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Detergent Wars in India We recognise the challenge of intensified competition from both low-priced players as well as international companies. Most recently, P&G has reduced prices and increased aggression in laundry. Our response, when faced with such challenges, will be to face them ‘unblinkingly,’ with the level of investment required to both, protect and grow our market positions. -M. S. Banga, Non-Executive Chairman, HLL.1
Introduction
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On the 10th of March 2004, FMCG major Hindustan Lever Ltd. (HLL), the Indian subsidiary of Unilever, convened an urgent meeting of its dealers. HLL wanted to discuss how to retain the volumes and market shares in its fabric wash business in view of the price war, which Procter & Gamble (P&G) had unleashed. In the first week of March 2004, P&G India had drastically slashed the prices of its detergents - Ariel and Tide. P&G had reduced the price of a 500 gram pack of Ariel from Rs 70 to Rs 50 - a drop of 28 % and the price of a 500 gram pack of Tide from Rs 43 to Rs 23 - a fall of 45 %. P&G’s detergents were expected to reach customers across India within a week of announcement of the price cuts. Within two days, in swift retaliation, HLL slashed the price of its premium brand Surf Excel from Rs 70 to Rs 50 and the price of Surf Excel Blue from Rs 50 to Rs 38 for 500 grams. HLL tried to ensure that the products reached the retail shelves within a day or two of HLL’s announcement, thus countering P&G’s first mover advantage.
Background Note
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P&G and HLL were not the only major players in the Indian detergent market. Henkel and Nirma were also becoming very aggressive. With a shakeout looking imminent, analysts wondered who would emerge the winner in the long run.
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The Indian Detergent Market
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The Indian fabric wash products market was a highly fragmented one. There was a sizeable unorganized sector. Of the 23 lakh-tonne market, laundry soaps and bars made from vegetable oils accounted for around seven lakh tonnes with synthetic detergents making up the rest. Detergent cakes accounted for 40% of the synthetic detergent used, while powder accounted for the rest. Washing powders were categorized into four segments – economy (selling at less than Rs.25 per kg), mid-priced (Rs.25 – Rs. 90 per kg), premium (Rs. 90 – Rs. 120 per kg) and compact (selling at over Rs. 120 per kg). The compact, premium and medium priced segments together accounted for 20% of the volume share and 35% of the value share. The economy segment made up the remaining lion’s share of the market. The fabric wash industry in India was characterized by low per capita consumption, especially in rural markets. The major players in the Indian detergent market were HLL, P&G, Nirma and Henkel (through its joint venture with SPIC, a leading petrochemical company based in the south Indian city of Chennai). 1
Ravi Ananthanarayanan, “Price war may www.economictimes.indiatimes.com, 5th March 2004.
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2004, ICFAI Knowledge Center. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic or mechanical, without permission. To order copies, call 0091-40-2343-0462/ 63/ 64 or write to ICFAI Center for Management Research, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email
[email protected]. Website: www.icmrindia.org
2 Figure (i) Market Shares (by value) of Major Players in the Detergents Segment, 2003 Others 14% Henkel SPIC 7%
HLL 38%
P&G 10% Nirma 31%
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Source: Compiled from various sources by ICFAI Knowledge Centre.
Evolution of the Indian detergent market
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The first companies to manufacture detergents in India were HLL and Swastik. HLL test marketed Surf between 1956 and 1958 and began manufacturing it from 1959. Swastik launched Det, a white detergent powder, in 1957. By 1960, Det had made rapid inroads in eastern India. Surf, a blue detergent powder, became the national market leader with dominant positions in the west, north and south. In the early 1960s, the total volume of detergents manufactured in India grew from around 1600 tonnes to 8000 tonnes. HLL dominated the market with a share of almost 70 % compared to Det’s 25%. In 1966, another player entered the fray. Tata Oil Mills Company (TOMCO)2 launched its detergent powder ‘Magic’. In 1973, TOMCO introduced ‘Tata’s Tej’ in the low-priced segment. TOMCO unveiled another economy detergent powder called OK in 1977.3 Other products to join the fray were Godrej’s Key (1977) and Detergents India Ltd.’s Sixer (1978).
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The mid-1970s witnessed a worldwide increase in crude oil prices, which increased the input costs for detergent powders. This resulted in a sharp rise in detergent prices. The price of Surf almost doubled in 1974-75. Despite such a sharp price rise, Surf continued to be the market leader both in terms of value and volume, commanding a price premium of almost 40% over Key and Sixer. It was in the late 1970s that HLL’s leadership position was challenged by a low priced detergent ‘Nirma’. For a long time there were only two major players in the laundry soap segment. HLL’s Sunlight, sold both for personal wash and fabric wash had been present in India since 1888. The other branded product was TOMCO’s ‘Tata 501’. In 1968, TOMCO launched a detergent cake ‘Bonus’. HLL retaliated with its Rin bar in 1969. In 1971, Swastik extended its Det powder to a detergent cake. By 1975, the cake segment caught up with the powder segment in terms of volume. Detergents India Ltd., also entered the segment in 1977 by launching Regal. It introduced another brand called Chek, in both powder and cake form in 1980.
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In April 1993, HLL's largest competitor, TOMCO, merged with HLL. Charlotte Butler and Sumantra Ghoshal, “Hindustan Lever Limited - Levers for change,” World Class in India.
