Selling in Rural India

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot
afford to ignore.

TO expand the market by tapping the countryside, more and more MNCs are foraying into India's rural
markets. Among those that have made some headway are Hindustan Lever, Coca-Cola, LG Electronics,
Britannia, Standard Life, Philips, Colgate Palmolive and the foreign-invested telecom companies.

Opportunity

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot
afford to ignore. With 128 million households, the rural population is nearly three times the urban.

As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural output to
200 million tonnes from 176 million tonnes in 1991, rural India has a large consuming class with 41 per
cent of India's middle-class and 58 per cent of the total disposable income.

The importance of the rural market for some FMCG and durable marketers is underlined by the fact that
the rural market accounts for close to 70 per cent of toilet-soap users and 38 per cent of all two-wheeler
purchased.

The rural market accounts for half the total market for TV sets, fans, pressure cookers, bicycles, washing
soap, blades, tea, salt and toothpowder, What is more, the rural market for FMCG products is growing
much faster than the urban counterpart.

The 4A approach

The rural market may be alluring but it is not without its problems: Low per capita disposable incomes
that is half the urban disposable income; large number of daily wage earners, acute dependence on the
vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions;
poor roads; power problems; and inaccessibility to conventional advertising media.

However, the rural consumer is not unlike his urban counterpart in many ways.

The more daring MNCs are meeting the consequent challenges of availability, affordability, acceptability
and awareness (the so-called 4 As)

Availability

The first challenge is to ensure availability of the product or service. India's 627,000 villages are spread
over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However,
given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung
villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more
than 5,000. Marketers must trade off the distribution cost with incremental market penetration. Over the
years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution
system which helps its brands reach the interiors of the rural market. To service remote village,
stockists use autorickshaws, bullock-carts and even boats in the backwaters of Kerala. Coca-Cola, which
considers rural India as a future growth driver, has evolved a hub and spoke distribution model to reach
the villages. To ensure full loads, the company depot supplies, twice a week, large distributors which
who act as hubs. These distributors appoint and supply, once a week, smaller distributors in adjoining
areas. LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-
urban market. To tap these unexplored country markets, LG has set up 45 area offices and 59
rural/remote area offices.

Affordability

The second challenge is to ensure affordability of the product or service. With low disposable incomes,
products need to be affordable to the rural consumer, most of whom are on daily wages. Some
companies have addressed the affordability problem by introducing small unit packs. Godrej recently
introduced three brands of Cinthol, Fair Glow and Godrej in 50-gm packs, priced at Rs 4-5 meant
specifically for Madhya Pradesh, Bihar and Uttar Pradesh — the so-called `Bimaru' States.

Hindustan Lever, among the first MNCs to realise the potential of India's rural market, has launched a
variant of its largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. The move is mainly targeted at the
rural market. Coca-Cola has addressed the affordability issue by introducing the returnable 200-ml glass
bottle priced at Rs 5. The initiative has paid off: Eighty per cent of new drinkers now come from the
rural markets. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant and
ready-to-mix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and mutiserve sachet of
200 gm priced at Rs 15.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer
products that suit the rural market. One company which has reaped rich dividends by doing so is LG
Electronics. In 1998, it developed a customised TV for the rural market and christened it Sampoorna. It
was a runway hit selling 100,000 sets in the very first year. Because of the lack of electricity and
refrigerators in the rural areas, Coca-Cola provides low-cost ice boxes — a tin box for new outlets and
thermocol box for seasonal outlets.

The insurance companies that have tailor-made products for the rural market have performed well.
HDFC Standard LIFE topped private insurers by selling policies worth Rs 3.5 crore in total premia. The
company tied up with non-governmental organisations and offered reasonably-priced policies in the
nature of group insurance covers. With large parts of rural India inaccessible to conventional advertising
media — only 41 per cent rural households have access to TV — building awareness is another
challenge. Fortunately, however, the rural consumer has the same likes as the urban consumer —
movies and music — and for both the urban and rural consumer, the family is the key unit of identity.
However, the rural consumer expressions differ from his urban counterpart. Outing for the former is
confined to local fairs and festivals and TV viewing is confined to the state-owned Doordarshan.
Consumption of branded products is treated as a special treat or indulgence.

Hindustan Lever relies heavily on its own company-organised media. These are promotional events
organised by stockists. Godrej Consumer Products, which is trying to push its soap brands into the
interior areas, uses radio to reach the local people in their language.

Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural households. It
doubled its spend on advertising on Doordarshan, which alone reached 41 per cent of rural households.
It has also used banners, posters and tapped all the local forms of entertainment. Since price is a key
issue in the rural areas, Coca-Cola advertising stressed its `magical' price point of Rs 5 per bottle in all
media.LG Electronics uses vans and road shows to reach rural customers. The company uses local
language advertising. Philips India uses wall writing and radio advertising to drive its growth in rural
areas.

The key dilemma for MNCs eager to tap the large and fast-growing rural market is whether they can do
so without hurting the company's profit margins. Mr Carlo Donati, Chairman and Managing-Director,
Nestle, while admitting that his company's product portfolio is essentially designed for urban consumers,
cautions companies from plunging headlong into the rural market as capturing rural consumers can be
expensive. "Any generalisation" says Mr Donati, "about rural India could be wrong and one should focus
on high GDP growth areas, be it urban, semi-urban or rural."

WHAT MAKES RURAL INDIA ATTRACTIVE?

It is an upcoming market and the following facts substantiate this-

800 million people 

Estimated annual size of the rural market 

• FMCG Rs 65,000 Crore

• Durables Rs 5,000 Crore

• Agri-inputs (incl. tractors) Rs 45,000 Crore

• 2 / 4 wheeler vehicles Rs 8,000 Crore

In  2001-02, LIC sold 55 % of its policies in rural India.

Of two million  BSNL mobile connections, 50% are in small towns/villages.

Of the six  lakh villages, 5.22 lakh have a Village Public Telephone (VPT)

41  million Kisan Credit Cards issued (against 22 million credit-plus-debit cards in urban) with
cumulative credit of Rs 977 billion resulting in tremendous liquidity.

42 million rural households are availing banking services  in comparison to 27 million urban
households.

Investment in formal  savings instruments: 6.6 million households in rural and 6.7 million in urban
India.

Nano-Marketing or sachets worked well in rural India and there  is ample scope for the products to be
accepted by consumers if the price is competitive.

FMCG COMPANIES IN RURAL MARKETS

INTRODUCTION
Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods (CPG), are products
that have a quick turnover, and relatively low cost. Consumers generally put less thought into the
purchase of FMCG than other products. The absolute profit made on a FMCG product is less; however
they are generally sold in high numbers. Hence profit in FMCG goods generally scales with the number
of goods sold, rather than the profit made per item.
The classification generally includes a wide range of frequently purchased consumer products including:
toiletries, soaps, cosmetics, teeth cleaning products, shaving products, detergents, and other non-
durables such as glassware, bulbs, batteries, paper products and plastic goods. The category may
include pharmaceuticals, consumer electronics and packaged food products and drinks, although these
are often categorized separately.
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of
US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution
network, intense competition between the organized and unorganized segments and low operational
cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain
gives India a competitive advantage.
The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration
level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair
wash etc in India is low indicating the untapped market potential. Burgeoning Indian population,
particularly the middle class and the rural segments, presents an opportunity to makers of branded
products to convert consumers to branded products.
Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200
million people expected to shift to processed and packaged food by 2010, India needs around US$ 28
billion of investment in the food-processing industry.
NEED OF FMCG IN RURAL AREAS
After years of growth derived primarily from the urban markets, the FMCG companies have now realized
that India lies in its rural villages. So much so that rural marketing has become the latest marketing
mantra of most FMCG majors. With extensive competition not only from MNCs but also from the
numerous regional players and the lure of an untapped market has driven the marketers to chalk out
bold new strategies for targeting the rural consumer in a big way. To gauge the extent of shift in focus
of the FMCG giants just sample this: recently Godrej Consumer Products Ltd (GCPL) did something that
it hadn't done before; it introduced smaller pack sizes of some of its soaps and put them on the market
for Rs 5. And FMCG giant HLL has just launched a green variant of Lifebuoy soap, which, it hopes will be
a winner in the rural areas. Also, don't be too surprised if you village folk having their hair washed and
dyed as they are only taking advantage of the live demonstrations conducted by Chennai-based
CavinKare Products. So it is clear that rural markets have caught the eyes of FMCG marketers and it is
being targeted through experiments in a big way.
Over 70% of India’s 1 billion plus population lives in around 627,000 villages in rural areas. This simply
shows the great potentiality rural India has to bring the much-needed volumes and help the FMCG
companies to bank upon the volume–driven growth. Also, the rural market has been growing steadily
over the years and is now bigger than the urban market for FMCG’s (53% share of the total market)
with an annual size in value terms currently estimated at around 50,000 crores. It is a definite boon in
disguise for the FMCG majors who have already reached the plateau of their business curve in urban
India and are desperately seeking new ways to increase sales.
To drive home the potential of rural India just consider some of these impressive facts about the rural
sector. As per the National Council for Applied Economic Research (NCAER) study, there are as many
'middle income and above' households in the rural areas as there are in the urban areas. There are
almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the
highest income level there are 2.3 million urban households as against 1.6 million households in rural
areas. According to the NCAER projections, the number of middle and high-income households in rural
India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected
to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that
of urban India. But despite the high rural share in these categories, the rural penetration rates are low,
thus offering tremendous potential for growth.
Thus it becomes amply clear that rural India has to be the hot target in future for FMCG companies as it
presents a plethora of opportunities, all waiting to be harnessed. Many of the FMCG companies are
already busy formulating their rural marketing strategy to tap the potential before competition catches
up. All biggies in the industry be it HLL, Marico, Colgate-Palmolive or Britannia, are showing deep
interest in rural India. However not everything is all rosy and there exist some gray areas in the rural
strategies also.
DEVELOPING EFFECTIVE RURAL MARKETING STRATEGY
The winning strategy is to focus on the core competency such as technological expertise to design
specific products for the rural economy. The most remarkable example in this context is the launch of
sachets which has transformed the rural market considerably as packaging in smaller units and lesser-
priced packs increases the product’s affordability. Also companies like HLL and Nestle who have adopted
this strategy have benefited tremendously. Another case is of Britannia with its Tiger brand of low priced
and conveniently packaged biscuits becoming a great success story in rural markets.
Along with the cultural dynamics, the needs and latent feelings of the rural people have to be well
understood before launching products in rural segments. Marketers would do well to first understand this
and then designing products accordingly. For example, Cadburys has launched ChocoBix, a chocolate
flavored biscuit which is based on the consumer insight that rural mothers opt for biscuits rather than
chocolates for their children.
Another very important factor that needs to be looked at is the proliferation of spurious products. Rural
masses are illiterate people and they identify a product by its packaging (color, visuals, size etc.). So it
becomes very easy for counterfeit products to eat into the market share of established reputed brands.
The retailer also gets a larger profit on selling the counterfeits rather than the genuine products and
hence is biased towards the fakes. Brands such as "Jifeboy", "Bonds Talcum", "Funny & Lovely" etc.,
which are doing the rounds of rural markets, pose considerable challenge to rural marketers.
The rural market remains quite price-sensitive and thus squeezing costs at every stage is of vital
importance. Some FMCG giants like HLL are in process of enhancing their control on the rural supply
chain through a network of rural sub-stockists, who are based in the villages only. Apart from this to
acquire further edge in distribution HLL has started Project Shakti in partnership with Self Help groups of
rural women. A very significant step for change could be an effort to directly tap the haats, mandis,
melas and local bazaars which provide an opportunity of promoting the brand in front of a large
congregation of rural consumers.
Finally an effective rural strategy for FMCG companies must include the use of traditional media for
creating awareness about their products in the rural markets. The traditional media, with its effective
reach, powerful input and personalized communication system will help in realizing the goal. The
advantages of traditional media which make it a powerful marketing communication channel are:
accessibility is high, it involves more then one sense, interest arousal capability is high and minimum
cost. Brooke Bond Lipton India Ltd (BBLIL) markets its rural brands through magic shows and skits.
Barring a few, notable exceptions, rural marketing in India is still about a van campaign, a badly-made
commercial, a few painted walls and the occasional participation in village haats and melas. But then,
"rural" means different things to different people: from 500,000 people for consumer durables, to less
than 50,000 for fast-moving consumer goods. Still, it is heartening to note the increasing awareness of
the importance of rural markets - or, at least, of companies wanting to move beyond urban boundaries.
According to estimates by the Rural Marketing Agencies Association of India, the total budget for rural
marketing is only about Rs 500 crore (Rs 5 billion), compared to the over Rs 13,000 crore (Rs 130
billion) allotted to mass media. This is grossly inadequate to cover the huge potential for different
products in rural markets. Of course, clients' reluctance to spend big money for bigger results in rural
markets is because there are no standard performance yardsticks for judging the efficacy of the rural
marketing efforts.
Companies like Cavin Kare (Chik Shampoo, Meera Herbal Powder, Fairever Cream and so on), Anchor
(100 per cent vegetarian toothpaste), Ghadi detergent powder and Power soap are proof that regional
brands can become brands to reckon with. And don't forget Nirma, the most enduring example of a
brand that began as a regional player and is now a giant.

