Strategic Analysis of Indian Toothpaste Industry

CHAPTER

INDIAN FMCG INDUSTRY

1.1

INTRODUCTION TO FMCG SECTOR

FMCG refers to Fast Moving Consumer Goods it constitutes all the non-durable goods
required for daily or frequently uses. Typically a consumer buys FMCG goods at least ones
in a month.
The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the
economy with a total market size in excess of Rs 60,000 crore. This industry essentially
comprises Consumer Non Durable (CND) products and caters to the everyday need of the
population.
Broadly, FMCG industry can be divided in to following categories.

Household products

Tobacco products

Household care

Tobacco/ Pan Products

Healthcare

Cigarette

Personal care products

FMCG INDUSTRY
Branded Foods

Agro products

Health beverages

Dairy

Soft drinks

Poultry

Bottled water

Sugar

Edible oils

Tea

1.2

EVOLUTION OF FMCG INDUSTRY IN INDIA

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The Ice Ages

Dabur was one of the first players in the Indian fast moving consumer goods (FMCG)
scene. That was about 115 years ago when the term FMCG had not yet gained currency.
The focus then was on providing consumer goods on a large scale. Since then the industry
has come a long way what with catchphrases, buzzwords, marketing strategies, advertising
all thrown in for good measure.
The Middle Ages (The 50's)
At the time of India's independence there were many multinationals like HLL, Colgate and
Nestle. Out of these companies only HLL had a domestic production base. For other
MNCs, the domestic market was too small and the purchasing power of people was too
low to entail any serious investment decisions.
The Swinging Sixties (60's)
The sixties were not too exciting in the Indian context particularly the FMCG sector Inspite
of the fact that many more MNC's set up shop in India with a local manufacturing base the
scene wasnt too bright. This was due to the fact that the government accorded a misplaced
emphasis on the concept of self-sufficiency and due to the heavy influence of socialist
philosophy the natural inclination of the government was to frown upon the capitalist
multinationals.
The Dark Ages (70's)
With a socialist government at the helm and the exploits of a rabble-rousing firebrand by
the name of George Fernandes the MNC's didn't stand a chance. A statute was promulgated
to restrict the equity stake of foreign investment to 40%. That was the straw that broke the
camel's back. Coke and IBM decided that they had had enough and they left India .The
only major FMCG MNC (that's quite a mouthful) that stayed put was Unilever .It
somehow managed to retain a 51% stake by complying with certain government
regulations. There weren't too many players in the FMCG scene which was dominated by a
few big players. Which meant that there wasn't enough choice for the consumers. With a
socialist government at the helm which still thought that capitalism was a dirty word, and a
fundamentalist opposition which opposed anything videshi on the grounds that it was
videshi, things never looked more bleak for this segment.

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Liberalisation (The 90's)

After the introduction of reforms by the Narasimha Rao - Manmohan Singh duo the
MNC's returned in droves. This period was marked by the creation of new categories and
also new sub categories within existing categories. Demand was created where there was
none by innovative sales and marketing strategies. With a burgeoning middle class that had
the required purchasing power the MNC's were faced with the enviable prospect of a
growing market that was not yet completely explored. There was a renewed emphasis on
the distribution network.
More than anything else the nineties will be remembered for the acquisitions of brands
.The acquirers were usually multinationals or those with huge resources. The following
were the more publicized cases:

The acquisition by HLL of Tomco, Kwality and Kissan and Lakme

Colgate- Palmolive acquired Cibaca Flouride toothpaste brand, and

Supreme, Standard Angular and Deluxe Transparent toothbrush brands.

Coke acquired thums- up thus having a substantial market share even before
setting up a domestic production capability.

Even though by conventional financial wisdom these acquisitions did not make much
sense, the main reasons for these costly acquisitions were

1.3

Marketshare- In this industry the profit margins are not very large so profits
are determined by sales volume. These acquisitions did certainly push up
sales volume.

Preemptive move - Many companies were acquired simply to prevent rivals

from taking over the company.

PRODUCT CHARACTERISTICS

Products belonging to the FMCG segment generally have the following characteristics:

They are used at least once a month

They are used directly by the end-consumer

They are non-durable

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They are sold in packaged form

They are branded

1.4

INDUSTRY SEGMENTS

The main segments of the FMCG sector are:

Personal Care:
Oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries;
deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care.
Major companies active in this segment include Hindustan Lever; Godrej Soaps,
Colgate-Palmolive, Marico, Dabur and Procter & Gamble.
Household Care:
Fabric wash (laundry soaps and synthetic detergents); household cleaners
(dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and
mosquito repellants, metal polish and furniture polish).
Major companies active in this segment include Hindustan Lever, Nirma and
Reckitt & Colman.
Branded and Packaged Food and Beverages:
Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread,
cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables
and meat; dairy products; bottled water; branded flour; branded rice; branded sugar;
juices etc.
Major companies active in this segment include Hindustan Lever, Nestle, Cadbury
and Dabur.
Spirits and Tobacco:
Major companies active in this segment include ITC, Godfrey Philips, UB and
Shaw Wallace.
An exact product-wise sales break up for each of the items is difficult.

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The size of the fabric wash market is estimated to be Rs 4500 crore; of household cleaners
to be Rs 1100 crore; of personal wash products to be Rs 4000 crore; of hair care products
to be Rs 2600 crore; of oral care products to be Rs 2600 crore; of health beverages to be Rs
1100 crore; of bread and biscuits to be Rs 8000 crore; of chocolates to be Rs 350 crore and
of ice cream to be Rs 900 crore.
In volume terms, the production of toilet soap is estimated to have grown by four per cent
in 1999-2000 from 5, 30.000 tonnes from 5, and 10,000 tonnes in 1998-99. The production
of synthetic detergents has grown by eight per cent in 1999-2000 to 2.6 million tonnes. The
cosmetics and toiletries segment has registered a 15 per cent growth in 1999-2000 as
against an annual growth of 30 per cent recorded during the period 1992-93 to 1997-98.
In the packaged food and beverage segment, ice cream has registered a negligible growth
and the soft drink industry has registered a six per cent growth in 1999-2000.

1.5

CURRENT SCENARIO OF INDIAN FMCG INDUSTRY

FMCG sales fell in the fourth quarter in April-May 2002 with sales declining by 3.8 per
cent YoY during April-May 2002 compared with 2.9 per cent YoY in Q1CY2002. For the
period, only the processed foods companies Britannia, Cadbury and Nestl managed
to buck the trend and showed growth in sales. Tata Tea, Nirma, HLL, SmithKline and
Reckitt reported more than eight per cent YoY decline in sales for the period. As compared
to the previous quarter, Nestl, Godrej and Tata Tea showed improving trend in sales. The
categories to witness the brunt of slowdown in consumer spending have been toilet soaps,
packaged tea, toothpaste, nutritional beverages, milk foods and digestives, which have
registered double-digit decline in volumes. With the organized biscuit companies gaining
at the cost of the unorganized sector, biscuit volumes grew by 10 per cent YoY. Consumer
demand continued to be weak causing overall FMCG sales to slide by 4.4% in May 2002
in value terms, compared to the same period a year ago. Market leader Hindustan Lever
Limited's (HLLs) sales were down 10% in May, in line with the earlier two months, as
rural demand failed to prop up sales. The segments to witness sales growth during the
period have been shampoo, vanaspati, and mosquito repellants, chocolates, vermicelli and
hair oils.

Improving macro outlook:

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However, things have started look up on the economy front. The economy expanded by 5.4
per cent in 2001/02 (April-March), spurred by a rise in farm output, putting India among
the ranks of the world's fastest-growing economies. Growth was 4.0 per cent in the
previous year.
Data in recent months raised hopes of a recovery, especially as the crucial agriculture
sector showed a 7.6 per cent expansion in the fourth quarter compared with a 4.0 per cent
contraction a year ago. Two-thirds of the Indian population of more than one billion
depends on agriculture for its living. A good harvest means better rural incomes which
triggers higher demand and spending.

1.6

POSITIVE TRIGGERS FOR FMCG SECTOR

1.6.1

Monsoon hopes:

The progress of the monsoon in the first month (June 1-26, 2002) has been fairly good,
with area weighted rainfall at 145.7 or seven per cent above normal.
1.6.2

Lower base effect:

The trend of declining sales is likely to reverse from the next quarter due to a lower base
effect and a significant increase in prices of FMCG products.
1.6.3

Rural demand:

Another reason for this is the expectation of improvement in rural demand largely on
account of high realizations of cash crops (oil, rubber, etc). While the sales are expected to
remain sluggish, the sectors profitability is rather resilient, thanks to pricing power.
1.6.4

Improving macro outlook:

The economy expanded by 5.4 per cent in 2001/02 (April-March), spurred by a rise in farm
output. The crucial agriculture sector showed a 7.6 per cent expansion in the fourth quarter
compared with a 4.0 per cent contraction a year ago, which is likely to improve the
prospects of the sector.
The disappointing results of FMCG companies are likely to throw up a good opportunity to
enter FMCG stocks. Valuations of most FMCG companies are attractive, in view of their
returns ratios and expectations of recovery in growth rates. Two companies that are likely
to fare better are Godrej Consumer and Tata Tea. Godrej Consumer has gained market
share (volumes) in all its categories even during sluggish period and is likely to grow
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further. The other company is Tata Tea, which has been able to reverse decline in market
share with the spate of new launches in the premium and economy segment. Its market
share (value) in the period has increased to 19.8 per cent, which is the highest level in the
last one year. Further improvement at Tetley and benefits of debt refinancing in FY2003-04
are the triggers for the stock.

1.7
INDUSTRY CHARACTERISTICS
1.7.1 Branding:
Creating strong brands is important for FMCG companies and they devote
considerable money and effort in developing bands. With differentiation on
functional attributes being difficult to achieve in this competitive market, branding
results in consumer loyalty and sales growth.

1.7.2 Distribution Network:

Given the fragmented nature of the Indian retailing industry and the problems of
infrastructure, FMCG companies need to develop extensive distribution networks
to achieve a high level of penetration in both the urban and rural markets. Once
they are able to create a strong distribution network, it gives them significant
advantages over their competitors.

1.7.3 Capital Intensity:

Most product categories in FMCG require relatively minor investment in plant and
machinery and other fixed assets. Therefore shortage of product for want of
capacity would be a rare phenomenon. The turnover is typically five to eight times
the investment made in a green field plant at full capacity. This is also due to the
fact that the business being marketing driven, players do not integrate backward.
Also, the business has low working capital intensity as bulk of sales from
manufacturers takes place on a cash basis.

1.7.4 High Initial Launch Cost:

Nonetheless, there is a large front-ended investment made in new products
including cost of product development, market research, test marketing and most
importantly its launch. To create awareness and develop franchise for a new brand

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requires enormous initial expenditure is required on launch advertisements, free

samples and product promotions. Launch costs are as high as 50-100% of revenue
in the first year and these costs progressively reduce as the brand matures, gains
consumer acceptance and turnover rises. For established brands, advertisement
expenditure varies from 5 - 12% depending on the categories. It is common to give
occasional push by re-launches, which involves repositioning of brands with
sizable marketing support.

1.7.5 Technology:
Basic technology for manufacturing is easily available. Also, technology for most
products has been fairly stable. Modifications/ improvement rarely change the basic
process. Nonetheless, major global players spend enormous sums on R&D due to
their ability to spread cost over the wider base of their global operations. Their
R&D efforts are towards
Cost effective manufacturing process without compromising on quality and
functional performance.
Research driven formulations which give cutting edge.
High standards of hygiene/ purity for personal care and food products.
Standardized formulation, which can be used across countries.

1.7.6 Marketing Drive:

In relative terms, marketing function has greater importance in FMCG companies.
The players have to reach out to mass population and compete with several other
brands which essentially offer similar products. The perceived differences are
greater than the real differences in the product.

1.7.7 Market Research:

Consumers' purchase decisions are based on perceptions about brands. They also
keep on changing with fashion, income and changes in lifestyle. Unlike industrial
products, it is difficult to differentiate products on technical or functional grounds.
With increasing competition, companies spend enormous sums on product
launches. Market research and test marketing become inevitable.

1.7.8 Balance Sheets Are Misleading:

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The most critical asset for FMCG companies is represented by its brands and
distribution network. Brands are bought and sold like any other assets. Typically,
when an FMCG business is sold, the value of the brand is several times of that of
tangible assets.
However as per the current accounting practices in most countries, investment
made in building of brands are written off as revenue expenditure. This is due to
high risk involved with a new brand, subjectivity involved in its valuation, lack of
consistency and difficulty in separating a brand's value from that of tangible assets
employed in the business. While a successful brand will pay back the investment
several times, in case of brand failure, entire investment has to be written off.
High return on net worth of most established companies is also misleading due to
the fact that the assets sans brands are considerably understated in the balance
sheet.

1.7.9 Third-party Manufacturing

Manufacturing of products by third party vendors is quite common. Third party
manufacturing used to give fiscal advantages particularly of excise duties. These
have been considerably diluted in the past 7 years of reforms. In the 197-98 budget
the government proposed to change the basis of excise levy to MRP basis. A total
of 43 product categories have been brought under the MRP net in the subsequent
budgets.
Besides excise benefit, third party manufacturing also provides other benefits viz.
1. Flexibility in production and inventory planning as the marketing company's
decision-making is liberated to a large extent from taking manufacturing overheads
into account.
2. Flexibility in controlling labor costs. Most small-scale third-party manufacturers
have benefits of direct control of the owner and greater ability to manage local
environment. The large organization also runs the risk of unionization.
3. It is beneficial (in terms of logistics) and sometimes essential to get certain
products manufactured near the market. A company can tie up with several 3P
manufacturers in separate locations, rather than set up own manufacturing facilities.
4. The marketing company gives technology, lays down quality standards and
typically exercises supervision on manufacturing, cost and quality standards. The
marketing company may also co-ordinate raw material procurement to optimize on

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bulk discounts. While in most cases, manufacturing process is fairly simple, certain
products require supply of some critical ingredients by the marketing company
(which in turn may be imported from the parent company). It is common to find
support in working capital finance also.

1.7.10 Significant Presence of Unorganized Sector

There is a significant presence of unorganized sector in India. In the past, several
factors led to mushrooming of small unorganized players with local presence viz.
Basic technology for most products is fairly simple and easily available.

Fiscal advantages:
In India, small-scale sector enjoys (the concessions however have been diluted
considerably in the past few years) exemption/ lower rates of excise duty, sales tax
etc. This makes them more price competitive vis--vis the organized sector.

Remote rural markets:

Due to highly scattered market and poor transport infrastructure, very few MNC
companies/ organized players have been able to reach out to remote rural areas and
even small towns.

Low brand awareness:

Low brand awareness enables local players to market their spurious look-alike
brands.

Cost advantage:
Lower overheads due to limited geography, family management, focused product
lines and minimal expenditure on marketing.

1.8

MAJOR PLAYERS

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There is a strong MNC presence in the Indian FMCG market and out of the top 10 FMCG
companies; four are multinationals while two others have significant MNC shareholdings.
Unlike several other sectors where multinationals have entered after 1991, MNCs have
been active in India for a long time. The top five listed FMCG companies on the basis of
their sales turnover in the last financial year (either year ended December 31, 1999 or
March 31, 2000) are:

Company Name

sales
Rs. Crores

Profit After Tax

Rs. Crores

Hindustan Lever Ltd.

10978.31

1073.73

I T C Ltd.

7971.94

792.44

Nirma Ltd.

1717.88

234.1

Nestle India Ltd.

1546.43

98.47

Britannia Industries Ltd.

1169.84

51.02

Colgate-Palmolive (India) Ltd.

1123.53

51.79

Godfrey Phillips India Ltd.

1082.63

42.1

Dabur India Ltd.

1046.28

77.67

Smithkline Beecham Consumer

Healthcare Ltd.

743.38

97.61

Godrej Soaps Ltd.

714.74

61.89

Marico Industries Ltd.

649.05

35.73

Cadbury India Ltd.

511.08

36.7

Procter & Gamble Hygiene &

Health Care Ltd.

492.85

75.03

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Reckitt & Colman Of India Ltd.

435.33

31.47

I S P L Industries Ltd.

21.57

0.04

Among the major companies, Hindustan Lever has a strong presence in the food, personal
care and household care (detergents) sectors; ITC is the market leader in cigarettes; Nirma
has a strong presence in the detergent market; Nestle and Britannia are active in the food
sector and Colgate has a strong presence in the oral care segment.

Exports
India is one of the worlds largest producers for a number of FMCG products but its
FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential
for increasing exports but there are certain factors inhibiting this. Small-scale sector
reservations limit ability to invest in technology and quality up gradation to achieve
economies of scale. Moreover, lower volume of higher value added products reduce scope
for export to developing countries.

