Parle Ivey Case Study

Parle Products has been India's largest manufacturer of biscuits and confectionery for almost 80 years. Makers of the world's largest selling biscuit, Parle-G, and a host of other very popular brands, the Parle name symbolizes quality, nutrition and great taste.

With a reach pning even to the remotest villages of India, the company has definitely come a very long way. Many of the Parle products - biscuits or confectioneries, are market leaders in their category.. With a 40% share of the total biscuit market and a 15% share of the total confectionary market in India, Parle has grown to become a multi-million dollar company. While to the consumers it's a beacon of faith and trust, competitors look upon Parle as an example of marketing brilliance.

The case is all about the flagship product of the Parle group Parle- G, Parle G is a glucose biscuit and has a market share of 76% in its category, it contributes 10-15 % of the total revenue of Parle. The problem which Mr Kulkarni ,general manager Parle Products Pvt limited, is concerned about, is the complex situation emerged out of the growing input prices. The growing input prices have led the Parle to think on the pricing strategy of Parle G. The brand name “Parle G” is a Value For Money product. In January in the first attempt to offset rising prices parley hiked the price of 16 biscuit packet from INR 4. 0 to INR 4. 50. the idea failed and the sales came down by 40% within six months and hence the price rise was rolled back. Four years later management took remedial step to deal again with rising prices and this time focus was on reducing weight of the packet and number of biscuits was also decreased from 16 to 15. Although consumers noticed it but decided to go along with it as far as the company does not tingles with prices. So ultimately company adopted alternate thinking of cutting prices involved and these measures were buying of manufacturing units near to the wholesalers and by franchising the production.

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Forward contracts were introduced to reduce supply chain costs and addition to all this wax coated paper had been replaced by BOPP paper to reduce cost. With entry of competitors like Britania, HUL and ITC Ltd the situation is getting more complex day by day for the Parle G. Any wrong decision from Parle can have daring consequences for their flagship product Parle G. The dilemma of December 2009: A price hike seemed like a necessity to restore the margins; a hike in the price had the potential to increase the margin by 50% and to restore the previous level of 15%.

But the previous experience of price hike had already given a bad experience to Parle. The problem with Parle is its VFM image, companies build brand equity in order to deflect the focus of customers from the price. They don’t mind loosening their wallets for a brand which delivers a value on a dimension perceived by them. Parley needs to come out of its perilous VFM image and secondly the dependence on a single brand and a single SKU. Parley G contributes 68% of the annual sales revenue of Parley and the INR 4. 00 SKU was contributing to 50 % of Parley G’s annual sales revenue.

The dilemma in which troubles Mr Kulkarni is: 1. Should he launch new SKU’s and new price points. Or 2. Should he continue to tinker with the Grammage. IS Mr. Kulkarni's decision complex or simple? What are the various issues & considerations? Mr. P. Kulkarni, general manager, Parle Products Pvt. Ltd. (Parle) is faced with the dilemma of increasing the price of the biscuit or decreasing the grammage of its SKU. The Indian consumer holds strong brand equity with Parle G biscuit on account of its low cost and value for money (VFM) proposition. The company started as a value for money brand in 1939.

This was a marketing perception which has remained intact for last sixty year. But in last sixty years Indian market has opened up and MNC companies are new competitor. Now the same value for money strategy is gnawing at the profit margin of Parle G. Essentially brand is something that create a niche segment for itself and consumers do not mind loosening up their pockets a bit more every next year to associate with that brand and buy it. But here in India, the consumer are very price sensitive and increasing the price leads to the risk of losing the existing and prospective customer. Thus the question that Mr. Kulkarni is faced with is a very serious dilemma and involves complex thinking and decision making strategy. For example in 2004, Parle has increased the price by 50 paisa from 4Rs. to 4. 5 Rs. and sales dropped by 40 per cent within six months. Hence the company has to roll back the price increment. The brand has a strong dependence on the single brand ”Parle G” and on its single SKU of 100 gram, which contributes to 50 per cent in sales revenue. The company’s share of domestic biscuit market is at 40 per cent and Parle G’s share of the domestic glucose category is at 74 per cent.

