The FMCG & RETAIL Pricing Strategy
UNDERSTANDING THE PROCESS
FMCG Pricing Strategy is now a critical element of the management mix. Old school management responsibilities of Sales owning the trade spend budget and customer negotiations with marketing owning the Recommend Retail Price do not work in today's information driven age.
Retail sales volume is now 80% controlled by 2-3 chains with a scattering of independent operators making up the rest of the volume. This concentration means the negotiations favour the retailer with the supplier handing over margin via the mechanism of trading terms and via the demand for increased promotional frequencies and deep price discounts on key branded lines.
The challenge for Trade Marketing, Category Management as well as Sales and Marketing is to develop a pricing system that can be customized to reflect your business needs but utilize the power of a structured and proven pricing management system.
The Basic Concept used by ITC is:
“PRICE IS SOMETHING WHICH CUSTOMER IS READY TO PAY FOR YOUR PRODUCT”
Hence it is a majority function of
-Consumers purchasing Power.
-Market condition created by the Competitor in terms of the Price. PRICING STRATEGY
Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion. While there is no single recipe to determine pricing, the following is a general sequence of steps that are followed for developing the pricing of product: 1.Develop marketing strategy - perform marketing analysis, segmentation, targeting, and positioning. Methods Adopted: Box Plot Method: i.e. Market Segmentation 2.Make marketing mix decisions - define the product, distribution, and promotional tactics. 3.Estimate the demand curve - understand how quantity demanded varies with price. 4.Calculate cost - include fixed and variable costs associated with the product. 5.Understand environmental factors - evaluate likely competitor actions, understand legal constraints, etc. 6.Set pricing objectives - for example, profit maximization, revenue maximization, or price stabilization (status quo). 7.Determine pricing - using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts.
EXAMPLE FOR THE CATEGORY STAPLES: WHOLE WHEAT ATTA –THE DIFFERNT STRATEGY ADOPTED AND THE PRODUCT AS A RESULT IS DISCRIBED FURTER ON The chart reflects the market approach and the categorization of the segment of the product price.
This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands, ITC has a pact with the BIG BAZAR with to sell such products and then they have a great distribution base developed due to their Cigarette distribution chain .Example: NORTH POPULAR AASHIRVAD ATTA (north India) OR EAST POPULAR BRAND AASHIRVAD (Eastern India)
Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. EXAMPLE: SELECT BRAND OF AASHIRVAD ATTA, MP Blend CHAKKI Atta
Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free), or with a big SKU (10 kg) purchase a small SKU is given for free. Example: MP Blend 10 Kg use to have a ½ a Kg pack frees with itself as promotional strategy at BIG BAZAR in Western Markets. Product bundle pricing.
Here sellers combine several products in the same package. This also serves to move old stocks .Example: Foods Business was clubbed together so the Biscuits Brand SUNFEAST stocks were cleared by selling them High...