Friday, February 23, 2007

On Prices

The Hindu businessline has a piece today on how Consumer goods prices are under check for the last two odd years due to competition and new players.

The detergent sector was in an all out war instigated by P&G and faithfully followed by HUL (Until recently, HLL). Most other sectors have seen the entrance of new players (ITC - biscuits) or faced increased choice or competition.

Though again, the price war was executed in part by offering different brands and variants and not a direct cost reduction all across. So, while premium products became pricier, cheaper products became cheaper or remained stable. So, while shampoos are available in 1 or 2 rupee sachets, the product is a little more dilute (my observation) while the premium end of the same shampoos are expensive (and become more expensive).

The other trick is to reduce the size and keep the price constant or allow consumers to purchase in bulk and give some discount. (here). This, per my observation, has been a consistent feature in most of the categories. Bottled water for example - now the 500 ml version costs what the 1 liter version used to cost some time back, but if you buy a larger size, you save a bit. Maggi has a tiffin size pack - a measly portion for the price that it used to offer an entire packet - but it also has a giant sized pack which it did not earlier - and this is cheaper than going in for one pack. Cokes 250ml bottle as opposed to 300ml and the introduction of the 2 liter bottle.

And interestingly, even in the times of increased raw material prices companies are not bleeding. Indeed higher productivity is helping them make money. So, competition is good not only for the customer.

1 comment:

Kiran said...

Retail boom and increased market penetration (in simpler words, increased disposable income and higher market share) enable these companies to compete on price. It will be interesting to see with more competitors and a little stagnation in the market...this productivity model might just go a bit awry!