THE

INSCRUTABLE
PRICE
In an unexpected move, India declared more than 80% of its in-circulation currency illegal. Demonetization
dominated all economic, social, human and political discourse for weeks that followed. As we near the end
of second quarter of 2017, the dust is beginning to settle and its impact, especially on consumer behaviour
and spending is becoming more clear.
It is consumer spending and reaction that this paper focuses on. In the recent past, India has been fraught
with contradictions in its consumption and spending patterns. While basic versions on non-essential goods
suffered de-growth in many cases, high end / premium variants of categories showed promise.
Demonetization put a brake on this march.

In a country where 97% of all retail transactions happen in cash, the first few weeks were tough.
After showing a healthy growth for the first three quarters, the FMCG sector slumped in the last quarter of
2016, (Refer to Chart 1: Quarterly sectoral growth by value) (Source: Kantar Worldpanel, 2016).

Chart 1
Quarterly sectoral growth by value
JFM 16 AMJ 16 JAS 16 OND 16

Sectoral Growth (Value)

9.1 8.5 8.4

8.3 8.7
8.2 8.1
7.5
6.6
6.2 6.0
5.3 4.9 5.0 5.2 5.1

FMCG Household Care Personal Care Food & Beverages

Premium and luxury car showrooms reported as much as 80% drop in their sales and consumer spends at
restaurants dropped by 40%(Source: National Restaurants Association of India).
In a study conducted by Kantar Millward Brown post the Demonetization, a third of all households admitted
to putting off buying cars and bikes.
Foreword

However, with passage of time and instinctive adaptability of Indians, some potential paradigm shifts took
place :
Delayed and need based purchases: Lower purchases in the first week post Demonetization with rising
frequency as the month progressed (Refer to Chart 2: Weekly FMCG penetration trend)
(Source: Kantar Worldpanel,2016).

Chart 2
Weekly FMCG penetration trend
FMCG penetration trend

91% 90% 88% 91% 92% 91%

87% 88% 89%
79%
66% 62% 70%
59%

2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd
week week week week week week week week week week week week week week
Sep Sep Sep Oct Oct Oct Oct Nov Nov Nov Nov Dec Dec Dec

