PRICING STRATEGY: COMPREHENSIVE STUDY OF THE

PRICES IN FMCG INDUSTRY

RESEARCH PROJECT

Submitted by

JATIN PRATAP SINGH (BBE/22/25)

PRABHROOP SINGH (BBE/22/35)

GAURESH CHOPRA (BBE/22/69)

TANISHQ JAGGI(BBE/22/50)

PAVNEET SINGH(BBE/22/34)

Under the supervision of

MR. RAVI KARAR

DEPARTMENT OF BUSINESS ECONOMICS

ARYABHATTA COLLEGE

UNIVERSITY OF DELHI

DELHI-110007

APRIL 2024

1
 ABSTRACT
This research paper presents a comprehensive study on pricing
strategies within the Fast-Moving Consumer Goods (FMCG) industry.
Pricing decisions play a pivotal role in shaping consumer behaviour,
market dynamics, and business profitability in the FMCG sector, which
encompasses products with high demand and frequent purchase cycles.
Through a combination of literature review, industry analysis, and a case
study, this paper examines the diverse pricing strategies adopted by
FMCG companies operating in the Indian market. Key factors influencing
pricing decisions, such as production costs, distribution channels, brand
positioning, and competitive pressures, are analysed to provide insights
into the pricing dynamics within the FMCG industry. By shedding light on
the intricacies of pricing strategy in the FMCG industry in India, this
research aims to provide valuable insights for businesses, policymakers,
and researchers seeking to understand and optimize pricing practices in
one of the world's fastest-growing consumer markets.

2
 INTRODUCTION
The Fast-Moving Consumer Goods (FMCG) industry is characterized by
products with a short shelf life and high consumer demand, making
pricing strategy a critical determinant of success in this fiercely
competitive sector. With consumers constantly seeking value and
convenience, FMCG companies must navigate a landscape where
pricing decisions can make or break market share and profitability.

In the dynamic realm of FMCG, pricing decisions hold significant sway

over consumer behaviour and competitive dynamics. Whether it's setting
the right price point to attract price-sensitive consumers or implementing
promotional pricing to stimulate demand, pricing strategies directly
impact market positioning and brand perception. Moreover, in a sector
where margins are often razor-thin, strategic pricing can be the
difference between thriving and merely surviving.

Against this backdrop, this research endeavours to delve deep into the
intricacies of pricing strategy within the FMCG industry. By examining
common pricing strategies and identifying key factors influencing pricing
decisions, this study aims to provide a comprehensive understanding of
how pricing dynamics shape the competitive landscape of the FMCG
sector. Furthermore, by assessing the effectiveness of various pricing
strategies in driving sales growth and sustaining competitive advantage,
this research seeks to offer valuable insights for FMCG companies
seeking to optimize their pricing practices in an ever-evolving market
environment.

3
 RESEARCH OBJECTIVES

1. Examine Common Pricing Strategies: Investigate and analyse the

prevalent pricing strategies adopted by FMCG companies, including but
not limited to penetration pricing, skimming pricing, promotional pricing,
and bundle pricing.

2. Identify Factors Influencing Pricing Decisions: Identify and

evaluate the key factors that influence pricing decisions within the FMCG
industry, such as production costs, distribution channels, brand equity,
competitive pressures, consumer behaviour, and regulatory constraints.

3. Assess Effectiveness of Pricing Strategies: Assess the

effectiveness of different pricing strategies in achieving business
objectives, including driving sales growth, enhancing market share,
improving profitability, and sustaining competitive advantage within the
FMCG sector.

4. Explore Market Dynamics: Explore the market dynamics of the

FMCG industry in India, including consumer preferences, purchasing
behaviour, distribution networks, and competitive landscape, and
analyse how these factors interact with pricing strategies.

5. Provide Strategic Insights: Offer strategic insights and

recommendations for FMCG companies to optimize their pricing
strategies, adapt to changing market conditions, and capitalize on
emerging opportunities in the Indian FMCG market.

4
 RESEARCH DESIGN

The research is solely based on qualitative data and relies on secondary

data and previous researches to study the pricing strategies used by
major firms in the FMCG industry.

