HLL's Power Brands

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Tuesday, July 31, 2007

Marketing Funda : Power Brand Strategy

Power Brands strategy was the much hyped brand strategy of Unilever's which debuted in Indiain 2001. The father of this strategy was Niall Fitzgerald who was the Chairman of Unilever during that period.

Mr. MS Banga, one of the youngest Chairman of HLL at that time thought it was a good strategythat can be implemented ( or imported) in India. But four years later, the entire strategy wasshelved. The much hyped power brands strategy was laid to rest quietly. Fitzgerald exitedUnilever and Mr. Banga moved out of HLL to become the President of Unilever's FoodsDivision.

What is Power brand strategy?

Power branding refers to building multi-product, Multi-category brands which have global reach.(Marketing Week Dec. 2000) . The idea behind this strategy is to build global brands whichendorse multiple products in various categories ( something like an umbrella brand).

To understand the relevance of this strategy, it is important that we understand the backgroundunder which this was mooted by Fitzgerald. In 2000, the $44 bn giant Unilever was reeling under the pressure to balance Size and Growth. Over these years, the company has grown to become a

behemoth which was under severe marketing attack from small agile companies. This pressureforced Unilever to relook their brand portfolio. Unilever had a whopping 1600 brands ( mind youBrands and not SKU's) across various categories. The top management thought that this manynumber of brands is the main reason for the lack of growth momentum.In an interview in Advertising Age, Unilever's Chairman remarked that there were hundreds of

brand which existed in the company portfolio but nobody knew Why these brands existed?

Along with that there were other issues in the global market such as

Retailer Power: Large retailers like Walmart changed the power equations in the market. The power moved from manufacturers to distributors. Retailers began to aggressively market their Private Labels. Shelf Space became scarce and Retailers began to stock only large brands.

Brand Proliferation : The huge number of brands and their extensions along with the plethora of private labels forced customers to go for economical private labels because no longer brands provided meaningful

This paved the way for the thought that it makes sense to have a limited number of large brandswhich could be extended to multiple categories / product lines which would reduce the clutter inthe market. Another logic was the Pareto Principle of 80/20. Twenty percent of the brandscontributed 80 % revenue, hence why not spent the marketing budget on those big brands thatcontributed to the revenue.The result of all these thinking was the much hyped Power Brands Strategy which was the core



strategy in Niall Fitzgerald's "Path To Growth" agenda for Unilever. Under this Unilever wasgoing to prune its brand portfolio from 1600 brand to a core 400 Power Brands.

HLL' s Power Brand strategy

Taking a cue from this, Mr Banga introduced the same strategy in HLL in the year 2000. HLLwas also facing growth issues at that time . Like the parent, HLL had a huge brand portfolioconsisting of 110 brands and hundreds of SKU's. Competition was hotting up and HLL wasstruggling to retain market share in various categories.Mr. Banga decided to rationalize the brand portfolio by concentrating on 30 Power Brands and10 regional jewels. The company expected that with a reduced number of brands, it will be ableto concentrate on the large brands with more promotional budgets.The plan was like this :a. Reduce the number of brands from 110 to 40. This can help in increasing operationalefficiency and reduce brand clutter.

b. Increase promotions for Power brands thus offsetting the loss from the brand rationalization.

c. Migrate users from small brands to Power brands.d. Have ambitious growth plans for Power brands ( 8-10%).

The Power brands was chosen on the basis of Size, Brand Strength, Uniqueness and GrowthPotential.But the results were disastrous. After the Power brand strategy implementation, HLL' s toplinetook a major hit. Profits went down by 22%. In many smaller markets, HLL 's brands wereknocked out by small regional brands.

Why Power Brands failed in India?

The primary reason for failure of Power Brand strategy was that HLL miscalculated the power utility of small brands especially in the Indian context. Although there were issues of competition, Indian market was different from global markets at that point of time. Retailerswere not that powerful ( compared to Europe or America) and there was no Private labelcompetition.

The withdrawal of smaller brands was the big mistake done by HLL. Smaller brands, althoughdid not contribute significantly to the profitability had lot of uses. It acted as flanker brands for large brands thus preempting competition. Small brands was more accepted locally and whenthese brands were withdrawn, HLL lost its presence in the smaller markets. The brandrationalization also pulled down the distribution because many brands piggybacked other brandsin various markets. The cutdown also helped the surfacing of many regional brands whichestablished in small markets and later grown to fight large brands from its base.Another strategy that failed was the migration effort of Power brands. The pruning of smaller

brands was initiated with the assumption that users of these brands would be migrated to power brands. This assumption failed miserably. A classic case is the failed migration effort of Rexonato Lux. The users of the smaller brands of HLL moved away from the company to brands of other companies.



