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A00087

Indian Institute of Management Ahmedabad July 18, 2007

Revised 18 May, 2017

CavinKare Private Limited (B):


Entry into Soaps and Detergents Market
On December 31, 2004, C. K. Ranganathan, Managing Director, and K. S. Ramesh, Chief
Executive Officer, of CavinKare Private Limited were reviewing the company's decision to enter
the soaps and detergents market. The company had been preparing to introduce its soap and
detergent products in the market for the last two years. However, in recent months, the market
conditions had changed. Owing to an ongoing price war in the detergent segment between
Hindustan Unilever Limited (HUL) and Procter & Gamble (P&G), Ranganathan and Ramesh
were weighing the risks and benefits of entering this market. They had to decide whether to
enter the market or delay their entry. Another option was to abandon the entry plan altogether.

Background

CavinKare was founded in 1983 by C. K. Ranganathan, an entrepreneur from South India. Prior
to that, Ranganathan had been involved in the family business of manufacturing
pharmaceutical and personal care products. Chinni Krishnan, Ranganathan’s father, was the
first to introduce the concept of shampoos in sachets in India in 1976. Ranganathan started his
entrepreneurial journey with small capital and limited resources in Cuddalore, a small coastal
town in the Southern Indian state of Tamil Nadu. In two decades, his company CavinKare had
become an important constituent of the consumer goods market with a presence across India.

Over the years, CavinKare had built the reputation of rewriting the rules of the game in the
consumer goods market. It was recognised as a domestic company with the best performance in
successfully introducing new brands in the Indian fast moving consumer goods (FMCG)
industry. 1 It achieved rapid growth despite intense competition from other well-known
multinational corporations (MNCs). From 1991 to 1999, it grew at a year-on-year rate of nearly
50%. 2 It introduced high-performing and sometimes novel products at a price acceptable to
consumers. With a business strategy centring around product innovation, value for money
pricing, investment in brand development, and a superior understanding of consumers,
CavinKare succeeded in carving out a share of the market for itself. The company’s track record
was impressive. It had successfully competed with big corporations of the likes of HUL, P&G
and Godrej. In the shampoo category, its brand Chik had the second highest market share while

Prepared by Professor Anand Kumar Jaiswal, Indian Institute of Management, Ahmedabad.


The author wishes to thank C. K. Ranganathan, Managing Director, and K. S, Ramesh, former Chief
Executive Officer, for providing valuable suggestions and support. He is also thankful to senior managers
of CavinKare: Tushar Sadanand Murdeshwar, Saumitra Prasad, Soumik Chakraborthi, Varun Chopra,
and Arun Kumar. The author is grateful to Professor P. Venugopal of XLRI, Jamshedpur for his help and
valuable suggestions in preparing this case.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion. They
are not designed to present illustrations of either correct or incorrect handling of administrative problems.
© 2007 by the Indian Institute of Management, Ahmedabad.
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Nyle was a market leader in the herbal shampoo segment. In the hair wash powder category, its
brand Meera was the market leader. Its brand Fairever was number two after HUL’s Fair &
Lovely in terms of market share in the fairness cream category. Through its brand Spinz, it was
able to establish its presence in the product categories of perfume, deodorant and talcum
powder.

Growth Options

In 2003, CavinKare’s revenue increased to over INR 2,640 million. It had set a vision to become
an INR 52 billion company by 2012. To achieve this ambitious goal, the company had developed
a long-term strategy that included increasing its market share in various product categories and
achieving faster growth by diversifying its current business. The company had selected soaps
and detergents, food products, and branded hair and skin care salons as new businesses to
venture into. These businesses were identified as key drivers of growth in the coming years.

The company had already entered the food products and retailing business. It saw food
products as a large category with the potential to grow many times its current size. The thinking
was that it could leverage its learning from its existing consumer products in the food business.
CavinKare was also looking at retailing. It had promoted a new company, Trends In Vogue
Private Limited, to exploit opportunities in the branded hair and skin care salon business. This
business was an extension of its existing presence in the hair and beauty care market. The
expectation was that making its products available at salons would reinforce its existing brands.

