Articulating Pricing Policy in Nexus to Aspirations of ...globalbizresearch.org/economics/images/files/21974_JEIEFB...A Pricing Strategy takes into account segments, ability to pay,

Journal of Emerging Issues in Economics, Finance and Banking (JEIEFB)

An Online International Research Journal (ISSN: 2306-367X)

2016 Vol: 5 Issue: 2

1874 www.globalbizresearch.org

Articulating Pricing Policy in Nexus to Aspirations of

Stakeholders of “Coal India Limited”

Atrayee Dutta,

PGDM student,

Xavier Institute of Management Jabalpur, India.

Uma C Saha,

Professor,

Xavier Institute of Management Jabalpur, India.

___________________________________________________________________________________

Abstract

A Pricing Strategy takes into account segments, ability to pay, market conditions, trade

margins and input costs, amongst others. Price is the value that is put to a product or service

and is the result of a complex set of calculations, research and understanding and risk taking

ability. Being a monopoly in the Indian market, Coal India Limited (CIL), had a reasonably

well-defined pricing strategy which adheres to commendable profit making. In the present

study an attempt has been made to formulate a single pricing policy which carefully tackles

major aspirations of different stakeholders and thereby proving fruitful to the company in a

long run. The study was conducted in the city of Kolkata, West Bengal, India with a total

sample size of 100 comprising of the various stakeholders viz. Government, Employees,

Environment, Customers and Shareholders. Their aspirations were excavated by multivariate

analysis and the pricing formula was uncovered using regression analysis. The analysis

concluded with formulation of an entirely new pricing policy and deriving a generic formula

which caters to all the seventeen grades of coal. Thus this research showcases a "value

engineering" of the existing pricing policy as per the main aspirations of the stakeholders of

CIL.

___________________________________________________________________________

Key Words: pricing strategy, aspiration, stakeholders, factor analysis, regression





1. Introduction

Coal has been mined in various parts of the world and is an important economic activity.

Coal is mainly used in production industry, especially in steel production and electricity

generation. It is the largest source of fuel for electricity generation but also contributes to

carbon dioxide emission. It is estimated that there are 847 billion tonne of proven coal

reserves worldwide. Over 41% of global electricity is generated from coal. Ongoing research

activities ensure that this capacity is continually improved and expanded; facilitating

innovation in energy efficiency and environmental performance. Metallurgical coal or coking

coal is a vital ingredient in the steel making process. World crude steel production was 1.4

billion tonne in 2010.

Coal is the main source of power in the Indian subcontinent. 430 million tonne of coal

was used to produce power to meet India’s energy requirement in 2011-2012 and its demand

is set to grow dramatically over the coming years. More than 50% of rural households do not

have access to electricity. Many kinds of dye, scent, medicine, fertilizer (like Ammonium

Sulphate), camphor, artificial musk, phenyl, Vaseline, carbolic acid and plastic are made from

coal. Coal is also called as BLACK DIAMOND due to its importance in industry & high

usage rate.

Imported coal accounts for 10-15% of the coal supply in India. Indian companies import

coal mainly from Australia, Indonesia and South Africa. As per India's 11th 5-year plan, all

India demand was projected to grow at 9.7% per annum against 5.7% in the 10th plan, i.e.,

almost a two fold increase. The gap in demand and supply of coal has further widened to

161.5 million tonne in the last fiscal. This is due to less growth in production as compared to

the growth in demand for the period.

Coal India Limited is a Maharatna (company's investment ceiling Rs. 5,000 crore) public

sector undertaking (A state-owned enterprise in India is called a public sector undertaking

(PSU) or a public sector enterprise. These companies are owned by the union government of

India, or one of the many state or territorial governments, or both. The company stock needs

to be majority-owned by the government to be a PSU) of the Ministry of Coal, Government

of India. It is headquartered at Kolkata, West Bengal. The company is the largest coal

producing company in the world based on raw coal production, contributing about 82% coal

production in India. It is the largest coal reserve holder in the world based on their reserve

base. The company produces non-coking coal and coking coal of various grades. Most of

their coal production is from open cast mines. Their customers include coal based power

generation companies, steel and cement producers, and other industrial companies in the

private and public sectors. Most of their produce is exhausted by the power plants.





