Radiance: transaction level pricing in the
Indian fireworks industry
Neeraj Pandey and Gaganpreet Singh
Neeraj Pandey is an
Assistant Professor and
Gaganpreet Singh is
Research Scholar at
National Institute of
Industrial Engineering
(NITIE), Mumbai, India.
Disclaimer. This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names;
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-07-2013-0156
On the 1st of July 2013, Mr Sudhir Kapoor, the owner of ABC Fireworks Private Limited,
in Saharanpur, Uttar Pradesh, India, was reviewing the organisation’s financial
performance[1]. ABC Fireworks was in the business of manufacturing firecrackers[2] in
India under the trademark Radiance. He was satisfied with most aspects of the present
revenue growth and profit margins, except for the fact that the cash flow was
intermittent, and was mulling over the option of restructuring the pricing so that there
was an even cash flow throughout the year. Mr Kapoor wanted Radiance to be the most
respected fireworks brand with the highest market share. Presently, ABC Fireworks is
one of the leading small and medium-sized enterprise (SMEs) in the firecracker industry
with high brand acceptance. To have consistent cash flow, Mr Kapoor wanted to initiate
price-based promotion strategy. He was trying to discern what could be the most
appropriate price promotion strategy his organisation could adopt to get desired
results. Mr Sudhir was also thinking about investing the sales revenue received during
the Diwali season into various other financial instruments to fulfill the cash flow needs
for the rest of the year in addition to earning a steady interest on the revenue. However,
he felt reluctant to go for this option, as other fireworks SMEs were not taking a chance
on this alternative.
The consumption pattern of the Indian fireworks industry is highly skewed. About 95 per
cent of the entire years’ worth of manufactured stock has a retail market of just five days
ahead of the Diwali[3] festival. To cater to this demand, the production was carried out over
the whole year except for the four months during the monsoon season, i.e. from June to
September. Running a business within such a labor-intensive industry, Mr Kapoor required
a regular cash flow so as to make timely wage payments and for production-related
activities during the lean, as well as busy, periods. The revenue turnover for ABC Fireworks
was INR 35 million for the year 2012-2013.
There are fireworks production clusters located across India. Sivakasi, a small town in
state of Tamil Nadu, supplies 90 per cent of the industry requirement and is the hub of
the Indian fireworks industry (www.thehindubusinessline.com/features/sivakasi-
innovations-light-up-the-skies/article2698059.ece). The rest of fireworks supplies come
mainly from Western Uttar Pradesh (approximately 7 per cent) and the states of Punjab
and Haryana (approximately 3 per cent). The firecrackers business involved the use of
chemical compositions, which are restricted by government regulations. Due to limited
licensing permissions, approximately 70 per cent of the Indian market is organized and
the remaining 30 per cent falls into the unorganized category. This INR 80 billion
industry gets 70 per cent per cent of its sales revenue from northern and western Indian
markets (www.thehindubusinessline.com/features/sivakasi-innovations-light-up-the-skies/
article2698059.ece).
VOL. 4 NO. 3 2014, pp. 1-16, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 Product line
The firecracker industry had been broadly classified under three categories:

1. The sound category included “bullets” and “hydro”.

2. The aerial category included “rockets”.
3. The sparkle category included the most popular, “anar” (Exhibit 1).
The nomenclature of categories may vary depending upon the geographical location.

Sound crackers
Bullets and hydro, the main constituents of the firecracker’s sound category, has three
different size specifications, namely, mini, big and super. The vertical height of the mini
size is 12 cm, followed by a big (18 cm) and super (24 cm). The differences between
bullet and hydro are related to different manufacturing processes, shapes and
chemical compositions. For instance, the manufacturing of bullet requires consistent
sunlight to dry its outer castings and chemical compositions; however, hydro can be
prepared with or without sunlight. The entire manufacturing process for making
firecrackers is manual.

Aerial shots
The aerial shots, having an upward trajectory with colorful lights, are popularly called
rockets. They include bottle rockets, single-shot rockets and multi-shot rockets. The aerial
shots are mainly manufactured in Sivakasi, and the rest is imported from China. There are
tight regulations on the issuing of licenses for manufacturing of aerial shots leading to a
high demand supply gap in India. The shortfall has been met by imports from China.

