TEAM ELASTICITY

CPG Corp. Case Study Analysis

CPG should adopt a strategy similar to the ‘Winning in Many Indias’ strategy of Hindustan Unilever
Limited (HUL). The focus should be on dividing the heterogeneous Indian market into clusters having
similar buying behaviours and diversifying its brand portfolio by creating product variants suited to local
tastes and preferences and marketing them through the means of E-commerce, the channel of the
present and the future.

CPG must capitalise its efficiencies of a centralised structure while also introducing localization
strategies and gain points of differentiation in various parts of the country. CPG can increase its
spending to understand consumer profiles in rural areas and Tier-II, III cities of India. It can effectively
make use of data analytics and technology to target its customers better and shelve the right products
at the right places at the right time. This will help in investing in the productive areas and improving the
supply chain for CPG hair care products.

There are various local competitors who have presence in Central India; many of them will not feature in
CPG’s radar if only a pan-India or 4-region approach is followed. For example, Consumers in Tier-III
towns in Bihar are price conscious and are moving to local brands because of lower relative prices. The
local brands in Central India have 50% market share in Conditioner category and 40% market share in
Shampoo category (Exhibit 3).

There is also a need to reduce prices for their products in such areas as the market share here is
inversely related to the relative price index (Exhibit 3) and price elasticity is very high (Exhibit 4). As the
rural economy is experiencing a consumption slowdown, it makes sense to lower its price points to
increase demand.

To reduce costs, CPG should stop producing ‘Ananta’ in its factory in Assam as there is no demand for it
in the North & East region. This factory should focus on producing ‘Radiant’ only in the short term so
that money is invested in productive areas only. It will also help in reducing incremental distribution
costs of 11% per ton for conditioners. To serve the rural and low-tier cities of Central and East India
better, a factory should be set up in, say, Madhya Pradesh, to focus on economies of scale of producing
‘Ananta’ and ‘Radiant’ and reaching them with lower prices.

To drive channels of the future, CPG should invest in developing technology to allow retailers to place
orders online, reducing their dependence on the distributors and increasing their margins. The MSMEs
or distributors are also facing liquidity issues which act as a hindrance in the process. By pointing out the
demand and supply mismatches, this will also help in reducing their attrition as they will be able to
shelve products which are in demand by the customers. This will increase distribution precision and
provide CPG and retailers with insights to consumer buying behaviours.

There is massive potential in increasing their turnover contribution from the E-commerce channel. The
use of ‘CPG Now’ app would help track customer insights, help in reaching them with the right
advertisements, increase their engagement with the brand and increase sales across its different
offerings. The gross margins are also the highest for the E-commerce channel (Exhibit 7). The growth
and profitability from this channel would help it deliver sustainable growth.

To enable premiumisation of its products and upgrade consumer choices, CPG needs to spend on
acquisitions and R&D to improve its product performance. For example, in southern India, the product
performance of ‘Ananta’ is low, which needs to be upgraded to reach at least in par with Competitor Y
as despite the same price as Brand P, its market share is low.

In Kerala, CPG should introduce a regional brand variant as there is huge market potential and a strong
belief in natural and curative products. To cater to Kerala consumers, CPG can strategically acquire a
local Ayurveda Hair Oil company to solve the problem of frizzy hair during monsoons. This would also
enable CPG to counter Competitor X’s Shampoo + Conditioner (2 in 1), which will build a foundation for
organic revenue growth in the region. It can be introduced as a premium product to prevent
cannibalization of its existing products.

Since the aim of CPG is to induce consumers to start using conditioners a separate product, instead of
introducing a 2in1 or 3in1 variants of shampoos like its competitors, CPG should look forward to
expanding its product portfolio by introducing a serum as well, which in addition to shampoo and
conditioner, would help in achieving required consumer benefits such as less drying of hair, reduced hair
fall and hair shine improvement.

Hair Serum currently constitute only 3% share in the total Hair-care market, which means there exists a
tremendous potential because of the benefits offered. This would help in increasing conversions in cities
such Bangalore and other urban/semi-urban areas of India.

Consumers are increasingly becoming conscious of their environmental footprint and introducing
sustainable packaging will act as a great investment for CPG to develop a positive image in the eyes of
Tier-I cities’ consumers. Such packaging will help in delivering sustainable growth in revenue in the short
term.

Thus, CPG should look forward to introduce innovative packaging by using reusable, recyclable and
compostable plastic packaging. CPG can also organise beach-cleanups in cities such as Mumbai to create
awareness and build on its eco-friendly image to gain traction of such consumers.

Conclusion

CPG needs to find the right balance between its efficiencies of having strong presence in general and
modern trade, while making the use of the E-commerce channel, customising its products to local
preferences. This can be achieved by using clustering techniques and developing customer insights
through the use of technology to enable smooth decision making. This will further lead to building
customer-focused brands through the use of ‘Winning in Many Indias’ strategy.