We market Coconut Oil all over Dakshina Kannada district for edible use. In order to prevent unhealthy competition that erodes everyones profits, an association is formed among all oil millers. Minimum Price is being set weekly and all oil millers are expected to follow it in selling price of respective brands. Cocoguru started off with its price at 1 Re premium when association started 2 months back. Now we will increase the premium by 1 more Rupee and there by setting a premium of 2 rupees on a product that is valued at about 150. The following are our thoughts behind the price increase
- Increase Brand Value – Brand Value is measured as Price Premium x Increase in sales because of use of brand name compared to an unbranded one. We invest in increasing our brand value and then look to encash it.
- Signal of Quality – It is otherwise very difficult to communicate value of our product w.r.t. that of competition. One of the easiest and sure shot way is to increase price. While comparing 2 shirts that are seemingly similar, we tend to think that shirt that is higher priced as one that is better. Food served in a star hotel is supposed to be better than one served in an ordinary hotel because one gets a higher bill there.
- Reason for Purchase/Sale – People should buy our product because they want it and badly want it, not because it is available at a lesser price.
- Increase Responsibility – By price increase, in order to maintain and increase sales, one must back it up by improving the quality, service, marketing, be consistent and responsible. This will again be good for the brand.
- Satisfaction – Company employees, suppliers, salesforce, distributors, retailers and consumers all feel very satisfied, have prestige in being associated with the brand.
- Insulate from competitor moves – Lower priced brands are always under threat from new entrants and competitive price moves. Whereas premium brands are harder to topple by competitors. Competitors must work very hard to build their brand in order to acquire our customers.
- Prevent Bargains – When our selling point is lower price, customer always tend to bargain. Transaction then happens only when we yield to the bargain. If we yield to those who bargain, then the one who doesn’t bargain suffers, eventually he too starts bargaining. For a routine FMCG sale, bargaining with the same customer every week is not a smooth way to deal.
- Futile Price Wars – Price as a competitive advantage is never permanent and not worthy. We can gain a temporary sale by selling at a lower price. But competitor will immediately react by selling his at an even lower price. This will end in a price war with no winners but all badly wounded losers.