Entry into the Soaps and Detergents Market

The company had been contemplating a foray into the soaps and detergents category since
2001. The rationale behind this idea was that, having achieved critical mass, the company
should enter those categories that were very large in terms of size. The soaps and detergents
category was estimated at INR 100 billion in 2003. 3 Even if CavinKare managed to get a small
market share of this category in the initial phase, it would have a major effect on its sales
turnover. (A short description of the Indian soap and detergents industry, the major players,
and their relative market shares are given in Exhibits 1-7).

The company had even test-marketed its product, Meera soap, in selected areas in South India
in 2001 and 2002 and had drawn plans to set up a separate division for this category. However,
market conditions had undergone significant changes since then. In March 2004, P&G triggered
a price war that experts called the “Second Detergent War” in the Indian market. a P&G slashed

a The first major clash or “First War” in the Indian detergent market took place in the 1980s when a Gujarat-based
detergent company, Nirma, challenged the hold of market leader HUL. Nirma launched its detergent powder at one-
fifth the price of HUL’s brand Surf. Its product achieved remarkable success. It expanded the overall market
manifold and Nirma became a household name in India. By 1985, Nirma’s market share increased to 58% from 0% in
1976 while the market share of Surf reduced to just 8.4%. From nowhere, Nirma had emerged as the number one
detergent brand in India. To counter the assault by Nirma, HUL launched a project named “Sting” (Strategy to
Inhibit Nirma Growth). As a result of this project, the company introduced its own low-cost detergent brand Wheel.
The launch of Wheel resulted in significant competition for Nirma in the detergents market. For more information,
see: Ahmad, P. S., & Mead, J. (2004). Hindustan Lever Limited and Project Sting. Charlottesville, VA: Darden
Business Publishing.

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the price of its Ariel and Tide detergent brands by 20-50%. The company had focused on the
premium end of the market for almost 10 years. On P&G’s strategy in India, an article published
in Businessworld 4 stated:

It invested several thousand crores since its entry in 1985, but had little to show
beyond a small Rs 800-crore [8,000 million] business. Whereas in China, which
P&G had entered almost at the same time as India, it crossed the $1 billion mark
(Rs 4,500 crore approximately) last year [in 2003]. From 1998 till date, P&G
seemed to have put its investment plans in India on hold. It stayed focused on a
small wedge of the Indian market, content in serving top-end consumers in the
top 200 towns.

For several years, P&G struggled to formulate the right strategy for developing countries. It
eventually perfected its business formulae for delivering value to low-income consumers in
China and other Asian countries, Russia, and many countries in Latin America. It planned to
leverage these learnings in the Indian market. As part of its new strategy, P&G decided to grow
its business aggressively in India. It adopted a low-price strategy for several of its products. The
aim was to increase sales volume by making its products available to the masses. 5 In an
immediate reaction to price cuts by P&G, HUL announced 26-29% price cuts for its Surf Excel
and Surf Excel Blue brands 6 (see Exhibit 8) This price war significantly changed the detergent
market. It reduced the price differential between premium and popular segments and also
blurred the difference between mid-priced and popular segments. (See Exhibit 9 for price cuts
across different detergent brands of P&G and HUL).

In these changed market conditions, Ranganathan and Ramesh were reviewing their plans for
entering the soaps and detergents category. Should it go ahead with its original plan and
introduce its soap and detergent products? Or, should the company abandon its plan altogether
or delay its entry? They knew that, in India, soaps and detergents were often viewed as a
category with high brand proliferation and a lack of differentiation. Ranganathan and Ramesh
were uncertain whether CavinKare would get a significant share of a market in which two
major players were engaged in a price battle. Should the company attempt to leverage its
experience of successfully executing a price-based strategy for Chik? Should it rely on factors
such as its strong existing distribution network, product development capabilities, and, most
importantly, its keen understanding of Indian consumers? Would these factors enable its
smooth entry into the soaps and detergents market?

Ranganathan and Ramesh wanted to take a second look at the long-term implications of
diversifying into soaps and detergents. CavinKare could move aggressively to tap the
opportunities in the new business. However, a more conservative outlook suggested that it may
be wiser to focus on its existing business in order to sustain its growth and increase its market
share.

