By Devangshu Dutta <\/b><\/i> (Column from The Financial \n Express – 9 March 2006)<\/i> <\/p>\n
We love sales! Big Bazaar just proved it on Republic Day this \n year, when it couldn’t handle the crowds on its “Sabse Sasta \n Din” (Cheapest Day). And the designers ousted from the recently \n demolished shopping malls are privately thanking their stars \n for the sale-struck consumers who have flocked to the hotel \n in south Delhi, for the “(insert a designer’s name) at never-before-prices \n and never again”. <\/p>\n
The psychology behind the discount sale is that we think we’ve \n got a great deal, having paid less than what the product is \n worth. There is a hint of the illicit, a feeling of having “got \n away” with something faintly irregular. <\/p>\n
Let’s not even begin to dissect how many discounts are actually \n just padded-up prices being “slashed”, or how much “promotional \n merchandise” is bought cheap by the store especially for the \n sale. Such faux-discounts are not peculiar to India, nor are \n they a problem for retailers or brands providing, as they do, \n an event around which to build excitement and customer traffic. \n <\/p>\n
The bigger issue is the nightmare the Indian market is proving \n to be for brands in terms of genuine discounts. Many brands \n end up achieving as much as 40-70% of the total annual sales \n turnover in one or two discount sales—clearly not a recipe \n for long-term business success. The problem is not restricted \n to a few brands. We seem to be caught in a vicious cycle of \n low sales in season and mad traffic during end-of-season discount \n events. <\/p>\n
To me there are two main aspects to this problem—unrealistic \n expectations of volume and the “full-ticket price” that the \n products carry. <\/p>\n
Unrealistic marketing projections may actually be the lesser \n of the two evils. Each brand manager believes that “customers \n will definitely choose my brand over other brands in the market”. \n Some just end up believing their own hype too much, over-rating \n the demand or under-rating the competition. <\/p>\n
Some managers end up being driven by that international image \n more than the saleability of the brand. The end result is a \n marketing plan that is based on the premise that if you make \n enough product, create enough retail points in the market and \n spend enough money on advertising, the brand will deliver up \n to the hype. <\/p>\n
Yes, a rising tide lifts all boats and a growing market lifts \n all brands. The problem arises when your boat, or brand, is \n leaky and results in lot of left-over product being thrown overboard \n at the end of the season, at discounts of 25-70%. <\/p>\n
The bigger question is what’s the right price? Arrogant brand \n managers may think that there is a customer (read: sucker) at \n every price point and the trick is to find enough suckers…oops!…customers. \n Unfortunately for them, customers are fairly sharp—and \n reject overpriced merchandise if they can get comparable value \n elsewhere at lower prices. <\/p>\n
Let me take one comparison with a market that is economically \n at a stage similar to India. In Bangkok, you can buy a pair \n of reasonably well-made polyester-viscose trousers for the equivalent \n of Rs 225-275 from a Thai hypermarket. Retail prices at a normal \n high street store in Delhi or Mumbai for a comparable product \n may range from Rs 400-600 or even higher. Differences of similar \n magnitude are visible in personal electronics and electrical \n items, as well as a range of other products. <\/p>\n
If the Indian retail price points were in line with, say, \n the Thai retail price points, surely a lot more merchandise \n would move off the shelf. <\/p>\n
Clearly, cost of goods has a large part to play in this difference. \n Manufacturing costs can be much higher in India due to lack \n of process-driven efficiencies. Also, most Indian manufacturing \n capacity targeted at the domestic market is sub-scale and even \n qualitatively sub-par. <\/p>\n
Retail costs — including high real estate costs and \n store overheads — add to the problem. Most retail locations \n in India are priced at levels where the only store that could \n make money consistently would be a luxury store where low price \n is the last thing on the customer’s mind! Higher unit costs \n lead to higher prices and lower volumes, while low market off-take \n pre-vents larger scale and better manufacturing — a vicious \n cycle. <\/p>\n
One way out is to take a holistic approach to the product \n and the supply chain. The strategy needed is “Aim low, engineer \n low”. Once the threshold target price at which large volumes \n will be sold is known, one can engineer the entire organisation, \n supply chain and retail location to make sure that the price \n point can be delivered. <\/p>\n
As Prof C K Prahlad proposes, there is a fortune to be made \n at the bottom of the pyramid. At the right price, the Indian \n consumer is always ready to confirm, “Deal!” <\/p>\n