1.1 Pricing Policy of CIL

Coal India Limited being a PSU always marks prices of coal conservatively. However,

fixation of coal prices surprisingly appear more as ad-hoc measure, not emanating from

certain fixed set of rationale, rules or strategies. Absence of long term policy and/ or short

term strategy will surely hurt CIL in future. Although in one of its publication CIL (2014)

revealed about e-auction by simplifying the entire coal purchasing process with the help of

the internet, CIL has been successfully providing the most efficient, convenient and

transparent solutions to coal buyers. With the use of technology, CIL has been providing an

online platform on which to trade in fair and transparent manner. This provides the

opportunity to cut cost and increase revenue and enhance margin. But Frik Els (2015)

revealed that a recent study by Independent Commodity Research House (CRU) shows India's

domestic demand of coal in 2014 equalled around 80% of the global seaborne market. That

means that "small changes in supply and demand can have a relatively large impact on total

import requirements" and "even if domestic coal production was to increase, there would still

be issues getting the coal to market due to logistical bottlenecks. World Energy Council

Indian Member Committee (WEC_IMC) team (2015) also revealed that India’s power

requirement over the years has largely been dominated by coal based generation, with close to

55% of the 182 GW of installed capacity being coal based power plants, accounting for over

80% of the total units generated in the country. As per Shreya Jai (2015) the sharp decline in

the prices of coal to $42.55 per tonne in global market is unlikely to bring any cheer to the

imported coal based power producers. However, with cost of generation going down by as

much as 35 per cent, the cases of ‘compensatory tariff’ contested on basis of escalating global

price of coal could stand invalid now. Economics Time Kolkata (2015) depicted that amid

sluggish demand, Coal India is facing dilemma over the production and finding it difficult to

further stock the fuel, even as the PSU major is not keen to rationalise prices and rather looks

at methods to boost sales to keep weak subsidiaries in profit. Coal India has reached a

situation when the production cannot be optimised due to inability to stock coal further which

has already reached 40 MT due to sluggish demand. The current pricing has helped Eastern

Coalfield to pull it out of red. If prices are rationalised it might turn difficult to keep weak

subsidiaries in profit. They are trying their best to use alternate economic strategies to push

sales keeping pricing tool as the last resort. Eighty per cent of Coal India's coal sales is to

power plants and dumping further coal at their stock yards is getting difficult due to security

reasons. Dumping more coal to power plants is getting difficult as average stock to them has

gone up to 25 days against 11 days last year. This is not economical and increases risk of fire.

According to Henning Gloystein (2015), Coals’ future has slumped to a 12-year low, hit

by soaring production and a slowdown in global buying, including from India and China

http://www.business-standard.com/author/search/keyword/shreya-jai





which until recently had been pillars of strong demand. Indian coal imports seems to be under

pressure - both thermal and net coal imports ran at their weakest annualised rates since

October 2014. As reported by Vatsala Kamat (2012) CIL's new pricing mechanism has come

as a shock for user industries. The notified price of domestic coal will now be linked to its

grade based on gross calorific value (GCV refers to the amount of heat generated by burning

a specified amount of coal, can be experimentally calculated for example in a lab). In the

earlier system, the notified price was based on useful heat value (UHV is calculated using a

formula but cannot be experimentally calculated, accounts for ash and moisture content, in %,

in a coal).

Looking into the gravity of the problem as depicted from the pertinent literature, this

paper attempts to set up a concrete pricing policy based on the aspiration of the stakeholders

of this organisation. Thus, this craft this research a unique one.

1.2 Need of the Study

After going through the relevant literature, it was observed that the existing pricing policy

of CIL, including e-auction, had no linkage between stakeholders' demands and expectations

and as a result, customers were constrained to purchase coal from black market at higher

prices. Consumers having linkages had to depend on secondary markets if they wanted

enhancement of the quantity. With the existence of these secondary markets, where coal

could be brought at a premium, consumers buying coal through linkages on notified price

were tempted to divert their coal to these markets. More the gap between the market price and

the notified price, more the temptation to divert. In this context in the present paper an

attempt has been made to grasp the present relationship between policies and strategies

existing at CIL and formulate a new policy to incorporate the various stakeholders’ demands,

who are above all affected by the pricing policies of coal.