Sparkle crackers
“Anar” is the star product of the firecrackers’ sparkle category and has seven different sizes
starting at 15 cm followed by varying escalation on each next size, with the highest being
108 cm. The different sizes have different quantities and quality of ingredients, depending
on the desired final outcome. The outcome was measured in terms of sparkle height,
quality, color brightness and flight duration.

Distribution
The distribution hierarchy followed in the fireworks industry is a four-channel process
(Exhibit 2). Each manufacturer has a limited number of stockists who normally maintain one
sales outlet in each city. Retail marketers, called sub-dealers, come next in the value chain
before the product reaches in the hands of the end customer. To operate a firecracker
manufacturing or trading business, each level of the value chain has to get a capacity
license issued from the concerned government authorities, or else run the risk of being
considered an illegal trade.

Pricing dynamics product-wise

The value chain of the fireworks industry shows that the profit margin increases as the
product moves from manufacturer to final customer (Exhibit 3). For instance, the most
common product, the mini bullet, of the sound category, is sold by manufacturers for INR
4.00 per box to stockists. The price INR 4.00 includes the raw material costs, labor costs,
packaging, freight and profit margin. Stockists sell the box for INR 7.50 to a dealer (with a
margin of 87.5 per cent). The dealer pays an additional INR 1.00 per box as a local freight
charge and sells a box to a retailer for INR 17.50 (with a margin of 106 per cent), and the
retailer then pays INR 0.50 per box as its local freight charge. The end customer buys the
product for approximately INR 37 (with a margin of 105 per cent). The maximum retail price

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 3 2014

(MRP) the on box is INR 80 (which is 20 times the manufacturing cost). As part of his
research, Mr Sudhir wanted to see the price waterfall analysis results for better insights into
the industry pricing strategy.

During the weeks ahead of the Diwali festival, crackers retailers generally provide heavy
discounts in the range of 50-60 per cent on MRP. In some regions, where the markets are
not that competitive, end customers buy firecrackers at prices which are almost
comparable to MRP. Thus, the range of discounts varies as per geographical location and
demand–supply gap.

Similar situations on profit allocation exist in various sizes of bullets firecrackers. For
example, the big-sized bullet (at 18 cm) was sold at an average retail price of INR 60
against a manufacturing cost of INR 6 and the MRP on box was INR 130.

The manufacturer incurred costs of INR 3 per box which includes the cost of raw
materials, labor costs, packaging and freight cost, but excludes profits (Exhibit 4). The
cost of raw material which, a mixture of chemicals and the labor costs, were
approximately in proportion of 65:35 of INR 3. Ten per cent of the production cost was
kept for packaging, an important attribute for products such as fire crackers. The
manufacturer profit margin in fire cracker business was like another business ranging
from 12-18 per cent.
The pricing dynamics of hydros, another product in the sound category, followed a similar
trend. The cost of the finished mini hydro product was as low as INR 8.5 per box, but was
being sold at an average price of INR 86 (margin of 911 per cent) (Exhibit 5). The
cumulative average profit margin for the sound category (bullets and hydros) of ABC
Fireworks comes to 17 per cent.
“Sparkles”, another product line of the firecracker industry, had a cumulative profit margin
trend of approximately 14 per cent for the financial year of 2012-2013. It is important to note
that the Indian fireworks industry has a wide demand–supply gap. The production is
operational for almost eight months and suffers from the irregular Indian weather
conditions, especially during the monsoon period. Since 2009, ABC Fireworks was
meeting, on average, only 33 per cent of the demand for the sound category and 28 per
cent for sparkles (Exhibit 6). Due to increased competition, the percentage margin has
dipped by 10 per cent in the sound category and 7 per cent in sparkles. Exhibit 6 provides
an insight into demand, supply and financials of ABC Fireworks Ltd since 2009. Out of the
total number of fireworks boxes supplied in 2012 (bullets and hydros), 57 per cent
constituted just bullets.
The demand of the Indian fireworks industry increased by 21 per cent in the past five years
and is expected to increase further by a similar proportion in next five years. Exhibits 7 and
8 show the demand trend of PAN India for the period of 2008-2018 and the state-wise
segregation for 2013.
There is no credit policy in the fireworks industry, as it is a seller’s market and because the
demand for fireworks exceeds the manufacturing capacity. Therefore, the firework
manufacturers have an edge over buyers and generally do not provide any credit facilities
to stockists. The majority of the manufacturing processes are done manually, i.e. there is
minimal amount of automation in this industry and, as a result, the scaling up of the
business and a growth of new firework manufacturing hubs is difficult. The government is
stringent in allocating licenses for firework manufacturing, as it involves dealing with
hazardous chemicals and security issues. The regular incidences of fireworks accidents in
different parts of the country have made the Indian Government cautious in allocating more
firework manufacturing licenses.

