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Bad news! Buy whatever and get nothing free

11-October-2005
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Bad news! Buy whatever and get nothing free

Bargain season is over folks. After more than 20 months of a go-go sale season, everything from cars to air tickets, home loans to durables, hotels to mobile services are getting costlier. Companies are cutting discounts and raising prices for the first time in months as input costs start to bite hard.

And the great Indian cheap and cheerful big bazaar is getting itself a value tag beyond cut-price positioning, even in markets where nose-bleed competition has made mark-ups the last option on a marketer's to-do list.

Take cars. The discount drive that kicked off in '03 has started to make margins so thin, manufacturers are now going in for a mark-up. This festival season the top volume carmakers have gone for a price increase if only to neutralise the prevailing discounts which were ruling at Rs 15,000 to as high as Rs 45,000 on B-segment hatchbacks.

First, Hyundai hiked prices of its Santro model by Rs 6,000-11,000, following it up with a mark-up on its Accent and Getz models. The Accent became dearer by Rs 7,000-9,000 while the Getz hike ranged from Rs 5,500-7,000 depending on the variant.

Market leader Maruti soon followed suit with a Rs 1,100-2,400 hike across all its models except the Swift. It has also announced that another mark-up may be due in December. Others like GM and Ford too have indicated a hike may be on the anvil while premium carmakers like Toyota are launching next generation variants to keep the value proposition intact and the discounts under control.Analysts say these hikes are inevitable given the pressure of input costs like steel and rubber and the freight increase due to the oil price hike. But the bigger problem could well be inventory pile-up at the dealer end which triggered the discount drive in August and September leaving manufacturers with no margins to play around with.

In consumer durables too the trend is pretty much the same, despite the fact that price falls in consumer electronics is a given, as the components prices routinely move south. However, it is in the appliances segment where price hikes are coming back to the shop shelves.

Says Sanjay Prasad, head of sales at Whirlpool India, “The impact of raw material costs like steel has direct implications for us as a big chunk of the cost of manufacturing refrigerators and washing machines is accounted for by these inputs whose prices have jumped significantly.”

Of course, durables marketers do things a little differently. The general modus operandi involves putting a few extra features in the product for a small cost and going for a marked up price for the new product. Marketing heads say this is essential as consumers have got used to the idea of price cuts and companies do not want to face a demand slowdown at a time when competition is increasing by the day.

Nor is the hike season restricted to durables and automobiles alone. Even in a slug-fest market like mobile services, the tide is beginning to turn. The segment - which has been in the midst of a price war thanks to the opening up of the market - has seen stabilisation over the past one year. In fact telecom-wars have shifted to other areas like bringing down entry costs with low value pre-paid cards to attract new consumers, as well as value added applications along with the service.

While input costs are driving up durables and car prices, it's the growth conundrum that's making hotel rooms costlier. The average room rate in the hospitality sector has been firming up over the last one year, riding on a surge in tourist traffic and shortage of room inventory, especially in metros like Bangalore, Delhi and Mumbai.

Over the last one year ('04-'05 over '03-'04) the average room rate has gone up by over 20.7% at Rs 4,308, with occupancy level growing by 7.1% and currently pegged at 69.4%, according to the latest survey by HVS International, a hospitality sector consulting firm.

Room rates started to firm up from '04 after four years of negative-stagnant growth. With projections of strong demand and limited addition to existing inventory, the average room rate is expected to grow in the range of 25%-30% annually for the next three years, notes Siddharth Thaker of HVS International.

Interestingly, over the last ten years between 1995 and '05, the compounded growth rate in room tariff in rupee terms was around 4%.

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