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2004, ICFAI Knowledge Center. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic or mechanical, without permission.

To order copies, call 0091-40-2343-0462/ 63/ 64 or write to ICFAI Center for Management Research, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website: www.icmrindia.org

MKTA - 007

Detergent Wars in India We recognise the challenge of intensified competition from both low-priced players as well as international companies. Most recently, P&G has reduced prices and increased aggression in laundry. Our response, when faced with such challenges, will be to face them unblinkingly, with the level of investment required to both, protect and grow our market positions.

-M. S. Banga, Non-Executive Chairman, HLL.1

Introduction On the 10

th of March 2004, FMCG major Hindustan Lever Ltd. (HLL), the Indian subsidiary of

Unilever, convened an urgent meeting of its dealers. HLL wanted to discuss how to retain the volumes and market shares in its fabric wash business in view of the price war, which Procter & Gamble (P&G) had unleashed. In the first week of March 2004, P&G India had drastically slashed the prices of its detergents - Ariel and Tide. P&G had reduced the price of a 500 gram pack of Ariel from Rs 70 to Rs 50 - a drop of 28 % and the price of a 500 gram pack of Tide from Rs 43 to Rs 23 - a fall of 45 %. P&Gs detergents were expected to reach customers across India within a week of announcement of the price cuts. Within two days, in swift retaliation, HLL slashed the price of its premium brand Surf Excel from Rs 70 to Rs 50 and the price of Surf Excel Blue from Rs 50 to Rs 38 for 500 grams. HLL tried to ensure that the products reached the retail shelves within a day or two of HLLs announcement, thus countering P&Gs first mover advantage. P&G and HLL were not the only major players in the Indian detergent market. Henkel and Nirma were also becoming very aggressive. With a shakeout looking imminent, analysts wondered who would emerge the winner in the long run.

Background Note The Indian Detergent Market The Indian fabric wash products market was a highly fragmented one. There was a sizeable unorganized sector. Of the 23 lakh-tonne market, laundry soaps and bars made from vegetable oils accounted for around seven lakh tonnes with synthetic detergents making up the rest. Detergent cakes accounted for 40% of the synthetic detergent used, while powder accounted for the rest. Washing powders were categorized into four segments economy (selling at less than Rs.25 per kg), mid-priced (Rs.25 Rs. 90 per kg), premium (Rs. 90 Rs. 120 per kg) and compact (selling at over Rs. 120 per kg). The compact, premium and medium priced segments together accounted for 20% of the volume share and 35% of the value share. The economy segment made up the remaining lions share of the market. The fabric wash industry in India was characterized by low per capita consumption, especially in rural markets. The major players in the Indian detergent market were HLL, P&G, Nirma and Henkel (through its joint venture with SPIC, a leading petrochemical company based in the south Indian city of Chennai).

1 Ravi Ananthanarayanan, Price war may not wash with veteran HLL,

www.economictimes.indiatimes.com, 5th March 2004.

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Figure (i)

Market Shares (by value) of Major Players in the Detergents Segment, 2003

HLL

38%

Nirma

31%

P&G

10%

Henkel SPIC

7%

Others

14%

Source: Compiled from various sources by ICFAI Knowledge Centre.

Evolution of the Indian detergent market

The first companies to manufacture detergents in India were HLL and Swastik. HLL test

marketed Surf between 1956 and 1958 and began manufacturing it from 1959. Swastik launched

Det, a white detergent powder, in 1957. By 1960, Det had made rapid inroads in eastern India.

Surf, a blue detergent powder, became the national market leader with dominant positions in the

west, north and south. In the early 1960s, the total volume of detergents manufactured in India

grew from around 1600 tonnes to 8000 tonnes. HLL dominated the market with a share of almost

70 % compared to Dets 25%. In 1966, another player entered the fray. Tata Oil Mills Company

(TOMCO)2 launched its detergent powder Magic. In 1973, TOMCO introduced Tatas Tej in

the low-priced segment. TOMCO unveiled another economy detergent powder called OK in

1977.3 Other products to join the fray were Godrejs Key (1977) and Detergents India Ltd.s

Sixer (1978).

The mid-1970s witnessed a worldwide increase in crude oil prices, which increased the input

costs for detergent powders. This resulted in a sharp rise in detergent prices. The price of Surf

almost doubled in 1974-75. Despite such a sharp price rise, Surf continued to be the market leader

both in terms of value and volume, commanding a price premium of almost 40% over Key and

Sixer. It was in the late 1970s that HLLs leadership position was challenged by a low priced

detergent Nirma.

For a long time there were only two major players in the laundry soap segment. HLLs Sunlight,

sold both for personal wash and fabric wash had been present in India since 1888. The other

branded product was TOMCOs Tata 501. In 1968, TOMCO launched a detergent cake

Bonus. HLL retaliated with its Rin bar in 1969. In 1971, Swastik extended its Det powder to a

detergent cake. By 1975, the cake segment caught up with the powder segment in terms of

volume. Detergents India Ltd., also entered the segment in 1977 by launching Regal. It

introduced another brand called Chek, in both powder and cake form in 1980.

2 In April 1993, HLL's largest competitor, TOMCO, merged with HLL.

3 Charlotte Butler and Sumantra Ghoshal, Hindustan Lever Limited - Levers for change, World Class in

India.

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The Detergent Wars

Hindustan Lever Ltd. vs. Nirma

In 2004, HLL was one of the oldest players in the Indian detergents market. The companys

origin went back to 1885 when the Lever Brothers set up William Hesketh Lever, in England.

In 1888, the company entered India by exporting Sunlight, its laundry soap. In 1930, the

company merged with Margarine Unie (a Netherlands based company which exported vanaspati

to India), to form Unilever. In 1931, Unilever set up its first Indian subsidiary, the Hindustan

Vanaspati Manufacturing Company for production of vanaspati. This was followed by the

establishment of Lever Brothers India Ltd. in 1933 and United Traders Ltd. in 1935, for

distribution of personal products. In November 1956, the three Indian subsidiaries merged to

form Hindustan Lever Ltd.

