The demand for package goods in rural India slows down for the third consecutive quarter, January to March 2022. So, the consumers switched to smaller quantity packs due to steep inflation, revealed research firm NielsenIQ, in its quarterly update on Fast Moving Consumer Goods (FMCG).
The FMCG majors HUL and Nestle have already implemented price hikes across their daily-use products, and Dabur and Parle are expected to increase their prices as well.
Inflation of retail goods reached an eight-year high of 7.8% this April. With increasing inflation and spiking raw material costs, FMCG brands are deciding to increase the prices of products. But along with that comes the magic price dilemma – would a brand increase cost from a magic price like ₹ 5, ₹ 10 or ₹ 15 or reduce the quantity and maintain the magic price?
When faced with steep inflation, especially in markets like India, where people are sensitive to the price hikes, FMCG players are faced with the challenge to maintain the prices.
Other than inflation, the increasing environmental concern has also added to rising costs of production for products that are packaged. The recent plastic straw ban and the unavailability of a cheap alternative pose a cost challenge for companies like Coca-Cola, PepsiCo, Dabur, and Parle Agro which sell about 60% of their fruit juices in small packs.
For FMCG brands, products that are available at small price points (₹ 2, ₹ 5, ₹ 10) make a big part of their sales. These price points are essential, mainly for the lower and middle-class families, who have stringent budgets for their daily needs.
The bulk of FMCG sales happens through single-use, small serve packs, from Kirana stores or neighbourhood groceries. Lloyd Mathias, business strategist and marketing expert, says that a convenient price point is a solution as India still remains a cash economy, although there are rapid strides in digital payments.
If a product from a magic-pricing category is priced at an odd value, around ₹ 6, there are greater chances for the consumers to shift to an alternative available at ₹ 5. Instead, some would decide to reduce the quantity while retaining its original price.
But this doesn’t always work well in favour of all products because we cannot reduce the quantity of a one-time usable ₹ 1 shampoo as it becomes unusable. Britannia’s Good Day has used a strategy to compromise on the quality and so a good butter cookie turned into a dry brittle biscuit. Meanwhile, Parle-G, even after decreasing the quantity, retained its value among the customers.
So, brands are thinking of their own ways to price themselves among the inflation and increased raw material costs.
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