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1.9

SALIENT FEATURES OF FMCG INDUSTRY:

The FMCG sector is a key component of Indias GDP and is a significant direct and
indirect employer. It is the fourth largest sector in the economy and is responsible for five
per cent of total factory employment in the country. The sector also creates employment for
three million people in downstream activities, much of which is disbursed in small towns
and rural India.
Unlike the perception that the FMCG sector is a producer of luxury items targeted at the
elite, in reality the sector meets the every day needs of the masses, across the country.
Low-priced products contribute the majority of the sales volume and lower income and
lower middle income groups account for over 60 per cent of the sectors sales. Moreover,
rural markets account for 56 per cent of total domestic FMCG demand and FMCG outlets
reach more villages than any other basic facility such as primary schools or bus facilities.
The FMCG sector has several other salient features. It has strong links with agriculture and
71 per cent of sales come from agro-based products; it is a significant value creator with a
market capitalization second only to the IT sector and it is a key contributor to the
exchequer. In 1998-99, it accounted for eight per cent of total corporate tax; six per cent of
central excise revenue and seven per cent of state tax revenues.
The FMCG sector has traditionally grown at a very fast rate and has generally out
performed the rest of the industry. Over the last one year, however the rate of growth has
slowed down and the sector has recorded sales growth of just five per cent in the last four
quarters.
The outlook in the short term does not appear to be very positive for the sector. Rural
demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has
already downscaled its projection for agriculture growth in the current fiscal. Poor
monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown
in the economy is also likely to have an adverse impact on disposable income and
purchasing power as a whole. The growth of imports constitutes another problem area and
while so far imports in this sector have been confined to the premium segment, FMCG
companies estimate they have already cornered a four to six per cent market share. The
high burden of local taxes is another reason attributed for the slowdown in the industry
At the same time, the long term outlook for revenue growth is positive. Give the large
market and the requirement for continuous repurchase of these products, FMCG companies
should continue to do well in the long run. Moreover, most of the companies are

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concentrating on cost reduction and supply chain management. This should yield positive
results for them.

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1.10 PEST ANALYSIS OF INDIAN FMCG INDUSTRY:

1.10.1

POLITICAL / LEGAL FACTORS

Tax reforms
The government has gradually removed the restriction on imports of consumer goods
in the country and also significantly reduced excise duties {25% in 91-92 to 15% in 0102}. The domestic tax structure of these products, however, has not been rationalized to
provide level playing field for competition this is adversely affecting the FMCG
industry and could have far reaching adverse impact. The following taxation issues
need urgent attention of the government:
1) Irrational domestic tax structure encouraging imports
Significant reduction in custom duty rates of the consumer goods has made imported
products cheaper as compared to indigenously manufactured products, due to irrational
domestic tax structure. For instant, goods manufacturing in India suffered for cascading
effects of taxes on inputs as additional cost compared to imports.
The cascading effects of sales tax and local levies on inputs used in domestic
manufactured should be eliminated by providing either MODVAT credit or by
introducing national VALUE ADDED TAX. Covering both central and state taxes on
an urgent basis.
Moreover, maximum retail price based excise duties levies on a large number of
FMCG products. Countervailing duty in the same product when imported is charged on
CIF value. The MRP base assessable for excise does not allow abatement for cost
manufacturing costs such as advertising and selling expenses whereas CIF value
considered for the purpose of import duty does not include costs of these elements
incurred subsequently by imports.
2) Inverted duty structured for selected inputs
Duty on certain raw material higher or the same as compared to finished products in
which these materials are used. In addition custom duty, raw materials are also subject
to sales tax and octroi and therefore total tax incidence and cost of indigenous goes up.

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The import duty on raw materials needs to be rationale so that it dose not exceed 60 to
70 percent of the duty on finished goods.

3) Contract manufacturing:
As FMCG companies concentrate on brand building, product development and creating
distribution networks, they are at the same time outsourcing their production
requirements to third party manufacturers. Moreover, with several items reserve for the
small-scale industries and with these SSI units enjoying tax incentives, the contract
manufacturing route has grown in importance and popularity.

1.10.2

ECONOMIC FACTORS:

FMCG growth is directly linked to growth of Indian economy. The sector will be the
biggest beneficiary when the economy turns around and rural demand picks up. This
indicates immense potential for FMCG in India over the long term. Duty stagnant
market in Urban India, rural market can be developed. This depends on the monsoon,
as rural economy is heavily dependent on agriculture.

1.10.3

SOCIOCULTURAL FACTORS:
Life style:
A considered part of rural population now has access to television and cable
television and aspiration about life style are changing fast. Rural India accounts for
over 70 percent of the countrys population.
Income level:
Income levels are low and consumers are highly price sensitive. Lower income and
lower middle groups accounts for over 60 percent of the sectors sales. Local /
unorganized players operating at low overheads will continue to give stiff
competition.

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1.10.4

TECHNOLOGICAL:

Basic technology for manufacturing is easily available. Also, technology for most
products has been fairly stable. Modification / improvements rarely change the basic
process. Nonetheless, major global players enormous sums on R&D due their ability to
spread cost over the wider base of their global operations. Their R&D efforts are
towards

Cost effective manufacturing process without compromising on quality and

functional performance.

Research driven formulations, which give cutting edge.

Standardize formulation, which can be used across countries.

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1.11 SWOT ANALYSIS OF FMCG INDUSTRY

1.11.1 STRENGTHS

Well-established distribution network extending to rural areas.

Strong brands in the FMCG sector.

Low cost operations

1.11.2 WEAKNESSES

Low export levels.

Small scale sector reservations limit ability to invest in technology and achieve
economies of scale.

Several "me-too products.

1.11.3 OPPORTUNITIES

Large domestic market.

Export potential

Increasing income levels will result in faster revenue growth.

1.11.4 THREATS

Imports

Tax and regulatory structure

Slowdown in rural demand

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CHAPTER

INDIAN TOOTHPASTE INDUSTRY

2.1 HISTORY
Throughout civilization, man has always needed to have healthy teeth, the primary reason
being for survival. Today we do not really need teeth for survival, it could even be said that
they play a far more aesthetic role in our lives.
The development of toothpaste began as long ago as 300/500BC in the ancient countries of
China and India.
According to Chinese history, a learned man, Huang-Ti, studied the care of teeth and
claimed different types of pain felt in the mouth could be cured by sticking gold and silver
needles into different parts of the jaw and gum. It was theories such as these that led to the
development of dental cream.
During the years 3000/5000BC, Egyptians made toothpaste using a recipe of powdered
ashes of hooves of oxen, myrrh, powdered and burned egg shells and pumice. Directions
were given that all should be mixed together, but there were no specific instructions as to
how the powder should be used.
It is assumed that the ancient Egyptians used their fingers to rub the mixture onto teeth.
The tooth stick, the forerunner of the toothbrush had not, as far as is known, been
discovered at this time.
From the records of the ancient countries of India, China and Egypt, it was the Greeks and
Romans who developed and improved toothpaste.
The Greeks and Romans who developed a leaden instrument for the extraction of teeth
were also the first to bind loose teeth together and to support artificial teeth by means of
gold wire.

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With the fall of the Roman Empire, the evolution and development of toothpaste became
less clear and little is known of any changes in the years between the coming of Christ and
1000AD.
During 1000AD, evidence shows the Persians further developed toothpaste. According to
writings, advice was given on the dangers of using hard toothpowders and
recommendations were made to make toothpowder from burnt hartshorn, the burnt shells
of snails and oysters and burned gypsum.
Other Persian recipes included dried animal parts, herbs, honey and minerals. One formula
for strengthening teeth included green lead, verdigris, incense, honey and powdered flint
stone.
Toothpowder or dentifrice was first available in Britain in the late eighteenth century. It
came in a ceramic pot and was available either as a powder or paste. The rich applied it
with brushes and the poor with their fingers.
The powders were developed by doctors, dentists and chemists and often contained
ingredients that were highly abrasive and harmful to the teeth, such as brick dust, china,
earthenware or cuttlefish.
To make them more palatable, toothpowders contained glycerin. By the early nineteenth
century, the ingredient strontium was introduced. It was used primarily to strengthen teeth
and reduce sensitivity, but it only really concentrated on the gums.
In the late eighteenth century, borax powder was used to get the foaming effect.
In 1873, Colgate introduced aromatic toothpaste in a jar in the U.S. In 1896, Colgate
Dental Cream was the first to be packaged in collapsible tubes similar to those in use
today.
Before the Second World War, the majority of toothpaste on the market used soap as an
emulsifying agent, even though it was known that soap had certain inherent defects.
Following the Second World War, advancements in synthetic detergents meant soap was no
longer used in toothpaste and emulsifying agents such as Sodium Lauryl Sulphate and
Sodium Ricinoleate used instead.
Toothpaste manufactures such as Colgate continue to research and improve the efficiency
of toothpaste. The discovery that fluoride and fluoride compounds, when introduced into
toothpaste, strengthened the enamel against tooth decay was a significant step forward.

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Trials in the UK which lasted for 3 years showed that dental decay was reduced by as
much as one third by regular use of Colgate toothpaste containing fluoride.

2.2

TYPES OF TOOTHPASTE

Advertisements seem to suggest that we need tartar control toothpaste for removing tartar,
a whitening toothpaste to brighten teeth, and even a gum care toothpaste to prevent gum
disease. What is the most effective toothpaste? This a common question asked by not only
patients but many people you meet. Many advertisements seen confuse an individual in
this regard. One is advised not to go after the advertisements but if in doubt consult your
dentist if one is not able to decide on his own about choosing a Toothpaste.

2.2.1 Toothpastes vs. Gels

Only their physical appearance and a taste is the difference between pastes and gels. While
gels may seem less abrasive than pastes,this is not the case. Actually, gels can be more
abrasive because of the silica used to make them. However, both are safe, effective
cleaners; use whichever you like!

2.2.2 Tartar Control Toothpastes

Most studies suggest that tartar control toothpastes do not remove tartar. They may prevent
the accumulation of additional tartar, however. They do not reduce the tartar that forms
below the gum line, which is the area where tartar can cause gum disease.
2.2.3

Gum Care Toothpastes

Gum Care toothpastes also have questionable efficacy. This type of paste contains stannous
fluoride as compared to sodium fluoride found in other types of paste. While some studies
show stannous fluoride may be helpful in reducing the incidence of gingivitis (a reversible
form of gum disease), it has also been suggested stannous fluoride is not as affective in
prevention of cavities vis a vis sodium fluoride. Any toothpaste containing fluoride is
normally recommended.

2.2.4 Baking Soda Toothpastes

Although these have'nt become very popular in India, they are available. There are no
conclusive studies that prove baking soda toothpastes significantly reduce cavities
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compared to other toothpastes. Some people enjoy the taste and feel of baking soda or mint
toothpastes. The attractive taste of baking soda and mint toothpastes may encourage people
to brush longer. Many baking soda toothpastes may also contain peroxides which can
irritate and damage gum tissue.

2.2.5 Abrasive Smoker's Toothpastes and Toothpowders

These toothpastes are not recommended as they can cause recession of the gums and
abrasion (slow removal) of tooth structure. The best way to rid your teeth of smoking
stains is to stop smoking and, then, have a professional cleaning by a dentist.

2.2.6 Desensitizing Toothpastes

These pastes do actually work for a majority of the people using them. Generally, they are
needed when a patient has had gum recession, thereby exposing the root of the tooth. Once
this exposure occurs, a tooth can be sensitive to cold, hot, touch, sweet, or sour. There
many brands available in the market and they may have different ingredients; therefore, if
one brand does not work, try a different brand. Note: you should have any sensitivity
checked by your dentist first to be sure it is not a more serious problem. But be careful
these pastes are to be used only as professionally advised and not as regular tooth pastes.

2.2.7 Whitening Toothpastes

One must be careful when using these due to their abrasiveness. These should not be used
exclusively but should be incorporated into a routine using a fluoride paste. Do not use a
whitening paste every time you brush; use only once every day or two. Certain brands can
be more abrasive than others. Their efficacy is questionable. Some people claim to notice a
brightening of tooth color, while others notice no change. This difference is partly due to
variety in diet and tooth structure among people. If you are serious about whitening your
teeth, you should discuss various options, including bleaching, with your dentist.

2.2.8 Ayurvedic Pastes/Homeopathetic Pastes

In India many Ayurvedic and Homeopathic Pastes containing Herbs and Ayurvedic and
Homeopathic Medicines are available. These Herbs are used in this country since centuries
to cure Dental Diseases but the exact effect of these in Paste form is not available.

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2.3

CURRENT SCENARIO TOOTHPASTE INDUSTRY

The 90,000 TPA oral care segment contributes around Rs 21 bn to this pie. The segment
has many players in many sub-segments. The major players in the oral care market are
Colgate (over 50% share), Hindustan Lever (36%), SmithKline Beecham (4-5%), Balsara,
Dabur, Himalaya Drug, Anchor, Gillette and Forhans.

MARKET SHARE
Colgate
HLL
Smithkline-beechem
Balsara,Dabur, Anchor,Forhans
Others

%
50
36
4
7
3

It is apparent that Colgate and Hindustan Lever (HLL) call the shots in this segment, which
has been traditionally growing 9-10%. However, in the last couple of years growth has
turned sluggish at 3-5%. Infact, market leader Colgate has stated that growth has been
stagnant in the last few months of FY02.
India being a price sensitive market, the growth strategy revolves around pricing strategies.
Colgate prices some of its products at a premium to HLL. However, competition has
expanded to product differentiation also (gels, gum care, calci guard, mouth wash,
toothpowder and different type of flavours). Since these two companies dominate the
segment, much of the tug of war over pricing, product segments and initiatives come from
them. While HLL is constantly trying to inch up market share ladder, Colgate tries to hold
onto its pie and consolidate. As a result, ad expenses are pretty high in the segment. While
we dont have figures for HLLs advertisement support to its oral care business, Colgate
spends over 20% of its revenues on promotions and advertisements.
But if the market is not growing, why are these two majors competing so fiercely? Because
not withstanding the recent stagnation, the oral market has a huge potential to expand. As
per estimates, an average Indian consumes 82 grams of toothpaste per annum. In contrast,
Thailand consumes 262 grams, Mexico 376 grams and the US per capita consumption
stands at over 6 times India levels (518 grams).

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In Apr-Nov 01, production of soaps increased by around 4%, detergents by 4.9% and
toothpaste by around 19% when compared to the corresponding period of the previous
fiscal.

Segments

Market size

Penetration

(Rs bn) Urban

Rural

Toilet soaps

46.0

95.0%

85.0%

Detergents

38.0

95.0%

85.0%

Hair colour

2.4

20.0%

10.0%

Skin care

40.0%

10.0%

Oral care

21

75.0%

20.0%
(www.equitymaster.com)

India's rural markets have seen a lot of activity in the last few years. Since urban markets
are saturated in most categories, future growth can come only from deeper rural
penetration. FMCG majors are aggressively looking at rural India since it accounts for
70% of the total Indian households.
Raw material prices play an important role in determining the pricing of the final product.

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The industry is volume driven and is characterized by low margins. The products are
branded and backed by marketing, heavy advertising, slick packaging and strong
distribution networks.
Despite the strong presence of MNC players, the unorganised sector has a significant
presence in this industry.
Brand building and extensive distribution network is a key factor. A successful brand is a
precious asset, which could fetch a price many times the cost of assets required to make the
product. A study conducted by A&M-ORG-MARG reflects that the share of branded goods
is high for a number of daily used products. Branded goods comprise of 65% of sales in
villages and the share of non-branded products is shrinking dramatically.

Many of the companies are still keeps pace meeting the demand by product innovation.
These innovations to the toothpaste industry are cosmetic. Indian consumer demographics
and consumption pattern and lack to the Indian consumer toward oral hygiene are major
threats to the toothpaste manufacturers. Many people in India still clean their teeth with
traditional products like neem twigs, salt, ash, tobacco or other herbal ingredients. Average
all India per capita consumption of toothpaste is a dismal 82gms.The dentist to population
ratio is a critically low 1:45000 in the country. This results in low oral hygiene
consciousness and widespread dental diseases. Less than 15% of the Indian toothpaste
users brush twice a day. The toothpaste market grew at a CAGR of 7-8% between 19952000. But in 2001 the market grew by only 4%.Colgate and Hindustan Lever together
account for over 85% of the organized toothpaste market. Red and Black toothpowder still
accounts for 35% of the toothpowder market. In toothpowders, Colgate and Dabur are the
leading players sharing between them 75% of the market. Penetration of toothpowder in
the urban areas has been declining, as more and more consumers switch from powders to
paste. Brand loyalty is quite high for toothpastes, but is extremely low for toothbrushes.10
years ago the most expensive toothbrush was priced at Rs4.

