The MOP Mirage II HOW TO MANAGE Market-Operating-Price..!!

Let me ask you a million….no….billion….no….trillion dollar question…yes….trillion dollar is probably right 😲 What should be the right (exact) price of your product?

What should be the right (exact) price of your product?

Well….let me also give the answer😜…it’s not possible to arrive @ the exact right price of the product 😃

The MOP Mirage - How to manage the Market-Operating-Price

There is lot of science to arrive @ the right margin….but…It’s not possible to arrive @ exact or right price of a product. Any science you apply…any model you use….any art you may know…any predictive analysis is done….it’s just not possible….@least as of now..!! And it’s true irrespective of business types…B2B or B2C or Channel driven…Offline & Online channels…..everywhere…exact right price is like chasing one’s shadow 😳😃. But product or service price is one of the most important element of the business as it directly impacts business profits apart from a host of other things which is linked to it like positioning, consumer & trade or channel profile, brand image etc…etc…

It's impossible to have the exact right price of your product

Although there are many  reasons for this challenge….the easiest to understand is when one does one’s regular routine i.e. to become a consumer…..which we all are in every case except in the business we are in. If we take any product or service…literally any (irrespective of business types or industries or business models). Ask any 10 consumers  about the price of the product or service, you will most probably get @least 4 or 5 different price-points, in some cases may be 6 or 7…&…in some even 10 different price-points 😳😆. Now this is for 10 consumers, think about entire India….1.2 billion consumers (@least theoretically every citizen is a consumer) ……gosh….how many versions of price-points one will have 😵😯 …so it’s NOT POSSIBLE TO HAVE THE RIGHT PRICE. 👍

Watch the Summary Video

Product price to customer quoted price variation ratio

Let’s go a step further….let’s take 3 cases….one low-ticket item….say soap (approx. MRP of INR 50) ….one slightly expensive item say….a calculator (MRP of INR 700) ….& a high-ticket item say an air conditioner (priced @ INR 50,000).

Now if we ask 10 consumers (like us) about the price of those 3 items, in all the three cases, the prices the consumers will say will vary from each other, with very few hitting the exact price 😲 ..furthermore….the following trends will be most probably visible:

In case of soap, chances are the number of different price-points the consumers say will be less, which means more number of consumers will say the same price point (mind it, it still may not be the same as the actual price). Furthermore, the difference between the price-points will be less.

In case of calculator, the number of different price-points the consumers say will be more than soap, which means less number of consumers will say the same price point (again, it still may not be the same as the actual price) as compared to soap. Furthermore, the difference between the price-points will be more than soap

In the last case of air conditioner, chances are the number of different price-points the consumers say will be more than calculator, which shows lesser number of consumers will say the same price point (which still may not be the same as the actual price) as compared to calculator. Furthermore, the difference between the price-points will be more than calculator

Do we see any trend….yes we do….the lower the ticket price, less is the price variance the consumers say from the actual price & more consumers align within the same price or price-band. The higher the ticket price, more is the price variance the consumers say from the actual price & less consumers align within the same price or price-band. This is generally true across industries or business types or business models. 😊

Ticket value - customer quoted price ratio

So, what does this conclude to… 😧 ….It concludes that the company can’t have the right price for all consumers….which means the price the company A or ‘Brand-A’ sets will always not suite a certain group of consumers. So, what do these consumers do…..they either buy some other brand or try to get the a discount on the price of company A or ‘Brand-A’ which means there is one more price point which exists apart from the MRP….which is called the Market-Operating-Price (MOP)

What is MOP?

The Market-Operating-Price (MOP) also referred to as Retail Price or Consumer Price is the actual price @ which the consumer buys the product. Hence, by definition the maximum value of MOP can be equal to MRP. So, whenever we buy @ discount from an offline retailer, the MOP is in play. In-fact the MOP concept have got BIGGER with the advent of something…..to the extent MOP is now almost applicable on all product categories….can u guess what?? 😃 …Yes u guessed it right….it’s E-COMMERCE

Do you remember last time….sorry….one time (just one time) ….u have bought a product @ MRP online… 😁😂 ….MOP is of the core pillar of existence of online sales…..hence MOP is very important  parameter when it comes down to consumer pricing 👍

The reason behind MOP concept

Consumers or Buyers are always in look-out of buying any product or service @ the lowest price possible, which varies as per consumer, which is one of the fundamental reason for the MOP concept

Importance of MOP

MOP stands as the bridge between Trade ‘Brand and Consumer Brand (Read: ConsumerBrand or Trade Brand)

