Cavincare Case Study for 22nd July

ASIAN CASE RESEARCH JOURNAL, VOL. 12, ISSUE 1, 1–28 (2008)

© 2008 by World Scientific Publishing Co.

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This case was prepared by Professor Anand Kumar Jaiswal of the Indian Insti-tute of Management, Ahmed-abad and Professor Pingali Venugopal of Xavier Labour Relations Institute (XLRI), Jamshedpur, as a basis for classroom discussion rather than to illustrate either effec-tive or ineffective handling of an administrative situation.

Please address all corre- spondence to Anand Kumar Jaiswal, Visiting Assistant Professor of Marketing, In-dian Institute of Management, Vastrapur, Ahmedabad — 380 015, India. E-mail: [email protected].

Cavinkare Private Limited: Serving Low Income Consumers

“Having successfully played David to the Goliaths of the FMCG world, C. K. Ranganathan has now set his sight on transforming his Chennai-based Rs.2,640 million company into a billion-dollar entity (Rs.52,000 million to be precise) within the next decade. Ranganathan, the moving force behind the “sachet revolution” in the country, is the man who took shampoos and perfumes from urban store shelves to rural homes, thereby changing the dynamics of consumer product marketing forever. The experimentation and in-novation that CavinKare brought to the market redefined FMCG marketing in India.”

The Economic Times, 18 October 2004

The Economic Times Awards for Corporate Excellence for 2004 had just been announced. The Entrepreneur of the Year award winner was C. K. Ranganathan, Managing Director of CavinKare Private Limited.

Receiving the award had been a moment of pride for C. K. Ranganathan. His joy soared later when C. K. Prahalad,a who himself had been trying to “educate” corporations on how to tap the bottom of the pyramid

aC. K. Prahalad is regarded as one of the influential business strategy thinkers. Prahalad’s recent work The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits has become one of the dominant ideas of discussion among practising managers, academicians and policy makers. Prahalad posits that MNCs can do profitable business with 4 billion customers at the bottom of the economic pyramid and this will help in lifting the poor out of poverty.

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markets, wished him saying, “It makes me proud to see somebody from my country and hometown preaching through practice.”1 Starting his business with a modest capital of Rs.15000, Ranganathan had come a long way to receive the Entrepreneur of the Year award. His company CavinKare had not only survived cut-throat competition from established multi-national corporations (MNCs), but also had grown impressively over the years. It had suc-ceeded in carving out a share of the Indian fast moving consumer goods (FMCG) market through innovation, value pricing, product differentiation and understanding of con-sumer mindsets. It evolved a new business model to serve low income markets profitably.

HISTORICAL BACKGROUND OF CAVINKARE

CavinKare Private Limited was born out of the entre-preneurial zest of C. K. Ranganathan. He had a family business of small-scale pharma packaging and cosmetics manufacturing in Cuddalore, a small coastal town in the state of Tamil Nadu in the southern part of India. After completing his graduation, Ranganathan joined his family business. In 1983 he started his own company in a small boarding room. His entrepreneurial zeal and single-minded commitment to business helped him in his pursuit. Twenty years hence, his company emerged as a strong player in the Indian fast moving consumer product market, offering a range of hair care, skin care and personal care products. The company had several known brands in its portfolio such as Chik (shampoo, talc), Meera (herbal powder, liquid hair wash, shampoo, hair oil), Nyle (herbal shampoo), Fairever (fairness cream), Spinz (perfumes, deodorants and talc), Indica (hair dye), Raaga Cool (cooling hair oil) and Karthika (hair wash powder). Most of its brands held number one or number two position in terms of market share. It was credited as a consumer product company that had the best new brand success ratio in the industry.2

The company was originally started as Chik India in 1983. It changed its identity twice since then. It became

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CAVINKARE PRIVATE LIMITED 3

Beauty Cosmetics Private Limited in 1990. In 1998 it became CavinKareb Private Limited with the aim of going beyond cosmetics and offering a wide range of consumer products. Key milestones in the journey of CavinKare are given in Exhibit 1. The company had a turnover of Rs.850 million in 1998–99 which rose to over Rs.2640 million in 2003 (Exhibit 2). Since 1994 onwards, it had been growing at a compounded annual growth rate (CAGR) of about 31%.2

RURAL MARKETS: UNTAPPED OPPORTUNITY

The rural population in India represented a vast untapped market. In terms of size alone, the rural markets were too big to be ignored. These markets accounted for over 620 million or 74.27% of the population of India. Rural markets contributed almost 60% to India’s gross domestic product (GDP). The size of the middle-class consumers in rural areas was the same as in urban areas.3

The composition of rural markets for different product categories based on prices is given in Exhibit 3. The rural market for products priced below Rs.1000 comprised over 70 million households. Exhibit 4 provides the market size of rural markets in terms of the number of households based on income categories. About 102 million (86%) households in rural India and about 131 million (about 80%) of all households in India had an annual income less than Rs.45000.