Exhibit 7 shows that there was a consistent growth in demand of fireworks in India. The
supply– demand gap was large due to two main factors:

VOL. 4 NO. 3 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 1. the production of fireworks was concentrated in a few hubs; and
2. the majority of fireworks production was carried out for just 8 months out of a 12-month
cycle.
During the monsoon season, from June to September, the production of fireworks in India
drops drastically.
The Chinese imported fireworks has a limited presence in the sound and sparkle categories
in India. The data in Exhibits 3 and 5 show that the cost of manufacturing is low in India and,
as per company officials, it was not competitive for Chinese manufacturers to match the
price and quality levels of Indian fireworks manufacturers in the given two categories of
sound and sparkle. The Chinese manufacturers dominated in the aerial category due to the
higher costs of production and complex manufacturing processes for producing it in India.
The various components used in Exhibit 9 are:
 Competitive discount: Discounts given to stockists to match a discount given by
competitors in that particular locality.
 Stocking allowance: Discounts given to stockists for placing large purchase order often
before the rise caused by seasonal demand.
 Market development funds: Discount given to stockists to push sales to specific market
segments or for new brands.
 Cooperative advertising: Discount given to support local advertising of manufacturer’s
brand.
 End-user rebate: Rebate paid to stockists for selling products to bulk buyers.
 Freight and special tertiary packaging: Costs incurred in transportation and special
packaging costs that are incurred by the manufacturer given the volatile nature of the
product (Marn et al., 2005).
Exhibit 9 provides a breakdown of standard and varied discounts offered by ABC Fireworks
on MRP to their stockists for the bullet product of the sound category. Similar slabs of
discounts are prevalent in all products in different categories. Because of the huge gap
Keywords: between the cost of production and MRP, the range of discounts offered by manufacturers
Pricing, is large which makes it a tempting business for all partners involved with the value chain.
Fireworks, Mr Sudhir wanted to conduct a price waterfall analysis for each stockist, as all six stockists
Price promotion strategy, he used provided different pocket prices to ABC Fireworks; Mr Sudhir wanted to know
Discounts, which of the six stockists would rank highest in the order of profitability potential to ABC
Price waterfall Fireworks.

Notes
1. Name of the organization, trademark and owner has been disguised.
2. Fireworks are also called crackers in India.
3. Diwali: an Indian festival celebrated with fireworks.

References
Marn, M.V., Roegner, E.V. and Zawada, C.C. (2005), The Price Advantage, John Wiley & Sons,
Hoboken, NJ.

Parker, P.M. (2012), The 2013-2018 Outlook for Fireworks in India, ICON Group International, CA.

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 3 2014

 Exhibit 1

Figure E1 Product line of firecracker industry

Firecracker
Inddustry

Sound Aerial
A
Sparkle
Cracckers S
Shots

Bullet Hyydro
Others Rockkets Anar
Crackers Cracckers

Source: Company records

Exhibit 2

Figure E2 Distribution hierarchy

Maanufactturer

S
Stockist

Deaaler

Retaile
R er
End custom
mer

Source: Interview with company officials

Exhibit 3

Table EI Pricing of bullets

Category Units Parameters Manufacturer Stockist Dealer Retailer Customer price MRP

Mini (12 cm) 10 pieces per box Cost price INR 3.4 4 8.5a 18 37 80
Selling price INR 4 7.5a 17.5 37b
Profit/loss INR 0.6 3.5 9 19
Profit margin (per cent) 18 88 106 105
Big (18 cm) 10 pieces per box Cost price INR 5.2 6 12.5a 29.5 60 130
Selling price INR 6 11a 26 60b
Profit/loss INR 0.8 5 13.5 30.5
Profit margin (per cent) 15 83 108 103
Super (24 cm) 10 pieces per box Cost price INR 8.5 10 21a 49 100 215
Selling price INR 10 18.5a 43 100b
Profit/loss INR 1.5 8.5 22 51
Profit margin (per cent) 18 85 105 104
Notes: aDifference in selling price of stockists and purchase price of dealer includes inter- and intra-freight charges. This is applicable
on all subsequent steps; bThis is the average selling price to the customer. However, it varies, depending upon the time of purchase
and geographical region. This is applicable on all subsequent steps
Source: Interview with company officials and author’s analysis