In 2003, the total size of HLLs detergent business was around Rs.2000 crore, constituting nearly

40 % of the total market of Rs.5000 crore. HLL had three key brands Surf, Rin and Wheel and

smaller brands like Sunlight and 501, and Rin Ala, the fabric bleach. HLLs detergent portfolio

served different segments of the Indian population with a presence across all segments, at all

price points. In the compact segment, it had Surf Excel. In the premium segment it had Surf. The

medium segment had brands like Rin Shakti and Rin Supreme. The popular segment was taken

care of by Wheel.

Nirma, HLLs most aggressive competitor, was the result of the single-handed efforts of

Karsanbhai Patel (Karsanbhai). Karsanbhai had been employed as a chemist with Gujarat

Minerals Development Corporation in Ahmedabad. Economic adversity turned his thoughts to

part time entrepreneurship in 1968. With his knowledge of chemicals, he concocted a yellow

detergent powder. In 1969, he started manufacturing the powder in a small shed in Saraspur, a

suburb of Ahmedabad. The product was named after his then one-year-old daughter, Niranjana,

who was affectionately called Nirma by people in the family. Karsanbhai hand mixed the powder,

packed it into polythene bags and stapled the bags. He loaded the polythene bags into gunny bags

and began selling Nirma door-to-door on his bicycle. This way he succeeded in delivering 200

kilograms in a day.

From the beginning, Nirma had its own small scale packaging material unit and printing press.

Nirma was sold in poly bags compared to Surfs significantly more expensive cartons. Nirma was

positioned as a cheaper alternative to Surf and as a superior product compared to inferior washing

soaps. Karsanbhai registered his firm as Nirma Chemical Works in 1972. With increasing sales,

two more production facilities were set up, one at Rakhial in 1973 and the other at Vatwa in 1976.

For over a decade, Karsanbhai did not deviate from his simple formula of production, packaging

and distribution. He remained a small-scale producer. Karsanbhai did not have any field force or

sales team to sell Nirma. Till 1985, Nirma enjoyed the 15% excise benefits granted to small-scale

producers not using any power.

But over time, demand outgrew personal deliveries by Karsanbhai. Vans and trucks began to be

used for distribution. Karsanbhai negotiated rates on a daily basis with the truck operators. When

sales extended to retail outlets within Ahmedabad and then later to other districts and towns,

stockists were appointed to sell Nirma to shopkeepers. Karsanbhai appointed close relatives and

business associates as stockists. As Nirmas reach extended to other states, district level agents

were appointed for distribution to stockists. State level agents were appointed in the east and the

south.

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In the early 1970s, the Nirma package portrayed a lady washing garments. To distinguish it from

scores of other small-scale sector products, Karsanbhai started featuring a little girl, considered to

represent his daughter, on the package. In the late 1970s, the reach of television in India began to

expand rapidly. With its catchy jingle Nirma washes clothes as white as milk, Nirma became a

symbol of a good quality, low-priced detergent.

Figure (ii)

Nirma Packaging

Source: www.nirma.com

HLL believed a well-formulated detergent should be a composite of several ingredients like

Active Detergent (AD), anti-redisposition agent, buffer, builder etc, each having a unique

function to perform. On the other hand, Nirma contained no whiteness agent, its AD level was

half that of Surf and the powder was harsh on the skin. Despite being inferior to Surf on every

single characteristic, Nirma was selling one-third the volume of Surf by 1977. Between 1977 and

1985, Nirmas sales grew at a rate of 49% and it was outselling Surf by three to one.

Figure (iii)

Surf Versus Nirma- Market Share (Volume)

0

10

20

30

40

50

60

70

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Surf

Nirma

Source: Charlotte Butler and Sumantra Ghoshal, Hindustan Lever Limited - Levers for change, World

Class in India.

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Exhibit: I Comparison of Prices Per Kilogram

Year Surf (Rs.) Nirma (Rs.)

1975 10.65 -

1976 10.15 -

1977 12.80 4.35

1978 12.25 4.75

1979 11.95 4.45

1980 18.50 6.00

1981 20.20 6.25

1982 21.05 6.00

1983 20.90 6.25

1984 22.20 6.80

1985 23.15 7.20

1986 23.70 8.00

1987 27.10 8.50

1988 28.70 9.00

1989 30.00 9.25

Source: Charlotte Butler and Sumantra Ghoshal, Hindustan Lever Limited - Levers for change, World

Class in India.

Not only was Nirma competing with HLL, it was also creating a new market. Nirma had successfully converted the unorganized laundry soap market in the urban and rural areas, to detergent powders. Between 1980 and 1985, Surfs volume stagnated and its market share fell. Research revealed that consumers did not see any significant difference in quality, between premium Surf and low priced Nirma. In 1986, Nirma decided to take HLL heads on in the detergent bar segment by launching Nirma detergent bar, to counter Rin. Karsanbhai test marketed his new detergent bar, by offering one Nirma bar with every two packs of Nirma washing powder. Since Nirma powder had high acceptance, the Nirma detergent bar also got instant sampling. The Nirma bar was similar in packaging design to Rin. It was priced at Rs. 1.50 for a 150-gram cake, a third of the price of Rin. In a couple of years, Nirma bar sales had reached 100, 000 tonnes. HLL could no longer ignore Nirma. In 1987, HLL initiated Project STING (Strategy To Inhibit Nirma Growth) to check the growth of Nirma and regain its market leadership. HLL decided to sell Surf in polybags as against its previous expensive cartons, in order to reduce costs. The move was difficult to make because the carton was a symbol of Surfs high quality. However HLL went ahead with the decision to cut costs. HLL also revamped its advertising. Earlier, Surfs advertising campaign had always used the established Surf washes whiter slogan featuring a small boy getting his clothes dirty. He then got them cleaned by having them washed in Surf. In 1985, HLL created a character called Lalitaji portrayed by TV artist Kavitha Chowdhary. Lalitaji represented a smart housewife who knew that good value always came at a price. The commercial showed her bargaining with the vegetable vendor about good tomatoes and bad tomatoes ... `Sasti cheez or achchi cheez me farak hota hai, bhai saab.' (There is a difference between cheap goods and quality goods, brother). Then came the message that though Surf was three times more expensive than other products (intended at Nirma), measured on a cost per wash basis, Surf was effectively only one and a half times dearer. This was because the same load of washing required only half the quantity of Surf compared to other powders. The punch line, Surf ki kharidari mein hi samajhdari hai (It makes better sense to buy Surf) became very famous (Figure iv). Between 1985 and 1991, Surfs sales grew from 30,000 to 42,000 tonnes.