Penetration (the percentage of households consuming a particular product at least once a year) of different consumer product categories in rural and urban areas is given in Exhibit 5. For categories such as toothpaste, hair wash (which mainly consisted of shampoos) and dish wash products, penetration level in rural areas was substantially lower than in urban areas. In 2002, rural penetration level for hair wash products was about 16% against urban penetration of 40%. The overall consumption of consumer

bCavin is a literary word in Tamil language, symbolizing beauty and grace, while Kare comes from the English word care.

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product categories in India was in general significantly lower than in other developing countries in Asia. For example in 2004, per capita consumption of shampoos (in Rs.) was just 26 as against 48 and 52 in China and Indonesia respectively. Comparison of per capita consumption of selected consumer product categories in India, China and Indonesia is provided in Exhibit 6. Of late, categories such as shampoos and skin cream had recorded high growth. Exhibit 7 provides penetration versus growth rate figures for selected product categories.

CHIK SHAMPOO: PRODUCT FOR THE LOW INCOME CONSUMERS

Chikc shampoo is the best example of CavinKare’s success in tapping low income markets in India. The company had launched it in 1983. It was targeted at the lower middle class and semi-rural population with monthly income of Rs.1500–3000.4 At that time more than 100 brands of shampoo were available. However, they had very low awareness among consumers. There was a need for a superior quality shampoo with appealing perfume and available at affordable price. Chik shampoo started differentiating itself on the basis of quality and superior fragrance. It used a French perfume in its formulation. National brands such as Sunsilk and Clinic Plus from Hindustan Lever Limited (HLL)d were mainly targeted at urban consumers and had virtually ignored rural markets. CavinKare saw profitable opportunities in selling products to rural consumers and also consumers in small towns.

EDUCATING CONSUMERS

Rural consumers had been using ordinary soaps to bathe and wash their hair. They had not seen any visible damage

c“Chik” was coined from the name of Ranganathan’s father “Chinni Krishnan”.dHindustan Lever Limited is a subsidiary of Unilever in India.

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of their hair by using ordinary soaps. The company realized that they could be convinced to try out a shampoo through proper consumer education. It developed a communication plan to connect with the consumers and create brand awareness. In the initial years it relied heavily on radio for mass media advertising. Radio advertisements made use of popular movie dialogues supporting the brand. Popular movie stars from South India like Amla, Khusboo and Manorama endorsed the brand. Movie stars were very popular among the majority of the population in South India. Understanding this consumer insight and leveraging movie stars’ mass appeal helped in making Chik’s marketing communication effective.

The company also realized that most of the rural consumers had no idea how to use shampoo. Company officials traveled in vans to rural areas for live demonstration of shampoo usage and product benefit. It started aggressive road shows to educate villagers how to lather, wash and comb hair. Wall paintings and ‘video-on-wheels’ formed a major chunk of the advertising campaign. It used video on wheels to screen popular movies for the public. Along with free screenings of movies, it distributed free samples aimed at creating brand awareness among users. In addition, it went for large scale door-to-door sampling. The strategy worked quite well in increasing the awareness about the shampoo usage and weaning the rural population away from soap and traditional items used for washing hair. These road shows and promotion helped to increase sales from Rs.0.5 million in 1984 to Rs.3.8 million in the next year.6

In the early days, the company had launched a novel consumer promotion scheme to create the consumer pull and induce trials. Under this scheme, anyone who returned four empty shampoo sachets of Chik to the retailer got one sachet free. It got good response from users, making hordes of consumers asking for Chik shampoo at nearby retail outlets. The scheme ran for one year and was successful in increasing Chik’s awareness.

