Detergent wars: Nirma, Wheel & Ghari

HLL entered India in 1957 and was the undisputed leader in detergent space. Surf was the most selling detergent in India. However in 1980's Surf suffered huge losses at the hands of a new and small firm, Nirma Chemicals. Nirma was launched in 1969 and its primary focus was to create a good, branded product at affordable prices. The product was priced far lower than the market leader - Surf. Nirma caught the attention of the middle-class and lower middle class customers and had such great sales that it evicted HUL's Surf from the No. 1 position in 1985. HLL then had a look at the situation and found that there was a large market segmentation in detergent space and then came up with lower priced Wheel (green) and Rin (blue) detergent powders targeted at different market segments. This segmentation helped HLL regain part of its lost market.

This post deals with price wars which are becoming an essential part of business. But a cut in price is the last resort in a price war. We will discuss more on various tactics to fight a price war. I will primarily focus on price wars in the detergent space, will also chip in with more examples as and when suitable.
Before i delve into more theories and strategies, lets have a look at some stats and series of events:

The detergent market in India can be divided into premium (Surf, Ariel), mid-price (Rin, Henko, Tide) and popular segments (Ghari, Wheel, Nirma, Mr. White). They account for 15%, 40% and 45% of the market share, which is 60% of the total market. Regional and small unorganized players still account for the 40% market. Per-capita consumption of detergent in India at 2.7 kg is the lowest in the world.

HLL entered India in 1957, Surf was the market leader for a long time.
Nirma Chemicals was started in 1969, in 1985 Nirma became the leading detergent in India.

In 1987, Ghari was launched by RSPL (Rohit Surfactancts Pvt. Ltd.), the product was also less priced and targeted at the rural customers, middle class and lower-middle class customers. It also had more or less the same positioning strategy as Nirma.
In 1988, HUL launched Wheel to take on Nirma.
In early 2000's Wheel beats Nirma and takes the No.1 spot.

In late 2011 and early 2012, Ghari beats Wheel and takes the numero-uno spot in Indian detergent industry.

Currently, Ghari is the market leader with a market share of 17.3%, Wheel is at number 2 with a share of 16.9%, Tide is 3rd with a market share of 13.5%. Nirma has market share of less than 6% now. Interesting facts. HUL is still the overall market giant with Wheel, Rin and Surf (one product for each segment) doing well. But Ghari is now the overall market leader. However dollar wise HUL is still the market leader.

Ghari has grown from strength to strength with its target market segment and affordable pricing. Ghari has spread its distribution network to more states now and directly reaches rural markets, which is its biggest audience. The company has entered 10 more states in the last three years and now peddles its ware in 19 states, through more than 3,500 dealers. It has 21 manufacturing units, 15 of which were added since 2006. 

The company continues to target cheaper and unbranded local products to create more market for Ghari detergent powder. Villagers are persuaded to move to a branded detergent like Ghari which is well within their reach and has far better cleansing power than slabs of cheap local soaps. Combined with its great distribution network and a good product, the sales of the Ghari detergent have risen admirably.
A one kg pack of Ghari detergent is priced at Rs 35 and a 2.5 kg pack is priced Rs 85 only.

On the advertising and promotions (A&P) front, RSPL has proved that one can be innovative without splurging - and without hiring anyone from the IIMs, either. The company participates in exhibitions, melas and road shows mostly in rural India. That Ghari spends under 2% of sales on A&P - as against 12-14% spent by its MNC peers - helps it sustain its low-margin, high-volume strategy.

Two years ago, RSPL flagged off the 'Ghari Detergent Express', a train whose exteriors are painted with Ghari branding that ran between Lucknow and Guwahati for two months. This was followed by other such trains connecting northern regions with both west and south of India, in line with the company's geographical ambitions.

Ghari ad with its classical logo - "pehle istemaal karein phir vishvaas karein" which means "First use and then trust."

The detergent episode mentioned over here is a classic example of how new products can be introduced in a market to thwart off price wars. HUL after losing out to Nirma, analyzed the situation carefully and instead of reducing the price of Surf, introduced flanking brands of the likes of Wheel, Rin and Sunlight to compete in customer segments that were being challenged by competitors like Nirma. There can be other tactics to fight a price war like:

1) Compete on quality: A company can increase product differentiation by adding features to a product, or build awareness of of existing features and their benefits. They can emphasize the performance risks in low priced options and reveal their products' cost advantage.

2) Co-opt contributors: A company can form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers or providers of related services.

3) Use complex price actions: A company can offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for its products.

4) Deploy simple price actions: A company can adjust the product's regular price in response to a competitor's price change or another potential entry into the market. Companies also use grammage in packaging to counter price cuts by competitors. As in they can lower the quantity of the product and continue to sell it at the same price, this reduction is quantity goes unnoticed by most of the customers. A good example is of Maggi, Maggi used to come in a 100 gm packet for Rs 10 at a point of time. Now also its Rs 10 for a pack of Masala curry, but the quantity has been cut from 100 gm to 90 gm to 80 gm now with time.

A very important aspect to determine which tactic is to be deployed to fight a price war is to thoroughly diagnose the situation. Intelligent analysis that leads to accurate diagnosis is half the job done. The process emphasizes understanding the opportunities for pricing actions based on current market trends and responding to competitor's actions based on the players and their resources. A good diagnoses involve analyzing these four key areas in the theater of operations:

1) Customer issues: such as price sensitivity and the customer segments that may emerge if prices change.
2) Company issues: such as business's cost structures, capabilities and strategic positioning.
3) Competitor issues: such as rival's cost structures, capabilities and strategic positioning.
4) Contributor issues: or the other players in the industry whose self-interest or profiles may affect the outcome of a price war.

 Companies that step back and examine those four areas carefully often find that they actually have quite a few different options - including defusing the conflict, fighting it out on several fronts or retreating.

I would like to end this post with a small case:

Consider a small commodities supplier that suddenly found that its largest competitor had slashed prices to a level well below the small company's costs. One option was to cut the prices in a tit to tat move, but that price would have been below the supplier's marginal costs and the company would have to face huge losses if they did so, thus a deep cut in prices was not possible.
Fortunately, a few phone calls by the manager of this small firm, revealed that the competitor has reduced its prices locally only in an attempt to drive them out of business. The supplier correctly diagnosed the pricing move as predatory and elected to do two things:

1) The manager called customers in the competitor's home market to let them know that the price-cutter was offering special deals in another market. This helped put pressure by the local customers in the competitor's home market.

2) The manager called local customer representatives/retail dealers and asked them for their support, pointing out that if the small supplier was driven off the market, its customers would be facing a monopolist. The short team price cuts would turn into long term price hikes.

The supplier identified solutions that eschewed further price cuts and thus averted a price war.


Hope this mammoth post was informative and fun!

Cheers,
Ankit


PS: Most of the inputs are from Harvard Business Review on Marketing, coupled with my secondary research on detergents in Indian markets.

References: http://articles.economictimes.indiatimes.com/2011-05-06/news/29517095_1_ghari-detergent-brand-nirma/2
http://www.gharidetergent.com/about_rspl.html