A couple of days back, one of our faculty instructors was explaining the concept of cost-quality-time triangle. According to this concept, if a company increases say the quality of a product, then the cost as well as time-to-market increases. On the other hand, in order to reduce the cost and time-to-market, the company will have to reduce the quality.
It might be surprising for some, but companies in fact follow the second strategy and that too very shrewdly. Assume, for example, that a particular consumer measures the quality of a hand-wash pack in terms of its cleansing ability and the amount of liquid available per unit price. A company may not change the liquid fill, but may reduce the amount of liquid filled per pack and also reduce the price slightly. Initially if a company sells 250ml for INR 49/- and subsequently reduces the price to INR 28/- for 135ml fill, then the % decrease in price is just 42.8% whereas size reduces by 46% and consumers are more attracted by the reduced price, so the sales increase.
I inquisitively happened to open the cap and realized that though the bottle looked big, it was only about 2/3rd filled. (See the picture below carefully). The net volume was indicated as 135ml whereas it could accommodate even a 185ml pack that is sold as a refill pack for INR 34/- (The company also sells a 250ml bottle for which the same 185ml refill pack can be used).
In order to compliment this strategy, the company sells the liquid wash in an opaque white bottle, so that the level of liquid is not visible even when held against a bright source of light.
This marketing strategy is used by almost all FMCG companies and is a very successful and proven strategy, so in future whenever you see a reduction in price, don't forget to check the reduction in size! :)
Ya true ..
ReplyDeleteBut the educated ppl will realise the % percentage mismatch in quantity v/s cost very easily , and there is a less chance of them getting duped.
What say ?
Due to cost-pressures companies have to follow either of these strategies:
ReplyDelete1) Keep size same and increase price
2) Keep price same and reduce size
3) Increase price as well as size, but price by higher %
4) Reduce price as well as size, but price by higher %
As consumers first check the price, price change is more likely to attract their attention. Price reduction, delights consumers and sub-consciously they take the decision to buy the product before checking minor details like size reduction. It happens with educated consumers as well.
Unless of course they have read my blog and have become smarter! ;)
Good analysis! Leaving out the business ethics part, I think the strategy works great for the FMCG marketer with not much harm to the consumer. If the consumer finds the product to be useful and goes for a repeat buy, there is no reason the company shouldn't be rewarded for it.
ReplyDeleteOn the other hand, I feel a lot of FMCG products especially in the cosmetics space have been created to just derive benefit from psychological leverage over the customer. Think Fair N Lovely and more recently this absurd one http://www.globalpost.com/dispatches/globalpost-blogs/india/india-vagina-fairness-cream. These products are not just unnecessary and ineffective but also very expensive. Coke, Pepsi also fall in the same category in marketing products they know lead to obesity and health conditions.
Would be good to see an analysis of marketing and advertising ethics from FMCGs in India here.
Nice work..But to be fair, % decrease in price need not be equal to % decrease in quantity, as the liquid alone doesn't account for the cost. There are other fixed overheads too(which thouh not valued by the customer, is still required). So 50% decrease in liquid quantity need not be accompanied by a 50% price reduction
ReplyDelete