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Figure (iv)

Lalitaji Ad Campaign in 1985

Source: www.hll.com

HLL then launched a white detergent powder called Sunlight in 1985. It was priced to match

Nirma. It targeted the eastern and southern markets where Nirma was not very strong. HLL

realized that Nirma was very strong in the rural market. Indeed, Nirmas success demonstrated

that rural India had both the money and the willingness to buy packaged consumer goods. HLL

was in a dilemma as to whether it should repack Surf in polybags and sell them at a cheaper price

to the rural consumer or design a new product altogether.

A new product was clearly a high risk, high return strategy. It had to be of low cost and high

quality, be non-toxic with minimum pollution levels (because rural consumers used the same

source of water, like ponds to wash clothes as well as take bath), be available in small packages,

be robust enough for rough handling and be available in every corner of rural India. The major

complaint against Nirma was that the prolonged use of the product damaged the fabric and also

caused blisters on the users skin. As part of Project STING, HLLs R & D team was given the

responsibility of producing a low cost detergent, which gave better performance, at the same time

without any side effects like the ones caused by the high soda ash4 content in Nirma.

4 The common name for sodium carbonate, a chemical compound used as an alkaline builder in some soap

and detergent formulations, to neutralize acid water.

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Fortunately for HLL, since 1984, the companys R&D team had been involved in the development of a Non-Soap Detergent (NSD)5 powder and the mix was ready by 1986. HLL decided to use this mix to counter Nirma. In 1988, it introduced the new NSD powder as Wheel. In 1977, HLL had launched a green detergent bar Wheel in three states to counter Swastiks Super 777. This name was resurrected for the detergent powder. HLL attempted to replicate the low cost Karsanbhai operation, for Wheel. In Gujarat, soda ash and other raw materials for detergents were easily available. Easy access to raw materials had been one of the main reasons for Nirmas low cost operation. HLL carefully selected the locations for new plants in Gujarat, Uttar Pradesh, Rajasthan, Punjab and Pondicherry. While HLL supplied the raw materials, the contractors hired their own labour and produced the detergent. This provided HLL with greater flexibility to start new units faster. These units replicated small scale manufacturing units. Thereby, they also gained concessions and significant cost savings. Wheel detergent powder was packed in 30-gram plastic sachets, instead of the usual one kg pack. It was priced at Rs. 5.50 as against Nirmas Rs. 5.25. HLLs advertising strategy aimed at creating dissonance in the minds of Nirma buyers about the safety aspect and the benefits of switching over to Wheel. The campaigns emphasized that Wheel provided Extra power, extra lather and was safe on hands and clothes. Sales grew to 100, 000 tonnes, half of Nirmas. In the Economic Times Brand Equity survey of Indias top 100 FMCG brands (in terms of sales) in 2002, Nirma ranked seventh with sales of Rs. 1182 crores, while Wheel, HLLs largest brand, ranked tenth with sales of Rs. 814 crores. In 2003, Nirma sold over 800,000 tonnes of its detergent products, giving the company a 38% share in the popular segment.

Procter & Gamble vs. HLL Procter & Gamble was established in 1837 as a small, family operated soap and candle company in Cincinnati, Ohio, USA. By the early 2000s, P&G had grown into a large global corporation with operations in over 70 countries employing more than 110,000 people worldwide. P&G marketed approximately 300 brands to nearly five billion consumers in over 140 countries. These brands included Tide, Ariel, Crest, Pantene Pro-V, Always, Whisper, Pringles, Pampers, Oil of Olay and Vicks. P&G had no presence in India, till 1985 when it acquired Richardson Vicks Inc. (RVI) USA. RVIs Indian subsidiary Richardson Hindustan Ltd had a strong presence through its Vicks range of products. After Richardson Hindustan became an affiliate of P&G, its name was changed to P&G India Ltd. P&G introduced Whisper sanitary napkins in 1989 and Ariel detergent powder in 1991. Between June 1992 and January 1993, P&G USA increased its stake from 40% to 65%. P&G's Indian operations were managed through two companies - the listed company Procter & Gamble Hygiene & Healthcare (PGHH was previously P&G India) and a 100% subsidiary Procter & Gamble Home Products (PGHP). PGHH essentially took care of feminine hygiene products (Whisper) and anti-cold healthcare products (Vicks). PGHP manufactured and marketed detergents and shampoos. The company also marketed toilet soap Camay, skin care brand Clearasil and men's toiletry brand Old Spice.

5 HLLs new product formulation dramatically reduced the ratio of oil to water in the detergent, thereby

reducing the pollution created by washing clothes in rivers. Earlier till the early 1900s, soaps were made

out of vegetable oils and animal fats. Due to scarcity of these natural resources, research was undertaken

for NSD. Soon thereafter came the introduction of synthetic detergents. Synthetic detergents are non-

soap washing and cleaning products that are "synthesized" or put together chemically from a variety of

raw materials. The discovery of detergents was also driven by the need for a cleaning agent that, unlike

soap, would not combine with the mineral salts in water to form an insoluble substance known as soap

curd.