This has made the company more dependent on that particular brand which is not healthy. The focus is so much to maintain the low price strategy that other issues such as quality and taste are ignored. Raw material prices of sugar and wheat, which constitute 55 per cent of have increased in the last 18 months. Consequently the margin of Parle G had decreased from 15 per cent to 10 per cent. The price consciousness of customer depends on the household income. The lower and middle class people are most sensitive to price change. In past whenever the price was increased the company lost its sales revenue. Thus Mr.

Kulkarni decision is a complex one as what seems a simple solution to increase the price does not go well with the Indian middle class consumers. 3. What are the advantages and disadvantages of a Value for Money Position: VALUE FOR MONEY POSITION (VPM) is the most common positioning category. Most firms position their products to offer great value for their customers. Companies can choose either "Same (as premium product) for fewer prices" or "More (of the product) for the same price" pricing strategy. More for the same price is often used at high end products which have superior product attributes but is priced on par with competition.

ADVANTAGES of VFM:

1.  The company initial product is Parle-G which provides major profit to the company. Value for Money positioning helps generate large sales volume for products.
2. Value for money was the consumer perception that had led Parle-G to become largest selling biscuit brand by volume in the world in 2002 as validated by a study by global market research firm A C Nielsen. Market share is highest for Parle-G because of value to money it revolves to the customers.
3. Parle-G has adopted the market penetration strategy that is low price along with capturing of a large market .
4. The value for money positioning helps generate large sales volumes for the products.
5. VFM is the only value dimension consumers seem to be plugged into with Parle-G . it is also value dimensions they are plugged into with glucose category which ParleG- leads.
6.  Due to VMP which has advantage for Parle-G create problem for new entrants like Tiger Glucose brand of biscuits of Britannia ,Sun feast Glucose of ITC Ltd. These new entrants were under compulsion to keep prices low.

DISADVANTAGES

1. It is a very price sensitive market owing to VFM. These being the weakness hold competition as its main weakness.
2.  It could further lead to profit erosion and entry of un-brand players into the market notwithstanding these threats; the company beholds many opportunities each as exports and affluence.
3. Consumer perception was rooted so strongly in Parle- G’S low price that it was undermining other product attributes such as quality and taste.
4.  The value for money product is highly elastic in nature and hence the price cannot be increased even to a single unit as it will affect the demand drastically.
5.  Parle-G had generally refrained from increasing the price of Parle- G, even when it had no competition . In holding to the price line, Parle had brought disciplining factors to the Indian market.
6.  A hike in price had the potential to increase the margin of Parle-G by 50 per cent and to perhaps restore it to the earlier level of 15 per cent.

But, if the experience of 2004 was any indication, consumer would be extremely sensitive to a price hike. Marketing plan to overcome this problem: “Reducing the gram mage is the only way out”: Owing to its VFM image and the valuable brand which Parle G has grown into for the middle class and lower middle class society, playing with prices is like playing with fire for Parle G.

Middle class and lower lower middle class constitute the major purchasers in the Indian biscuits industry. Not only Parle G even brands like Nestle’s Maggi and Hajmola have also adopted the same policy of weight reduction. Growing input prices is beyond our control and hence we have to go ahead with weight reduction of current SKU’s. Cost control measures have to follow strictly and obediently to keep margins at par. Parle G for “specials” category: Parle G is market leader in its category (glucose) with market share of 74% and penetration rate of 84%. The glucose category of biscuits forms a market of 42% of Indian biscuit industry.

With increasing income levels in country the choice is showing a shift into premium category. Premium category is the future market to repeat history which Parle G has created in glucose category Parle G should be established also as a premium brand. New varieties can be launched focusing niche customers eg:

1.  Parle G chocolate : kids from 6-14
2.  Parle G diet :teenagers
3.  Parle G protein : for lactating mother and pregnant women
4.  Parle G sugar free : for health conscious people.

These varieties will fetch totally new segments for Parle G (augmentation) without cannibalising the existing Parle G VFM image.

Similar trends are followed by Nestle’s Maggi by introducing Maggi Soupy Noodles and Maggi Pasta. Parle G for institutional “in bigger SKU’s”: This initiative aims at institutional sales by introducing bigger SKU’s, these SKU’s can also be used to target the local posh and successful tea stalls. This step will help to counter the unorganised sector which prevails in local areas. Bigger SKU‘s will be used as refilling units. Big plastic containers will provided and hence it won’t be required to repurchase SKU’s instead of only refilling it. These SKU’ will reduce packaging cost and the plastics containers will require only refilling.

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