Organized sector opportunity: Partly because of their direct interaction with the populace and partly
due to their swift response (example: Big Bazaar remaining open until midnight on 8th November to help
people spend the old notes), the modern retailers seem to have made most of the opportunity:
Hyper locals gained through their advantage of shorter delivery time and stock availability, growing
their revenue shares more than 3X in the months following Demonetization
(Source: Kantar IMRB s e-commerce panel).
Reach of e-grocery rose by 40% from Sep to Nov 2016, but average ticket size remained flat as COD
orders took a hit (Source: Kantar IMRB s e-commerce panel).
Alternative payment mechanism: Usage of cash dropped from 97% to 77% while card payments
surged from 3% to 18% and digital payments from 1% to 5% (Source: Kantar Millward Brown study, ET,
Jan 2017).
Agile brands developed emotional connect: Local vendors who extended credit, stores that remained
open late, restaurants that waived off tips, etc. established that in times of cash crunch, the value of
brand offer is far more critical than its price.
Yet, it is still too early to say if pre-demonetization levels of consumption, spends and behaviour can be
reached, even though according to industry experts, consumer demand is expected to return to normalcy
this quarter.
What is clear, though, is that in these uncertain times, the brand s value is going to be more critical than its
price.
Imagine an unmanned shop. Just pick what you like, pay what you like and when you like, with no
salesperson, no cameras or recording device. What would you expect consumers to pay? Most probably,
nothing.
In a country epitomized by the tag line Kitna deti hai (what is the mileage) and renowned for the bargain
hunting preferences of its people, this might seem an exercise in foolhardiness. Surprisingly, seventeen such
shops exist in Bangalore under the aegis The Trust Shop with news reports pegging the collection as high as
90% in some locations (Source: Pick your product at iDTrust Shop , ET).
Pay what you want (PWUW) concept has been around for some time and while there is no conclusive
evidence about how much money sellers actually make through such a stratagem, they do recover
expenses, at least partially. It raises the question whether classical economics has trained us to sometimes
assign more power to price than it actually has?
Recent data points towards the happy coexistence of two contradictory trends Value Seeking and
Premiumisation :
Circa 2013 Affordable Indulgence was the theme as consumer spending in urban India slowly started
converging with global norms. The share of spends on essentials like food declined from 44% in 2008 to 40%
in 2013, while discretionary spends rose (Source: Kantar IMRB Wallet Monitor, 2013).
Circa 2014 Premiumisation was the wind beneath the wings driving consumption. The volume growth for
premium FMCG sanitary products over the previous year was 27% as compared to 13% for non-premium
(Source: Kantar Worldpanel, 2013/2014). This trend extended beyond FMCG as automobile and consumer
durable space saw premium variants drive up sales.
Circa 2015 Growing confidence in spending saw consumers experimenting and diversifying. Share of
spends on food continued the downward trend but diversified. For instance within the foods category, the
share of spends on non-essential foods (beverages, packaged food, non-veg, dessert and bakery) stood at
31% - at par with the essentials (cereals, pulses and cooking oil) (Source: Kantar IMRB Wallet Monitor,
2015).
Circa 2016 Value maximization peaked and promotion fever ran high. Purchase occasions for household
products declined by 7% and average number of packs purchased by 3% over 2015 in Urban India
suggesting value based bulk as well as big pack purchases (Source: Kantar Worldpanel, 2015/2016).
When thinking of price s role on the category and brand performance, one needs to bear in mind that the
1
nature of the category, consumer consumption patterns, number of choices (brands or SKUs ) is central to
the consumer price-value perception.
The relationship between price and performance is not as linear as is generally presumed to be.
Drawing strongly from Kantar IMRB s rich studies across categories, among nearly 15000 urban Indian
consumers in the last four years, this paper puts forth learnings on this complex consumer price-value
equation.

1 SKU or Stock Keeping Unit is the form in which the consumers buy the brand. It can refer to only pack size (55ml) or pack size X pack
type (2L PET) of a brand.
 2
BRAND PRICE ELASTICITY
FOLLOWS A CATEGORY U-CURVE
When it comes to price elasticity, the natural expectation is that higher the absolute price, greater would be
the price elasticity. The nature of relationship between absolute price and its elasticity is hardly that
straightforward. In fact, the relationship is more a U-curve rather than a straight line
(Refer to Chart 3 : U-curve of elasticity).

Chart 3 Low outlay per SKU High outlay per SKU

High price recall Low price recall
U-curve of elasticity
Alcohol

Branded Salty Snacks 0.8

1.2 0.9 Health / Milk Food Drinkss

1.4
Deodorants

Oats

0.7 0.8
Packaged Tea

Figures in circle indicate price elasticity

(Propensity to switch brands, in case of
standalone price increase) Facewash 0.3 0.4 Soft Drinks

The absolute price is an important consideration but not the only consideration. Studies show that brand
price elasticities for Branded Salty Snacks (absolute prices ranging from `5 to `10) are nearly as high as
Deodorants (average price of `200). This may make one question the finding.

2 Price elasticity refers to the consumer propensity to switch categories (from Soaps to Shower Gels) or to switch brands (from A to B) due
to price. In this paper, price elasticity refers to the propensity to leave Brand A for another brand, if Brand A increases price in isolation.
Price elasticity is a negative number. For ease of representation in the paper, the negative sign has been removed but the interpretation
remains the same. Higher the price elasticity, higher is the propensity to switch brand if it takes up price by itself.
#1: Brand price elasticity follows a category U-curve

To understand this phenomenon, another consumer trait has to be accounted for: imperfect memory. Given
the general belief that Indian consumers are very price conscious, one would think that they would
remember the prices of the products they purchase exactly. The reality is different.
For lower priced items like Branded Salty Snacks, the exact price recall is high (Refer to Chart 4 : Price recall
for Branded Salty Snacks); since SKU price and size are used interchangeably ( `5 pack is synonymous with
small pack ). This combined with the impulsive nature of the category purchase makes it one of the most
price sensitive products.