COLGATE PALMOLIVE INDIA LTD.

COLGATE PALMOLIVE - CIBACA TOOTHPASTE

Client: Colgate Palmolive
Product: Toothpaste
Brand: Cibaca
COMMUNICATION STRATEGY
Pitched against low priced products using Colgate lineage and the resultant global quality assurance at
the same price point
A well planned mobile marketing activity, which included interactive product oriented game, an
edutainment film using well know TV stars of Karnataka, besides product sampling, sales and placement
Result
Awareness for the brand has increased multifold and is reflected in the spontaneous increase in sales.
TOOTHPASTE MARKET PICKING UP
The company had undertaken a 17% price cut in flagship toothpaste brand Colgate Dental Cream (CDC)
in the first quarter and a substantial price reduction of Colgate Cibaca in the second half. These
reductions affected about 65% of the sales in FY04. Despite the lower value growth due to price
reductions, Colgate has been able to grow volumes in the toothpaste segment in FY04. Toothpaste
volumes grew by 3.5% during the year as against an 8.3% decline in FY03. The growth trend in first five
months of 2004 reveal a robust 7.9% growth in volumes as against a 5.1% decline during the same
period.
Successful launches
The company launched ‘Colgate Herbal White’ in the toothpaste range and ‘Colgate Motion Kids’ India’s
first battery powered toothbrush for kids in the Toothbrush category during the year. New launches in
the personal care portfolio include Palmolive Aroma range of Toilet Soap, Liquid Hand Wash, Shower Gel
and Talcum Powder. These have also contributed to the volume growth.
Strategy
• Colgate plans to focus on strengthening dominance and reignite growth in core oral care business. The
strategy would be to defend and grow base business and improve share in fast growing LPP segment.
• The company plans to build preference for Colgate Cibaca by leveraging on ‘Colgate’ equity and
matching prices of competitors to aggressively to counter LPP threat. The company plans expand market
by using local press to communicate value and through micro targeting within key LPP states.
Over the long term, Colgate plans build a strong presence in emerging PCP (Personal Care Products)
liquids categories. While this is small segment, the company expects the category to grow sharply over
the next 5-10 years and it would emerge as an important business in future. Personal products currently
account for 7% of revenues.
MARKETING MIX FOR COLGATE PALMOLIVE INDIA LTD
Colgate Palmolive is the market leader in the Indian oral care market, with a 51% market share in the
toothpaste segment, 48% market share in the toothpowder market and a 30% share in the toothbrush
market. Presently it is facing competition from no. 2 player HLL and more recently from small local
players (Meswak, Babool, Anchor ) and other MNC's such as Smithkline (Acquafresh ). The future
strategy of the company in Oral Hygiene Products for 2006-07 on the basis of 4 P's would be:
1. Products:
Colgate-Palmolive will provide the public with safe and effective products and will strive to produce
products that have the lowest practical impact on the environment. CP would come up with another
strong brand name other than Colgate and Cibaca. CP should also try to position some innovative
toothpaste with a brand name other than Colgate but under the umbrella of Colgate Palmolive. In
toothpowder, it would endorse the development of ‘Colgate Ayurvedic Toothpowder' focused toward
rural rich and consuming class. They should come up sachets of these tooth powder and position toward
rural population who buy in smaller lots. For Urban rich and consuming class, CP would come up with
the products on the basis of functional benefits. E.g. CP would expand Colgate Herbal brand to herbal
clove flavor, herbal lime and mint flavor etc. For toothbrush, CP woulc concentrate on functional benefits
and would launch different toothbrushes for different age groups. I would also launch a special
toothpaste and toothbrush for kids in the age group from 4-10 years.
2. Packaging:
To reduce the impact of our product packaging on the environment, we will work to improve the
environmental compatibility of all our packaging materials. Colgate endorses the worldwide hierarchy of
solid waste management : source reduction; recycling (including reuse); incineration; and land filling.
3. Price:
The price would largely be based on the competitor's price. From the niche products e.g. Colgate herbal,
Colgate Blue etc, I would charge higher premium than the generic dental white crème that would be
focused on consuming and lower income classes. The pricing would be done on the basis of price points
and the packaging would be customized on the basis of price points.
4. Promotion:
CP would be positioning Colgate dental white crème and toothpowder towards rural rich segment. For
rural consuming class CP would be endorsing Cibaca toothpaste. Most of the promotional expenses
would be T.V. media as it would have better reach to both urban and rural population by 2006-07. Apart
from T.V., FM radio for urban population and MW and SW radio would also be used for promotion
towards rural population. For urban population hoarding on national highways outside the metros would
provide better eye catch.
5. Place:
CP would try to increase product penetration to rural population as by 2006-07 the rural population who
is rich and consuming class would be 209Mn which is not much lesser than urban rich and consuming
population of 253Mn people. CP would try to increase the wholesalers to smaller towns and would track
the distribution path so that they are covering all the village areas around the towns.
6. Facilities:
Colgate-Palmolive is committed to the health and safety of our employees and the communities in which
we operate, as well as the protection of the environment. We will establish and maintain programs for
the operation and design of our facilities that meet or exceed applicable environmental, health and
safety laws and regulations.
7. Business:
Colgate-Palmolive will consider environmental, health and safety issues in all significant business
transactions, including acquisitions, divestitures, discontinuance of operations, and entry into joint
ventures. We will also act in a responsible manner with respect to the environmental protection of the
lands under our management and ownership.
“COLGATE'S BRIGHT SMILES, BRIGHT FUTURES”
The Colgate Bright Smiles, Bright Futures Oral Health Educational Program worldwide was developed to
teach children positive oral health habits of basic hygiene, diet and physical activity. This Program also
encourages dental professionals, public health officials, civic leaders and most importantly, parents and
educators to come together to emphasize the importance of oral health as part of a child's overall
physical and emotional development.
Under this Program conducted by Colgate-Palmolive, India children in primary schools receive
instructions in dental care from members of the dental profession nominated by the Indian Dental
Association. Education is imparted with the aid of audio-visuals and printed literature created by the
company. Free dental health care packs, including samples, are also distributed by the company to
encourage the practice of oral hygiene.
Teachers Training Program is an integral part of the School Dental Health Program, conducted regularly
across the country to promote preventive dental health care.Colgate also has launched its first-ever
online school curriculum featuring fun and entertaining activities.
The Colgate top management met up with the Analyst community in Mumbai yesterday to discuss FY03
results. Managing Director Graeme Dalziel made a detailed presentation on the oral care category,
Colgate’s performance and company’s strategy for the business.
SLOWDOWN IN INDUSTRY
The oral care market degrew by 9% in 2002-03 in value terms. The urban toothpaste market witnessed
a 3.8% decline, while the rural market degrew by 6.2%. An analysis of the degrowth trend revealed that
almost 69% of the drop in urban consumption was due to decline in consumption of toothpaste, while
31% was attributed to partial shift of consumers from toothpaste to toothpowder. In the rural markets,
67% of the decline was attributed to drop in consumption. 6% of decline was due to partial shift to tooth
powder, while almost 18% of decline was due to total shift to Toothpowder. Over 9% of decline in
volumes was attributed to consumers exiting from the category itself and moving back to traditional
dentrifices.
COLGATE IMPROVES MARKET SHARE
Despite the slow down Colgate has managed to improve market share in all the three categories viz.
Toothpaste (+1.2%), Toothpowder (+1.1%) and Toothbrush. (+0.4%)
CHANGE IN MARKETING STRATEGY
Colgate has taken an average price cut of 17% on its toothpaste brand portfolio, in a bid to spur volume
growth in the category. This is a major strategy change as compared to the promotion driven marketing
being undertaken previously, which failed to generate the anticipated growth. Although adspend in
absolute terms has been lowered by 20% at Rs1.85bn, Colgate has managed to up its share of voice in
the toothpaste category from 43.1% in FY03 to 51.3% in FY03, reflecting that category ad spend have
gone down significantly.

