The Hindu Business Line : More bang for buck

IF YOU BOUGHT detergent powder or a bottle of shampoo lately your wallet would not have become dramatically the lighter for it. You would also have found buying toothpastes and toilet soaps a cheaper proposition. If last year was one of freebies across a host of categories in fast moving consumer goods, this year promises to be one of savage price cuts, of the kind that could make consumers wonder if FMCG companies were ripping them off in the past. Or, they could well pose the question: Do cheaper products mean lower quality?

A 750 gm pack of Surf Excel Blue costs Rs 50 now from Rs 70 earlier; Ariel is Rs 99 a kg, a steep drop from Rs 135 and Rs 155 not much earlier; Tide Rs 46 a kg (Rs 85 and Rs 135 before that), while a 200 gm pack of Colgate Dental Cream, the market leader, is down to Rs 45 from Rs 54. Similarly, in shampoos, while Sunsilk lures consumers with a buy one, one free offer, Pantene has cut prices sharply. Consumers, obviously, are not complaining for they are getting more bang for the buck. Consider the fact that a kilogramme of Surf used to cost just under Rs 50 in the early 1990s. Such steep price cuts in items of daily consumption have perhaps been a while in coming. Across a swathe of consumer durables and services, from TV sets and refrigerators to computers, audio systems and cellphone services, consumers have been seeking and getting value, either through price-offs or more and better for the same price. For example, a Whirlpool 220-litre frost-free refrigerator, which used to cost some Rs 16,500 in 2002 sells for Rs 13,800 today. The price tag on a Philips 29-inch TV which used to be Rs 28,400 last year reads Rs 24,800 now. In phone services, new deals keep lowering the bills.

Till about two years ago, prices of FMCGs were always inflation-plus, never minus. But, today, in almost every category there is intense competition with a host of players willing to operate on wafer-thin margins. Price drops have been aided by cost reductions in inputs and economies of scale in output. Till a few years ago, almost every category, be it toilet soaps, shampoos or pastes, was dominated by a single player, who had the lion's share of the market. This helped such players extract high margins from their product categories. And, in such a situation the second-rung players too were happy as their prices too were linked to the leader. Product distribution structures also kept entry barriers high. Then along came a host of nippy regional brands that smelt an opportunity in the relatively high prices of existing products. So an Ajanta or an Anchor launched products that were priced lower than the established brands. And they found takers in consumers looking to downtrade to a cheaper product or those first-time consumers with low purchasing power who have had a taste of brands.

So far price drops have happened in consumer goods where competition from smaller players has kicked in or where the majors dip into the rival's market; when, for instance, HLL gave a jolt to Colgate in toothpastes or P&G now taking on HLL in detergents, where it is the market leader. Most of these trends have gathered pace in non-food items. There are still such categories as malted beverages and packaged tea and coffee where prices rule high. Consumers will need to wait for stiffer competition to kick in.

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