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In November 1990, P&G, which had not been active in the Indian detergent market, test marketed Ariel Microsystem. The premium product was launched in 1991 and priced at Rs. 32 for 500 grams as compared to Surfs Rs.15.80 and Nirmas Rs. 4.90. The powder detergent was based on P&Gs advanced proprietary enzyme-based technology and was considered superior to Surf. P&G backed the launch with heavy investment in advertising. The campaign claimed that a 500-gram packet of Ariel would last for a month, eventually working out as cheap as low-priced products. HLL realized that P&G was attacking it from the top just like Nirma had squeezed it from the bottom. HLL had launched a concentrate in the late 1980s under the Rin brand umbrella but it did not have the superior technology that Ariel had. HLLs parent company, Unilever, had its own enzyme-based technology, but HLL had repeatedly dismissed the idea of launching a superior product on the grounds that Indian consumers would not be willing to pay for any advanced technology. Ariels launch prompted HLL to develop its own ultra

6 product based on

indigenous technology, to counter Ariel. In order to reduce the development time from two years to four months, HLL carried out different phases of the product development process simultaneously. For instance, while the product was being developed, work on packaging and perfume was also carried out in parallel. Surf Ultra was launched nationally in February 1992. By the end of 1992, HLL held a 7% share (Surf Ultra had 4% and Rin concentrate 3%) while P&G held 4% in the concentrate detergent market. P&G upgraded Ariel to Ariel with Microshine towards the end of 1996 and early 1997. Meanwhile, HLL had replaced its Surf Ultra with International Surf Excel in April 1996. HLL gave Surf Excel a strong stain-removing proposition through its Surf Excel Hai Na (Surf Excel is there) advertisements. HLL roped in Bombay Dyeing Fabrics to endorse its Surf Excel brand. P&G retaliated by tying up with Reliance to endorse Ariel Microshine. Surf Excel managed to take away consumers from Ariel owing to HLLs stronger distribution muscle (1.2 million retail outlets compared to P&Gs reach of less than half a million outlets). In 1997, HLL launched a new detergent under the Surf umbrella -- Surf with Excel Power. The new Surf brand was placed midway between International Surf Excel and ordinary Surf. Priced at Rs 48 for a 500 gm pack, it was below International Surf Excel's MRP of Rs 60.50 and above ordinary Surf priced at Rs 35 for 500 gm. Surf with Excel Power was positioned as "better than the ordinary". When P&G launched Ariel Power Compact in 1998 to combat Surf Excel, HLL relaunched Surf Excel with a better formulation, backed by a teaser ad campaign on television. The ads for Surf Excel showed a mystery setting, concealing the name of the brand (which was meant to be an improved version of Surf Excel). A salesman was shown sampling a detergent pack with a consumer who was already a Surf Excel user. When the consumer replied that the test product was better than the one that she used, the salesman returned dissatisfied with the promise to come back (Mein phir aaoonga I shall come back again) with a better powder next time. The story was repeated the second time as well, with the consumer looking satisfied with the second test sample product that the salesman brought, as it removed stubborn ink stains as well. However, again on hearing that the product, an improved version of the earlier one, was only `better' than the one before, the salesman looked dissatisfied and reiterated that he would come back with a better-than-before product. With the punch line Aise daagwaise daagjaise bi daag ho, Surf Excel hai na, (Whatever be the nature of the stain, Surf Excel is there) the campaign emphasized that the improved Surf Excel could remove more stains, more effectively.

6 Ultra detergents are concentrated detergents in either liquid or powder form.

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P&G responded with a new ad that portrayed a salesman telling the consumer that new Ariel

Power Compact was the best detergent in the world. The salesman made it clear he would not

come back (``Mein phir nahin aaoonga''- I shall not come back). P&G positioned Ariel Power

Compact as having `smart eyes' to recognize stains and remove them.7

In 1999, P&G adopted a new strategy to attack HLLs detergent bars business. HLL dominated

the segment with around 80% market share with its five brands, Rin Supreme, Wheel, 501, Rin

Shakti and OK. P&G positioned its new Ariel Power Compact as a product powerful enough to

clean clothes without brush and bar. Detergent bars had a saturation penetration of over 930

households per 1000 while for washing powder it was 611 per 1000. The Indian housewife had

always used both bar and powder because she was not confident of the powder cleaning dirt from

collars and edges of sleeves as effectively as the bar did.8

Between 1997 and 1999, the urban market saw a shift towards premium and compact detergents

(detergents with dirt-removing intensive enzymes). Both HLL and P&G tried to connect to the

premium consumer through a series of launches. In a departure from its global practice, P&G

launched its world famous Tide detergent in May 2000, in the premium segment (P&G

considered any detergent priced over Rs. 70 per kg as premium). Tide and Ariel were normally

not present in the same market anywhere in the world. In the US, Tide was available with variants

but there was no Ariel. In Europe, P&G offered Ariel but not Tide. The same was the case with

Japan.

P&G India felt both Tide and Ariel were necessary in India as the premium segment was

growing. Research revealed that there was a specific consumer need for improved cleaning. Tide

was launched to address the quality of whiteness in cleaning. Ariel was positioned as the

detergent with the best performance and the best technology that helped the consumer redefine

cleaning standards. For the non-Ariel consumer in India, yellowing of white clothes was

addressed by Tide. While Ariel came for Rs 145 per kg, Tide's price was Rs 120. For half a kg,

Ariel was priced at Rs 80 and Tide, Rs 68.9

P&G backed Tides launch with an ad campaign that showed an unnamed detergent powder for

maximum whiteness effect. When the consumer tried the new product, she got the promised

whiteness. Then the products name was revealed as Tide. Tides whiteness proposition directly

countered the lightening whiteness proposition that HLL had adopted for Rin. HLL responded

with a television commercial, which showed that the unnamed detergent powder offered for trial

did not provide the desired whiteness. Then a woman protagonist talked about the superior

whiteness that Rin Supreme offered. The man who had offered the unnamed powder was pushed

to the back by a group of women, who discussed the excellent performance of HLLs brand.

To counter P&Gs high decibel launch of Tide, HLL also unveiled the country's first liquid

detergent for daily washing needs in May 2000. Surf Excel Liquid detergent was available at Rs

85 for every 500 ml pack. Equipped with a special stain applicator, the company claimed that the

product offered superior stain removal power as compared to powders. Because of deep

penetration due to its liquid form, HLL claimed that it could remove even the toughest of stains

like paan (made of betel leaves and betel nuts) and paint from fabric. Further unlike powders,

the liquid detergent dissolved completely in water. The product could be used both for hand wash

7 Namrata Singh, Dirty Linen? Surf Excel and Ariel Power Compact sling suds,

www.financialexpress.com, 18th October 1999.

