Parle-G:
PravinKulkarnia, the general manager has to make a decision involving potential price increase of Flagship glucose biscuits brand, Parle-G how to restore it’s 15%.
Criteria:
Profitability , Market share, Increase Demand, Company fit providing value for money
Alternatives decision are increasing the price of Parle-G, Keeping the price of Parle-G the same price and lunching premium
Increase in the price of Parle-G:
Raising the price of Parle-G would match the growing input Sugar and Wheat flour which already constitute about 55 percent of the manufacturing cost. The price increase would not only help Parle product Pvt. Ltd to cover match its rising manufacturing cost but also reinstate its 15 percent profit margin. It also has the potential to increase the margin by 50 percent
Parle-G can increase profit and educating customer of benefit in terms of health customer would derive Parle-G consumption as opposed to it competition.
Parle-G product is best known for VFM, which is paying minimum price for a product while gaining maximum utility. IfPravinKulkarnia and his team decide to increase the price it would cause some of the price brand loyalty to switch to the competitor causing further decline in the demand.
Demand for Parle-G is price elastic
When Parle-G price was raised from IND 4.00 to IND 4.50 with 100g packet (16 biscuits) to offset the raising cost, sales decrease by 40% with a 12.5% reduction in price. This shows that consumer in that segment price sensitive. Demand for Parle-G is price elastic; therefore it would not be wise to raise the price.
According to Said Kulkarni, regular Biscuit make up 49 percent of the budget of an Indian family. Therefore an increase in the price of biscuit would make customer look somewhere else they can get it cheaper.
Competitors: with the growing number of competitor such as Britannia Industries Ltd, ITC Ltd India Conglomerate , and HindustanUnilever Ltd all have been in existence for a while, and equally have the same the resource to match competition and targeting Children between the age of 5 to 14, it would be not favorable to price the price of Parle-G.
Low-priced variety ruled in the rural market where players in the unorganized sector had put entry barrier to for branded discount. They also provide local stores with freshly baked biscuit. As a result it makes it harder for branded to be attracted into the market segment due to lower margin.
Argument for to launch a premium price
Consumers are less price sensitive to price increase in the premium biscuit category. Kulkaranii has the opportunity to launch a premium biscuit market segment .
With the growing trend in the middle income consumer which composes of seekers and Aspirers Launching premium biscuit and position them to the seekers and Aspirers would be best course of direction to take if you want increase profit margin by 15 percent.
Slow growth Rate: Study by McKinsey global institute released in May 2007 showed that income level of household in India were raising as correlation to consumption level. The study shows that discretionary spending would increase, whiles spending on necessity spending will be growing a decreasing rate. The study also shows the number of consumers in the deprived category would decline. Since Parle-G is consider as necessity good and targeted segment are deprived category staying in this segment would decease market share. Therefore , Launch a premium product would help to restore profit margin.
Demography :PravinKulkarnia objective is to increase profit margin by 15%. However with decreasing demography of the targeted age group between the age of 5-14 whiles young population (15-34) continue to increase would reduce the profit margin further, failing the reach the 15% increase in profit margin couple with growing competitor who can have the resource to match the competition would make the segment unprofitable in the future and can further reduce the profit margin in the future.
Profitability: With the continues increasing raw material cost of Sugar and Wheat flour which account for 55% of the manufacturing and the average price of Parle- G still remain the same at US $1 per kilogram makes the Parle-G product unprofitable in the long run.
Parle G is best known for VFM (Value for Money) which has remain unchanged for 60 years therefore by brand and moving into the premium biscuit would dislocate brand loyalty switch to the competitors brand.
Entering into the premium also poses a new challenge in the short term as more money need to spend on advertising to create awareness for the product for a long time before realizing the gain. So in the short long the Parle would continue even see margin lower than 10 percent for a while before realizing a gradual increase in margin.
Even though the company produce approximately 650,000 tons of biscuit per annum which compose of 40 percent of the biscuit in India, 500,000 tons comprise of Parle G, the flagship brand accounting for 68percent of revenue in 2008 and 2009. Therefore by moving into the premium category, Parle-G would lose more than 50percent of Parle biscuit revenue and market share.
Distributed would find the premium category more challenging to put the product on their shelf space since the product new and the turnover rate may not be as Parle-G.
Mix of Premium Category and Parle-G:
In the product category by providing both premium biscuit and Parle-G. This provide customer with product category to choose from variety of option and also increase profit margin.
By offering product premium and Parle-G your loyal customers are not completely alienated. Since Parle-G provides a 68percent it would be unwise to ignore the entire profit margin.
With growing income in the middle class offering premium biscuit in addition to the Parle –G profit would help Parle-G to attain its objective of 15percent increase in margin.
Keeping the price of Parle-G the same and gradually reducing the production Parle-G whiles continually increasing the Production of Premium would help to increase profit margin to 15 percent or more.
Producing the two brand simultaneously will diffuses the brand image and in the eyes of existing customer.
With the introduction of premium product, Parle company has to allocate more resource for market research, product packaging, and advertisement.
The launch of new product, to already existing item to the point where it become over segmented and confusing. Parle company may lose control at the point of sale.
I recommend Parle company to launch the premium brand while maintain the Parle-G product and gradually reduce the production while increasing the production of premium brand.
The would ensure continue flow cash flow. In addition, it would help Parle Product Pvt, Ltd to attain its 15 percent margin. Since about 68 percent is generated from Parle-G alone it would not be in smart choice to completely alienate the entire customer in that segment.
It also offer customer abroad option of product category to choose from at different by price point .
However, with this option , if properly strategy is not put in place it can demage the Parle VFM brand image. Loyal customer would be lost to competitor. Moreover it will takes long a time for customer to even try the product.