These issues snowballed into a situation where HLL 's topline got affected which inturn affectedthe investor sentiments. As a result, HLL went in for a face saving restructuring exercise whichled to the exit of Mr Banga from HLL and a silent burial of Power Brand strategy.

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A bstract

This caselet provides an overview of the branding strategies of Hindustan Lever Limited (HLL),the Indian arm of the Unilever group. It describes the rationale behind the strategy and theconcerted efforts of the company to focus on certain select brands. The caselet sheds light on the

brand extension strategy undertaken by HLL as part of the modified branding strategy. Finally,the caselet gives an idea of the complexities involved in such a branding strategy.

Issues:

» Power branding strategy» Importance of consistency in conveying core benefits of the

brand» Role of mother brands» Developing sub-brands under mother brands

Introduction

In 2001, Hindustan Lever Limited (HLL), the Indian arm of theUnilever group, restructured its strategy to concentrate on its core

brands ± brands that add to the bottom line of the company. Thiswas because the FMCG segment, which accounts for most of HLL¶s business, witnessed lower growth rates in comparison to thedouble digit growth rates in the nineties.

Besides, the company¶s core competence was in these consumer brands where the top 30 of its brands contributed to 75% of its sales. Based on these factors, HLL identified 30 national power brands and 10 regional brands from its portfolio of around 110 brands and directed its entiremarketing efforts at developing and building them. Focus on select brands helped HLL toincrease the scale of resources and spend more per brand. According to Mr. M. S. Banga,Chairman, HLL, "Our objective is to deliver directionally with the focus on certain key products

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"The power brands strategy has worked very well for us."A di Godrej, chairman, Godrej group



"With the implementation of the power brands strategy almost complete, we have shown bothtopline and bottomline growth in this quarter."D Sundaram, finance director, H industan L ever [ Get Quote ] L imited, after announcingQ3 2005 results

"We benefited by dropping brands with low profit margins or moving out of categories that werenot growing."H arsh Mariwala, chairman and managing director, Marico Industries

Three men, one voice. Indian fast moving consumer goods companies like HLL, GodrejConsumer Products [ Get Quote ] Limited and Marico Industries are completely sold on theconcept of "power brands".

But in their rush to put their best brands forward, are these big companies in danger of overlooking the potential offered by some of the also-ran brands?

It's been almost five years since these three FMCG giants opted to manage their brand portfolioson the basis of the power brand strategy. How have they fared? And what does the future hold?

Why power brands?

In 2001, HLL decided to put its marketing resources behind 30 power brands out of a bouquet of 110. Of these select brands, the top five brands of the company contributed more than Rs 3,000crore (Rs 30 billion) to the company's turnover (close to 30 per cent of sales).

So what did it take to be a power brand? In a nutshell - size, brand strength, uniqueness andgrowth potential. The thinking in HLL? Helping brands grow under the prevailing marketconditions required scale.

Even in 2001, the Indian FMCG market was crowded. More than 3,000 advertisements were beamed on television every month, while stock-keeping units at retail outlets had increased byover 40 per cent, in just three years.

Unfortunately, for the most part, shop sizes remained the same. Which meant in-store displays -critical for impulse purchases - suffered. Even the plethora of television commercials wasn'thelping the FMCG cause: it was difficult for brands to stand out amidst the clutter.

For others like Marico, GCPL or Dabur [ Get Quote ], too, "getting more from fewer brands" became the magic mantra. In 2002, GCPL decided to focus on five brands in a bid to sustaingrowth; since these five contributed more than 90 per cent of the company's total sales, thatstrategy made eminent sense.



Around the same time, Marico decided to exit from slow-growth, low margin sectors such asSweekar edible oil and Sil jams. Instead, it chose to stick with brands like Parachute, Saffola andHair & Care.

Was the approach correct? Arindam Banerjee, professor and chairman, marketing area, Indian

Institute of Management, Ahmedabad [ Images ], agrees cautiously. "Power branding counters brand dilution by allocating organisation resources on lesser but more secured marketinginvestments," he explains.

Adi Godrej is more emphatic. "[Power branding] is not to prevent dilution of brand, but to prevent dilution of the company's focus. If a company has 10 brands and tries to support all of them, focus on the important brands would be diluted."