8 Sandeep Joseph, P&G seeks to scrub washing bars, Businessworld, 4th October 1999. 9 Anita Sharan, Why Tide when Ariels there? www.domain-b.com, 26th June 2000.

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and top loading washing machines. Packed in an attractive blue and orange pack, the bottle was

designed in such a way as to give an easy grip to consumers. In 2003, HLL decided to withdraw

its liquid concentrate brand of Surf Excel from the shelves, since HLL's direct marketing brand

(Lever Home) was expected to serve this category through the Hindustan Lever Network.

By the time Tide could gain a foothold, the market experienced a downward shift towards low

priced detergents like Ghari and Fena. Ghari had increased its volume share from 5% in 1998 to

around 15% in the early 2000s. Tides pricing was also a deterrent because the need was for a

value for money brand and not another premium brand. In 2001, P&G attempted to correct this by

slashing the price of Tide, from Rs 135 a kg to Rs 85 per kg. P&G also changed the

communication mix. For Ariel, the company focused on the upwardly mobile family. It

reinforced the premium image by tying up with consumer durable companies like Videocon, to

vouch for the detergents quality when used with their brand of washing machines. For Tide,

P&G focused on the traditional Indian housewife. Tide was offered as a doorstep challenge.

Famous television personality Shekhar Suman visited homes, challenging housewives to test the

efficacy of the product. The promotion, the first of its kind in the Indian detergents market,

helped Tide in gaining instant recognition. 10

In 2001, HLL relaunched Surf Excel supported by a new advertising campaign. HLL emphasized

that the New Surf Excel had an advanced formulation smart sensors, which discerned the

difference between stains and colour, therefore, working only on stains and not on colour. The

new proposition was Daag hataye rang nahin (removes stains not colours). Research among

top-end consumers had revealed their concern about colour damage. Therefore, the new

proposition was found to be very relevant. HLL raised the price of the improved Surf Excel from

Rs. 135 per kilogram to Rs. 155. This brought Surf Excel at the same price point as Ariel Power

Compact in the compact detergents segment.

In early 2003, Surf Excels price was reduced from Rs 85 for half a kilogram to 70. Close on the

heels of the price cut, HLL introduced an innovative low foam detergent in May 2003. The New

Surf Excel was specially developed with technology to conserve water, taking into consideration

the water scarcity in India. Surf Excel was entirely replaced by the new low foam one. It was a

risk taken by the company because traditionally people associated good detergent with more

foam. It was HLL, which had promoted the foam proposition since its Lalitaji ads of the 1980s.

On the occasion of the launch of the product, Nitin Paranjpe, category head fabric wash, HLL,

explained,

An average of 83 litres is used per day per household and nearly 20-25 per cent of

household water is used in laundry. The low foam technology in the New Surf Excel

would help reduce water consumption by 50 per cent to two buckets as against four

buckets of water required for regular detergents. This formula, apart from saving water,

also saves time because it needs less scrubbing and provides quick washing."11

Apart from the new product features, the brand also underwent a change in packaging. The

product, which was earlier available in pouches, was made available in brick packs, to give it a

different look as well as increase shelf visibility. The company also launched a two-phase

advertising campaign to convey new product features. The first campaign told the consumers that

10

Shweta Jain & Gowri Shukla, At low tide, The Strategist Business Standard, 19th

August 2003. 11 V.Sangita, HLLs new Surf Excel - Promises to save time, effort and water, www.indeconomist.com,

30th May 2003.

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just because the product had less lather, it did not mean that the low foam powder was ineffective.

The subsequent campaign informed the consumers about the other features such as less use of

water, less scrubbing, less rinsing and so on. The company set an advertising budget of Rs 16

crore for the second half of 2003 to advertise the New Surf Excel.12

In 2003, HLL launched Surf Excel Automatic an anti corrosive and clothes friendly powder for

washing machines. The product was endorsed by washing machine manufacturers like LG,

Samsung, Electrolux Kelvinator, Videocon, Siemens, IFB and Whirlpool. The low suds detergent

dissolved completely leaving no harmful residue behind, thus ensuring a longer life for the

clothes and the machine. Surf Excel Automatic was formulated with high quality phosphate

builders and a multi-active surfactant system to deliver superior cleaning, while washing clothes

in washing machines. Besides, the formulation was fortified with a safe bleach system and

enzymes for superior stain removal in washing machines. The Surf Excel Automatic packaging

allowed convenience and accuracy of dosage. It was a stand up box with sachets inside. The

packet was uniquely designed with a pull out opening at the bottom for individual sachets. Every

wash load required two sachets. One kilogram of Surf Excel Automatic was priced at Rs. 145,

while the 600gm sachet box with 30 sachets was available for Rs. 90.13

In early 2004, HLL dissolved Surf into a new identity Surf Excel Blue. HLL offered three

variants Surf Excel Blue (previously Surf), Surf Excel Quick Wash (previously Surf Excel) and

Surf Excel Automatic. Surf had built a loyal customer base over the years. By migrating Surf to

Surf Excel, HLL felt that there was a chance to attract new consumers, even though there was a

possibility of disappointing old customers. However, HLL stressed that the formulation of Surf

Excel Blue was an improved one and was confident of convincing customers about the change.

The advertising campaign Surf is now Surf Excel Blue aimed at educating the consumer about

the change. Surf Excel Blue (unchanged from Surf) was priced at Rs 89 for a kilo, compared to

Rs 135 for a kilo for Surf Excel Quick Wash.

12

Ajita Shashidhar, Surf Opera, The Catalyst- The Hindu Business Line, 22nd

May 2003. 13HLL launches Surf Excel Automatic, a specialist detergent for your washing machine,

www.prdomain.com, April 2003.

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Figure (v) Surf Migrated into Surf Excel

Source: Purvita Chatterjee, Surfing the blue, www.blonnet.com, 26th February 2004.