Let’s take 3 brands operating in the same industry for certain period. A (Established brand), B (known brand but not as big as A) & C (Not so known brand)

Brand-Price Mapping

To summarize, In a particular industry generally:

• Bigger Brands/Established brands have higher MRP, Higher MOP, Higher Retailer Landing, Lower Margin & Lower Scheme
• Mid-sized Brands have similar MRP, lower MOP, similar Dealer Landing Price, similar margins & higher scheme than the Established brands.
• Not so known brands in the industry have Lower MRP, Lower MOP, Lower Dealer landing price, higher margins & higher schemes than the established & mid-sized brands

So, MOP is important….ok….but…Does company price their product as per MOP? Well…..many do….many don’t.. 😜

Is it possible to price one’s product as per MOP?

Actually…it’s very difficult as MOP also changes from market-to-market….but then what is more important is….MOP can be made a reference point while pricing….&….MOP can be controlled to some extent. Are we trying to say…MOP….I mean what the consumers pay….can be controlled by the company or brand….Yes….it can be …to the extent which at-least ensures the MOP doesn’t go down over a period of time.

Wait a sec….MOP going down 😳

MOP fluctuations?

Before answering the question, lets understand if there is any other player in the MOP. The other stakeholder in any business is the entity from where the consumer buys, so we are talking about the seller now. Who is this seller?…well it can be either the company or the channel (distributors or retailer or agents in case of offline, market-places or affiliates in case of online or TV shopping) …i.e. to say the POS (point-of-sale). So does the seller also plays a role in the MOP….wait a sec….why should he play a role….finally MOP means reduced selling price….which means reduced profits…why on earth a seller try to sale a product @ a reduced profit 😳 ……..well….to tell you….they do 😃 …..let’s understand why they do.

Why & how does MOP go up or down in Offline business?

In an offline-channel driven business, consumers like us (who is always looking for discounts without compromising on product quality or type….buys the product from the retailer or shopkeeper. Well, generally that product or brand (say ‘Brand-A’) is available with many retailers or shopkeepers in any area. This means, we as a consumer can go to any of the shops, where the ‘Brand-A’ is available & buy it. This fact of availability of the same product @ many shops or retailers in any particular area from where the consumer can buy the product is a big concern for the retailer. Why?….Because, the retailer may lose a customer if the customer choose to go to some other shop & buy the ‘Brand-A’.

Now, since the product or brand remains the same across the retailers, hence, to stop the customer from moving to other shops, the retailer needs to do something add on…!! What is the easiest or fastest to do……GIVE DISCOUNTS 😊 …so we as consumer buy the product from that retailer as we get the same product or brand @ a lower price….. which also means….different consumers get the product or brand @ different price….based on the negotiation he or she does with the retailer….right…..that’s what actually happens 👍…..that’s the MOP concept…!!.....Yippppeeee 😁

Why & how does MOP go up or down in Online business?

It’s very simple to answer it….for example you as a buyer want to buy a mobile phone…..do you stop checking the price of the mobile phone @ only 1 or 2 sites…..or keep on checking multiple sites to get the best deal….we do check multiple sites…right..!!.....So here also the same principle applies, different market-places like amazon or flipkart etc keep on reducing price (passing discounts) to stay price-competitive…😃

Relation of Discount to MOP?

Are we trying to say the retailer reduces his or her margin to give the discount 😵…well to say yes…but to some-extent….in maximum of the cases the discount comes from the either of the following 2 sources or both:

• This discount is funded by the company or brand 😲 in the form of SCHEMES to the retailer which the retailer passes on case-to-case basis to the consumer😉
• Company or brands keep the possible margin so high for the retailer that he or she can easily pass on the discount….How can that be done 😲 ….well keep the MRP very high 😜 ……so the retailer can swiftly pass on some of the huge margin to the consumer without it pinching him much….so both are happy….the retailer & the consumer..!!

Ok, now, based on this discussion till now, I have 2 fundamental questions here …..

• Does it mean, higher the scheme the company gives to the retailer, lower the MOP??
• If the brand or product being available @ multiple retailers is triggering this process, why doesn’t the company restrict supplying of the product to some retailers only? This will not reduce the margins…..so one will earn more in the same sale..!!

The answer to this 2 questions leads to the subject matter of this article “THE MOP MIRAGE” 😃

MOP- Mirage

Let’s try to understand the “Market Operating Price-MOP” cycle in detail:

Let’s take an offline example as till now that’s where the bulk of sales happens in India. There are many retailers who are selling many brands of the same product category in the market…say mobile. 