Chart 4
Price recall for Branded Salty Snacks
Small `5 Medium `10 Large `20
pack pack pack

89% 86% 65%

% people

% people

% people
2 3 5 10 5 10 20 10 15 20 25 30 35 40 50
Exact prices recalled (in `) Exact prices recalled (in `) Exact prices recalled (in `)

3
On the other end of the spectrum, are categories with high outlay per SKU bought (greater than `100
mostly) Alcohol, Health/Milk Food Drinks, Deodorants etc. Consumers seem to remember that they have to
shell out a significant amount for the purchase, mentioning a rough range instead of the exact price
(Refer to Chart 5 : Range price recall for higher outlay categories). The modal price range tends to be within
+/- 10% of actual price for majority of the consumers.
When there is a price increase outside this perceived range, it generates the feeling of having to pay more on
top of an already high price. This is regardless of the quantum of price change.
Chart 5
Range price recall for higher outlay categories
Health/Milk Food Drinks Deodorants
(500g) (120ml)
65% 65%
consumers recall price paid in the range `165 to `200 consumers recall price paid in the range `160 to `220
15%
% people

% people

Actual
Price 185 20% Actual
10% 15% Price 200

5% 10%
5%
0% 0%
165 168 172 175 179 184 187 191 195 160 170 180 190 200 210 220
Exact prices recalled (in `) Exact prices recalled (in `)

Packaged Tea Facewash

F
(250g) (50ml)
88% 70%
consumers recall price paid in the range `70 to `95 consumers recall price paid in the range `50 to `60

30%
Actual
85 40% Actual
55
% people

% people

Price Price
30%
20%
20%
10% 10%
0% 0%
70 72 75 80 81 82 84 85 86 87 88 89 90 95 50 52 53 54 55 56 57 58 59 60
Exact prices recalled (in `) Exact prices recalled (in `)

3 Total amount paid for the purchase

#1: Brand price elasticity follows a category U-curve

The fuzzy memory of the outlay works against the brands in these categories, limiting their ability to increase
prices. Conversely, it also means that triggering a price war in such categories is far easier.

# 1 Marketers Corner: The recalled price range impacts consumer choices more than exact prices.
The range should be considered when increasing prices for optimal results. However, when price
becomes an SKU surrogate like in the case of Branded Salty Snacks, then the exact prices are more
important.

Corollary to Learning #1: Price-led category substitution follows a U-curve

4
Categories with high category vulnerability index have greater number of current consumers susceptible to
moving to adjacent and substitute categories because of a price increase (Refer to Chart 6 : Category
vulnerability index). (Similar to Chart 3 : U-curve of elasticity, category vulnerability index also follows a U
for the categories, with the lowest priced and highest priced categories bookending the curve.
Chart 6 Low outlay per SKU High outlay per SKU
High price recall Low price recall
Category vulnerability
index
Alcohol

Branded Salty Snacks 75%

75% 160% Health / Milk Food Drinks
206%
Deodorants

Oats

90% 150%
Packaged Tea
Figures in circle indicate category vulnerability index.
It represents the increase in number of consumers
considering switching out from category due to
price increase. Higher the number, more susceptible
is the category to consumer loss due to price
increase. Facewash 13% 17% Soft Drinks