HLL'S NIHAR COCONUT OIL

INTRODUCTION
The hair oil market is huge, valued at Rs 6 bn. Due to the varied consumption habits of consumers
across the country, where coconut oil and edible oil are interchangeably used, the size of the market is
likely to be higher than estimated. More importantly, the market is growing at an impressive 6-7% in
volume terms despite the high penetration level.
Usage of hair oil is a typical Indian traditional habit. It is perceived to offer benefits of nourishment, hair
strengthening, faster and better growth, and reduce the problem of falling hair. Hair oil is a very Indian
phenomenon. It is used as a conditioner and nourisher. There are two types hair oil available in the
market; coconut oil and non-greasy perfumed oil. Coconut oil comprises 2/3 rd of the total market and
the balance comprises the non-greasy perfumed oil.
Usage of hair oil is an everyday habit with 50% of the population out of which some perceive that
massaging the head with hair oil has a cooling impact. The penetration of hair oil is fairly high at around
87% and evenly distributed among the urban and rural areas. The major positioning platforms for hair
oil are purity, hair nourishing and more recently, non-greasy look. Coconut oil and perfumed oil accounts
for about 65% and 35% of market in volume terms.
Unlike shampoos or hair colors, which are products relatively new to the Indian psyche, the usage of
hair oil is a deeply ingrained habit with Indian consumers. Therefore, this is one product where the
major players do not have to fight either monetary or psychological barriers to usage. But this does not
necessarily mean that being a branded player in the Rs 1,300-crore hair oils market is easy.
Branded players account for just over a third of the total hair oil market. Players in the plain coconut oil
segment operate in a category where there are few entry barriers in place. Loose oils are priced on the
basis of input costs and availability, both of which are notoriously volatile. Since branded players have to
grow at the expense of the ubiquitous unorganised segment and a host of regional and local brands, it is
difficult to shield margins and selling prices from the vagaries of loose oil prices.
KEY OBJECTIVE
The main objective of Nihar coconut oil is to overtake the loose oil consumers in rural areas. It also aims
at being the market leader in rural market by overcoming other brands.
It is a quiet conquest by Hindustan Lever Ltd (HLL) in the rural coconut oil market. HLL's Nihar coconut
oil achieved a market leadership in the rural coconut oil market in October 2000, by displacing all-time
leader Parachute of Marico Industries.
As per market research firm ORG-Marg's retail audit for the rural coconut oil market, Nihar's market
share stood at 25.4 per cent in volumes in October, while that of Parachute was at 23.6 per cent. The
total volume of the rural coconut oil market is around 54,000 tonne, growing at 6-7 per cent annually.
Even as HLL has managed to scrape through the leadership position of the rural coconut oil market, it is
still far from being crowned the all-India leader in coconut oils.
NIHAR DISPLACES PARACHUTE IN RURAL COCONUT OIL MARKET
It is a quiet conquest by Hindustan Lever Ltd (HLL) in the rural coconut oil market. HLL's Nihar coconut
oil achieved a market leadership in the rural coconut oil market in October 2000, by displacing all-time
leader Parachute of Marico Industries.
As per market research firm ORG-Marg's retail audit for the rural coconut oil market, Nihar's market
share stood at 25.4 per cent in volumes in October, while that of Parachute was at 23.6 per cent. The
total volume of the rural coconut oil market is around 54,000 tonne, growing at 6-7 per cent annually.
Coconut oil is a relatively new area for the multinational, and HLL unleashed significant aggression in
this market in the last two-three years.
The multinational's strategy is simple: to upgrade loose oil consumers by offering low-unit price packs.
The Nihar low-price pouches launched early this year seem to have performed the trick. Pricing is a
critical issue in the branded coconut hair oil market where the consumption of low-priced loose oils is
huge. So as to tackle the pricing issue, HLL launched Nihar and Cococare in various price points in
pouches, such as Rs 5.50 for 50 ml, Rs 10 for 100 ml and Rs 20 for 200 ml.
HLL believes that low-unit price packs will lead to substantial conversions of the loose oil consumers to
packaged and branded oils. This, the multinational feels, would also enable the company to gain a
higher share of the market. Rural and urban markets contribute equally to the overall Rs 500 crore
coconut oil market. HLL's portfolio of brands in this sector comprise Nihar and Cococare.
These together command a market share of about 20 per cent share of all-India coconut oil market.
Marico's flagship brand Parachute is the all-India market leader with a share of about 53 per cent. Thus,
even as HLL has managed to scrape through the leadership position of the rural coconut oil market, it is
still far from being crowned the all-India leader in coconut oils. Nihar's all-India share at the end of
1999, stood at 12 per cent, as per ORG-Marg retail audit for the rural plus urban market.
The brand's share in the beginning of 1999 stood at 9.5 per cent. However, since this gain in share has
not really impacted Parachute's all-India market share, the share has been garnered through conversion
of loose oil consumers.
VALUE-ADDED HAIR OILS
Given the limited differentiation possibilities in the coconut oil segment, major players in the branded
hair oils market have been training their sights on value-added hair oils. This has spawned a range of
product innovations -- hair oils with herbal ingredients, non-sticky oils, light hair oils, and lately,
dandruff solution hair oil.
An entry into the value-added hair oils segment appears to offer quite a few benefits to the branded
players. One, with easier differentiation from the regional and local brands, establishing a brand identity
is easier. Two, this makes value-added hair oils less vulnerable to price competition from cheaper
alternatives. Third, value addition helps players command a price premium over the no-frills coconut oil
brands.
Both herbal oils and non-sticky hair oils have been quite successful as product concepts. Dabur India's
Vatika hair oil, one of the first players to milk the herbal category through aggressive advertising,
registered a growth rate of 74 per cent in 1998-99. Dabur's hair oils business continued to grow at
around 18 per cent in 1999-2000. HLL's Clinic Plus non-sticky hair oil (which combines coconut oil and
mineral oil) has also been an unqualified success. While Parachute continued to remain the lynchpin of
Marico's hair care business, it was the value-added hair oils, such as Hair and Care, which clocked higher
growth rates of late. While Parachute's growth rate fell from 14 to 6 percent in the first half of 2000-01,
Hair and Care's growth rates improved from around 7 per cent to 23 per cent in the same period. HLL's
Clinic All Clear hair oil and Parachute Dandruff Solution has also entered the fray.
Nihar Perfumed Coconut Oil continued to grow well, while Clinic All Clear Dandruff Oil registered
substantial growth of more than 50 %. Nihar Amla Oil was also launched around the end of the year, to
exploit opportunities in this segment of hair oil.
NIHAR’S MARKET SHARE
For Nihar coconut oil, the company has already established rural leadership. According to ORG-Marg
figures for market share in rural areas for 0ct 2000, Nihar is at 25 per cent as compared to Parachute at
24 per cent. In December 99, Parachute was at 28 per cent as against Nihar at 15 per cent. To increase
urban penetration, the company is changing the imagery of the product by changing the product
packaging. The 200 ml bottle is much sleeker and contemporary.
MARKETING MIX FOR NIHAR COCONUT OIL
1. Product: Packaging innovations
Nihar, India's only double filtered coconut oil has made a change in packaging and logo, which is
innovative, convenient and vibrant. The logo lettering is now in a fresh green color and sports a leaf
over the brand name. Nihar has consistently been bringing innovations to its consumers, it was the first
to introduce the wide mouth jar and pouches packaging.
In keeping with Nihar heritage, the new packaging is part of Nihar’s constant endeavors on improvising
and providing quality to our consumers. The tamper proof jar has been introduced with grooves on the
side for a firmer grip giving the jar a more feminine aspect. The flip top tin has been designed for
convinience in pouring out the oil; the wide mouth jar can be used in different climatic conditions. The
essence of the new packaging is to bring about practicality in daily usage of the Nihar coconut oil.
The range of double filtered Nihar coconut oil includes:
• Flip top tin, available in 200 ml and 500 ml
• Tamper proof cap, available in 100ml, 200ml, & 500 ml with grooves on the side for an easy hold
when oily.
• Wide mouth jar available in 200 ml and 500 ml
• Pouches available in 50 ml, 100ml and 200 ml
2. Process of preparing the Double filtered Nihar coconut oil
The double Filtration process involves the production of filtered coconut oil from copra. This is done by
downsizing the copra, which is then passed through a cooker and steam heated for facilitating oil
release. The copra is then crushed at a higher pressure. The final step in this stage involves sieving the
oil and parts of the crushed copra through a screen. This still murky oil is allowed to partially settle in
flat-bottomed collection tanks. In the second stage the filtered coconut oil is mixed with special quality
silica and recirculated, this continues until the required clarity is achieved. This filtered oil with adequate
purity finally goes to the packaging line.
Nihar has also migrated to low unit packs to rope in new users. HLL has launched 100 ml pouches of
Nihar priced at less than Rs 10. Apart from making the product more affordable to mass market
consumers, the 100 ml pouches are cheaper on a per ml basis than the larger bottles and flip top packs.
This is likely to bring in new users from the loose oil segment.
3. Pricing
To tackle the pricing issue, HLL has launched Nihar and Cococare in various price points in pouches,
such as Rs 5.50 for 50 ml, Rs 10 for 100 ml and Rs 20 for 200 ml. HLL believes that the low-unit price
packs will result in upgradation of the loose oil consumer to this brand, and enable the company to gain
a higher share of the market.
For example, Nihar's small packs in AP has led to the brand's market share gain in this state from a
marginal 2% in April to 35 %.This example is being replicated by the company in each of the states
where Nihar and Cococare draw large consumption. The company feels there is enough room for brands
to gain share by upgrading loose oils users.
The price of copra, the key input in coconut based hair oils, has been a key factor determining the
fortunes of the major players in this segment. The continuation of the present price trends in copra
would probably determine the near term financial performance of the large players in the plain hair oils
business. On this count, there appears to be no near term cause for worry. A large part of the decline in
copra prices is due to the substitution of copra by cheaper imported palmolein.
4. Place ( Distribution)
HLL has a very good distribution network. Hindustan Lever has leveraged the micro-credit model to
expand its rural market from its present 40 per cent penetration. Leveraging the micro-credit model to
expand its rural market, it is piloting `Project Shakti' -- its five-month-old marketing initiative involving
women belonging to micro-credit self-help groups (SHGs) in the Nalgonda district of Andhra Pradesh.
The project, with an obvious `win-win' partnership potential, involves women from SHGs turning into
direct-to-home distributors for HLL in their area, thus helping the company expand its rural market from
its existing 40 per cent penetration in villages with population of over 2000. For the women, it means
income generation without the headache of starting their own venture and becoming vegetable vendors,
fish vendors, pan shop owners, etc., which has generally been the micro-credit model to date.
Andhra Pradesh was obviously chosen for the pilot project as 20 per cent of its rural population is
covered by the micro-credit model. The micro-credit concept, that impacts 45 lakhs women belonging to
3.33 SHGs in the State, creates wealth for the members of the groups and helps them better their lives
and alleviate poverty. The micro-finance collected in the State, through savings as well as institutional
loans, is around a whopping Rs 800 crore.
For the project, 50 SHGs closest to the highway in Nalgonda district were identified. These are covered
by three Mutually-Aided Credit Thrift Societies (MACTS), which act as semi-distributors in the project.
MACTS, which generally consist of 14 to 15 SHGs, are federated into a co-operative and work in close
tandem with the SHGs. In fact, the project has had several interesting spin-offs. One of the MACTs
distributing HLL products has started its own supermarket, while another is shortly purchasing a vehicle
for its distribution network.
The investment opportunity is relatively risk-free and high on return. HLL is committed to providing the
necessary training inputs to these groups on the basics of enterprise management which the groups can
then use to enlarge their initiatives.
5. Promotion
Nihar attracts a large consumer preference in Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan, Andhra
Pradesh and Bengal. Promotional activities are region-specific and locally flavored to suit the brand's
requirement in its area of strength.
The customers in the rural area are very price sensitive. Great emphasis is laid on the price factor and
so they advertise keeping in mind the price. A lot of emphasis is given on the price and they also
compare the product with the local brands and how it is superior in quality from the other available local
brands.