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The Detergent Wars Hindustan Lever Ltd. vs. Nirma In 2004, HLL was one of the oldest players in the Indian detergents market. The company’s origin went back to 1885 when the Lever Brothers set up “William Hesketh Lever”, in England. In 1888, the company entered India by exporting ‘Sunlight’, its laundry soap. In 1930, the company merged with ‘Margarine Unie’ (a Netherlands based company which exported vanaspati to India), to form Unilever. In 1931, Unilever set up its first Indian subsidiary, the Hindustan Vanaspati Manufacturing Company for production of vanaspati. This was followed by the establishment of Lever Brothers India Ltd. in 1933 and United Traders Ltd. in 1935, for distribution of personal products. In November 1956, the three Indian subsidiaries merged to form Hindustan Lever Ltd.
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In 2003, the total size of HLL’s detergent business was around Rs.2000 crore, constituting nearly 40 % of the total market of Rs.5000 crore. HLL had three key brands Surf, Rin and Wheel and smaller brands like Sunlight and 501, and Rin Ala, the fabric bleach. HLL’s detergent portfolio served different segments of the Indian population with a presence across all segments, at all price points. In the compact segment, it had Surf Excel. In the premium segment it had Surf. The medium segment had brands like Rin Shakti and Rin Supreme. The popular segment was taken care of by Wheel.
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Nirma, HLL’s most aggressive competitor, was the result of the single-handed efforts of Karsanbhai Patel (Karsanbhai). Karsanbhai had been employed as a chemist with Gujarat Minerals Development Corporation in Ahmedabad. Economic adversity turned his thoughts to part time entrepreneurship in 1968. With his knowledge of chemicals, he concocted a yellow detergent powder. In 1969, he started manufacturing the powder in a small shed in Saraspur, a suburb of Ahmedabad. The product was named after his then one-year-old daughter, Niranjana, who was affectionately called Nirma by people in the family. Karsanbhai hand mixed the powder, packed it into polythene bags and stapled the bags. He loaded the polythene bags into gunny bags and began selling ‘Nirma’ door-to-door on his bicycle. This way he succeeded in delivering 200 kilograms in a day. From the beginning, Nirma had its own small scale packaging material unit and printing press. Nirma was sold in poly bags compared to Surf’s significantly more expensive cartons. Nirma was positioned as a cheaper alternative to Surf and as a superior product compared to inferior washing soaps. Karsanbhai registered his firm as Nirma Chemical Works in 1972. With increasing sales, two more production facilities were set up, one at Rakhial in 1973 and the other at Vatwa in 1976. For over a decade, Karsanbhai did not deviate from his simple formula of production, packaging and distribution. He remained a small-scale producer. Karsanbhai did not have any field force or sales team to sell Nirma. Till 1985, Nirma enjoyed the 15% excise benefits granted to small-scale producers not using any power. But over time, demand outgrew personal deliveries by Karsanbhai. Vans and trucks began to be used for distribution. Karsanbhai negotiated rates on a daily basis with the truck operators. When sales extended to retail outlets within Ahmedabad and then later to other districts and towns, stockists were appointed to sell Nirma to shopkeepers. Karsanbhai appointed close relatives and business associates as stockists. As Nirma’s reach extended to other states, district level agents were appointed for distribution to stockists. State level agents were appointed in the east and the south.
4 In the early 1970s, the Nirma package portrayed a lady washing garments. To distinguish it from scores of other small-scale sector products, Karsanbhai started featuring a little girl, considered to represent his daughter, on the package. In the late 1970s, the reach of television in India began to expand rapidly. With its catchy jingle ‘Nirma washes clothes as white as milk’, Nirma became a symbol of a good quality, low-priced detergent.
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Figure (ii) Nirma Packaging
Source: www.nirma.com
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HLL believed a well-formulated detergent should be a composite of several ingredients like Active Detergent (AD), anti-redisposition agent, buffer, builder etc, each having a unique function to perform. On the other hand, Nirma contained no whiteness agent, its AD level was half that of Surf and the powder was harsh on the skin. Despite being inferior to Surf on every single characteristic, Nirma was selling one-third the volume of Surf by 1977. Between 1977 and 1985, Nirma’s sales grew at a rate of 49% and it was outselling Surf by three to one.
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Figure (iii) Surf Versus Nirma- Market Share (Volume)
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Surf Nirma
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79 19
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Source: Charlotte Butler and Sumantra Ghoshal, “Hindustan Lever Limited - Levers for change,” World Class in India.
5 Exhibit: I Comparison of Prices Per Kilogram
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Year Surf (Rs.) Nirma (Rs.) 1975 10.65 1976 10.15 1977 12.80 4.35 1978 12.25 4.75 1979 11.95 4.45 1980 18.50 6.00 1981 20.20 6.25 1982 21.05 6.00 1983 20.90 6.25 1984 22.20 6.80 1985 23.15 7.20 1986 23.70 8.00 1987 27.10 8.50 1988 28.70 9.00 1989 30.00 9.25 Source: Charlotte Butler and Sumantra Ghoshal, “Hindustan Lever Limited - Levers for change,” World Class in India.
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Not only was Nirma competing with HLL, it was also creating a new market. Nirma had successfully converted the unorganized laundry soap market in the urban and rural areas, to detergent powders. Between 1980 and 1985, Surf’s volume stagnated and its market share fell. Research revealed that consumers did not see any significant difference in quality, between premium Surf and low priced Nirma. In 1986, Nirma decided to take HLL heads on in the detergent bar segment by launching Nirma detergent bar, to counter Rin. Karsanbhai test marketed his new detergent bar, by offering one Nirma bar with every two packs of Nirma washing powder. Since Nirma powder had high acceptance, the Nirma detergent bar also got instant sampling. The Nirma bar was similar in packaging design to Rin. It was priced at Rs. 1.50 for a 150-gram cake, a third of the price of Rin. In a couple of years, Nirma bar sales had reached 100, 000 tonnes.