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2.4

INDIAN TOOTHPASTE MARKET PERSPECTIVE

2.4.1 Background
At the time of independence (1947) MNCs were allowed to operate in India, but the Indian
market was too small for global MNCs. HLL had a manufacturing base, Colgate and
Nestle mainly undertook only trading activities. In the early '60s, several MNCs set up
manufacturing base in the country. The government policies continued to be protective,
modeled on socialistic pattern with strong emphasis on self sufficiency. As a result
economic growth was slow (around 3.5% pa which many economists dubbed as Hindu rate
of growth) and India's share in international trade was nominal (even today India's share in
international trade is only 0.6%). Slow growth was aggravated by major set backs in the
late 60's due to drought and in the early 70's due to oil shock. In 1978, the new
Government in power reserved several product categories for small-scale. It also forced
MNCs to dilute their equity stake to 40% or leave the country. IBM, Coca-Cola and several
others decided to leave. Amongst major MNCs, Unilever (HLL) was the only one which
managed to retain 51% foreign stake by complying with the Government conditions of
minimum 10% export and 60% turnover from priority sectors. Thus HLL got into the
business of fertilizer and chemicals. In the '80s, when the underlying factors for the
economy were strong such as major oil discovery at Bombay High, satisfactory monsoon,
stable oil prices etc, the economic growth averaged 5% pa, much lower than its potential.
Several FMCG products such as toiletries and cosmetics which are essentially mass
consumption items, became luxury products due to exorbitant burden of excise duties,
sales tax (which added up to over 150% on basic price). Local players sans technology and
capital were not able to provide good quality products.

2.4.2 Liberalization:
Foreign exchange crisis in 1991 (precipitated by Kuwait war) proved to be blessing in
disguise, due to which IMF suggested reform process began. The reforms have continued
over the last few years.
The economic growth rate is averaging 5-6% pa which is likely to continue. This growth
rate in GDP will imply 4-5% volume growth in mature categories and 8-10% pa growth in
upcoming categories where penetration levels are low. More importantly, the organized
sector will witness even a faster growth at the cost of the unorganized sector.

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2.4.3 Positive Factors for Strong Demand Growth

Oral care products are expected to record strong demand growth, with improved standard
of living, and greater awareness and penetration levels. The following are the key factors
which are expected to trigger growth in the sector :

1.

Duty rates have been slashed:

There has been a progressive reduction in excise duties on major FMCG product
categories.
2.

Falling Excise Duty Rates:

The excises duty and customs on toothpaste products are reduced form 35% in 1991-92 to
16% in 2001-02.

Product

Abatement
on MRP

Excise
2000-01

Tooth Powder

Customs (Basic)

2001-02

2000-01

2001-02

NA

Nil

Nil

35%

35%

Tooth Paste

35%

16%

16%

35%

35%

Tooth Brush

NA

Nil

4%

35%

35%

Toilet Soap

35%

16%

16%

35%

35%

Synthetic
Detergents

35%

16%

16%

35%

35%

Cosmetics &
Toiletries

50%

32%

32%

35%

35%

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3.

Licensing restrictions:

Licensing restriction have been eased considerably. There is a general political consensus
on these reforms and the process seems irreversible.
4.

Local players:

Dominance of local unorganized players will decline with level playing field to
technologically and financially stronger MNCs.
5.

Media reach:

Media reach has increased at a rapid pace. A considerable part of rural population now has
access to cable TV, as a result of which aspirations and lifestyles are changing fast.
6.

Economic growth:

Economic growth is likely to accelerate, which will result in more than proportionate
growth in most product categories, as the current penetration levels are very low.

2.5

MAJOR ISSUES FOR NEW PLAYERS

New MNC entrants will face several hindrances in converting the latent potential of Indian
market as:
Income levels are low and consumers are highly price sensitive. Local/ unorganized
players operating at low overheads will continue to give stiff competition.
Distribution is handled by incredible 5mn nos of retail outlets. Super markets
virtually do not exist in India. This makes logistics particularly for new players
extremely difficult.
Infrastructure such as cold storage, road transportation is woefully inadequate and
inefficient. Urban transport system is overloaded.

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2.6

MAJOR PLAYERS

Hindustan Lever Ltd.

o Pepsodent 2 in 1
o Pepsodent Gel
o Close up
o Close up Lime fresh (recently launched)
o Pepsodent powder

Colgate-palmolive
o Colgate Gel
o Colgate Total
o Colgate Herbal
o Colgate powder

Procter & Gamble

o Crest

Balsara
o Promise
o Promise Gel
o Miswak
o Babool

Vicco Laboratories
o Vicco vjradanti

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2.7 PORTER'S DIAMOND MODEL- INDIAN

TOOTHPASTE INDUSTRY
Classical theories of international trade propose that comparative advantage resides in the
factor endowments that a country may be fortunate enough to inherit. Factor endowments
include land, natural resources, labor, and the size of the local population.
Porter used a diamond shaped diagram as the basis of a framework to illustrate the
determinants of national advantage. This diamond represents the national playing field that
countries establish for their industries.
The individual points on the diamond and the diamond as a whole affect four ingredients
that lead to a national comparative advantage. These ingredients are:
1. the availability of resources and skills,
2. information that firms use to decide which opportunities to pursue with those
resources and skills,
3. the goals of individuals in companies,
4. The pressure on companies to innovate and invest.
The points of the diamond are described as follows.

2.7.1 FACTOR CONDITIONS

India is one of the fast growing countries in developing nations.

FMCG industry is one of the key industries in India and it is fourth largest
contributor to GDP.

Due to liberalization country had created its own important factors such as skilled
resources and technological base. After liberalization India had got high growth in
skill labor and adopted latest technology.

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After entry of many new entrants and MNCs in the country industry had
experienced tough competition.

Indian toothpaste industry experiences high competition from traditional sources

which rural population are still using like neem twings, coal powder etc.
Porter's Diamond Model

Firm Strategy,
Structure,
and Rivalry

Factor
Conditions

Demand
Conditions

Related and
Supporting
Industries

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Powerful brands like HLL pepsodent, Colgate enjoys high degree of power due to brand
penetration and brand preference.

2.7.2 DEMAND CONDITIONS

The progress of the monsoon in the first month (June 1-26, 2002) has been fairly
good, with area weighted rainfall at 145.7 or seven per cent above normal.

The trend of declining sales is likely to reverse from the next quarter due to a lower
base effect and a significant increase in prices of FMCG products.

Another reason for this is the expectation of improvement in rural demand largely
on account of high realizations of cash crops (oil, rubber, etc). While the sales are
expected to remain sluggish, the sectors profitability is rather resilient, thanks to
pricing power.

Dominance of local unorganized players will decline with level playing field to
technologically and financially stronger MNCs.

Economic growth is likely to accelerate, which will result in more than

proportionate growth in most product categories, as the current penetration levels
are very low.

India is the second largest country in world population wise. UN estimates indicate
that currently Indian population is 1026mn out of which 40 % people are living in
urban one rest are in rural areas. Rural migration to urban areas had changed the
life style of the consumer to very extent.

2.7.3 RELATED AND SUPPORTING INDUSTRIES

The major supporting industry to toothpaste industry as well as FMCG industry is

Agriculture industry. Agriculture growth rate and FMCG growth rate is as given
under

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From above graph we can see that FMCG growth rate is somewhat depends upon
agriculture industry. During the last two years agriculture industry has been declining
due to bad monsoon and less government concentration on the industry.

2.7.4 FIRM STRATEGY, STRUCTURE, AND RIVALRY

Structure of the industry is as mentioned earlier. Two major players of toothpaste

industry HLL and Colgate have more than 60 % market share together, Due to such
high brand penetration and brand awareness they enjoys relatively high power than
other national manufacturers. MNCs have dominated the industry and created high
entry barrier.

The business itself is highly capital intensive and technology intensive. Technology
required is easily accessible but it is costly. This creates high competitor rivalry.

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2.8

PORTERS FIVE-FORCE ANALYSIS OF INDIAN

TOOTHPASTE INDUSTRY:

2.8.1 THE THREAT OF ENTRY:

Economies of scale:

In case of the toothpaste industry economics of scale can be achieved through better
utilization of the capacity and purchasing of the raw material in bulk. In this way per
unit cost of the toothpaste can be reduced. But in Indian context the consumption
pattern of the consumer threaten this opportunity.

Entry Barrier:

For starting the business at national level of global level requires huge investment
better understanding of the consumer demographics. Also too many established players
in this industry make the entry difficult.

Easy access to the distribution channel:

As the FMCG goods are those that consumer buys at least once in month and
toothpaste are of daily use distribution channel plays major role to achieve high. India
has very huge number of retail outlets of both organized and unorganized level, it has
good distribution network and easy access to it. But spread of this network and to cope
this is a difficult task to perform.

Cost advantages:

Economies of scale give the industry cost advantage. New technology as adopted by
the HLL (TPM) can give the industry cost advantage.

Competitors:

May established players give stuff competition to the new entrants as in the case of
Choice toothpaste.

Government action:

Government action is favorable to the toothpaste industry as the government had

reduced the excise duty form 25% in 1991-92 to 16% in 2001-2002.

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Differentiation:

The product differentiation is very low. All the products seem to be homogenous. So
differentiation in the toothpaste industry is low. All the producers have to do some
cosmetic innovation such as packaging, color etc.
To conclude threats to entry in the toothpaste industry is low. But the established
players like HLL, Colgate may give stiff competition.

2.8.2 THE POWER OF BUYERS

As there are large numbers of suppliers of the toothpaste and the market is perfect
competitive, the buyer enjoys high power.

The retail outlets are providing varieties of toothpaste this is another threat to the
toothpaste industry.

The prices of the products of the major players are nearly same, so cost of
switching form one company to other company is very low.

2.8.3 THE POWER OF SUPPLIERS

The power of suppliers is in the case of some powerful brand i.e. HLL, Colgate.

The switching cost is low also for the supplier if they can achieve the same quality
and price from another supplier.

2.8.4 THE THREAT OF SUBSTITUTES

The unorganized players and also the ayurvedic products are the substitute to the
industry.

In Indian context the traditional substitutes such as neem stick, coal powder is
major substitutes of the toothpaste industry.

2.8.5 COMPETITIVE RIVALRY

The competitors rivalry of the toothpaste industry intensifies due to established

players.

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2.9

PEST ANALYSIS OF THE INDIAN TOOTHPASTE

INDUSTRY:

2.9.1 POLITICAL FACTORS

Political factors include government regulations and legal issues and define both formal
and informal rules under which the firm must operate.

Tax policy:
Significant reduction in custom duty rates of the consumer goods has made
imported products cheaper as compared to indigenously manufactured products,
due to irrational domestic tax structure. For instant, goods manufacturing in India
suffered for cascading effects of taxes on inputs as additional cost compared to
imports. The Indian toothpaste industry is well benefited form the Indian
government as the excise duties is reduced form 25% in 1991-92 to 16% in 200102. The excise duties are also reduced gradually on toothpaste industry. But the
cascading effects of sales tax and local levies on inputs used in domestic
manufacture nullify the effects of the tax reduction.

Political stability:
As everybody knows Indian governments instability the toothpaste industry is also
threatens by the new tax policies by new government.

2.9.2 ECONOMIC FACTORS

Economic factors affect the purchasing power of potential customers and the firm's cost of
capital. The following are examples of factors in the macro economy:

Economic growth:
Government expressed confidence in attaining the desired 8.0 per cent growth
annually during the next five years but expressed concern over the worsening of
fiscal situation of states.

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Interest rates:
Interest rates have vast impact on any industry. Currently interest rate in India is
7.75%. Interest rates are continuously reducing form 16% in 1996 to 7.75% in

2002. This reduction in interest rates is positive trigger for the Indian toothpaste
industry.

Inflation rate:
Annual inflation rate has been rose by 0.19 percentage points to 5.41 per cent for
the week ended August 11 as primary and manufactured products became costlier.
The point-to-point inflation rate based on wholesale price index (WPI) for all
commodities (base: 1993-94 = 100), which had risen by 0.29 percentage points to
5.22 per cent in the previous week, rose again even as fuel price remained firm and
the index was 6.31 per cent a year ago.

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2.9.3 SOCIAL FACTORS

Social factors include the demographic and cultural aspects of the external macro
environment. These factors affect customer needs and the size of potential markets. Some
social factors include:

Health consciousness:
The personal care is undoubtedly health consciousness. But the Indian consumer
especially rural consumers are not so much health consciousness. So the local
small-scale manufacture can also meet their demands. The government had
established the standards for the toothpaste manufactures to fulfill. The ingredients
to the toothpaste should meet the government standards. The dentist ratio in India is
1:35000, which shows minor consciousness to oral care.

Population growth rate:

In 1990, Indias population was 835 million. Within a decade it increased to 997
million and by May 2000 it reached one billion. The decennial growth has,
however declined from 2.1% to 1.59% by 2000.

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The rate of decline is still slow although the Government of India is sparing no
efforts to bring the population to a steady level. However, India is a vast country
and being multi-cultural, multi-lingual and multi-religious, any Government policy
to tackle the population problem is difficult to implement effectively.

Life style:
Indian life style has gone to dynamic. Reach of media and television had increased
up to 59%, thus making the consumer more aware about the products available in
the market and competitors product. The migration of the rural people form rural
to urban areas makes them more consciousness about the healthcare. So this is
positive trigger to the Indian toothpaste industry.

Indian consumer consumption pattern:

Indian consumption pattern of toothpaste do not stand advantageous to Indian
toothpaste manufacturers. The reach of the toothpaste is 75% and 20% in urban and
rural areas respectively. Only 15% of the people brush twice a day. Due to these
India has minimal 82 gms per capita consumption of the toothpaste as compared to
320 gms in Europe and 220 gms in Indonesia.+ Most of the villagers are still using
natural substitutes such as neem stick, coal powder etc.

2.9.4 TECHNOLOGICAL FACTORS

Technological factors can lower barriers to entry, reduce minimum efficient production
levels, and influence outsourcing decisions. Some technological factors include:

R&D activity:
The expenditure on R & D efforts are increased continuously by most of the
countries to emphasize on latent demands of the Indian consumer as the Indian
buyers enjoys large power in FMCG sector. R & D efforts are also helps the
industry to cut the cost of the product and to achieve the better quality.

Automation:
The automation in the most of the manufacturing industry has now reached at high
level. The recently adopted Total Productive Maintenance method for

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manufacturing had attracted more manufacturers as the cost of the products is

reduced and reasons of the failure can be known and high quality can be reached.

Industrial growth:
India's industrial production jumped by 5.7% in August 2002 as against 3% in the
same month last year. Industrial output during April-August 2002/03 climbed by
4.9% compared with 2.4% in the corresponding period last year. The manufacturing
sector, the barometer of the health of the economy, grew by 5.9% in August 2002
compared with 3.3% in the same month a year-ago.

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CHAPTER

COMPANY ANALYSIS
3.1

COLGATE-PALMOLIVE INDIA LTD.

Colgate Palmolive (India) Limited is India's leading manufacturer of scientifically proven

products in oral and personal care. From a modest beginning in 1937, today the company
has a turnover of over Rs 1100 crores. In India, Colgate - Palmolive has the widest
distribution network with 2.7 million retail outlets, of which 8 lakh outlets are serviced
directly. Our innovative and effective products have earned us the confidence and trust of
millions of consumers in the country. Our commitment to consistently deliver superior
quality products fuels our vision - To be the innovative leader with our brands, everyday in
every home.
Colgate Palmolive is the Market Leader in Oral Care with its products under the Colgate'
brand. Our wide range of toothpastes include Colgate Total and Sensation whitening in the
premium segment, followed by Colgate Fresh Energy Gel, with Colgate Dental Cream, the
flagship brand, in the mid-price segment. In the year 2000, two new variants were
launched, Colgate Herbal with the goodness of Indian herbs and Colgate Cibaca Top in the
economy segment. Both these have been very well received in the Indian market. Colgate
toothpowder continues to be the market leader in its segment. In Toothbrushes again
Colgate retains pride of place as the market leader. The innovate Navigator toothbrush
launched in 2000, along with Zig Zag Flexible launched recently have helped Colgate
retain the No.1 position.
Colgate Palmolive is also a leading manufacturer of quality personal care products under
the Palmolive' brand. These include our range of quality soaps, Palmolive Naturals in the
popular segment and Palmolive Extra Care in the premium category, and Palmolive
Charmis, a moisturizing Cold Cream. In year 2000, to further strengthen the premium
category, New Transparent Palmolive Naturals soaps were launched, which have been well
appreciated. Colgate Palmolive is the market leader in Shave Creams and has a wide range
of toiletries for men ranging from After Shaves to Shave Foams and Gels including
brushes and rounds. We also have a presence in the Hard Surface Care segment with
Axion, the dish cleanser.

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The company stands for quality products, strongly held values and a world of talented
people. Colgate provides a stimulating work environment that helps each individual realize
their potential and give their very best. We offer an exciting and challenging work
atmosphere by ensuring that training, education, sequence of assignments and performance
evaluation all work in tandem to enhance personal and professional effectiveness. Our
transparent working culture allows you to take the initiative and chart your own progress
path. A career with Colgate ensures early responsibility, involving important projects
where contributions have value and impact allowing for considerable early visibility.

3.1.1 Operations
In the oral care segment, CPIL has a presence in the toothpaste, toothpowder and
toothbrush segments. The company's flagship brand Colgate is well entrenched and has
become generic for the toothpaste category. CPIL's strengths lie in its brands and wide
distribution network. Importantly, the company's brands enjoy high recall in the rural areas
where the penetration of modern dental care products is still relatively low. Thus, CPIL is
well placed to benefit from increase in rural penetration and the resultant increase in the
size of the overall market.
The company was the dominant leader in the toothpaste market and enjoyed a marketshare
of 60 per cent till the entry of HLL. HLL identified new niches and used aggressive
marketing to gain a foothold in the category. Subsequently, CPIL's marketshare declined
from the earlier levels and is currently estimated at around 50 per cent.

