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Three years back, Kolkata-based Linc Pen & Plastics faced a paradox. Raw material prices moved up but competition made it difficult for the company to implement price-hikes (typically, for pens priced ₹5-10). So, despite increased sales volumes; margins and profitability took a beating.
It was then that Deepak Jalan, Managing Director, hit on an idea. He resorted to ‘bundling offers’. The bundling offer saw Linc not just increase prices, on the one hand, but club pens — in packs of three — at a discounted price or lower than the maximum retail price. This meant that a pen costing ₹8 a piece (earlier, ₹5) was now part of a pack of three at ₹20.
Jalan explained that, at ₹5 a piece, Linc earned not more than a rupee’s profit. But, after the bundling, earnings per pen are ₹1.33 (or a 33 per cent increase).
In the process, the company also did away with the problem of having to return change in ₹2 coins.
“A direct doubling of price would be steep and we would lose out to competition. So we opted for consumer packs of three,” he told BusinessLine . Price hikes have been effected on select, fast-moving pens — generally priced between ₹5 and ₹20.
“Our focus has been on the mass to mass-premium segment. And, over the last two years, this has been our strategy to take on competition in the mass segment,” the MD said.
Margins improveConsequently, margins improved. For the quarter ending September 30, operating profit margins improved to 8.13 per cent from 7.01 per cent in the year-ago period. In September 2012, this margin was 4.10 per cent.
Its net profit margin (NPM) — a parameter of profitability — also improved in the same period to 4.87 per cent from 3.92 per cent in September 2013. The NPM in September 2012 was 1.62 per cent.
For July to September this year, net profit rose approximately 28 per cent to ₹4 crore, compared with the same period last year. Revenue during the period increased by approximately 4 per cent to ₹84 crore (₹81 crore).
“Impact of volume sales will start being observed from the second part of this fiscal (post September). So far we have focussed on bottom-lines,” Jalan pointed out.
Linc competes with Reynolds, Cello and Camlin in the organised pen market.
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