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.

CategoriesManagement

80:20 Principle and its application

A business friend gave me a book “The 80:20 Manager“, I didn’t read it for 6 months thinking it is just another self-help book that is good to read but tends to be forgotten after a week. But this was something that was inline with my established beliefs and it was not hard to follow. It rather, gave me confidence to implement what I believed.

In essence, book is about Pareto Principle applied to management. 20% of selected inputs leads to 80% of outputs. For business, 20% of customers can give 80% business and profits.

Since starting 3 years back, business has been journeying in various ways. Here are a few ways in which we got back our focus in the last 3 months.

Other edible oils trading
With coconut oil getting dearer, consumers were shifting from coconut oil to other edible oils. So, our business within existing market was getting reduced. Demand was shifting from bigger SKU like 1 Litre pouch to say 500 ml pouch. So, we had started trading in other edible oils like Refined Palmolein Oil, Refined Sunflower Oil and Lamp Oil. With this, we could

  1. Provide our existing Coconut Oil customers i.e. Retailers with full range of edible oils, so that they could source more from a reliable vendor
  2. Get more income from same customer at same distribution expense and more sales turnover
  3. Use vehicle load fully, keep better tab of fluctuations in other edible oils

But with it,

    1. The focus started shifting away from our core business of manufacturing and marketing coconut oil.
    2. Adequate service could not be given to our customers because of supply disruptions from our vendors.
    3. Lot of works were to be done in transportation, unloading, loading, accounting, leakage processing, payment, selling in credit, managing working capital etc.

What seems like busy work and turnover was actually not contributing towards building Cocoguru brand or increasing bottom-line. So, we just stopped them altogether. That provided a lot of relief and we closed Sullia godown, released a rented vehicle and saved on a few resources.

Distribution
Wholesalers/Retailers were given supply of coconut oil through our Sales Van. For this we had to arm the vehicle with a driver and salesman. To account for those transactions an accountant was required, an officer was required to manage the delivery team. These are unrewarding work for a manufacturer, but had to be done initially to sell our products. The cost was very high, 40% of our company expenditure was going towards sales and distribution. We had 5 delivery vans to supply all over Dakshina Kannada district.

I always had a dream to stop doing line-sales ourselves and get distributors to do it for us. But distributors will take it up only when the brand is popular and they are confident of selling it. The margins should also be sufficient to sustain their business by only selling coconut oil.

The tough decision of increasing our selling price has made it possible and very soon. We left out less productive sales people, made enthusiastic sales people as distributors, gave away our existing vehicles to them at a reasonable price. With this we could leave out about 12 people from our payroll, stop renting 2 vehicles, sell 2 of our own vehicles, save the work of 2 accountants, Logistics officer and Top Management. Expenses are very less and under control, selling price is predictable. When the distributors have to sell to earn for their living their performance is even better and sales improved.

Leave Customers
With the eagerness to sell more and acquire as many customers as possible, we tend to serve any customer at any cost. But some customers are not worth our attention. Some need discounts, need credit, need pampering, are difficult to supply, need a different quality, put restrictions on us and still never get satisfied. Bolding leaving them out is a win-win situation for both the customer and us. We can cater to profitable customers better, others can get their desired service from a competitor. For every customer lost, there are a couple of them to be gained.

Piece Work/Contract Labour
If we believe in Theory X, labourers are lazy, they tend to take away maximum wages for minimum work. While employers looks to get maximum work for minimum wages. Mostly the labourers have their say. It is cumbersome for supervisors to get maximum work with quality from them always.
So, to align their work output with their income, we have made a piece work system, where they get paid only for the units of work done and not on attendance. This is system is fair for all workers, they are not paid on seniority, experience or any prejudice, only on output they produce.
In any annual appraisal discussion their only focus is on the revised salary, without any regard to their past performance or skills to be developed, responsibility to be assumed in future. For such people giving instant reward is the way to go.

After doing this their performance have increased multiple folds. Example, for a 5 member team segregating 6 tons of copra a day was very difficult, now 3 members are doing it very comfortably and with better quality.
For bulk quantity loading and unloading, in house labourers weren’t willing to do, so external labours had to be called. Now for 10 paise per kg, they are willing to do.
In packing section, where 9 people couldn’t finish all packing jobs, now after leaving 3 people, the 6 people are having enough time to go for other jobs.

