CategoriesPricing

How do we set MRP?

Normally it is no big deal to set a MRP (Maximum Retail Price). All the battle is fought between competitors on the wholesale price. MRP is only a maximum, retailers can sell at any rate below it. Set it as a little high so that retailers can sell at any price they desire. It is only about printing on the package. There is no obvious consequence. Taxes are only on selling price not on MRP. But, we at Cocoguru look beyond the obvious, beyond only the retailer’s interest. That is in the interest of consumers. Retailers may sell at any price they desire, but there is a paying consumer. Manufacturer may sell to wholesaler or retailer, but brand ultimately sells to consumer. Brand must not leave too much of flexibility to retailer to dictate their price to consumer, it must be limited.

Retailer’s interest
  • Higher margins – That is the reasons retailer does business or sells a product. He looks to maximise his returns on his efforts i.e. sale.
  • Flexibility to set price – Not all consumers are same, they buy different quantities and need different levels of services. Retailers also have differing levels of sales and cost of operations. To manage this, retailer should be able to get suitable margins by selling at his desired prices.
  • Give discount to consumers – Retailers like to woo consumers through discounts but without giving up on their profit margins.
  • Pay commissions – There are many spice shops in tourist areas like Dharmastala and Subramanya. The shops rely on tourist operators to bring customers to their shop. In return the driver demands commission from the spice shop for the transaction done. The margins from the transaction should sufficiently cover this commission and still the spice shop be left with handsome margin.
  • Not be guilty – Retailer looks for additional margins without being guilty himself. If consumer complains about high price, he can always point to MRP set by manufacturer and pass the buck.

There is nothing wrong with protecting retailers interest as long as it doesn’t exploit consumers, does’t hurt the brand and his own reputation.

Consumer’s interest
  • Low price – Obviously, but the reason for stating this explicitly and in the beginning is that the brand must consider this fact while setting MRP. Lesser the MRP, lesser is the price at which consumer gets the product.
  • Discount – Consumer feels happy with the retailer when he gets the product at significant discount to MRP. Consumers should be mature enough here to look at absolute price at which he gets than the discount on MRP.
  • Consistent prices – Price range in which he gets the product should not vary too much depending on the place and shop from where he buys
Challenges to brand
  • Price fluctuation – Cost of raw materials keep changing especially when they are commodities. This results in changes in wholesale prices and MRPs. To better serve the market, every player in the supply chain needs to maintain some stock. Changes in MRPs creates confusion in the stock supplied and billing rate.
  • Variations in nature of market – Different markets have different consumption pattern and cost of retail operations and hence the cost of supply
  • Favour retailers – To a brand consumer is the end, but retailers are required to reach the consumer. If retailers are not satisfied, they will only supply to those consumers who ask for the brand and sell whatever brand he likes to others. When the brand doesn’t enjoy sufficient pull, brand can ill afford to ignore retailers.
Conclusion
  • Different MRPs – Coconut oil is used for cooking in coastal Karnataka, so per capita consumption is more. Cost of retail operations are low as the towns are of smaller size. Cost of supply is also low as they are closer to our factory. So, we have kept a lower MRP here. Price sensitivity is very high. Coconut oil is used only for hair and skin in rest of Karnataka, so per capita consumption is low. Cost of retail operations are high in big cities like Bengaluru due to high rentals. Cost of supply is high as they are far away from factory. So, we have a higher MRP there. Price sensitivity is lower.
  • Minimum mark up Cocoguru is no ordinary manufacturer, we are a brand that care for the consumers. So, we look to protect interests of consumers even at the cost of being not too favourable to retailers. So, we keep a tight MRP that is a maximum of 25% mark up to wholesale price.
CategoriesBranding

Saurav Ganguly, heart attack, endorsement of a cooking oil product

Saurav Ganguly, the price of Kolkata, former Indian test cricket captain, was responsible for building Indian cricket from the abyss of 2000 to what it is today. The post is not about cricket, but about the cooking oil he endorsed, his mild heart attack, trolling by individuals on social media.
It is unfortunate that our idol had a heart attack and as we had prayed, he has recovered quickly after Angioplasty. The moment news broke out about his heart attack, people remembered the product/brand he endorsed. The fortune brand refined rice bran oil marketed by Adani Wilmar, advertised by agency Oglivy and Mather that claims the oil to be heart healthy. Why did he get heart attack despite being a sports person at highest level and at a young age of 48?

