Nivetha and Meshach, students of SRM B-School had the privilege of interviewing Mr. P.K Satish Kumar, Asst. General Manager, Ashok Leyland in Chennai. The Interview was primarily based on Product Pricing of Commercial Vehicle. This edition focuses on the key takeaways of the interview.

 

Q: What are the factors which the company considers while pricing a new commercial vehicle?

 

A: Some of the factors which any manufacturer would consider while pricing a new commercial vehicle

 

1. Key Competitors

2. Profit ( Long Term )

3. Market Demand / Requirement

4. Business Strategies

5. Business Volumes

6. Market Share Aspiration

Product Strength and features of own & others

Total Industry Volume (TIV)

TIV Growth

Customers Value Perception

Cost

Tear down Cost study

Target price determination

Target cost setting

 

Q:What was the recent business strategy which was followed by the company?

 

When we talk about business strategy every company would evolve its own strategy to establish and emerge in a particular market geography, in the recent years the company chose as a brand ambassador PAN India and in particular in the eastern region of India to campaign and promote  various products. MSD was not only popular as an international sports celebrity, but also hails from that region and hence this campaign would spread more awareness of the product and attract customers to incline towards our products and thereby in the process gain momentum and improve the market share. This was one of the business strategies in order to create advertisement campaign to enhance the market share in these regions. TV advt were aired in various channels and a building tall sticker was pasted on the Head Office in Chennai

 

Q: How far do you analyze the profit while pricing or how far do you try to increase the profit margin?

 

A: Cost is a Fact and Price is a Policy. The selling price of the product is determined by the price of the competitive product and the unique-selling-proposition of your product. One of the factor is to be considered while pricing a new product is to examine the long term profit margin of it would yield when a product is sold. Since the price is almost fixed, to attain the desired levels of margins the product cost has to be optimized, the  team has to keep in mind of the which is to incur and the while pricing the project. At the same time to maximize the profit margin by reducing the cost to the extent possible in order to create a competitive advantage to strongly market the product.

 

Q: How do you actually analyze the market demand?

 

A: Market demand is another factor to be considered while fixing the price. It is the market which determines the price of the product according to the demand which is prevailing, if a company would fix its own standard price not considering the market condition then the company would not succeed to find a position in the market place

 

Q: Why is pricing action (revision) taken in your company (AL)?

 

A: The pricing action is actually taken in order to maintain the profit margin of each vehicle in various segments and applications. Pricing action takes place due to certain following reason

1. Commodity price movements

2. Legislative implements

3. Additional factors

4. Union Budget (Change in Taxes)

 

 

Q: Does this reason bring any changes or any price revision for the vehicle?

 

A: The looming increase in the commodity price like ferrous metal brings a greater impact on the cost of the commercial vehicle (CV). Since of the commercial vehicle covers ferrous metal and non-ferrous metal 10%. The cost movement of these commodities would translate to the vehicle selling price increase. And the price revision takes place approximately once in three months for the vehicles

 

Q: How do the legislative implements affect the price of the vehicle?

 

A: Legislative implements are the certain rules and regulations mandated by the central government and which are to be strictly followed by the automobile industries. These implements will bring in a change in the price of the vehicle and its value-add offered in the base platform.

 

Business Philosophy : For any commercial vehicle manufacturer in the world, the margin yielded is only once (one-time) when the product is getting sold, whereas for the CV owner the margin yield is recurring over the life span of the product until such time it is sold off as second hand, and hence the operator would derive more cumulative margin/returns which is recurring when compared to any manufacturer

 

 

 

DISCLAIMER: Views expressed are purely for academic and for internal educative purpose only