PArle CAse Analysis
Case Analysis: PARLE-G
Problems
The input prices of two major raw materials, sugar and wheat flour, which comprised 55% of manufacturing costs, had risen during the past 18 months. So, the margins of Parle-G had decreased from 15% of revenue to less than 10% of revenue. There was an option of potential price increase for Parle-G but it was difficult as Parle-G was associated with value for money (VFM) and increasing prices by just INR 0.5 (INR 4.5 from INR 4) had decreased the sales by more than 40% within six months in 2004. Parle-G was the most important brand and accounted for 68% of the company’s annual sales revenue and the INR 4 SKU contributed to 50% of Parle-G’s annual sales revenue. It’s the largest selling biscuit brand by volume in the world. So, it is the most important and flagship position brand of Parle Products Pvt. Ltd. Hence, decisions regarding any changes for this brand are very crucial.
Alternatives
Apart from increasing the price of Parle-G, there were some other options also.
First, they could do an indirect price hike by reducing the weight of the SKU by decreasing the number of biscuits offered at the same price. It was seen in 2004, when they had decreased the number of biscuits from 16 to 15 for the INR 4 SKU, the consumers didn’t mind it. So, it’s a tested strategy and can be further explored. This, indirect increase in price has also been successfully used by Lays, where it kept on decreasing the volume of its INR 10 SKU.
Second, they could look into further reduction of costs. For example they had reduced distribution costs by having their manufacturing centers closer to the whole sellers by entering into franchise production. They also reduced supply-chain costs by consolidating buying and entering into forward contracts with vendors of raw materials. They even reduced packaging costs by replacing wax-coated paper by bi-axially oriented polypropylene (BOPP) paper. So, reduction in costs can be further explored too.
Problems
The input prices of two major raw materials, sugar and wheat flour, which comprised 55% of manufacturing costs, had risen during the past 18 months. So, the margins of Parle-G had decreased from 15% of revenue to less than 10% of revenue. There was an option of potential price increase for Parle-G but it was difficult as Parle-G was associated with value for money (VFM) and increasing prices by just INR 0.5 (INR 4.5 from INR 4) had decreased the sales by more than 40% within six months in 2004. Parle-G was the most important brand and accounted for 68% of the company’s annual sales revenue and the INR 4 SKU contributed to 50% of Parle-G’s annual sales revenue. It’s the largest selling biscuit brand by volume in the world. So, it is the most important and flagship position brand of Parle Products Pvt. Ltd. Hence, decisions regarding any changes for this brand are very crucial.
Alternatives
Apart from increasing the price of Parle-G, there were some other options also.
First, they could do an indirect price hike by reducing the weight of the SKU by decreasing the number of biscuits offered at the same price. It was seen in 2004, when they had decreased the number of biscuits from 16 to 15 for the INR 4 SKU, the consumers didn’t mind it. So, it’s a tested strategy and can be further explored. This, indirect increase in price has also been successfully used by Lays, where it kept on decreasing the volume of its INR 10 SKU.
Second, they could look into further reduction of costs. For example they had reduced distribution costs by having their manufacturing centers closer to the whole sellers by entering into franchise production. They also reduced supply-chain costs by consolidating buying and entering into forward contracts with vendors of raw materials. They even reduced packaging costs by replacing wax-coated paper by bi-axially oriented polypropylene (BOPP) paper. So, reduction in costs can be further explored too.