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HLL could no longer ignore Nirma. In 1987, HLL initiated ‘Project STING’ (Strategy To Inhibit Nirma Growth) to check the growth of Nirma and regain its market leadership. HLL decided to sell Surf in polybags as against its previous expensive cartons, in order to reduce costs. The move was difficult to make because the carton was a symbol of Surf’s high quality. However HLL went ahead with the decision to cut costs. HLL also revamped its advertising. Earlier, Surf’s advertising campaign had always used the established ‘Surf washes whiter’ slogan featuring a small boy getting his clothes dirty. He then got them cleaned by having them washed in Surf. In 1985, HLL created a character called ‘Lalitaji’ portrayed by TV artist Kavitha Chowdhary. Lalitaji represented a smart housewife who knew that good value always came at a price. The commercial showed her bargaining with the vegetable vendor about good tomatoes and bad tomatoes ... `Sasti cheez or achchi cheez me farak hota hai, bhai saab.' (There is a difference between cheap goods and quality goods, brother). Then came the message that though Surf was three times more expensive than other products (intended at Nirma), measured on a cost per wash basis, Surf was effectively only one and a half times dearer. This was because the same load of washing required only half the quantity of Surf compared to other powders. The punch line, ‘Surf ki kharidari mein hi samajhdari hai’ (It makes better sense to buy Surf) became very famous (Figure iv). Between 1985 and 1991, Surf’s sales grew from 30,000 to 42,000 tonnes.
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Figure (iv) Lalitaji Ad Campaign in 1985
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Source: www.hll.com
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HLL then launched a white detergent powder called Sunlight in 1985. It was priced to match Nirma. It targeted the eastern and southern markets where Nirma was not very strong. HLL realized that Nirma was very strong in the rural market. Indeed, Nirma’s success demonstrated that rural India had both the money and the willingness to buy packaged consumer goods. HLL was in a dilemma as to whether it should repack Surf in polybags and sell them at a cheaper price to the rural consumer or design a new product altogether. A new product was clearly a high risk, high return strategy. It had to be of low cost and high quality, be non-toxic with minimum pollution levels (because rural consumers used the same source of water, like ponds to wash clothes as well as take bath), be available in small packages, be robust enough for rough handling and be available in every corner of rural India. The major complaint against Nirma was that the prolonged use of the product damaged the fabric and also caused blisters on the user’s skin. As part of Project STING, HLL’s R & D team was given the responsibility of producing a low cost detergent, which gave better performance, at the same time without any side effects like the ones caused by the high soda ash4 content in Nirma.
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The common name for sodium carbonate, a chemical compound used as an alkaline builder in some soap and detergent formulations, to neutralize acid water.
7 Fortunately for HLL, since 1984, the company’s R&D team had been involved in the development of a Non-Soap Detergent (NSD)5 powder and the mix was ready by 1986. HLL decided to use this mix to counter Nirma. In 1988, it introduced the new NSD powder as ‘Wheel’. In 1977, HLL had launched a green detergent bar ‘Wheel’ in three states to counter Swastik’s Super 777. This name was resurrected for the detergent powder. HLL attempted to replicate the low cost Karsanbhai operation, for Wheel. In Gujarat, soda ash and other raw materials for detergents were easily available. Easy access to raw materials had been one of the main reasons for Nirma’s low cost operation. HLL carefully selected the locations for new plants in Gujarat, Uttar Pradesh, Rajasthan, Punjab and Pondicherry. While HLL supplied the raw materials, the contractors hired their own labour and produced the detergent. This provided HLL with greater flexibility to start new units faster. These units replicated small scale manufacturing units. Thereby, they also gained concessions and significant cost savings.
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Wheel detergent powder was packed in 30-gram plastic sachets, instead of the usual one kg pack. It was priced at Rs. 5.50 as against Nirma’s Rs. 5.25. HLL’s advertising strategy aimed at creating dissonance in the minds of Nirma buyers about the safety aspect and the benefits of switching over to Wheel. The campaigns emphasized that Wheel provided ‘Extra power, extra lather and was safe on hands and clothes’. Sales grew to 100, 000 tonnes, half of Nirma’s. In the Economic Times –Brand Equity survey of India’s top 100 FMCG brands (in terms of sales) in 2002, Nirma ranked seventh with sales of Rs. 1182 crores, while Wheel, HLL’s largest brand, ranked tenth with sales of Rs. 814 crores. In 2003, Nirma sold over 800,000 tonnes of its detergent products, giving the company a 38% share in the popular segment.
Procter & Gamble vs. HLL
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Procter & Gamble was established in 1837 as a small, family operated soap and candle company in Cincinnati, Ohio, USA. By the early 2000s, P&G had grown into a large global corporation with operations in over 70 countries employing more than 110,000 people worldwide. P&G marketed approximately 300 brands to nearly five billion consumers in over 140 countries. These brands included Tide, Ariel, Crest, Pantene Pro-V, Always, Whisper, Pringles, Pampers, Oil of Olay and Vicks.
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P&G had no presence in India, till 1985 when it acquired Richardson Vicks Inc. (RVI) USA. RVI’s Indian subsidiary Richardson Hindustan Ltd had a strong presence through its Vicks range of products. After Richardson Hindustan became an affiliate of P&G, its name was changed to P&G India Ltd. P&G introduced Whisper sanitary napkins in 1989 and Ariel detergent powder in 1991. Between June 1992 and January 1993, P&G USA increased its stake from 40% to 65%. P&G's Indian operations were managed through two companies - the listed company Procter & Gamble Hygiene & Healthcare (PGHH was previously P&G India) and a 100% subsidiary Procter & Gamble Home Products (PGHP). PGHH essentially took care of feminine hygiene products (Whisper) and anti-cold healthcare products (Vicks). PGHP manufactured and marketed detergents and shampoos. The company also marketed toilet soap Camay, skin care brand Clearasil and men's toiletry brand Old Spice. 5
HLL’s new product formulation dramatically reduced the ratio of oil to water in the detergent, thereby reducing the pollution created by washing clothes in rivers. Earlier till the early 1900s, soaps were made out of vegetable oils and animal fats. Due to scarcity of these natural resources, research was undertaken for NSD. Soon thereafter came the introduction of synthetic detergents. Synthetic detergents are nonsoap washing and cleaning products that are "synthesized" or put together chemically from a variety of raw materials. The discovery of detergents was also driven by the need for a cleaning agent that, unlike soap, would not combine with the mineral salts in water to form an insoluble substance known as soap curd.
