India - PricingIndia - Pricing
India will be replacing the various taxes on goods and services levied by both the state and central government with a single Goods and Service Tax (GST) from July 1, 2017. This new tax system is projected to increase the GDP of India as well as increase tax revenues due to greater tax compliance. Though the government of India is very bullish, the business community is worried over the implementation and the bureaucratic complexities of adopting the GST. This new GST will have an immediate and long term impact on the prices of goods and services in India from July 2017.
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.
If the product can be imitated easily in terms of quality and service, international pricing will not work in India. 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 in India.
Pricing decisions also 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. Although some Indian consumers are aware of quality differences and insist on world-class products, many customers can sacrifice quality concerns for price reductions.
Bargaining for the best price is a routine process for the buyer and seller in India. For consumer goods, especially for durables, the sellers often give discounts on the listed prices during holiday 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 of 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 Value Added Tax (VAT) in effect in most states compounds this issue.
India Trade Development and Promotion Cost and Pricing