CavinKare's Innovative Marketing Strategies

- Neela Radhika

The case examines the evolution of a small regional playerCavinKare Pvt. Ltd.,
from a one-product company to a multi-product company with nationwide presence
in the Fast Moving Consumer Goods (FMCG) industry in India. It discusses in detail the
brand-building, promotion and distribution strategies adopted by CavinKare, which
enabled its product brands to compete directly with market leaders such as HLL, P&G,
Godrej and Henkel successfully. The case traces the launch and growth of CavinKare's
successful brands such as Chik, Nyle, Meera, Fairever and Spinz. It also discusses the
company's brand extension efforts and takes a look at the company's entry into other
segments of the Indian FMCG market in the early 21" century and critically analyzes the
rationale for this move. Finally, it explores the future of the company in the light of increasing
competition in the FMCG market and its limited resources in comparison to FMCG majors
such as HLL, P&G and Henkel.

CavinKare in the Food Business

In November 2003, the Chennai-based CavinKare Pvt. Ltd., the Rs. 2.64 bn
personal care, hair care and skin care company, announced the acquisition of the
Andhra Pradesh-based Ruchi Agro Foods' pickle brand, 'Ruchi,' for Rs. 150 mn.
The acquisition also included the Ruchi Agro Foods' pickle manufacturing plant
(with a capacity of 130 to 150 tonne per month) and machinery in Gudur, Andhra Pradesh.

Ruchi was the first major brand acquired by CavinKare, since its inception in 1983.
The acquisition was aimed at boosting the branded food business, which the
company had entered in September 2003, through its Chinni's brand of pickles. The
'Ruchi' brand was the market leader in Tamil Nadu (a Southern state in India) and was
also a major player in other states in South India. The brand was expected to
give CavinKare a firm footing in the food market in the region.

According to sources in CavinKare, the `Ruchi' brand would be promoted as a

premium brand, while 'Chinni's' would cater to the mass market. C K Ranganathan
(Ranganathan), Chairman and Managing Director, CavinKare said, "The price of Chinni's
is half that of Ruchi and we will position both brands to capture the entire market and also
take Ruchi nationally."'
CavinKare, which began as a small regional player in the early 1980s, emerged as a major
FMCG player in India in the early 21st century, competing directly with Multinational
Companies (MNCs) like Hindustan Lever Limited (HLL) and P&G Home Products
Limited (P&G)', in various product segments like skin, hair and personal care. However,
analysts wondered whether CavinKare would taste similar growth and success in the food
business.

Background Note
CavinKare was founded by Ranganathan in 1983, with a modest capital investment of Rs.
15,000 and with a single product. The company was called Chik India Pvt. Ltd., and its
product was Chik shampoo. The company targeted the local market and within a few
years emerged as a leading regional player in the shampoo market in South India.

CavinKare's strategy of outsourcing manufacturing activities was a major reason for its
success. It helped the company to keep costs low and allowed it to focus on marketing
and distribution. Commenting on this, Ranganathan said, "The concept of exclusively
outsourcing our manufacturing operations resulted in lower overheads, while ensuring all
the advantages of in-house manufacturing operations. We associate with people of similar
wavelength in thinking-who will definitely take care of quality first and foremost-and
besides, we have a strong system of quality monitoring. This is part of our strategy. We lay
down all the ground rules for the manufacturers in maintaining our standards. This helps us
in being nimble and agile."' Outsourcing was one of the three cardinal rules of CavinKare's
corporate strategy (Sec Table I for Cardinal Rules of CavinKare's Corporate Strategy).
In 1990, CavinKare changed its name to Beauty Cosmetics, in line with its decision to
establish itself as a national player. The company hired professionals in various business
areas such as R&D, sales and distribution and expanded its network beyond South India.
In 1993, the company entered the non-cosmetic segment, by founding Packaging India,
a wholly-owned subsidiary, to manufacture polymer and packaging material for use in-
house and for sale. By 1995, Packaging India began exporting to countries such as the US,
Nigeria, Bahrain, UAE, Taiwan, Nepal, Bangladesh and Sri Lanka.

Table 1: Cardinal Rules of CavinKare's Corporate Strategy

The three cardinal rules of CavinKare's corporate strategy were:

 The company will never venture into manufacturing (FMCG products) and will only focus
on R&D, brand -building, marketing and distribution management.
 The company will never undertake to distribute products of other manufacturers.
 The company will never allow its products to be distributed by other companies.