Middling outlay
Middling price recall

4 It represents the increase in number of consumers considering switching out from category due to price increase. Higher the number,
more susceptible is the category to consumer loss due to price increase
 5
MIND THE PRICE GAP
BETWEEN BRANDS
Consumers often use the absolute price difference between brands to navigate quality and value. They
realize that higher price does not necessarily mean higher quality yet they also understand that a brand
priced substantially higher than others is likely to bring in some additional value, be it tangible (visible
benefits like softer skin) or psychological (badge value).
For food & beverage categories, the price differential is more often than not linked to pack sizes and variants,
rather than the brands themselves. The price cuts and raises in F&B space are seldom a function of brand
proposition, with marketers unable to justify the price premium and consumers unable to comprehend the
additional value of a higher priced brand. Consequently, F&B categories with higher brand price differential
are more susceptible to price led brand switch outs (Refer to Chart 7 : Price gap vs Price elasticity). Alcohol
is an exception and it is possibly because of the atypical nature of the category vs others being discussed
here.

Chart 7
Price gap vs Price elasticity
Price elasticity
1.4

1.2 Price gap

1.0
Price elasticity

0.8
38% 45%
0.6
26%
0.4 18%
11% 17%
0.2

0.0

Branded Salty Health/Milk Packaged

ackaged Tea Alcohol Oats Soft Drinks
Snacks Food Drinks

5 Price gap refers to the difference in actual price between the highest and lowest priced brands of the largest SKU in the category. For
example 1kg is the largest SKU in the Oats category, the highest priced brand is available at `160 and the lowest priced brand at `140.
Then the price gap for Oats= (maximum price minimum price)/(maximum price).
#2: Mind the price gap between brands

However, for personal care products, the trend seems to be opposite: higher the price gap between brands,
lower is the brand price elasticity. When the marketers are able to establish a price and value classification
through communication and delivery, the price gap works to reduce price elasticity or price-led brand
switching.
For example, Facewash has clear price and value hierarchy. A regular Facewash consumer understands that
Ponds offers a very different benefit (fairness) vis-à-vis Himalaya (acne control). Her choice of brands is
linked to these specific pay-offs. Ergo, low brand price elasticity (0.3), despite high price gap between
brands.
On the other hand, most Deodorant brands are clustered around similar price points. The no-gas concept
has allowed a popular Deodorant brand to price 120 ml SKU same as 150 ml aerosol ( with gas ) bottle from
another brand. Greater effective quantity is the sole brand differentiator leading to limited price
maneuverability; the brand price elasticity is one of the highest across categories at 1.4.

# 2 Marketers Corner: Creating 'value' based price gaps between brands cushions them from
the adverse impact of price increase. If quantity is the primary price differentiator, brands do
not have the same leverage.
 6
POPULAR BRANDS BETTER PLACED TO
EARN MORE THROUGH PRICE PREMIUM
Price elasticity can be seen as a measure of the brand s equity. The stronger the brand is, the more loyal its
customer base, greater is its ability to charge a price premium. Usually, the brand s size is a measure of its
popularity and its strength. As a result they exhibit lower price elasticities than the smaller brands
7
(Refer to Chart 8 : Revenue index Larger vs Smaller brands (basis current market share), allowing them to
earn higher revenues.

Chart 8
Revenue index7 Larger vs Smaller brands (basis current market share)
Larger brands
125 Smaller brands
120

115

110
Revenue index

105

100

95

90

85

80

75

Deodorants Branded Health/Milk Packaged Alcohol Oats Soft Drinks Facewash

acewash
Salty Snacks Food Drinks Tea

6 Popular/larger brands refer to the largest brand(s) which contribute to around 20% of the market share in the category and non-
popular/smaller brands refer to brands with the lowest share contribution in the category .
7 Revenue index is the additional revenue gained vs current scenario, if the brand increases price by 20% in isolation. The current revenue
is used as a benchmark and for ease of interpretation across categories, taken to be 100.
#3: Popular brands better placed to earn more through price premium

