Indian FMCGs : branding through price cuts?

Nita Kaul
26 March 2004

The recent price cuts by fast-moving consumer goods giants, Hindustan Levers Ltd (HLL) and Procter and Gamble (P&G) proves, once again, that the Indian market still, by and large, supports volumes, not value propositions. No matter how hard one may try and brand a product price sensitivity overrules brand preference - if its not priced right, it''s just not going to generate sufficient volumes.

Realisation has come to P&G - though a bit late and now it wants to become more ''affordable''. By slashing prices from nearly 25 to 50 per cent on its two detergent brands, Tide and Ariel, P&G has not only restructured the balance of brand power in India, but has also hurt HLL - and itself - where it hurts the most … its bottom line.

As the two traditional rivals in the global FMCG market carry out their slugfest in India, their share values have tumbled; P&G which launched the price war has seen a 14 per cent decline in its share price, the HLL stock fell 19 per cent on the same day. The share of an uninvolved Nirma, too, was dragged down by eight per cent.

P&G''s move from a premium niche to a mass base, is indeed a proactive marketing effort. But, as industry watchers point out, HLL''s reaction in slashing its prices is merely an attempt to protect its turf. If so, is ''marketing'' really about how low you can price your product?

Concepts like ''market research'', ''value'', ''branding'' and ''loyalty'' seem to have been dumped with HLL''s counter offensive of a price cut of its own. The rationale, in HLL''s words, is to face competition without blinking.

Till recently, the price war was restricted to HLL and P&G. Now, to square off the probability that customer loyalties would shift with price cuts, even smaller players have entered the fray. Henkel Spic has cut the prices on its detergent brand Henko Stainchampion by 15 per cent to Rs.75 per kg.