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SINGLE-SERVE SACHETS

Ranganathan’s father Chinni Krishnan had pioneered the concept of sachets when he introduced Velvette shampooe

in sachets in 1976. Through Chik, Ranganathan popularized the sachet concept. Ranganathan was often referred as “the moving force behind the sachet revolution” in India.2 Sachets, a form of low unit packs (LUPs), played an important role in capturing the market initially for Velvette and later for Chik.f Single serve sachets gave boost to shampoo consumption in India and were especially suitable for rural markets. They got high acceptance among rural and low income urban consumers who could not afford the “comfort of inventory”. Because of limited cash, these consumers preferred not to stock up and thus block money for shampoo, a product perceived to be less essential. Besides low cost, sachets offered the convenience of buying the product only when it was needed. Sachets also helped in minimizing the risk of trial. Sometimes consumers did not want to be tied down to a particular brand. Low price came in handy for consumers to try out different brands.

In recent years shampoo sachets showed faster growth than bottles. For instance, during 1997–2002, sachets sales grew at a rate of 15% whereas shampoo bottles sales grew at about 3% growth rate.6 The share of single serve sachets as a proportion of total shampoo market had also increased gradually over the years (Exhibit 8). In 2002, single serve sachets accounted for approximately 64% of the total shampoo consumption in terms of volume and 60% in terms of value.7

eAfter Ranganathan’s father demise in 1979, Velvette shampoo brand was owned by Velvette International. Ranganathan’s brother C. K. Rajkumar was the promoter of Velvette International. Velvette was a popular brand in the 1980s. It became the largest selling shampoo brand in 1991 with a market share of 29.32%. However, in the late 1990s it could not survive the competition and the company started accumulating losses. The main problem was that the company could never set up its own nationwide strong distribution network. fCavinKare sourced packaging materials from its associate company, Packaging India Private Limited. This helped it to get packaging materials at lower costs than its competitors.

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EXTENDING DISTRIBUTION REACH

CavinKare launched Chik shampoo at the national level in 1993. The company faced hurdles in its drive for expansion at the national level. The foremost challenge was to establish a nationwide distribution network. Chik brand was targeted at rural consumers primarily, although price conscious consumers from small towns also became regular buyers. For targeting rural consumers, the biggest impediment was distribution access. Rural markets being harder to reach present a different kind of challenge for any marketer. Rural markets had spread over 600,000 villages. Over 103,952 villages (18%) had a population less than 200 while 141,143 (24%) villages had population between 200 and 500 (Exhibit 9). About 82% of the rural population lived in villages with a population of less than 5,000. Retail density (number of retail outlets per thousand population) was extremely low in rural areas. Rural markets were characterized by poor physical infrastructure. Large parts of the markets were not connected by roads. The thin dispersal of rural markets posed serious challenges to companies in logistics, product shipment, delivery of stocks and reaching out to retailers.

To gain distribution access, CavinKare approached rural consumers in an innovative manner. It started tapping periodic markets like haats and melas. Haats and melas had been performing the periodic marketing function in rural area for years. A periodic market was a public gathering of buyers and sellers meeting at a customary location at regular intervals. Haats were periodical markets held once a week. For CavinKare haats acted as a very useful means of reaching out to rural consumers. They played a critical role in accessing consumers in remote and less prosperous villages. Most of the haats were attracting consumers living within a radius of 12–15 km. Haats could serve about 4000 rural consumers dispersed over 10–15 villages. For rural consumers, the importance of a particular haat was often based on the number of stalls selling “urban” products such as cosmetics. The intensity of transactions varied, based upon the season. Transactions generally went up

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considerably soon after the harvest season. Most melas (fairs) were generally held after the harvest season, so villagers had enough cash in hand. Melas attracted a large number of buyers from distant places also.

A rural marketing study on haats found that even when the same products were available in the village retail outlet, 58% of rural consumers visiting haats preferred to purchase those from the haat. The key reasons were better prices, quality and product assortment available in haats.8 Approximately 47,000 haats and 25,000 melas were held in rural areas every year (Exhibit 10). These places were characterized by high per capita spending, sometimes greater than in urban areas. On average, haats had Rs.0.2 million of business transaction in a single day, while average sales per mela was Rs.1.43 million.9 CavinKare was successful in increasing its penetration of rural markets by focusing on these periodic markets.