8 In November 1990, P&G, which had not been active in the Indian detergent market, test marketed Ariel Microsystem. The premium product was launched in 1991 and priced at Rs. 32 for 500 grams as compared to Surf’s Rs.15.80 and Nirma’s Rs. 4.90. The powder detergent was based on P&G’s advanced proprietary enzyme-based technology and was considered superior to Surf. P&G backed the launch with heavy investment in advertising. The campaign claimed that a 500gram packet of Ariel would last for a month, eventually working out as cheap as low-priced products. HLL realized that P&G was attacking it from the top just like Nirma had squeezed it from the bottom. HLL had launched a concentrate in the late 1980s under the Rin brand umbrella but it did not have the superior technology that Ariel had. HLL’s parent company, Unilever, had its own enzyme-based technology, but HLL had repeatedly dismissed the idea of launching a superior product on the grounds that Indian consumers would not be willing to pay for any advanced technology. Ariel’s launch prompted HLL to develop its own ‘ultra’6 product based on indigenous technology, to counter Ariel.
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In order to reduce the development time from two years to four months, HLL carried out different phases of the product development process simultaneously. For instance, while the product was being developed, work on packaging and perfume was also carried out in parallel. ‘Surf Ultra’ was launched nationally in February 1992. By the end of 1992, HLL held a 7% share (Surf Ultra had 4% and Rin concentrate 3%) while P&G held 4% in the concentrate detergent market.
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P&G upgraded Ariel to Ariel with Microshine towards the end of 1996 and early 1997. Meanwhile, HLL had replaced its Surf Ultra with International Surf Excel in April 1996. HLL gave Surf Excel a strong stain-removing proposition through its ‘Surf Excel Hai Na’ (Surf Excel is there) advertisements. HLL roped in Bombay Dyeing Fabrics to endorse its Surf Excel brand. P&G retaliated by tying up with Reliance to endorse Ariel Microshine.
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Surf Excel managed to take away consumers from Ariel owing to HLL’s stronger distribution muscle (1.2 million retail outlets compared to P&G’s reach of less than half a million outlets). In 1997, HLL launched a new detergent under the Surf umbrella -- Surf with Excel Power. The new Surf brand was placed midway between International Surf Excel and ordinary Surf. Priced at Rs 48 for a 500 gm pack, it was below International Surf Excel's MRP of Rs 60.50 and above ordinary Surf priced at Rs 35 for 500 gm. Surf with Excel Power was positioned as "better than the ordinary". When P&G launched Ariel Power Compact in 1998 to combat Surf Excel, HLL relaunched Surf Excel with a better formulation, backed by a teaser ad campaign on television. The ads for Surf Excel showed a mystery setting, concealing the name of the brand (which was meant to be an improved version of Surf Excel). A salesman was shown sampling a detergent pack with a consumer who was already a Surf Excel user. When the consumer replied that the test product was better than the one that she used, the salesman returned dissatisfied with the promise to come back (“Mein phir aaoonga” – I shall come back again) with a better powder next time. The story was repeated the second time as well, with the consumer looking satisfied with the second test sample product that the salesman brought, as it removed stubborn ink stains as well. However, again on hearing that the product, an improved version of the earlier one, was only `better' than the one before, the salesman looked dissatisfied and reiterated that he would come back with a better-than-before product. With the punch line “Aise daag…waise daag…jaise bi daag ho, Surf Excel hai na”, (Whatever be the nature of the stain, Surf Excel is there) the campaign emphasized that the improved Surf Excel could remove more stains, more effectively. 6
Ultra detergents are concentrated detergents in either liquid or powder form.
9 P&G responded with a new ad that portrayed a salesman telling the consumer that new Ariel Power Compact was the best detergent in the world. The salesman made it clear he would not come back (``Mein phir nahin aaoonga''- I shall not come back). P&G positioned Ariel Power Compact as having `smart eyes' to recognize stains and remove them.7 In 1999, P&G adopted a new strategy to attack HLL’s detergent bars business. HLL dominated the segment with around 80% market share with its five brands, Rin Supreme, Wheel, 501, Rin Shakti and OK. P&G positioned its new Ariel Power Compact as a product powerful enough to clean clothes without brush and bar. Detergent bars had a saturation penetration of over 930 households per 1000 while for washing powder it was 611 per 1000. The Indian housewife had always used both bar and powder because she was not confident of the powder cleaning dirt from collars and edges of sleeves as effectively as the bar did.8
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Between 1997 and 1999, the urban market saw a shift towards premium and compact detergents (detergents with dirt-removing intensive enzymes). Both HLL and P&G tried to connect to the premium consumer through a series of launches. In a departure from its global practice, P&G launched its world famous Tide detergent in May 2000, in the premium segment (P&G considered any detergent priced over Rs. 70 per kg as premium). Tide and Ariel were normally not present in the same market anywhere in the world. In the US, Tide was available with variants but there was no Ariel. In Europe, P&G offered Ariel but not Tide. The same was the case with Japan.