Nihar does advertise in the rural area but they don’t use much of newspaper as there is a very high level
of illiteracy in the rural area. They do use advertising through T.V. Nihar's "kudrat ki shakti" ad clicked in
the market place as it was distinctly different to the usual hair oil ads, HLL feels. But that is also not on
a large scale as the T.V hasn’t yet reached the interiors of rural areas.
PROBLEMS FACED BY NIHAR
• Strong competition from other players in the market, especially Parachute of Marico industries.
• Pricing is a critical issue in the branded coconut hair oil market where the consumption of low-priced
loose oils is huge.
STRENGTH OF NIHAR
• Nihar can gain market share from conversion of loose oil consumers. The strategy is to upgrade the
loose oil use to Cococare/Nihar by offering small pack forms, which are affordable.
• Nihar has a very strong distribution network, so it can reach more rural areas with its help and cover
the market.

CONCLUSION

In a very short period of time Nihar has been successful in gaining control over the urban market as well
as the rural market. With the help of its strong distribution and its continuous innovations to match the
consumers’ choice it can continue to maintain its leadership in rural market.

CHENNAI-BASED CHOLAYIL GROUP

“THE MEDIMIX SOAP”

INTRODUCTION
Medimix has a large user base among the SEC B and C segments and in rural areas in the 30-plus age
group. They are trying to widen its usage by bringing the SEC A segment into their fold. They want to
make it a mass, urban and young brand. This is because it has takers among older consumers who have
seen through the myth of instant and cosmetic results. They know the long-term benefits of Ayurveda.
But this needs to be communicated to a younger audience and they have succeeded in doing that with
the recent campaigns.
The company's aggressive communication strategy has been one of the key factors behind the growth.
Communication has really made the company grow to what it is today. It had a good product, but they
managed to spread awareness and widen its use in the early nineties when the cable and satellite
television arena opened up. Though they were small then, they used to spend nearly 25 per cent of the
turnover on communication and marketing. Now this has settled to around 15 per cent. But it would
continue to follow a communication-led strategy. They have been very meticulous in their approach and
they research all their ads by getting their agencies to test them on various focus groups before
launching them.
When VS Pradeep took over the reins of this company in 1983, it had a turnover of less than Rs 1 crore.
Today it stands at Rs 200 crore. It was then a single product company with one brand, Medimix. Today
it has 12 brands in their portfolio. It was only a south-based company; today it is a national entity. Six
years ago they headed west by tapping Maharashtra and two years ago they went completely national.
Today they have 1,200 distributors across the country. In fact, their penetration in the south is as high
as 80 per cent. In Tamil Nadu alone, in terms of penetration alone, Medimix is second only to Hindustan
Lever's Hamam.
Coca-Cola is using their distribution network to distribute its soft drink concentrate brand Sunfill in the
south. That is because its own network reaches only those places where soft drinks are retailed and not
to those small kirana stores in the interiors where they reach.
All other players are talking of a complete health platform today; they have always talked about holistic
healthcare. They widened our user base through our communication strategy. They started off by telling
users of solutions to their specific problems. For instance, they started off by talking about how the soap
tackled the problem of prickly heat in summer as well as pimples and dandruff. Thus, they concentrated
on each problem separately and communicated the benefits of the soap.
Thereafter, they widened the strategy by placing the soap on a value-for-money platform and said that
this soap was a one-stop-cure for a range of health-related problems. Now, they have further broadened
this plank to include the whole family and they are saying the soap offers total health protection and
addresses each of your individual needs.
Their financial targets would be to build their organisation to a Rs 1,000-crore entity in the next five
years. This will be done by growing in the categories they are present in and eventually by getting into
new areas of growth.
THE RIGHT MIX
MEDIMIX AYURVEDIC SOAP FROM THE CHENNAI-BASED CHOLAYIL GROUP, BUILDS ITS SUCCESS ON A
MEDICAL PLATFORM
Soap maker Medimix, from the Chennai-based Cholayil group, is the maverick marketer that got its
product and marketing mix just right. The company's success is reminiscent of Nirma's in the west. Its
revenue rose metroically from Rs. 50 crore four years ago to Rs. 200 crore last year (2001) on sales of
its ayurvedic soap. Besides, it got an ORG rating of number nine, among soap categories on a national
basis with minimal high decibel advertising, no sexy packaging, no glamorous film star endorsements
and no compromise on its shape, perfume or colour in order to bag bulk orders from hotels.
Six plants of the Cholayil group make 1.5 crore cakes of soap, each weighing 75 gm and 30 lakh cakes
of the 125 gm variety. The soaps are made manually, without the use of power and even the cutting of
the bars into cakes is done by hand-operated hydraulic cutters. However, the company plants to set up
a state-of-the-art unit in Goa. "Once production starts there we will make 1,000 cases per month and
establish a supply beachhead to serve the northern market," says K.H.S. Manian, Vice-President, sales
at the company.
The story of Medimix is the evolution of a home-grown product... from idea to research to manufacture,
packaging, distribution and marketing, all done by a family proprietary concern. Most important, the
company has managed to developed a brand on its own terms. It all started with Dr. V.P.S. Sidhan (who
traces his bloodline to the Cholayil Tarawad of Kerala, a family lineage of ayurvedic vaidyans, followers
of saint Narayana Guru), who served as assistant medical officer with the Southern Railways. Sidhan
had trained for his DMS at the Kilpauk Medical College and so ayurveda took a back-seat until his
retirement. His medical experience showed that chronic ailments, especially skin conditions, defied
allopathic remedies and post retirement, he focused on finding cures through ayurveda. His work with
Viparthy Oil (extract of wild ginger) and its efficacy in treating skin diseases yielded promising results.
Now all he needed was a better vehicle to overcome the oil mess as an applicator.
So, Medimix soap was born. Sidhan's soap was made with 18 herbs in a coconut oil base in the backyard
of his Chennai Cuoolamedu house. The firm was incorproated in the name of Sidhan's wife
Sowbhagyam. She also doubled up as chief manufacture! In 1969, Sidhan launched the Medimix brand
as a total ayurvedic skin-care soap with just Rs. 500 as seed capital and lots of goodwill from the
medical fraternity and chemists network. Sidhan's soap and its efficacy spread through actual-user
endorsements. "We priced it at 85 paise at the time and today it sells for Rs. 9.50," says Manian. There
are five plants, one in Pondicherry, two in Chennai, one in Tada in Andhra Pradesh, one in Bangalore and
one in Viilupuram, to cater exclusively to hotel bulk orders."
According to the July-September 2001 ORG figures of volume in tonnes of the top 25 brands of soap on
a national basis. Medimix at 2625.3 tonnes is way above Mysore Sandal, Margo, Nirma, Jai, Cinthol
Fresh, Pears, Lux International skin care, Liril and Dettol. In the south zone alone it is the sixth-highest
seller with 1,873 tonnes.
What is the strategy that worked for Medimix in a bubble-filled soap arena in which multinational
companies such as Hindustan Lever Limited tower above the rest of the market? Manian unabashedly
says that his group had to run all existing and considered marketing wisdom on its head. "While FMCG
(fast moving consumer goods) products usually take off in the urban centres, and then spread through
the hub format, Medimix was pitched in the villages first," says Manian. "We targeted the village
kirarmiuala, our best friend and local influencer of decisions so far as buying habits go. He accepted the
merits of Medimix as an ayurvedic product. When he was convinced, his customers got convinced. The
only alternative was Chandrika soap, which had adopted a direct marketing approach. We used to attend
numerous village melas and talk to the people. We went all over India only two years ago. Today, of the
three lakh tonnes of soap sold, ayurvedic soap comprises 7 percent, of which we have 3 per cent."
Medicated soap that is 100 per cent handmade is exempt from tax and rural consumers seem to be
attracted to the medical qualities of the soap far more than they are to the same qualities in a cosmetic,
according to Manian. He says that when a villager visits a city he asks for Medimix soap by name. No
offers, no schemes, no inducements. As Chandrika soap was following the monopoly of direct
distribution. Medimix decided to woo the stockiest and distributors and claims there are 25-year-old
loyalties here. "From 1969 to 1990 growth was slow," says Manian. 'But when S. Pradeep joined the
company as managing director the firm took off in just four years."
It is Pradeep's idea to target hotels. A firm decisions were taken that Medimix would aggressively
market to over 3,000 small hotels all over India, even in small towns. Pradeep says he was pleasantly
surprised to find that even foreign tourists to places such as Pondicherry were impressed by the
medicated quality of Medimix. "We decided that we would not compromise on the packaging or
appearance or the perfume or colour of the soap to gain entry into five-star hotels. Hotels will never buy
at the maximum retail price (MRP), so we supply at cost. What's more, we even manage the inventory
for them."
While Medimix has done well, the company's brand extension, Vrinda Tulisi Soap failed and is being
relaunched with a changed perfume and translucent appearance. Meanwhile, Manian is focusing on the
Indian community in the Middle East, where he believes Medimix can command loyal customers. The
product is exported to Brazil and Italy, as well. "Even in the Indian market, there is a 50 per cent
untapped potential," he says. "We have plans for sandal soap, Viha, and a herbal Ziva shave cream.
People are turning to ayurveda in a big way.”
"We have the research and knowledge capabilities to turn out more ayurvedic products and build on our
current marketing strength. In the past five years our adspend has grown to Rs.30 crore. We conducted
an ayurveda Congress in Hyderabad and got an impressive response."
Medimix has proved that it is not always glitz and glamour that sells products... a back-to-your-roots
plank that espouses natural products appeals to the average Indian.