At one level, it is unfair to target Saurav Ganguly or the brand Fortune for his present health status. Brand only claims that the oil is good for heart and never claims that no matter what you do, you will never get heart attack. Saurav on his part, despite following a healthy lifestyle had to get a heart attack. I promote coconut oil for cooking and hair but I am bald and I am not necessarily the healthiest. So, coconut oil or the brand Cocoguru is not responsible for it. But for that we need to think fairly, which doesn’t happen in the emotional world of advertising.

Should Saurav Ganguly promote the product/brand?
Saurav Ganguly has worked hard as a professional cricketer to achieve success he has and rise to be a nationally adored celebrity. He has borne the cost of being a celebrity also. It is only wise he uses his reach to commercially encash on his popularity. But people are only questioning his responsibility in choosing the products he has endorsed. I believe he must personally use it, must have done some basic research and liked it before endorsing it to others. I know Harsha Bhogle for one does the due diligence before endorsing a brand. A few cricketers like Hashim Amla don’t sport Castle Lager logo on their shirt though it is their national sponsor as it is a liquor brand. With financial commitments it is easy to endorse brands that pay the most. Sportsmen are also under the pressure to make money fast as they have limited time appeal mostly in their playing days when they are playing well.

Should the brand select Saurav Ganguly for the campaign?
The campaign is about being healthy even after crossing 40 years of age and Ganguly is a correct choice for it as he is an icon for all people across the country who are of that generation. But the brand’s advertising agency must have worked with Ganguly to find out if he really is a user of the product, does the product really promote heart health? For any long term relationship to work, deal must work fairly both ways.

Risk of having a personality endorse a brand
Nobody would have anticipated Ganguly suffering from heart attack, so the brand must be excused for not covering this risk. There have been backlashes in the past for celebrities taking political positions like Amir Khan, Deepika Padukone, Swara Bhasker etc and users have boycotted the products they have endorsed. Celebrities are humans after all and have their right to opinion and expression, but it runs the risk of their followers liking it or not. Using celebrities gives brands immediate benefits of reach and liking, but it also carries its risk.

Is there any logic, head or heart in promoting refined oils as healthy?
The low cost of refined oil gives its marketers the wide mass market for consumption and hence the marketing budget to spend enticing the users to switch to it. Refined oils may be devoid of impurities like free fatty acids, bad odour, extra colour, solid particles and moisture. But why did the oil have impurities in the first place? Because they were inferior grade oils that were made acceptable through refining. Crude, raw, filtered, cold pressed oils are extracted from superior grade oil seeds and ready of consumption as it is, without having to undergo refining. But they are expensive because such oil seeds are expensive. Crude oils are healthy but their manufacturers don’t have the marketing muscle to promote it to masses. Masses can’t afford it either. Masses usually succumb to dubious claims by advertisers especially if it comes from a celebrity.

CategoriesSales

Retailers objection to sales

Recently, we decided to be active on social media and updated Facebook cover photo. A subscriber from Mangaluru commented saying your product is not available anywhere here. Fact is it is available at many outlets at Mangaluru. But he has a valid point, that it is not available at many shops where he has tried out. I replied saying that we are working hard to place the products at as many shops as possible. How is it such a hard work to place the products? Because of objections by retailers. Retailers have limited shelf space, inventory budget and no intention to promote any product. So, they will only sell those brands that are fast moving. Here are the common ways in which they object to our salesman when he tries to sell.

  • No response – This is common when you are not interested in what the salesman is offering
  • No consumer demand – retailers will take the pain to stock a brand only that has consumer demand
  • Price is high – He needs to earn a decent margin and yet compete with other retailers
  • Low margin or MRP – He wants MRP to be printed higher so that he can offer a significant discount to consumer and yet earn decent margin
  • Credit – Retailers are habituated to purchasing on credit from local distributors and will object to anyone with cash and carry terms
  • Oil is yellow/not pure – His imagination of pure coconut oil is one that is extracted from Ghani/Chekku and is clear white, anything different is considered not pure
  • New brand – He is not interested in selling new brands because he is not sure about consistent supply and he has to work hard to promote It to consumers
  • Dictating terms – He is already getting the product from another source. Here he would like to exploit a new supplier by dictating terms like discount and credit

These are some of the common objections which may be presented in different ways. It is up to the salesman to answer these objections skilfully to earn a sale. In the coming posts, we will answer these objections.

CategoriesGreenery

Water conservation measures taken at Cocoguru

April 22nd is celebrated every year as Earth Day, to me personally it is special as it is also my birthday. I resolved last year to contribute my bit in preserving the planet for next generation. I focused on 2 aspects, one water conservation and two planting trees to increase green cover. In this post I will discuss the measures taken over last one year to conserve water.

