The SIM cards are moving toward lower and lower units as an extension of this same theory — so you can now recharge for as low as Rs 20 — and want people biting into the category, and hopefully upgrading later.

Another smartly executed small unit package I saw recently was `Real Junior', a Rs 8 carton of the fruit juice — it is only 125 ml, but is positioned at kids, has extra calcium and vitamins and comes in colourful packaging. This is in sharp contrast to the `health' and `refreshing' platform of the original product.

Those of my generation might remember the jingle `Colgate ka chota package' — the first attempt to introduce sachets in the toothpaste category. Interestingly, in this case, it was not targeted at the lower income population strata, but at a different market. The ad campaign was all about a group of children using the `chota packet' while in a camp. That product now is not seen on retail shelves, but does find an institutional market in the hotels.

Another good example of a category which benefits from smaller unit packaging is the spirits industry, with its quarts for the habitual drinker and the miniatures for the `pegs'.

As an aside, all network marketing firms (Amway/Modicare) employ the other end of the `per unit cost' logic by formulating concentrates that are fairly expensive and marketing them in bulk, so that the per unit cost is competitive to the normal channel products. But then this system is based more on a captive channel, not so much on the end consumer, and so the economics is completely different.

We all know of history being created by low-priced brands toppling premium-priced, well entrenched market leaders. Nirma, Fairglow and Anchor White are all chips off this block. Examples like these abound even internationally: In China, C Bons, a national shampoo and skin care company, targeted its entry at lower tier markets to avoid head-on competition with P&G. Today, it is a direct threat, having climbed the market ladder. Similarly, Nice, ranked next to last in laundry powder manufacturing in the late '80s, rocketed to first place in '94 by focusing on rural markets.

Low market growth due to insufficient value

Clearly, if a marketer finds that even in the top tiers market growth or penetration is not as expected, or that macro economic or social and cultural conditions are not favourable, he attempts to widen the target audience by a genuine reduction in pricing of products. The happenings in the detergent market provide a ready example. There could be three situations where this happens:

a) Lowering costs, either due to a decrease in the cost of raw materials or technology, or even levies, which help the marketer to pass on the benefit to consumers.

b) Import duty reduction and free trade policies could also entail foreign competitors bringing their products in at a cheaper rate. The example is that of Chinese goods coming into India at comparatively lower prices, which has forced existing marketers to effectively fight it out.

c) Costs might also be lowered due to the efficiencies gained by better management. It could be because of streamlining operations or getting a better hold on inventories or collections.

The trend toward lower pricing has put pressure on companies to drastically change the labyrinthine structure of distribution. This is the most desirable state — everybody wins! As we know, all retailers who base their strategy on `discount formats' (the Wal-Marts, Big Bazaars and the Giants) have to be super efficient in operations to be able to have their cake (revenues) and taste it too (profits).

Lowering profits

For far too long, the Indian consumer was taken for a ride. He had to cough up ridiculously high prices for sometimes sub-standard stuff, with callous after-sales service. The unrealistic prices for such products could only go one way (especially after marketers realised that they didn't have the volumes) and that is: downward. So, whether it is detergent powders, diapers, pet food, washing machines, microwaves or TVs (powered by the famous Akai exchange offers), consumers have forced marketers to look at thinner margins, and this in turn has forced them to streamline operations, thus bringing down costs.

In the process, the whole market pricing structure has shifted downward, and unlike earlier, we now see value growths for organisations far below volume growths, with growth coming either from lower-priced products in the line-up or the market migrating southward.

Promotional pricing

Temporarily, lowering prices is a common business practice. It could classically be penetrative pricing at entry (introductory price with subsequent hikes), or could be markdown or reduction pricing. So, the Sunsilk `one for one', or the `clearance or season-ending' sale prices all come under these. In most cases, the objective is tactical: short-term competitive gain, clearing inventories, avoiding mega fluctuations in production levels or aiding in bucking a macro-economic trend.

But, this sometimes can be used as a strategic tool — a precursor to a permanent price reduction; sometimes it's even used to get people into the net prior to jacking up the price, and hoping that the increasing user base will snowball. A good case was a lady's epilator launched some years ago at a price just short of Rs 2,000. When the festival season came, this company decided to drop prices by Rs 200, and it immediately brought this hitherto untried concept into the affordability ring and kick-started the category. Also related to its success was the fact that the lower price gave the advertising a big fillip.

An allied variation is promotional pricing, which seeks to offset at least variable costs in situations of unutilised capacity. This is more visible in the case of services (for instance, the airlines apex fares or off-season tourism packages). The new frills-free air travel being offered at prices equivalent to rail travel is again an example of lowering prices to get more people into the net.

Some other sundry thoughts related to pricing:

Strategic price-points

Another phenomenon which is increasingly being observed is that of a strategic psychological price-point doing well. Take, for instance, the 50 paise price point in the candy confectionary market. Similarly there's the Rs 5 price-point for chocolate brands such as Gems, Kit-Kat, 5 Star and the like; the price-point of Rs 5,000 for refrigerators is another example. Marketers are loath to vacate these price points, and they either configure their product offerings, or the size to retain it.

Retailers' pricing

Apart from the discounters, whose whole strategy is based around discounting, most other retailers also employ some pricing tools to draw consumers and maintain profitability. Launching private labels is one such. This strategy typically uses a combination of the consumer trust in the retailer and lower prices woo customers.

Similarly, the phenomenon of loss leaders (fresh vegetables at extremely attractive prices) hopes to bait consumers who will then presumably go on to loosen their purse strings a little more. In addition, we discover a pronounced tendency for retail prices to be lower as demand peaks, which implies mainly that mark-ups move counter-cyclically over the seasonal cycle. Smart retailers cut their mark-ups at times of seasonal demand and expand their sales.

Open pricing

In India, with our controlled MRP structure and by and large most industries following mandated retail prices, this system is not seen so often. However, prices can be consumer friendly in the `open system' when basic demand sets pricing. Durables see this phenomenon, wherein very often the difference between the MRP and the Market Operating Price (MOP) is phenomenal. If one takes this to its logical conclusion, we see a state where the manufacturer does not even offer a suggested price and the final price is set at the retailing stage. In short, the price-setting function shifts from the maker to the retailer.

In summary, we have now come to an era where customer `value' is being defined purely in economic terms, and that too with respect to least price. According to some, this could be because: for some products, the market has matured, and the marketing job has evolved from product, branding and distribution to pricing and promotion. Obviously, the success of using price as your brahmastra will depend upon the category of products you are in. It will also depend upon who your consumer is.

To paraphrase Prahalad, the real impediments to focusing on the bottom of the pyramid as stated by many firms are:

a) With current cost structures, we cannot compete for this market: "Our cost structures are a given"

b) Product is our focus, not functionality: "We worry about detergents, not cleanliness"

c) Only the developed markets appreciate and will pay for new technology. The poor can use the last generation of technology: "Innovations come from Tier 1"

d) The bottom of the pyramid is not important to the long-term viability of our business

But, with foresight and careful planning, price-based differentiation strategies can actually add to a company's coffers. A few `dos' to keep in mind in such cases are:

a) Manage the product line so that profitable products compensate for loss leaders

b) The consumer should be highly price-elastic so that lower profits are compensated by higher revenues, and

c) Follow non-price-based strategies as well to garner loyalty

(The author is a Bangalore-based marketing professional.)

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