Focus on the right pric

Retailers are gradually coming to terms with the not-so-inspiring market and re-considering the pricing strategy of their merchandise to send the “value-for-money” message across its price-sensitive customers. The exercise also includes shelfing more value for money merchandise intending to allure mass customers in comparison to high-end products that have demand with limited number of buyers. 

Private labels: Ensuring higher profit margin

The time has come for grocery retailers to give more shelf space to the private labels that offer better profit margin sometimes as high as 40-50% . Generally the private labels introduced by the big corporate houses like Future Group, Reliance and that of Birla’s have many takers and quality-wise they are not inferior. A decent packaging and competitive pricing can make these items have an edge over those from the leading manufacturers like HUL.

Manufacturers are taking in stride

To keep intact their share of the retail spaces, manufacturers of the leading brands are working in tandem with retailers offering revised products to enhance brand propositions. This is mostly achieved through revamped packaging. 1 litre Amul ice cream, which cost Rs.70 earlier, is now replaced by 2 litre at Rs 99. Gujarat Co-operative Milk Marketing Federation (GCMMF), which is the brand owner, is undergoing cost-cutting task by rationalizing the dealers’ margin, lowering logistics cost to sell double the volume for extra Rs 29. The smallest packet of Cadbury’s Gems at Re 1, which used to contain four pieces, will now have three pieces at the same price. As a cost cutting drive, the company did not feel convenient to raise the price to maintain its profit margin, rather preferred to take the other way round. The manufacturing companies, as well as retailers, are now eying for volume growth through price cutting and free offerings.

Low-Price items getting more shelf space

Apparel retailers too are strategizing their merchandising plan to house more product categories at the low-end than pricey items. The UK-based retail brand Marks & Spencer categorises its products as “Good”, “Better” and “Best”, revealed Mark Ashman in a recent interview. However in India, conforming to lower price points, the company is going to stock most of its SKU from “Good” category. The company is also eying for local sourcing. Presently, the company is sourcing 20 per cent of its SKU locally and has plans to increase it to 70 per cent in the next five years thus enabling more price cut. The renowned ethnic wear brand Biba Apparels is going to widen its product range for the price point at Rs 599. Kurtas will be offered at Rs 399 and 499, revealed Siddharth Bindra, Managing Director of Biba. The result was reflected as The Body Shop, the noted international beauty and wellness brand, lowered price points of 200 best-selling items that comprise 40 per cent of its merchandise. By doing so, this product category is eventually contributing 50 per cent of the company’s total revenue, disclosed Shriti Malhotra, General Manager of The Body Shop.

EDLP: a pricing strategy for encouraging consumers to buy

Every Day Low Pricing (EDLP) is another pricing strategy that many retailers have adopted to woo more customers. EDLP strategy is a concept that promises consumers the lowest available price without coupon clipping, waiting for discount promotions, or contrast shopping; also called as value pricing. The purpose is to encourage bulk buying by the consumers.

Wal-Mart, the American retail giant, was the first to come up with the innovative initiative of everyday low pricing discount department stores. Indeed the success of Wal-Mart suggests that it is likely to have a growing influence on pricing behavior in the retail industry. Even during the slowdown, Wal-Mart International’s sales outside the US have grown 16.7 per cent to $100 billion, while its operating income has risen to $5 billion. Wal-Mart’s sales have grown 7.2 per cent in the last five years to $401 billion.

A retailer's successful EDLP wholesale pricing strategy may reduce instability in production and transportation quantities and decrease the number of time-degraded product units that consumers receive with the high-sale conversion. In a way it enables rapid stock movement. In India Subhiksha was the first retail organization to follow the concept of EDLP. Deepak Verma, store manager, Spencer’s opined that EDLP format helps them in fetching more footfalls but they have restricted EDLP format to food items and vegetables only.

Jay Gupta, Managing Director of the Loot store believes in the basic requirement of keeping his consumer happy. According to him both occasional offers and EDLP format can help the retailer in increasing his sale, “We have schemes 365 days of the year. The basic scheme remains the same, but over and above, we introduce additional schemes on a regular basis. Like as of today, we have the schemes “Flat 50% off on 50 brands” and “Get a pair of shoes/watch @ Rs 2 on a purchase of Rs 2999.”

Cost-effective back-end operations

Future Group is planning to converge its all back-end operations across its multiple formats to cut down operational cost and achieve higher profit margin and offer Price sops to customers & has revised the average selling price of the brands like Sculler, Indigo Nation, Urbana and Jealous 21 under Indus League, a part of Future Group.

This is a positive sign to find that the market is resourceful enough to remodel and re-strategise in tune with customer sentiment ensuring better gain for the customers, but at the same time, permitting itself to grow.