RETAIL PRICE MECHANISM:VARIOUS PRICING MODELS IN CEMENT BUSINESS.

- Raghavendra Verma

The Retail Mechanism

The sale of goods from fixed points or shops to the consumer in small quantities for his own consumption is called as retail. According to the concept of retailing.. a retailer doesn’t sell cement in bulk, instead sells the merchandise in small units to the end–users.

Retail Pricing Cost plus pricing mechanism works on the

following principle: Cost price of the Cement + Profit (decided

by the retailer) = Final price of Cement. According to the cost plus pricing

strategy the retailer adds some extra amount to the actual cost price of the product to earn his share of profits. The final price of the cement thus includes the profit as decided by retailer.

Cost Plus Pricing Cost plus pricing strategy takes into

account the profit of the retailer. Cost plus pricing is an easy way to

calculate the price of cement bags. The increase in retail price of the

cement is directly proportional to the increase in cost price.

The customers generally do not have say in cost plus pricing.

 

Manufacturer Suggested Retail Price (MSRP)

It is also called as List Price or Recommended Retail Price or Maximum Retail Price. The retailer however sets the final price of cement as suggested by the manufacturer but for his convenience & on following conditions:

Condition 1: The retailer sells cement at a price suggested by the manufacturer. OR

Condition-2: The retailer sells the cement at a price less than what was suggested by the manufacturer. Such a condition arises when the retailer perceives it cannot be sold at a suggested price. OR

Contd..

Condition-3: Retailers initially quote an unreasonably high price and then reduce the price on the customer’s request to make him realize that a favour has been done to him. A condition of bargain– where the customer negotiates with the retailer to reduce the price of cement.

Understanding- Types of Pricing Behaviour.

Competitive Pricing

The cut throat competition in the current retail scenario has prompted the retailers to guarantee excellent customer service to the buyers & to make them prefer over competitors.

The price of cement is more or less similar to the competitors but the retailers add on certain attractive benefits for the customers (Large Payment term, gifts etc.)

The retailers ensure that the customers leave their shop with a smile (satisfaction) to have an edge over the competitors.

A retailer tries his level best to offer better services to the Customers for a better business in future.

Pricing Below Competition

According to pricing below competition policy-The price of cement is always kept lesser than what is being offered by the competitor (retailer). This is due to retailer’s fear of losing a customer for a price.

 

Prestige Pricing (Pricing above Competition)

According to prestige pricing mechanism, the price of cement is set slightly above the competitors.

A retailer however can charge higher price than the competitor only under following circumstances:

Willingness to charge higher price for a margin. Enhancing Brand image of the shop for premium

product range. Exclusive Brand at shop Prime location of the retail shop Excellent customer service & relationship Product not available at any nearby other shop Focussed approach on premium segment

buyers.

Psychological Pricing

  Certain price of cement at which the consumer willingly purchases, it is called psychological price.

The consumer perceives such prices to be correct.

A retailer sets a psychological price which he feels would meet the expectations of the buyers and they would easily buy the cement. This may vary from place to place.

Multiple Pricing According to multiple pricing, the

retailer sells multiple cement brands (more than one)- all for a single price.

OR The retailers combine only few

cement brands of a particular category (e.g; A, B, or C) to be sold for a single fixed price (averaging out method).

Discount Pricing According to discount pricing

method the retailer sells cement at a discounted price during off seasons or to clear out his stocks. This is to avoid or minimize losses on downward trend. Sometimes, this method is also adopted to improve liquidity in bad times.

Why Retail Price Maintenance A Neccessity to Benchmark a ‘Brand’.

 Resale Price

Maintenance (RPM) It is a practice whereby a manufacturer,

distributors and retailers agree that distributors & retailers will sell cement at certain prices.(RPM for WSP & RSP), at or above a price floor (minimum resale price maintenance) at or below price ceiling (MRP).

If a reseller refuses to maintain prices either openly or covertly the manufacturer then punishes the distributor or retailer or stops doing business with him.

Why Resale Price Maintenance?

Resale Price maintenance prevents resellers from “competing” too fiercely on price, especially with regard to cement. Otherwise, resellers could drive down profits for themselves as well as for manufacturers. The RPM therefore creates a win-win situation for both resellers & manufacturers for the following reasons:

Manufacturer may do this to keep resellers profitable, thus keeping manufacturer profitable.

This also overcomes a failure ensuring that distributors who invest in promoting cement are able to recoup the additional cost of such promotion in price that they charge.