3.1.2 Oral Care Products

Oral care portfolio consists of following products
Product

Segment

Colgate Sensational Whitening

Premium

Colgate Total

Premium

Colgate Fresh Energy Gel

Gel segment

Colgate Super Shakti Calcium

Popular segment

Colgate Herbal

Popular segment

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Colgate Cibaca Top

Economy segment

Colgate tooth powder

Economy segment

3.1.3 Toothpaste blockbuster brands

Brand

Market share (%)

Colgate dental cream

39.1

Colgate gel

5.2

Cibaca

4.1

Colgate Herbal

2.2
Source: Colgate India
Percentage market share in Jan '01

CPIL was able to arrest the decline in its market share on the basis of a two pronged
strategy. (The company claims to have a market share of around 52 percent in the
toothpaste market and around 46.3 percent in the toothpowder market. Besides, it remains
a market leader in the toothbrush market with a 45 percent market share, post Cibaca
takeover.)
Colgate's market shares: A turnaround in the offing

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First, it introduced an entire range of toothpaste to match HLL's segmentation. Thus

Colgate Dental Cream was repositioned as Colgate Supershakti and seems to be doing
quite well. Next came the Gel variant followed by Colgate Total, Colgate Sensation
Whitening and Colgate Strips.
Secondly, it refocused on strengthening its distribution network. So far, the Colgate
toothpaste reaches 20,000 villages and the company plans a foray into 140,000 villages
within next five year's.
Even in the past Colgate, has come back after being written off, whether in the USA (vs. P
& G) and in Thailand (vs. Unilever) following the same strategies of product segmentation,
aggressive marketing and focus on distribution.
During the first three-quarters also the performance seems to be on similar lines. While the
first quarter topline saw a 22 percent jump in the topline, this was primarily due to new
product launches and re-launching of Colgate Dental Cream and pushing these products
through the distribution pipeline. What was encouraging however, was the increase in
operating margins by 1.5 percent over the first half of the last year despite high decibel
advertising. During this period, the company regained market share of around 3 percent.
(The margins had dropped from 22 percent in FY 93 to 8.40 percent in FY99 primarily due
to the increase in advertising expenditure as a percentage of sales from 8.5 percent in FY
96 to 20 percent in FY 99.)
During the first nine months the company has reported a jump in the pre-tax profit by
almost 34 percent over the corresponding period of the last year, a sign of much improved
operational performance. The company has beefed up its management bringing in Mr.
Derrick Samuel as managing Director (In the past Mr. Samuel headed Colgate's operations
in the South Pacific and has a record of engineering volume growth and building strong
trade partnerships) and Mr. Vikram Kaushik (who headed Britannia's bakery operations
and achieved commendable results). CPIL remains a zero debt company and will continue
to report a return on capital exceeding 20% in the current year too. The fightback has
begun and one can hope for a sparkling performance in the coming year, tough competition
from HLL notwithstanding

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3.2

PROCTER AND GAMBLE

3.2.1 INTRODUCTION:
Procter & Gamble (P&G) originated, in 1837, as a partnership between William Procter
and James Gamble. The company originated as a soap and candle manufacturer. 153 years
later, Procter and Gamble has matured into a giant corporation, marketing approximately
300 brands to nearly 5 billion consumers worldwide, with sales totaling around $39 billion
annually. P&G produces non-durable consumer goods, particularly in the areas of cleaning
and hygiene. Other subsidiaries include the Iams Corporation, maker of premium-priced
pet food, and Procter & Gamble Pharmaceuticals, specializing in the areas of cardiac,
respiratory, and anti-inflammatory agents, as well as toothpaste. P&G is also the owner of
two soap operas: Guiding Light and As the World Turns.
P&Gs market is mature, with only small year-to-year growths in sales. These sales are
often consumer-driven; so efficient marketing is an absolute necessity. However, an
element of luck also is involved, particularly when determining consumer needs and future
trends. The non-durable consumer goods market is diverse, but in general is headed by a
few large multi-national corporations, such as Johnson & Johnson, Unilever, ColgatePalmolive, and Kimberly-Clark. Competition to determine the consumers preferred
product can be fierce, requiring large resources, and the ability to finance marketing
campaigns. Thus, entry into this market is difficult for any but the largest of companies.
(See Figure 1 for historical net sales for P&G and its competitors.) P&G is larger in scope
than most of its competitors across its market, which could be a blessing (from crossproduct marketing) or a curse (P&G might be too big a company to effectively manage).

3.2.2 MISSION STATEMENT

Crest is a highly respected brand name in the oral care industry. We at Crest are a premier
global provider of high quality oral hygiene products.

3.2.3. VALUES STATEMENT:

Crest has a continuing commitment to the Dental Community to create products that
benefit the well being of our global consumers and the world they live in. It is our
responsibility to our shareholders to be profitable and stimulate the highest possible return

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for our shares. Our policies regulating employee behavior ensure that our employees
receive the utmost treatment and respect. We believe that doing what is right for the
business with integrity will lead to mutual success for the company and all individuals
involved.

3.2.4 VISION STATEMENT:

Crest aspires to become the worldwide leader in high quality oral care products that not
only benefits the consumer but the community and environment around them. By being
leaders in innovative products that aid in the well being of our consumers and adhere to
highest environmental regulations and participating in events that foster dental education,
we will continue taking steps towards accomplishing this vision.

3.2.5. CORPORATE OBJECTIVES:

Increase the sales of toothpaste worldwide by 40% by the year 2005.

Develop and launch new advertising campaigns 30% by the year 2004.

3.2.6 ENVIRONMENTAL ANALYSIS:

Procter and Gambles (P&G) research and development (R&D) budget, consisting of 4%
of sales income, is not only employed for the development of new products, but also for
improving existing products and researching methods of environmental efficiency and
protection. The companys research budget amounts to about $2 billion annually. This
commitment to innovation wins the company about 3000 new patents every year. In doing
so, the company employs more Ph.D. scientists than Harvard, Stanford, and MIT
combined. In its company web page, P&G notes that it plans to meet and exceed the
requirements of all environmental laws and regulations and in addition to continually
assess...environmental technology and programs and monitor progress toward
environmental goals. This premise is beneficial to the company, as by employing more
environmentally-friendly strategies, the company is not only following regulations and
preserving the environment, but it is also saving some costs.
Procter and Gambles Environmental Sciences Department uses a multidisciplinary
approach in problem solving. Scientists from backgrounds as diverse as atmospheric

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sciences to engineering work together to find solutions to environmental problems. Procter

and Gamble has focused its resources on research in the following categories, some of
which are summarized in Table 1 and below:

Minimizing transport of waste by river systems.

Reducing company-generated waste.
Reducing packaging of products.
Reducing energy and water consumption.
Using raw material from recycled sources.
Lowering contribution to the greenhouse effect.

Table 1: Manufacturing and Waste Cost Summary (Source:

2000 Sustainability Report)

1 Units are in thousands of metric tons

1.1

PRODUCTION

Packaged Products shipped

Raw Materials From Recycled Sources
Packaging Used
Packaging Used From Recycled
Sources

1.1.1

WASTE

1.1.2

Generated Waste

1.1.3

% Recycled / Reused Waste

1.1.4

DISPOSED WASTE

1.1.5
1.1.6

Solid Waste (NonHazardous)

Solid Waste (Hazardous)

1.1.7

Effluents (Excluding Water)

1.1.8

Air Emissions

1999/2000
15,229
476
1,293
444

1998/1999
14,644
380
1,375
490

1997/1998

879
55%

863
56%

893

317

271

324

12
39
19

27
31
20

12

14,436
400
1,367
455

53%

37
20

The company is active in reducing the uncertainty of ecological risk. For example, in the
1960s it was first realized that detergents could have an impact on water and wastewater
treatment plants. Since then, the company has focused its attention on the ingredients used
in its products. They have been one of the first companies to determine methods for
measuring biodegradability rate through the development of the Sturm test. For example,
according to Dr. Anna Palmisano, former P&G environmental scientist, numerous

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degradability tests were conducted on the Tide brand showing that the detergent is fully
degradable in fresh water and slowly degradable in salty water. Furthermore, to expand its
commitment to the environment, in 1984, the company built an experimental stream
facility (ESF), one of the only such facilities in the world, to model the transport of
pollutants and their effect on the ecosystem. As an applicable example, a recent study at
P&Gs stream facility assessed the rates and methods by which alkyl sulfates, found in
shampoos and detergents, break down with the help of enzymes produced by
microorganisms found in the environment. As a result of studies, such as the two
mentioned above, all Procter and Gamble soaps, detergents, and shampoo products have
been determined safe for disposal in the septic system. However, Procter and Gamble
continuously accesses the ecological risks, if any, implemented by its products.
Another arena in which the company has focused its attention on is materials ecoefficiency, or minimizing waste by using recycled products, decreasing the amount of
packaging used in products, and using concentrated formulas. Since 1989 they have been
able to reduce their packaging needs by 25%. A notable example is replacing the cardboard
boxes of Pampers diapers with polyethylene packaging in Western Europe. According to
the company, this innovation is not only more favorable to consumers and retailers, due to
the ease in handling and opening of the package, but it is also saving 14,000 metric tons of
cardboard each year and reducing the weight of diaper shipping packages by 90%. This
change has not only reduced cardboard waste but it has also increased the amount of
diapers that can be transported at one time, thereby decreasing transportation costs and trip
frequency. The company claims through research to have reduced diaper thickness without
compromising quality. Of course, prior to embracing the less packaging approach, life
cycle inventories were conducted to compare the environmental profiles of both packaging
methods. Therefore, by employing a new method of packaging, the company is improving
on an old, yet popular product, responding to consumer and environmental needs, and at
the same time reducing its own costs.
Procter and Gamble uses recycled products in its packaging as much as possible, this
includes plastic as well as paper products. Most recently, on November 15, 2000, P&G
donated its paper recycling technology, including rights to future income, to the North
Carolina State University. This process, which already has about 79 worldwide patents,
sorts paper fibers according to length, coarseness, and stiffness through a sequential
centrifuging and screening process. This method helps eliminate the quality degradation
of paper over time; therefore, it can be recycled several times. The companys goal in this
donation was not only educational, but as Gil Cloyed, P&Gs CTO, notes, each year the
company produces many more innovations that they can possibly develop (P&G Press,

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Nov. 15, 2000). Therefore, Procter and Gamble passed the technology on to those who
could improve it and make it commercially feasible.
Energy eco-efficiency and reducing the generation of greenhouse gases, such as carbon
dioxide, are yet other issues that P&G researches. The companys environmental efforts in
these cases also save it some costs. For example, before investing in heating or cooling
systems, P&G first analyzes the costs of insulating the whole building instead. Although
the result may result in huge cost upfront, in the end, the company will be able to save
utility costs through this research. According to P&Gs 2000 sustainability report, since
1985, company energy use has been nine times more efficient. Furthermore, by switching
to cleaner fossil fuels and installing scrubbers, they have been able to not only reduce
carbon dioxide emissions, but also increase production efficiency per ton of carbon dioxide
(three and a half times more since 1990).
Procter and Gamble had once been targeted by animal rights groups for its product testing
on animals. One action group, Defense of Animals, even set a Global Day of Action
against Procter and Gamble. In a forward-looking move, P&G announced on June 30,
1999, in response to these protests, that it would no longer test on animals (P&G Press).
P&G no longer performs animal testing for its fabric care, home, or beauty products in any
of the countries where the company operates, except when required by law.

3.2.7. TOTAL QUALITY ENVIRONMENTAL MANAGEMENT

Procter and Gamble is one of the 28 companies belonging to the Global Environmental
Management Initiative (GEMI). As Marc Epstein notes, the goal of these companies is to
implement total quality environmental management (TQEM), a current trend in
management practice. W. Edwards Deming, a statistician, developed this management
practice during World War II. However, Abt Associates, a Boston consulting firm, modified
it. TQEM is based on a Plan Do Check Act (PDCA) cycle. Procter and Gamble adopted
this cycle in the mid-1980s. A summary of this cycle follows.

The Plan Stage:

Involves assessment of each process (whether handling, equipment change, etc.) to
be assessed by environmental experts.

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The Do Stage:
Includes regular measurement of waste (in all forms), training of personnel in
good environmental practices, and emergency drills.

The Check Stage:

Statistics are used to monitor environmental performance and internal audits are
conducted annually.

The Act Stage:

Policies and standards are implemented worldwide and experience and information
is shared. In addition, each plant has an environmental program leader responsible
for managing improvement.

3.2.8 Legal Incentives on Complying with Environmental Regulations

The fear of criminal liability and regulations is a strong factor in encouraging
environmental efficiency. For example, as Professor Marc Epstein notes, with fines
reaching $25,000 per violation, per day, companies have strong incentive to avoid such
fines, which will tarnish their image as well. Furthermore, officers, directors, and even
employees of the company could now be prosecuted for not following environmental
regulations (Ibid). Therefore, at such high stakes, corporations are almost forced to comply
with environmental protection. Procter and Gamble has been successful in complying with
regulations and has reduced its environmental violations considerably. According to data
from the companys sustainability report, since 1997, the company has reduced the amount
it was fined by 18% ($73,100 in 1997/8 compared to $13,400 in 1999/2000).

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3.2.9 PORTERS INDUSTRY FORCES

1. Internal Industry Competition:
SAlthough a few large corporations, such as Unilever and Johnson and
Johnson, dominate the industry, industry competition is high. Moreover,
competition can lie in one or several product lines that each company produces.
2. The bargaining power of suppliers:
As a large producer of consumer goods, Procter and Gamble is able to choose
from many suppliers. With the environmental movement, the company has
focused its attention on suppliers who comply the most with environmental
regulations, monitoring their activities.
3. The power of buyers:
The bargaining power of buyers has increased over the years. P&G has spent
years cultivating relationships with Wal-Mart and other large chains, creating
special marketing teams to work closely with the retailers to promote P&G
brands. However, a single policy may not be suitable for all P&G buyers. When
P&G adopted an everyday low price strategy, it developed it in conjunction
with Wal-Mart and pushed other retailers, such as Frances Carrefour, to adhere
to the same pricing policy.
4. The power of substitutes:
Substitutes threaten the market as similar consumer products with better
reformulations or more features could easily displace current product lines if
change is low. For example, the addition of more tartar control measures pushed
sales of Colgate toothpaste past Crest in the market.
5. New entrants: Entrance into the non-durable consumer product market and the
pharmaceutical industry requires large capital for R&D and advertisement.
Therefore, entrance into the market could be very difficult.

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3.2.10

SWOT ANALYSIS

SWOT analysis of Procter & Gamble reveals a company with plenty of resources but also
a significant number of possible weaknesses in its corporate strategy.
1) STRENGTHS:
P&Gs strengths in product lines have been enough to make the company a formidable
competitor in the consumer goods market. Its development of new consumer categories has
propelled it to the number one position in many consumer product categories. P&G also
has developed strong, proven market techniques with which to sell its products, and its
total sales in 1999 amounted to $37 billion. In addition, P&G has put millions into research
and development of new products, as well as pre-market tests of its consumer goods for
both efficacy and usefulness to consumers.
Moreover, Procter and Gambles
environmental policy is successful, as they have created a much more sustainable business
than their competitors.
The key strength for Procter and Gamble Co. currently is that of product innovation.
Currently the company has the experience and the resources to exploit this opportunity.
Procter and Gamble Co. are seen as an industry innovator and leader. However, we are not
using our capabilities to the fullest. We are not introducing our products quickly enough
out onto the market. Through this aspect, we are not able to introduce our products to our
consumers before our competition even though we have the ability and the resources which
we need.
Procter and Gamble Co. do have the experience and the resources to exploit its key
opportunity. It is a company that is among the top ten patent-producing companies in the
world. It holds more than 27,000 patents and it applies for about 3,000 more every year.
Not only has this company been in the industry for a long time, it also heavily invests in its
research department.

