Flavoured Milk Launch: ₹15 or ₹20?
Sahiwal Milk Union, a Punjab dairy cooperative, has 40,000 litres of surplus milk a day and wants to sell flavoured milk in 200 ml tetra packs that keep for 180 days without refrigeration. Variable cost is ₹11 a pack and the union has ₹40 lakh for the first six months. Plan A: price ₹15, put 60% of the budget into television, appoint 20 distributors, reach 1,200 retailers across four cities. Plan B: price ₹20, sell through 40 supermarkets in three cities and put 70% of the budget into in-store sampling plus school and college events. Amul already sells a 200 ml pack at ₹15 through national distribution, and loose local flavoured milk sells at ₹10 but spoils within a day. The union's own vans can service only the 900 retailers of two cities properly, and its brand is unknown outside the cooperative's milk route.
1. Recommend a launch price and say how the ₹40 lakh should be allocated, justifying both.
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Price. Amul, a trusted national brand, sells the same 200 ml format at ₹15; loose milk at ₹10 anchors the category low. At ₹20 the union is 33% above Amul with zero brand equity, selling to price-sensitive children and students - Plan B's price is not defensible at launch. ₹15 gives contribution of ₹15 − 11 = ₹4 per pack (27% of price), which is thin, so distributor margin and any trade discount must be fitted inside it or the price must be nudged to ₹16.
Promotion. TV absorbs ₹24 lakh of ₹40 lakh; on a regional budget that buys low reach and few exposures, and does not create trial. For a new food brand the barrier is the first sip, and sampling at schools, colleges and supermarket counters converts far better per rupee.
Recommendation: price ₹15, concentrate on the two cities the vans can actually serve, run sampling plus local cable, radio and school events, and hold ₹6–8 lakh in reserve for reorders and trade margin.
2. How many packs must be sold in six months to recover the ₹40 lakh promotion spend, and is that volume achievable?
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At ₹15, contribution is ₹4 per pack: 40,00,000 ÷ 4 = 10,00,000 packs in six months.
That is 2,00,000 litres (10 lakh × 200 ml), or about 1,111 litres a day - roughly 3% of the 40,000-litre daily surplus, so supply is not the constraint; demand is.
Spread over 900 serviced retailers, 10 lakh packs means about 6 packs per retailer per day. That is demanding for a new brand but not impossible in summer with sampling support; it is where the plan either works or fails.
At ₹20 the requirement falls to 40,00,000 ÷ 9 ≈ 4.44 lakh packs, but at ₹20 the volume is unlikely against Amul at ₹15.
Caveat: the ₹4 contribution must also cover fixed costs and trade margin, so the true break-even is higher than 10 lakh packs. If the 6-packs-per-retailer rate cannot be tested quickly, spend should be released in stages rather than committed for six months.
3. Critique Plan A's distribution of 1,200 retailers across four cities.
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The plan sells reach it cannot service. The union's vans can properly cover only 900 retailers in two cities, so 300 of the 1,200 planned outlets would sit in cities where replenishment is erratic.
For a product with a 180-day shelf life that sounds tolerable, but the real risk is trade credibility: a retailer who is out of stock within a fortnight does not reorder, and the shelf space goes back to Amul. Poor service also wastes the sampling spend, because consumers cannot repeat the purchase.
A better sequence is depth before breadth: lock in 900 outlets in two cities, measure repeat purchase and stock availability, then use the distributor network for the next two cities once a serviced model exists.
Judgement: Plan A's 20 distributors are not a substitute for the union's own delivery discipline; appointing distributors is only useful if the union can support them with stock and margin inside the ₹4 contribution.