Over the years CavinKare had built a strong distribution network that could move its products to every corner of India. For CavinKare, extending distribution access was the key to marketing Chik shampoo to rural consumers. Its reach of rural markets was better than most other consumer goods companies. There were a total of 3.6 million retail outlets in rural areas and about 2 million rural retail outlets sold consumer goods.8 Overall India had more than 5.5 million retail outlets for consumer products.10 CavinKare’s distribution system reached out to 0.75 million outlets.11 Its rival Hindustan Lever had a direct coverage of about 1 million outlets.12

REINVENTING PRICE-PERFORMANCE RELATIONSHIPS

In the mid 1990s the company realized that other than distribution access there were obstacles coming on the way of large scale adoption of shampoo by consumers especially from the rural areas. Shampoo as a product was perceived to contain harsh chemicals. It was viewed more as a glamour and lifestyle product than a necessity. Many

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consumers used shampoo only on special occasions such as weddings, parties, etc. Shampoo companies were finding it tough to convince consumers to switch over from ordinary toilet soaps and other traditional alternatives to shampoos. Usage of natural conditioning agents such as henna was quite prevalent. Even Hindustan Lever’s former chairman M. S. Banga had admitted that though Hindustan Lever had 70% share of the shampoo market, it had just 10% of the hair wash occasions in the country.13 Compared to other consumer product categories, shampoo had a very low penetration level (Exhibits 4 and 5). Hence the market had great potential for volume expansion by recruiting new users and driving volume growth. The biggest barrier in attracting non-users was the high price of commonly available shampoos. Despite the availability of low unit packs, a major portion of potential user population was finding them unaffordable.

In 1999 CavinKare came up with a pricing innovation that had a big impact on shampoo consumption in rural India. An important customer insight led to this innovation. While interacting with rural consumers, company officials noticed that usage of ordinary soap for washing hair was still very high. When they tried to convince that soap could damage hair, they got a very straightforward answer. Customers said that they had been using soap on hair for generations and nothing had happened to their hair. Though soap application could result in rough texture, there was no visible damage. This led to the realization that persuading consumers to switch over to shampoos would not be easy.

Though mass media advertisements and celebrity endorsements had created an aspiration value for shampoo, price was proving to be an inhibitor. CavinKare did some simple calculations. At Rs.2 a sachet of shampoo and four washes a month, per person spending on washing hair worked out to Rs.8 per month. On average, the number of adults per household in villages was five. So a family had to invest a total of Rs.40 for hair wash alone. This was clearly unaffordable for rural consumers. Consumers would be averse to incur a high expenditure just to keep their hair clean. Soap was, thus, preferred over shampoo. The average

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cost of soap was around Rs.8. Besides, it could be used for a longer duration by the entire family and for bathing as well. CavinKare conducted a survey in rural areas and got the feedback that if the total cost of hair wash per person could be cut down to Rs.2 per month, the rural consumer would be willing to try out shampoos.14 Armed with this insight, CavinKare worked backwards. Its research and development (R&D) division took the task of altering existing formulation and finding cost-effective substitutes. The division developed a new formulation at reduced cost without sacrificing quality and efficacy. The new formulation enabled the company to launch a 4-ml sachet of Chik shampoo priced at 50 paise in September 1999. The launch was a great success. The market share of Chik after the launch jumped from 5.61% in 1999 to over 23% in 2003 (Exhibits 11, 12 and 13). Chik sachet made shampoo as a category more accessible to rural consumers. Priced at 50 paise, Chik became the ‘recruitment brand’ for the industry. This led to shampoo usage growing in rural markets at a rate almost twice that of the urban market. In the late 1980s, the contribution of the rural market was in the region of 15%. It had grown to 35% in 2002.6

In 2000, CavinKare extended the price reduction to shampoo bottles also. This move was aimed at making bulk buying more affordable for consumers. In the case of Chik, the cost per ml shampoo is the same for both bottles and sachets unlike other brands (Exhibit 14).g By keeping costs equal CavinKare attempted to upgrade users from sachets to bottles. Chik shampoo bottles got a favourable response in the market. To a certain extent, it was successful in breaking the common notion that only the rich can afford the shampoo bottles, and the poor have to be satisfied with sachets.

gTraditionally in the Indian market the consumers had to pay different prices per unit volume based on whether they were buying sachets or bottles. For example, the cost of sachets of Sunsilk Black is approximately Re. 0.25 per ml (an 8 ml sachet of a good quality shampoo costs Rs.2). On the other hand, the cost of shampoo in a bottle is approximately Re. 0.50 per ml (a 200 ml bottle costs about Rs.99). This is shown in Exhibit 14. This price differential also has contributed to the popularity of single serve sachet. By creating this price differential, companies such as Hindustan Lever and P&G actually promote downgrading of consumers from bottles to sachets.

