What Price Freebies?

IT'S partytime for the consumer. Or so it seems nowadays, as white goods manufacturers jostle each other to offer benefits ranging from Rs 200 to Rs 3,500 in the shape of discounts, price-offs and gifts—all in exchange for customer loyalty.

All of which implies a drain on company margins and profitability. An implication denied by Godrej and Videocon, the leading brands in refrigerators and washing machines, respectively—product categories which account for 80 per cent of the market. States Vijay Crishna, managing director, Godrej-GE: "We have held on to our prices in the trade channel." And Videocon is upbeat too. Says N. Gupta, director, marketing and sales, consumer electronics and appliances, Videocon: "We have improved our gross margins." 

This is in the face of an escalation in the prices of raw material by about 20 per cent in the last two years, a period when refrigerator prices stayed steady. Washing machines, on the other hand, became cheaper by 10-15 per cent in the past year. Says K.V. Rajagopalan, vice president, consumer durables, Voltas Ltd: "Net profitability had to reduce by about 10 per cent over two years, taking these factors into account." But that's if the above premise holds. While marketers say they have managed to 'contain' costs, dealers cluck at this 'hogwash'. Says a leading Bombay dealer: "The customer finally pays for everything." Often preceding a price-off—even just a few weeks earlier—there's an equivalent price rise. A month before its attractive Rs 1,000-off scheme on its 165-litre fridge, Godrej increased its price by the same amount.

Gifts, a trend popularised by Godrej, display a price tag higher than the real cost. The Rs 3,500 telephone recently advertised by Godrej-GE for its larger fridge models costs the company less than Rs 2,000. Prices, however, were increased by Rs 2,500 about two months earlier. Often, the dealer, who is supposed to share the cost of the consumer benefit, makes up his loss by offering a small discount in lieu of an unwanted gift—an iron or a mixer the consumer doesn't want to duplicate. The gift is then sold off at market price.

Says Raju Shah of Sony Mony Electronics, Bombay: "Only the lower priced gifts are genuine. Companies like Godrej-GE are merely fooling the customer." Mostly, the dealer is the prized commodity. Being multi-brand and multi-product, his loyalties can dither. And his role is crucial because his suggestion, if not sacrosanct, yet accounts for 80 per cent of consumer decisions. Dealers say hardly 20 per cent of customers come with a definite brand in mind. Consequently, companies go to any extent to keep him happy.

Dealer margins have gone up by about 20 per cent in the past two years. Trips abroad are common. Videocon takes almost all its dealers for a 10-day sojourn abroad annually. Godrej-GE and Voltas too have followed suit. This costs at least Rs 50-60,000 per dealer. Videocon gives dealers about 3 per cent more than the industry average. Other companies like BPL depend on product quality and advertising to sell their products. Voltas and Kelvinator don't give gifts or price-offs. BPL gives no extra margins or holidays to dealers and has only recently introduced a consumer gift.

Better technology has helped hold, and even lower, prices. And offers value for money. A 190-litre Allwyn fridge costs about Rs 9,000, only Rs 800 more than a 165-litre model. Godrej fridges now have a softer look, clean backs and wider, consumer-friendly ranges are on the way. By '97-end Godrej-GE promises 27 fridge models with new features suited to Indian needs. Videocon is introducing a no-frills washing machine for less than Rs 5,000. Voltas has widened its airconditioner range while improving quality. And distribution and after sales service are getting deeper and wider.

Advertising costs, which eventually get passed on to the consumer, are being curtailed. Spending smarter rather than more, through competent media planning, is now priority. With MNCs hovering around, companies are investing in upper-end products. Of course there's mutual benefit: the absolute rupee value of a margin on a higher priced product is better. And while raw material costs are rising, the cost of intelligence is plummeting. So incorporating a chip in a washing machine, as in a fuzzy logic or a neuro-fuzzy machine, is more economical, especially considering the image boost.

Says Crishna: "Those who cut prices will get short-term bene-fits only." Quality has to win when the marketplace gets crowded. A word for the gift-struck consumer—the best bet is a quality product, even if it does come at a higher price.