Ever wondered why your favourite packet of Maggi or Lay’s still sells for Rs 10 even after decades of existence?
Ever wondered why your favourite packet of Maggi or Lay’s still sell for Rs 10 even after decades of existence? While companies such as Nestle, Parle, or PepsiCo have not changed the prices of these products, the companies have reduced the quantity over time to keep up with various factors including inflation etc. Companies naturally need to sell these products at a sticky price of Rs 10 a packet, rather than keeping the weight the same and increase price, several experts told Financial Express Online. Nestle’s popular Maggi is among the exceptions, which now sells for Rs 12 per packet, after having reduced the size of the noodle cake to 70 grams from 100 grams over the last few years.
There are certain sacred selling points for FMCG companies. This includes Re 1, Rs 5, Rs 10 etc and these usually remain unchanged, Lalit Malik, Chief Financial Officer, Dabur India Ltd, told Financial Express Online. “These price points are tools to induce consumer trials and address the needs of rural and low-income consumers. Hence, companies tend to protect these price points. Their cost and buying efficiencies help companies maintain these LUP price points,” he added.
For companies, a slight change in these price points mean risking not just consumer psyche but also of store owners which sell these products. “These price points become memory points as well. The consumer reaches out to these packs and to an extent has an economy story in his or her mind for sure. The moment this price point is altered, even by 50 paise, there is a jarring effect in the minds of the consumer, retailer, and indeed the entire trade channel. Brands, therefore, tend to maintain these price points,” Harish Bijoor, Founder Harish Bijoor Consultancy Inc, told Financial Express Online.
How companies maintain prices despite rising costs
To make up for changes in raw material, rising inflation etc, companies tend to reduce the volume of the products while maintaining the revered sacred price points. “In effect, the customer is getting lesser for the same price paid. This happens across FMCG categories including biscuits, packaged snacks, cosmetics and others,” N Chandramouli, Founder, TRA Research told Financial Express Online.
“Any product price is a function of profit margins, packaged quantity, raw material costs, operational costs and overheads. The latter three costs have only risen over the last decade, and going from the profit margins of the FMCG companies, it is evident that that has not reduced much. There is therefore only one alternative to reduce the quantity of product,” he added.
Take, for example, Nestle’s flagship product Maggi. While the noodles used to sell for Rs 10 for a 100g pack, today it is only a 70g pack for Rs 12. However, at one time, Maggi also sold 70g product at Rs 10, but at the time of the last price hike, Nestle decided to actually increase the price rather than decrease weight.
Biscuits and snacking industry does the same. “In the case of biscuits, you could reduce the number of biscuits in pack, in the case of snacks, you could reduce a chip or two if not more. And they do, till it is unbearable and the price has to be upped,” Harish Bijoor said.
Your money, up in air
Another trick up the FMCG companies’ sleeves is to keep both the prices and the packet sizes the same; how, you may ask: by filling the packets with more air! “Often brands go to elaborate lengths to ensure the packaging looks bulky to convince the customer that they are buying value. One research shows Lay’s packets to have 41% nitrogen fill, Pringles to have 28%, so it is clear that it’s the brand’s choice to decide the optimum ‘slack space’ in packaging,” N Chandramouli said.
“The customer focuses on the package price, and as long as the package looks approximately the same as before, and assume it contains the same quantity and does not verify the fine print to know the quantity or other aspects. Misleading packaging is a big problem in this industry,” he added.