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FOUCS ON INNOVATION

Focus on innovation was the key element of CavinKare’s business strategy of targeting low income markets. In addition to channel innovation of using periodic markets like haats and melas for distribution of Chik shampoo, pricing Chik shampoo at 50 paise, introducing floral fragrances in shampoo for the first time, the company can be credited with several other low income market innovations in other product categories. It launched Spinz perfume in a small pack called “Dab-on” which was typically for a one-week usage. It also introduced a single use perfume “Singlez.”

Continuous and close engagement with customers helped CavinKare in understanding the tastes and preferences of Indian customers. Company representatives traveled extensively and spent substantial time in rural and far off areas. This gave them first-hand experience of ground realities and the heterogeneity of Indian markets. It enabled the company in identifying consumer needs and gaps earlier than the competitors.

CavinKare followed a four-fold strategy for promoting the culture of innovation within the organization:

• Constant engagement with customers to gain special insights.

• Screening customer insights for their potential and translating them into meaningful products.

• Challenging all conventional ways while translating insights into products.

• In the case of problems, going back to the customer again to refine products and re-launching improved ones.

The working culture in the organization was designed to support innovation. To promote newer ideas and develop an entrepreneurial spirit among employees, the company had a special system in place. Any employee who came up with a new idea would get a budget to pursue it and to develop a commercially viable product. Even though the success rate was 20–30%, it helped the company in the innovation of products and practices regularly.

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OUTSOURCING MANUFACTURING OPERATIONS

Reduced cost structure was another factor which enabled CavinKare to sell quality products to low income customers. In product manufacturing, it was the first among Indian companies to derive the advantage of business process outsourcing.2 Since 1983, the company had been outsourcing its manufacturing operations when it realized that shampoo manufacturing did not have technological entry barriers. Outsourcing reduced CavinKare’s overheads considerably. Apart from cost saving in product manufacturing, out-sourcing helped CavinKare to become a nimble and agile organization. It gave high flexibility in the selection of product mix and reduced its working capital requirements. Furthermore, the company had been able to maintain a clear focus on marketing and distribution. While outsourcing manufacturing, it developed a system and processes for ensuring quality of its products. It followed the model of exclusive outsourcing. Under this the manufacturing firm would have to supply its products solely to CavinKare. This ensured all the advantages of in-house manufacturing operations. It associated with people enjoying high credibility for making quality products. It set up strict standards for manufacturing, which all the suppliers had to adhere to and a strict system for monitoring the quality of outsourced products.h

COMPETITION

The market for shampoo was characterized by the presence of multinational companies and local players.

Hindustan Lever Limited (HLL): Hindustan Lever was a 51% Indian subsidiary of Unilever, an Anglo-Dutch consumer goods company. Hindustan Lever was one of the most dominant consumer products companies in India. It was present in virtually every category of the fast moving

hMost third party manufacturers supplying products to CavinKare were situated in Podicherry, a South Indian city that gave many tax benefits to local manufacturing units.

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consumer products market. Hindustan Lever had two main shampoo brands — Clinic Plus and Sunsilk. Clinic Plus, launched in 1971, was positioned as the “shampoo that makes your family’s hair healthy and glowing.” It appealed largely to urban middle-class consumers. It was targeted at mothers, educated yet assessing their self-esteem through their children’s achievements. Hindustan Lever launched Clinic All Clear in 1987 as therapeutic-anti dandruff shampoo. Sunsilk beauty shampoo, available since 1964, was positioned as the “hair expert”.

Procter & Gamble (P&G): P&G was present in categories like detergents, cosmetics, shampoos and sanitary towels. The parent company was America’s biggest maker of household products. It had a strong hold in the detergent segment in India. It had Pantene and Head & Shoulders in its portfolio of shampoo brands. Pantene, launched much later in 1995, differentiated itself as an overall health shampoo with protein. P&G launched Head & Shoulders as an anti-dandruff shampoo in 1997.

