The Telegraph
Since 1st March, 1999
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Cutting edge to Lever strategy

Mumbai, April 27: In a bold strategy to rev up its flagging sales machine, Hindustan Lever has decided to cut prices of some of its premium Power Brands by 10-15 per cent.

Among the premium products that have gone cheap are Surf Excel, which has seen its price tag slashed almost 15 per cent; a host of shampoo and toothpaste brands that have seen a degree of saturation will also see prices fall. However, Wheel, a detergent competing with the likes of Nirma and Ghadi, will come at the same price. Clinic Plus, Sunsilk, Pepsodent and Close-up are the other top brands under the price scalpel.

“It is an attempt to fuel demand in a market that needs price triggers to grow. Wherever possible, the company will cut prices, but at the same time, try and maintain profitability at current levels by shaving costs,” says ASK Raymond James’ FMCG analyst Nihar Shah.

The impact of the price cuts, the first time ever in the company’s history, is that the topline (sales) can swell without eating into the bottomline (profitability). Analysts are clear the country’s largest consumer goods company is intensifying efforts to enlarge its market.

It recently cut prices of shampoo sachets and high-end detergents to stem the falling market share and down-trading — the tendency to look at cheaper alternatives.

Shah puts it down to competition, saying a company that sells close to Rs 10,000 crore every year has to look over its shoulder at rivals offering cheaper fare. Analysts say the firm has been trading growth for profits since long. Jagdeep Kapoor, managing director of Samsika Marketing Consultants, says some of his FMCG clients have done well by pricing products aggressively.

“FMCG growth has been flat in the last two years. However, the likes of Ujala, Ghadi detergent, Anchor toothpaste, Dandi Namak and Cavinkare have made a huge dent,” he says.

What is standing out as a lesson is the way consumer durable makers and cellular service firms have ramped up sales by making their products affordable. Company officials would not talk about the price cuts as overt official policy, but Lever House sources confirmed the prices in some key products have gone down.

The cuts are a reversal of the trend in the past seven years, when Lever’s soaps, detergents, toothpaste became twice as expensive. By contrast, the prices of consumer durables increased moderately, or even fell.

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