Now, let’s take one brand in the mobile handset category (say ‘Brand-A’) to understand how the MOP cycle works. Now, @ a trade level (in this case retailer level), ‘Brand-A’ is competing with other mobile brands to occupy more counter share (among all mobile brand handsets, more ‘Brand-A’ is sold from one retailer) and the universe share (more retailers selling ‘Brand-A’) in the market. To increase sales, ‘Brand-A’ passes on scheme (extra margin) to the retailer. Generally, this extra scheme is passed against a sales target for the retailer (the retailer has to sale a particular number of ‘Brand-A’, mutually agreed between the sales team of ‘Brand-A’ & the retailer). So, if the retailer sales a certain quantity of ‘Brand-A’ (say 100 units or month), now to avail the extra money, he has to sales more than 100 numbers, say 120 is the target.

The point to note here is that the retailer sales 100 units or month on an average for ‘Brand-A’ because, out of his consumer base (people like us), 100 consumers prefer to buy ‘Brand-A’. Now, to sale 20 units more of ‘Brand-A’, he has to convert consumers who are buying other brands of mobile handset to ‘Brand-A’. Furthermore, the scheme is not restricted to that only retailer in the market, it’s given to many of them although the scheme value may change. Now, starts the race 😀 …suddenly a lot of retailers are trying to sale ‘Brand-A’, with the consumer-base slightly higher than the average base (higher because few consumers of competition brands were converted to ‘Brand-A’). So, they pass discounts to the market on ‘Brand-A’ to get that one extra customer over the nearby retailer….which means the buying price of ‘Brand-A’ goes down for the consumer which is reduction in MOP for ‘Brand-A’.

Due to this fierce competition among the retailers in the market with ‘Brand-A’, the margin the retailer starts decreasing as the retailer has to pass on his margin to the customer to make that all important sale & retain the customer or take customer from the nearby retailer. To compensate the same, the company passes on more scheme (margin) to the retailer & the cycle continues. Net-net result, the MOP of the ‘Brand-A’ comes down i.e. the consumer starts buying ‘Brand-A’ @ a lower price….and over a period of time….this new price (lower price)…becomes a price @ which ‘Brand-A’ starts selling…..so effectively ‘Brand-A’ has become a cheaper brand.

Now, it’s very difficult for ‘Brand-A’ to again sale@ the price @ which it used to sale, i.e. to regain its earlier higher MOP, as consumers we don’t generally buy a product @ a higher price which we have bought cheaper once or twice.  If this cycle lasts for a long period of time, consumers start perceiving ‘Brand-A’ as a cheaper brand….a direct hit of the brand-image & brand positioning of ‘Brand-A’ 😳

If the ‘Brand-A’ now stops giving scheme or reduces the scheme value drastically, with the already shrinking retailer margin, the retailer starts to reduce sale of ‘Brand-A’, as he or she doesn’t want to make an effort to sale a product where margins are low. Result, overall sale of ‘Brand-A’ goes down, effectively meaning reduction in market-share😲

The MOP Mirage concept

Hence, in nutshell, MOP Mirage is a market driven phenomenon where if the company gives scheme or increases distribution (increases the number of retailers who sale the brand) ---the MOP goes down, with Brand being perceived as a cheap brand. If the company reduces scheme or reduces distribution, the market-share (or sale) of the Brand comes down. This is what we call as “MOP MIRAGE”

Ok, now that we are on the same page with MOP mirage, let’s look @ the possible solutions to it..👍

How to maintain a healthy MOP?

To start off, let me tell you there is no clear-cut general solution to maintain or increase MOP, it’s highly dependent on the brand-health, market share and distribution-network strength…..in short to say brand-equity. Hence, both marketing and sales team have to act in tandem on a common plan with a defined goal which is measurable and time-bound.

MOP can be maintained by the combined effect of three tools namely:

• Product price & channel margin
• Distribution network strength
• Marketing campaigns

The 3 important MOP stabilizers

Pricing & Channel margin

Let’s go through them one-by-one👍

It starts from here..!!

Many companies or brands see price and margin in the same platform, which makes them see both these things together and in isolation to the market conditions. Yes, margin can be seen in isolation, but price is a market-application, hence one can’t see price in isolation. In the market, MOP is reflected directly by the retail price or consumer price and also in a subtle way by the market-share as it shows the consumer acceptance of the brand @ a particular price-point……their buying price(MOP). Hence, it’s also important to take into account those two factors while pricing.

