Destination India: M&S plays the pricing game

Just three days ago, Marks & Spencer (M&S) announced in the UK that it would pass on higher business costs to consumers by raising prices by 3 per cent later this year.

Its Indian arm is, however, doing exactly the opposite.

UK’s leading apparel and toiletries retailer, which owns a 51 per cent stake in a joint venture launched in April last year with Reliance Retail, has already cut prices by up to 20 per cent in categories such as menswear to woo buyers.

The average price cut in the summer ranges is 12 per cent. And Mark Ashman, CEO of Marks & Spencer Reliance India (MSRI) says the company will continue to lower prices this autumn, allowing it to offer great value to customers.

Ashman says this is part of the retailer’s efforts to “Indianise” itself. “We have realised that in order to be successful, we have to localise ourselves. We would have done good business even otherwise, but we can do much better with these changes,” he says.

Right-pricing is a favourite word in Ashman’s lexicon, partly by compulsion. The retailer used to import its products from Europe earlier and the high import duties of around 40 per cent on apparels ensured that the price tags were high. So sales were sluggish, prompting the company to tweak its strategy to become a mid-market retailer in the country.

So local sourcing, mainly from India and Bangladesh is in. The company wants to increase the percentage of such sourcing to 70 per cent in the next five years compared with 40 per cent now. Last summer, it was just 20 per cent.

When M&S first hit the Indian shores in 2001, there was hardly any competition in the market. But with so many foreign brands making a beeline for India, there was no option but to cut prices steeply.

For example, a polo shirt in M&S now costs Rs 395 as against Rs 495 earlier and formal shirts cost Rs 695 as against Rs 795 earlier.

But pricing is just one part of the company’s strategy to make the brand’s presence felt in a crowded market. It is even changing the styling, colour patterns and designs for India – the first market where it is deviating from the global strategy. M&S offers 16 different colors in men's polo shirts in India as against four in the UK. The company has also launched both flat front and fleeted trousers in its stores as against only flat front in the UK. Even in case of linen shirts, M&S introduced 12 colours as against only six in the UK.

Another change involves increasing the store size. After M&S ended its franchisee agreement with Planet Retail, the 14 franchised stores of M&S were brought under the MSRI management. The joint venture has opened one store in Mumbai and plans to open a couple of more in other metros.

The new stores are large format ones of around 15,000-20,000 sq ft as against the earlier 6,000 sq ft.

There is yet another element that has resulted in sales picking up smartly (Ashman, however, is reluctant to share any numbers). M&S realised that Indian shoppers believe in small packs as opposed to bigger ones in the West, says Ashman.

That explains why it is planning to sell men's socks in individual pieces as against a pack of seven earlier. Women’s innerwear is now available in packs of three from five earlier.

Though separate India figures are not available, the M&S group achieved 25.9 per cent improvement in sales in 2008-09. Earlier, M&S said it wants 20 per cent of its revenues from international sales by 2012.