According to a study published in the International Journal of Applied Research, even during the cash crunch
period of Demonetization, the demand for big brands from companies like Unilever, P&G was affected only
20% due to higher brand loyalty, while the smaller brands suffered more, lacking sufficient stickiness.
Companies like GCPL did not have to significantly change its production levels during November and
December 2016, according to a report published by Live Mint.
However, there are exceptions, where the big brands have higher elasticity, indicating their vulnerability in a
price war. Case in point: A popular brand in the Deodorant category loses revenue if it tries to charge a
premium, unlike leading brands in other categories. Its no gas concept led to its meteoric rise but since
then most other brands have launched a no gas variant. The loss of its unique proposition means that the
brand s franchise can be easily lured by other brands through a price cut (Refer to Chart 9 : Share vs
Revenue- Popular vs Niche brands), although of late, it has started to work towards correcting that lacuna.
On the other hand, a niche Health/Milk Food Drink brand, with higher than average prices has an extremely
loyal, niche franchise that are willing to stick with the brand even in price rise situations (Refer to Chart 9 :
Share vs Revenue- Popular vs Niche brands).

Chart 9
Share vs Revenue Popular vs Niche brands

125

120

115

110 A niche Health/ Milk Food Drink brand

Revenue index

105

100

95 A popular Deodorant brand

90

85

80 Size of bubble refers to share

of the brand in the market
75
0 3

#3 Marketers' Corner: Bigger / popular brands can earn more through a price premium, provided
they have a loyal franchise held together by a unique brand promise.
 SKUs PROVIDE GREATER
MANEUVERABILITY TO BOTH THE
CONSUMER AND THE MARKETER
In FMCG space, consumers do not want to compromise on their brand choices and use SKUs to balance
their brand preference and purchase expenses.

HIGHER THE NUMBER OF EXISTING SKU TYPES,

LOWER THE PRICE SENSITIVITY
Price led brand switching is lower in categories with greater number of discernible SKU types Small,
Medium, Large. The consumer uses SKUs to control expenditure, without compromising on her brand
choice(Refer to Chart 10 : Price elasticity vs Number of SKUs).

Chart 10
Price elasticity vs Number of SKUs

Number of SKUs
Price elasticity
1.4

1.2

1.0
Price elasticity

0.8

0.6

0.4

0.2

0.0

Deodorants Branded Health/Milk Packaged Alcohol Oats Soft acewash

Facewash
Salty Snacks Food Drinks Tea Drinks
# 4: SKUs provide greater maneuverability to both the consumer and the marketer

LARGER SKUs LIKELY TO BE MORE

PRICE SENSITIVE
Given that large SKUs involve higher purchase outlay, consumers tend to be more price sensitive about
them. Branded Salty Snacks is an exception with much lower relevance for the larger packs because of high
individual consumption. Larger packs in categories like these are linked with special occasions in most cases
and not regular consumption (Refer to Chart 11 : Price elasticity by size of SKU).

Chart 11
Price elasticity by size of SKU

Small Medium Large Extra large

4.5
4.0
3.5
3.0
Price elasticity

2.5
2.0
1.5
1.0
0.5
0.0

Deodorants Branded Health/Milk Packaged Alcohol Oats Soft Drinks Facewash

acewash
Salty Snacks Food Drinks Tea

However, Demonetization impact on impulse categories has been sharp, with cautious spending
consumers may be down trading to smaller pack sizes in the near-term to conserve cash. According to
SnapBizz, which did an analysis of 1,100 stores in Mumbai, Delhi, Bengaluru, Hyderabad, Pune and Chennai,
the percentage shift from large pack to small pack was 23% in the wake of Demonetization.