NIRMA

MODEST BEGINNING
A brand that was to become a model for other budding entrepreneur had very humble beginnings. At the
fag end of the sixties, Karsanbhai Patel, a 25-year-old chemist manufactured detergents at his home in
Ahmedabad. The detergent named Nirma, after his daughter Nirupama, was cycled to retail outlets.
Since its very inception, Karsanbhai had his finger on the pulse of the people as he realized the need for
a cheaper detergent. Hence, he sold the detergent for Rs. 6, one-fourth of the price of similar products
then available.
THE 4PS OF MARKETING
During that period the detergent powder category belonged almost entirely to Unilever's Surf. Launched
in 1959, Surf grew in the market and became the benchmark in the eyes of both the housewife and
competition (which was then limited to three wholly Indian manufacturers Godrej, Tata and Swastik).
Common opinion prevailed that a quality detergent, had to be a blue powder packed in a colourful
carton. But Nirma was launched as a white coloured product, packed in pouches sealed at the top, with
no colour or design sophistication on the pack.
1. Packaging:
The attractive feature was to be the price-around 35% of Surf!
2. Price:
Soon the brand began to sell like hotcakes and Nirma's market share grew from 0% in 1976 to 61.6% in
1987. It soon pushed HLL over the top. Nirma also dared to break the "rule" that a packaged, especially
advertised brand needed the paraphernalia of branch offices, area managers, and sales representatives
in order carry it through a wide and complicated network. Instead, Nirma went in for what the West
would have called a 'no-frills', approach not just in the product formulation and cost elements, but also
in the all-important sales, distribution and organisational arrangements.
3. Planning:
With one of the most comprehensive and widespread distribution network, Nirma reached into the very
heart of India. In the process, it pioneered rural marketing in India-another reason for its astounding
success. In the early 1980's despite the fact that 70% of India's 750 million lived in rural areas, big
MNC's avoided them for the simple reason that it was difficult to penetrate. Nirma's success in rural
India also dispelled the myth that rural consumers are poor and do not have the disposable income to
buy consumer goods. Nirma's policy of manufacturing a low cost "value for money" product was also
aided by the fact that Nirma operated in the small-scale sector. This helped it save an enormous amount
of excise duty that multinationals had to pay on every kilo of detergent produced. This prevented MNCs
from pulling down prices to a level attractive enough for the middle and lower-middle classes, the bulk
segments for Nirma sales. Understanding the economics and rules of the rural game, Nirma identified
that expensive advertising had no place in a market where the buyer was too price-sensitive.
4. Promotion:
Nirma used radio, posters, banners and mobile vans among others as better media options. It was also
one of the first major advertisers on the National Network, a fact borne by its jingle (Nirma Detergent
tikia, iske jhaag ne jaadu kar diya), which still generates instant recall. When you hear the all too-
familiar tune Washing Powder Nirma, you instantly know what it is talking about. The title 'Nirma Girl'
going round and round on her feet and her white dress rising fluff too made for a strong mnemonic for
the brand. This stood up to Surf's Lalitaji's "samajhdari."
SETTING THE PACE
By the early 1980s the burgeoning sales of Nirma reached a rate of growth that was nearly thrice the
industry average. In the past few years while the industry had been growing at the rate of 15 per cent
annually, Nirma's growth had been at least 30-35 per cent. In a swift, single move, Nirma shattered the
myth of "economy at the cost of quality."
SUCCESSFULLY DIVERSIFYING INTO PREMIUM BRANDS
Once it had positioned itself as the largest selling detergent, Nirma moved on to becoming an FMCG. As
the first step it changed to a soaps & detergent company. They said that Nirma would stay successful
only as long as it remained within the confines of economy priced detergents. But that was not to be.
Nirma's foray into the premium brand segment, in cakes and detergents turned out to be a repeat
success story. Nirma is today ranked among India's top 20 .most distributed brands. It has built up a
30% market share in the premium detergent segment and also achieved greater than 20% share, in
less than two years, in the premium soaps market.
Today Nirma has diversified into personal care market with Shikakai, Beauty Shampoo, toothpaste and
has also launched the Nirma brand of iodised salt.
NIRMA-PROFITS AND POSITION (AT HOME AND ABROAD)
Nirma's products over 800,000 tonnes of detergent and over 80,000 tonnes of toilet soaps annually are
consumed by over 250 million customers, through a wide network of 400 distributors and about a million
retail outlets.
It ranks No.2 in toilet soaps; but mainly, in just seven years of marketing soaps, Nirma sold more
volumes than the others had in 25 years!
In international markets too, such as Bangladesh, Nirma has left behind both, Unilever and P & G and
now plans to export detergents to Russia and the Middle East.
MOVING FORWARD THROUGH BACKWARD INTEGRATION
By manufacturing their own raw material, in the form of Linear Akyl Benzene (LAB) and Soda ash, Nirma
offers more value to its buyers. The Rs. 4.5 billion LAB manufacturing plant at Savli (the most modern in
India and the second best in the world), was set up in minimum time and cost once again showing
astute management skills. It also has the largest soap manufacturing facility in the country, under a
single roof. A state-of-the-art packaging plant (another first in Gujarat) catering to a staggering 1.2
million polythene bags and 6 million wrappers, daily!
ECO-FREINDLY AND ENVIRONMENTALLY SAFE
At the very outset, Nirma was a phosphate-free detergent, making it eco-friendly. A detergent by-
product, Spent acid, is not released into the environment, but used as raw material in the SSP fertiliser
unit. At the Mandali complex, alone, 1,00,000 trees can be found on a 125 acre campus.
NIRMA - SWOT ANALYSIS
Strengths:
Strong Brand equity. Nirma is a Rs. 17 billion-umbrella brand offering consumers a broad portfolio of
products at multiple price points in the Detergents, Soaps & Personal Care market.
Produces a range of industrial chemical products which primarily serve as raw material or intermediates
for Soaps and Detergents business.
Market leadership in detergents and fabric wash and second largest player in toilet soaps.
Wide distribution network.
Weakness:
High interest burden.
Less presence in premium segment.
Lacks global tie-ups and thus finding it hard to tap export markets.
Opportunities:
Exports
Acquisitions for strengthening its distribution tie-ups.
Entry into other categories like shampoos, toothpastes and fabric whiteners.
Threats:
MNCs coming, to India particularly in Toilet and Soap industry. Emergence of small but strong regional
players.
Nirma as a brand has been able to etch a niche for itself in the face of intense MNC competition. It has
not only emerged victorious in its core competency, detergents, but has also successfully moved on into
newer products. Nirma's achievement is surely something about which an Indian can be proud of, a
brand that has lived up to its catch line; Better Products, Better Value, Better Living!
THE MAN BEHIND THE BRAND
A man of exemplary vision and extraordinary courage, Mr. K. K. Patel had his finger on the proverbial
pulse of the rural India, from the very beginning. He is the stuff that legends are made of. The Wall
Street Journal, The Economist, Discover India and the Economic Review have all featured him at some
time or the other. A marketing wizard, humanitarian and entrepreneur par excellence, his marketing
expertise forms the basis for case studies at Business Schools.
Mr. K.K. Patel firmly believes that a person who has received a lot out of life needs to give something
back. One among the many contributions has been the Nirma Memorial Trust that takes care of deprived
women in Gujarat. The Nirma Foundation, set up in 1979, has donated millions, within the state &
outside, for schools, colleges, temples and social institutions.
The best reward of all for Mr. K.K. Patel, as he often says continues to be "the smile on the face of a
satisfied buyer." He built the brand, Nirma, from scratch, took it from strength to strength and, in the
process, pioneered rural marketing in India. The result being one of the most comprehensive and
widespread distribution networks in the country. Housewives swear by it, retailers stock it, unfailingly,
and brand loyalty continues to increase.
Nirma has arrived and has truly become a household name, in every sense of the term.
Commenting on his success the in September 10, 1988. The Economist wrote: "Rarely does a small
manufacturer in a developing country take on a big multinational and win. Mr. K.K. Patel has done it in
India, taking three-quarters of Hindustan Lever's potential market from it."