Dabur: Dabur was a leading Indian company in consumer products. It was originally associated with ayurvedic and medicinal products. Over the years its presence in categories such as hair oil, hair colorant, oral care and shampoo had grown. It had Vatika herbal shampoo in the value-added shampoo segment. Vatika was in direct competition with Nyle, the herbal shampoo brand of CavinKare.

Other Players: RDM Traders Private Limited (Ayur herbal shampoo), Godrej (Godrej Colourgloss shampoo — a niche brand for users with coloured hair) and Johnson & Johnson (medicated anti-dandruff shampoos) were other players with low presence in the market.

Most of the shampoo brands were positioned around the health platform, highlighting benefits like lesser or no hair loss, lesser or no dandruff, no split hair, curing and avoiding damage to the hair, etc. Till 1999, Chik was known mainly for its value for money (VFM) preposition. But later it was positioned around the soft and manageable hair platform.

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COMPETITORS’ RESPONSE TO CHIK

Big companies led by Hindustan Lever had always viewed rural consumers as low margin, hard to tap market.i Traditionally Hindustan Lever focused more on gross margins and less on volumes.j As Chik’s volume and market share grew rapidly, Hindustan Lever realized the potential of the market it had always overlooked. It responded by launching Lux shampoo, an extension of its Lux soap brand, in sachets priced at 50 paise and one rupee. With its value for money proposition, Lux shampoo tried to lure Chik buyers. It also introduced its flagship brand Clinic Plus and Sunsilk in sachets in 2002. Even after Hindustan Lever’s competitive reaction, Chik continued to grow impressively and became the second largest selling brand in the shampoo category in 2002.

CONCLUSION

Over the years Chik emerged as one of the most popular and admired hair care brands in India. It won the Advertising Agencies Association of India’s best brand performance award in 2003. According to A C Nielsen, Chik brand cornered revenue of Rs.1.11 million in 2004. It also entered the list of top 100 consumer brands in India in the same year.15

iHindustan Lever had also overlooked rural markets and Nirma, an Indian company, that emerged as market leader in detergents. Nirma started selling a low cost detergent among rural customers and low income urban customers in the mid 1980s. Nirma fast captured the market which Hindustan Lever had ignored. It became the largest selling detergent brand and a household name in India. After five years, realizing its vulnerability, Hindustan Lever decided to respond to Nirma by launching its own brand Wheel. For more details see “Hindustan Lever Limited (HLL) and Project Sting” Darden School of Business case by P. S. Ahmad and J. Mead (case no UVA-E-0266).jIn urban markets, Hindustan Lever’s market dominance enabled it to increase the prices of most of its products, including shampoo, gradually over the years. This happened when in many cases the cost of raw material went down significantly. This vacated considerable space at the bottom end of the market, helping companies like CavinKare to sneak in (for more information, see The Economist 2004, Slow moving; Consumer goods in India).

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Chik’s success had demonstrated that rural consumers could become just as discerning about brands as urban rich consumers, if a brand offers a value proposition acceptable to them. In the case of Chik, instead of gross margin CavinKare focused on volume growth. Though the low income market paid a lesser price or used smaller quantities on a per capita basis, their large size translated into a huge market for products like shampoos. Even if a company made low to modest profit per customer, the gross profit could be significant, sometimes even higher than the urban markets.

CavinKare was one of the few companies which saw the economic potential of the dormant buying power of the low-income population. It identified opportunities which were ignored by other big companies. Its business model involved converting consumer insights into superior products, developing products suitable for target markets, altering the traditional cost structure, launching products at new price points and establishing a distribution network with high reach. The company exemplified that serving rural and poor consumers is not just about reducing prices. It involves creativity, flexibility and vision. It’s about orienting the research and development for creating products for the poor.

CavinKare as a company established its presence in the Indian consumer products market. Its innovation led strategy helped it in broadening its product portfolio and achieving fast growth over the years. Apart from Chik, its other products such as Nyle herbal shampoo and Meera hair wash powder were market leaders in their respective categories. Fairever fairness cream and Spinz deodorant and talc also cornered sizable market share amidst tough market competition. Overall, serving low-income consumers helped CavinKare to emerge as a dominant and respected player in the Indian FMCG market.