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P&G India felt both Tide and Ariel were necessary in India as the premium segment was growing. Research revealed that there was a specific consumer need for improved cleaning. Tide was launched to address the quality of whiteness in cleaning. Ariel was positioned as the detergent with the best performance and the best technology that helped the consumer redefine cleaning standards. For the non-Ariel consumer in India, yellowing of white clothes was addressed by Tide. While Ariel came for Rs 145 per kg, Tide's price was Rs 120. For half a kg, Ariel was priced at Rs 80 and Tide, Rs 68.9
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P&G backed Tide’s launch with an ad campaign that showed an unnamed detergent powder for maximum whiteness effect. When the consumer tried the new product, she got the promised whiteness. Then the product’s name was revealed as Tide. Tide’s whiteness proposition directly countered the ‘lightening whiteness’ proposition that HLL had adopted for Rin. HLL responded with a television commercial, which showed that the unnamed detergent powder offered for trial did not provide the desired whiteness. Then a woman protagonist talked about the superior whiteness that Rin Supreme offered. The man who had offered the unnamed powder was pushed to the back by a group of women, who discussed the excellent performance of HLL’s brand. To counter P&G’s high decibel launch of Tide, HLL also unveiled the country's first liquid detergent for daily washing needs in May 2000. Surf Excel Liquid detergent was available at Rs 85 for every 500 ml pack. Equipped with a special stain applicator, the company claimed that the product offered superior stain removal power as compared to powders. Because of deep penetration due to its liquid form, HLL claimed that it could remove even the toughest of stains like ‘paan’ (made of betel leaves and betel nuts) and paint from fabric. Further unlike powders, the liquid detergent dissolved completely in water. The product could be used both for hand wash 7
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Namrata Singh, “Dirty Linen? Surf Excel and Ariel Power Compact www.financialexpress.com, 18th October 1999. Sandeep Joseph, “P&G seeks to scrub washing bars,” Businessworld, 4th October 1999. Anita Sharan, “Why Tide when Ariel’s there?” www.domain-b.com, 26th June 2000.
sling
suds,”
10 and top loading washing machines. Packed in an attractive blue and orange pack, the bottle was designed in such a way as to give an easy grip to consumers. In 2003, HLL decided to withdraw its liquid concentrate brand of Surf Excel from the shelves, since HLL's direct marketing brand (Lever Home) was expected to serve this category through the Hindustan Lever Network.
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By the time Tide could gain a foothold, the market experienced a downward shift towards low priced detergents like Ghari and Fena. Ghari had increased its volume share from 5% in 1998 to around 15% in the early 2000s. Tide’s pricing was also a deterrent because the need was for a value for money brand and not another premium brand. In 2001, P&G attempted to correct this by slashing the price of Tide, from Rs 135 a kg to Rs 85 per kg. P&G also changed the communication mix. For Ariel, the company focused on the upwardly mobile family. It reinforced the premium image by tying up with consumer durable companies like Videocon, to vouch for the detergent’s quality when used with their brand of washing machines. For Tide, P&G focused on the traditional Indian housewife. Tide was offered as a ‘doorstep challenge’. Famous television personality Shekhar Suman visited homes, challenging housewives to test the efficacy of the product. The promotion, the first of its kind in the Indian detergents market, helped Tide in gaining instant recognition. 10
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In 2001, HLL relaunched Surf Excel supported by a new advertising campaign. HLL emphasized that the New Surf Excel had an advanced formulation — smart sensors, which discerned the difference between stains and colour, therefore, working only on stains and not on colour. The new proposition was “Daag hataye rang nahin” (removes stains not colours). Research among top-end consumers had revealed their concern about colour damage. Therefore, the new proposition was found to be very relevant. HLL raised the price of the improved Surf Excel from Rs. 135 per kilogram to Rs. 155. This brought Surf Excel at the same price point as Ariel Power Compact in the compact detergents segment.
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In early 2003, Surf Excel’s price was reduced from Rs 85 for half a kilogram to 70. Close on the heels of the price cut, HLL introduced an innovative low foam detergent in May 2003. The New Surf Excel was specially developed with technology to conserve water, taking into consideration the water scarcity in India. Surf Excel was entirely replaced by the new low foam one. It was a risk taken by the company because traditionally people associated good detergent with more foam. It was HLL, which had promoted the ‘foam’ proposition since its Lalitaji ads of the 1980s. On the occasion of the launch of the product, Nitin Paranjpe, category head – fabric wash, HLL, explained, “An average of 83 litres is used per day per household and nearly 20-25 per cent of household water is used in laundry. The low foam technology in the New Surf Excel would help reduce water consumption by 50 per cent to two buckets as against four buckets of water required for regular detergents. This formula, apart from saving water, also saves time because it needs less scrubbing and provides quick washing."11 Apart from the new product features, the brand also underwent a change in packaging. The product, which was earlier available in pouches, was made available in brick packs, to give it a different look as well as increase shelf visibility. The company also launched a two-phase advertising campaign to convey new product features. The first campaign told the consumers that 10 11
Shweta Jain & Gowri Shukla, “At low tide,” The Strategist – Business Standard, 19th August 2003. V.Sangita, “HLL’s new Surf Excel - Promises to save time, effort and water,” www.indeconomist.com, 30th May 2003.
