Regal Electrogas Case Study

In the Regal Electrogas case study, Mr. Asad Ali must determine the pricing policy for his

companys desert coolers. The case study indicates competition in the desert cooler segment is

based primarily on price, established image, and product appearance (Azhar, 2008, p. 15).

Currently, Ali has priced his desert coolers in the middle of the segments price and volume

(Azhar, 2008, p. 16). Having priced his desert coolers in the middle of the pack has enabled Ali

to establish his brand and the quality of this desert coolers, without sacrificing margin. His

competitors have focused on quality (Ambassador), particular target customers (Pascra, Canon),

or lowest price (one shot dealers). Surveying the marketplace indicates a number of factors:

consumers are driven by low prices, yet appreciate quality. Azhar (2008) notes that each time a

lower priced model is introduced, the lower priced model experiences a surge in sales, until users

determine the quality is inferior. As a result, quality models, like Regal offers, are more

appealing in the long run. In addition, the Punjab province accounts for 85% of sales, but there is

an opportunity to expand to other regions (Azhar, 2008). Furthermore, consumers appreciate

choices in the market place; when Ali offered the same desert cooler under two different brand

names overall sales increased.

In determining his pricing strategy, Ali must consider his costs, the likely competitor

actions, and his objective. According to the case study, Alis objective is to increase market

share. This is an important consideration in determining the price. Regals sales represent 9% of

the top five desert cooler manufacturers, the top five manufacturers represent 56% of the total

desert cooler market. To gain market share, Ali must either change his price and/or increase his

quality, or take action to establish his brand.

 The market leader, Ambassador, has a 36% share of the segment and is able to command

high prices because of their brand recognition. Ambassador was able to obtain brand recognition

by being an early entrant in the marketplace and selling a reliable desert cooler. Ali

acknowledges that most consumers are not able to judge quality, however, quality is a factor for

retaining long term sales. It would appear the easiest way to gain market share would be to

become the price leader. However, this is a dangerous philosophy, since other manufacturers

continue to pop up who are not bound by the same costs or quality standards as established

retailers. These one shot manufacturers produce products in their backyards, without registration

costs or paying taxes. It is difficult to compete with these one shot dealers, but Ali has the benefit

of having established his company in the marketplace. To be successful, Ali should focus on a

pricing strategy. According to the case study, sales in the segment are driven by the weather with

90 percent of purchases being made from April through mid-July each year (Azhar, 2008, p.

15). This short selling season indicates the importance of establishing a marketing strategy

rapidly. In the current season, Ali only has a short time left. Regals desert coolers do not offer a

unique feature so it would be unwise to commit to premium pricing (Richards, 2016). However,

Regal could consider economy pricing, in which it could wholesale its desert coolers at a lower

price, and set the retail price at 1,500 Rupees, to compete directly with the established lower end

manufacturers. In this manner, Regal would be directly competing on price, plus offering a

quality desert cooler as an established manufacturer.

Brand equity is important in the market place. Ambassador is able to command higher

prices as a result of the manufacturers established image. As noted in the case, Ambassador is

able to charge 10% more than its competitors, yet it is also able to sell considerably more than

others in the marketplace. Ali indicates that it is difficult to switch consumers who have already
decided to buy an Ambassador product. This is an important aspect of the product category,

which holds promise for Regal, should it be able to secure a greater share of market. Once

established as one of the market leaders, Regal will be able to slowly increase its prices. Cannon

and Pascra, the manufacturers tied for second in volume in the segment, have higher prices than

the other manufacturers excluding Ambassador. The common denominator of the top three

companies, commanding 45% of the total segment, is length of time in the market place (Azhar,

2008). In a practical sense, brand leadership allows organizations to command higher price

points and drive the market place pricing, essentially. As a result of their organizations brand

equity, Ambassador, Cannon, and Pascra each enjoy higher margins, and consequently are able to

take advantage of economies of scale (Aaker & Joachimsthaler, 2012). The more they sell, the

lower manufacturing costs will be, increasing margins even more.

Regals cost for desert coolers is 1,200 Rupees. Regal is currently selling the product to

wholesalers for 1,400-1,500 Rupees. To gain market share, Ali will need to reduce his margins,

and lower his wholesale price, beyond the 5% tax rollback. Ali must aggressively challenge his

competitors. Fortunately, Ambassador and the other manufacturers recently raised their prices.

They are unlikely to go down. By reducing his prices to wholesalers, and setting his retail price

to match the next tier of manufacturers below Regal, Ali should be well poised to capture a

greater share of market. Conversely, Regal could go up to a similar pricing structure as Cannon

and Pascra, and add additional service items to his brand, like a return policy or warranty, to

further distinguish his brand from others on the market. By behaving in this manner, Ali could

preserve his margin, and place his brand in line with the market leaders by focusing on the brand

image. An alternative option is to manufacturer desert coolers under multiple brand names,

selling the Regal brand at a premium and the generic models for less. In this way, Ali would be
appealing to the consumers demand for choice, and maintain his margin on his main brand,

while increasing his segment share. This last option offers the most likely proposition to gain

market share, however, it is unlikely that Ali would be able to put this strategy in place in the

remaining time available for this selling season. Alis immediate pricing strategy should be

dependent upon his current sales: if sales are on target for the year, he should not roll back his

prices as a result of the tax change. A five percent difference in the retail price is unlikely to

make a dramatic difference in sales. His competition has priced themselves either higher or lower

than his brand, and the difference in price from the tax will not place him in either category.

Instead, Ali should focus on improving his marketing strategy going forward, making plans to

dominate the market with a greater selection of products, potentially with distinguishable

features, in the future.

References
Azhar, W. (2008). Regal Electrogas: Price leader or price follower. Stanford Graduate School of

Business (pp. 15-20).

Aaker, D. A., & Joachimsthaler, E. (2012). Brand leadership. New York, NY: Simon and

Schuster.

Richards, L. (2016). Different types of pricing strategy. Retrieved from

http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html