2) WEAKNESSES:
P&Gs weaknesses are numerous, and best represented in the rise and fall of its previous
CEO, Durk Jager. Jager, promoted to CEO after spending 30 years with the company,
exemplifies P&Gs insistence on promoting managers from its own staff, and refusing to
seek outside management consultants. Jager, however, was considered a risk taker,
attempting to create a new business for the 21 st century, unlike his consensus-oriented

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predecessor, John Pepper. Investors originally welcomed Jager as a sign that P&G would
continue to adapt its company to new markets.
For years P&G had outlined exacting methods for advertising, management requests, and
product research, resulting in an informal nickname for the tightly controlled people under
this system: Proctoids. Jager instituted Organization 2005, an 8-year project to
streamline P&Gs endless bureaucracy and free the company from its time-tested
development and marketing procedures. Jager also focused on the Internet as a possible
vehicle for future growth, providing helpful consumer information on the P&G web page,
as well as helping to create a company-wide intranet (P&G was one of the first companies
to do so). In the end, however, Jagers brash style (earning him the nickname Crazy Man
Durk) and overly optimistic projections of future growth caused P&Gs corporate board
to remove him and refuse to give him a senior position on the board, the first time they had
ever done this. Instead, the board of directors promoted A.G. Lafley to the CEO position
(after he had spent 21 years working with P&G), and brought back John Pepper as
chairman of the board. Lafley at once said that P&G would instead focus on its core
businesses, which are not in our opinion the organizations main problem.
P&Gs greatest weakness is that the company is too large to be innovative, and its
bureaucracy is highly resistant to any change in the way P&G does business, from product
development to marketing. This means that a company with billions in revenues, and a
budget of 4% of sales in research and development yearly, has done next to nothing to
change the company or create new product categories that would truly attract consumers,
as their other products have in the past. P&G refuses to take a chance that one of its
products could fail, and as a result only comes out with minor new additions to its old
products, such as Tartar Control Crest. In general, it takes P&G up to 5 years to bring a
product to market; this can be as much as twice the time needed for its major competitors,
who are no small companies themselves. Because of this slow R&D development, P&Gs
dominant position in several consumer categories has been slipping over time. In addition,
P&Gs employees are stifled from making the kinds of innovations that could sustain
P&Gs product growth. Former employees of P&G who left because of the stifling
bureaucracy include Steve Case of Apple, Bob Herbold of Microsoft, and Scott Cook of
Intuit each of them innovators in the technology industry
In their own right.
The key threat for Procter and Gamble Co. is the exposure to market risk. Procter and
Gamble is in a very price competitive industry and in order to survive they must keep this
in mind. Historically, Procter and Gamble Co. was unwilling to lower its prices and unable
to prove itself as an innovator. Therefore, it has lost around 10% of its market share over

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the past five years. In addition, about three years ago, Colgate-Palmolive, our main
competitor, took over as the leader in the toothpaste market.
The great exposure to market risk can cause Procter and Gamble Co. to further lose
market share. Even though Procter and Gamble Co. holds about 27% of the toothpaste
market, their position is not as good as Colgate-Palmolives whopping 36%. If the
competitions begin to quickly introduce and better market their products, Procter and
Gamble will incur further loss of market share.
In order to deal with this threat, would have to make sure that we keep our current market
share, if not increase it. We will accomplish this by narrowing our focus on the oral care
section of the Corporation. We will have to spend more time and effort in our marketing
department. We also need to be sure that we keep on top of new emerging trends in the
oral care market.

3) OPPORTUNITIES:
P&Gs greatest opportunities lie more in the companys market share and large
budget, than its investments in innovation. Total market demand for consumer products is
unlikely to decrease much, if any, over the next few years, particularly with increasing
international demand. P&G also has a significant yearly investment in research and
development, which could pay off more if the company focused on bringing products to
market faster. The sheer number of brands that P&G controls suggests that divestitures
might be one of the best options for P&G, possibly to the point of breaking up the
company, like AT&T has done recently. Already, P&G, in its attempt to focus on its core
businesses, has sold off such well-known consumer products as the acne-fighter Clearasil
and its shortening and cooking oil businesses. P&G might also see new opportunities in
selling its consumer products internationally, particularly to developing countries.
While its R&D investments could potentially produce more attractive innovations
in its consumer products, P&Gs bureaucratic methods have stifled this opportunity.

4) THREATS:
In essence, P&Gs greatest threat is itself. The company has sustained itself for many years
simply from sheer momentum: its brands led consumer categories from toothpaste to
laundry detergent to pharmaceutical products. Complacency has led P&G to renounce
changes that could allow it to produce innovations faster, resulting in the loss of leadership
over many of the consumer categories that it developed. Its recent changes in leadership,
particularly the sacking of Jager as its CEO, may prove to hurt rather than help its

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prospects over the long run. Its competitors, such as Johnson & Johnson and Unilever, are
not much more nimble than P&G; instead, they have focused on particular consumer
categories and are able to develop a company-wide dominance in these categories. For
example, Johnson & Johnson is known primarily for products in the bathroom and
medicine cabinet, from shampoos to toothpaste to pain relievers. Because P&G has had
trouble creating new consumer demands, as it did for Tide in the 1960s, its future growth
prospects are small and investment in the company is unattractive. Its unrealistic growth
projections, which have suggested up to 12% gain yearly, have not helped investor trust.

3.2.11 SYNERGY BETWEEN CORPORATE AND ENVIRONMENTAL

STRATEGY:
Incorporating environmental strategies, such as those employed by Procter and Gamble,
are not only methods of increasing efficiency and reducing costs, but as Michael Porter
points out, corporate environmental strategy is now a competitive factor in industry if it
encourages innovation. Porter views pollution as economic inefficiency, as waste costs
both the consumer, for discarding usable material, and the producer, because of resource
inefficiency. He encourages reusing, increasing process yields, and better utilization of
byproducts. By employing efficiency in production, Porter believes that costs, such as
waste handling, transportation and disposal could be reduced, and in some cases eliminated
(Ibid).
With the increase in environmental awareness, companies are encouraged to respond, not
only to follow regulations, but also to remain competitive. Procter and Gamble is certainly
not an exception. In effect, Procter and Gambles environmental policy closely mimics
their desire to avoid conflict where possible. Their non-confrontational nature is evident in
their removal of their former brash CEO, and discontinuing animal testing shortly after
animal rights groups began protesting.
According to a technical report by the United Nations Environmental Programme, Procter
and Gamble was among the first 100 companies to publish a corporate environmental
report, starting in 1993. Procter and Gambles environmental sustainability policy focuses
on economic progress, social development, and environmental concerns, with the
objective of ensuring a quality of life for future generations at least as well as todays.
P&G has been able to capitalize on its environmental measures. For example, P&Gs
Witzenhausen Tissue and Towel plant, with the cooperation of all employees, was able to
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get a separated clean waste stream which could in turn be recycled by other companies.
This measure resulted in a $200,000 saving for P&G in 1999/2000. Moreover, through
partnerships with other companies, its Belleville, Ontario plant has been able to implement
a scrap recycling program, saving the company $944,492 annually and increasing plant
revenues by $114,468.
As a large corporation, Procter and Gamble has the power to choose from many suppliers
and contractors. Therefore, it ensures that its employees, contractors, and suppliers meet or
exceed all local and national environmental laws by conducting annual audits. The
company does not remain with suppliers persistently out of compliance. In addition, paper
products at P&G are produced from pulp derived from sustainable managed forests. It does
not use wood from old growth forests or rainforests. These policies are not only
environmental-friendly, but also attractive to consumers. A large number of Procter and
Gambles products, such as Oil of Olay cleansing products and Cover Girl cosmetics, are
marketed toward the younger generation, whose culture incorporates a strong awareness of
the environment.
As Michael Porter notes, competitive advantage and increased innovation are among the
strengths of environmentalism as a corporate strategy. For example, by changing such
aspects as the packaging of an old product, the company is not only operating more
efficiently, but also using environmental products as a marketing tool: a new look can
enhance consumer interest in an old product. Among innovative products sparked by
environmentalism are the Pur water filtration system, and Fit, a fruit and vegetable rinse.

3.2.12

THE OPTIONS FOR PROCTER AND GAMBLE:

Procter and Gambles corporate options are many, particularly given its wide scope in
consumer products and high cash flow. Options include:

Maintaining the current strategy, attempting to retain value in its current product
lines by introducing incremental innovations to its products, such as tooth
whitening for Crest, and increasing advertising. By itself, this is a purely defensive
strategy for retaining market share for as long as possible. However, the problem
with P&Gs current stance is that it does not position the company to be able to
create bold new consumer product lines. Much of the last 30 years has been spent
defending its old product lines, and as a result P&G has been slowly losing market
share to its competitors.

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Reduce research and development costs. This might go hand in hand with the
current defensive strategy. However, it is worth noting that the 5-year delay in
getting products to market means that the millions P&G spends on R&D each year
are going to waste. In addition, all that money has not produced a blockbuster new
product for P&G in years. Of course, without all the research and development of
new products, P&G might doom itself to continuously dwindling market share for
its product lines. However, cutting costs here might not be a bad idea in an attempt
to boost sagging profit margins.

Hiring outside management consultants or outside executives. P&G has been

insistent on using its own people to analyze its problems, and in fact its CEOs have
consistently been people who have worked for P&G for decades. Even Durk Jager
had been a P&G employee for most of his life. Hiring any outsiders, for CEO or
management consulting, might be a great benefit in bringing other companies
solutions for problems to P&G. However, a small difficulty with this is that it
breaks a long-held P&G tenet that if one takes a job with the company, one will
have job security and promotion within P&G. This job security is somewhat
outdated in the fast-paced Internet economy, but also is one of P&Gs main selling
points to possible future employees.

Streamlining bureaucracy. This was the pet project of Durk Jager, who spent
millions of dollars restructuring P&G, making it more innovative. This should be
P&Gs main goal, particularly given its poor return on its R&D investments. The
P&G bureaucracy has stifled innovation, enforced uniformity, resisted change, and
also helped to turn off employees who truly could have helped the company
innovate. This is a recipe for self-destruction. The unfortunate problem is that the
bureaucracy will fight back against any major changes to its structure. While Jager
was ostensibly removed because he could not meet growth projections, it is more
likely that his take-charge style offended many of the entrenched P&G managers.
Any similar attempt to streamline the company further may meet the same fate.

Increase web sales and information; use the Internet as an added benefit to
consumers. This was another one of Durk Jagers pet projects, attempting to
reorient one of the benchmarks of the old economy toward using Internet
technology to benefit itself (though corporate intranets) and consumers (through
information). It might also help to market products and services in the growing
business-to-business Internet market. To some extent, Jagers strategies have helped
the company, though as we found out, P&Gs web site can be rather confusing.

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However, P&G cannot make the transition to a fully Internet-oriented company,

because direct sales through the Internet are likely to anger P&Gs current product
distribution methods, particularly from sales to supermarkets.

Increase consumer focus on environmental marketing. Because P&Gs attention to

environmental issues in its products and packaging is so great, one of the great
curiosities is why P&G does not stress this more in its advertising. At the very least,
such environmentally-oriented ads would give P&G a better corporate image in the
public eye given its current growth troubles, this might be useful. Stressing green
marketing might help differentiate its products in a time when they are getting
overtaken by other corporate brands. It is also unlikely that there would be much if
any drawback to doing this: making consumers more environmentally-conscious
when buying products and pushing itself as an environmentally friendly company
can only help its sales growth.

Focus more on international markets. P&G does sell significant numbers of its
products outside the United States, and so far it has run into problems from other
foreign competitors, most particularly Unilever. International markets show much
more of a potential for growth than the U.S. market, so this might be one relatively
easy way to get P&Gs sales growing again. Investing internationally does have its
drawbacks, though, particularly when foreign economies may be more fragile than
the U.S. Currency shifts already have hurt P&G sales, particularly in Asia, and
focusing more in the international arena could leave P&G exposed to this sort of
global economic turmoil.

Selling off parts of the company that arent core product lines. This is to some
extent a defensive strategy, but it allows P&G to focus more on developing new
products, rather than taking care of product lines that it created but is no longer
sustaining in any significant fashion. Already, P&G has sold off its Clearasil and
cooking oil products to smaller companies. The difficulties here lie in determining
which products are central to P&Gs long-term strategy. P&G has so many different
product lines that it may find it difficult to focus simply on one set of products
without sacrificing well-known brands to other companies. Clearasil, a well-known
acne and skin care line, is a good example of this. In particular, without a thorough
reorganization of the company, divestitures might be piecemeal at best.

Breaking up or drastically reorganizing the company. This might be the best way
for P&G to ensure its long-term growth. In addition to freeing up its research and
development from its bureaucracy, this also could signal investors that P&G is

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serious about truly remaining the preeminent consumer goods company. This may
be much more of a long-term goal, which could cause short-term problems for
investors. Such a breakup could also cause quite a bit of short-term chaos, which
might lead some to believe that it is ineffective to enact such a breakup

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3.3

HINDUSTAN LEVER LIMITED

3.3.1 INTRODUCTION
Hindustan Lever (HLL), a 51% subsidiary of Unilever, is Indias largest FMCG company
with sales of Rs 110 bn (2001). It forms around 5.5% of Unilevers global turnover and a
sizeable 32% of Unilevers Asia Pacific business. The companys topline has registered at
a CAGR of 20% in the last 10 years. Its profits have logged in CAGR of 36% over the
same period.
However, in the last few years, HLLs topline growth has shown signs of tiring. In the last
4 years, HLL has recorded a topline CAGR of 5%, which is largely due to the sluggishness
prevailing in the economy. Soaps and detergents contribute nearly 48% of HLLs topline.
This segment is one of the worst affected during the slowdown.
Globally, Unilever is changing the way it does business. The Group is no longer interested
in having a large number of brands and product offerings in the FMCG spectrum. Instead,
it is looking at scaling down and concentrating on those businesses that contribute
substantially to its bottomline. It has exited adhesives and specialty chemicals business in
the last few years. It is looking at margin expansion in all its businesses.
HLL is following the parents strategy of refocusing its efforts on its core business and
brands. It has initiated measures to prune the number of brands from 110 down to 40. HLL
found that only these 40 brands contributed around 90% to the turnover and over 110% to
its bottomline. Apart from this, the company is exiting businesses to lend focus to its
business plan. In the last couple of years, HLL has exited the businesses of animal feeds,
speciality chemicals and seeds. Leather and marine export businesses are next in line. The
hiving off of businesses will bring in extraordinary income for the company going forward.
In 2001, HLL has earned Rs 1.6 bn through sale of non-core businesses. These efforts have
resulted in margin expansion for the company. Its operating margins have improved from
10.7% in 1998 to 15.6% in 2001. Though this trend is well poised to continue in future too,
the margin expansion going forward is likely to slow down.

3.3.2 Corporate Purpose

Our purpose in Unilever is to meet the everyday needs of people everywhere to
anticipate the aspirations of our consumers and customers and to respond creatively and
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competitively with branded products and services which raise the quality of life. Our deep
roots in local cultures and markets around the world are our unparalleled inheritance and
the foundation for our future growth. We will bring our wealth of knowledge and
international expertise to the service of local customers - a truly multi-local multinational.
Our long term success requires a total commitment to exceptional standards of
performance and productivity, to working together effectively and to a willingness to
embrace new ideas and learn continuously. We believe that to succeed requires the highest
standards of corporate behaviour towards our employees, consumers and the societies and
world in which we live. This is Unilevers road to sustainable, profitable growth for our
business and long term value creation for our shareholders and employees.

3.3.3 Fast Facts

Indias largest fast moving consumer goods company
30 Power Brands
Leadership in home and personal care, foods and beverages
About 40,000 employees (including group companies)
Golden Super-Star Trading House; Net foreign exchange earner
Business Structure

3.3.4 History
1888
1918
1931

Sunlight introduced in India

Vanaspati launched through imports
Unilever registers company in India Hindustan Vanaspati Manufacturing
Company

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1933
1935
1956
1958
1979
1993
1994
1995
1996

Lever Brothers India Limited incorporated to manufacture soaps

United Traders Limited incorporated in India to market personal products
HVM, LBIL, UTL merge toform HLL
HLRC starts functioning
Chemicals complex commissioned in Haldia
TOMCO merges with HLL
JV, Kimberley-Clark Leverformed
Lakme Lever formed
HLL and BBLIL merge

3.3.5 Milestones
1998
2000
2001
2002
2003
2003

Ponds India Ltd merges with HLL HLL acquires Lakme

HLL acquires Modern Foods
Project Shakti, HLLs partnership with rural Self Help Groups Launch of
HLLs e-tailing service- Sangam, Max confectioneries launched
Lever Ayush launched
HLL Pepsi distribution alliance
Launch of Hindustan Lever Network

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3.3.6 Categories & brands

Soaps Detergents Household Care Oral Care Skin Care Hair Care Deodorants Colours Beverages Foods Cooking Oils Ice Creams Healthcare Confectioneries -

Lifebuoy, Lux, Liril, Breeze, Hamam

Wheel, Rin, Surf
Vim, Domex
Close-up, Pepsodent
Fair & Lovely, Lakme, Ponds, Vaseline, Pears
Sunsilk, Clinic, Nihar
Axe, Rexona, Denim, Ponds
Lakme, Elle 18
Taj Mahal, Lipton Yellow Label, Lipton Ice Tea, 3
Roses,Red Label, Taaza, A1, Bru, Green Label
Knorr Annapurna, Kissan
Dalda
Kwality Walls
Lever Ayush
Max

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Network Marketing -

Hindustan Lever Network

3.3.7 Changing Face of the Indian Consumer

More aware and selective
Has faster changing needs and habits
Increased ability to spend on a wide range of products
Availability and willingness to use credit
Quality conscious
Rural consumers are specially price sensitive

3.3.8 Distribution Network

In the he Indian Marketplace
Urban
Cities / Towns 3700 Outlets 1.5 million
Rural
Villages 627000 Outlets 3.3 million

3.3.9 The Reach

7500 redistribution stockists
Direct coverage of 1.5 million (urban) of Indias 4.8 million retailers
Urban
Rural

3.3.10

Cities / Towns
Outlets
Villages
Outlets

3700
1.5 million
627000
3.3 million

Oral care category:

Hindustan Lever Limiteds (HLL) Oral Care category grew by 6% in 2001. The growth
was significantly stronger at 18% in the December quarter.
Resources are now focussed entirely on Pepsodent and Close Up. This focus helped
reverse the declining trend witnessed in 2000.