1.3 Research Question

How do the different stakeholders of CIL effect the policies and strategies of the

company with respect to the pricing of coal? What are their needs that need to be incorporated

into the policy?

2. Objective of the Study

To uncover the aspirations of the main stakeholders of the company thereby trying to

arrive at a new fixed pricing policy and derive a formula based on it.

To explore the various pricing techniques followed by the company which banks on

the demand of various grades of coal.

A policy and a formula which will cater to the customers' satisfactions, shareholders'

benefit, employees' need and also abiding to the government's norms & regulations.





2.1 Hypothesis

Shareholder’s interest has nothing to do with the price of the coal.

Employee’s interest has nothing to do with the price of the coal.

Government's interest has nothing to do with the price of the coal.

Environment’s interest has nothing to do with the price of the coal.

Customer’s interest has nothing to do with the price of the coal.

3. Research Methodology

The present study is divided into two phases:

In Phase 1, an attempt has been made to gather insight into the existing factors of Coal

India Limited which is impromptu and the acts which exist for the change in the price as per

the different customers viz. Power sector, Steel Sector, Cement Sector, etc.

In Phase 2, the researcher identified stakeholders whose inputs were considered

significant enough to be included into the pricing policy framework. A total of FIVE major

stakeholders were identified. For every stakeholder, different set of questionnaires were

framed and canvassed.

The sample size for the present study comprised of a total of 100 respondents i.e. 20 from

each group. Data analysis process comprised of uni- and bi-variate tables. Factor Analysis

was used for identifying stakeholders' main motivation for lower prices. Linear and multiple

regression method was used to ascertain the utility of the proposed pricing policy and

deducing the formula.

4. Result and Discussion

4.1 Unearthing the Main Stakeholders

A company gives different weightage to its various stakeholders. Various entities like the

Government, Customers, Employees, Shareholders, Environment, Creditors and Trade Union

are stakeholders of CIL. But the above stakeholders may not have an equal "say" (per se) in

the operations or working model of the company. Based on past and the present data of the

company, and also confirmed in CIL's annual reports, the five major stakeholders considered

for the research were the Indian Government, Shareholders, Employees, Customers and the

Environment.

4.2 Identifying the Main Aspirations of the Stakeholders - Result of Factor Analysis

4.2.1 Shareholders

It is assumed that a shareholder's interest has huge impact on the price of coal because

their expectancy of huge returns from the company's profit. Therefore to factor this into the

policy, factor analysis has been used. It has been performed with seven factors - future

expectation, payout policy, reinvestment, communication, decision making, investment and

performance. KMO & Bartlett’s Test of Sphericity applied here reveals sampling adequacy





that is recommended to check the case to variable ratio for the analysis being conducted.

KMO ranges from 0 to 1 and accepted index is over 0.517 in this analysis which allows the

application of factor analysis with the seven items to identify the prime factors.

The factor analysis resulted in identification of three prime factors with Eigen value greater

than 1 and the total variance explained by them is 73.63%. The factors identified in the

analysis are as follows:

The first factor explains 30.14% variation and includes the components like re-

investments with a factor loading of 0.723, decision making with a factor loading of 0.902

and investment with a factor loading of 0.70. It shows "Monetary expectancy" is the prime

factor circling shareholder's interest.

The second factor contributes 23.41% of shareholder's aspiration consisting of

performance as the only component with a factor loading of 0.925 designating "Company's

performance" as the second prime factor regulating shareholder's aspiration.

The third factor contributes 20.1% of variation with future expectation as the only

component with factor loading of 0.891. It shows that "Future Assumption" is the third prime

factor.

Thus, we reject the null hypothesis H0 stating that Shareholder’s interest has nothing to do

with the price of the coal and it can be concluded that "Monetary expectancy" is the primary

factor, "Company's performance" is the secondary factor and "Future Assumption" is the

tertiary factor which have an indirect effect on the price of coal.