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EXHIBIT 1
Indian Soaps and Detergents Industry, 2003

The soaps and detergents market in India, b consisting of toilet soaps, detergent bars and detergent
powders, was estimated to be INR 100 billion in 2003. 7 The liberalisation of the Indian economy in 1991
and the economic reforms of the nineties brought about substantial changes in the industry. Several
international brands became available to consumers. Consumers also had more options to choose from
among domestic brands. The Indian consumer market was very large, with more than one billion
consumers. However, about 250 million burgeoning middle-class consumers and about 50 million upper-
class and high-income consumers were the main targets for most companies. 8 Lately, however, some
companies had begun looking at the bottom of the pyramid (BOP) market comprising of low-income
urban and rural consumers—a population of more than 700 million—as a profitable market that could be
tapped.

Entry into the soaps and detergent market was considered less investment intensive than some other
sectors since the fixed assets requirement was relatively low. However, companies were required to
spend enormous resources on research and development. Further, heavy spends on advertising and
sales and trade promotion were common characteristics of the industry. The market was very competitive,
with a large number of players, both domestic and international. Owing to intense competition within the
industry, it was an extremely challenging task for any new entrant to find a foothold in the industry. From
year 2001 to 2003, growth in the industry stagnated (see Exhibits 2 and 3). In 2003, the penetration c of
soaps was about 87.6% in rural areas and about 97.1% in urban areas while the penetration of
detergents in rural areas was about 85% compared to about 95% in urban areas (see Exhibit 4). 9

In the soaps category, consumers had an increasingly high number of specialised offerings, such as
medicated and fairness soaps, to choose among. The key players in the soaps market were HUL, Godrej,
Nirma, Colgate Palmolive, Karnataka Soaps, Reckitt Benckiser and Wipro (see Exhibit 5). HUL was the
market leader in terms of market share (see Exhibit 6). It owned a large number of well-known brands
such as Lifebuoy, Lux, Rexona, Liril, Hamam, Breeze, Jai, Moti, Le Sancy, Dove and Pears. The soap
market was divided into three segments based on pricing: premium, mid-priced and popular. HUL was
present in all three segments.

The detergent market was also divided into the same three segments on the basis of pricing. Brands such
as Ariel and Surf Excel formed the premium segment, Tide and Rin Supreme constituted the mid-priced
segment while Rin Shakti, Wheel and Nirma were part of the popular or sub-popular segment. This
categorisation of the detergent market was not very useful for segmenting consumers as it mainly
differentiated usage type. Research showed that even high-income consumers bought both premium and
popular types to wash different types of clothes. Consumers used premium detergents to wash expensive
clothes while popular detergents were commonly used for daily or ordinary washes. 10,11 HUL, Nirma, P&G
and Henkel-SPIC India were the main players in terms of market share (see Exhibit 7). P&G and Henkel-
SPIC were present only in detergents, and not in soaps.

Market Characteristics and Trends

Counterfeiting: The prevalence of look-alike brands, especially in rural markets, was a key characteristic
of the industry. These products tended to be of very poor quality and could create health problems for
consumers. They also tarnished the image of established brands. As per estimates by AC Nielsen, nearly
80% of the consumers who purchased counterfeit or spurious brands believed that they were purchasing
the real ones. In India, it was estimated that fake brands ate away 10% to 30% of the sales of popular
brands in different product categories. 12

bSoaps are also referred to as personal wash and detergents as fabric wash.
c
Penetration is an indicator of the user base of a product category. In India, the National Council of Applied
Economic Research (NCAER) reports penetration data using households as a basis. It indicates how many
households are using a particular product. This data does not specify how many members of a household are the
users of a product [Source: ICRA. (2001, March). Industry Watch Series — The Indian FMCG sector, p. 8].

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Declining Brand Loyalty: In the soaps and detergents market, a large number of brands competed for
the same set of consumers. Consumers had a wide choice. This, combined with regular sales
promotions, resulted in declining brand loyalty. If the consumer found a better deal in terms of a
promotional offer, he would promptly switch brands.

Low Unit Packs: Small unit packs were commonly sold by companies in both rural and urban markets. In
rural areas in particular, small packs were very useful in increasing the penetration of soaps and
detergents since rural consumers, who had limited cash in hand, preferred to buy small packs on a daily
basis or as needed.

Presence of Grey Market: With the removal of import restrictions after India's economic liberalisation, a
number of imported soaps and detergents and other consumer product brands from countries like China
became available on retail shelves. 13

Key Success Factors

Several factors contributed to success in the Indian soap and detergents industry.