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Market share of Pepsodent and Close Up toothpastes together is now 36.3%. It is an

increase of 1.3% between the March quarter and December quarter. Market share in urban
areas has increased by a higher 3.1%. This was achieved inspite of intense competition.
HLL relaunched Pepsodent in 2001, with a return to its core equity of extended protection
from germs. The relaunch has resulted in a 2.3% increase in market share. Pepsodent 2-in1 also went through a highly effective relaunch. Region-specific pack sizes were
introduced, depending upon consumer purchase behaviour.
A new communication package supported the growth of Close Up. Two innovative
products, Close Up Whitening Toothpaste and Close Up Whitening Toothbrush, have been
launched. These have received good response.
The category is now fully geared to consolidate the gains. Brand focus has opened up the
categorys outlook to growth opportunities in response to very low toothpaste consumption
and penetration.

3.3.11

Supply chain A new Initiative

Hindustan Levers complex supply chain is taking a leap, leveraging next generation
information technology and new business processes.
Launched in 2001, Project Leap is an end-to-end supply chain initiative. This represents
one of the largest B2B e-commerce initiatives ever undertaken in India and will reach
towns where even local Internet infrastructure has not reached.
It begins with the supplier, runs through the factories and depots, and reaches up to the
redistribution stockists (RSs). The objective is to catalyse HLLs growth by ensuring that
the right product is available at the right place in right quantities, on a continuous
replenishment basis. Leap also aims to reduce inventories and improve efficiencies right
through the extended supply chain.
RSNet is the front-end initiative of Leap, connecting stockists through an Internet-based
system. It provides linkages with the RSs transaction systems, enables monitoring of
stocks and secondary sales, and optimises RS orders and inventories. It has already been
extended to more than 1000 Home & Personal Care stockists in 100 cities and towns,
accounting for nearly half the turnover of the HPC business.

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Information on secondary sales from Gandhidham to Guwahati is now available on the

RSNet every day. By mid-2002, more than 70% of HLLs turnover will be on the Internet.
Backing this up is the Internal Network Planner and Optimiser. It handles the complex task
of managing the planning, production and distribution requirements on an integrated basis.
Already implemented in a part of the HPC business, it will handle the complex task of
deciding which pack must be produced where, and where should it be despatched to
effectively meet the orders generated on RSNet.
This new model will help ascertain the daily stock positions at each point in the supply
chain, projected stock requirements at these points, and plan for its replenishment with
complete transparency right across the supply chain. The frequency of production planning
is being compressed, with a capability to plan on a daily and even a shift level on a
nationally optimised basis.
Production planning being synchronised with the movement of stocks for each pack at
every depot, production plans will closely match changes in market offtake. A built-in
network optimiser will generate the most optimised production plan based on total supply
chain cost. The distribution optimiser directs the outward flow of goods from the
factories to the depots on a daily optimised basis.
The last leg of Project Leap is Supplier Net, which links the suppliers into the chain.
Suppliers get visibility, in a seamless manner, into the inventory levels of raw materials/
packaging materials at the factories and the projected requirements. They will also have
full online access to scheduled orders, receipts of supplies sent, quality control status at the
factories and payments cleared.
Project Leap in its entirety is being extended to all the businesses in 2002.
The integrated supply chain aims at minimising cost while improving customer service. A
key enabler of cost reduction is in optimising the total supply chain cost instead of
individual links of the chain.

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3.3.13

The Contemporary Distribution Network

3.3.14

Manufacturing Locations

World-Class Facilities
100 units across the country
TPM in all key factories
About 28 factories in backward areas
About 2000 suppliers
Sick companies turned around

3.3.15

Best-in-Class Employees

Systematic training ensures best-in-class employees

Harmonious and cordial industrial relations at factories
Production and productivity rates among the best in the Unilever world
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3.3.16

Developing & Using Relevant Technology

Building the Base

Largest private sector research facility
Two Research Centres - Mumbai & Bangalore
Over 100 highly-qualified scientists
Benefits of Research
We have found that research can be applied with enormous benefit across every one of our
businesses, ranging from seemingly simple consumer products to industrial chemicals and
machinery. It is a mistaken belief that research is only relevant to what seem to be high
tech areas; there are always opportunities to use research to reduce costs, improve
performance and provide new products and benefits.

3.3.17

Key Successes
Import substitution - Non-conventional oils for soap making. Estimated savings of
US$1.2 billion. Understanding soap structure and functionality
Fair & Lovely - A global mega brand
Tea Science
Eutectics for cold chain
Using R&D for manufacturing
excellence

3.3.18

The Philosophy
Focus on grooming managers from within the country
Provides people the thrill of business and diversity of experience
Nurturing Top Talent, Encouraging Teamwork
Commitment to attract, develop and retain the highest quality of talent
Process in place to identify & develop potential early in peoples career
Smaller, independent business units to ensure entrepreneurial teamwork

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3.3.19

Commitment to Society

Proactive Social Development

- Rural Development
- Basic Education
- Care and education for abandoned, special children
- Caring for HIV-positive patients
- Reconstruction & relief post natural calamities, Sustainable development
- Energy Conservation
- Water Conservation
- Tree Plantation
- Watershed Development
Asha Daan
Run by the Missionaries of Charity, and supported by HLL, Asha Daan has been home to
over 20,000 infants, destitute men and women and HIV positive patients
Ankur & Kappagam
Centres for special children in Assam & Tamil Nadu, imparts special education and
services to severely disabled children
Yashodadham
A village in Gujarat, rebuilt and dedicated to its 1100 residents after the earthquake in
2001
Spread over 25 acres, it has 289 dwelling units, school, playground for children,
community centre, anganwadi and health centre

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3.3.20

S.W.O.T ANALYSIS OF HLL

STRENGTHS
1) Excellent Management quality
HLL has earned reputation for having one of the most professional and high quality
management in the country.
2) Excellent Equity valuation
HLL is the largest corporate in terms of market capitalization. HLL has consistently
recorded strong earnings growth and pays out 65% of its earnings to shareholders. Several
FMCG funds have been set up recently, which would allocate significant part of their
portfolio to HLL.
3) Distribution Network
Distribution network spans across the length and breadth of the country
HLLs distribution network is recognised as one of its key strengths which helps reach
out its products across the length and breadth of the country. HLLs distribution network
directly covers the entire urban population, and also reaches as far as villages with
population over 2000.
The products are manufactured across the country, and are distributed through a network of
about 7,500 Redistribution Stockists (RSs).Its extensive distribution network (over 1 m
retailers).
In a significant move, with long-term benefits, HLL has mounted an initiative, Project
Streamline, to further increase its rural reach. The distribution is being extended to villages
with less than 2000 people with the help of rural stockists. As a result, the distribution
network directly covers as of now about 46 per cent of the rural population.
4) Market leadership in detergents market and fabric wash industry and largest player in
Toilet soaps industry.

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5) The most potent weapon in HLL's armory is its indituality of brands. The company has
got brands that compete across segments ranging from detergents (Rin, Surf, Wheel) and
soaps (Lux, Lifebuoy, Pears, Dove).
6) HLL has created a Strong Brand equity. HLL offer to consumers a broad portfolio of
products at multiple price points in the Detergents and Soaps.

THREATS
Slowdown in rural demand due to slow down in agriculture sector.
Emergence of small but strong regional players likes Nirma is giving tuff
competition to HLL to maintain his market share in soaps and detergents.

WEAKNESS
Several "me-too products.

OPPORTUNITIES:
HLL is gearing up for a billion dollar sourcing business out of India. Already one of
largest exporters, HLL exports are worth almost Rs 1500 crore So, this implies that
HLL should focus more on outsourcing the materials to its parent company unilever.

3.3.21

PORTER FIVE FORCE INDUSTRY ANALYSIS OF HLL

Porters five-force industry analysis can be used to get a general over view of the threats to
the profitability of oral care business. Though the model does not help in analyzing firm
specific demand, it gives some information of its business environment.

Internal Industry Competition:

Hindustan Lever face stiff competition from Colgate dental in toothpaste market.
Colgate is the market leader in toothpaste market. Further more the company faces

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competition from the new entrants like Anchor which is doing good in rural market
in India.

The bargaining power of suppliers:

As a large producer of consumer goods, HLL is able to choose from many
suppliers. With the environmental movement, the company has focused its attention
on suppliers who comply the most with environmental regulations, monitoring their
activities.

The power of buyers:

The bargaining power of buyers has been increased over the years as there are
number of players in the industry. The difference in price of various product is
nominal. Furthermore the direct supplier of product i.e. retailers are stocking
almost all products the buyers are enjoying high power. That is why now all the
companies are giving special attention to the distribution of the product because
the industry is dominated by the availability of the product to the consumer.

The power of substitutes:

If there are no traditional substitution of the toothpaste then the company with good
rural penetration can have the high market share, because still in rural part of India,
which is the major chunck of the Indian population uses traditional ingredients like
neem twings, meswak twings, coal powder etc.

Entry barriers
Entrance into the non-durable consumer product market and the pharmaceutical
industry requires large capital for R&D and advertisement. Therefore, entrance into
the market could be very difficult

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3.4

COMPETITOR ANALYSIS

Major competitors of Procter and Gamble are HLL and Colgate. Both of these companies
enjoys market share of more than 60% in India. Procter and Gamble have market share of
36% in global market. HLL and Colgate also leads in annual sales as compared to Procter
and gamble in India.
Colgate uses its internal distinctive competency to inflict damage on Crest by displaying its
first introduction to the toothpaste industry as: We at Colgate are the 1st company to give
an anti-bacterial toothpaste since 1968 and we are still bringing in better news, thats
something to smile about. Colgates Total antibacterial toothpaste is an example of a
successful and well-supported product introduction. Within the first four months of its
domestic release, Total claimed more market share than P&G CrestColgates first such
success since 1968.
One of the key weaknesses of Colgate is Crest was the first fluoride toothpaste to be
endorsed by the ADA. Crest should focus on the newer releases of the industry, such as
battery powered toothbrush appliances. The electic dental appliances rose to $350 million
and will rise to $500 million by 2005, so a concentrated
marketing advertisement on
the new Crest SpinBrush took advantage of this new segment.
P&Gs is one of the more dominant global marketers, spending $4.7 billion worldwide on
advertising during 1998 ( of which $1.7 billion was in the United States). P&G budget
was $1.3 billion more than its nearest competitor, Unilever which spent $.7 billion in the
U.S. In concentrating P&Gs spending on Crests new releases, it will then re-establish
market share in the toothpaste industry.

Competitive position of various FMCG companies are as follows:

P&G
Procter & Gamble Hygiene and Health Care Limited (PGHH) is one of India`s leading
FMCG companies in the healthcare and feminine protection segments. The company`s
other interests include hair care, detergents, and personal care categories. Its power brands,
`Vicks` and `Whisper`, are virtually unrivaled leaders in their respective segments. For the
past three years (since 1998) the company has grown at a CAGR of 2%.

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HLL
Hindustan Lever Ltd. (HLL), Indias largest fast moving consumer product company
enjoys a market leadership in soaps, detergents, color cosmetics, ice creams and packed
tea. The company, which had once a portfolio of 110 brands, is now actively looking to
prune the number of brands to around 30 in the next few years. These 30 brands accounted
for over 100% of its profits.
DABUR
Established in 1884 Dabur India had its interest in the ayurvedic specialties and healthcare
products. However, with time it has diversified into personal care, pharmaceuticals, and
food. The companys leading brands are Dabur Amla Hair Oil, Vatika, Chayawanprash, Lal
Dant Manjan, Hajmola digestive pills and candy. Jointly the top five brands contributed to
55% of the companys revenues in FY01. The company for the past four years, its topline
has grown at an impressive CAGR of 13%.

3.5

STRATEGIC GROUP ANLYSIS

Companies sales(000)
HLL

marketing expense(000)

103.37

11.42

10.25

2.10

P&G

3.24

0.41

Dabur

9.34

2.01

Balsra

1.26

0.20

Colgate

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The strategic group analysis gives an idea about the players in the market which we took
for strategic group analysis how they are performing? Who is in competition with whom?
What are the strategic opportunities? These all are some basic questions that are taken in to
consideration when we are making strategic group analysis.
Here the companies we have taken for the strategic group analysis are Hindustan Lever
Limited, Procter & Gamble, Colgate, Dabur and Balsara. We taken two parameters to do
the strategic group analysis are sales on the X-axis and marketing expense on the Y-axis.
We compared on the above two parameters that which company in the group has the
advantage of spending much amount due to good sales are drawn in the chart and the
values of the sales and marketing expense are given in the table. As the chart clearly shows
that Hindustan Lever is enjoying to spend huge amount on marketing because the company
has good sales figures which allow them to spend the amount they want to spend. Second
is Colgate has also good sales which allows them to spend the amount decided on
marketing. Then in the line there are Dabur, P&G and Balsara which also spending

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amounts on the marketing but not as HLL or Colgate because they dont have that much
sales which allows them to spend the bigger amount on marketing.
As far as competition is concerned HLL has the huge sales and others are with lower sales
this means not that HLL has no competition but they have not to worry much about the
competitors. But for Colgate and Dabur we can say that both are in direct competition with
each other cause their sales figures have no much bigger difference and both of them are
spending much more same amount on marketing expense so both companies have to gear
up their efforts to cope up with the competitors. P&G and Balsara in the group are also in
competition with each other but Balsara has to think of that because P&G is the
international company which has good base and Balsara is Indian company which required
to spent huge amounts on marketing expense which may gear up their sales.
All the companies are spending the amounts on marketing as per their ability to spend and
try to gain the market through it competition is faced by every players in the market but
some like HLL and Colgate ahs advantage of good sale which allow them to spend the
amounts they desire on marketing. Some of the players are in direct competition with
others as the chart and table above gives us clear picture of that. The which are in facing
cut throat competition from others in the groups have to try to gear up their sales so that
they can able to spend the amounts on marketing which may lead to increase in the sales in
comparison of the past.
This gives us the idea that HLL in the group is at level where it has low competition and
Balsara has to face stiff competition in the group from other players in the group. Other
players do have to face medium competition which they can overcome by concentrating on
certain strategies and can able to increase the sales for that they have to also spend the
amount bugger than the amount they are currently spending if the competitors have
amounts to spend on marketing than they can able to increase the market share of the
company.

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CHAPTER

FINANCIAL ANALYSIS
A ratio is an arithmetical relationship between two figures. Ratio analysis is a powerful
tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical
expressions and as the relationship between two or more things.
In financial analysis a ratio is used as a benchmark for evaluating the financial position and
performance of a firm. Several ratios, calculated from the accounting data, can be grouped
in to various classes according to financial activity or function to be evaluated.
We have calculated certain ratios of the Hindustan Lever ltd., Colgate-Palmolive, Procter
& Gamble, Dabur ltd and Balsara Hygiene ltd for our study of the toothpaste industry and
made comparisons of them. We have calculated these ratios for the five years. The
financial information we are able to get from the annual reports of the companies
mentioned above. The ratios are as follows.

4.1

RATIO ANALYSIS

4.1.1 Current Ratio

0112(12)
HLL
1.05
Colgate 1.05
p&g
1.55
Dabur
2.41
Balsara 2.24

0012(12)
0.88
0.98
1.23
2.41
2.63

9912(12)
1.07
1.34
1.31
3.60
2.74

9812(12)
1.09
1.22
0.96
3.56
1.83

9712(12)
1.06
1.42
1.22
3.47
1.73

Interpretation:
As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. Here the
current ratios for HLL are 1.05, Colgate is 1.05, p&g is 1.55 , Dabur is 2.41 and for the
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Balsara it is 2.24. It is growing simultaneously for HLL and it is grows in last year. In the
case of Colgate it is increase for last year but it is less compare to 1997, 1998 and 1999. In
case of p&g it shows the increasing trend but in the case of Dabur it is decreasing it
suggests that company is much aggressive in current assets, they dont wont their fund idle
in current assets.

4.1.2 Quick Ratio

HLL
Colgate
p&g
Dabur
Balsara

0112(12)
0.60
0.83
1.33
1.47
2.07

0012(12)
0.50
0.75
1.06
1.56
2.28

9912(12)
0.60
1.03
1.01
2.34
2.30

9812(12)
0.61
0.92
0.76
2.26
1.34

9712(12)
0.55
0.81
0.95
2.23
1.26

Interpretation:
Generally, a quick ratio of 1 of 1 is considered to represent satisfactory current financial
condition. Although quick ratio is a more penetrating test of liquidity then the current ratio.
Thus a company with a high value of quick ratio can suffer from the storage of funds. i.e. it
has show paying and doubtful and long duration outstanding debtors. These ratios for the
HLL, Colgate, p&g , Dabur and Balsara are 0.60, 0.83 , 1.33 , 1.47, and 2.07 respectively
in the year 2001. It is sufficient in the HLL and Colgate. In the case of p&g , Dabur and
Balsara it is more then one interpreted as a larger part of the current asset of the firms is
not tie up in slow moving and not salable inventories and slow paying debts. Their current
liabilities are sufficient in context with quick ratio.