BRITANNIA INDIA LTD (BIL)

INTRODUCTION
Britannia India Ltd was incorporated in 1918 as Britannia Biscuit Company Ltd and currently the Groupe
Danone (GD) of France (a global major in the food processing business) and the Nusli Wadia Group hold
a 45.3 per cent equity stake in BIL through AIBH Ltd (a 50:50 joint venture). BIL is a dominant player in
the Indian biscuit industry, with major brands such as Tiger glucose, Mariegold, Fifty-Fifty, Good Day,
Pure Magic, Bourbon etc.
The company holds a 40 per cent market share in the overall organised biscuit market and has a
capacity of 300,000 tonne per annum. Currently, the bakery product business accounts for 99.1 per cent
of BIL's turnover. The company reported net sales of US$ 280 million in 2002-03. Britannia Industries
Ltd (BIL) plans to increase its manufacturing capacity through outsourced contract manufacturing and a
greenfield plant in Uttaranchal to expand its share in the domestic biscuit and confectionery market.
Britannia Industries Limited (BIL) has emerged as one of the largest food companies in India by 1999.
According to a survey conducted by ORG-MARG and A&M, Britannia was the fifth most popular brand in
India in 1997 and was the only brand belonging to the food category to figure in the top 10. A strong
brand name, superior quality products and an enviable distribution network had helped BIL become the
market leader with 40% share in the Indian biscuit market.
The company has rationalised its product portfolio, pruning the number of brands from 35 to 25, so that
it can devote greater attention to key businesses.
In 1998, the company moved into the mass market for biscuits introducing low-priced varieties under
the umbrella brand, TIGER.
The success of this brand has enabled Britannia expand its market share in the "Glucose" biscuit market
from 10% to over 20%. While growth rates in the mid-priced and premium biscuits have flagged, it is
TIGER which has kept Britannia's biscuit business roaring.
BRITANNIA PLANS TIGER VARIANT
BRITANNIA Industries Ltd to planning add another flavour to its existing Tiger brand of products
following its success story in the rural areas
Earlier, with its two previous glucose biscuit brands -- Glucose D and Circus -- it had only 10 per cent of
the market-share. But the single-minded effort of conceiving and promoting Tiger in the mass rural
market has paid dividends. Mr Tiwari spoke about the distribution channels that have brought results in
the rural market. Apart from stockists and sub-stockists, Britannia has used traditional haats and melas
to promote the Tiger brand. It has made the ongoing Kumbh Mela a major promotion and sales outlet.
Whenever they come to know of a major mela or haat, they ensure that their brand is stocked in large
quantities, In fact, low cost distribution channels are one of the main challenges in rural marketing as
extensive and sparsely populated areas have to be covered for the desired results. ``Corporates who
want accurate rural market research to be done need to be aware that the costs arehigh, the time taken
is more and productivity is low,'' said Mr Diwakar Srivastava, Research Manager, A.C. Nielsen. Mr
Srivastava, who has been involved in rural market research in North as well as South India, believed
that penetration of products was higher in the South due to better road infrastructure, larger areas
under electrification and higher literacy levels.
Market share:
Britannia-43%, Parle-33%, Bakemans-11% and others 13%.
RURAL MARKET - A WORLD OF OPPORTUNITY
According to a National Council for Applied Economic Research (NCAER) study, there are as many
'middle income and above' households in the rural areas as there are in the urban areas. There are
almost twice as many 'low middle income' households in rural areas as in the urban areas. At the
highest income level there are 2.3 million urban households as against 1.6 million households in rural
areas.
Britannia Industries launched TIGER biscuits especially for the rural market. It clearly paid dividend. Its
share of the glucose biscuit market has increased from 7% to 15%.
Today TIGER is a Rs. 200 crore brand with a market share of 24%. Having grown at 25% to 30% in the
past growth is fast slowing down.
TIGER has been positioned as a nutritional product with the new logo being "EAT HEALTHY THINK
BETTER". The high nutritional value includes carbohydrates, proteins, calcium, etc.
The company's latest offering is "Britannia Tiger Chai Biscoot". The product has been launched in
Maharashtra, West Bengal and Karnataka on the flagship "TIGER". The TIGER brand currently has four
variants including TIGER Cashew Badam, TIGER Protein, TIGER Coconut and now Chai Biscoot.
Britannia with its TIGER brand of biscuits with its low priced and convenient package products designed
for the rural masses have been other pioneers in rural marketing. Thus, Britannia has been able to
derive more than 30% of their revenues from rural market.
THE BRITANNIA TIGER LAGAAN MATCH
This was how the campaign took place:
You needed to purchase a 100 gm. Pack of TIGER biscuits for which you will get a special "Britannia
Lagaan Booklet". 10000 early birds will win a prize. There is also the possibility of being selected in the
team that will play against the "Lagaan XI" team.
Britannia pumped in around Rs. 2.5 erodes to ensure the success of this promotional offer. Analysts say
that there was an incremental 20% jump in sales when the scheme was on.
This promotion was done in both the rural and urban areas, thus it not only gave the company an
increase in the sales but also gave the brand and the company recognition.
THE BRITANNIA TIGER BACHAO AANDOLAN
This was conducted by Britannia Industries with a view to reach its rural customer and also the target
segment. This took place in the year 1998 when the company undertook the responsibility of protecting
the tiger community hand in hand with the forest department of Gujarat, MP, etc. This was done by
selecting 12 kids who were interested in the campaign. The children were selected from a village in
Rajasthan. The campaign is still being carried out by the company and is one of the successful ones. It
has become a social responsibility of the company.
HOARDINGS
There are hoarding, which are put up by the company in the rural areas. The hoardings are mostly put
up with complete information regarding the product. The information is given in the local language in
order to let people know about the product. The hoardings also have the mascot tiger which emphasises
a strong healthy individual.
T.V.
The various ad campaigns throughout the country are done by preparing a single advt but the language
in which it features is according to the regional language of that state. The ads include famous
personalities like Saurav Ganguly. The ads mainly focus on the children and emphasise a strong diet for
a healthy mind and body.
School children in rural areas are often given small packs at a confessional rate and at times they are
distributed as free samples.
P’s OF TIGER BISCUITS
1. Pricing & packaging:
The product is specially designed for the rural market and the economy class.
Packing Price
250 gms Rs. 10
100 gms Rs. 4
75 gms – coconut Rs. 5
The product is priced very low giving equal importance to quantity and price both of which are important
features for the success of a product in the rural market.
Britannia TIGER has been able to meet both the norms as mentioned above and has met with roaring
success in rural areas.
As the definition goes, the amount that the consumer is ready to pay for the service granted is what is
price. This is very true in case of TIGER biscuits. An entry into the market was made only after studying
the complete details and profile of the market and the result was a total success.
2. Packaging:
The products are packed in airtight plastic wrappers in an attractive bright red and yellow colour, which
catches the eye and is an important feature to market a product in rural areas. The important feature is
the energetic tiger shown on the pack, which emphasises good health, comes your way with Britannia
TIGER.
The packaging also gives complete details of the price, packaging date, ingredients and the nutritional
value. A complete plant product, it is denoted by the green dot. Since the targut is the economy class
and the rural segment, the main feature is thai Britannia TIGER also features the product name in Hindi.
3. Place:
The distribution network is very strong.
Manufacturing Plant
Location: Andheri. Outsourced to Oasis Enterprises
C & F Agent: At district level in various states of India
Wholesaler: At taluka levels in various states
Retailer: Retailers in villages are supplied by the wholesaler at the taluka level
Final Customer
4. Positioning:
Positioned mainly for the rural segment and with a new slogan "Eat healthy, think better", as a brand of
premium quality with factors pertaining to health and needs of the consumer being the main factor.
PROBLEMS FACED BY TIGER
Competition:
From local players in many states who infringe with low quality products and similar packaging. Since
the rural customer depends mainly on the packaging available, it is easy for competitors to sneak in the
market affecting the market share of TIGER.
Saturation:
Experts have said that TIGER has reached saturation in its PLC. Thus a decline is possible in the near
future resulting in decline of the company share of the whole.
“BRITANNIA LOOKS BEYOND BISCUITS”
Bakery major Britannia Industries is planning to "go beyond biscuits'' Nusli Wadia, Chairman, said.
BIL has a presence in biscuits, breads and cakes mainly with a 37 per cent market share. Mr. Wadis said
the company's future growth could be either through acquisitions or through an organic growth. Its new
manager Vinita Bali said BIL would ramp up its distribution network by tapping the malls. She said
Britannia now had six power brands each exceeding Rs. 100 crore in sales. She said exports and rural
marketing were the two thrust areas and BIL, which penetrated the rural market riding the Tiger brand,
was now planning to take its upmarket biscuits and tiffin cakes into rural areas.
Addressing shareholders, Mr. Wadia said amid steep increases in prices of agro-products, the main raw
materials; it had launched a strategy of forward buying of commodities through commodity exchanges
as a hedging mechanism. Alongside, it was also implementing 14 projects aimed at improving
productivity, bettering recipes and toning up logistics. A further VRS was proposed to trim the 2,500
workforce.

CONCLUSION

In the end it is certain that FMCG companies will have to really gain inroads in the rural markets in order
to achieve double digit growth targets in future. There is huge potential and definitely there is lot of
money in rural India but the smart thing would be to weigh in the roadblocks as carefully as possible.
The companies entering rural market must do so for strategic reasons and not for tactical gains as rural
consumer is still a closed book and it is only through unwavering commitment that the companies can
make a dent in the market. Ultimately the winner would be the one with the required resources like time
and money and also with the much needed innovative ideas to tap the rural markets.
A mention of rural India may conjure up an image of abject poverty in the minds of many people. This,
however, does not hold true in the case of a few fast moving consumer goods (FMCG) companies that
have over the years been giving their rural operations a renewed thrust. Why would these companies be
tapping into the rural markets in the first place?
First, let's take a look at the distribution networks of three leading FMCG companies in India -

Hindustan Lever Limited, Colgate Palmolive and Britannia. These three companies are market leaders in
their core areas and much of their success has to do with the intricate marketing networks they have
developed over the years. Hindustan Lever, as would be expected, has the largest reach in terms of the
markets serviced. Colgate, on the other hand, has adopted a concentrated approach by focusing on
fewer markets. Britannia, compared to the first two, has a much smaller reach.