#4 Marketers' Corner: Smaller SKUs allow greater choice to consumers in price change situations
and provide more price manoeuvrability to the marketer.
 ANNOUNCED DISCOUNTS
OUTPERFORM SILENT PRICE REDUCTIONS;
PRICE OFF IS MOST EFFECTIVE
As brands and categories jostle for the Indian consumer, she is now spoilt for choice and actively expects to
be serenaded with freebies and offers, both as an incentive for trial or to stay loyal.
According to data from Kantar Worldpanel, promotion is the driver for growth in categories which are flat
lining. Categories like washing powder and biscuits witnessed a high intensity of households availing
promotions in early 2016.
Communicating price cut ensures that there is enough buzz and awareness about the brand to lure
consumers from other brands into its fold.
For example, if price cut is not announced, like in the second category below, the likely share gain8 is
negligible but when it is communicated, the gains can be as high as 25%-30% (Refer to Chart 12: Average
share gain for price cut with and without communication).

Chart 12
Average share gain for price cut with and without communication
Category 1 Category 2

SAVE Share gain SAVE Share gain

`40 45% `10 29%

Price cut with

communication

Share gain Share gain

22% 1%
Price cut with
no communication

8 Additional share gain in the new scenario vs the current scenario. For example, in the Oats category, average share increase for any
brand, when they cut price and communicate it, is 45%. So, if the current share is 10%, the share in new scenario is 14.5%.
# 5: Announced discounts outperform silent price reductions; price off is most effective

Price offs and free gifts are the most effective form of discounts, with higher gains vs free extra quantity
(Refer to Chart 13 : Price discount vs Free gifts and free extra quantity share index).

Chart 13
Price discount vs Free gifts and free extra quantity share index

145 Current scenario Current scenario

139 129
118
Share index

Share index
100 100
Free gift + Free extra quanity

Price off Price off

Category 1 Category 2

#5 Marketers' Corner : Value promos (price off) and free gifts are better at garnering share than
extra volume. Ergo, when cutting price, make sure to announce and communicate it.
 PRICE ELASTICITIES
DIFFER BY GEOGRAPHIES
India is not a monolith and neither are its people. Attitudinal and behavioural differences exist across
geographies driving different consumption behaviour and therefore choices, even if the marketer inputs are
exactly the same. This leads to differential price elasticities by regions.
Consumers in East tend to react more strongly to price increases than other parts of the country while West
(primarily Mumbai) is generally more inert (Refer to Chart 14: Price elasticity by different regions).

Chart 14
Price elasticity by different regions
High price elasticity

Low price elasticity

Deodorants 1.2
Branded Salty Snacks 1.0
Alcohol 0.8
Branded Salty Snacks 1.5
Soft Drinks 0.5 North
Health/Milk Food Drinks 1.2
Health
F
Facewash 0.4
Alcohol 1.0
Soft Drinks 0.4
F
Face Wash 0.2
East

Deodorants 1.6
Branded Salty Snacks 1.7 West
Alcohol 0.6
Branded Salty Snacks 0.9
Soft Drinks 0.1
Health/Milk Food Drinks 0.6
Health
Facewash 0.2
Alcohol 0.8
South
Soft Drinks 0.3
Face Wash
F 0.3

However, according to data from Kantar Worldpanel, the appetite for personal care products (with
premium connotations even in this decade) like Deodorants, Facewash, Light Oils is high in the East.
(Refer to Chart 15 : Category penetration East vs All India).
# 6: Price elasticities differ by geographies

Chart 15
Category penetration East vs All India
Penetration %
All India
80%
East
53%
16% 33%
13% 21%

Deodorants Light Oils Facewash

To balance their preference for these products with inherent price consciousness, they buy lower quantity
more often and spend less in each shopping trip, indicating higher preference for smaller SKUs
(Refer to Chart 16: Shopping behavior East vs All India).

