How to price tea?

The Marketing Manager of Duncan Tea Industries, Alok Gupta was mulling over the
brief prepared on the tea market by his team. He observed that exports were not a very
5 profitable option given falling prices. The domestic market was also not easy because
there were strong competitors like HLL and Tata tea. Offering a mediocre product at an
exorbitant price was therefore not possible. Conversely it was also not be possible to offer
very high value at low price, because the firm will not be able to sustain the brand. Gupta
desired to launch one or two new brands that would create a long-term position for
10 Duncan’s in the domestic packaged tea market. In the tea market, as in any other, the
brand’s positioning, product and value proposition mattered. But Gupta was more
concerned about pricing. Unless he got the pricing right, he realized that the chances of
his increasing Duncan’s market share were remote. With this as the backdrop he asked his
team to prepare an approach paper to the tea market. Given below are the contents of the
15 brief his team prepared for him.

OVERVIEW
The estimated value turnover of the tea market in the country is about 10,000
crores. The organized sector is about 32.5% of the market. Brooke Bond was the
20 first player to enter the organized tea market in India in 1899. The company
joined the Hindustan Lever (HLL) fold in 1984. So did several other consumer
product majors like Lipton and Ponds. This consolidation greatly enhanced
Lever’s competitive position in the tea market. Even before consolidation HLL
had been at the forefront of the Indian tea market, pioneering innovations such
25 as soft packs in 1935 which replaced tin tea caddies (making mass distribution of
tea possible), paisa packs in 1950 which enabled the purchase of tea in small
quantities targeting daily wage earners, tea bags launched in 1997 and finally
PET jars carrying tea in clear odourless plastic to consumers. HLL today holds
45% market share in the packaged tea segment. Hindustan Levers is a giant in
30 fast moving consumer products with interests in toilet soaps, detergents, talcum
powders, shampoos, ice creams etc

Tata Tea Ltd (TTL), with its many tea estates, is the second largest player in the
country with 23% market share in the packaged tea market. It is known for its
35 value-for-money offerings. For instance, the polypack that significantly reduced
packaging costs was pioneered by Tata tea. The third largest packed tea marketer
in India is Duncan Tea Industries, which owns 16 tea gardens and commands a
market share of about 10%. It is a diversified corporation with interests in
fertiliser, paper and cement besides tea. About 10% of Duncan’s tea turnover
40 comes from exports. Duncan’s is known for high quality tea exports. The other
players in the market are Wagh Bakri, Golden Tips Tea Limited, Godfrey
 Philips etc. Wagh Bakri is a regional brand, famous in Western India for its spicy
tea.

5 BRANDS
Red Label was the first brand launched under the Brooke Bond umbrella in
India. It is one of the leading brands in the country. Its ‘Jiyo Mere Lal’ (“Long
Live Kid/Red”) campaign was received well by consumers. Priced at Rs.45 (all
prices listed in the case are for 250gms pack size) it competes with Duncan's
10 Sargam and TTL’s Tata Tea Premium brand. Sargam, the biggest brand in
Duncans' portfolio in volume terms, was launched, in both leaf and dust
variants, in 1998. Positioned on the strength of its physical attributes - color and
taste – the brand promises the magical combination of quality and price to
deliver a great cup of tea. It is seen as offering great quality for the reasonable
15 price paid for it. In the same category, Double Diamond, the flagship brand of
Duncans, was launched in 1981. Positioned as a CTC leaf brand, it promises a
strong cup from just a spoonful of tea (‘Zara Si Chai, Asar Dikhaye’).

Tata Tea studied preferences of people in different regions and introduced

20 blends to satisfy their tastes. Thus, it introduced Tata Chakra Gold, Tata Gemini
and Tata Brahmaputra to compete with Duncan and HLL in the segment.
Chakra Gold and Gemini are dust tea brands catering to consumers in South
India whereas Brahmaputra is a 100 % Assam tea for Northern and Western
Indian markets. The other player in this segment is Wagh Bakri’s Good
25 Morning, an Assam CTC tea with traces of orthodox tea. It is offered in the
market only if good quality tea is available at auctions. This is just to make sure
that the right value is offered to the customer.

