Learnings from Competitive Challenges in the Indian FMCG Sector
Last month, my article titled 'Hindustan Unilever Limited: Competing with Goliath' focused on the 'mistakes' HUL made in its strategy when major competition from Nirma first emerged in the 1970s and 1980s. With 22,000 views and 1,900 likes the article was received extremely well. By 1985, the once dominant Surf brand by HUL was reduced to a mere 8.4 per cent market share and Nirma detergent brand gained a market share of 58.1 per cent.
This article shares the strategies, processes and the final product by HUL to counter competition in the low price segment of detergent powders in India in the late 1980s. Even two decades later, this case provides valuable insights to students, researchers and management practitioners on brand positioning, marketing and new product development.
Project STING by HUL
It is popularly believed that they launched Project STING: Strategy to Inhibit Nirma Growth. The discussions were led by HUL Chairman Dr. Ashok Ganguly, and were attended by senior managers. The objective was not just launching a new product, but a change in the business model. Once again HUL was focusing on a new stakeholder with unique requirements. The HUL Team had to come up with an alternative that had the following characteristics:
• High quality
• Lack of toxicity with minimum pollution
• Sufficient durability for rough transportation
• Tolerant of heat and dust with a long shelf life
• High value for money
• Low unit price and high functionality
• Self-visibility and display
• Packaging and contents that were disposable and dispensable
• Availability in small packages
• Strong but cost-efficient marketing campaign
• Wide distribution throughout rural India
R&D for A New Product
While the company was pushed to rethink its detergent market strategy, the approach was not just focused on responding to competition or capturing a new market. The HUL R&D Team was given a mandate to produce a low-cost product that gives better performance in terms of whiteness, but without side effects of wear and tear and itching caused by Nirma’s high soda ash content. While product affordability was the prime concern, consumers’ safety was equally important. After a successful test market in 1987, HUL finally launched Wheel detergent in 1988, priced slightly higher than its direct competitor, Nirma.
Redefining the 4Ps of Marketing
The journey however did not end with R&D and developing a new product that was a match to existing competition. HUL used its scale and expertise as a FMCG behemoth to redefine its business model from all angles—pricing, production, promotion and distribution. It decided to learn from the experience of small manufacturing plants in India. In order to provide the product at an affordable price for the price-sensitive customer, and making this introduction sustainable, it decided to reduce the cost of production by using third party production and locating the plants closer to the areas where raw material was available. The semi-automated production units replicated the small-scale manufacturing model and benefitted from low costs. HUL also modified its distribution strategy for Wheel. Traditionally HUL products are given to carrying and forwarding (C&F) agents, who in turn supply the products to stockists, and finally sell them through retailers. In case of Wheel, HUL by-passed C&Fs and sent the product directly to stockists. Eventually, HUL started Stepan Chemicals, a subsidiary company in Punjab, and entirely outsourced to it the production and distribution of Wheel.
Focus on Rural Consumers
In fact, in creating Wheel, HUL also kept in mind that rural consumers would wash their clothes in rivers and other water bodies commonly used by village folk. So it ended up substantially reducing the amount of oil that Wheel contained, thereby making it as environmentally benign as possible. By 1989, Wheel became the second largest brand in India. By 1990, Wheel was larger than any other HUL brand in India. Pushed by competition, and a changed business model, led to this success—not only in scale and reach, but also in revenues. It registered a 25 per cent growth in profits between 1995 and 2000. Its market capitalization grew to US$ 12 billion, an annual growth of 40 per cent. By 2002, HUL and Nirma had equal market share of 38 per cent each. HUL had risen from its 7 per cent market share of 1987, and Nirma had fallen from its 61 per cent market share during the same period. By 2010–11, Nirma’s market share had fallen to 10 per cent.
Intellectual Arrogance by HUL?
Summarizing the HUL approach of using its scale to its advantage and providing a benefit to a new category of consumers through a revised strategy, Dhaval Buch, now Chief Procurement Officer at Unilever said,
Later when HUL was able to choose its scale, its technology and the speed in order to introduce Wheel as an alternative to Nirma in the low-end market, and the resources that we were able to focus for this purpose, led to the result that we have a much larger market than Nirma. This exemplifies in a way, how our scale can be a disadvantage as well as a huge advantage.’
