ICMR — The Nirma Story Ttall started to carn a side income, and at that stage, I had never imagined this kind of success. ~ ~ Karsanbhai Patel, CMD, Nirma Ltd. ‘bike other FMCGs, we have not concentrated only ly ott marketing strategy, From the very beginning. operational strategy in cost comainment, backend tntegration, economies of scale. movative Production, packaging and penetration schemes have received equal attentions = + Hiren K Patel, CMD, Nirma Consumer Care Lid, (Nirma's marketing arm) ‘We need not be lergents market convinced HLL. that it really ion company within ilitie,, and a broad product “ompany's mission to provide, “etter Procacts fe competition from HILL and carved a niche for isc ia the lower most syncaymens with low <7, Nitta Fealized that it would have io launch prechce, fr the upper end of the market to retain ty wt ‘Sommumers who would graduate to the Upper end. The company launc femium segment However, analysts (eh beter wail atten seer ces ach ln ot preshicts much nt brane pac inees — ghter Nirupams, Patel was able to sell about 15-20 packets a day on his way 10 the office on bicycle, some 15 km away, Thus began the great journey. By 1985, Nirma washing powder had ‘become one ofthe most popular detergent brands in many parts ofthe country. 1999, Nirma was a major consumer brand ~ offering a range of detergents, soaps and personal care poe Inkeeping with its philosophy of providing quality proccts at the best possible pices, Niema ‘brought in the latest tschnology for its manufacturing facilities at si places’ in India, Nirma’s success in the highly competitive scaps and detergents market was attributed to its brand promotion efforts, ‘which was complemented by its distribution reach and market penetration. Nirma's network consisted ‘of about 400 distributors and over 2 million retail outlets across the country. This huge network emabled [Nimma to make its products available tothe smallest village, After establishing itself in India, Nira expanded to markets abroad in 1999. Its first foray was {into Bangladesh, through a joint venture - Commerce Overseas Limited. Within a year, the brand ‘became the leader in the detergent market in Bangladesh. The company also planned to enter other regions like the Middle East, China, Russia, Afriea and other Asian countries. ‘THE ROAD TO SUCCESS ‘The use of detergent powder was pioneered in India by HLL's Surf in 1959, But by the 1970s, Nirma dominated the detergent powder market, simply by making the product available at an affordable price. In 1990, Nirma entered the Indian toilet soaps market with its Nirma Beauty soap. ‘By 1999, Nirma became India’s second largest manufacturer of toilet soaps by acquiring a 15% ‘share of the 5,30,000 tonnes’ per annum toilet soap market. Though way behind HLL's share of ‘65%, Nirma’s performance was remarkable as compared to Godrej, which had a share of 8% (Refer Figure 1). By 1999-2000, Nirma had also gamered a 38% share of India's 2.4 million tonnes etergents market. HLL’s share was 31% for the same period (Refer Figuce Ml. + Higher Costs - NO Within a short span, Nirma had completely rewritten the rules. of the game, by offering good quality products at an unbeatably low price. Nirma’s success was attributed to its focus on cost effectiveness. From the very beginning, Patel had focussed on selling high-value products at the lowest possible price. The company endeavored to keep improving quality while cutting costs. To Production costs at a minimum, Nirma sought captive production plants for raw materials. Baroda, Bhavnagar, Kanpur and Indore ‘Soups and Toiletries Makers Assocation (ISTMA) for 18S Carmpus.es omy. Sem | Class of 2016-18,Pig tt Market Shares (Detergents): 1999-2000 Henkel Others | Spice 32% 9 ir | 30% ra mee tbh, 11% Source: ISTMA The two mew pla Ths saccd phase ofthe Baroda plant was completed six months ahead of schedule and at a cast of 14.2.5 bn as against the original estimated cost of Rs. 2.8 bn. The Bhavnagar plant was completed ‘in 4 record time of two years at » cost of Rs,9.85 lyn as against the original estimated cost of Rs. 10.36 ba. The staff strength at this plant was « low $00. In contrast, Tata's Chemical's plant, which ‘were completed ahead of schedule and at a much lower cost than estimated. 8 about twice the capacity. employed 10 times the number of people, The Baroda plant produced 65000 tpa of N-Paraffin for Linear Alkyl Benzene (LAB) and Synthetic detergents. The technology for this plant was sourced from UOP Inter Amercana, USA. The Bhavnagar plant could produce 4,20,000 ipa of xodn ash. The Alczo Dry Lime technology used in this plant was sourced from Akzo Nobel Engineer Holland, The plant had 108 kan of salt bunds, which would help it to produce vzcaum iodised suit in the furure. Said Patel, “We have a eupacity of producing three lakh tonnes of pure salt. Ne one, ‘except Tata Salt, has a sumitar plant in the eountry.”