Parle-G

The drawback of cost-based pricing is that it can fall into vicious cycle of placing higher price for decreasing sales and so on. In this case, Parle Product Pvt. Ltd. is implementing cost-base pricing strategy, making a margin of 15 percent. However, this margin of 15 percent is dwindling due to raw material price increase, forcing the company to either reduce the grammage on units or increase the price. The consumers, however, seems to be very averse to price increase that they are forced to choose the reducing of grammage. According to the Exhibit 1 for Parle-G –SKU history from 2006 to 2009. The grammage per unit is reduced by average of 13%. Of course, this can affect the satisfaction of the product and the company’s reputation. I strongly think that Parle-G should increase the price. The Parle-G is implementing VFM positioning and that has become the central marketing title of Parle-G. As marketing firm of a rival firm puts it: “VFM is the only value dimension consumers are plugged into with the glucose category of Parle-G leads.” Recalling brand value as the most economical way to purchase the certain category of product is not the best way because the risk is too high. The inflation added with raw material price fluctuation would make company hard to estimate the profit margin of the sale. Therefore, Parle-G should settle the price at 15% margin price. Now this would, as stated in the information given, the sale of the product might drop about 40% but this temporary phenomena will gradually fade as competitors follow the pricing strategy of the market leader (It was said in the reading that the competitors tend to follow the pricing strategy of the Parle-G). Also, if the prices increase is going to happen, not because of the internal inefficiencies but external forces such as increase in price of raw material, the company should find the way to differentiate their product from their competitors than to continuously reduce the grammage of the product....