11 just because the product had less lather, it did not mean that the low foam powder was ineffective. The subsequent campaign informed the consumers about the other features such as less use of water, less scrubbing, less rinsing and so on. The company set an advertising budget of Rs 16 crore for the second half of 2003 to advertise the New Surf Excel.12
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In 2003, HLL launched ‘Surf Excel Automatic’ an anti corrosive and clothes friendly powder for washing machines. The product was endorsed by washing machine manufacturers like LG, Samsung, Electrolux Kelvinator, Videocon, Siemens, IFB and Whirlpool. The low suds detergent dissolved completely leaving no harmful residue behind, thus ensuring a longer life for the clothes and the machine. Surf Excel Automatic was formulated with high quality phosphate builders and a multi-active surfactant system to deliver superior cleaning, while washing clothes in washing machines. Besides, the formulation was fortified with a safe bleach system and enzymes for superior stain removal in washing machines. The Surf Excel Automatic packaging allowed convenience and accuracy of dosage. It was a stand up box with sachets inside. The packet was uniquely designed with a pull out opening at the bottom for individual sachets. Every wash load required two sachets. One kilogram of Surf Excel Automatic was priced at Rs. 145, while the 600gm sachet box with 30 sachets was available for Rs. 90.13
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In early 2004, HLL dissolved Surf into a new identity – Surf Excel Blue. HLL offered three variants – Surf Excel Blue (previously Surf), Surf Excel Quick Wash (previously Surf Excel) and Surf Excel Automatic. Surf had built a loyal customer base over the years. By migrating Surf to Surf Excel, HLL felt that there was a chance to attract new consumers, even though there was a possibility of disappointing old customers. However, HLL stressed that the formulation of Surf Excel Blue was an improved one and was confident of convincing customers about the change. The advertising campaign ‘Surf is now Surf Excel Blue’ aimed at educating the consumer about the change. Surf Excel Blue (unchanged from Surf) was priced at Rs 89 for a kilo, compared to Rs 135 for a kilo for Surf Excel Quick Wash.
12
Ajita Shashidhar, “Surf Opera,” The Catalyst- The Hindu Business Line, 22nd May 2003. “HLL launches Surf Excel Automatic, a specialist detergent for your washing machine,” www.prdomain.com, April 2003.
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Figure (v) Surf Migrated into Surf Excel
Source: Purvita Chatterjee, “Surfing the blue,” www.blonnet.com, 26th February 2004.
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Since its entry in 1985, P&G had invested heavily in India, but its sales turnover was barely Rs. 800 odd crores. By continuing to market premium products in India, P&G had effectively become a niche player. P&G’s erstwhile CEO Durk Jager, was a firm believer in premium pricing. He was confident that consumers would pay more for the difference in performance. When P&G entered the feminine hygiene care market in 1989 by launching Whisper, the market was dominated by a not so aggressive competitor, Johnson & Johnson (J&J). The premium brand’s rapid success gave P&G the courage to foray into laundry. P&G’s detergent was rated higher than competing brands in image terms, but price was a deterrent. Families used the product occasionally and on special clothes. Where domestic help was used for washing, Ariel was seldom used. In spite of launching variants under the Ariel brand umbrella to counter HLL at every price point, Ariel managed to capture hardly 5% of the market.
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In the late 1990s, P&G decided to change its strategy for India. P&G USA did not want to pump money into the Indian operations as no significant returns were coming in. In 1999, the name of the listed company P&G India Ltd. was changed to Procter & Gamble Hygiene and HealthCare Ltd. (PGHH). In 2000, PGHH discontinued the shampoo manufacturing arrangement in India. It started importing its shampoos from Thailand, Taiwan and Vietnam. It also hived-off marketing rights to brands such as Clearasil and Old Spice to Marico Industries to focus on its core business of feminine hygiene and cough and cold medication. Only product launches relevant to the two core business categories were routed through the listed company. Detergents and personal products were vested with the wholly owned subsidiary Procter & Gamble Home Products (PGHP), which P&G had floated in 1993. P&G decided to exit mass marketing as it realized that it was not possible to be a people’s brand with premium pricing. It launched ‘Project Spearhead’ to identify consumers who saw value in P&G’s offerings and had the purchasing power. P&G decided to concentrate only on the top 23 towns from where around 60% of its sales came. Moreover, it decided to focus on big grocery stores, referred to as A-Class outlets, where P&G’s target customers shopped for their monthly provisions. But with around 2500 stockists, P&G found it difficult to implement selective distribution. So P&G decided to adopt its ‘global distributor model’ for India. The model had worked successfully in China, the Philippines and parts of Europe. Codenamed ‘Project GoldenEye’, the model was launched in 1997. A few distributors took care of distribution to AClass outlets and select B-Class outlets. By 2003, P&G had just 30 distributors across India.
13 In the late 1990s, as P&G’s Indian operations were being restructured, sweeping changes were being initiated at P&G’s headquarters in Cincinnati, under the stewardship of CEO Durk Jager. As part of the global restructuring initiative ‘Organization 2005’, each country became part of a regional hub. India became part of the Asean-Australia-India (AAI) region, operating out of Singapore. Execution in India was looked after by a Market Development Organization (MDO) headed by a country manager. P&G was clear about its game plan for India. The company decided not to open up on any other front till it reached critical mass in its key categories – hair care, laundry, feminine hygiene and healthcare. In late 2003, P&G India resorted to a more aggressive pricing strategy. The company unleashed a price war by bringing down the prices of Ariel and Tide sachets by 50 % in September 2003. The revised price of Ariel and Tide sachets stood at Rs 1.50 and Re 1 against Rs 3 and Rs 2 earlier, respectively14. In March 2004, P&G renewed its attack on rival HLL through a revamped pricing strategy for its larger unit packs, bringing down Ariel and Tide prices by almost 50%.