Chart 16
Shopping behaviour East vs All India

All India

East
150
124 98
69 2.4 1.7

Shopping trips (No.s) Spends per trip (`) Transaction size

(in Kgs;Ltrs/HH)

# 6 Marketers' Corner: Regional nuances should be kept in mind while planning price changes and
can be addressed through appropriate SKU placements.
 PRIZING CONVENIENCE OVER
PRICE GAINS GROUND
As time becomes premium, consumers are willing to pay premium for convenience.
Eight out of ten Indians are willing to spend an average of 21% more for better services according to a survey
by American Express 2017 Global Consumer Barometer published in TOI, March 2017.
In a study conducted for Soft Drinks, ~90% of those shopping in Modern trade outlets agreed that shopping
in a supermarket was more convenient than shopping in a kirana. In fact, ~80% of those who didn t usually
shop in a supermarket, agreed that supermarkets were more convenient.
Modern trade allows for a comfortable, hassle free shopping experience and has received an impetus from
Demonetization forcing cashless transactions. This is true even months later as sales continue to be higher
by 25% compared to the year-ago period, according to a study published in Live Mint, March, 2017 and could
very well be a paradigm shift in consumer behavior in the long term.
The attitude of the modern trade shopper is seen to be more flexible than their traditional trade
counterparts. Modern trade shoppers are more open to trying new brands and look for promos/discounts
(Refer to Chart 17 : Modern vs Traditional trade shopper behavior).

Chart 17
Modern vs Traditional trade shopper behaviour

Proportion agreeing that they...

50%
47%
43%
38%
Modern trade shopper

Look for Buy

promos/ new brand
discounts to try Traditional trade shopper

# 7 Marketers' Corner: Convenience benchmarks are expected to shift to newer, higher levels than
before. Modern format stores may well play a bigger role in days to come and it behoves the
marketer to seize the pricing initiative for this channel.
In Sum:
Price impact is about more than just price
It is important to remember that more often SKU
than not, the different variables of marketing
mix act in tandem rather than in isolation. Brand Price
Effects on
The same consumers display varying degrees of price
sensitivity
caution at various points in time and for
different products.
Promotion Category

Place

#1 #2
Brand price elasticity Mind the
follows a category price gap
U-curve between brands
Brand A Brand B

#3 #4
Popular brands SKUs provide greater
better placed to maneuverability
earn more through to both
price premium the consumer &
the marketer

#4.1 #4.2
Higher the number Larger SKUs
of existing SKU likely to be
types, lower the Price more price
price sensitivity Sensitivity sensitive

#5 SAVE
`40 #6
Announced discounts Price elasticities
outperform silent price differ by
reductions: geographies
price off is
most effective

#7
Prizing convenience
over price gains
ground
As people and their environments change, grow and evolve, so do their reactions to price. What consumers
have historically been willing to pay for a product is not necessarily what they are willing to pay today or
tomorrow. A quick look at the sign of things to come reveals an interesting palette of trends that will further
challenge the price-performance equation

Digital wallets
Digit
A beneficiary of the Demonetization drive, they emerged as the cash lifeline of businesses,
big and small. However, with cash back in system, mobile wallet transactions declined from
7
70.2 million in December to 47.4 million in January, according to RBI.
While there is massive opportunity for digital payment facilitators, the wallet brands
themselves have barely differentiated themselves from each other. It is an oversight that
needs to be corrected if they are to avoid the same price trap as FMCG categories.

Omni-channel purchase
The modern shopper is not constrained by channels or formats when it comes to information
search and shopping leading to a new breed of omni-channel shoppers. According to a 2015
study by IDC, shoppers who shop in-store and online have a 30% higher lifetime value than
those who shop using only one channel.
Just being present across multiple channels is not enough The challenge before most
retailers is to distinguish between multi-channel and omni-channel strategies. Omni-
channel strategies should be targeted towards creating an integrated and unified
experience for the customer across all channels to provide a seamless shopping experience.