Colgate and Britannia now derive 35% and 30% respectively of their turnover from rural markets.
Britannia and Colgate, apart from Hindustan Lever, are the only FMCG companies in India that derive
over 30% of their revenues from rural markets. Britannia has rejuvenated its rural thrust by the launch
of Tiger biscuits, while Colgate has been attempting to woo the rural masses by offering low priced
products in convenient packaging.
The success of these companies has as much to do with understanding the psyche of the rural family as
it have to do with a rural distribution network. A typical rural family is a price conscious consumer and
this is where the key to success lies. Hindustan Lever, for example, extended its strategy of volume
driven growth into rural markets and met with much success. Britannia on the other had launched Tiger
to take on the existing economy brands in the market.
 rural consumers prefers mostly herbal/cool oils,
e.g- Navratna, himtaj, Himgange,etc. 31% of the rural consumers
prefers herbal oils because of their multipurpose use. They use
these oils as medicine also. 25% of the rural consumers prefers
dabur amla, third place occupied by Maico’s Paraschut which is
prefers by 21% of rural consumers. 18% consumers prefers Bajaj
Almond and 5% prefers some other hair oil brands.
CONCLUSION:
As I has analyzed the various data based on questionnaire, a fact has
came into light that HUL’s products are the most known and popular Brand
in context of home FMCG products in rural market followed by DABUR, ITC
and P&G. Because of huge product line, cheaper cost, brand loyalty, good
publicity and advertisement, the rural consumers generally prefers the
products of HUL in all segments.
Except it, people firstly prefer for good quality and comparatively
low prices products .

SUGGESTIONS
The rural market is very large in compare to the urban
market as well as it is more challenging market. The consumer wants those
products which are long lasting, good, easy to use and cheaper. The
income level of rural consumers is not as high as the income level of urban
consumers that’s why they want low price goods. It is one of the reason
that the sell of sachet is much larger in the rural area in all segments.
It is necessary for all the FMCG major companies to provide
those products which are easy to available and affordable to the
consumers. It is right that the profit margin is very low in the FMCG
products, but at the same time the market size is much large in the rural
area. The companies can reduce their prices by cutting the costs on the
packaging because the rural consumers don’t need attractive packaging.
Abstract:

70% of the Indian population lives in rural

areas. This segment, commonly referred to as
the 'bottom of the pyramid', presents a huge
opportunity for companies. Unilever's Indian
subsidiary, Hindustan Lever Ltd (HLL),
considered one of the best-managed companies
in India, understands the importance of rural
marketing.

The trigger point came when a local firm Nirma,

through its new product formulation, pricing and
distribution challenged HLL's detergent
business. Nirma's attack from below made HLL
realise its vulnerability as well as identify a new
opportunity. Since then, HLL has launched
various initiatives to reach out to the rural
consumer. It has changed its product
formulations and deliveries.

It has begun a number of initiatives in terms of widening distribution reach through

traditional as well as unconventional channels. HLL has also empowered rural women by
assisting them in obtaining financial assistance through its project shakti.

Everybody wants brands. And there are a lot more poor people in the world than rich people.
To be a global business and to have a global market share you have to participate in all
segments.

- Keki Dadiseth, erstwhile Chairman, HLL1.

The basic objective of Project Shakti is to economically empower underprivileged rural

women by creating income-generating capabilities and providing a sustainable micro-
enterprise opportunity in addition to improving rural living standards through health and
hygiene awareness.

- Sharat Dhall, Marketing Manager -Rural, HLL2.

Introduction

In the early 2000s, around 700 million people, i.e. 70% of the Indian population lived in
6,27,000 villages, in rural areas. Of this, 90% were concentrated in villages with population
less than 2000.3 According to a study conducted in 2001 by the National Council for Applied
Economic Research (NCAER), there were as many "middle income and above" households
in rural areas as there were in urban areas.

There were almost twice as many "lower income

households" in rural areas as in urban areas.
There were 2.3 million "highest income"
households in urban areas as against 1.6 million
in rural areas.

NCAER projections indicated that the number

of "middle income and above" households was
expected to grow to 111 million in rural India by
2007, compared to 59 million in urban India.4

Gone were the days when a rural consumer had

to go to a nearby town or city to buy a branded
product. The growing power of the rural
consumer was forcing big companies to flock to
rural markets. At the same time, they also threw
up major challenges for marketers.
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Case Details:
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Case Code : MKTA008

Introduction Contd...
Case Length : 17 Pages
Servicing rural markets
Period : 1998-2004
involved ensuring
availability of products Pub Date : 2004

through a sound distribution Teaching Note :Not Available

network, overcoming
Organization : Unilever, Hindustan
prevalent attitudes and
Lever Limited
habits of rural customers
and creating brand Industry : Fast Moving Consumer
awareness. Price-sensitivity Goods
was another key issue.
Countries : India

Rural income levels were

largely dependent on the To download Unilever in India -
vagaries of monsoon, and
Rural Marketing Initiatives case
demand was not easy to
predict. Thanks to TV, study (Case Code: MKTA008)

consumer awareness in click on the button below, and

rural areas had increased.
select the case from the list of

Rural expenditures on Fast available cases:

Moving Consumer Goods

(FMCG) were growing at an
impressive rate of 20 -25%.5
Several companies were
taking rural marketing
seriously, one of them being
Hindustan Lever Ltd (HLL), Price:
Unilever's Indian subsidiary.

In 2004, HLL was India's largest FMCG company, with
30 power brands (Exhibit: I), turnover of over Rs.
10,000 crores and 40,000 employees. HLL derived
around 50% of its sales from rural areas. HLL's rural
marketing initiatives began way back in 1988, when
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the company had launched 'Wheel' for the rural and Shipping & Handling Charges
lower income urban consumer.

These efforts had intensified since the late 1990s » Marketing Case Studies Collection

when HLL like many other companies faced flat growth » Marketing Communications Short
in the urban markets. In early 2004, as it reviewed its
Case Studies
past performance, HLL realized that bulk of its future
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growth was likely to come from rural areas. The
challenge for HLL was to exploit this opportunity in a » How To Order This Case
profitable manner. » Business Case Studies

Background Note » Case Studies by Area

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HLL's history could be
» Case Studies by Company
traced back to 1885 when
the Lever Brothers set up
"William Hesketh Lever", in
England. In 1888, the
company entered India by
exporting 'Sunlight', its
Search
laundry soap. In 1895, the
Lifebuoy soap was launched
in India followed by 'Pears'
in 1902, 'Lux' flakes in 1905
and 'Vim' scouring powder
in1913. In 1930, the
company merged with Please note:
'Margarine Unie' (a
This case study was compiled from
Netherlands based published sources, and is intended to
company which exported be used as a basis for class
vanaspati to India), to form discussion. It is not intended to
illustrate either effective or
Unilever. In 1931, Unilever ineffective handling of a management
set up it first Indian situation. Nor is it a primary
information source.
subsidiary, the Hindustan
Vanaspati Manufacturing
Company for production of
 vanaspati...
Reaching out to the rural consumer

Prior to the late 1990s, HLL like any other

company had used traditional modes of reaching
out to the rural consumer - wholesalers and
retailers...

Product Development
HLL's experience with rural consumers dated
back to the mid-1980s, when Nirma had been a
serious threat to HLL's detergent business.
Nirma's success demonstrated that rural India
did have the money and willingness to buy
packaged goods...

Communication
Mass media reached only 57% of the rural population. HLL realized that it had to use
unconventional media to enhance awareness. In late 1999, HLL engaged Ogilvy Outreach , to
take care of its rural communication campaign...

Looking Ahead

India's rural population comprising 12% of the

world's population presented a huge, untapped
market. HLL had signaled its commitment to the
rural market in various ways.

Management trainees had to begin their career

with the company by spending a month or two
in a rural village. Senior managers continued to
emphasize the importance of rural markets.

Various innovations in the marketing mix had

been introduced, with the requirements of the
rural markets in mind...
Fabindia charts out mega expansion plan

Shruti Sabharwal & Swagata Gupta BANGALORE

HANDLOOM retail chain Fabindia plans to take the number of its community-owned supplier firms to over 50
from 17 in the next two to three years,according to MD William Bissell.
Often called the companys inclusive capitalism model,these community-owned companies are Fabindias
initiative to transform its rural suppliers into corporates.Fabindia provides the working capital through its wholly-
owned subsidiary Artisans Micro Finance and holds minority stake in these companies.The balance is held by the
suppliers and other financial investors,like social venture funds.
Within the next few years,we expect these companies to grow and become larger than mere suppliers to
Fabindia, said Mr Bissell.This is FabIndias initiative to empower the artisans from the grassroot levels.Artisians
are seeing a benefit apart from their regular wages due to the dividends paid by these community-owned
companies, he said.Of the 17 existing community-owned companies,14 have already turned profitable and paid
dividends so far.Fabindia is planning to create employment opportunity to 100,000 artisans from the present
30,000 in the next two to three years.The company works with artisans across the country for products like home
furnishings and apparel.
Fabindia,which has made it to Harvard Business School as a case study,is also working with Massachusetts
Institute of Technology (MIT) to develop retail models for which they plan to obtain patents.We are working on
newer supply chain and inventory management models which should be completed in the next six months, Sunil
Chainani,director,Fabindia,said.

Fabindia Weaves in Artisan Shareholders

The rapidly growing Indian retailer Fabindia offers ownership stakes to the artisans who
supply its handcrafted goods

By Manjeet Kripalani

This Issue

March 23 and 30, 2009

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Fabindia, a purveyor of hand-woven garments and home furnishings, is one of India's premier
retail brands. It has reached that level in part by bringing its suppliers inside the tent. The
private company encourages the artisans who make its wares to become shareholders. Selling
suppliers a piece of the company is unconventional, especially when most of the partners are
illiterate. But if it succeeds, Fabindia could become a model for all kinds of companies,
especially in the developing world.

Fabindia was founded in 1960 by John Bissell, an American working for the Ford Foundation
in New Delhi, and is now run by his 42-year-old son, William. It has 97 stores in India's big
cities and small towns. In 2008, it had revenues of $65 million, an increase of 30% over the
previous year. And as Fabindia has grown, it has come to depend entirely on some 22,000
weavers, block printers, woodworkers, and organic farmers to provide the handmade goods it
sells. "We're somewhere between the 17th century, with our artisan suppliers, and the 21st
century, with our consumers," says Bissell.

