PRICE-ORIENTED MARKETING STRATEGY
Firms taking to the price route in marketing strategy compete on the strength of pricing. They use price as their competitive lever. They juggle the price of their product to suit the prevailing competitive reality. They can afford to offer lower process and still make the targeted profits. They elbow out competition with the cushion they enjoy in the matter of pricing.
Price Route Requires Cost leadership:
Evidently, a firm opting for the price route will have to have a substantial cost advantage in their operations, vis-Ã -vis the competition. It should be enjoying an overall cost leadership in the given industry and its lower cost should enable it to secure above average returns in spite of strong competition. In the absence of such cost advantage, it cannot continuously offer a lower price compared to competition.
The cost advantage can emanate from different factors like, scale economies, early entry, a large market share built over a period of time, location advantages, or synergy among the different businesses. The firmâ€™s whole strategy will revolve around building such cost advantage; it will always be looking for opportunities for cost reduction. For example, it may drop unprofitable customer/segments, it may minimize its expenditure in R&D, it may practice just-in-time inventory. With the cumulative support of such strategies, it will flight on the cost / price front. In short, developing such a cost leadership is the main task of firms that vote for price-led strategy.
Strive for cost Leadership Right from Start:
To successfully practice a price-led strategy, a firm should have consciously taken to the idea sufficiently early in its evolutionary process and prepared itself for adopting such a strategy. The firm cannot opt for the strategy midway, after getting stuck in the face of competition. Right from the beginning, it must have voted for cost-effective technologies / processes, cost reduction programs, a steady pursuit of automation, a constant vigil to exploit learning curve effects, best inventory practices and a company-wide commitment to cost reduction. Without obtaining a cost leadership in the industry through resorting to such steps early on, it is difficult for a firm to compete on the basis of price.
Nirma a detergent and soap manufacturer of India, provides a fine example for a price-led marketing strategy. Nirma entered the detergent market of India at a time when Hindusthan Lever Limited (HLL), an FMCG giant, with its Surf, had established a near monopoly in the business. Nirma succeeded through its price-led strategy. HLL marketed Surf, taking to the differentiation route; the differentiation theme was â€˜Surf washes whitestâ€™.
Nirma had built cost leadership right from the beginning. It was this cost leadership built early on that enabled Nirma to follow the price-based marketing strategy. Taking advantage of the concessions as an SSI unit and choosing the price conscious segment as its market, Nirma Chemicals offered a low price brand and promoted it aggressively. Surf was sold at a price of over Rs. 32 per kg. Nirma priced its detergent at Rs. 10.50 per kg. It relied on low cost technology, process and raw materials.
Nirma kept growing in both volume and market share. HLL had to defend Surf with all its might, the company stepped up its promotion of Surf, relying heavily on the differentiation theme. But this was not enough to check the growth of Nirma had chosen.
HLL had been operating as a matter of policy, a differentiation-led strategy, highlighting the distinctive merits of Surf as a detergent and marketing it as premium product. HLL was successful for two decades, and it had to change its strategies. It has decided to enter the low priced segment, Wheel which is positioned against Nirma. Wheel was priced at Rs. 11 per kg. In just about 10 years, Nirma became a Rs. 1,000 crore business.
The conclusion is that Nirmaâ€™s price-led strategy was so successful that even the market leader, who was all along following the differentiation-led route, was forced to review its strategy.