VOL. 4 NO. 3 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 Exhibit 4

Figure E3 Breakdown of production cost

Profit margin = Cost of raw

material = INR1.95
INR 0.60 per box per box

Packaging cost =
INR0.40 per box
[0.30 Labor cost =
(Outer Packaging) INR1.05 per box
+ 0.10 (Inner Manufacturer
Packaging)] selling price =
INR4 per box

Source: Interview with company officials and author’s analysis

Exhibit 5

Table EII Pricing of hydros

Category Units Parameters Manufacturer Stockist Dealer Retailer Customer price MRP

Mini (12 cm) 10 pieces per box Cost price (INR) 7.3 8.5 18a 42 86 186
Selling price (INR) 8.5 16a 37 86b
Profit/loss (INR) 1.2 7.5 19 44
Profit margin (per cent) 16 88 106 105
Big (18 cm) 10 pieces per box Cost price (INR) 11 13 27a 62 128 275
Selling price (INR) 13 24a 55 128b
Profit/loss (INR) 2 11 28 66
Profit margin (per cent) 18 85 104 106
Super (24 cm) 10 pieces per box Cost price (INR) 17.2 20 42a 96 197 430
Selling price (INR) 20 37a 85 197b
Profit/loss (INR) 2.8 17 43 101
Profit margin (per cent) 16 85 102 105
Notes: aDifference in selling price of stockists and purchase price of dealer includes inter- and intra-freight charges. This is applicable
on all subsequent steps; bThis is the average selling price to the customer. However, it varies, depending upon time of purchase and
geographical region. This is applicable on all subsequent steps
Source: Interview with company officials and author’s analysis

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 3 2014

 Exhibit 6

Table EIII Demand, supply and financials (2009-2013)

Units of Forecasted demand
Category Financials measurement 2009 2010 2011 2012 2013-2014

Sound Total demand Number of boxes 4,402,540 4,967,010 5,194,300 5,700,560 6,770,616
(bullets and hydros) Total supply Number of boxes 1,450,549 1,566,138 1,765,306 1,951,220 2,142,857
Revenue Crores (1crore ⫽ 1.32 1.48 1.73 2 2.25
INR 10 million)
Per cent Per cent 19 19 18 17 17
margin
Net profit Crores (1crore ⫽ 0.25 0.28 0.31 0.34 0.38
INR 10 million)
Sparkle (anar) Total demand Number of boxes 1,908,040 2,908,040 2,998,040 3,088,040 3,828,040
Total supply Number of boxes 457,143 742,857 871,429 1,045,310 1,369,863
Revenue Crores (1crore ⫽ 0.5 0.9 1.17 1.5 2
INR 10 million)
Per cent Per cent 15 14.5 14.5 14 14
margin
Net profit Crores (1crore ⫽ 0.075 0.1305 0.16965 0.21 0.28
INR 10 million)
Total revenue Crores (1crore ⫽ 1.82 2.38 2.9 3.5 4.25
INR 10 million)
Total profit margin Crores (1crore ⫽ 0.33 0.41 0.48 0.55 0.66
INR 10 million)
Source: Company records

Exhibit 7

Table EIV Latent demand for Indian fireworks industry (2008-2018)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Latent demand for fireworks: 2008-2018

Indian market US$ million 5.624 5.885 6.157 6.443 6.741 7.043 7.357 7.686 8.030 8.390 8.766
Source: Parker (2012)

VOL. 4 NO. 3 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 Exhibit 8

Table EV Latent demand of fireworks, state-wise 2013 (US$ million)