Bissell and his staff have worked with the artisans to integrate them into Fabindia and, by
extension, the modern economy. At first that meant helping artisans refine their traditional
homespun designs to appeal to more chic urban tastes as well as improving the consistency of
their wares.

Two years ago, Bissell went even further. He set up 17 centers throughout India, each
organized around a particular region's artisanal tradition. These centers, in turn, were
incorporated as companies in which artisans collectively own 26%. Fabindia encourages each
artisan to buy shares, which cost $2 apiece—a reasonable sum for a weaver who might make
a monthly profit of $100 from selling his woven cotton to Fabindia.A wholly owned Fabindia
company controls 49% of each subsidiary; the rest is held by other Fabindia employees and
private investors. So far, 15,000 artisans have become shareholders. The ownership structure
is mutually beneficial for Fabindia and the artisans; the retailer ensures it has the supplies it
needs, while the weavers, dyers, and so forth lock in steady income. "We pool our effort and
funds, the artisans pool theirs, and we share the risk," says Bissell.

One believer is Mohammad Yaseen Chhipa, who dyes fabric in the dusty village of Pipar in
Rajasthan and has been a Fabindia supplier for two decades. Chhipa, 52, is a prosperous man
now. His yearly income has grown as Fabindia has, from $8,500 in 1989 to $170,000 today.
He owns 560 shares and would like to buy more, but they're in such demand that few people
are selling. The artisans can sell their shares to each other only twice a year. Although not
many transactions have taken place, there have been enough to triple the share price to $6.
Chhipa and other shareholders receive dividends, too, based on how much they produce.

As Bissell makes plans to open 150 more stores in the next four years, he's had to think about
how to overcome the natural constraints of his business model. While offering his suppliers a
chance to own a piece of the company has helped him lock in suppliers, Bissell won't find it
easy to scale up. A yard of khadi, the traditional cloth worn by many Indians, takes two hours
to weave—and right now Fabindia requires hundreds of thousands of yards a month. Bissell
estimates he might need to triple his number of artisans to grow as quickly as he'd like, which
would mean setting up several more regional centers. Maintaining the standards of quality
would be a challenge. Even if he can solve those two problems, there's still the vexing issue
of inventory control. "The whole idea of the Japanese just-in-time inventory is difficult to
manage," Bissell says. "Here, it's more like just-in-a-year."
Bissell has been wrestling with possible solutions. One idea is to shift responsibility down the
supply chain to the regional centers. His hope is that one day they might be able to do much
more in the way of distribution, warehousing, and design. To that end, Bissell has arranged
bank credit for these companies so they have access to working capital. And he is bringing
some of the centers' employees to Fabindia's New Delhi headquarters for basic business
training. The key, says Bissell, is to use what's intrinsic to India. "When you have an
appropriate structure," he says, "all the forces flow in your direction and work with you."

Fabindia
Naazneen Karmali, 01.29.09, 05:00 PM EST
Forbes Magazine dated February 16, 2009

William Bissell runs a thriving business rooted in traditional crafts by

partnering with India's poorest artisans.

Yasin Shahabuddin, 51, and his two younger brothers are among the more
prosperous residents of Pipar, a small town in India's desert state of Rajasthan. Their
family textile-dyeing-and-printing trade, handed down for generations, uses natural
vegetable dyes and wooden hand blocks for printing. It's arduous, painstaking work
for which the brothers have employed and trained 25 people.

But on a recent winter afternoon Yasin's younger sibling was himself toiling over a
vat of indigo dye in which the water hasn't been changed in a generation. "The older
the water, the richer the color," explains Yasin. "This is an endangered art."
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The Shahabuddins, the very last of Pipar's 100-odd families who used to be engaged
in dyeing and printing, are working to keep it alive. The other families abandoned it
as too labor-intensive and not lucrative enough. In summer, when the temperature
soars to 45 degrees centigrade, soaking lengths of cotton fabric in a boiling vat of
dye calls for a special kind of endurance.

Even Yasin's father encouraged him to take up a job in the local municipality, rather
than pursue the family's backbreaking trade, when he finished high school in 1975.
But Yasin, sensing a bigger market outside his hometown, ignored his dad's advice.

Today the Shahabuddin brothers have moved to three identical two-story houses in a
row. They supply goods worth $100,000 every year to Desert Artisans Handicrafts
Jodhpur, in which they and their 25 workers are all shareholders. Yasin sits on its
board.

Desert Artisans' wares, in turn, find their way onto the shelves of Fabindia, a leading
retail chain of handcrafted garments and home products, including furniture,
upholstery, handwoven rugs and organic foods. Desert Artisans is one of 17
companies that collectively count some 15,000 rural artisans as shareholders and
form the backbone of Fabindia's supply chain.

Fabindia is nearly 50 years old. The late John Bissell had been a buyer for Macy's
(nyse: M - news - people ) when he came to India in 1958 on a Ford Foundation grant
to advise a government-run handicrafts institution. He met and married an Indian
woman, Bimla, and the Hartford, Connecticut native stayed on in Delhi after his two-
year grant, starting Fabindia to export fabric goods.
Comment On This Story

Fabindia's biggest early customer was Habitat, then owned by iconic British designer
Sir Terence Conran. Bissell also established a distribution arm in the U.S., supplying
goods mainly to mom-and-pop stores. "We were big on country linen. Amish quilts
sold in the U.S. at the time were most likely produced by women in Rudrapur, in
North India," recalls Bissell's son, William, who today runs Fabindia as managing
director.
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For Fabindia, converting suppliers into partners translates into deeper ties and a
more efficient supply chain, enabling the 97-unit retailer to expand at the rate of 2
new store openings every month. The target: 250 stores by 2010. Fab currently has
6 stores outside India, in Rome, Dubai, Bahrain and Doha, aimed mainly at the Indian
diaspora. But over 90% of the closely held retailer's $70 million sales are derived
from the home market.

"There's a very strong ideology behind Fabindia. I'm a great believer in capitalism as
a force that can benefit the poor," says Bissell, from his office in Delhi, situated on
the top floor of his house. He's wearing a yellow cotton Fabindia shirt with its
trademark wooden buttons. Mounted near his Fabindia-made desk is a map of the
country covered with dots denoting the firm's supply centers.

Creating a link between those far-flung craftspeople and urban markets is Fabindia's
mission, says the 43-year-old Bissell. According to one estimate, there are more than
100 million artisans in India, most of whom won't get 5% of the tag price of the
goods they produce. Middlemen take away a chunk, hence the rationale for setting
up community-owned replacements.

Fabindia's first retail store opened in 1976 in Delhi. Designers were brought in to jazz
up the line of home linens and introduce a range of garments, starting with men's
shirts. Village weavers who heard of Fabindia began turning up at the door.

Recollects Chief Operating Officer Charu Sharma, a 30-year Fabindia veteran: "It was
quite a challenge making rural craft products suitable for urban buyers without them
getting lost in translation." It involved teaching artisans the basics of quality and
finish--no frayed edges on handwoven shawls, for instance. Fabindia's team of
designers to this day provide most of the designs and colors.

In 1992 the firm faced a setback when it lost its biggest customer. Habitat was
bought by Ikea, which decided to appoint its own buying agent in India. A year later
things got worse when John Bissell suffered a stroke. Enter William. After completing
his undergrad degree at Wesleyan University in the U.S., the lad had returned to
India to set up a weavers' cooperative in Rajasthan.

Taking full charge after his father died in 1998, Bissell decided to shift Fabindia's
focus to the domestic market, spearheading a retail drive. "At the time the retail
sector was dormant in India, and it was our strategy to get each new store to break
even relatively quickly," he notes. As Fabindia entered other cities, its cachet grew.
"At every new store opening, there would be a line of customers waiting outside,"
says Sharma.

Bissell's successive sales targets since 2002 have been reached--the latest, in 2007,
is for attaining revenues of $192 million a year. Says Sharma: "For John, Fabindia
was a hobby. With William, it's all serious business and the bottom line."

The pressure to achieve those numbers has led Fabindia into opening stores in malls,
something that it has shunned in the past. This decision, admits Sharma, was hotly
debated within the company. The product range now includes some machine-made
items, although Bissell insists that every Fabindia product is still touched by hand.

To fund his ambitious goals, Bissell tapped into his family's old connections. In 2007
he sold 6% in Fabindia for an estimated $11 million to Wolfensohn Capital Partners, a
private equity firm founded by former World Bank president James Wolfensohn.
"William's infused a lot of energy into Fabindia," acknowledges Sanjiv Kapur,
managing director of Wolfensohn's Indian advisory arm. "He's been able to retain his
team and keep them motivated."

Undaunted by the global slowdown in consumer spending, Bissell is pressing ahead

with Fab's expansion in India and beyond. He recently picked up 25% of East, a
retailer of midpriced women's wear in the U.K., for an undisclosed price. Fabindia has
an option to acquire the remaining 75% over three years.

With revenues of $43 million, East is a 70-store chain that includes concessions in 18
John Lewis stores. Jai Singh, India head at the London office of Compass Advisers, a
boutique investment bank that advised Bissell on the deal, says: "It allows Fabindia
to expand [rapidly] into a new market at a time when valuations are historically low."

Meantime, in 2007 Bissell structured the artisan-shareholder system to also facilitate

growth. The craftsmen own 26% of the equity in each company, with Artisans Micro
Finance, a Fabindia arm holding 49%, and employees and other private investors
holding the balance.

It also cements relationships. Last year, for example, Yasin Shahabuddin earned a
dividend of 20% and says his $4,000 investment has doubled in value within two
years, as per an internal estimate. He no longer has to go to Fabindia's headquarters
in Delhi to sell his goods but can deliver them to the city of Jodhpur, 40 miles south
of Pipar. He gets paid faster--within 45 days--whereas earlier it used to take twice as
long.

Might the mother ship be ramping up for a sale? Indian laws currently restrict
investments by big foreign retailers, but that could change, making Fabindia a prime
target. Would he consider selling? "Not yet," says Bissell firmly. "This is still my
passion."