Launched in 1966 and priced around Rs 60, Taj Mahal Tea, is relished by
30 millions of Indians for its 'Hazaron-mein-ek' (one-in-thousand) aroma & taste. It
is an important brand for HLL. For its price it is seen as providing high quality.
In its endeavor to offer the best quality to consumers, Taj Mahal was re-launched
in 1996 with an enhanced aroma and taste. This decision was based on consumer
research, which had identified aroma as a prime characteristic that consumers
35 sought in tea. This metamorphosis was brought about with a change in the
advertising slogan from “Aah Taj” to “Wah Taj” (Bravo Taj). Taj has since
become an important player in this segment.

40
 A 100% Darjeeling tea, Runglee Rungliot, (Rs.89) is the oldest brand of
Duncans. This tea, with a light color and a strong aroma, was relaunched in
January 1998 and it enjoys pride of place in the markets of Calcutta, Delhi,
Chennai and Mumbai. It is known for high quality though priced high. Wagh
5 Bakri Darjeeling Tea is the jewel in the Wagh Bakri crown in this segment. Its
special aroma and flavor have won it preference from patrons all over the world.
Lipton Green Label, priced at Rs. 135, is HLL’s offering in this category. HLL
sees it as one of the best offerings in the category. There are also some specialty
teas in this segment. Golden Tips Tea Co. (P) Ltd. caters to connoisseurs of tea,
10 through its brand name, Nathmulls. Its premier offerings are Golden Tips
Assam, which is a malty, full bodied and bright liquoring tea from the
Brahmaputra valley, the brisk and fragrant Golden Tips Pure Nilgiri Tea from
the blue mountains in the south and the precious Golden Tips Pure Darjeeling
handpicked from the Himalayan heights. Its other well-known premium offering
15 is Orange Pekoe Tea, a fine and flavoury Darjeeling Tea tenderly plucked,
masterly processed and relished all over the country. By and large, the teas in
this segment are connoisseur teas.

HLL re-launched Lipton Taaza as `New Lipton Taaza-FX Tazgi’ (Rs 42.50). The
20 brand aims at providing reasonable quality to consumers at a reasonable price.
The advertisements for the repackaged product communicate the benefit of
``Dugni Tazgi'' i.e. ‘double the freshness’. TTL’s brands like Tata Tea and Lucky
Cup are primarily positioned against Lipton Taaza. Tata Tea, the flagship brand
of TTL, has a considerable market share across the north Indian heartland
25 whereas Lucky Cup is mainly targeted at consumers in Andhra Pradesh and
Tamil Nadu. Lucky Cup competes against the two HLL brands ` Brooke Bond 3
Roses' and `Brooke Bond Top Star' in the south. Priced moderately at Rs.40 the
brand is seen as just the right offering for the right price. Launched in 1978,
Brooke Bond 3 Roses Tea is a tea that gives a perfect blend of color, taste and
30 strength. Priced at Rs 50, it also competes against Hansmukh Lal Group’s Society
Tea and Godfrey Philips’ Tea City. 3 Roses Tea is the largest selling dust tea in
the country with a strong presence in Karnataka, Tamil Nadu and Andhra
Pradesh. Godfrey Philips India launched Tea City, as a ‘tea blend you can
choose’, in 1987. The consumer can ask the Tea City outlet to mix an assortment
35 of teas and give him a blend of his choice.

Another aspect of the India tea industry is the presence of foreign brands like
Twinnings tea. It has a large variety of teas in its line up, with its primary offers
being the English Breakfast, Pure Darjeeling and Pure Assam teas. The English
40 Breakfast tea is a full bodied flavored tea while Pure Darjeeling is a choice tea
grown at the base of the Himalayas. The Pure Assam variant is a bright colored,
strong and refreshing tea with a distinctive malty taste. The Twinnings range,
 however, has not been able to meet the expectations it generated in the Indian
consumer.