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P&G was present only in the premium segment where the market size itself was small. In the middle and low segments of the market, P&G was totally absent. Realizing the need for volumes, P&G introduced what it called a price correction strategy. The main objective was to expand the upper end of the market where quality products were sold at a price not affordable to many. After talking to over 3,000 consumers across the country and observing over 25,000 washing sessions in consumers’ homes, P&G found consumers believed in the superior quality of Ariel and Tide but pricing remained a deterrent in using Ariel and Tide on a regular basis. So P&G cut prices to make Ariel and Tide more affordable.
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Close on the heels of P&G’s price cuts on Ariel and Tide, HLL slashed prices on Surf Excel and Surf Excel Blue. Earlier, in January 2004, HLL had relaunched its Rin Shakti powder with a new formulation that used Unilever’s proprietary technology, which allowed 100% dissolution and enhanced whiteness. The relaunch was supported by a high decibel advertising campaign claiming, ‘Double safedi, Bijli giri’ (Double whiteness like lightening) (Exhibit: V). HLL had aggressively priced it at Rs. 80 for a two-kilogram pack to take on Henko and Tide priced at Rs. 85 and Rs. 89 for a kilo. But the unexpected price cuts by P&G brought Tide on par with HLL’s mid segment brands like Rin Shakti and Rin Supreme. Moreover, with the narrowing of the price differential between Surf and its mid segment brands, HLL contemplated slashing prices of these brands, to prevent their cannibalization by Surf. P&G rolled out an ad campaign to highlight the price reduction. The new ‘stripe’ ads for Tide created by Leo Burnett had a funny twist to them. They showcased the superior whitening power of Tide, which came at an affordable price of Rs. 23 (Exhibit: IV). P&G also contemplated an entry into the mass market with its economy detergent brands like Bonux and Rindex from its global portfolio, to counter the likes of Ghari, Wheel and Nirma where P&G was absent. In addition, P&G planned to launch Tide as a detergent bar in the low end of the market to take on Rin Shakti. But the launch of economy brands entirely depended on how the repositioning exercise would work for P&G.
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“P&G kicks off sudsy war, HLL to follow suit,” Business Standard, 4th March 2004.
14 Figure (vi) P&G and HLL Brands After Price Cut
Source: Purvita Chatterjee, “Swimming with the tide,” The Hindu Business Line- Catalyst, 11th March 2004.
Detergent Brands
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Exhibit: II Prices of Detergent Brands After Price Cuts Price for 500 gram packs
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HLL
Tide
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Ariel
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Rin Supreme Surf Excel
Rs. 13 Rs. 20 Rs. 38 (Rs. 50)* Rs. 40 Rs. 50 (Rs. 70)*
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Wheel Active Rin Shakti Surf Excel Blue
Price for 0ne kg pack
Rs. 26 Rs. 42 Rs. 60 (Rs. 85)* Rs. 99 (Rs.130)*
P&G Rs. 23 (Rs. 43)* Rs. 50 (Rs. 70)* Henkel Rs. 21 Rs. 42
Mr. White Henko Stain Champion *Prices before price cut. Source: Compiled by IKC, March 2004.
Rs.46 (Rs.89)* Rs.99 (Rs. 135)* Rs. 42 Rs. 90
Henkel SPIC Henkel SPIC India Ltd. (HSIL), a 66 % subsidiary of Henkel KgaA, Germany, entered India in 1989. Detergent was the single largest contributor to the company's revenues followed by toilet soaps, talcum powders and personal grooming products. HSIL also exported detergents to Taiwan, Oman, Bahrain, Cyprus, Sri Lanka and Mauritius. In 2004, HSIL offered 25 products through 32 depots and 2,100 distributors across the country covering 3,000 towns in urban India. In 1998, HSIL made several brand acquisitions. The company acquired Calcutta Chemicals and Detergent India Ltd from Shaw Wallace bringing brands such as Margo, Neem, Tuhina, Chek, Super Chek and Regal into its portfolio.
15 HSIL launched the Henko Stain Champion Powder (HSCP) in July 1994, championing the cause of stain removal. Henko Power Pearls was an extension of Henko Stain Champion. While, HSCP priced at Rs 87 for a kg, targeted the premium end of the market, Henko Power Pearls priced at Rs 155 per kg, targeted the upper end of the compact segment. HSIL launched Mr. White in 1998 in the middle segment to counter Rin Supreme and Rin Shakti. HSCP was launched to make the Surf user try Henko. Surf, which was considered a gold standard among detergents, was the biggest competitive barrier. HSIL tried to create dissonance among consumers by positioning HSCP as a better option with ‘New Technology’ compared to the brand that they used more out of habit. The target audience consisted of ‘Young, Savvy women’ in SEC (Socio Economic classification) A, B and C households residing in metros and mini-metros who used Surf. The advertisement campaign portrayed HSCP as the powder of the new technology age as against the ‘blue detergent powder’ (Surf) that the older generation used.
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In late 2001, HSIL conducted a road show in Mumbai to market its compact detergent brand Henko Power Pearls through the promotion “Ultimate cleanliness inside and out”, with model and actor Aman Verma as the brand ambassador. Verma visited various areas in Mumbai such as Juhu, Andheri, Mulund, Chembur and Powai in a car behind the road show truck and presented a surprise gift to those who were users of Henko Power Pearls. In 2003, HSIL’s market share in the compact detergent segment stood at around 5%.
1998 61.50 57% 65 43%
1999 69 58% 72 42%
2000 76 58% 80 42%
2001 85 52% 85 40% 85 8%
2002 85 55% 85 35% 85 10%
2003 70 65% 70 30% 68 5%
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Price/ 500 gms Surf Excel Market Share Price/ 500 gms Ariel Market Share Henko Power Price/ 500 gms Pearls Market Share Source: ORG- MARG AC Nielson.