Overall we could leave about 8 less performing people and better performing people are getting handsomely paid. Form 30 labourers we have brought down the count to about 20, work is getting done faster and better, existing labourers are fully engaged and satisfied.

With all these steps, the amount of administration work has come down drastically. Again couple of people who have become redundant were left out. With this lean an organization, it is possible to even double the business without having to add any headcount. Any decline in business can also be managed with minimum overheads. With operations focused and streamlined, way forward is to grow sales through advertising and appointing distributors to cover more area. From accumulating losses for 2 years and not knowing way forward this is a very pleasant situation to be in.

CategoriesBranding

New Website for Cocoguru

cocoguru.com now has a new website and design. This is the 3rd design since it started. This time the speciality being, the site is all self developed. Here I like to share our development process and ideas.

Domain Registration of cocoguru.com was done earlier with godaddy.com. Hosting was also done at godaddy.com’s server. Being a market leader in web domain and hosting space, it is also the best in business with minimum downtime and reliable service. Dealing with free hosts or any local hosting space provider can be painful at times.

Website static pages can be developed with html on a text editor or html editors like dreamweaver. Also website can be developed with dynamic pages using Content Management System (CMS) softwares. They provide easy user interfaces where even common users can develop and maintain website pages. WordPress, joomla, drupal are among popular CMS softwares. WordPress.org from Automattic Inc. is the most popular free open source platform for website and blog development. Countless themes are designed, plugins are developed to make the complete ecosystem pretty strong and vibrant. Latest version of WordPress 3.5 was installed directly from godaddy’s hosting dashboard. Then the complete website design and development is done by logging into wordpress dashboard.

We strongly believe in minimalism where focus is only on what is required i.e. contents and anything unwanted i.e. flashy designs are ruthlessly deleted. Latest default theme for wordpress i.e. Twenty Twelve was chosen for this site. It is free and there are many other themes and some of them are paid. Once a theme is selected and systematically followed, the site developer can write his contents plainly in text and not bother about formatting. There may be some aspects of the theme that you may not like, they can be modified if you can or you will have to just live with them. A few free plugins like akismet (for spam protection), mappress (for showing maps), tablepress (for tables), sharethis (for social sharing buttons), formbuilder (for creating forms) etc were installed.

Website pages can be developed by adding pages, Blog can be created by just adding posts. WordPress dashboard has a easy Visual and Text editor to add contents. Each page/post comes with a comment form and a button for sharing on facebook, twitter, linkedin, google+ and email. Header, Footer and Menu are common to all pages and posts.

The contents posted are genuinely about us written by me and not website development company. None of the text or photos are copied from other sites. They are free from jargons/exaggerations like customer satisfaction, high quality, modern infrastructure, excellent service, social responsibility, striving towards growth etc. Photos are again taken by me with minimal editing to just crop the required portion. Information is openly shared to enable viewers to clearly understand about us.

Key Message
Small businesses need not use the services of Web Designers to get their website done. They will charge anywhere between 15,000 Rupees to 35,000 Rupees to get a flashy website done. Instead you could do it yourselves and write great contents to attract visitors.

What Next
The present template is Twenty Twelve as it is. It needs to be customized to get Cocoguru brand’s feel. More contents are to be updated to make the site content rich.

CategoriesBranding

How is Cocoguru Coconut Oil different from Parachute?

When I ask random people about the coconut oil brands that they are aware of, they all say Parachute and in many cases only Parachute. Name Parachute is synonymous with coconut hair oil, Marico should be congratulated for successfully branding the commodity and establishing a whopping 50% + market share in Indian organized coconut oil market. They are also such a boon to the Indian coconut industry by consuming 7% of Indian coconut production.

Now that we have launched Cocoguru brand of coconut oil, Question that anybody would ask is “We already have Parachute available everywhere, then why Cocoguru?”. I would like to answer that in this post.