4.2.2 Government

The government’s decisions have huge impact on the price of CIL’s product i.e. coal.

Thus, the degree to which the factor influencing the Government's aspiration is analyzed with

the help of factor analysis. It is done with six items - Government policy, Tax, Payment

system, Shareholding, Ministry and inventory cost to examine the effect on the government's

interest which fixes the price of coal. KMO, Bartlett test of spherecity shows that factor

analysis can be performed with six items as the KMO is equal to 0.713 and the p value less

than .005 which allows the application of factor analysis for identification of prime factors.

The factor analysis identified three prime factors with Eigen values greater than 1 and the

total variance explained by them is 78.59%. The factors identified in the analysis are as

follows -

The first factor explains 44.415% variation with components like Government policy

with factor loading of 0.846, tax with factor loading of 0.789, inventory cost with factor

loading of 0.79. It depicts " Government's interest” is the prime factor emphasizing on their

aspiration.

The second factor contributes 17.37% of government's interest including the component





payment system with a factor loading of 0.832. It shows "Income base" is the second prime

factor.

The third factor contributes 16.83% variance including component shareholding with

factor loading of 0.929. It portrays “Share Measure" is the third prime factor.

Thus, we reject the null hypothesis H0 stating that Government’s interest has nothing to

do with the price of the coal and can be concluded that "Government's income" is the primary

factor, "Income Base" is the secondary factor and "Share Measure" is the tertiary factor

affecting the price of coal.

4.2.3 Employees

It is assumed that employee's aspiration have an impact on the price of the coal because

the human resource of a company are its most important resource. If their interests are kept in

mind while formulating a pricing policy, then it creates a positive working and organization

culture. The extent of influence employee's aspiration have on the prices is analyzed with the

help of factor analysis.

It is done with six items namely - Job satisfaction, Motivation, Monetary benefits, Non-

Monetary benefits, Promotion and Experience. KMO, Bartlett test of spherecity shows that

factor analysis can be performed with six items as the KMO is equal to 0.706 which is greater

than 0.5 and the p-value less than .001. The factor analysis resulted in identification of three

prime factors with Eigen values greater than 1 and the total variance explained by them is

78.79%.

The factors identified in the analysis are as follows-

The first factor explains 34.76% variation and includes the components like job

satisfaction with a factor loading of 0.858, motivation with a factor loading of 0.803 and

experience with a factor loading of 0.773. It shows "Employee's drive and forbearance" is the

prime factor regulating employee's aspiration.

The second factor contributes 23.68% of employee's aspiration consisting of the

components like monetary benefits with a factor loading of 0.804 and promotion with a factor

loading of 0.818. It denotes that "Tangible benefits" is the second prime factor regulating

employee's aspiration.

The third factor contributes 20.341% of variation consists of components like non-

monetary benefits with factor loading of 0.926, it denotes "Non-tangible" benefits is the third

prime factor regulating employee's aspiration.

Thus, we reject the null hypothesis H0 stating that Employee’s interest has nothing to do

with the price of the coal and we conclude that "Employee's drive and forbearance" as the

primary factor, "Tangible Benefit" as the secondary factor and "Tangible Benefit" as the

tertiary factor which has an indirect effect on the price of coal.





4.2.4 Environment

Environment is one of the main stakeholder especially in a coal industry where the harm

done to the environment is severe. Thus, being one of the major stakeholder of CIL, interest of

the environment is vital in the formation of the pricing policy. So, the extent of factor

influencing environment's aspiration is calculated via factor analysis. It is done with five items -

Compensation, Rehabilitation, Cost of Cleaning, Erosion control and CIL assessment to

determine the surge to which they have an impact on the environment's aspirations which

eventually affects the coal price. KMO Bartlett test of spherecity shows that factor analysis is

done with the five items as KMO is equal to 0.594 which is greater than 0.5 and p-value less

than 0.377. The factor analysis resulted in identification of the two prime factors with Eigen

values greater than 1 and the total variance explained by them is 65.12%. The factors identified

in the analysis are as follows -

The first factor explains 38.43% variation and includes components like Compensation

with a factor loading of 0.736 and Rehabilitation with a factor loading of 0.765. It shows

"Environmental Returns" is the prime factor controlling Environment's aspiration.