4.1.3 Inventory Turnover Ratio

0112(12)

0012(12)

9912(12)

9812(12)

9712(12)

HLL

10.26

10.34

8.96

9.64

8.52

Colgate

16.44

13.99

15.56

12.75

8.35

P&G

16.63

14.75

11.86

10.89

12.34

Dabur

7.94

9.23

8.02

8.07

7.68

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Balsara

40.74

19.24

16.04

9.14

8.09

Interpretation
Above mention are the inventory turn over ratios of the companies Balsara has the highest
ratio in the last year and others have no much fluctuation in the ratios as the table above
shows us.

4.1.4 Fixed Assets Turnover Ratio

0112(12)

0012(12)

9912(12)

9812(12)

9712(12)

HLL

6.21

6.92

7.54

7.46

7.54

Colgate

4.09

4.24

4.05

3.61

5.23

P&G

1.85

1.89

1.84

1.72

1.76

Dabur

2.97

3.10

2.82

2.85

2.92

Balsara

14.40

12.46

13.42

14.23

13.10

Interpretation
The fixed turn over ratios of the companies is shows that Balsara has the high ratio in
comparison of other companies, which have the lower ratios in all the years.

4.1.5 Dividend payout Ratio

0112(12)

0012(12)

9912(12)

9812(12)

9712(12)

HLL

75.16

71.93

66.46

65.94

66.46

Colgate

87.77

197.81

87.43

89.34

50.95

P&G

56.52

116.14

21.63

152.22

37.57

Dabur

24.41

36.90

38.93

27.62

21.99

Balsara

43.78

37.75

16.80

24.29

12.48

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Interpretation
The dividend pay out ratio gives idea of all the companies have high dividend pay out ratio
except Dabur and Balsara. Which shows that all the companies have good share market?

4.1.6 Earning per share (Rs):

0112(12)

0012(12)

9912(12)

9812(12)

9712(12)

HLL

7.05

6.21

49.60

42.91

29.12

Colgate

5.06

4.34

3.93

3.29

5.85

P&G
Dabur

32.43
2.13

28.63
28.11

32.91
19.03

27.14
14.35

19.46
15.59

Balsara

2.87

6.88

5.09

4.78

8.01

Interpretation
the Earning per Share ratios shows us that P&G has the highest EPS ratio in the group.
And others have relatively lower ratios.

4.1.7 Dividend per Share

0112(12)

0012(12)

9912(12)

9812(12)

9712(12)

HLL

5.00

3.50

29.00

22.00

17.00

Colgate

4.25

8.25

3.00

3.00

3.00

P&G

20.00

40.00

7.50

40.00

7.50

Dabur

0.50

10.00

10.00

5.00

3.50

Balsara

1.00

1.00

1.00

1.00

1.00

Interpretation

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This ratio gives us the idea about how much the companies are paying dividend to their
customers. Here also P&G high DPS Ratio in comparison of other companies.

4.1.8 Gross Profit Margin (in %)

0112(12)
HLL

0012(12)

9912(12)

9812(12)

9712(12)

15.26

13.42

11.29

10.45

9.20

7.64

6.82

7.42

6.91

12.40

P&G

21.31

18.20

18.34

16.26

13.54

Dabur

8.52

9.82

7.84

7.62

8.37

Balsara

4.47

3.88

2.92

3.99

5.78

Colgate

Interpretation
The ratio above shows P&G has the high GPM ratio then HLL has the second highest ratio.
Other companies have low ratio in comparison if others.

4.1.9 Net Profit Margin (in %)

0112(12)
HLL

0012(12)

9912(12)

9812(12)

9712(12)

13.63

11.96

10.22

8.31

7.02

6.10

5.44

4.75

4.70

8.32

P&G

18.34

19.91

17.36

13.91

10.93

Dabur

5.79

7.57

8.03

5.78

5.71

Balsara

0.72

0.86

1.94

1.64

3.52

Colgate

Interpretation
The ratio above shows P&G has the high GPM ratio then HLL has the second highest ratio.
Other companies have low ratio in comparison if others.

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4.2

DU PONT ANALYSIS

4.2.1 PROCTER AND GAMBLE Ltd.:

DU PONT ANALYSIS OF PROCTER AND GAMBLE LTD.

2002
2001
2000
1999
1998
PAT
701.73
619.64
712.29
587.39
421.19
Sales
4094.16 4075.93 4216.44 4058.53 3889.84
PAT/Sales
0.171
0.152
0.169
0.145
0.108
Sales
4094.16 4075.93 4216.44 4058.53 3889.84
Total Assets
2178.64 1838.03 2029.63 1661.52 2147.28
Sales/Total assets
1.879
2.218
2.077
2.443
1.812
Total Assets
6097.17 5530.61 6026.48 5471.38 4886.54
Equity
2178.64 1838.03 2029.63 1661.52 2147.28
Total Assets/Equity
2.799
3.009
2.969
3.293
2.276
(PAT/Sales)*(Sales/Total assets)*(Total
Assets/Equity)
PAT/Equity
0.901
1.014
1.042
1.164
0.446
The above table shows Du pont analysis for Procter and Gamble Ltd.
Combined Value

The PAT to sales ratio is increasing from 0.108 in 1998 to 0.171 in 2002 which shows that
the companies overall effiency of production, administration, selling, financing, pricing has
been increased. This ratio shows the earning left for share holder as a percentage of net
sales.
The asset turn over ration that is Sales to total assets ratio is increasing from 1.812 in the
year 1998 to 2.218 in the year 2001, but the ratio is declined in the year 2002 to 1.879.
This ratio is the identification of the companys efficiency of efficient assets management.
The total sales to Equity ratio is increasing from 2.276 in year 1998 to 3.009 in 2001 and
again it is reduced to 2.799 in year 2002.
The final ratio PAT to Equity is reducing in the year 2002. This is because of companys
inefficiency in assets management and total assets to equity ratio.

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4.2.2 HINDUSTAN LEVER Ltd.:

DU PONT ANALYSIS OF HLL
PAT
Sales
PAT/Sales
Sales
Total Assets
Sales/Total assets
Total Assets
Equity
Total Assets/Equity
Combined Value
PAT/Equity

2001
16404
109719
0.150
109719
31274.3
3.508
31274.3
28235.7
1.108

2000
13273.2
106037.9
0.125
106037.9
25998.3
4.079
25998.3
22681.6
1.146

1999
10737.4
101424.9
0.106
101424.9
22805.3
4.447
22805.3
18832
1.211

1998
8059.3
94818.5
0.085
94818.5
19773.4
4.795
19773.4
14934.6
1.324

(PAT/Sales)*(Sales/Total assets)*(Total
Assets/Equity)
0.581
0.585
0.570
0.540

The above table shows Du pont analysis for Hindustan Lever Ltd.
The PAT to sales ratio is increasing from 0.085 in 1998 to 0.150 in 2001 which shows that
the companies overall effiency of production, administration, selling, financing, pricing has
been increased. This ratio shows the earning left for share holder as a percentage of net
sales. This shows that company has good share holder earning.
The asset turn over ration that is Sales to total assets ratio is continuously reducing from
4.795 in the year 1998 to 3.508 in the year 2001, but the ratio is declined in the year 2002
to 1.879. This ratio is the identification of the companies efficiency of efficient assets
management. So the company ability to manage the assets has been reduced.
The total sales to Equity ratio is reducing from 1.324 in year 1998 to 1.108 in 2001.

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The final ratio PAT to Equity is reducing in the year 2002. This is because of
companies company net profit to sales ratio. Company sales have been increased
continuously.

4.2.3 COLGATE PALMOLIVE Ltd.

DU PONT ANALYSIS of Colgate-Palmolive Ltd.
2002
PAT
Sales
PAT/Sales
Sales

2000

1999

1998

447.32
9553.2
0.047
9553.2

795.48
9459.16
0.084
9459.16

3069.71 2988.67
3.498
3.196
6026.48 5471.38
3002.48 2937.43
2.007
1.863

2981.39
3.173
4886.54
2932.93
1.666

687.79 590.61
531.35
11131.25 11226.5 10736.82
0.062
0.053
0.049
11131.25 11226.5 10736.82

Total Assets
Sales/Total assets
Total Assets
Equity
Total Assets/Equity
Combined Value
PAT/Equity

2001

2568.9 2521.63
4.333
4.452
2568.9 5530.61
2476.42 2391.13
1.037
2.313

(PAT/Sales)*(Sales/Total assets)*(Total
Assets/Equity)
0.278
0.542
0.347
0.279
0.445

The above table shows Du pont analysis for Hindustan Lever Ltd.
The PAT to sales ratio is reduced from 0.084 in 1998 to 0.062 in 2001 which shows that the
companies overall effiency of production, administration, selling, financing, pricing has
been reduced.. This ratio shows the earning left for share holder as a percentage of net
sales. This shows that company has lost good share holder earning.
The asset turn over ration that is Sales to total assets ratio is continuously increasing from
3.173 in the year 1998 to 4.333 in the year 2002,. This ratio is the identification of the
companys efficiency of efficient assets management. So the company ability to manage
the assets has been increased.

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The total sales to Equity ratio is reducing from 1.666 in year 1998 to 1.037 in 2001.
The final ratio PAT to Equity is reducing in the year 2002. This is because of companies
company net profit to sales ratio has been reduced continuously.. Company sales has been
increased continuously

4.2.4 DABUR INDIA Ltd.

DU PONT ANALYSIS OF DABUR INDIA LTD.

PAT
Sales
PAT/Sales
Sales
Total Assets
Sales/Total assets
Total Assets
Equity
Total Assets/Equity
Combined Value
PAT/Equity

2002

2001

2000

1999

1998

609.51
11069.11
0.055
11069.11
6097.17
1.815
6097.17
4003.7
1.523

801.73
11132.54
0.072
11132.54
5530.61
2.013
5530.61
3622.02
1.527

542.82
10040.52
0.054
10040.52
6026.48
1.666
6026.48
3200.37
1.883

409.21
8812.67
0.046
8812.67
5471.38
1.611
5471.38
2615.03
2.092

444.89
7832.89
0.057
7832.89
4886.54
1.603
4886.54
2272.55
2.150

(PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity)

0.152

0.221

0.170

0.156

0.196

The above table shows Du pont analysis for Dabur India Ltd.
The PAT to sales ratio is increasing from 0.057 in 1998 to 0.072 in 2001 which shows that
the companies overall effiency of production, administration, selling, financing, pricing has
been increased.. This ratio shows the earning left for share holder as a percentage of net
sales. This shows that company has lost good share holder earning. But the ratio has been
reducing in the year 2002 which is negative trigger to the company.
The asset turn over ration that is Sales to total assets ratio is continuously increasing from
1.603in the year 1998 to 2.013 in the year 2001,. This ratio is the identification of the

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companys efficiency of efficient assets management. So the company ability to manage

the assets has been increased. But in the year 2002 ratio has been reduced to 1.815 which
shows that company ability to manage the assets has been reduced.
The total sales to Equity ratio is reducing from 2.150 in year 1998 to 1.523 in 2001.
The final ratio PAT to Equity is reducing in the year 2002. This is because of companies
company total assets to equity ratio have been reduced continuously. But during the year
1998 to 2002 the overall ratio had good position because of the better assets management.

4.2.5 BALSARA HYGINE PRODUCTS LTD.

DU PONT ANALYSIS of Balsara Hygiene Products Ltd.
2000
1999
1998
1997
1996
PAT
11.15
26.69
19.75
18.55
31.07
Sales
1352.78 1,304.41 1297.38 1066.34 877.33
PAT/Sales
0.008
0.020
0.015
0.017
0.035
Sales
1352.78 1304.41 1297.38 1066.34 877.33
Total Assets
336.35
415.01
424.13
252.41 222.73
Sales/Total assets
4.022
3.143
3.059
4.225
3.939
Total Assets
336.35
415.01
424.13
252.41 222.73
Equity
165.3
159.94
156.18
134.28
122.7
Total Assets/Equity
2.035
2.595
2.716
1.880
1.815
Combined Value
PAT/Equity

(PAT/Sales)*(Sales/Total assets)*(Total
Assets/Equity)
0.067
0.167
0.126
0.138
0.253

The above table shows Du pont analysis for Balsara Hygiene Products Ltd.
The PAT to sales ratio is continuously reducing from 0.035 in 1998 to 0.008 in 2002 which
shows that the companies overall effiency of production, administration, selling, financing,
pricing has been reduced. This ratio shows the earning left for share holder as a percentage
of net sales. This shows that company has lost good share holder earning. But the ratio has
been reducing continuously which is negative trigger to the company.

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The asset turn over ration that is Sales to total assets ratio is continuously increasing from
3.939 in the year 1998 to 4.022 in the year 2002,. This ratio is the identification of the
companys efficiency of efficient assets management. So the company ability to manage
the assets has been increased. The company has highest assets management ratio among
the competitors which is positive aspect of the company.
The total sales to Equity ratio is reducing from 0.253 in year 1998 to 0.067 in 2002.
The final ratio PAT to Equity is continuously reducing from 0.253 in 1998 to 0.067 in
2002. This is because of companies company net profit margin ratio has been reduce
continuously reducing.

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CHAPTER

RURAL MARKET
5.1

RURAL MARKETS AN INTRODUCTON

Rural marketing has become the latest marketing mantra of most FMCG majors. True,
rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not
surprising that the Indian FMCG sector is busy putting in places a parallel rural marketing
strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, ColgatePalmolive and Britannia Industries are only a few of the FMCG majors who have been
gungho about rural marketing. With reason.

The lure
Indias agrarian economy is fundamentally strong. Rural India accounts for as much as 70
per cent of the nations population. That means rural India can bring in the much needed
volumes and help FMCG companies to log in volume-driven growth. That should be music
to FMCGs who have already hit saturation points in urban India.
Certainly, rural marketing holds the key to success of FMCG companies, which are
desperate to find ways out to gain deeper penetration.
Not just the rural population is numerically large; it is growing richer by the day. Of late,
there has been a phenomenal improvement in rural incomes and rural spending power.
Successive good monsoon has led to dramatic boost in crop yields. Consider this statistics:
food grain production touched 200 million tonnes during fiscal 1999 against 176 million
tonnes logged during fiscal 1991. c.
And the future is expected to be more promising. Consider this statistics from a National
Council of Applied Research (NCAER) survey: lower income group is expected to shrink
from over 60 per cent (1996) to 20 per cent by 2007 and the higher income group is
expected to rise by more than 100 per cent. And most FMCG segments are expected to log
in double-digit growth.

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Value-volume trade-off
Most Indian FMCG majors know this well. That is why FMCG companies such as Marico
Industries are gearing up for bigger advertisement and sales promotion campaigns aimed at
the rural buyer. Maricos high-pitch rural marketing exercise involves repositioning brands,
repackaging products and re-pricing them, all with an eye on the rural wallets. The
company has been working constantly on extending its parallel rural sales and distribution
networks, which already finds a place among the industrys top three.
Okay, there is a hiccup here. Concerns abound over the inability of rural markets to meet
the soaring rural ambitions of the Indian FMCG majors. Is the perception that big guns
such as Hindustan Lever are on the verge of diluting their rural focus true? Does the urban
consumer featured on the cover of Hindustan Levers 1998 annual report reflect this
shifting focus? Says Namit Nayegandhi, an analyst with the Mumbai-based Motilal Oswal
Securities: "It is a tactical shift, just a trade-off between value and volume, between the
urban market and the rural market".
Nayegandhi sounds sense. For, focusing all out on one of these markets at the cost of the
other could be suicidal. That is why a few FMCG companies are not putting in concerted
efforts to tap the rural market. Consider the case of Cadbury. The company has clarified
that the rural market is not for it, at least for now. Meanwhile, Marico is trying hard to get
into the premium-end hair-oil market.
What do all these portend? Rural marketing could open the doors of paradise, but the path
is paved with thorns. One major limitation here is this: most FMCG players just do not
have the critical size for going all out for rural marketing. That is why most FMCG players
are expected to concentrate both on rural and urban marketing: focus on urban markets for
value and focus on rural markets for volumes. One result-oriented marketing strategy here
is this: offer value-additions to existing lines to lure the urban consumer and alongside
offer the rural consumer wide-ranging choices within a single product category in a bid to
generate high volumes.

More obstacles
There are more problems in rural marketing. Success in rural marketing calls for a sound
network and a thorough understanding of the rural psyche. Rural consumers pricesensitivity is something the FMCG players should be alive to. Rural income-levels are
largely determined by the vagaries of monsoon and thus rural demand is not a steady horse
to ride on.