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Exhibit: III Market Share and Prices in the Compact Segment
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When HLL relaunched Rin Shakti in January 2004 with the 100% dissolution proposition15, Henkel followed suit with its Mr. White. Mr. White was relaunched in February 2004 with an enhanced formulation, new fragrance and in a new international Gusset16 pack. Mr. White which claimed to be the only eco-friendly product (because it used zeolites instead of phosphates in its formulation) promised superior product performance and a unique dazzling whiteness with a fresh new fragrance after the relaunch. Research revealed that consumers believed in people with authority and experience, such as scientists, doctors, teachers etc. Based on the findings, the new TV commercial for the brand used a scientist as the main protagonist. The new Mr. White Powder was priced at Rs.42 for the 1 kg Gusset pack, a rupee higher than what it was before the relaunch. The product had a strong presence in Andhra Pradesh, Kerala and Tamil Nadu. Mr. White contributed around Rs.50 crore to HSIL's total business. The brand had a market share of around 13% in the middle segment which was estimated at around Rs.400 crore. HSIL targeted a market share of 20 % (in the middle segment) for Mr. White by the end of 2004.
15 16
Proposition of the detergent powder completely dissolving in water. Gussets can be found on the bottom or sides of a bag, and refers to a fold back into the bag. They give the bags more depth as opposed to just a flat bag.
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Looking Ahead P&G believed its lean business model would allow it to continue the onslaught. Each of P&G’s distributors was doing business worth Rs. 65 to 70 crores, with returns on investment in excess of 25%. The model was so successful that even HLL wanted to emulate it. In late 2003, HLL appointed two distributors in Mumbai to serve the 300 odd self-service stores in the city. The company also initiated a pilot project in key urban markets, by putting one distributor in charge of all its categories – soaps and detergents, personal care, foods and beverages. Traditionally, it had separate distributors for each category. Meanwhile, driven by its new mass-market orientation, P&G was scaling up its distribution model. The 30 distributors, who serviced around 800 towns directly, were setting up branches. The branches were expected to come up in around 2000 towns by 2005.
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As competition intensified in the Indian detergent market, price wars seemed to be the order of the day. Henkel decided to drop the price of its brand, Henko Stain Champion, from Rs 90 to Rs 75 per kg. HLL decided to make Rin Shakti more affordable by slashing the price of the one kilo pack from Rs. 42 to Rs.27.17 The drastic price cuts by HLL and P&G raised concerns among customers about a possible dilution in the quality of products. The Consumer Guidance Society of India (CGSI)18 initiated a probe into the matter. CGSI chairman Arvind Shenoy said,
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“We suspect quality degradation in the detergent brands which underwent price cuts, as the price of raw material LAB (linear alkyl benzene) has been rising. Either the companies were operating on very high margins earlier, or the quality might have taken a beating.” 19
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CGSI had collected samples of all the brands in question to test the quality and check if there was any reduction in the percentage of active ingredient. Meanwhile it remained to be seen whether the price cuts would escalate into a full-fledged war. It also remained to be seen if P&G would enter the mass detergent market or resign itself to its fate as a niche player.
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“HLL likely to slash Rin Shakti’s price,” www.moneycontrol.com, 24th March 2004. Founded in 1966, CGSI is one of the earliest consumer organizations in India. It was the first to demand a Consumer Protection Act with the Consumer Court, and this was implemented in 1986. 19 Namrata Singh, “HLL, P&G price cut moves raises doubts on quality,” The Financial Express, 24th March 2004. 18
17 Exhibit: IV TV commercial (stripe ad) for Tide
...mundwa denge hum." (If you can show me greater whiteness at a lesser price, I’ll shave off my moustache) Just as he finishes his sentence he gets a shock when the number 23 swishes past his belly and makes his shirt whiter.
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As a jeep screeches to a stop, a politician gets out and hollers, "Arre kaha na bhai, isse zyada safedi kam dam mein lake dikhaiye apni moochva...
Exhibit: V TVC for Rin Shakti
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MVO: "Chaunk gaye. Tide In the next shot while his sycophants safedi ab sirf taiyis rupey enjoy a good laugh our friend stands mein." (Surprised! Tide now at just Rs. embarrassed minus his mustache. 23) Super: 'Rs. 23' Source: www.agencyfaqs.com
With a glum face a man stands despondently.
However, his face lights up when he notices something in his suitcase.
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MVO: "Naya Rin. Aise waise powder mein hote hain mitti jaise tatva...
...sirf Rin achchi tarah ghule, aur poori shakti se jagaye double safedi." (New Rin. Other powders leave a residue like mud…only Rin dissolves well and with full strength gives double whiteness)
Dressed in his shining white shirt and brimming with confidence our friend is all set to take on the world.
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With a happy smile he picks up a shining white shirt from the suitcase.
Struck by his white shirt a few boys stop short and gape at him, while he walks down coolly. Jingle: "Aaj na roke koyi double safedi mili."(Nobody will stop today, have got double whiteness)
As he continues down the road, he gathers more compliments as a group of girls come and dance beside him. Jingle: "Dekho dekho, bijli giri re... (See..lightening has fallen)
19 Making his way through many hostile looks, he walks into a dabha, and encounters the owner, standing with a suspicious and threatening look.
However, unmindful of everything, he suddenly speaks up, "Double lassi."
Stunned initially by this request 'sardarji' soon gives him a warm reception, "Oaeh, welcome to Punjab."
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...bijli giri re bijli giri." First impressing the girls then shocking the men our hero has a great time.
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Welcoming their new guest the crowd MVO: "Ghul mil ke de, double safedi, soon breaks into a dance. naya Rin." (Dissolves well to give double whiteness, new Rin) Source: www.agencyfaqs.com
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low-end
detergent
battle,”
