by Sangita Joshi, August 20, 2014
About: Sangita Joshi was co-founder of EmPower Research, a media and research company that was acquired by Genpact. She has more than 20 years of sales and marketing experience at a variety of organizations including P&G (then Gillette), Whirlpool and Blow Plast. She also instructed MBA students at IIMB, NMIMS, and XIME. She holds an MBA from IIMB and a BE from the Delhi College of Engineering. She now spends her time in some community service, mentoring start ups, and trying to be a soccer mom.
Disclaimer: The views expressed are the author’s independent views and do not reflect the viewpoint of the organisations she is working with or has worked for.
Old truths become harder hitting when you are faced with them.
Truth no. 1: Value in a product is the money which a buyer is willing to pay – not what you price the product at.
Truth no. 2: Limiting distribution, i.e. creating a demand and supply mismatch tends to increase the value of access of a product.
Truth no. 3: Price elasticity is a very real phenomenon, marketers just need to figure out – what combination set of product attributes and buyer tap into the zone of inelasticity – on the higher side!
It is no secret that the largest bulk of excise income for many governments arises out of tobacco and alcohol. There are also many studies showing the relative price in-elasticity of tobacco and alcohol, thereby prompting the almost yearly hikes of taxes in these products (well, the hike is prompted by the tobacco/ alcohol lobby in the states at least) but the fundamental principle is the same. An interesting read on the numbers involved in the alcohol economy is enclosed
But, these economic facts hit you “in the face” when faced with banners in bars/alcohol retail points showing “sold at MRP” only. The point being, in many other places – liquor is sold at higher than MRP!!! (I have myself once gotten into a stand up fight with a guy when he sold to me 4 beer bottles for Rs. 400/- at a time when the bottle cost some Rs. 72/-!)
In another similar case, the gutkha/pan masala industry is clearly making a killing for its channel partners – currently, the Rajnigandha (medium size) pouch has as its MRP Rs. 10/-. I don’t know what the intended retail and wholesale margin is, but all kiosks routinely sell it for Rs. 12/-. And all buyers (myself included), equally routinely, buy it for that much. No questions asked. In fact, in a few areas, I have paid Rs. 15/- for a pouch too, cursing vilely “Afeem bech rahey ho kya?” but given “take it or leave it”, I have taken it!
Not only that, many kiosks sell the smaller pouch – they are ALWAYS out of the medium pouch – reason? Aah, you guessed it – the smaller pouch has MRP of Rs. 4/- but sells at Rs. 5/-. So, this is a 25% markup (as opposed to only a 20% one on the medium pouch).
But, have you spotted the catch here? No?…I’m sure if you were the brand manager on the Rajnigandha brand, and had fought a bitter fight with your CFO, to keep the “psychological price point” of Rs. 4/- or Rs. 10/- for your pouch, you would be gnashing your teeth……the catch is – the manufacturer created the value here (OK, so what if the value, arguably, lies in something addictive) and the retailers – the pan wallahs are capitalising on this value!
Lost opportunity? Or Channel partner empowerment?…where does your vote lie?