1. Brand Positioning
Parachute brand represents Hair Care and Coconut Oil is one of the ways in which they nourish your hair. That is why we have hair cream, jasmine oil, non-stick hair oil from Parachute. Cocoguru brand represents delivery of Natural Goodness of Coconut, Coconut Oil is one of the ways in which we deliver you the benefits of Coconut. We have organic coconut oil, oil cake and edible copra. We plan to introduce virgin coconut oil, desiccated coconut powder, coconut milk etc in future.

2. Cooking Oil vs Hair Oil
Though both brands are 100% pure coconut oil and follow PFA (Prevention of Food Adulteration Act) guidelines and hence edible. Parachute is used as hair oil by people across India and world and has a much wider mainstream market. Cocoguru is used as cooking oil by people in Coastal Karnataka and has a niche market. We believe that Coconut Oil’s benefits are best realized when used in our diet though it is an excellent hair oil. With Parachute you see only small quantity upto 1 litre blue color HDPE bottles, while edible oil brand generally pack in pouches, cans and tins in quantity above 1 litre.

3. Cold Press process vs Heat Press process
Parachute is mass manufactured using a heat press process. Copra is roasted and cooked to remove moisture and fed into an expeller for crushing at high temperature and pressure. Oil extracted through this process has smells sharper, lasts longer due to less moisture and is a more efficient process in terms of percentage of oil recovered from copra.

Cocoguru is manufactured using cold press process. Sun dried copra is directly fed into Ghani (rotary machine) for crushing. Oil that comes out isn’t subjected to much pressure, temperature and hence retains the Natural Goodness of Coconut. Cold Pressed oil has a milder smell and appears colorless like water while heat pressed oil appears yellowish.

4. Quality of Raw Material (Copra)
Quality of coconut oil in cold press process depends mainly on the quality of copra, even one bad copra can quickly spoil the oil extracted from that batch. So, we can’t afford to use bad quality copra. Heat press process masks the presence of bad quality copra. We need only a few hundred tons of copra per year and can afford to have laborers sort out good quality copra from bad quality ones. When Parachute uses millions of tons of copra for mass manufacturing oil, it can’t afford to ensure raw material quality. Also they use 7% of coconuts produced in the country, if they go hunting for only good quality copra they will be left with not that much of copra. The bad quality copra that we separate are taken by copra traders and sold to Marico in Kasargod for making Parachute Coconut Oil. That is how we know that even bad quality copra is acceptable to them.

5. Job Work Service
Parachute has 5 factories in Maharashtra, Goa, Tamil Nadu and Kerala and caters to the entire country. We are where our customers are and work closely with them. Customers can get their Copra crushed at our factory and take back oil and oil cake for certain crushing service charge.

6. Cost and Price
500 ml Parachute bottle retails at 90 /- while Cocoguru sells at 30/- for a 500ml pouch. I would say Cocoguru is 3 times cheaper for a superior product! The reason for this vast difference is in the costs. Parachute has the overheads of managing a listed company, managing copra supply chain, spreading brand awareness and intensive distribution to a national market. Ours is a closely held family business catering (not unorganized) to a small local market and buy copra directly from farmers. Parachute attracts higher taxes 13.5% VAT and 8% excise duty as it is used for cosmetic purposes while Cocoguru has no excise duty and only 5% VAT as it is used for edible purposes.

7. Brand Awareness, Availability, Packaging
Above 6 points are all positives for Cocoguru over Parachute. But I give it to Parachute without much comments w.r.t. Brand Awareness (category definer), nationwide distribution and innovative packaging from small 1 Re tube to 1 litre bottle.

Based on these facts, Is Cocoguru threatened by Parachute? No. Cocoguru targets a small market of Coastal Karnataka and Kerala, people who use Coconut oil for cooking purpose. Cooking Oil market is highly price sensitive. So, because of small market size and high price sensitivity cooking oil market isn’t attractive for big players like Parachute. Still I wish Parachute for its market power should have done its bit to promote the health benefits of coconut oil and endorse its usage as cooking oil. Instead it chose to launch Saffola (blended safflower oil with rice bran oil) and Sweekar (refined sunflower oil) to cater to edible oil market.

Then who is the biggest threat to Cocoguru? Cheap substitutes like refined palm oil and sunflower oils are the biggest threat. Perception (wrong perception) that Coconut Oil is bad for heart because of Cholesterol and all saturated fats are bad is another big threat.