Since its entry in 1985, P&G had invested heavily in India, but its sales turnover was barely Rs. 800 odd crores. By continuing to market premium products in India, P&G had effectively become a niche player. P&Gs erstwhile CEO Durk Jager, was a firm believer in premium pricing. He was confident that consumers would pay more for the difference in performance. When P&G entered the feminine hygiene care market in 1989 by launching Whisper, the market was dominated by a not so aggressive competitor, Johnson & Johnson (J&J). The premium brands rapid success gave P&G the courage to foray into laundry. P&Gs detergent was rated higher than competing brands in image terms, but price was a deterrent. Families used the product occasionally and on special clothes. Where domestic help was used for washing, Ariel was seldom used. In spite of launching variants under the Ariel brand umbrella to counter HLL at every price point, Ariel managed to capture hardly 5% of the market. In the late 1990s, P&G decided to change its strategy for India. P&G USA did not want to pump money into the Indian operations as no significant returns were coming in. In 1999, the name of the listed company P&G India Ltd. was changed to Procter & Gamble Hygiene and HealthCare Ltd. (PGHH). In 2000, PGHH discontinued the shampoo manufacturing arrangement in India. It started importing its shampoos from Thailand, Taiwan and Vietnam. It also hived-off marketing rights to brands such as Clearasil and Old Spice to Marico Industries to focus on its core business of feminine hygiene and cough and cold medication. Only product launches relevant to the two core business categories were routed through the listed company. Detergents and personal products were vested with the wholly owned subsidiary Procter & Gamble Home Products (PGHP), which P&G had floated in 1993. P&G decided to exit mass marketing as it realized that it was not possible to be a peoples brand with premium pricing. It launched Project Spearhead to identify consumers who saw value in P&Gs offerings and had the purchasing power. P&G decided to concentrate only on the top 23 towns from where around 60% of its sales came. Moreover, it decided to focus on big grocery stores, referred to as A-Class outlets, where P&Gs target customers shopped for their monthly provisions. But with around 2500 stockists, P&G found it difficult to implement selective distribution. So P&G decided to adopt its global distributor model for India. The model had worked successfully in China, the Philippines and parts of Europe. Codenamed Project GoldenEye, the model was launched in 1997. A few distributors took care of distribution to A-Class outlets and select B-Class outlets. By 2003, P&G had just 30 distributors across India.

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In the late 1990s, as P&Gs Indian operations were being restructured, sweeping changes were

being initiated at P&Gs headquarters in Cincinnati, under the stewardship of CEO Durk Jager.

As part of the global restructuring initiative Organization 2005, each country became part of a

regional hub. India became part of the Asean-Australia-India (AAI) region, operating out of

Singapore. Execution in India was looked after by a Market Development Organization (MDO)

headed by a country manager. P&G was clear about its game plan for India. The company

decided not to open up on any other front till it reached critical mass in its key categories hair

care, laundry, feminine hygiene and healthcare.

In late 2003, P&G India resorted to a more aggressive pricing strategy. The company unleashed a

price war by bringing down the prices of Ariel and Tide sachets by 50 % in September 2003. The

revised price of Ariel and Tide sachets stood at Rs 1.50 and Re 1 against Rs 3 and Rs 2 earlier,

respectively14. In March 2004, P&G renewed its attack on rival HLL through a revamped pricing

strategy for its larger unit packs, bringing down Ariel and Tide prices by almost 50%.

P&G was present only in the premium segment where the market size itself was small. In the

middle and low segments of the market, P&G was totally absent. Realizing the need for volumes,

P&G introduced what it called a price correction strategy. The main objective was to expand the

upper end of the market where quality products were sold at a price not affordable to many. After

talking to over 3,000 consumers across the country and observing over 25,000 washing sessions

in consumers homes, P&G found consumers believed in the superior quality of Ariel and Tide

but pricing remained a deterrent in using Ariel and Tide on a regular basis. So P&G cut prices to

make Ariel and Tide more affordable.

Close on the heels of P&Gs price cuts on Ariel and Tide, HLL slashed prices on Surf Excel and

Surf Excel Blue. Earlier, in January 2004, HLL had relaunched its Rin Shakti powder with a new

formulation that used Unilevers proprietary technology, which allowed 100% dissolution and

enhanced whiteness. The relaunch was supported by a high decibel advertising campaign

claiming, Double safedi, Bijli giri (Double whiteness like lightening) (Exhibit: V). HLL had

aggressively priced it at Rs. 80 for a two-kilogram pack to take on Henko and Tide priced at Rs.

85 and Rs. 89 for a kilo. But the unexpected price cuts by P&G brought Tide on par with HLLs

mid segment brands like Rin Shakti and Rin Supreme. Moreover, with the narrowing of the price

differential between Surf and its mid segment brands, HLL contemplated slashing prices of these

brands, to prevent their cannibalization by Surf.

P&G rolled out an ad campaign to highlight the price reduction. The new stripe ads for Tide

created by Leo Burnett had a funny twist to them. They showcased the superior whitening power

of Tide, which came at an affordable price of Rs. 23 (Exhibit: IV). P&G also contemplated an

entry into the mass market with its economy detergent brands like Bonux and Rindex from its

global portfolio, to counter the likes of Ghari, Wheel and Nirma where P&G was absent. In

addition, P&G planned to launch Tide as a detergent bar in the low end of the market to take on

Rin Shakti. But the launch of economy brands entirely depended on how the repositioning

exercise would work for P&G.

14 P&G kicks off sudsy war, HLL to follow suit, Business Standard, 4th March 2004.

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Figure (vi)

P&G and HLL Brands After Price Cut

Source: Purvita Chatterjee, Swimming with the tide, The Hindu Business Line- Catalyst,

11th

March 2004.

Exhibit: II

Prices of Detergent Brands After Price Cuts Detergent Brands Price for

500 gram

packs

Price for 0ne

kg pack

HLL

Wheel Active Rs. 13 Rs. 26

Rin Shakti Rs. 20 Rs. 42

Surf Excel Blue Rs. 38

(Rs. 50)*

Rs. 60

(Rs. 85)*

Rin Supreme Rs. 40

Surf Excel Rs. 50

(Rs. 70)*

Rs. 99

(Rs.130)*

P&G

Tide Rs. 23

(Rs. 43)*

Rs.46

(Rs.89)*

Ariel Rs. 50

(Rs. 70)*

Rs.99 (Rs.

