Pricing Strategies in India

Background on India

India and China cover nearly 40 percent of the world’s population and their cumulative output accounts for nearly 25 percent of the global GDP. India is today the second fastest growing economy in the world. The growth is being driven by domestic consumption and the expansion of the information technology industry; India has 75 percent of the IT services export market. India’s consumer goods market is already among the top ten in the world and is expected to be the fifth largest in the world by 2010.

The main drive for reform occurred in 1991. The Finance Minister took on a sequence of policy initiatives when India was facing the balance of payments crisis; he lowered tariff levels, eliminated industrial licensing, allowed foreign investors 51% equity in their business enterprise and helped reform the exchange rate policy.

Since these economic changes, poverty levels declined and the information technology sector has grown at a rate of 30 percent annually for the last few years. The rapid growth of the Indian economy has resulted in a growing middle class. According to Sala Kannan, an expert on global economic trends, by 2015, there will be 628 million middle-class Indians whose incomes have already doubled over the last 10 years.

Pricing Strategies

Multinational pricing is a lot more complex than local pricing because international currency fluctuations and price fluctuations due to tariffs among other things that need to be considered. Multinationals also have to worry about currency to price, exchange rates, hedging, price coordination to prevent grey trade, etc. and, most importantly discussed in this report which marketing mix including pricing policies will they use. Multinationals also have to decide which position they will take outside the home country: polycentric, geocentric or ethnocentric.

It is important for companies to consider a good marketing mix when entering any market. Global marketing takes into consideration the product, price, place and promotion adaptation or standardization.

During India’s pre-liberalized era, there were only a few brands on the market and no competition, companies were accustomed to adopting third degree marketing which means first placing the brand in the market and then, if need be take into consideration the need of the targeted audience through marketing mix elements. As competition started increasing, companies started changing their strategies.

Today, due to competition, brands consider the marketing mix elements before launching a new product in a market; they have understood that a competitive marketing mix is required in order to have a successful product in a market where the consumer has more than one choice. A marketing mix should take into consideration its target segment whether it wants to appeal to a minority of people or to the masses.

Most of the cases discussed in the case of multinational in India use polycentric or geocentric pricing with a researched marketing mix for the country they are in.

Ethnocentric pricing policy is when the per product price of an item is the same regardless of the consumer’s location. In this case, the importer is responsible for freight and import duties. The advantage of this policy is that it is simple because no information on competition or market conditions is necessary for implementation; it’s one standard price for all. The disadvantage of this pricing policy is that it is not responsive to the competitive and market conditions of each country. Many companies that have to deal with local competition have failed in this type of pricing policy; this includes Levis when they were introduced in India under this type of pricing. This type of pricing works well with highly industrial items such as aircrafts, highly advanced computers and systems, etc.

Polycentric pricing allows subsidiary or affiliate managers or independent distributors to establish the price they feel is most advantageous in their position in the market. There is no condition that prices have to be harmonized from one country to the other. This approach is sensitive to local market conditions. The distributors or local managers are free to set prices that they find appropriate in their market. Sometimes a polycentric approach results in a grey market.

Geocentric pricing is more practical than ethnocentric or polycentric. A multinational company using this type of pricing does not fix a single price worldwide. In this type of pricing there is a lot of coordination between home country headquarters and subsidiary. The multinational does not allow subsidiaries to make independent pricing decisions. Geocentric pricing is based on the understanding that each country has different market factors which should be acknowledged when making