Top to bottom

Has it worked out quite the way these companies anticipated? Global marketing experts aren't

too bullish about a power brands strategy's impact on the balance sheet."Power brands will have an impact on the bottomline of companies, but not necessarily on thetopline growth," says Nirmalya Kumar, director, centre for marketing, and co-director, Aditya VBirla India [ Images ] Centre, at London [ Images ] Business School.

Jagdish Sheth, Charles H Kellstadt Professor of Marketing, Goizueta Business School, has aslightly different viewpoint. "You may have problems in the short run, but these can be ironedout in the long run. Introducing brand variants will help."

Consider some numbers. Between 2001-02 and 2004-05, profits at GCPL increased 19.66 per

cent, from Rs 41.98 crore (Rs 419.8 million) to Rs 86.07 crore (Rs 860.7 million). Over the same period, turnover went up less than 4 per cent, from Rs 520.47 crore (Rs 5.2 billion) to Rs 603.46crore (Rs 6.03 billion).

"This is clearly unsustainable," says an analyst. In sharp contrast, Marico has shown significanthikes in both turnover and profit from 2002 to 2005. While sales climbed from Rs 671.08 crore(Rs 6.71 billion) to Rs 953 crore (Rs 9.53 billion), profits increased from Rs 49.32 crore (Rs493.2 million) to Rs 73.79 crore (Rs 737.9 million).

For its part, HLL has been plagued by flat or declining growth for some time now. Between 2001and 2004, profits plunged more than 22 per cent {Rs 341 crore (Rs 3.41 billion)}, while turnover

dropped by Rs 892 crore (Rs 8.92 billion).The troubles magnify when specific categories are considered. Toilet soaps, for instance,contributed 24 per cent of HLL's sales in 2004, with sales value increasing marginally from Rs2,089 crore (Rs 20.89 billion) to Rs 2,380 crore (Rs 23.8 billion). But sales volumes had actuallydeclined, from 384,000 tonnes in 2001 to 368,000 tonnes, indicating that the growth was mainlyon the back of price hikes.



The story was repeated in reverse in the detergents sector, where HLL had three power brands(Surf, Rin and Wheel). Sales volumes increased from 892,000 tonnes to 930,000 tonnes, butsales value crashed from Rs 1,975 crore (Rs 19.75 billion) to Rs 1,872 crore (Rs 18.72 billion),thanks to the price wars with Procter & Gamble.

The lesson? Power brands may be "powerful" to the company or the retailer, not necessarily tothe consumer. Not everyone agrees. Counters a senior HLL executive, "The impact was becauseof the migration phase to power brands - sales of non-power brands declined." He adds that thecompany's power brands strategy will boost both topline and bottomline growth in the future.

V ariety, variety

It doesn't help that India isn't just one, big market: it's several hundred. Brooke Bond tea may bea power brand for HLL, but it doesn't face the same enemy in every market in the country: if Wagh Bakri rules in Gujarat, Girnar and Sapat vie for the top honours in Maharashtra [ Images ].

Making matters worse is the fact that rural India is an entirely different nation when it comes to preferences. That's a problem GCPL, too, faces; at present, rural sales account for just 30 per cent of the Rs 603.46 crore (Rs 6.03 billion) company's sales, but the company expects thatfigure to go up substantially in the coming years.

Marico's Mariwala agrees that penetration is difficult to achieve with a power brands strategy.Consequently, segmentation takes a hit, because you don't have 20 brands for 20 different

people.

"As a brand grows larger, it simply cannot mean everything to everybody," agrees LondonBusiness School's Kumar. There is a way out, though. Kumar points out that a power brand

strategy allows a company the luxury of targeting fewer segments, but the more profitablesegments.

HLL found another way. In addition to its 30 national superpowers, it also has 10 regional jewels. HLL executives point out that with fewer brands on which to focus, the company will beable to manage its marketing spends better.

Godrej is attempting to beat regional diversity at its own game. For instance, when toilet soapGodrej No.1 entered the sub-popular category in 1998-99, it had only one offering: rose.

It soon also introduced its first variant, sandal, which has proved popular in the southern markets.

The rose variant finds takers in northern states such as Uttar Pradesh [ Images ], Bihar, Punjab [Images ], Madhya Pradesh [ Images ] and Rajasthan [ Images ].

One, two, three, you go free

If the rural-urban divide cuts into the aspirations of power brands, the changes in the urbanshopping landscape renew hopes. Most analysts expect shoppers to throng to malls andhypermarkets, for everything from electronics and clothing to groceries.



