Pricing weapon in FMCG marketing

“No. I don’t think we will be launching toothpaste. Nathi,” said Karsanbhai Patel.

Our agency team had worked on the corporate brand campaign for Nirma and “Better Product. Better Value. Better Living” was the tag line that the company carried for many years. After the IPO was completed, our team was keen on exploring other opportunities with Nirma Ltd. In the process of a discussion with Patel, we discovered that Nirma was looking at other products like shampoos and toothpaste (Nirma washing powder, Nirma detergent cake and Nirma beauty soap were all best sellers then). We were asked to evaluate their toothpaste. Armed with a few dozen tubes of toothpaste we got back to Mumbai wondering if consumers would be ready to buy toothpaste with the same brand name as an economical yellow washing powder.

The agency account planning team got into action in full earnest. They decided to avoid big cities but focused their consumer immersion on semi-urban areas. They even met consumers early morning in several villages. What they played back to us was interesting. Not only were consumers ready to try Nirma toothpaste, but they also thought it would be “strong” and “good value for money”.

We excitedly headed back to Ahmedabad to share our findings with Patel and his team. We were confident that Nirma toothpaste will have enough takers. Patel, too, felt that his product was of good quality, but he would not be launching it. But why, we asked.

And it was then that Patel unveiled his product pricing philosophy. His understanding was that Colgate toothpaste, which was being retailed at around Rs 10 (50 gm), had the largest base of consumers. He wanted to price Nirma (50 gm) at Rs 5. He had a keen sense of appreciation of who his consumer was and felt that Nirma consumers will not be willing to pay anything more than Rs 5 for a 50 gm tube of toothpaste (the prices are just indicative of what were the prevailing prices in the mid-1990s). And if he had to have an MRP of Rs 5 on the pack, given the healthy retail margin he offered to retailers, his net realisation may be as low as Rs 3.50; at that price the product was unviable.

In the discussion that followed we understood how strongly Patel knew his core consumers and the brand power of Nirma (this has been presented in my book Sponge: Leadership Lessons I Learnt from My Clients). He knew that if he had to take on an image leader, he had to make the value proposition unbelievable. That was the secret behind Nirma washing powder and the other products that Nirma had launched. He knew that his brand would not be able to command a price anywhere near what the image leaders offered. Hence, the need for value pricing or, should I say, unbelievable value pricing.

I was reminded of this story when I read that Reliance Consumer Products Ltd was launching a range of products in the FMCG space priced lower than the market leaders. The report (March 24, Business Standard) said that they will be pricing their new range of products, Glimmer beauty soaps, Get Real natural soaps, Puric hygiene soaps, Dozo dish wash bars and liquids, HomeGuard toilet and floor cleaners, and Enzo laundry detergent powder highly competitively. From what was reported, all these products will be priced 30 per cent cheaper than the market leaders. In other news, HUL announced it will cut prices of its detergents thanks to reduction in raw material prices (March 31, Business Standard).

The question remains, will just a lower price do the trick? It is not as if low priced options are not available in the market. Consumers know that they can trade down to a lower priced product, and they do that when in a pinch. But they also know that using a reputable brand gives them something more — better quality, better packaging or better value.

Naomi Klein, in her book No Logo published in 1999, had proclaimed that with more and more information available in the hands of consumers, brand marketers will not be able to charge a premium. A few years after the publication of the book, the Economist carried a front-page story titled “Pro Logo” where the magazine said that logos (and brands) will survive because consumers love brands, for a variety of reasons. So even if Walmart sells a shoe for $15 made probably in the same factory as the Nike that is priced at $45, consumers may still pick the Nike shoe. However, there have been disruptors like Dollar Shave Club riding a price and a very different distribution bandwagon.

In that sense, Reliance has one interesting weapon in its armoury: its own retail stores numbering 15,000+ in over 7,000 cities. These outlets could act as brand image builders for the new range of consumer products from Reliance. Secondly, the new offerings can benefit from a rub-off from the Reliance’s brand image that is today strongly identified with its mobile service — excellent service at great value. And I think it will be important that Reliance invests significant money on some good old-fashioned brand building advertising. If we factor all these elements, the new offerings from Reliance could disrupt the market and in the end consumers will have a good time.

Ambi Parameswaran is a best selling author and an independent brand coach. He can be reached at ambimgp@brand-building.com