* Nirmms also surtiled its costs of distribution by eliminating intermediaries. The procuct went directly from the factory to the dsisbute: Hiren K Patel (Hiren), CMD, Nirma Consumer Care Ld explained, “An order is phiced and the truck leaves straightaway, It i like a current account. We send the stock, they send the money.” The company mainiained depots in states like Andra Prades, Tamil Nad and southern Karnataka, as geting stoic to these areas was sometimes difficult. In statcs Hike Uttar Pradesh and Madhya Pradesh, stocks were delivered direstly from the plants. {in March 2000, in w iuther cost reduction exercise, Nima opled for in-house printing and packaging by acquiring Kisan Industries at Moriya, noar Ahmedabad, Nirma hoped this would imprave the quality of ts packaging * Brand Wars - YES Nirma also had us strategies. In the mid-aineties, Nirma successfully extended its brand to other product categories like premium detergenis (Nirma Super Washing Powder act Detergent Cake), premium telet soups (Nicm Prensium, Nitta Sandal, Nirma Lime Fresh), tt followed its original marketing and pricing strategies in the seanomy scyment as well ay in che premium segment. In 2000, the company entered the hair cure market with Nirma Shikakat, Nira ‘Beauty Shampoo, and Nits Toothpaste, Unlike detergents, soaps rere 4 Personal-care product. Many customers hhad deep psychologic] bonds with their soap brands. Moreover, the market was Segmented by HLL by price, by scent appeal, and by brand perionality, $0, Nirma positioned Nirma Bath against Lifebuoy’, Nirma oprular wand of carbolis sop from HI, 3 "ieemsnto uve for IS Campuses cry, Sem Claes of 2016-18, — |‘The Nirma Story ‘reese’, and Nima Lime against Ja} Lime’, lo win ih pe pling HLL" rales, Hiren said, “World-wide, er et ‘leva, bel, freshness — which account for imost of .* Nira prochiced high-fatty-matter’ soaps with the right scents, and priced them ‘lower than other Irands, This created the ‘sub-premium' segment, Nirma also mastered the ‘game of managing the diversity of consumer preferences. For instance, the North (referred pinks soups and while the South peered prec ones. Sandal soaps were more poplar Initially, the advertising spend of the company was very tow, as compared to other FMCG ‘companies. Nirma spent only 1,25-2% of its turnover on advertising ax compared to the normal 6- 10% For endorsing soapy, the company used slaricts like Sangeeta Bijlani, Sonali Bendre, and Riya Sen, who were relatively unknown at that time. The advertisement messages were also very ‘imple anid focused on the benefit of the prochuct. Niema always preferred to place the product om the shelves first, receive feedback, and thea create an enduring ad campaign While introducing toilet soaps and detergents in the premium segment, Nirma relied on its time- tested weapon ~ Price. The company planned to concentrate on volumes in these segments as: well ‘But there was a change in the margins given to retailers, Unlike the economy products, where the cast benefits were passed on 10 the consumers, Nirma passed on this benefit to the retailers. It ave them buge margins. For instance, for Ninma premium soap, it offered $2% and for Nirma shampoo, it offered an unbelievable margin of 140%. Analysts were skeptical about Nirma's chances of success in the premium segment of the soups market Unlike detergents, the soaps and shampoo market was highly fragmented, There were about 15-20 brands, and it was difficult for any soap to get a sizable market share. Moreover, tts inarket was less ‘rice sensitive. So, it was afficult for any company to sustain itself on price alone, Analysts felt that it ‘would take yeurs to change Nirma's brand image. According to 4 survey conducted by Sunsika Marketing Consultants, Nirma's marketing firm, Nirma was considered to be a cheap brand. Many people were almost ashamed to admit that they were using it. To shed this image, inthe late nineties, ‘Nima released! corporate advertisements worth RS 10 bn throughout india, Analysts felt that the fast growing shampoo market was a better bet than the premium soaps market. In India, only 30% of the population used shampoos and more than 70% of this group was {in the urban arcas, However, according to some analysts, though the perceived potential of the rural market was very high. in actual practice, it was difficult to persuade rural folk to use ‘sharipoos, Another problem Nirma faced was that of inaslequate infrastructure. Though it had a strong presence in the smaller towns and villages, it lacked the network necessary for penctrating tsrban areas. Ths, Nitms’s entry into premium soaps and shampoos seemed to have failed. THE ROAD AHEAD Though Nirma was better knowa as a producer of low-cost economy range of products, it was successful