135)*

Henkel

Mr. White Rs. 21 Rs. 42

Henko Stain Champion Rs. 42 Rs. 90

*Prices before price cut.

Source: Compiled by IKC, March 2004.

Henkel SPIC

Henkel SPIC India Ltd. (HSIL), a 66 % subsidiary of Henkel KgaA, Germany, entered India in

1989. Detergent was the single largest contributor to the company's revenues followed by toilet

soaps, talcum powders and personal grooming products. HSIL also exported detergents to

Taiwan, Oman, Bahrain, Cyprus, Sri Lanka and Mauritius. In 2004, HSIL offered 25 products

through 32 depots and 2,100 distributors across the country covering 3,000 towns in urban India.

In 1998, HSIL made several brand acquisitions. The company acquired Calcutta Chemicals and

Detergent India Ltd from Shaw Wallace bringing brands such as Margo, Neem, Tuhina, Chek,

Super Chek and Regal into its portfolio.

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HSIL launched the Henko Stain Champion Powder (HSCP) in July 1994, championing the cause

of stain removal. Henko Power Pearls was an extension of Henko Stain Champion. While, HSCP

priced at Rs 87 for a kg, targeted the premium end of the market, Henko Power Pearls priced at

Rs 155 per kg, targeted the upper end of the compact segment. HSIL launched Mr. White in 1998

in the middle segment to counter Rin Supreme and Rin Shakti.

HSCP was launched to make the Surf user try Henko. Surf, which was considered a gold standard

among detergents, was the biggest competitive barrier. HSIL tried to create dissonance among

consumers by positioning HSCP as a better option with New Technology compared to the brand

that they used more out of habit. The target audience consisted of Young, Savvy women in SEC

(Socio Economic classification) A, B and C households residing in metros and mini-metros who

used Surf. The advertisement campaign portrayed HSCP as the powder of the new technology

age as against the blue detergent powder (Surf) that the older generation used.

In late 2001, HSIL conducted a road show in Mumbai to market its compact detergent brand

Henko Power Pearls through the promotion Ultimate cleanliness inside and out, with model and

actor Aman Verma as the brand ambassador. Verma visited various areas in Mumbai such as

Juhu, Andheri, Mulund, Chembur and Powai in a car behind the road show truck and presented a

surprise gift to those who were users of Henko Power Pearls. In 2003, HSILs market share in the

compact detergent segment stood at around 5%.

Exhibit: III

Market Share and Prices in the Compact Segment

Brand 1998 1999 2000 2001 2002 2003

Price/ 500 gms 61.50 69 76 85 85 70 Surf Excel

Market Share 57% 58% 58% 52% 55% 65%

Price/ 500 gms 65 72 80 85 85 70 Ariel

Market Share 43% 42% 42% 40% 35% 30%

Price/ 500 gms 85 85 68 Henko Power

Pearls Market Share 8% 10% 5%

Source: ORG- MARG AC Nielson.

When HLL relaunched Rin Shakti in January 2004 with the 100% dissolution proposition15

,

Henkel followed suit with its Mr. White. Mr. White was relaunched in February 2004 with an

enhanced formulation, new fragrance and in a new international Gusset16 pack. Mr. White which

claimed to be the only eco-friendly product (because it used zeolites instead of phosphates in its

formulation) promised superior product performance and a unique dazzling whiteness with a

fresh new fragrance after the relaunch. Research revealed that consumers believed in people with

authority and experience, such as scientists, doctors, teachers etc. Based on the findings, the new

TV commercial for the brand used a scientist as the main protagonist. The new Mr. White Powder

was priced at Rs.42 for the 1 kg Gusset pack, a rupee higher than what it was before the relaunch.

The product had a strong presence in Andhra Pradesh, Kerala and Tamil Nadu. Mr. White

contributed around Rs.50 crore to HSIL's total business. The brand had a market share of around

13% in the middle segment which was estimated at around Rs.400 crore. HSIL targeted a market

share of 20 % (in the middle segment) for Mr. White by the end of 2004.

15

Proposition of the detergent powder completely dissolving in water. 16 Gussets can be found on the bottom or sides of a bag, and refers to a fold back into the bag. They give the

bags more depth as opposed to just a flat bag.

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Looking Ahead P&G believed its lean business model would allow it to continue the onslaught. Each of P&Gs

distributors was doing business worth Rs. 65 to 70 crores, with returns on investment in excess of

25%. The model was so successful that even HLL wanted to emulate it. In late 2003, HLL

appointed two distributors in Mumbai to serve the 300 odd self-service stores in the city. The

company also initiated a pilot project in key urban markets, by putting one distributor in charge of

all its categories soaps and detergents, personal care, foods and beverages. Traditionally, it had

separate distributors for each category. Meanwhile, driven by its new mass-market orientation,

P&G was scaling up its distribution model. The 30 distributors, who serviced around 800 towns

directly, were setting up branches. The branches were expected to come up in around 2000 towns

by 2005.

As competition intensified in the Indian detergent market, price wars seemed to be the order of

the day. Henkel decided to drop the price of its brand, Henko Stain Champion, from Rs 90 to Rs

75 per kg. HLL decided to make Rin Shakti more affordable by slashing the price of the one kilo

pack from Rs. 42 to Rs.27.17 The drastic price cuts by HLL and P&G raised concerns among

customers about a possible dilution in the quality of products. The Consumer Guidance Society of

India (CGSI)18 initiated a probe into the matter. CGSI chairman Arvind Shenoy said,

We suspect quality degradation in the detergent brands which underwent price cuts, as

the price of raw material LAB (linear alkyl benzene) has been rising. Either the

companies were operating on very high margins earlier, or the quality might have taken

a beating. 19

CGSI had collected samples of all the brands in question to test the quality and check if there was

any reduction in the percentage of active ingredient. Meanwhile it remained to be seen whether

the price cuts would escalate into a full-fledged war. It also remained to be seen if P&G would

enter the mass detergent market or resign itself to its fate as a niche player.