Between 1991 and 1998, CavinKare launched Exhibit I: CavinKare Product

Portfolio
five product brands-Meera Herbal Wash Powder Categories Products/Brands
(1992), Nyle Shampoo (1993), Spinz Perfume Hair Care • ChikShampoo
(1997), Fairever Fairness Cream (1998) and Indica • Karthika Shikakai
Hair Dye (1998). In 1998, the company adopted its Powder
present name, CavinKare Pvt. Ltd., to signify its • Meera Shampoo
change from a single-product company to a broader • Meera Herbal
FMCG company, with reach across various market Powder
segments such as hair, skin and personal care. • Nyle

According to company sources, `Cavin' is a literary Personal Care • Chik Talc

word in Tamil meaning Beauty and Grace, while • Electrix
'Care' was modified to start with the letter 'K' instead • Indica Hair Dye
of `C' as a tribute to Ranganathan's father, 'Chinni Raaga Cool
Krishnan.' Spinz Talc
Skin Care • Fairever Fairness
In 2001, CavinKare had a range of products Cream
Apart from those listed above, Meera Gold, Meera •New Fairever
herbal shampoo, Nyle cold cream, Nyle lotion, Spinz. Mantra
deodorant and Spinz talc and Chik talc were added Foods • Chinni's Pickle
(See Exhibit I for CavinKare's Product Portfolio) • Ruchi Pickles
Home Care • EvergloDishwash
. Bar
Source: www.cavinkare.com

CavinKare first launched all its products in the Southern market, and based on their
performance in this market, it launched them in other markets. By mid-200Z, Chik, Nyle,
Fairever cream and Spinz deodorant and talc had been rolled out nationally. The Chik and
Nyle shampoo brands emerged as serious contenders against leading MNC players' brands
such as Sunsilk (HLL), Clinic Plus (HLL), Pantene (P&G) and Head & Shoulders (P&G).
During this period, the company's fairness cream brand 'Fairever,' was also gaining market
share from HLL's Fair & Lovely, the leading fairness cream in India.

In 2002, CavinKare had four regional offices and over 2,200 stockists across the
country, with a retail presence in over 0.6 million outlets, including 'kirana' (grocery) shops
in small villages. In the financial year ending March 31, 2002, CavinKare reported revenues
of Rs. 2.43 bn, compared to Rs. 0.4 inn in 1990. During the period 1990-2002, the company's
revenues increased by an annual compounded growth rate of 40%. CavinKare announced
that it was targeting a turnover of Rs. 50 bn by 2012.

Analysts attributed this phenomenal success and growth to the company's ability to
identify product gaps in the market much before the competition, and develop innovative
products to fill the gaps. Analysts also felt that CavinKare's focused, innovative and customer
-centric brand-building, marketing-mix (product, price, place and promotion) and distribution
strategies contributed to the success. It leveraged its early mover advantage and established
itself strongly against leading FMCG and domestic majors such as P&G, HLL and Godrej
Consumer Products Limited (Godrej). Commenting on this, Parmit Chaddha, Chief
Executive, Paradigm Management Know-How (Chennai), said, "It's their attitude of 'so what
if HLL is the market leader, there must be a chink in its armor'. The company sees
opportunity in something that others construe as a threat."

The Marketing Strategy

CavinKare's brand-building, marketing-mix and distribution strategies can be better
understood by examining the marketing strategies of its six most successful product brands-
Chik, Meera, Nyle, Spinz, Indict and Fairever.

Chik Shampoo
In 1983, when CavinKare decided to launch its first product-Chik shampoo, the shampoo
market had over 200 plus players with FILL being the market leader with its Clinic Plus
brand, which was positioned as a health shampoo. CavinKare found that almost all the major
players were targeting urban consumers and neglecting rural markets. CavinKare identified
rural markets where people were not yet familiar or comfortable with the idea of using
shampoos to wash their hair, as high potential areas for business. Commenting on this,
Ranganathan said, "We targeted the rural and smalltown consumers, who used bath soaps to
wash their hair and had not seen any visible damage, and were comfortable with the idea of a
shampoo as long as it was within their means."'

CavinKare's research revealed that the average number of adults (who washed their hair
once a week) per household in these regions was five. At Rs. 2 per sachet (the lowest priced
sachet during that period), it worked out to Rs. 8 per person per month. This was not
thought economical, as no rural consumer would like to spend so much on washing hair.
The company conducted a survey across many villages, the results of which showed that
rural consumers were willing to try a shampoo, if the total cost of hair wash per person could
be cut to Rs. 2 per month. Therefore, in 1983, CavinKare launched Chik shampoo in Tamil
Nadu at 50 paise (half a rupee) per sachet, the lowest price in the market. '

As part of building its brand equity, CavinKare concentrated on advertising, promotion

and strengthening retailer loyalty. The company bought radio spots and played jingles
interspersed with dialog from popular regional films on All India Radio. The company
realized that though shampoos had been made more affordable, many villagers did not know
how to use the product. This was the major reason behind low penetration of shampoos in
rural areas. To address this, the company initiated an aggressive road promotion drive in
villages. It took vans to distant villages to organize popular film shows for villagers. The
company used the two-minute intervals during the featuring of films to increase viewer
awareness on shampoos, by showing clips on shampoo use and its benefits.