The second factor explains 26.68% of variance, including components like Cost of

Cleaning with factor loading of 0.814 and Erosion control with a factor loading of 0.850. It

depicts

"Damage control" is the second prime factor controlling environment's aspiration.

Thus, we reject the null hypothesis H0 stating that Environment’s interest has nothing to

do with the price of the coal and can be concluded that "Environmental Returns" is the

primary factor while "Damage control" is the secondary factor which impacts upon the price.

4.2.5 Customer

A company exists to serve its customers. So structuring a pricing policy based on the

needs of its customers gives a company boost in purchasing the product and increases

customer loyalty. The influence customer's interests have on the price has been analyzed

using factor analysis and has been done with five components - Monopoly, Performance,

Fairness, Transportation and Quality. KMO, Bartlett test of spherecity illustrates that factor

analysis can be performed with five items as the KMO is equal to 0.685 which is greater than

0.5 and the p-value less than 0.516. The factor analysis resulted in identification of two prime

factors with Eigen values greater than 1 and the total variance explained by them is 71.036%.

The factors identified in the analysis are as follows:-

The first factor explains 47.44% variation and includes the components like

transportation and quality with factor loading of 0.784 and 0.837 respectively. It shows

"Status of product" is the prime factor regulating customer's interest.

The second factor delivers 23.59% of variance which includes only one component i.e.





performance with factor loading of 0.923, showing that "Execution" is the second prime

factor regulating customer's need.

Thus, we reject the null hypothesis H0 stating that Customer’s interest has nothing to do

with the price of the coal and can be concluded it can be inferred that "Status of the Product"

is the primary factor and "Execution" as the secondary factor which affects the coal price.

4.3 Pricing Policy

Pricing is the process of determining what a company will receive in exchange for its

product or service. Coal India Limited always sets the price of coal conservatively. Like any

other PSU, it's method of determining the price is not just profit oriented but also has a social

approach. However it lacks a pricing policy.

In this paper, we penetrated deep into the cravings of the different shareholders to frame a

pricing policy. It is unique, one of a kind concept to overtake other pricing policies to which a

company is glued to and gives rise to a unique policy which promises to cater to the hopes of

the stakeholders all in while promising a long term accreditation to the company resulting in a

steady growth in their profit line.

4.4 Genesis of the New Pricing Policy

Policy No:-XXXXXXXXXXXXX

Effective & Revised Dates

Policy Title- Pricing Policy for sale of coal produced domestically.

Purpose - To reconnoiter into all the important aspirations of the stakeholders.

Scope- The policy applies to COAL INDIA LIMITED and all its subsidiary coal companies

Responsible Party- Entire set of Stakeholders.

Definition - Engineering pricing policy encircling aspirations of stakeholders having major

weightage as its main focal point.

4.4.1 Policy Statement

The value engineering of a new policy which promises to market the planned quantity of

coal and coal products efficiently and economically in an eco-friendly manner with due

regard to safety, conservation and quality thus proving to be environmentally and socially

sustainable thereby taking into account the various key areas of the most important

stakeholders.

4.4.2 Policy Preamble

All these stakeholders hold various levels of expectations from the company. While a

shareholder thrives for profit, the environment department chooses to reduce any sort of harm

that can be done to the nature in coal mining activities. An employee chooses to work less and

earn more while a customer wants the products at negligible cost, and in all these occasions,

the Government is more concerned with the proper, systematic and legal flow of the entire





process, right from the mine to the customer.

4.4.3 Pricing Policy

CIL’s fixation of coal prices surprisingly appears more as an ad-hoc measure, not

emanating from certain fixed set of rationale, rules or strategies. Absence of long term policy

and/ or short term strategy can hurt CIL’s business in the very near future.

CIL’s existing pricing methodology includes e-auction, which accounts for 10% of the

coal dispatch and includes coal import from foreign countries like Indonesia, Australia and

pricing thereof.

