Industrial Marketing - Summary Report

Nikunj Pasari(I026), Yash Patel(I028), Chirag Vora(I040), Gautam Chadha(L006), Tosha Chaniyari(L007), Srishti Tewary(l028)

Pricing Factors & Strategy

RIL is the largest crude oil producer in India followed with Indian Oil, Essar Oil and Bharat Petroleum

Price Buildup of High Speed Diesel of RIL primarily depends on crude oil prices per barrel in the international market. After including all the charges which are added in imports of crude oil, the current price buildup of 1 liter of HSD is ₹ 28.41 (approx.)

These prices doesn’t include any Excise Duty, VAT and Cess as it is different for each state. In Gujarat, current excise duty is 14% + ₹ 5.75 per liter, Value Added Tax (VAT) is 21% and Cess is 3%. Adding all these taxes, the final selling price of RIL for 1 liter HSD in Gujarat is ₹ 52.22 (approx.)

There are several factors which influence pricing strategy at RIL.

Price of Crude Oil per barrel in International Markets Inventory Management Competition in the Market Cost & Profit Relationships Government Regulation

RIL is currently using Market Penetration Strategy. Key Reasons for using this strategy

Highly Price Sensitive Market Strong Government Competitors (IOCL, BPCL, HPCL etc.) To increase market share as it came back to business in April 2013 Steady Growth in HSD Consumption (5.8 MMT in 2014 vs. 5.6 MMT in 2013)

Pricing Policy

Pricing policy refers how a company sets the prices of its products and services based on costs, value, demand, and competition.

At Reliance the following policies are followed:

Discount pricing: This policy comprise of the following techniques.1. Trade discounts - Reasonable profit margin, Generally availed to OEMs & traders and

Minimal discount variations

Reliance offers its traders and OEMs trade discounts as a part of their pricing policy to have long term fixed orders. It also maintains fairness in price & avoids violating Robinson-Patman Act of unfair prices.

2. Quantity discounts - Encourage volume purchasing, Maintain buyer loyalty

Reliance provides this discount to its long term large quantity buyers that helps it gain competitive advantage & reducing competitive pressure, marketing expense, order processing cost.

3. Cash discounts - Better cash flow & rapid payments

Pricing for profits

Summary Report: Reliance Industries Limited

Reliance heavily invests in infrastructure and its Jamnagar Refinery is one of the most advanced in the world in terms of technology & capacity, it believes in long term horizon & lower discount rate for greater market penetration

Geographical pricing

1. F.o.b factory: Buyer selects the transportation mode and incurs the total cost of it.2. Freight- Absorption pricing: Seller absorbs the part of transportation cost to distant market

depending on the competitive environment.

Pricing Decision Analysis

Industry profits and capital spending are broadly determined by the level and direction of petrol prices. Factors influencing prices include supply and demand, the futures market, and long-term sector expectations, among other things.

Expected Payoff analysis is favorable to these industries as it allows the price setter to quantify various market uncertainties when making pricing decision Expected Payoff Analysis comprises of pricing, sales volume and market demand which makes it a suitable method for the fluctuations that arises in the global market. This analysis helps for decision making, since it requires gathering of relevant information on the possible outcomes that might result in a price change.

Refining margins also affect the bottom line. Profits from this business, known as the "downstream", are dependent on the strength of demand for gasoline, diesel, and jet fuel. Falling product inventories are a good sign. The close tie between product demand and how the economy is performing illustrates the industry's cyclical nature.

This industry contains several of the world's largest companies, some mid-tier players, and a handful of pure refiners. Balance sheets tend to be strong, with moderate amounts of leverage. Most of the international giants have assumed modified variations of the integrated business model by lightening up on low-margin. One reason that companies are less eager to own refineries, especially in mature regions, is because the high cost of purchasing crude oil tends to dampen returns. The need to upgrade plant and equipment to meet tightening environmental standards

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