SOME BASIC CONCEPTS TO BEGIN WITH

Importance of the Right Pricing Strategy:

1. Strategic Positioning: Pricing is more than assigning a numerical
value to a product. It involves strategically positioning products in
the market to maximize revenue, maintain healthy profit margins,
and build a competitive edge.
2. Impact on Sales and Perception: Pricing directly influences
FMCG sales, profit margins, customer perception, and overall
market competitiveness.

5
 3. Consumer Behaviour: In the FMCG industry, where products
move rapidly and consumer choices are influenced by various
factors, having the right pricing strategy is crucial for
sustainable success.

Types of Pricing Strategies:

1. Cost-Plus Pricing: This strategy involves determining the cost of

production and adding a markup to set the selling price. It ensures
that all costs are covered and provides a predictable profit margin.
2. Competitive Pricing: With this strategy, prices are set based on
competitors' prices. The aim is to either match, undercut, or
differentiate slightly from competitors to gain market share or
maintain competitiveness.
3. Penetration Pricing: This strategy involves setting a low initial
price to quickly gain market share. It aims to attract price-sensitive
customers and encourages them to try the product or service.
4. Price Skimming: In price skimming, a high initial price is set for a
new product or service, targeting early adopters or customers
willing to pay a premium. The price is gradually lowered over time
to attract more price-sensitive customers.

6
5. Value-Based Pricing: This strategy sets prices based on the
perceived value of the product or service to the customer. It
focuses on understanding customer needs and willingness to pay,
rather than solely on production costs or competitors' prices.
6. Dynamic Pricing: Dynamic pricing involves adjusting prices in
real-time based on market demand, supply, and other factors. This
strategy is common in industries such as airlines, hotels, and e-
commerce where prices fluctuate based on various parameters.
7. Bundle Pricing: Bundle pricing involves offering multiple products
or services together at a discounted price compared to purchasing
them individually. It can increase sales volume and encourage
customers to buy more.
8. Psychological Pricing: This strategy leverages psychological
principles to influence consumer perception of price. Examples
include using prices ending in "9" (₹999 instead of ₹1000) or
emphasizing the value of the product compared to its price.
9. Geographical Pricing: Prices are adjusted based on the location
or region of the customer. Factors such as shipping costs, taxes,
and local market conditions are considered in determining the
price.
10. Promotional Pricing: Temporary price reductions or special
offers are used to stimulate sales or attract customers. Examples
include discounts, coupons, seasonal sales, and limited-time
promotions.

7
Pricing Strategies As per Market Trends

 DURING MARKET BOOMS

During economic booms, when consumer demand is high and

market conditions are favourable, firms often employ various
pricing strategies to capitalize on the positive momentum and
maximize profitability.
Firms may choose to implement premium pricing strategies,
whereby they set prices at a higher level than their competitors to
signal superior quality or exclusivity. Premium pricing can be
effective during economic booms when consumers are more
willing to pay a premium for perceived value or prestige.

 DURING MARKET DOWNTURNS

When the market is experiencing a downturn or economic

recession, firms often adjust their pricing strategies to navigate
challenging conditions, stimulate demand, and maintain
competitiveness.
Firms may offer discounts, price reductions, or markdowns on their
products or services to incentivize purchases and stimulate
demand from price-sensitive consumers. Discount pricing can help
firms attract budget-conscious customers and maintain sales
volume during economic downturns.

8
Factors influencing Pricing Strategies

Pricing strategies are influenced by a variety of factors, both internal and

external to the business.

Here are some key factors:

1.Costs: The cost of production, including materials, labor, and

overhead, is a fundamental factor in setting prices. A business needs to
cover its costs and generate a profit.

2.Competition: The competitive landscape heavily influences pricing

decisions. A company needs to consider the prices charged by
competitors for similar products or services. Pricing too high can drive
away customers, while pricing too low can lead to a price war or signal
low quality.

3.Customer Perceptions and Behavior: Understanding customer

perceptions of value is crucial. Companies need to know how much
customers are willing to pay for their product or service and what factors
influence their purchasing decisions. Factors such as brand image,
product quality, and customer service can affect perceived value.

