Case Analysis on Managerial Economics

Characteristics of rural India: Few of the points that can be easily inferred from the case are- 1) This is a monopolistic market. This can be inferred by the fact that there exist a perfect substitute for the product to be launched, although not as a one-to-one substitute but in form of ‘bath soap’ and ‘washing soap’. 2) There already exist a number of local soap brands in form of Anarkali , Chand ka Tukda, Heroine etc. and a number of local detergent cake brands in form of Ajooba, Chamatkar, Khiladi etc. ) From the above mentioned name it can also be inferred that the rural population of easily attracted by the Indian cinema. 4) People prefer cheap products rather than the luxury once. 5) Influenced by urban life style easily. 6) People are literate to identify different uses of a product in the market. 7) Any product that is expensive is considered as conspicuous consumption. Strategy: Here we observe that it is a monopolistic market so we have to reduce our price from three times that of the local brands to existing market price or less than that as we are not trying to make a luxury product.

We need to use penetration pricing to enter into the market which is dominated by local brands and which can also be dominated by the other big players who are eyeing the rural market. The price for ‘Saboon’ can be reduce by decreasing the size of the of the designed bar which is slightly larger than the local soap/detergent bar in the market. Company can also think of making smaller samples of bar and sell them at the marginal price which is less than the marginal cost of the product in order to gain the market share.

Also the company can think of launching the product in urban market and selling at the current selling price of the product. This may incur losses if the product fails in urban market but the rural market will get influenced by the fact that it is available in urban market and also the price in rural market is less than the urban market. Thus we have created a third degree pricing strategy. Also we can make use of ration card to sell the product in rural area so that the urban population do not try to buy the roduct from rural area at cheaper rates. Here we can also use second degree pricing strategy by giving discounts for the consumer who buys more than a certain quantity of the product. This may lead to further losses but as we are trying to implement penetration pricing it is bound to happen at initial stage. Also the cost on Salman khan promoting the product should be considered but we will retain him as he represent masses and also by the fact that the rural population is attracted by the Indian cinemas.

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