Water Usage

At Cocoguru factory at Kallarpe, Puttur, we use about 1.5 lakh litres of water per month. We were lucky to get good water through borewell and have been using it as the only source of water for all our requirements. Water is used for steam generation (35%), Hot Oil cooling (25%), watering plants (10%) and remaining 30% towards canteen, washing, toilets for 30 employees. We made an effort to carefully collect the usage data to find ways of managing water.

Water Conservation Tactics
We thought of conserving water in 3 directions.
1. Minimise water usage. Awareness was created among people to minimise wastage.
2. Use waste water effectively. Use used water where fresh water would have been used instead.
3. Source water from a easily recyclable source than bore-well. Rainwater, stream water and open-well are the sources worked on for supplying water. Use bore well only if water from all other sources are not available.

Waste Water
Water from steam condensation and drinking water use are the source of waste water. Many tree saplings and vegetable yielding plants were planted in available land. Waste water is distributed to irrigate those plants. It not only saves water but also avoids draining of waste water to stream causing water pollution.

Water Sources
Rain Water – It rains continuously for 4 months from June to September. Then, rain water is collected from building roof and is directed to use.
Stream Water – Water runs off the earth surface in a stream adjacent to our plot till the end of December. Building a check-dam across it in November extends the availability of stream water by another month. So, stream water is available for 4 months from October to January. Water does flow in full force during rainy season but it is not needed.
Open Well – A well is dug for about 15 feet depth near the stream, it collects shallow groundwater and are easily rechargeable. Water is available even in summer for 2 months i.e. February and March. The check-dam retained water recharges the open-well and all other aquifers nearby making the ground water-rich.
Bore Well – That leaves bore-well water required for only 2 peak summer months of April and May. To keep the bore-well in useful running condition, it is also used round the year in small quantities for canteen drinking water.

Expenses – 80,000 for open well, 40,000 for rainwater collection and usage system, 30,000 for check-dam, 15,000 for waste water irrigation system. Total of 1.65 lakhs. With these steps, the bore-well water usage is reduced to 1/6th of last year.

CategoriesPricing

Yet another price increase

Price premium of coconut oil packs have been increased to about 10% as compared to other mass brands in the market and at par with a premium brand.

We have a sales officer Mr. Nandakishora who has strong opinions about pricing and in favour of traders.
While discussing he said, “We have reached the final stage of our pricing evolution, haven’t we?”.
I countered saying, “No, there is still a long way to go!”.
He was worried, “With great difficulty we have increased the price premium to this stage and you still want to increase it further?”
I swayed his concerns, “From now it is not going to be about increasing price but about fine tuning it as per our marketing strategy. Because after so long we have a control over our pricing”

How did we reach here?
November 2014 – 1 Rupee Premium – Association was formed and prices were fixed by them. We used to supply to shops directly with our own vehicles.
January 2015 – 2 Rupees PremiumThen we changed from van sales to distribution system. Distributor was given at association wholesale rate which was 3 rupees discount to retailer rate. With 2 rupees premium, we gave distributor 5 rupees margin.
July 2015 – 3 Rupees Premium – This was because the association decided to reduce the wholesale discount by 1 rupee to just 2 rupees. We retained distributor margin by increasing retailer price.
November 2015 – 5 Rupees Premium, Association was tending to keep the price low to discourage price rules violation.

It was not very smooth for every price increase we lost a couple of distributors, a few wholesalers and many retailers. Even those who continued buying from us raised serious questions. I used to get very nervous before taking decisions. But bold decisions had to be taken, that is what has made me an entrepreneur in the first place. By now everyone got adjusted and were expecting further price moves by us. We were left with only loyal customers, retailers kept our brand only to give to those who asked for Cocoguru. Still this customer base was substantial to help us survive. We gained in confidence as these are the customers who we have rightfully earned.

April 2016 – 6 Rupees Premium –. To supply to distributors we introduced as super stockist and his margin of 1 Rupee was added to price.

By now association stopped fixing the price as the members had already stopped strictly following the prices. Fearing price fall due to competition we still had to increase our price premium to survive. Price fluctuations weekly were another big problem to tackle as it caused disturbance to members in our trade channel. This meant we cannot reduce prices immediately, we have to give 1 week notice to distributors before reducing price. A couple of times, we didn’t reduce price even after 1 week and hence the premium increased from 6 to 7 to 8 to 9, back to 7 or 8 and then to 10. While our competitors change prices weekly we don’t change our price unless there is a major change in raw material cost.

This has enabled the distributors to purchase confidently without worrying about price fall after their purchase. We have successfully differentiated ourselves from competition and I can peacefully enjoy my Sunday without worrying about their price. Now, we have gained great control over our price, we will fine tune it further.