Understanding Consumers: The key requirement for success was a good understanding of consumer
psychology. Deep sensitivity and a knowledge of consumer behaviour were critical for anticipating and
identifying the latent needs of consumers.

Offering Value: Consumers in the soaps and detergents market in general were typically value
conscious and demanding in terms of getting value for money. They assessed the price of each product
against the benefits offered. Affordable price was the key driver of purchase decisions for low-income
consumers.

Distribution Network: Having a strong distribution network that ensured product availability in each
corner of the country was another success factor. Such a distribution network could cater to grocery
stores, paan shops d and tea stalls spread across urban, semi-urban and rural areas. Companies like HUL
and Nirma had better distribution reach in rural areas.

Brand Building: Building strong brands was another prerequisite to success. Owning strong brands
enabled companies to gain customer loyalty, offer low trade margins, convince retailers to stock products,
and use the brand extension route for new product introductions. 14

Major Players

Hindustan Unilever Limited (HUL): HUL was a subsidiary of the Anglo-Dutch multinational corporation
Unilever. The parent company had a 51% stake in its Indian arm. HUL was one of the first multinational
companies to set up a manufacturing base in India. With a strong presence in practically every consumer
goods category, the company enjoyed a leadership position in both the soaps and detergents market.

Procter & Gamble (P&G): P&G was one of America’s largest consumer products manufacturing
companies. It enjoyed a dominant position in the detergents market globally. In India, the company
operated in various product categories such as beauty care, hair care, detergents and sanitary napkins.

Nirma Limited: Nirma was a leading Indian company in the soaps and detergents sector. Price-
conscious urban and rural consumers were its main target segment. Value for money was the key
proposition offered by most of its products. Nirma washing powder, the first product introduced by the
company, rapidly became a household name across India. The company subsequently launched a range
of toilet soap brands.

d Small shops or stalls selling betel leaf preparations and cigarettes, and in some cases, other consumable goods.

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Reckitt Benckiser (India) Limited: The company was the Indian arm of Reckitt Benckiser Group plc, a
global leader in household cleaning products. Reckitt Benckiser (India) was present in two main
categories — household products (fabric care, surface cleaners, etc.) and over-the-counter (OTC)
pharmaceutical products. Several of its brands such as Dettol, Robin Blue, Disprin, Colin, Coldarin,
Cherry Blossom, Vanish, Lizol, Strepsils, Harpic, Veet and Mortein enjoyed significant market share in
India. Dettol soap was its brand in the premium soap market.

Henkel SPIC India: This was an Indian subsidiary of the German detergent company, Henkel. Henkel
had a 51% stake in its Indian subsidiary. It had a number of brands in the detergents category. Its Pril
Liquid brand had a significant presence in the dishwashing detergent market.

Source: Cygnus Economic & Business Research. (2004, February). Industry insight — Indian personal care
products; ICRA. (2001, March). Industry Watch Series — The Indian FMCG Sector.

EXHIBIT 2
Industry Growth Rates
(in %)
2000 2001 2002 2003
Soaps (Personal Wash) 6.1 -9.9 -6.1 0.48
Detergents (Fabric Wash) 5.7 -2.9 -2.1 -3.06
Source: Cygnus Economic & Business Research. (2004, February). Industry insight –
Indian personal care products.

EXHIBIT 3
Penetration vs. Growth Rate of Selected Consumer Goods in 2002

Penetration (%)

90 Toilet Soap

Tea

Detergent NSD
70

50 Toothpaste

Shampoo

Dish Wash
30 Ice-Cream Skin Cream

Colour Cosmetics Staples

Tomato Deodorant
Ketchup

5 10 15 Growth (%)
Source: Hindustan Unilever website. Retrieved from http://www.hll.com/HLL_Flash/finance/hindustan_final.ppt, on
January 14, 2004.

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EXHIBIT 4
Urban and Rural Penetration of Selected Consumer Goods in 2002-03
(in %)

Product Category Urban Rural


Toilet soap 97.1 87.6
Detergent 95.0 85.0
Hair Wash 40.1 16.3
Hair Colour 20.0 10.0
Skin Care 40.0 10.0
Toothbrush 70.0 35.0
Oral Care 70.0 35.0
Talcum Powder 66.0 36.8
Dishwash 54.6 11.5
Ketchup 12.5 0.7

Source: Compiled from Cygnus Economic & Business Research. (2004, February). Industry insight — Indian
personal care products, p. 10; and Indian Readership Survey (2002).