New Competition from P&G
The story doesn’t end there. By the time HUL was able to cater to the lower end of the detergent market, it faced another challenge in the early 1990s. This was from Procter & Gamble’s premium product ‘Ariel’ that was eating into Surf’s market share. This competition was at the higher end of the market. Unlike in the case of Nirma, HUL swiftly responded with a super-premium product ‘Surf Ultra’ that was based on the advanced enzyme technology just like Ariel. While HUL researchers had developed this technology much earlier, their market research showed that India was not ready for a super-premium product. However, with the launch of Ariel, HUL was quick to gauge that the growing middle class in India was ready for aspirational products. Compressing conventional methods of new product development and using the might of its scale to carry out each stage of the development process in parallel, HUL reduced the lead time from two years to four months. Surf Ultra was launched in February 1992, and was received very well by target consumers.
Lessons from Competitive Challenges
After these two experiences with Nirma and Ariel, HUL proactively studied various segments within the detergent market, identified the gaps, and launched specific products to fill those gaps. The new methods of production and distribution learnt in the course of Project STING helped HUL replicate its success in many other cases. Extending the value proposition used in Wheel, S.M. Datta, Chairman of HUL from 1990–96, endeavoured to make HUL the lowest cost and highest quality producer in a variety of products. Through this approach, HUL gradually repositioned itself at the frontier of emerging markets in India and gained substantial success in engaging with a new set of stakeholders. Even Unilever benefitted from HUL’s Wheel success story. It replicated the low-cost high-quality model followed by HUL in many other emerging economies including Brazil, Indonesia, the Philippines and Congo. During the Asian Economic Crisis of the late 1990s, Unilever made its products available in smaller size packaging so as to encourage consumers to continue to buy their products.
In 2008, on the occasion of HUL’s 75th anniversary, Dr Ganguly who had led Project STING said, ‘We often talk of the opportunities at the bottom of the pyramid these days. But the bottom of the pyramid was discovered way back by HUL. We discovered that wealth lies in rural India, and we reached out to the wider market base with the low cost Wheel and the Re 1 sachet of shampoo. The creation of the whole Wheel brand on an entirely different business model is a great tribute to the marketing prowess of Hindustan Unilever. None of this was possible without powerful human resources development within the company.’
This article shares the strategies, processes and the final product by HUL to counter competition in the low price segment of detergent powders in India in the late 1980s. Even two decades later, this case provides valuable insights to students, researchers and management practitioners on brand positioning, marketing and new product development.
Project STING by HUL
It is popularly believed that they launched Project STING: Strategy to Inhibit Nirma Growth. The discussions were led by HUL Chairman Dr. Ashok Ganguly, and were attended by senior managers. The objective was not just launching a new product, but a change in the business model. Once again HUL was focusing on a new stakeholder with unique requirements. The HUL Team had to come up with an alternative that had the following characteristics:
• High quality
• Lack of toxicity with minimum pollution
• Sufficient durability for rough transportation
• Tolerant of heat and dust with a long shelf life
• High value for money
• Low unit price and high functionality
• Self-visibility and display
• Packaging and contents that were disposable and dispensable
• Availability in small packages
• Strong but cost-efficient marketing campaign
• Wide distribution throughout rural India
R&D for A New Product
While the company was pushed to rethink its detergent market strategy, the approach was not just focused on responding to competition or capturing a new market. The HUL R&D Team was given a mandate to produce a low-cost product that gives better performance in terms of whiteness, but without side effects of wear and tear and itching caused by Nirma’s high soda ash content. While product affordability was the prime concern, consumers’ safety was equally important. After a successful test market in 1987, HUL finally launched Wheel detergent in 1988, priced slightly higher than its direct competitor, Nirma.
Redefining the 4Ps of Marketing
The journey however did not end with R&D and developing a new product that was a match to existing competition. HUL used its scale and expertise as a FMCG behemoth to redefine its business model from all angles—pricing, production, promotion and distribution. It decided to learn from the experience of small manufacturing plants in India. In order to provide the product at an affordable price for the price-sensitive customer, and making this introduction sustainable, it decided to reduce the cost of production by using third party production and locating the plants closer to the areas where raw material was available. The semi-automated production units replicated the small-scale manufacturing model and benefitted from low costs. HUL also modified its distribution strategy for Wheel. Traditionally HUL products are given to carrying and forwarding (C&F) agents, who in turn supply the products to stockists, and finally sell them through retailers. In case of Wheel, HUL by-passed C&Fs and sent the product directly to stockists. Eventually, HUL started Stepan Chemicals, a subsidiary company in Punjab, and entirely outsourced to it the production and distribution of Wheel.