Thus, how exactly to contrive a pricing policy which encompasses all these aspirations of the

stakeholders? Well, that is what have been complied in this framework.

Coal India Limited is a monopoly in the Indian market. It is the largest supplier of coal in

India. Thus, competitor based pricing was never an option. Being a PSU, CIL does not have

the authority to frame a policy which focuses on the profit aspect exclusively as it needs to

cater to various levels of customers. So, in order to cater to the set levels of aspirations of the

stakeholders, how should CIL proceed?

The detailed research gave birth to two levels of conclusions:-

4.5 Curbing of Illegal Mining Activities

Illegal mining is rampant across all the mines of India and has prospered with the passing

decades. Every year, quite a good amount of coal is lost. It not only affects the supply, but

also marks the need to input this into their existing pricing strategy. The best way to engineer

a policy grabbing hold of the interests of the stakeholders is to curb the illegal activities like

illegal mining of coal. Every coal mine should be monitored thoroughly. The initial

investments for setting up and maintaining the law and order will be steep as it's not just a

few years activity but it has been going on for decades. But, if executed properly, all the coal

mined will reach the company. This will lead to reduction in price thus satisfying the

customers, give rise in the profit structure, thus exciting the shareholders. When the work is

done corruption free, it tends to reduce the labour production hours and a much needed hike

in the salaries and wages, thus motivating the employees. CIL invests a hefty amount in their

CSR activities. Thus, if profits increase by ruling out the illegal activities, the environment

department will be more enthralled towards activities catering to the welfare of the

environment and society.

This policy will not only fulfill the profit and the monetary aspect of the company but

also the legal as well as the environmental aspects.

Thus, the genesis of this policy chain will prove fruitful to catering to every aspiration of the

well mentioned stakeholders.





4.6 Dual Pricing

Dual Pricing is the technique in which different prices are offered for the same product in

different markets. Generally, dual pricing is not an illegal process, but if done with the

intention of dumping it can be termed as against the law. This kind of pricing is relevant for

CIL. CIL’s main mission and vision statement is to take care of society. For CIL, dual pricing

takes the shape of charging lower price of coal from the Power sector and higher price from

the non-core sectors. Under dual pricing (as discussed by the Planning Commission), a pre-

determined quantity of domestic coal is be supplied to every power producer at notified price.

The balance amount has to be procured at international prices in case of imports or at the

import parity price (import price of coal plus duties and transportation) in case of domestic

coal. CIL, on its part, had earlier said that price pooling is a mechanism to implement fuel

supply agreement (FSA) that it has to sign with power companies. If price pooling is

approved, then 15 per cent supply of imported coal "will be not in the cost plus method, but in

pooling mechanism”. As the finance ministry's chief economic adviser, RBI Governor

Raghuram Rajan had suggested that power generating companies that signed FSAs before

2009 should get 90 per cent of their annual input from CIL. However, in the Commission's

proposal, Haldia had proposed no cut-off year, but had endorsed Rajan's contention that the

import parity price should be allowed to pass through to make it revenue neutral for CIL. As a

sweetener deal for the power companies, he suggested CIL offering a proportionate discount

on the notified price. "The net impact on the producers would be negligible, as the additional

burden cast by the IP price will be offset by the discount to be provided by CIL" Haldia has

argued. According to him, this would cut down transport of coal on rails as it will keep coast-

based power plants incentivized to use more imported coal. At present since the price of

domestic coal is comparatively low, power producers insist on using it. So, coastal power

plants too prefer domestic coal and hence power generating plants inland have to import a

large amount which is a drain on resources. The principle of pass through prices has been

cleared by the Union Cabinet in June as the cost plus mechanism.

4.7 Derivation of New Policy Formula

In order to frame the formula of the pricing policy, the researcher had to tackle the past

data and their ways of fixing the price of coal. After detailed statistical analysis, the

researcher derived that the existing procedure in which coal price is fixed is vagarious. Till

the year 2008-2009, the price of coal which was fixed was hand in hand with WPI (wholesale

price index), AICPI (all India consumer price index) and the inflation base. Post 2009, there

was a steady jump in coal prices as the inflation base suffered a roller coaster ride which

finally joined hand in hand with the AICPI and WPI by 2013 as illustrated in the given figure.