The unorganized sector, constituting a huge 62% of the market, is an important

5 feature of the Indian tea market. This sector sells unbranded loose tea in prices
ranging anywhere between Rs.20 – Rs.40, in different regional pockets. This
segment caters to the buyer who sees price as more important than the product.
A number of major players have launched their brands in this segment in order
to upgrade the loose tea drinkers to tea packets. Duncan’s No. 1 was launched in
10 1981 as a dust brand in the popular category. No. 1 is billed as the "Champion of
Strong Teas" that gives "strong colour", "strong flavor" and "strong taste". It
comes in poly, carton and jar variants. In addition, the brand has soft packs and
paisa packs to capture the lower end of the market. Today it focuses more on one
benefit (“Strong”). Duncan’s Shakti was launched as a dust tea in 1983 in soft
15 packs and cartons. Positioned as a strong tea for the "Zabardast" people (“great
guys”), Shakti is a national brand in the fighter category aimed at the lower end
of the market. Azharuddin (India’s ex-cricket captain) is the endorser of the
brand leading to its high visibility. Brooke Bond A1 Power, the first vitamin tea
in the country and Lipton Tiger are also attempts to upgrade users of loose tea to
20 this segment. Lipton Tiger is primarily launched for the fast growing rural
market. Wagh Bakri is another player with a major presence in this segment.
WaghBakri Leaf with large granules brews a strong and sweet taste (earning it
the sobriquet of ‘Kadak Meethi’). WaghBakri Dust with very fine granules is the
strongest variety of dust tea and is preferred by the institutional segment because
25 it produces largest number of cups per kg of tea. WaghBakri Mili is an ideal
brand for those who otherwise prefer loose tea. It offers good taste & strength
and hygienic packaging along with great pricing value.

WaghBakri Fanning, a blend cut between Leaf and Dust variety, is seen as
30 providing the consumer better quality than the other Wagh Bakri variants at the
same price. It is strong in taste and bright in colour. Some other brands also
followed the strategy of offering reasonable quality at low prices. Hindustan
Lever Ltd (HLL) relaunched Brooke Bond A1 in early 1996. The price of A1 at
Rs.34 is just 10 to 15 percent higher than loose tea. While the brand is available
35 both in urban and rural markets, the focus is rural India. The communication for
this brand is "drink kadak chai (strong tea) and fight the villain". It uses the film
idiom of “good triumphs over evil” to communicate the message. Tata Tea’s
Kanan Devan was the first Indian brand to be launched in the poly pack version.
It is attractively packaged. The brand conveys the serene visual of fresh green
40 plantations from the Kanan Devan hills. The Tatas launched the brand ‘Tata
Agni’ in 1998. In some regions, this brand was positioned against Lever’s ‘A1’,
while in other areas, it was positioned as a stand-alone brand. The idea was not
 so much to wean away consumers from the existing brands but to bring in more
consumers from the loose tea segment. Sridevi endorsed the brand in its
promotional campaign with the catch line: ‘Josh Se Bhari, Dam Mein Khari’
(“filled with fun and reasonably priced”) Agni chai. Retailed with a price tag of
5 Rs. 32, it has succeeded in garnering close to 4% share in two years. Both Kanan
Devan and Agni are seen as offering greater quality than the money paid for
them.

This, in essence, describes the tea market. Duncan’s rivals, HLL and Tata Tea are
10 both strong contenders in the packet tea market. HLL owns several of the top tea
brands in India. Its distribution strength at the wholesale and retail level is
unparalleled. Tata Tea is known for single-mindedly crashing prices in all
segments. Duncan, therefore has to choose the price carefully keeping in view
the strengths of the competitors. Most of Duncan’s teas were launched in the last
15 20 years in the domestic market. They are not as established as HLL’s brands. To
add to this, ICRA, the credit rating agency, has revised its long term rating of
Duncan’s from LA- to LBB+ indicating higher investor risk. (Exhibits 2 and 3
show the financial performances of Duncan’s and HLL’s). All this
notwithstanding Duncan’s would like to be an important player in the packaged
20 tea market.

At what prices should Duncan’s marketing manager launch the new tea
brands?