As the shopping landscape changes in India and malls look down upon hole-in-the-wall outlets, power brands could be an answer. According to HLL, at present just 3 per cent of Indiancustomers shop through organised retail outlets. The average in Asia -- 30 to 35 per cent.

How will organised retail help power brands? In developed markets, all brands, leaving aside the

top three sellers, have to buy space on retailer shelves. Since private labels get a free ticket to theshelves as the third brand, it is important to be a No. 1 or No. 2 in a category.

Marketing experts claim that large-format retailers have changed the destiny of companies inforeign countries. Sheth refers to P&G's experience in Canada [ Images ]. In that market, rivalUnilever was a market leader with loyal customers, while P&G wasn't doing all that well.

When Wal-Mart entered Canada, it changed the complexion of the market. Wal-Mart providedP&G a much-needed distribution channel. In five years, P&G gained significant market shares inCanada. "When a Wal-Mart happens to India, the power branding companies will reap better

benefits," says Sheth.

That's because organised retail formats will provide more display space to power brands, their extensions and variants: and marketers believe that whatever gets seen, gets sold. That's nothappening at present. Remember, more than 90 per cent of grocer shops in India are cubby-holeoutlets.

So, what's the final take-away? Will a power brands strategy work in the future in India? Theanswer: it depends on the category, the market and the consumer. Now, where have we heardthat before?

Power brands in perspective

Power brands as a concept came into existence by seeing the retailer as an economic partner.When a P&G executive paid a visit to Japan [ Images ], he saw the respect and importance givento retailers -- something that was not happening in the US where there were several layers in thedistribution channel.

Later, when Wal-Mart emphasised that it was the largest customer for P&G and the companycould work closely with the retail chain and reduce costs in its supply chain, P&G started power

brand projects with Wal-Mart, K Mart and others.

The principle was simple. Brands were rationalised to support the super retailer. In 1999, P&G's

arch-rival Unilever decided to focus on 400 out of its 1,600 strong brand portfolio.Two years later, Unilever's Indian arm, too, adopted the same strategy. Hindustan Lever decidedto spend on only 30 brands and 10 regional brands from its original basket of 110 brands.

Other Indian companies, too, decided to follow the power brands strategy, including Godrej,Britannia [ Get Quote ], Dabur and Marico.



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Brand Portfolio Rationalization of HUL

May 16, 2008

in Sales/Marketing Management

In this article we have selected HUL to show how they have formulated the Brand rationalizationstrategy to increase their dropping sales as this company os considered a leader in FMCG.Hindusthan Unilever Limited (HUL) formerly HLL knows it cannot create some brands andleave them unto themselves. The portfolio has to be closely monitored.

HLL¶s sales and profits have been slowing down during the years 2000 and 2001. HLL thecompany with nearly 110 brands was naturally facing strong compulsions for taking a re-look at

its brand portfolio.

A lot of brands on which HLL had spent enormous amount of time, energy and money were notcontributing enough; there were little or no returns from many of them. It was in this context thatHLL attempted a substantial brand rationalization program. In the year 2001, HLL initiated aseries of measures towards rationalizing its portfolio of brands.

Keeps 30 power brands plays down 80 others: In 2001, HLL initiated plans to prune its brand portfolio ± to almost one quarter of its size. HLL located around 30 brands to be focused upon asthe brands of the future. HLL called them Power Brands. The 30 power brands shown contributealmost 75 percent of HLL¶s turnover and profits. Of the 30 brands, 18 are international brands of

parent company Unilever and the rest are India grown. The future warfare is to be fought on thestrength of these 30 power brands.

The list includes brands like Lifebuoy and Lux, which contributes 25 per cent to profits as wellas brands like Pears, which do not contribute much profit are assessed to become star brands of the future. In the selection, HLL¶s criteria were: brand¶s current performance, its competitivedifferentiation vis-à-vis the rest of the market and its future potential.

Pears for instance, has less than five per cent of the toilet soaps market, but it has a unique position that has been successfully extended to other reacted categories like face wash. Inemerging categories lime deodorants, HLL will be focusing on two brands, Rexona and Axe.

Rexona is the brand, which Lever uses internationally to build the deodorant category. Axe,since its launch has been picking up well. Deodorants and face wash are products of the futureand brands like Pears and Rexona should become leaders therein.

In the fabric wash market, there will be three distinct brands: Wheel Rin and Surf; Wheel in themass market, Rin at the top and Surf in the middle, with different benefits. Surf occupies thestain removal platform while Rin assures whiteness.



