Market Price...

When formulating key strategies and making decisions about product pricing for the Indian market, it is important to remember that simple conversion of U.S. dollar prices to Indian rupees will not work in most cases. Also, the assumption that a latent niche market for premium products exists, has often resulted in low sales volumes and negligible returns for some foreign companies. A U.S. company which prices its products in India rupee equivalent to U.S. dollar prices may fail to attract the mass consumer and end up with a niche market. For example, refrigerators offered by a U.S. manufacturer did not sell well because they were priced 40 percent above Indian brands.

If the product can be imitated easily in terms of quality and service, international pricing will not work in India because local entrepreneurs will quickly adopt the same business opportunity. To reduce product import duties or other local costs and ensure a stable market share, several U.S. and other foreign companies have set up product assembly shops in India. Pricing decisions have some bearing on product packaging. Many consumer product suppliers have found it helpful to package smaller portions at reduced prices rather than "economy" sizes. While the Indian consumer will pay a little extra to ensure that he gets quality and value for money, he may not be able to afford the higher prices of attractive packaging which many multinational companies have developed.

Although some Indian consumers are aware of quality differences and insist on world-class products, many customers can sacrifice quality concerns for price reductions. In East Asia, Europe, and North America for example, laser printers and ink jet printers have almost eliminated the dot matrix printer from homes and offices. In India, dot matrix printers are still used in business correspondence by some industrial groups. The price advantage of this older technology has extended its lifetime in this market.

Bargaining for the best price is a routine process of the buyer and seller in India. For consumer goods, especially for durables, the sellers often give discounts on the listed prices, during festive seasons, to attract more customers. Trade-ins of old products for new items are also increasingly popular among consumers. A pricing strategy must consider all these factors.

Another key consideration in pricing is Indian import tariffs. These are high for most products, especially consumer products. There are pockets of affluent Indians who can afford to buy a variety of luxury branded goods. However, in general, consumer consumption patterns are very different from those in many other countries. The middle class is growing exponentially, providing a fertile market for moderately priced items, but the prohibitive import tariffs may serve to move some items out of the reach of the Indian Middle Class consumer.

The new ruling Congress government has made implementing Value Added Tax (VAT) one of its key priorities. VAT at a rate of 12.5 percent is in effect from April 1, 2005 in many States. The tax is designed to make accounting more transparent, cut trade barriers and boost tax revenues.

Since January, 2001, under Indian law, it is mandatory for all pre-packaged goods intended for direct retail sale imported into India to bear labeling declarations.