ACKNOWLEDGEMENTS

The authors are thankful to Mr. C. K. Ranganathan, Managing Director and Mr. K. S. Ramesh, former Chief

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Executive Officer, for providing valuable suggestions in the preparation of this case. The authors also wish to thank senior managers of CavinKare — Mr. Tushar Sadanand Murdeshwar, Mr. Saumitra Prasad, Mr. Soumik Chakraborthi, Mr. Varun Chopra and Mr. Arun Kumar for providing necessary help in the preparation of this case.

REFERENCES

1. Economic Times, 2004. When speed’s the lever, giants will fall. December 1.

2. Economic Times, 2004. Show-stopper: Sacheting down the rural ramp. October 18.

3. C. K. Prahalad and Allen Hammond, 2002. Serving the world’s poor profitably. Harvard Business Review, 80(9): 48–57.

4. Praxis, 2003. The making of Chik. Business Line Publication. July 2003: 22–27.

5. Business Standard, 2002. Strategist. Chik-mate. June 3: 4. 6. Economic Times, 2002. Brand Equity, Sachet up the ramp, March

13. 7. C. K. Prahalad, 2005. The Fortune at the Bottom of the Pyramid:

Eradicating Poverty through Profits, Wharton School Publishing: 18–19.

8. Venugopal, Pingali, 2002. Accessing rural markets, unpublished paper, XLRI Jamshedpur: 1–43.

9. Business Week Marketing Whitebook, 2003. Haats, Mandies and Melas: 91.

10. ICRA, 2001. Industry Watch Series. The Indian FMCG sector: 144.

11. CavinKare web site. http://cavinkare.com/practices.asp. Accessed on January 1, 2005.

12. Presentation by HLL executives, 2004. Morgan Stanley Asia Pacific Summit, Singapore, November 4. http://www.hll.com/ HLL/findinformation/Presentations/MorganStanleyAsia PacificSummit.pdf. Accessed on January 20, 2005.

13. Hindustan Lever Limited Chairman, Mr. M. S. Banga’s briefing to analysts on 15 February 2001. http://www.hll.com/HLL/findinformation/speech_excerpts.html. Accessed on November 1, 2004.

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14. Business Standard, 2004. Strategist. Does market research help increase sales? February 17: 4.

15. Economic Times, 2004. Brand Equity. India’s top 100 Fast Mov-ing Consumer Brands. April 4: 1.

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Exhibit 1

CavinKare: Milestones

1983 — Set out as Chik India, a firm that marketed Chik Shampoo

1990 — Set up Beauty Cosmetics Private Limited with the aim of producing world class products

1991 — Saw the launch of Meera, a herbal hair wash powder

1991 — Floated Packaging India Private Limited for supplying packaging laminates

1993 — Nyle Herbal Shampoo was launched for consumers beyond the South

1997 — Introduced Spinz perfumes to the masses

1997 — Crossed a turnover of Rs.500 million

1998 — Deodorants were added to the Spinz Range

1998 — BCL renamed as CavinKare Private Limited to revamp its corporate image

1998 — Saw the launch of Fairever, a revolutionary Fairness Cream with saffron

1998 — Witnessed the launch of Indica Hair Dye with herbal extracts

1999 — Enters Talcum Powder segment in the South

2000 — Set up a division for exclusively focusing on its export initiatives

2000 — Made its presence online with SAP 4.0B

2000 — Changed corporate logo to reflect true personality of the company

2000 — Forayed into the Soaps category

2000 — Marked an entry into the Cold Cream category

2001 — Created an In-house media buying outfit, CavinKare Advertising Private Limited

2002 — CavinKare reached Rs.2430 million

2002 — Trends In Vogue Private Limited started

2003 — Acquired leading pickle brand RuchiSource: Provided by the company.

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18

EXHIBIT 2

Exhibit 2

CavinKare’s Turnover from 1999–2003 (in Rs. million)

Source: Business India (2003).

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20 ACRJ

19

EXHIBIT 3

Exhibit 3

Composition of Rural Markets: Households (in millions)

Group I = Products priced below Rs.1,000Group II = Products priced between Rs.1,000 and Rs.10,000Group III = Products priced above Rs.10,000Source: National Council of Applied Economic Research (NCAER).

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Annual Income (in Rupees) at 1994–95 prices Classification

Number of Households

Urban Rural Total

<16,000 Destitutes 5.3 27.7 33.0

16,001–22,000 Aspirants 7.1 36.9 44.0

22,001–45,000 Climbers 16.8 37.3 54.1

45,001–215,000 Consumers 16.6 15.9 32.5

>215,000 The rich 0.8 0.4 1.2

Total Number of Households 46.6 118.2 164.8

Exhibit 4

Number of Households (in millions) by Annual Income (1995–96)

Source: National Council of Applied Economic Research (NCAER).