Thus, running down on all the various price tags on different grades of coal, one formula





has emerged by regression but having the values for

every coal happened to be varied. CIL has divided

different grades of coal based on their quality

ranging from G-1 to G-17. The researcher has

extrapolated the values of different grades of coal

for every year from 2007 to 2015, from which Cost

Of Production per tonne of coal, AICPI (base year

2007-08), Cost of imported coal per tonne and fund

requirements for new investment per tonne have

been taken as independent variables in determining

the new formula of the Policy. All the data has been acquired from the company's data base

and AICPI website thus deciphering the calculations to be accurate as per the data input. After

conducting the regression analysis, the following formula was arrived at:

Price of coal = Intercept (coefficient of intercept) + Cost of production (coefficient of cost

of production) + AICPI with 2007-08 as base year (coefficient of AICPI) + Cost of imported

coal (coefficient of cost of imported coal) + Fund requirement for new investment(coefficient

of funds required for new investments)

To quantify the formula derived and to substantiate with an example, the following

formula have been used based on the statistical deviations of GRADE-1 coal.

Price of G-1 coal= Intercept (-5710.93) + Cost of production/tonne (10.56) + AICPI (10.864)

+ Cost of import coal (-0.53) + Fund requirement for new investments (-5.531).

This way the price of coal of different grades can be calculated which caters to the benefit of

the company and also incorporating the different interests of the stakeholders. The following

table depicts the statistical details of the remaining grades.

Figure 1

:-





5. Conclusion

How is the research beneficial for Coal India Limited?

Before brainstorming and deriving the requirement of the project for the company, lets

screed upon the significance of a pricing policy for any firm.

Pricing integrity improves customer satisfaction, manages expectations and builds

customer loyalty.

Creating a pricing policy will guide staff in this area and will secure loyalty.

Pricing is the reflection of everything one does in a business, from product

development all the way down to a link to the website, because we live in a world driven by

value.

Depends on who you ask, a business serves hundreds of different purposes and

embodies hundreds of definitions. Yet, the best definition comes from economics, which

sums up simply: Business exists to provide value. Value to the stakeholders.

Pricing is simply the exchange rate one puts on all tangible and intangible aspects of

a business. VALUE FOR CASH.

Price optimization has the highest impact on increasing profit.

Thus, having a fixed pricing policy creates a greater impact for the long term benefit of

any company.

Coal India Limited, as proclaimed previously do not have a fixed pricing policy. The

researcher in the report have not only derived a pricing policy, but created a policy based on

the data extrapolated as per the aspirations of the main stakeholders.

It not only caters to the welfare of the organization but also delves into every nook and

corner of the main stakeholder's aspirations.

A policy so fine that CIL can utilize it to succumb upon a greater hold of their

stakeholders thus nourishing a healthy working organization.

References

Annual Report of Coal India Limited (May 15, 2014) Committee finalizes methodology for coal

linkage auctions

http://reports.standardchartered.com/annual-report

2012/corporategovernance/corporategovernance/boardcommittees.html

Business Standard (May 22, 2015). 5 challenges the Modi government will face to reform Coal India.

Retrieved on 6/06/2015-

http://www.business-standard.com/article/companies/5-challenges-modi-govt-will-face-to-reform-coal-

india-114052201153_1.html.

Coal India Limited (Jul 6, 2015) Coal India meets State Government to assure coal supply to MSME

sector-https://www.coalindia.in/Manage/ViewNews.aspx

DNA India (Apr 3, 2015) Coal India missed production target for FY'15 by 3%-

http://www.dnaindia.com/money/report-coal-india-misses-production-target-for-fy-15-by-3-2074343

