India: Strategies for Consumer Goods

(page 2 of 2)

Domino's (DPZ) recently introduced a pizza priced at 30 rupees (64¢) for the Indian market, a first of its kind. Meanwhile, because consumers are showing a preference for snacks in smaller units, Nestlé introduced Kit Kat Minis in India, a product it sells elsewhere.

But in the race to introduce new products to serve changing consumer needs, it's important to be selective. Each new product a company launches has the potential to increase its operating complexity. Those added costs could reverse any revenue gains. Just as recessions are a good time to introduce new products for a changing consumer, it's also a time to reduce complexity by pruning unprofitable product lines or to reconsider the need for high-end products at a time when shoppers want better value.

The downturn is also an opportunity to spur growth from core customers in big traditional product segments. Consumer-products company Marico is trying to get consumers to use its Parachute brand of hair oil more frequently by promoting the traditional habit of oil massage, hoping to gain from category expansion. There are lessons here for other traditional product sectors like toothpaste, soaps, and shampoos, which have witnessed modest volume growth in the past.

Costs: Selling at a price consumers can afford
Shoppers are clamoring for prices they can afford, and with dropping commodity prices, many companies are passing along cost reductions. That's what Hindustan Unilever did with Lifebuoy, its leading soap brand, which is particularly popular in rural India. In January 2009 the company reduced the price from 13 rupees (28¢) to 12 rupees (26¢) on 90-gram bars. Even a 1-rupee price cut can be significant in a country with a per capita income of $710. Meanwhile, companies such as Godrej Consumer Products and Nestlé India are taking other steps that will allow them to reduce prices aggressively while making sure margins aren't eroded—moves such as improving supply chains by shifting suppliers, ensuring they're not caught with excess inventory as consumer demand fluctuates, and looking for ways to reduce operating costs.

For purveyors of premium products, costs become even more critical—India's consumers just aren't willing to pay high prices. There are three routes for companies hoping to avoid overpriced goods: Acquire a less expensive brand, price products more carefully, and launch new value-focused brand extensions, such as different package sizes. Dove shampoo in India successfully introduced a 3-rupee (6¢) sachet in 2007 that now accounts for more than 30% of the brand's hair-care sales. The sachet was launched before the downturn, as part of a strategy to reach lower-end consumers.

Channels: Shifting to traditional stores
In urban India, consumer-products companies are realizing the importance of traditional trade. Hindustan Unilever, Marico, and Dabur all have programs that give mom-and-pop stores in India's cities the same type of discounts on branded goods that are commonly provided to modern retailers. In exchange, the consumer-goods companies get point-of-sale visibility and dominant display—the goal is to tap the large loyal customer base that's typical of big-city mom-and-pop outlets.

Winning companies are doubling down on traditional trade in rural areas, too. Right now consumer demand for fast-moving consumer goods is holding up well in rural India—and the regions represent a major opportunity. For example, more than 40% of all purchases of biscuits, a household staple in India, take place outside of urban areas, according to Bain & Co. research. Success in rural areas starts by establishing the right product mix for local stores, adapting promotions, and ensuring a tight focus on route-to-market management. That's why Clinic Plus, Hindustan Unilever's leading shampoo brand, is aggressively targeting its half-a-rupee sachet to rural consumers through extensive trade promotions.

Competition: Investing ahead of the pack
Staying in front means investing for the future—ahead of the competition. Consider the moves by Marico. Building on its core business of healthy foods, Marico has expanded its Saffola cooking oil brand to include extensions such as Saffola foods for diabetics and Saffola Zest baked snacks. While the Indian company began the brand-extension strategy before the downturn, it hasn't let the economic turbulence curtail its efforts. The moves also help detract newcomers from establishing strong positions in the downturn.

For consumer-products companies in India, moving up in the downturn means focusing on selling only the right products, becoming more strategic about pricing, following consumers to where they shop, and investing ahead of the competition to strengthen a core market segment or help make the most of a new one.

Ashish Singh is the Managing Director of Bain & Company, India, and Mike Booker leads Bain & Company's Asia-Pacific Consumer Products & Retail practices. Sandeep Barasia is a partner in the India office and a member of the Retail & Consumer Products practices.

Business Exchange

Track and share business topics across the Web.