of the products or doing away with freebies and promotions. In developing markets, the profit margin on individual units will always be low. What really counts is capital efficiency getting the highest possible Returns on Capital Employed (ROCE).
The key is to make constant efforts to reduce capital investments by extensively outsourcing. Manufacturing, streamlining supply chains, actively managing receivables, and paying close attention to distributor’s performance. Very low capital needs, focused distribution and technology investments and very large volumes at low margins lead to very high ROCE business; creating great economic value for shareholders. The overall impact on the volumes and margins will be based not only on the industry dynamics but also on how intelligently the package is designed.
Low unit packs were there since long; only denomination is different now. The pioneers in this category were tea and coffee marketers. Brooke Bond pack was available earlier in 5 paise, later in 10 paise, 25 paise and 50 paise and then with inflation it became Rs. 1 pack. Now it is the time of Rs. 5 pack.
The current craze for Rs. 5 positioning could be because of Coke’s success in promoting the pouch strategy. Colas helped to highlight the price point to the consumer and their medium weight really threw open the gates for other manufacturers to come and ride piggyback on the Rs. 5 price point. And what is different from the past is that large numbers of product categories are now available in small packs and it has taken the shape of mega trends.
The small packs increase user base, usage occasion and can thus explode the market. The consumer base of soft drink increased from 16 crores in 2002 to 24 crores in 2004. A two-year period for which the Rs. 5-price point remained in force.
The Colas started it but host of other branded products are now realising the importance of being present at Rs. 5 price point. Ready availability of five rupees coin has been an advantage and many consumers are not worried as much about grammage as price. They are used to ask for Rs. 2 or Rs. 5 worth of commodity.
Some of the brands that HUL sells for Rs. 5 are Pond’s Talc, Pond’s Cold Cream, Rin, Taaza, Fair & Lovely and Lux. The price point also helps branded FMCGs, which are battling fakes from unorganized sector. Rs. 5 price point leads to growth in user base of brands and increased category penetration for those who have introduced such packs.
Key to successful rural marketing lies in selling goods and services that can be afforded by villagers. Most of the rural population depends upon agriculture for livelihood and as such their income is irregular. Also the per capita income of the rural areas is lower.
It is estimated that more than two-thirds of Indian villagers belong to low income group, and thus they are very much price-sensitive. A villager will purchase a particular product only if he feels that he is getting enough value for it.
Rural population normally does not indulge in conspicuous spending. In order to sell to the village markets, many organizations developed low priced options specifically suited to the rural customer’s pockets. Britannia’s tiger biscuit is a low priced snack which is popular among village kids.
In the year 1998, Lg electronics introduced its sampoorna television range targeted at rural buyers. Procter and gamble brought out tide naturals, a comparatively cheaper detergent powder. Most brands of shampoo are available in sachets priced at Rs. 2-3.