EXHIBIT 5
Major Players in Soaps and Detergents

Company Brands
Soaps Detergents
HUL Lifebuoy, Lifebuoy Gold, Lux, Surf Excel, Surf Excel Blue, Revel
Lux International, Rexona, Liril, Plus, Sunlight, Rin, Rin Shakti,
Hamam, Breeze, Jai, Moti, Le Rin Supreme, Wheel, OK, Super
Sancy, Dove, Pears, Savlon, 501, 501
Denim Cologne

Godrej Soaps Limited Cinthol, Marvel, Ganga, Evita, Trilo, Key, Ezee, genteel
Godrej Shikakai, Fairglow,
Godrej Nikhar, No 1, Crowning
Glory

Nirma Limited Nirma Beauty, Nima, Nirma Nirma, Super Nirma Detergent
Bath Powder

P&G ----- Ariel, Tide

Colgate Palmolive Palmolive ------

Karnataka Soaps Limited Mysore Sandal ------

Reckitt & Colman of India Dettol, Dettol Extra ------

Wipro Limited Santoor ------

Henkel-SPIC India ------ Henko Chek, Mr. White, Super


Chek, Henkomatic
Source: Compiled from the websites of the featured companies.

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EXHIBIT 6
Market Share — Toilet Soaps in 2001 (Values in Percent)

Source: SCOPE (Scope Marketing & Information Solutions Private Limited), 2001 report on personal care sector in
India.

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EXHIBIT 7
Market Share — Detergents in 2001 (Values in Percent)

Source: SCOPE (Scope Marketing & Information Solutions Private Limited), 2001 report on personal care sector in
India.

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EXHIBIT 8
Advertisements on Price Cuts

Source: Chatterjee, P. (2004, March 11). Swimming with the Tide. Business Line.

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EXHIBIT 9
Price Cuts in P&G and HUL Brands

Original Revised Change Category Realignment


Price Price
Per Kg Per Kg (%) From To
P&G Brands
Ariel 135 99 - 27 Premium Premium
Tide 85 46 - 46 Mid-priced Popular

HUL Brands
Surf Excel 140 100 - 29 Premium Premium
Surf Excel Blue 90 67 - 26 Mid-priced Mid-priced
Rin Supreme 80 80 0 Mid-priced Mid-priced
Rin Shakti 40 40 0 Popular Popular
Wheel Active 26 26 0 Sub-popular Sub-popular
Wheel Green 20 20 0 Sub-popular Sub-popular

Source: Indiainfoline (2004, March). HeLL breaks loose — But there is a reason to smile! Retrieved from
http://content.indiainfoline.com/wc/archives/sect/hellbreaks.pdf, on January 4, 2006.

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REFERENCES

1
Show-stopper: Sacheting down the rural ramp. (2004, October 18). The Economic Times.
2
Chennaibest.com. (2004). Retrieved from
http://www.chennaibest.com/cityresources/Fashion_and_Beauty/profiles02.asp.
3
Forever young. (2003, October 26). Business India, pp. 74-75.
4
Gupta, I. (2004, March 29). Why P&G declared war. Businessworld.
5
Ibid.
6
Indiainfoline. (2004). HeLL breaks loose — But there is a reason to Smile! Retrieved from
http://content.indiainfoline.com/wc/archives/sect/hellbreaks.pdf, on January 4, 2006.
7
Forever young. (2003, October 26). Business India, pp. 74-75.
8
Cygnus Economic & Business Research. (2004, February). Industry insight — Indian personal care
products, pp. 4, 32.
9
Ibid, p. 10.
10
Ibid. p. 7.
11
Gupta, I. (2004, March 29). Op. Cit.
12
Mohan, D. (2003, September 16). The parallel economists. Wadhera Soaps, Detergents and Toiletries
Review.
13
Cygnus Economic & Business Research. (2004, February). Op. Cit. p. 4.
14
ICRA. (2001, March). Industry Watch Series — The Indian FMCG sector, p. 143.

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