P&G bets on price cuts to ramp up volumes

Procter & Gamble (P&G), which started the price war in the detergents segment on Tuesday, is betting on its aggressive price-cutting measures to expand its share in the Rs 500-crore detergents market which has been stagnant for the last three years.

P&G, whose brands account for 11 per cent of the total market in value terms, expects volumes to nearly double to make up for steep reduction announced in the prices of its Ariel and Tide detergent brands. This reflects a quantum shift in the focus of the company from value-based to volume-based growth.

Following the new pricing move, the company's turnover is likely to rise to Rs 1000 crore, up from around Rs 800 crore last year.

The company's optimism is based on the success with the sachets of Ariel and Tide. In September last, the company slashed the sachet prices of Ariel and Tide by 50 per cent to Rs 1.50 and Rs 1 respectively. The volumes almost doubled, giving rise to its hopes for similar success in the large packs segment.

"The better value offer on sachets received such an overwhelming and positive response from consumers across India that P&G was encouraged to offer the irresistible value to Ariel and Tide bag users as well," said a P&G official here today.

Announcing the slashed prices of Ariel and Tide packs upto 50 per cent at a media conference, Rahul Malhotra, the country manager of P&G, said that with the country's economy back on growth track, the company expected consumers of non-premium brands to migrate to premium brands.

The company reduced the price of Ariel from Rs 70 to Rs 50 for a 500 gram pack, while the price of Tide was slashed from Rs 43 to Rs 23 for a 500 gram bag. A 200 gram pack of Ariel is now available at Rs 22 down from Rs 30, while that of Tide costs Rs 10 as against Rs 20 a few days back.

To a query whether the price reduction was targeted at denting the volumes of the leading player, Hindustan Lever, Melhotra denied any such move.

It may be noted here that HLL took cue from P&G and announced similar price cuts on Surf Excel. It also slashed the price of Surf Excel Blue 500 gram pack to Rs 38 from Rs 50.

The P&G country manager categorically stated that the company's move was based on a study carried out by AC Nielsen to appease the price-sensitive Indian customers and also attract new segments of consumers.

In this regard, he cited the analogy of the mobile phones market, wherein the volumes shot up following price reduction in handsets.

On whether the trend of price cutting would continue in the days to come, Malhotra quipped that the benefits accruing from cost-cutting would be passed on to the consumers. He explained that current price cuts had been made possible by internal efficiencies in the three segments of distribution, manufacturing and raw material costs.

The economies of scale achieved by the sachet price reduction also enabled the company to make the large packs affordable for masses, he said.