State/territory Latent demand US$ million Per cent in India

Maharashtra 1.09 15.50

Uttar Pradesh 0.618 8.80
Andhra Pradesh 0.6 8.50
Tamil Nadu 0.582 8.30
Gujarat 0.51 7.20
West Bengal 0.464 6.60
Karnatka 0.42 6.00
Rajasthan 0.322 4.60
Kerala 0.283 4.00
Delhi 0.274 3.90
Haryana 0.272 3.90
Madhya Pradesh 0.252 3.60
Punjab 0.232 3.30
Bihar 0.229 3.30
Orissa 0.196 2.80
Chattisgarh 0.138 2.00
Jharkhand 0.111 1.60
Assam 0.109 1.50
Uttranchal 0.081 1.20
Himachal Pradesh 0.057 0.80
Jammu & Kashmir 0.051 0.70
Goa 0.032 0.50
Chandigarh 0.022 0.30
Tripura 0.017 0.20
Meghalaya 0.016 0.20
Pondicherry 0.014 0.20
Nagaland 0.011 0.20
Manipur 0.01 0.10
Arunachal Pradesh 0.008 0.10
Mizoram 0.007 0.10
Sikkim 0.006 0.10
Andaman & Nicobar Islands 0.004 0.10
Dadra and Nagar Haveli 0.002 0.00
Daman and Diu 0.001 0.00
Lakshadweep 0 0.00
Total 7.043 100.00
Source: Parker (2012)

PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 3 2014

 Exhibit 9

Table EVI Breakdown of various varying discounts on list price offered by ABC Fireworks to different stockists
Freight and
Market End special
Quantity Competitive Stocking development Cooperative user tertiary
Product ordered List discount allowance funds advertising rebate packaging
Serial no classification in 2012 Type price (%) (%) (%) (%) (%) (%)

Stockist 1 Bullets 278,571 Mini 80 50 45 40 40 45 45

Big 130 55 40 50 40 35 40
Super 215 60 50 45 35 30 30
Stockist 2 211,714 Mini 80 45 35 35 40 30 35
Big 130 45 30 40 45 35 40
Super 215 45 40 40 35 35 35
Stockist 3 144,857 Mini 80 50 40 30 30 25 30
Big 130 60 45 40 35 30 35
Super 215 65 50 30 20 30 25
Stockist 4 256,286 Mini 80 50 45 45 35 30 40
Big 130 40 40 47.5 40 45 30
Super 215 60 45 35 40 30 35
Stockist 5 100,286 Mini 80 45 40 45 35 30 30
Big 130 40 40 45 35 30 30
Super 215 45 40 45 35 30 30
Stockist 6 122,571 Mini 80 45 40 35 35 25 35
Big 130 50 40 35 40 35 20
Super 215 50 35 45 35 25 40
Note: Fifty-seven per cent of the total product supplied under sound category was bullets and remaining 43 per cent constituted hydros
in 2012
Source: Company records

Corresponding author
Neeraj Pandey can be contacted at: neerajpandey100@gmail.com

VOL. 4 NO. 3 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9

 Abstract
Title – Radiance: transaction level pricing in the Indian fireworks industry.
Subject area – Pricing, Marketing Management, Strategic Marketing.
Study level/applicability – The case can be used for pricing course besides Marketing Management
and Strategic Management course to MBA students and/or for Management Development
Programmes.
Case overview – ABC Fireworks Private Limited, located in Saharanpur, was into business of
manufacturing fireworks under the brand name of Radiance. The owner Mr Sudhir Kapoor was satisfied
with the present revenue growth and profit margin except that the cash flow was quite intermittent. The
consumption pattern of Indian fireworks industry was highly skewed. Approximately 90 per cent of the
entire year manufactured stock had retail market of just 5 days ahead of Diwali festival. To cater to this
massive demand, the production was carried out for the whole year. Mr Kapoor was planning to
restructure pricing policy so as to have regular cash flow throughout the year. To meet this objective, he
was considering price promotion strategy as a preferred option which would enable his marketing team
to offer specific discounts to stockists using time slab mechanism. The fireworks industry had four
channel distribution processes. The product line was broadly divided into three categories, namely,
sound, aerial shots and sparkles. The organization was not into manufacturing of aerial shots product
category but was planning to make a foray into it. The case provides interesting insights into pricing
dynamics prevalent in the Indian fireworks industry. It includes first-hand information about fireworks
price, cost break-up and profit distribution among various members of the industry’s value chain.
Expected learning outcomes – The case enables students to learn the concept and application of
pricing, price-based promotion, discounts and price waterfall analysis in the firework industry.
Supplementary materials – Teaching Notes are available for educators only. Please contact your
library to gain login details or email support@emeraldinsight.com to request teaching notes.

PAGE 16 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 3 2014