Let’s take an example to understand this…..there is a premium ‘Brand-A’, which means consumers need to pay more than the average market price to buy ‘Brand-A’. Well, this very statement is incomplete without stating the market-share of ‘Brand-A’ @ that premium-price-point(MOP). Else, consider this, I sale my product @ premium price(MOP)….. but I sale only few units (negligible market-share)

MOP directly affects the margin of POS both offline (Retailer Selling price- Net retailer landing price) & online business (% of selling price). If the retail level margin, which is driven by MOP is low, then generally the following things happens

First….with reduced margin, the retailer’s interest to promote your brand goes down, which results in dip in sales…second….to compensate, the sales team pours in discount which again triggers the MOP MIRAGE😜

While pricing a product or service, first the brand needs to estimate the MOP @ that proposed price. That MOP should be the criteria to arrive @ the corresponding market-share & channel margin(as per marketing and sales strategy)  and not the original price of the product. This will align MOP as per the company plans and help in stabilizing it in the market

Distribution/Network Strength (counter share- universe share & quality of network)

Let’s have a quick look @ the distribution point

Distribution/Network Strength is generally defined by counter share- universe share & quality of network.
First Quality of Network…...generally the definition is majorly restricted to:

• Payment terms- Value/days of credit/non-payment
• Profile of Retailer/whole seller/trader etc- 
• Consumer profile whom retailer retails or counter profile where the retailer wholesale
•  Product portfolio the retailer sales                                                          

While those needs to be considered, another equally important factor (which is not often considered), is the MOP (price @ which the POS is retailing the brand to consumer). Brands need to monitor it closely, as a couple of retailers giving huge discounts in one market will start the MOP MIRAGE. Many established brands faced a similar situation in online space, suddenly some online portal starts selling the brand @ ridiculously low price 😲…&..those brands are still not out of the woods completely..!! Ironically, even if the company or distributor doesn’t supply, those retailers manage to get the product from the market (buy it from other retailers or distributors)….they are one of the key culprits for infiltration, but consistent effort over a period of time eliminates them or @least reduces their notoriety

To maintain steady MOP in the market, Poor Quality network who reduce MOP for sale needs to be identified, warned & if required eliminated from the network

Now let’s come to the 2^nd part of Network strength…….counter share- universe share. First the counter-share, if one increases the counter-share, the MOP remains stable & in some cases the retailer tries to increase it ….😲 Why?…simply because…higher counter-share means the brand is present in the store in high volume…….which means the retailer has invested highly in the brand, so the retailer is very serious with the brand. Furthermore, the maximum of the retailer earning will come from that ‘Brand-A’s it present in maximum @ the store😊…so he or she is very reluctant to reduce the selling price(MOP). One point needs mention here, the increase in counter share has to sustainable & not for some period of time which can be easily achieved with increased schemes or discounts😜

Increase in counter share helps maintain the MOP

The universe-share is probably the most tricky to assess….as brands or companies need to be present across lot of counters or online platforms to increase availability and thus increase sales along with number of consumers (as increased availability gives access to more number of new consumers to try the brand). But parallel, this also increase the chances of MOP sliding down. One way to look @ it is the brand strength. Generally bigger brands give less margins & scheme in the market, hence the retailer doesn’t have big monies to pass in the market as then the sale will result in a loss for the retailer, so the MOP does to a large extent stays stable. But for brands who are not those big-brothers yet, carpet-bombing i.e. placing products @ all retailers may trigger off the MOP MIRAGE

Selective increase of number of retailers instead of carpet bombing helps to maintain MOP

Marketing Campaigns

Although there are lot of ways to position the brand, but definitely without ambiguity one of the main brand positioning platform is “price positioning”. It’s because the consumers finally PAY for the product against a PERCEIVED VALUE & ask any consumer…literally any…. across any business type…. price will be among the top 3 parameters…if not the most important parameter...!! Furthermore, it’s also ensures the margin keeps on flowing for the company😜

Unfortunately, there are rarely marketing campaigns with MOP as an objective 😩. Both consumer-marketing & trade-marketing campaigns aimed to build value proposition, RTB (reason-to-believe), consideration etc are definitely a step towards that, but it’s not enough. There has to a dedicated marketing campaigns with an objective to improve or at-least maintain MOP. Furthermore, as research says 80% of great ideas fail because of poor execution, so direct stakeholders of brand…the marketing & sales team needs to be trained on the entire campaign strategy & corresponding execution which are designed keeping MOP as an objective

To ensure the MOP is maintained in the market, Companies need to have marketing campaigns with objective as MOP as a part of the marketing calendar along with pre-requisite training to marketing & sales team on the same

When a consumer buys a product or service from a company or brand……he or she pays a price(MOP) in  return of a value(product or service), hence MOP stands as important as the product or service…brands need to include it in their strategy & brand-plans👍

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