4.Market Conditions: Economic conditions, market demand, and supply

dynamics impact pricing strategies. During times of high demand or
when supply is limited, companies may be able to charge higher prices.
Conversely, during economic downturns or in saturated markets,
companies may need to adjust prices to remain competitive.

5.Product Life Cycle: The stage of the product life cycle also influences
pricing decisions. In the introduction phase, prices may be set high to
recoup development costs, while in the maturity phase, prices may be
adjusted to maintain market share or stimulate demand.

6.Brand Positioning: Companies often use pricing to position their brand

in the market. Premium pricing can convey a sense of exclusivity and
quality, while discount pricing may appeal to budget-conscious
consumers.

9
 EXAMINING NESTLE’S PRICING STRATEGIES: A CASE STUDY

Nestle was founded in Switzerland by Heinrich Nestle in 1866. Nestle is

one of the oldest multinational companies. From the early stages, Nestle
wanted to take advantage of growth opportunities in different countries.
In 1905, it merged with Anglo-Swiss condensed milk, broadening its
product range to include infant formulas and condensed milk. Nestle
currently has 447 factories, with operations in 189 countries.

In this case study, we will focus on Nestle's pricing strategies. Pricing is

the most important element for maximising revenues. According to
Harvard studies, if there is a 1% improvement in pricing, it leads to an
11% increase in profits (approx.). If the pricing structure is incorrect, the
business loses profit with each transaction made. Therefore, correct
pricing is critical.

Nestle is a multinational brand with a present net worth of about $270

billion. The success that the brand has is due to its pricing strategy. The
revenue of Nestle is continuously growing, this depicts the successful
identification and placement of its products in the market. Nestle’s
products are pricier in comparison to the products of the retailing brand.

Nestle’s pricing strategy is distinctive in contrast with other brands. It

merely hinges on recognition which is attributed to the apparent quality
of the product. Based on this quality and the attitude of the customers,
Nestle assesses the pricing strategy it wants to implement.

Nestle’s pricing strategies

Here are some of the strategies implemented by Nestle to achieve its

targets and goals.

10
Price Skimming

It is a pricing strategy in which a company charges a high price initially

and lowers it over time.
Nestle uses price skimming for some of its products when it enters the
market of a country.
Nestle believed that the target consumers for Nescafe coffee were
upper-middle-class consumers. Later, with the success of this approach
and strategy, they lowered the prices and targeted the middle class.

Inexpensive Pricing Strategy

Amongst its wide range of brands, Nestle offers a fair price for quite a
few of its brands and products. Pricing is based on market segmentation.
Market segments generally involve a target audience.
Market segmentation is the practice to divide the target market into
subgroups. It forms subsets depending on needs, psychographic,
behavioural, and demographic criteria.
If Nestle is trying to target the mass market, then they implement an
inexpensive pricing strategy instead of an expensive one.
This happened in the case of Nestle's Maggi noodles. It is considered
affordable in comparison to other products of Nestle. However, if the
price of Maggi is compared globally with other noodle brands, then it can
be perceived as a little pricey.

Bundle Price Strategy

With time Nestle has understood that people do not usually do their
groceries every day, instead, they prefer purchasing in bundles.
Therefore, Nestle implemented the bundle packs approach. Eg., Maggi
noodles. A single pack costs ₹ 14/-, whereas a pack of 12 packs cost
₹153/-. If a consumer buys 12 units of single pack it costs ₹168/-

Initially, Maggi was sold in a single pack but later, Nestle offered a 16
pack which eventually increased the sales.

11
Penetration Pricing Strategy

Penetration pricing is a pricing strategy that an organisation uses to offer

new products at lower prices to attract more customers away from rivals.

When Nestle introduced a new flavour of Maggi instant noodles, they

were sold at a low price of £2.25 to entice new customers. Nestle’s
strategy was to lure more customers away from its rivals which offered
alike Flavors priced at £3.25. Nonetheless, when Nestle gained a greater
customer base they increased the price to £3.

Psychological Pricing Strategy

Psychological pricing facilitates in creating a positive psychological

influence on the consumer and attracts them to buy the product.