in the middle- and up-market segments. But at the same time, coitipetition was also increasing, While HLL. continued to be a major competition, P&G and Henkel SPIC also adopted aggressive measures. Players trom unorganized sector were also adding to the cornpetition in the detergents and washing powder industry. © Popular brand of beauty soap from HLL, * HLL's brand in the floral soaps category. * HILL's tne brand The premium prot in hiscaiory ws Lit, which was countered by Nirma Lime Fresh * High-fatty-matier soops are high i lather quality Henkel SPIC thd tumed aggressive in the middle and upper ends of the market. The acquisition Calcutta Chemicals and Detergents India. placed Henkel ina stronger position ts tackle coesptition. 1s £2000, i also frayed into the toilet soap segment with Is Fa range of products 4 License to use for BS Campuses only. Seon Class of 2016-18,‘The Nirma Story However, Patel was confident of tackling the competition. He said, “We hold the price line and the ‘Satisfied consumer naturally reverts to us.” In the past three decades, the brand had grow™n in value ‘and volume on the basis of his success formula: “A customer does not look for one-time frills or feel-good factors, Rather, the householder wants a long term solution to his or her needs.” ne eee would be a success in the run, ‘QUESTIONS FOR DISCUSSION: |. Will Nirma's cost-effective business madel be successful in the long run? Justify your answer 2. There are many big: players in the detergents, and personal care market in India, which are Biving tough competition to Nirma. How can Nirma effectively counter this increasing “competition” 3. By 1990, Narma gained sizeable foothold in the lower end of the detergents and toilet soaps market ‘Was i nccemary for Nirma to exter the premium segment? Give reasons for your answerExhibit 1 ‘Nirma was able to break the cost barrier by: ‘Cost Competitiveness. In the 1970s, Patcl realised that the price of HLL's detergent, Surf was high for a country like India. So, Patel set up 2 chain of workshops—which helped him to get ‘excise-concessions—where the detergent was mixed manually. Although the manufacturing mode was primitive, it was ideally suited to a labour-surplus market. With 2 workforce of 10,000 and 200 managers, Nirma managed its wage bill to a fifth of HLL's. Backward Integration. But as the business environment changed, the manufacturer's strategy evolved as well, Even as the excise-concessions were withdrawn in 1982, Nirma had to contend with a whole host of new competitors. To survive, Patel had to integrate backwards into the manufacture of Alpha Olephin Sulphonates (AOS), Linear Alkyl Benzene (LAB) and soda ash, and consolidate his capacities. This upstream strategy was the strength of Nirms all slong. Explained Kalpesh Patel, Executive Director, Nirma Ltd., “Scale economics have helped us to reduce our procurement costs. 30 has in-house manufacture, Indeed, sophisticated processes have helped the company to cut down raw mstena! costs by 15%." | ‘Supply Chain Management. Initially, Nirma sourced packages from 10 vendors but incurred | high costs and the delivery was not always on time. By ccntralising packaging, Nirma was able to cut its inventory cost by over 40%. Further cost savings had come from a flat distribution | “system, Nirma was directly connected to the distributor, there were no carrying and forwarding. -warchousing agents in between. ‘Advantage. The three factors that made the cost-leadership strategy work in } ffm were low-cost labour, superior processes, and a mindset that was rooted in coEa ee Additional Readings or References: rama 10 uu. 2 Bh re 16 om Sinigh M Maya and Toppo Anup Pankey, The Legend Continues, A&M, October 15,2000 XKrishnalumar B, Nirma: Hold and Sell on Uptrend, Business Line, October 13, 2000 Kaushik Neha, Suds and Bubbles, A&M, Sepiember 15, 2000, Krighnakumar B, Recommendation: Trim Exposures on Uptrend, Business Line, May 28, 2000 Singh M. Mayanka, Walt and Wash, A&M, May 15, 2000 ‘Seshadri K, Nirma Seems to be Safe Bet in FMCG Cluster, Financial Express April 28, 2000 Prahalod CK, Nirma and Hindustan Lever, copitalideasonline.com, February 22, 2000 Gupta indrajt, Price of Success, Business World, January 31, 2000 Kohli Vanita, Nirma: Will it Wash?, Business World, November 1, 1999 ‘Still Babbling, Business Standard — Stratepist, October 26, 1999 Bhattacharjee Patlavi, Supplying Swecess, Business World, July 19, 1999 Kamat Vinay, TCM: Managing Organizational Costs. What Is TCM/O/E: WOW?, Business Today, January 7, 1999 Karthikeyan M. and Dutta Sudipt, Middle March, Business India, March 9, 1998 Krishakumer 8, Niruma: Detergents Go Caustic, Business Line, November 2, 1997 A Brave New Assault, Business India, June 3, 1996 Ghosh foyecp, Nirma Steps into the Premium Segment, Business World, December 25, 1996 swe nit coi