Exhibit 5

Rural and Urban Penetration of Consumer Products(in percent, 2002)

Source: Indian Readership Survey, 2002.

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22 ACRJ

Source: Presentation by S. P. Mustafa, Vice President, Treasury, M&A & Investor Relations at the Morgan Stanley Asia Pacific Summit 2004, November 4, 2004 in Singapore. http://www.hll.com/HLL/findinformation/Presentations/ MorganStanleyAsiaPacificSummit.pdf.

Exhibit 6

Per Capita Consumption of Some FMCG Categories (in Rs., 2004)

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Exhibit 7

Penetration vs Growth Rate of Some Consumer Products (in 2002)

Penetration %

Growth %

Toilet

Laundry - NSD

Shampoo

Toothpast

Skin Creams

5 10 15

Ice-Creams

Tea

Tomato

Staple

Deodorant

Colour Cosmetics

Dish Wash

90

50

30

70

Source: http://www.hll.com/Hll_Flash/finance/hindustan_final.ppt.

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24 ACRJ

Source: Prahalad, C. K., The Fortune at the Bottom of the Pyramid, 2005.

Exhibit 8

Sachet as a Percentage of Total Shampoo Category

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Village Class No. of Villages Percentage Population (in millions)

Percentage

Less than 200 103952 17.9 10.532 1.69201–499 141143 24.3 48.462 7.78500–999 144998 24.97 104.357 16.761000–1999 114395 19.70 160.294 25.742000–4999 62915 10.83 185.573 29.85000–9999 10597 1.82 69.839 11.2110000 & above 2779 0.48 43.757 7.03

Total 580779 100 622.812 100

Exhibit 9

Distribution of Villages in India

Exhibit 10

Haats (Village Fairs) and Melas in Rural India

Source: RK Swamy/BBDO, Guide to Market Planning, 1999.

Source: Business Week Marketing Whitebook, 2003.

HaatsTotal number of Haats 47000Average sale per day Rs.0.225 millionNumber of sales outlets/Haats 300+Number of visitors per Haat 4500+Average sale per outlet Rs 900Village covered by a Haat 20-50

MelasTotal number of Melas 25000Average sale per Mela Rs.1.43 millionNumber of sales outlets/Mela 850

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26 ACRJ

Exhibit 11

Rural Market Share of Shampoo Brands, All India (in Volumes)

Exhibit 12

Chik Shampoo’s Position in Rural Market (2002)

Brand Nov. 2002 Dec. 2003 Jan. 2003 Feb. 2003 Mar. 2003 Apr. 2003

Chik 39.02 39.38 41.19 39.93 39.68 39.11Clinic Plus 27.89 27.33 26.69 29.12 29.83 31.44Lux 9.56 8.81 8.14 8.06 7.84 8.41

States No. of Villages Market Share (Volume, in Percent) Position

Uttar Pradesh 1,07,440 66.86 1Madhya Pradesh 55,392 21.96 2Bihar 45,113 31.82 1Andhra Pradesh 28,123 39.01 1Tamil Nadu 16,870 45.77 1Orissa 55,352 18.42 2

Source: Provided by the company.


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Exhibit 13

Chik Market Share (Volume in Percent)


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Shampoo Brand

Bottle Sachet

Quantity (ml) MRP(Rs) Cost

per mlQuantity

(ml) MRP(Rs) Cost per ml

Clinic All Clear 160 81.4 0.51 8 2.5 0.31Clinic Plus 160 71.2 0.45 8 2 0.25Head & Shoulders 200 122 0.61 5 3 0.60

Head & Shoulders Menthol 180 122 0.68 10 5 0.50

Pantene Normal Hair 200 112 0.56 5 2 0.40Sunsilk Fruitamins 200 95 0.48 8 2 0.25Sunsilk Black 200 99 0.50 8 2 0.25Chik 50 6 0.12 6 1 0.17

Source: Based on information provided by the company.

Exhibit 14

Retail Prices of Sachets and Bottles

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Cavincare Case Study for 22nd July

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Transcript of Cavincare Case Study for 22nd July