Scheme: For Promoting Resale Price Maintenance

The Team The team comprises of SRs, SOs, CSOs & C&F-

Staff Area-In charge will be the Team Leader. The Team must be able to communicate to every

retailer & every Dealer messages on daily basis. The Scheme could be taken up for initially 1or 2

months period. The Team must get convinced & gear-up on their

own. The purpose of the Team is to repeatedly

hammer upon communicating “prescribed messages” personally, vigorously, speedily and on daily basis.

Team will also monitor and religiously follow the rules of the game.

If any one of Team-member or more appears “not interested” – this campaign would fail.

The Mystery Shopper

Hire Mystery Shoppers from outside agency who can be trained as “Dummy Customers” & that they should act & behave naturally.

Their numbers could be decided depending upon time taken to cover retail counters on daily basis- thereby covering 100% of all selected retail counters of the City. This includes our multi-brand dealers’ retail counters also.

The Mystery Shoppers must cover the entire city-market at least four times in a month- randomly.

Accordingly, budget their remuneration package. The Team will stringently monitor their

movements. (Back function approach).

The GiftsSuggested to keep Gift items ready (on approximation numbers) in following ranges for the retailers qualified for:Rs. 200/= (who only recommend our brand at first instance- but not keeping stocks of our brand).Rs.400/= (Who not only recommends our brand but also stresses upon quality– However not keeping stocks of our brand).Rs. 600/= (Who does it all – recommends, stresses on quality & also keeping stocks of our brand.)

Gift Distribution Pattern

The Gifts will be distributed “on the spot” by the Mystery Shopper himself who will be backed by one team member carrying “Gifts” separately while on the move.

The Sales Officer must not recommend or influence the Mystery Shopper for a favour to any “retailer” (This may lead to jeopardise the very purpose of the Scheme).

The Area –In-Charges may take the responsibility & accountability of the success of this campaign. They must ensure all fairness on merit.

Area-In-Charges must keep joining any group as surprise visits to keep up the pressure (there are chances that the excitement may get dried down).

Activity Synchronization As you have already decided upon: 1. The Team 2. Mystery Shopper 3. The Gifts 4. Gift distribution pattern.Now follow the execution plan…

Synchronize the Activity Plan as under..

Decide the period of campaign– Say April’13. Keep Mystery Shopper list ready with contract signed (no

absenteeism on any of the four pre-decided dates). Get the Gifts (of best perceived value) purchased & get the

gifts wrapped in advance. Ask the Team to create a “hype” or a “Buzz” in the market by

explaining to each retailers as e.g., A “Mycem” happy customer will reward you with a Gift any

time during the month (on one or more occasions during the month.. so keep speaking for Mycem Cement).

Insist all retail counters to speak aloud to every customer about Mycem Cement – Strong recommendation for brand, briefly explaining on quality & showing him the Mycem stocks (Insist that retail counters may not be gifted if not sold on premium pricing).

Tell all retail counters that surprise gifts would naturally come if all above parameters are followed by them religiously.

Contd…

You know Mystery Shoppers will Campaign only 4 days in a month– but sales team must keep insisting all counters on daily basis.

If the sales team knows the date of visits of Mystery Shoppers– the chances are that they may alert the market (on these days only). Instead, they should capitalize on daily basis for full tenure of campaign.

Before, the start of the campaign, it is advised to get the “Retail Price” displayed at every cement counters.

Finally, What Achieved? You have created a “buzz” through mouth-to mouth

campaign. The Brand gets highlighted by “personal touch”. You have created a pressure on retailers to sell on

“Quality & Price” -enhancing “Brand Value”. The entire exercise is focussed to generate “Brand Pull”-

The real customers will suddenly & surprisingly observe that maximum counters are advocating for “Mycem Cement”.

This gives an opportunity to “kindle” all those retailers who did not get any Gifts at the first instance & encourage them further to promote brand for remaining days to get the “Surprise Gift”.

Most retail counters may get into habit of recommending “Mycem Cement”.

It’s a “fun selling”, which compels sales team to plunge themselves into covering entire market on daily basis.

Suggestions The campaign may get started initially at City places

like- Jhansi, Jalaun, Kanpur & Lucknow (Say April’13). The next cities could be– Farrukhabad, Etawah, Sitapur,

Firozabad & Agra (Say May’13). The Success of campaign would solely depend upon the

“Ownership by the Team”. Otherwise, time & budget may go waste.

The Campaign must have a “flow Chart” Schedule & to be in a hyper-active mode during its tenure.

Deliberate the entire process thoroughly and incorporate changes as per your market requirements.

Ensure that each team member is convinced on this presentation right from the beginning as would enable them to understand the purpose & advantages of same.

The implementation of this campaign is not suggested in down seasons.

Thank you