F. Business (Mar 19, 2015) Coal India may miss output target for FY'15 by over 10 MT-

http://www.firstpost.com/business/coal-india-may-miss-output-target-fy15-10-mt-2163091.html>

http://reports.standardchartered.com/annual-report%202012/corporategovernance/corporategovernance/boardcommittees.html

http://reports.standardchartered.com/annual-report%202012/corporategovernance/corporategovernance/boardcommittees.html





j

Frik Els, (February 18, 2015) Coal price rally with legs as India overtakes China –

http://www.mining.com/coal-price-rally-with-legs-as-india-overtakes-china-22896/

Shreya Jai (2015) Global coal price on downslide, no cheer for Indian power producers-

http://www.business-standard.com/article/economy-policy/global-coal-price-on-the-downslide-

115082700011_1.html

Henning Gloystein (2015) Coal Prices fall to 12-year lows as China, India join demand slowdown-

http: // www.mobile.reuteers.com/article/idlNKCN0QO05F20150819?irpc=932

Vatsala Kamat (2012) New Coal pricing policy to hit profitability across sectors

http:// www.livemint.com/money

Economics Times Kolkata (2015) Coal India in dilemma over production, pricing-

http://articles.economictimes.indiatimes.com/2016-01-31/news/70222641_1_coal-india-coal-minister-

piyush-goyal-eastern-coalfields

Reports Coal India Limited (Jul 6, 2015) Reports-

https://www.coalindia.in/en-us/performance/reports.aspx.

Reuter (June 2, 2015) Coal India pit-head stocks swell ahead of peak demand-

http://in.reuters.com/article/2015/06/02/indiacoalidINL3N0YN3IP20150602?type=companyNews

WEC_IMC team (2015) Emerging opportunities and challenges Coal,

https://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdf

Appendix

Factor analysis- It is a commonly used data variable reduction technique. This multivariate

technique is used mainly for three primary reasons-1) Reduce the number of variables from

large to small size, 2) Providing relationship between measured variables and constructs, 3)

Provide construct validity evidence.

Uses of this method are -1) Interdependency and pattern delineation, 2) Data reduction, 3)

Structure, 4) Classification, 5) Scaling and 6) Hypothesis testing

KMO & Bartlett’s Test of Sphericity is a measure of sampling adequacy that is

recommended to check the case to variable ratio for the analysis being conducted. KMO

ranges from 0 to 1 and accepted index is over 0.6.

-Communalities for the ith

variable are computed by taking the sum of the squared

loadings for that variable. The communality for a given variable can be interpreted as the

proportion of variation in that variable which is explained by the factors is h2

i of each

variable may be designated as b2j the uniqueness of the variable is given by 1- h2j.This

framework can be generalized to a set of j variables and m factors.

-Initial Eigen Values-Eigen values are the variances of the factors. The variables are

standardized which shows that each variable has a variance of 1 and total variance is always

equal to the number of variables used in the analysis.

-% of variance-This column consist the percent of the total variance accounted by

each factor.

-Cumulative %-This column contains the cumulative percentage of variance accounted

by the current and all preceding factors.

https://www.coalindia.in/en-us/performance/reports.aspx





-Rotated Factor Matrix-This table contains the rotated factor loadings which represents

the how the variables are weighted for each factor and also the correlation between the

variables and the factor. Possible value ranges are from -1 to +1.

--Rotation sums of squared Loadings-The values in this panel of the table represent the

distribution of the variance after the varimax rotation which tries to maximize the variance of

each of the factors

Regression analysis is a statistical process for estimating the relationship among the

variables. It include many techniques for modeling and analyzing several variables, when

the focus is on the relationship between a dependent variable and one or more independent

variables. It is widely used for forecasting and prediction. There are two types of regressions

viz. linear regression, which uses one independent variable to predict the outcome and

Multiple regression, which uses more independent variables to predict the outcome.

Linear Regression: Y = a + bX + u

Multiple Regression: Y = a + b1X1 + b2X2 + b3X3 + ⋯ + btXt + u

Where: Y =the variable that we are trying to predict

X= the variable that we are using to predict Y

a= the intercept

b= the slope

u= the regression residual.

(Cited from An easy guide to factor analysis by Paul Kline and www.wikipedia.org)

http://www.wikipedia.org/

Documents

Articulating Pricing Policy in Nexus to Aspirations of ...globalbizresearch.org/economics/images/files/21974_JEIEFB...A Pricing Strategy takes into account segments, ability to pay,