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 doesnt 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.

Summary Report: Reliance Industries Limited

3. Cash discounts - Better cash flow & rapid payments

Pricing for profits

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 lowmargin. 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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