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Standardising packs of consumer goods can end the era of Rs 5-10 price points

posted Dec 12, 2011, 10:09 PM by Puneet Goyal
Viveat Susan Pinto / Mumbai December 13, 2011, 0:50 IST
The government’s move to standardise packs in 20 product categories could alter the pricing strategy of consumer goods. Most will be compelled to raise prices to match the grammage standards set by the government.
This is because firms at the moment routinely tweak with grammage, without altering price points. Thus, instead of a 100g biscuit-pack at Rs 10, what a firm lands up giving consumers is 80g or 88g at Rs 10. Take chips, for example. At Rs 5, companies give 17 grams instead of 20 or 25g.

Standardising packs at 25, 50 or 100g will mean they will not be able to charge the same price as they do now. For products at Rs 5, Rs 10 or Rs 15, moving price points up will mean a loss of consumption at these points. That is clearly risky given that roughly 20-25 per cent of revenue of a consumer goods company comes from the Rs 5-10-15 price points alongwith Rs 1 and Rs 2. “They are key price points for a consumer goods firm,” says Pravin Kulkarni, general manager, marketing, Parle Products, the largest biscuit-maker in India. This point is endorsed by all key marketers from Marico to Godrej Consumer, Hindustan Unilever to Procter & Gamble. In the last few years, most companies have attempted to capitalise on low-price packs to drive penetration in rural areas.

Parle-G, the largest-selling glucose biscuit in the country, has price points from Rs 1 to Rs 5, Rs 10, Rs 15 etc. The Rs 5 price-point, for instance, was introduced by Parle Products, the makers of Parle-G, just about two years ago to capitalise on consumption at that price point.

Nestle introduced Rs 5 packs of Maggi noodles last year to drive consumption in rural areas. Godrej Consumer also introduced a Rs 5 pack of Godrej No 1 recently to get rural and semi-urban consumers into its fold. Marketers say that what drives low-priced packs is the availability of rounded change.

“So, standardising packs will mean you are introducing odd pricing,” says ex-Britannia-hand-Nikhil Sen, who is managing director at specialty biscuit firm Unibic. "And finding the change for that will not be easy.” Most consumer goods companies affected by the government's move are fretting about this very issue: That non-standard or odd weights will be replaced by odd pricing. Nobody is prepared for it.

A Mahendran, managing director, Godrej Consumer says that representations will be made to the government through industry body Indian Soaps & Toiletries Makers’ Association. So are companies who market edible oils, rice, milk powder, tea, coffee, biscuits, etc. All of them are planning to lobby hard with the government to reverse the move.