Focus on Rural Consumers
In fact, in creating Wheel, HUL also kept in mind that rural consumers would wash their clothes in rivers and other water bodies commonly used by village folk. So it ended up substantially reducing the amount of oil that Wheel contained, thereby making it as environmentally benign as possible. By 1989, Wheel became the second largest brand in India. By 1990, Wheel was larger than any other HUL brand in India. Pushed by competition, and a changed business model, led to this success—not only in scale and reach, but also in revenues. It registered a 25 per cent growth in profits between 1995 and 2000. Its market capitalization grew to US$ 12 billion, an annual growth of 40 per cent. By 2002, HUL and Nirma had equal market share of 38 per cent each. HUL had risen from its 7 per cent market share of 1987, and Nirma had fallen from its 61 per cent market share during the same period. By 2010–11, Nirma’s market share had fallen to 10 per cent.
Intellectual Arrogance by HUL?
Summarizing the HUL approach of using its scale to its advantage and providing a benefit to a new category of consumers through a revised strategy, Dhaval Buch, now Chief Procurement Officer at Unilever said,
‘This is an example
of how we bring our strengths into focus and gain a competitive advantage.
Initially the feeling was that, low-end detergents was not a market which could
grow. We (HUL) already cover such a large market in the detergent area with Surf.
So why go into that small low-end market? In this case, scale was working
towards our disadvantage because it was building in us what can be called as
‘intellectual arrogance’.
Later when HUL was able to choose its scale, its technology and the speed in order to introduce Wheel as an alternative to Nirma in the low-end market, and the resources that we were able to focus for this purpose, led to the result that we have a much larger market than Nirma. This exemplifies in a way, how our scale can be a disadvantage as well as a huge advantage.’
New Competition from P&G
The story doesn’t end there. By the time HUL was able to cater to the lower end of the detergent market, it faced another challenge in the early 1990s. This was from Procter & Gamble’s premium product ‘Ariel’ that was eating into Surf’s market share. This competition was at the higher end of the market. Unlike in the case of Nirma, HUL swiftly responded with a super-premium product ‘Surf Ultra’ that was based on the advanced enzyme technology just like Ariel. While HUL researchers had developed this technology much earlier, their market research showed that India was not ready for a super-premium product. However, with the launch of Ariel, HUL was quick to gauge that the growing middle class in India was ready for aspirational products. Compressing conventional methods of new product development and using the might of its scale to carry out each stage of the development process in parallel, HUL reduced the lead time from two years to four months. Surf Ultra was launched in February 1992, and was received very well by target consumers.
Lessons from Competitive Challenges
After these two experiences with Nirma and Ariel, HUL proactively studied various segments within the detergent market, identified the gaps, and launched specific products to fill those gaps. The new methods of production and distribution learnt in the course of Project STING helped HUL replicate its success in many other cases. Extending the value proposition used in Wheel, S.M. Datta, Chairman of HUL from 1990–96, endeavoured to make HUL the lowest cost and highest quality producer in a variety of products. Through this approach, HUL gradually repositioned itself at the frontier of emerging markets in India and gained substantial success in engaging with a new set of stakeholders. Even Unilever benefitted from HUL’s Wheel success story. It replicated the low-cost high-quality model followed by HUL in many other emerging economies including Brazil, Indonesia, the Philippines and Congo. During the Asian Economic Crisis of the late 1990s, Unilever made its products available in smaller size packaging so as to encourage consumers to continue to buy their products.
In 2008, on the occasion of HUL’s 75th anniversary, Dr Ganguly who had led Project STING said, ‘We often talk of the opportunities at the bottom of the pyramid these days. But the bottom of the pyramid was discovered way back by HUL. We discovered that wealth lies in rural India, and we reached out to the wider market base with the low cost Wheel and the Re 1 sachet of shampoo. The creation of the whole Wheel brand on an entirely different business model is a great tribute to the marketing prowess of Hindustan Unilever. None of this was possible without powerful human resources development within the company.’
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