HLL will out all its energy and resources behind the chosen 30 brands. To quote HLL, We aregoing to ensure we put disproportionate assets behind these brands, whether it¶s advertisingmonies, or the quality of people working on the brands. We will grow them into increasingopportunities of contact with the consumer by taking them into other relevant product forms andinto services. That¶s the game plan.

HLL is not planning to totally vacate any product category it is presently in. Brands are chosenall our categories, so we are not de-prioritizing any of our categories. The 30 brands also span allthe key consumer segments.

The 80 odd Brands outside the chosen list to be handled differently:

The remaining 80 odd brands, which contribute about 25 per cent of HLL¶s turnover, fall under three categories; they will be given different treatments.

1. The regional jewels in this category of brands are exceptionally strong in certain geographic

areas; Hamam, for instance, gets about 60 per cent of its volumes from Tamil Nadu. Where it has30 per cent market share; HLL will keep such brands as purely regional brands and support themin these areas.2. Brands, which are both small and unprofitable. They will be discounted or sold off. Example:two variants of close Up, Oxy Fresh and Renew, Revel washing powder and Aim toothpaste.3. Brands with overlapping positioning; the bulk are here; they also overlap in market targetingwith one of the power brands. Whenever you have the same benefits and same price point, thereis no advantage to carry two brands. So, what we should do is merge those brands with some of the power brands. For instance, in toilet soap, HLL has Breeze, a real winner, which is growingat 50 per cent plus per annum. There is no need for another mass brand like Jai.

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³Zindagi ke safar main guzar jaate hain jo makaam, wo phir nahi aate,´ Kishore Kumar sangfor the movie Aap Ki Kasam nearly four decades back, roughly meaning, the milestones weleave behind never come back. The song has since been an anthem for melancholic souls and

jilted lovers alike.

But it could as well be the anthem for Hindustan Unilever Ltd (HUL), once the largest company by market capitalisation in India.

The company¶s stock price has gone nowhere in the last 10 years. It touched an all time high of

Rs302.04 on February 24, 2000 and has never been able to beat that. The reason, of course, is thecontinued moribund performance of the company.

For the quarter ended June 30, the company posted an 8.3% growth in revenues to Rs4,876.2crore. But its net profit fell 1.84% to Rs533.2 crore. The operating profit too was flat at Rs741.5crore.



One reason for the poor showing could be the price cuts the company had to effect in a bid tofend off competition and boost market share. It has been facing huge competition in its detergent

business from a reinvigorated Procter & Gamble, leave alone others like like Nirma and newer players such as Ghadi detergent in the lower price segments. In a bid to counter competition,HUL had cut prices of Rin powder detergent and Surf Excel Blue in January by as much as 29%.

It is hard to say if the price cuts helped boost its market share, but the company¶s revenues fromthe home and personal care division certainly increased during the quarter ended June. Home &

personal care revenues grew 5.2% to Rs3,583.17 crore even as revenue from the food divisiongrew 13.4% to Rs842.06 crore.

On the flipside, though, advertising expenditure increased by a whopping 34% to Rs751.2 crore.

What gives? HUL¶s problems go back to it¶s heydays in the late 1990s, when it was the darlingof both the stock market as well as the masses who bought its products. The company, however,got caught in playing up to the stock market. As a fund manager pointed out to this writer

recently, ³the company deteriorated the quality of its products and made so much profits that itallowed competition to come in.´

HUL¶s strategy was to constantly jack up margins. The management graduates who run thecompany probably forgot a basic lesson in economics. When a company makes µabnormal

profits¶, new competitors enter the arena and drive away margins. Smaller companies like thedetergent maker Ghadi saw the kind of money HUL was making and started to offer products atlower prices in a bid to garner market share.

In mid-2000, after MS Banga took over the reins at HUL, the company decided it would focuson 30 odd µPower Brands¶ and carefully plan its entry into new businesses. The move had its

benefits ²- instead of spreading your resources all over the place, concentrate on a few brands.But it also meant that the power brands had to grow at higher rates to compensate for the loss of sales from other brands. Unfortunately, the other brands shrunk faster than the rate at which the

power brands grew.

Also, the µpower brand¶ strategy prompted HUL to withdraw from a large number of smallmarkets, again giving an opportunity to small players. These smaller companies got the spacethey needed to establish themselves in the smaller markets and are now in a position to moveinto the big league.

With little upside visible in the near to medium term, it may be reasonable that those stillinvested in the stock should look to exit. If exposure to FMCG stocks is indeed what they want,smaller players like Marico and Godrej Consumers could be the counters to look at.

HLL's Power Brands

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