Nestle Aero bliss was sold for £8.99 instead of £9. This pricing strategy
will have a positive psychological impact on the consumer and will
encourage them to purchase the product.

Discounts Offered

Nestle offers discounts in various retail stores. Nestle products are often
bundled and come with a 5% or 10% discount.

Coffee and creamer, as a bundle, is cheaper than buying the two items
separately.

Competitive Pricing Strategy

Another general approach that Nestle follows is analysing the pricing

strategies of its rivals. Nestle has several brands and for every brand, it
has separate departments that assess the pricing strategies of its rivals.
Besides that, it examines the marketing style, sales, and innovation of
rivals. The competitive pricing strategy assists in achieving Nestle's
desired position as they acknowledge the preferences of the consumers.

12
Global Pricing Strategies Of Nestle

Globally, Nestle attempts to ensure the pricing strategies that will assist
it in achieving its financial objectives. These strategies typically involve
the penetration and skimming strategy. The price of Nestle products
automatically rises when they are exported to other regions.
Alternatively, it also implements price skimming, as it sets a higher price
at the start and then ultimately reduces the price based on the customer
demand.

Over the years, Nestle has become one of the leading parent brands
with successful divisions under its name. What has made Nestle
successful with consumers is that it adapts to different pricing strategies
according to the regions its selling and according to the product offered.
It gives preference to the demands of its customers and tries to provide
the best quality products at different price ranges so that all segments of
consumers can afford its products, hence, increasing the sales and
profits for the company.

Key Takeaways from Nestle’s pricing strategies

 Nestle is a multinational brand with a present net worth of about

$270 billion. The success that the brand has is due to its pricing
strategies.
 Nestle’s pricing strategy is distinctive in contrast with other brands.
 Nestle uses various pricing strategies including price skimming,
inexpensive and bundles pricing strategy, penetration pricing
strategy, stock keeping units, psychological pricing strategy,
discounts, and competitive pricing strategy.

13
 CONCLUSION
This research provides valuable insights into the pricing strategies
employed by major firms operating in the Fast-Moving Consumer Goods
(FMCG) industry. Through a qualitative analysis based on secondary
data and previous research, the study has elucidated key pricing
strategies utilized by FMCG companies during various market
conditions.

The findings reveal that FMCG firms employ a variety of pricing

strategies to adapt to dynamic market conditions and consumer
preferences. During economic booms, firms often leverage premium
pricing, price skimming, and promotional bundling to capitalize on high
demand and maximize profitability. Conversely, during market
downturns, discount pricing, value-added pricing, and customer loyalty
programs are commonly employed to stimulate demand and maintain
competitiveness.

Furthermore, the study underscores the importance of strategic pricing in

the FMCG industry, where pricing decisions directly influence market
share, profitability, and consumer perceptions. By understanding the
nuances of pricing strategy and market dynamics, FMCG companies can
effectively navigate the complexities of the market and position
themselves for long-term success.

While this research offers valuable insights, it is important to

acknowledge its limitations. The reliance on qualitative data and
secondary sources may restrict the generalizability of findings, and
future research could benefit from incorporating quantitative analysis and
primary data collection methods. Additionally, the study focused on
major FMCG firms, and further investigation into pricing strategies

14
adopted by smaller players and regional brands could provide a more
comprehensive understanding of the industry.

Overall, this research contributes to the existing body of knowledge on

pricing strategy in the FMCG industry and provides actionable insights
for FMCG companies seeking to optimize their pricing practices and
enhance competitiveness in the dynamic marketplace. As the FMCG
sector continues to evolve, ongoing research and analysis will be
essential for staying abreast of emerging trends and driving sustainable
growth in this vital industry.

15
 BIBLIOGRAPHY:

1. Katharine Paine: Pricing Strategies of Nestle Company http://surl.li/suabf

2. Kotler Keller, Marketing Management, 15 Global editions
3. Nielsen. (2021). The Nielsen Global Connect | FMCG and Retail Industry
Intelligence. http://surl.li/suagv
4. McKinsey & Company. (2020). Price Management in FMCG: The Beauty of
Pricing. http://surl.li/suahe

16