17HLL likely to slash Rin Shaktis price, www.moneycontrol.com, 24th March 2004. 18 Founded in 1966, CGSI is one of the earliest consumer organizations in India. It was the first to demand

a Consumer Protection Act with the Consumer Court, and this was implemented in 1986. 19 Namrata Singh, HLL, P&G price cut moves raises doubts on quality, The Financial Express, 24th

March 2004.

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Exhibit: IV

TV commercial (stripe ad) for Tide

As a jeep screeches to a stop, a

politician gets out and hollers, "Arre

kaha na bhai, isse zyada safedi kam

dam mein lake dikhaiye apni moochva...

...mundwa denge hum." (If you can show

me greater whiteness at a lesser price,

Ill shave off my moustache) Just as he

finishes his sentence he gets a shock

when the number 23 swishes past his

belly and makes his shirt whiter.

MVO: "Chaunk gaye. Tide

safedi ab sirf taiyis rupey

mein." (Surprised! Tide now at just Rs.

23) Super: 'Rs. 23'

In the next shot while his sycophants

enjoy a good laugh our friend stands

embarrassed minus his mustache.

Source: www.agencyfaqs.com

Exhibit: V

TVC for Rin Shakti

With a glum face a man stands

despondently.

However, his face lights up when he

notices something in his suitcase.

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With a happy smile he picks up a

shining white shirt from the suitcase.

MVO: "Naya Rin. Aise waise powder

mein hote hain mitti jaise tatva...

...sirf Rin achchi tarah ghule, aur

poori shakti se jagaye double

safedi." (New Rin. Other powders

leave a residue like mudonly Rin

dissolves well and with full strength

gives double whiteness)

Dressed in his shining white shirt and

brimming with confidence our friend is

all set to take on the world.

Struck by his white shirt a few boys

stop short and gape at him, while he

walks down coolly. Jingle: "Aaj na

roke koyi double safedi mili."(Nobody

will stop today, have got double

whiteness)

As he continues down the road, he gathers

more compliments as a group of girls

come and dance beside him. Jingle:

"Dekho dekho, bijli giri re...

(See..lightening has fallen)

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...bijli giri re bijli giri."

First impressing the girls then

shocking the men our hero has

a great time.

Making his way through many hostile

looks, he walks into a dabha, and

encounters the owner, standing with a

suspicious and threatening look.

However, unmindful of everything,

he suddenly speaks up, "Double

lassi."

Stunned initially by this request

'sardarji' soon gives him a warm

reception, "Oaeh, welcome to Punjab."

Welcoming their new guest the crowd

soon breaks into a dance.

MVO: "Ghul mil ke de, double safedi,

naya Rin." (Dissolves well to give double

whiteness, new Rin)

Source: www.agencyfaqs.com

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Bibliography

1. Namrata Singh, Growth in value is the in thing, www.indianexpress.com,

11th March 1998.

2. Namrata Singh, Dirty linen? Surf Excel and Ariel Power Compact sling suds,

www.financialexpress.com, 18th October 1999.

3. Anita Sharon, Why Tide, when Ariels there? www.domain-b.com, 26th June 2000.

4. Indrajit Gupta, The Incredible Shrinking Act, Businessworld, 17th July 2000.

5. Surf Excel: HLL goes for new initiatives, The Financial Express, 5th

September 2001.

6. Mohini Bhatnagar, P&G finally realizes Indian market rigidity, www.domain-b.com, 21st

September 2001.

7. Henkel takes to the road to promote new brands, The Financial Express,

19th December 2001.

8. Charlotte Butler and Sumantra Ghoshal, Hindustan Lever Limited Levers for change,

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9. Ajita Shashidhar, Surf opera, The Hindu Business Line Catalyst, 22nd

March 2003.

10. HLL reworking marketing strategy for Surf Excel, www.financialexpress.com,

15th May 2003.

11. Purvita Chatterjee, Surf liquid wash goes off shelves Lever home to sell product, The

Hindu Business Line, 11th June 2003.

12. Shweta Jain and Gowri Shukla, At low tide, Business Standard, 19th August 2003.

13. Atul Sathe, Generic Surf migrates into Surf Excel, www.financialexpress.com,

10th February 2004.

14. Henkels Mr.White relaunched, The Economic Times, 23rd February 2004.

15. Purvita Chatterjee, Surfing the blue, www.thehindubusinessline.com, 26th February 2004.

16. Venkatachari Jagannathan, New wash in the mid-priced segment, www.domain-b.com,

1st March 2004.

17. Namrata Singh, Hindustan Lever Reels Under P&G Onslaught, Cuts Surf Excel Price,

www.financialexpress.com, 3rd

March 2004.

18. P&G kicks off sudsy war HLL to follow suit, Business Standard, 3rd March 2004.

19. Lalitha Srinivasan and Namrata Singh, Detergent companies tide over price war, take

battle to ad front, www.financialexpress.com, 4th March 2004.

20. Consumers gain in detergent wars, www.economictimes.indiatimes.com, 5th March 2004.

21. Henkel, Nirma refuse to join detergent price wars, Business Standard, 5th March 2004.

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21

22. Ravi Anathanarayanan, Price war may not wash with veteran HLL,

www.economictimes.indiatimes.com, 5th March 2004.

23. Namrata Singh, More froth as Detergent Giants cross swords, www.financialexpress.com,

7th March 2004.

24. Dilip Maitra, Moving from premium cream to volume dream, www.deccanherald.com, 8th

March 2004.

25. Kala Vijayaraghavan, After Surf, HLL to cut Rin, Wheel prices, The Economic Times,

10th March 2004.

26. Purvita Chatterjee, Swimming with the tide, The Hindu Business Line Catalyst, 11th

March 2004.

27. Namrata Singh, HLL, P&G price cut moves raises doubt on quality, The Financial

Express, 24th March 2004.

28. Indrajit Gupta, Why P&G declared war, Businessworld, 29th March 2004.

29. P&G may raise the bar in the low-end detergent battle,

www.economictimes.indiatimes.com, 1st April 2004.

30. www.valuenotes.com

31. www.mudra.com

32. www.hll.com

33. www.agencyfaqs.com.