According to reports, such planned advertising and promotion strategies led to an

exponential growth in the sales of Chik shampoo. The sales increased from R5. 0.5 mn in 1984
to Rs. 3.8 mn in 1985. CavinKare increased the price of a Chik shampoo sachet to Re. 1 in
1985. The same year, the brand was launched in the neighboring Southern states of India
like Andhra Pradesh and Karnataka.

As the loyalty of rural and small town retailers oscillated between various brands, with
other FMCG companies trying to lure them with incentives, CavinKare realized the need to
create a consumer pull to ensure the loyalty of small retailers to Chik. The company came up
with an innovative marketing scheme of offering a Chik shampoo sachet free for five empty
Chik sachets. The offer was the first of its kind in the market and received a huge response.
With the shampoo sales increasing greatly thanks to the offer, retailers began to increase the
stock of Chik shampoo at their outlets. The company tried to woo retailers too, by offering
them a Chik sachet free for every 15 empty sachets they got from consumers. This resulted in
retailers coming up with initiatives, such as offering school going kids' chocolates in exchange
for empty Chik sachets they picked up on their way to school. Within six months, CavinKare
succeeded in establishing strong retailer confidence and loyalty to the Chik brand.

By 1990, Chik replaced Velvette as the market leader in the Southern rural markets and
controlled a market share of over 50%. By 1990, the demand for shampoos in the rural
market picked up rapidly, with the growth rate being almost twice that of the urban
market. Analysts attributed this to the entry of many local players, increased exposure and
awareness of rural consumers and stress on affordability by local players. To further
exploit the high growth, CavinKare decided to launch Chik shampoo in bottles. During
this period, while sachets were priced anywhere between 50 paise and Rs. 2.50, 100 ml
bottles were priced between Rs. 40 and Rs. 50 each. CavinKare felt that to increase volumes
and usage, it needed to work on making bulk buying more affordable. In 1990, the
company launched 100 ml bottles of Chik shampoo, priced at Rs. 17 each, the lowest
priced in the 100 nil shampoo segment.

In 1993, CavinKare launched the Chik brand nationwide. However, the brand failed to
grow at the expected pace until the late 1990s. The company attributed this to its inability to
quickly expand its distribution base outside South India, to support the brand and its
strategies, like sending locally hired area managers in South India to manage markets outside
South India. As a result, between 1993 and 1998, the Chik brand grew only by 4%.

By 1998, the company corrected its recruitment policy (of hiring local managers, who in turn
hired local field force) and established a strong distributor base of 1,200 outside the southern
market. This - boosted the growth of the Chik shampoo brand. In 2000, the company also
launched mini, single-use, sachets priced at 50 paise aimed at price conscious consumers
(alongside its existing Re. 1 sachets) and 50 ml Chik shampoo bottles, priced at Rs. 6, which
contributed to the rapid growth of the brand.

In April 2002, Chik emerged as the second largest shampoo brand (by volumes) with a share
of 21.19% of the 32,000 ton per year shampoo market in India. It was very close to the market
leader, Clinic Plus, which had a 22.95% share. By the end of 2002, Chik also emerged as the
largest player in the rural market, with an all India rural market share of 39.1%, relegating Clinic
Plus (31%) to second position. In early 2003, Chik also won the Advertising Agencies
Association of India's best brand performance award which analysts attributed to its branding
and marketing strategies (See Exhibit II for a Picture of Chik Shampoo).

Questions for discussion:

1. Critically examine the evolution and growth of CavinKare from a small regional
player into a national player in the FMCG market, with special reference to the
company's product innovation, brand-building, marketing and distribution strategies.
Do you think the company's strategy of launching its products nationwide rather than
concentrating on its core regional markets (the Southern markets) is right? Why/why
not?
2. With FMCG majors like HLL, P&G and Godrej planning to intensify their marketing
efforts to retain their respective positions in the market, what do you think the future has
in store for CavinKare? With its limited financial resources in comparison with other
FMCG majors, do you think CavinKare would succeed in achieving its revenue target?
What marketing strategies would you recommend CavinKare adopt to achieve its
revenue target?