25 Using three variants of price and quality each, you can obtain nine possible
combinations. Where would you position the new brand of teas? Give reasons
for your choice. (Hint: Refer Kotler, 11th ed., p 472, figure 16.1)

What pricing methods should Duncan’s new offering adopt? (Hint: Refer Kotler,
30 11th ed., p 470-488)

The first draft of this case was written by Gaurav Gupta, Pranay Jhunjhunwala, Saurabh
Jha, Vidur Singh, Vikrant Yadav (PGP students, 2001-2003 batch, IIM, Bangalore) under
the guidance of Dr. [Link], Professor (Marketing), IIM, Bangalore. The case was
35 later modified to its present shape for class discussion.

40
 EXHIBIT 1 (price list - for 250 gms.)

BRAND PRICE (Rs.)

Brooke Bond A1 Power 39
Brooke Bond 3 Roses Tea 50
Brooke Bond A1 34
Brooke Bond Red Label 45
Brooke Bond Taj Mahal 57
Brooke Bond Topstar 46
Duncan Double Diamond 43
Duncan’s No. 1 33
Duncan’s Shakti 35
Duncan Runglee Rungliot 89
Duncan Sargam 45
Golden Tips Assam 225
Golden Tips Pure Darjeeling 248
Golden Tips Pure Nilgiri 239
Lipton Green Label 135
Lipton Taaza 42.5
Lipton Tiger 29.8
Loose Tea (freely sold) 30
Orange Pekoe Tea 166
Society Tea 58
Tata Agni 32
Tata Brahmaputra 43
Tata Chakra Gold 53
Tata Gemini 43
Tata Kanandevan 40
Tata Lucky Cup Tea 40
Tata Tea 42.5
Tata Tea Premium 44
Tea City 50
Twinnings English Breakfast 87
Twinnings Pure Darjeeling 90
Twinnings Pure Assam 85
Wagh Bakri Darjeeling 110
Wagh Bakri Dust 36
Wagh Bakri Fanning 35
Wagh Bakri Good Morning 45
Wagh Bakri Mili 30
Wagh Bakri Leaf 32
 Exhibit 2

Duncan’s financial highlights

HIGHLIGHTS
For the Year (Rs. In 1994- 1995- 1996- 1997- 1998-99
Crores ) 95 96 97 98
1. Gross Revenue 691.08 776.28 808.66 961.76 1061.42
2. Profit before tax 32.19 34.94 46.24 70.46 91.92
and extraordinary
items
3. Profit after tax 16.84 35.50 36.49 37.95 60.23
and extraordinary
items
4. Dividend 16.13 17.10 18.98 20.07 21.08
At year – end ( Rs.
In crores )
5. Gross Fixed 361.22 380.00 406.88 434.94 674.96
Assets ( incl.
Revaluatuion surplus
)
6. Share Capital 48.18 53.18 63.18 63.18 75.72
[Link] and 334.97 353.07 392.35 392.35 539.50
Surplus ( incl.
Revaluation reserve
)
[Link] Worth ( excl. 195.35 213.75 258.35 258.35 305.89
revaluation reserve )
Per Share
9. Net Worth per 40.55 44.37 48.58 51.25 57.53
Equity Share ( Rs. )
10. Earning per 7.29 7.32 6.97 7.33 14.00
Equity Share (Rs.)
(Considering
extraordinary items
Rs. 10.86 per share
)
11. Dividend per 3.50 3.50 3.50 3.50 3.50
Equity Share ( Rs. )
 Exhibit 3

HLL’s financial highlights (all figures in billion Rs.)

Particulars 2000 1999 1998 1997 1996

Net Sales 106.04 101.42 94.82 78.20 66.00
Operating 9.84 7.33
profit
Interest 0.224 0.293 0.339 0.57
Depreciation 0.129 0.101 0.580 0.55
Tax 2.93 2.70
Profit after 13.10 10.69 8.37 5.80 4.14
tax
Equity 2.19 1.99
Reserves 18.83 14.93 10.61 7.92
EPS (Rs.) 48 36.69 28.14 20.72
Book value 63.30 77.49
(Rs.)

Dividend 17.00 22.00

(Rs)