Dynamic pricing
Remember the local auto or taxi driver who demanded an extra `50 after 6pm? Today,
almost every online transaction works using sophisticated algorithms that run on the same
principle. Instead of the local auto wallah, now one books an Uber cab that asks the user to
accept a 1.8x surge pricing during peak times.
Dynamic pricing will be increasingly used by retailers to ensure smooth demand-supply
balance as well as to adapt to competition.
Looking Ahead

Price transparency
With the digital world at their fingertips, consumers no longer need to rely on memory to
compare prices across retailers. Shoppers often start their search online even for in store
purchases by checking prices on their mobile phones, depending on the category. Price-
comparison shopping engines instantly display competitors pricing in a single view
The marketers goal should be to help customers feel confident about their choice and
brands that are transparent in their dealings will be highly valued.

Personalization
Retailers are using big data to analyze consumer spending patterns and provide discounts
and promotions geared to their requirements. Geo-fencing also allows marketers to reach
customers in an extremely targeted way. It uses geographic locations of smartphone users
when they enter a defined location to send messages to promote their products and services.
By targeting local shoppers, retailers and entrepreneurs can tailor offers and discounts for
them.

Social consciousness
Social consciousness, considered to be a prerogative confined to the niche affluent class is
becoming main stream. Aided by the Swachh Bharat campaign, the resurgence of faith in
naturals and increasing advocacy of reuse and recycle, consumers are increasingly getting
interested in eco-friendly and sustainable alternatives.
This interest is translating into a willingness to pay a premium on brands and products that
emphasize the socially responsible dimension.

Jio disruption
With Reliance Jio taking the plunge, disruptive pricing in the telecom sector has become a
reality, here to stay. According to a report in the Economic Times, in the first month of its
operations, it had notched up 16 million users, most of whom were existing subscribers with
different telcos.
Disruptive pricing is a long-term strategy and the challenge for brands like Jio would be to
sustain the initial momentum on ground. What the brands need to be especially wary of is
over-promising and under-delivering. There is also the risk of diluting brand image in the
long run, something that may be more valuable than price led consumer share gains.

Price is a fickle prize

It is easy to succumb to the lure of ascribing consumer reaction to brands as the effect of price but
consumer relationship with price is far more complicated than it is given credit. It is intertwined with
many more variables beyond price and their consolidated impact is likely to drive the brand
performance, even if price is the only variable to change.
(in order of appearance in the document)

1 SKU or Stock Keeping Unit is the form in which the consumers buy the
SKU
brand. It can refer to only pack size (55ml) or pack size X pack type
(2L PET) of a brand.
2 Price elasticity refers to the consumer propensity to switch categories
Price elasticity
(from Soaps to Shower Gels) or to switch brands (from A to B) due to
price. In this paper, price elasticity refers to the propensity to leave
Brand A for another brand, if Brand A increases price in isolation.
Unless stated otherwise, this is how all the price elasticity numbers in
the paper should be read.
Price elasticity is a negative number. For ease of representation in the
paper, the negative sign has been removed but the interpretation
remains the same. Higher the price elasticity, higher is the propensity
to switch brand if it takes up price by itself.

3 It represents the increase in number of consumers considering

Category vulnerability
index switching out from category due to price increase. Higher the
number, more susceptible is the category to consumer loss due to
price increase.
4 Price gap refers to the difference in actual price between the highest
Price gap
and lowest priced brands of the largest SKU in the category. For
example 1kg is the largest SKU in the Oats category, the highest
priced brand is available at `160 and the lowest priced brand at `140.
Then the price gap for Oats= (maximum price minimum price)/
(maximum price).

5 Popular/larger brands refer to the largest brand(s) which contribute

Popular/larger brands
to around 20% of the market share in the category and non-
popular/smaller brands refer to brands with the lowest share
contribution in the category (typically more than 5 brands that add
to bottom 20% of the share).
6 Revenue index is the additional revenue gained vs current scenario, if
Revenue index
the brand increases price by 20% in isolation. The current revenue is
used as a benchmark and for ease of interpretation across categories,
taken to be 100.
7 Share index is the additional share gained vs current scenario, if the
Share index
brand increases price by 20% in isolation. The current share is used as
a benchmark and for ease of interpretation across categories, taken
to be 100.