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This makes rural marketing a gamble. It is more than a gamble for FMCG minors who do
not have a clutch of strong brands across product segments.
These FMCG minors are not able to cross-subsidize their products and go for product
experimentation.
The result: FMCG minors have a limited reach, are not able to erect entry barriers and have
no ways to minimise the impact from loss of sale opportunities. The vast and diverse rural
market calls for multi-tiered distribution networks, efficient logistics and friendly
infrastructure.

Uphill task
The real test still lies ahead. One major hurdle in rural marketing is: whether an FMCG
player will be able to offer the best price and aspirational values to the rural consumer who
has a peculiar tendency to mimic his urban counterpart. Says Nayegandhi: "This calls for
efficient marketing. FMCG players need to position their products properly, reach out to
the masses effectively and convey the right message."
So, what should the FMCG players do now? They should not only price their products
competitively, but also offer their rural prospects maximum value for money spent.
Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for
Indian FMCG players: put in place an aggressive cost structure which would enable them
to offer low-price and value-for-money products. But then, FMCG is a low-margin
business with a high cost of raw materials. Consider the case of Marico: its material cost
works out to a high of 59 per cent on sales. Therein lies the rural marketing paradox.
However, customer-centric and market-savvy FMCG companies have always chased
prospects when they perceive there is a latent demand. For instance, Hindustan Levers
Rin, Surf and Lux are available even in Indias most obscure villages.
Hindustan Lever had given shape to its rural strategy a few years ago when it perceived
that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat
that focused on personal care products made the most out of surging rural incomes.
The result was there for all to see. The company has been able to clock in double-digit
profits every three years and log in double-digit revenues every four years. Britannia with
its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and convenientlypackaged products designed for the rural masses have been other pioneers in rural
marketing.

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Thus, Britannia and Colgate-Palmolive have been able to derive more than 30 per cent of
their revenues from rural markets.
Sure, there is a lot of money in rural India. But, there are obstacles. The biggest
obstacle is that the rural consumer is still evolving. Only FMCGs with deeper
pockets, unflinching rural commitment and staying power can play this rural game.

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5.2

INDIAN DEMOGRAPHIC PROFILE

5.2.1

GEOGRAPHICAL COVERAGE

NUMBER OF STATES
NUMBER OF Uts
NUMBER OF DISTRICTS
NUMBER OF TAHSILS/TALUKAS
NUMBER OF TOWNS
NUMBER OF VILLAGES
5.2.2

POPULATION

5.2.3

POPULATION GROWTH

YEAR
1951
1961
1971
1981
1991
2001

POPULATION
361,088,090
439,234,771
548,159,652
683,329,097
843,387,888
1,027,015,247

28
7
593
5,564
5,161
640,000

ABSOLUTE
42,427,510
78,146,681
108,924,881
135,169,445
163,058,791
180,627,359

PER CENT
13.31
21.64
24.8
24.66
23.86
21.34

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5.2.5

INDIAN STATES: POPULATION (RURAL AND URBAN)

State

Population (mn) Rural (mn) Urban (mn) Rural % Urban %

West
Rajasthan

44.0

33.9

10.1

77.0

23.0

1.2

0.7

0.5

59.0

41.0

Maharashtra

78.9

48.4

30.5

61.3

38.7

Gujarat

41.3

27.1

14.2

65.6

34.4

Total West

165.4

110.1

55.3

66.6

33.4

West (%)

19.7

Goa

East
Manipur

1.84

1.33

0.5

72.3

27.7

Nagaland

1.21

0.21

82.6

21.0

Bihar

86.4

75

11.40

86.8

15.2

West Bengal

68.1

49.4

18.7

72.5

37.9

0.9

0.8

0.1

88.9

12.5

Sikkim

0.41

0.37

0.04

90.2

10.8

Assam

22.4

19.9

2.5

88.8

12.6

Arunachal Pradesh

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Meghalaya

1.8

1.4

0.3

77.8

21.4

31.6

27.4

4.2

86.7

15.3

Total East

214.7

176.6

37.95

82.3

21.5

East (%)

25.5

Orissa

North
Delhi

9.4

0.9

8.4

10.1

89.9

Chandigarh

0.6

0.1

0.6

10.3

89.7

Madhya Pradesh

66.2

50.8

15.3

76.8

23.2

Punjab

20.3

14.3

6.0

70.5

29.5

Haryana

16.5

12.4

4.1

75.3

24.7

139.1

111.5

27.6

80.2

19.8

Himachal Pradesh

5.2

4.7

0.4

90.9

9.1

Jammu & Kashmir

7.7

5.9

1.8

76.4

23.6

Total North

265.0

200.5

63.6

75.7

24.3

North (%)

31.5

Uttar pradesh

South
Tamil Nadu

55.9

36.8

19.1

65.9

34.1

Andhra Pradesh

66.5

48.6

17.9

73.1

26.9

Kerala

29.1

21.4

7.7

73.5

26.5

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Karnataka

45.0

31.1

13.9

69.2

30.8

Total South

196.4

137.9

58.6

70.2

29.8

South (%)

23.3

Union Territories
Andaman Nicobar

0.3

0.21

0.07

73.3

26.7

Dadara & Nagar

Haveli

0.1

0.13

0.01

91.5

8.5

Daman & Diu

0.1

0.05

0.05

53.2

46.8

Lakshwadeep

0.1

0.02

0.03

43.7

56.3

Pondicherry

0.8

0.3

0.52

36.0

64.0

Total UT

1.4

0.7

0.7

50.7

49.3

Other states

3.4

2.7

0.7

78.5

21.5

846.3

628.5

216.9

74.3

25.7

All India

5.2.6

AGE PROFILE TOTAL

Total population: 846 million

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Nearly 75% of Indias population is less than 35 years of age.

Census '91.
5.2.7

AGE PROFILE URBAN

Total Population : 846 million

Young adults and middle aged individuals higher proportion

Census '91
5.2.8

AGE PROFILE TOTAL

Population : 629million.

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Teenagers constitute higher proportion in rural India.

5.2.9 FAMILY STRUCTURE

Homes with toddlers/ children and young adults are large groups Families without
children comprise more than 15% of households.

5.2.10

FAMILY SIZE

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Gradual breakup of joint family system

5.2.11

FAMILY STRUCTURE URBAN

Joint families have been reduced to just one-fourth of all families while nuclear families
have leapt up to nearly two-thirds of all families.
5.2.12

INCOME LEVELS
-URBAN

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Only 10% of Indias urban population earns above Rs 6000 pm.

5.2.13

HIGHER EARNING LEVEL

A more affluent country

5.2.14

LITERACY
%

Urban

Rural

Total

Male

81.1

57.8

64.1

Female

64.1

30.6

39.3

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Total

5.2.15

73.1

44.7

52.2

PENETRATION RATES RURAL

1985-86 (%)

1995-96 (%)

Increase

Personal products
Washing Cake

83.92

91.82

7.9

Washing Powder

37.37

55.37

18

Toilet Soap

18.46

97.92

79.46

Tooth Paste

18.46

32.97

14.51

Tooth Powder

31.59

37.03

5.44

Talcum Powder

35.16

36.85

1.69

Face Cream

6.98

14.82

7.84

Lipstick*

0.56

1.18

0.62

Nail Polish*

2.34

3.14

0.8

52.97

73.14

20.17

5.4

8.1

2.7

Hair Oil/Cream
Shampoo*
Food & beverages

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Cooking medium oil

83.93

89.82

5.89

Cooking medium vanaspati

31.15

36.55

5.4

Packaged Biscuits

14.52

23.11

8.59

Tea

72.56

83.58

11.02

2.35

5.16

2.81

13.65

18.68

5.03

Health Beverages
Cigarettes

* The penetration rates of lipstick, shampoo & nailpolish are available from 199293 onwards only. Therefore 85-86 numbers refer to penetration in 1992-93
Source : NCAER

5.3

INDIAN RURAL MARKET: PROBLEMS AND PROSPECTS

About 75% of the total populations live in villages. There are states like U.P., Bihar,
Rajasthan and Orissa where rural population varies from 80-90 percent. Only 6,300
villages have a population of more than 500 or less. Any rural market that exists in an area
with a population of less than 10,000 and where the density of population and
infrastructure is low is a rural market. Agriculture and related activities contribute to about
75% of the income in rural markets.
Rural marketing broadly involves reaching the rural customer , understanding their needs
and wants, supply of goods and services to meet their requirement , carrying out after sales
service that leads to customer satisfaction and repeat sales.
The size of rural market in 1992 was about Rs. 40,000 crore, made up of Rs. 22,000 crore
for non-food and Rs. 18,000 crore for food items. It is projected to be about Rs. 1,00,000
crore by 2000. The share of certain consumer goods in rural market is more than the urban
market, e.g. 75% of bicycles, 75% of radios, 70% of mechanical watches , 65% of sewing
machines ,60% of table fans, 56% of batteries, 51% of tea, and 55% of washing cakes/bars
are consumed in rural media.

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Creative marketers
Intensified competition in urban markets has resulted in increase costs but not high market
share and profits. E.g. the products of HLL are made available in rural market with a
population of upto 20,000 through C&F agents, stockists, Wholesalers, and retailers.
Bisleri mineral water is available in some rural markets. Bournvita and Horlicks are served
in good restaurants in prosperous rural areas. Marico parachute hair oil has already entered
rural markets. Realising that packaging could make a big difference in rural markets ;
Procter and Gamble have introduced Mediker in 10 ml packs. Similarly Colgate have 10
gm sachets for their toothpaste.
5.4

CHALLENGES IN RURAL MARKETING

Literacy:
There are not enough opportunities for education and literacy level is low (36%) compared
to all India average of 52%.
Seasonal demand:
Demand for goods in rural markets depends upon agricultural situation, as agriculture is
main source of income.
Transportation:
Many rural areas not connected by rail transport. Kacha road become unserviceable during
monsoon and interior villages gets isolated.
Distribution: High cost of distribution.
Communication problems:
Facilities such as telephone, Fax, telegram is rather poor in rural areas.
Buying decisions:
Rural consumers are cautious in buying and decisions are slow and delayed. They like to
give a trial and only after getting personal satisfaction, they adapt the practice.
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Sales promotion media and methods:

Television has made a great impact and large audience has been exposed to this medium.
Radio reaches large population in rural areas at a relatively low cost. However reach of
formal media e.g. Print ( 18%), TV (27%), Cinema (30%) and Radio (37%) is low in rural
households therefore the marketer has to undertake rural specific sales promotion activities
such as participation in melas/fairs, haats ( village level markets/shandi) conducting group
meeting of potential users of products, van publicity, village film shows and
demonstration.
According to Rajiv Monga , Managing Director and Chief Executive Officer of Rural
Communications and Marketing (RC&M), a company engaged in the promotion of goods
in the rural markets, Promotion in rural areas need to be carried out very carefully as the
people are very brand loyal. It has been seen often that in one village only one brand is
prevalent. This is not due to lack of supply of other competing brands, but simply because
that brand entered the market first. But the flipside is that if one brand turned out to be
faulty in one household, it would be boycotted by the whole village.

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5.5

OPTIONS BEFORE THE FMCG INDUSTRY

5.5.1

RURAL MARKETING

A CONCEPT
Definition of Rural Marketing :
No other country exists on earth, which offers such a dazzling array of Entertainment
choices as India does!
In India, entertainment encompasses a wide plethora of options. Right from cinema (the
largest of its kind in the world) to television (amongst the fastest growing in the world) to
soothing music (the most diverse in the world) to awesome festivals (richest in culture) and
richest-possible food and finally its fanatical devotion to sports like cricket.
Travel in India constitutes a major component of Indian leisure and entertainment industry.
India offers mind-boggling variety for travel from highest mountain ranges of the world to
serene beaches to historical forts, palaces and temples to beautiful deserts. Exotic forests
and national parks in India are un-comparable in the world. Scenic hill-stations (mountain
resorts) still remain popular Indian travel hot spots.
Music in India is as rich as can be. Music in India is a means for spiritual exploration, a
path of realisation, in addition to deriving aesthetic entertainment.
Be it classical or the folk or the modern Indian pop-bhangra, Indian music reflects Indian
life, having no predetermined beginning or end, but flowing uninterrupted through the
composer-performer. The purpose of Indian music is to refine one's soul, discipline one's
body, to make one aware of the infinite within one, to unite one's breath with that of space
and one's vibrations with that of the cosmos.
The basic tenets of classical music have been laid down by numerous ancient texts. The
classical music is not pre-conceived but pre-written. While the underlying notes are prewritten, within the framework of the rules governing the raaga, the musician has complete
freedom to exercise full imagination and creativity.
In tribal societies, from birth to death, songs, dances and musical instruments are used to
mark every occasion. The origins of classical music are also traced back to tribal tunes and
songs.

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The music of India is a mosaic of different genres and levels of sophistication. At one
extreme, classical music is performed in the urban concert halls for purely artistic reasons,
and, at the other, many kinds of functional rural music accompanies life cycle and
agricultural rites. In between are many other musical genres of different regions of the
country, reflecting the diversity of its peoples, their life-styles, and their languages.
The Indian society is a complex social system with different castes, classes, creeds and
tribes. The high rate of illiteracy added to the inadequacy of mass media impedes reach
almost to 80% of India's population who reside in village. Mass media is too glamorous,
interpersonal and unreliable in contrast with the familiar performance of traditional artist
whom the villager could not only see and hear, but even touch. Besides this villagers are
more conservative buyers then their urban counterparts. Their desire to innovate with new
product is restricted.
Traditional media can be used to reach these people in the marketing of new concept. The
traditional media with its effective reach, powerful input and personalized communication
system will help in realizing the goal. Besides this when the advertisement is couched in
entertainment it goes down easily with the villager.
Demonstration:
"Direct Contact" is a face-to-face relationship with people individually and with groups
such as the Panchayats and other village groups. Such contact helps in arousing the
villager's interest in their own problem and motivating them towards self-development.
Demonstration may be
A. I. Method demonstration ii. Result demonstration
B. I. Simple Demonstration

ii. Composite Demonstration

The five steps to make any demonstration effective are below:

Information about people
Objectives to be accomplished
Demonstration plan & Execution of the plan

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Evaluation of the demonstration

Reconsideration after evaluation.

In result demonstration, help of audio -visual media can add value. Asian Paints launched
Utsav range by painting Mukhiya's house or Post office to demonstrate that paint does not
peel off.
5.5.2

FEATURES OF RURAL MARKETING

1. Large and Scattered market:
The rural market of India is large and scattered in the sense that it consists of over
63 crore consumer from 5, 70,000 villages spread throughout the country.
2. Major income from agriculture:
Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied
with agricultural prosperity.
3. Low standard of living:
The consumer in the village area do have a low standard of living because of low
literacy, low per capita income, social backwardness, low savings, etc.
4. Traditional Outlook:
The rural consumer values old customs and tradition. They do not prefer changes.
5. Diverse socio-economic backwardness:
Rural consumers have diverse socio-economic backwardness. This is different in
different parts of the country.
6. Infrastructure Facilities:
The Infrastructure Facilities like roads, warehouses, communication system,
financial facilities are inadequate in rural areas. Hence physical distribution
becomes costly due to inadequate Infrastructure Facilities.

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5.5.3

UNDERSTANDING RURAL MARKETS

There has been always a vast difference between the two markets for a long time now. The
difference is not only between urban and rural but also within the rural areas -- between
regions, states and districts. There is a difference in the media reach, the education levels,
in the culture and the type of products that the two markets are exposed to and this leads to
a difference in the two markets.
The difference is in things like -- how do you celebrate New Year, how do you celebrate
birthdays? Small things like these are celebrated in a completely different manner when the
rural and the urban customers are concerned. There is a vast difference in the lifestyles of
the people in the two regions. The kind of choices of brands that an urban customer enjoys
is different from the choices available to the rural counterparts. The rural customer usually
has 2 or 3 brands to choose from whereas the urban one has multiple choices. The
difference is also in the way of thinking. The rural customer has a fairly simple thinking as
compared to the urban counterpart.
But with technology coming in, mass media reach and the literacy levels going up - this
divide is expected top reduce. The biggest thing is that there is lack of any research into the
consumer behavior of the rural areas. There is considerable amount of data on the urban
consumer regarding things like -- who is the influencer, who is the buyer, how do they go
and buy, how much money do they spend on their purchases, etc. but on the rural front the effort has started to happen now. So we need to understand the buyer.
Also, whatever little understanding we have is not for the entire industry. There is no
collective effort. Some people have spent time in the rural markets, carried out studies and
have understood the rural behavior, but their works have not been passed or known to the
rest of the industry.
So, an in depth understanding of the consumer is one key area that the industry needs to
work on.
There are vast differences in the rural areas as well. There are some 5,60,000 villages and
some 525 districts and each one is different from the other. The geographical spread is not
as homogeneous as it is with the urban areas owing to vast cultural differences.
So an in depth understanding of the areas is what is required.
The field of rural marketing has been witnessing a lot of action from both the fast moving
consumer goods (FMCG) sector and consumer products manufacturers but, there has been
little success in the manner in which rural research is carried out.

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The limitation lies in the inadequate or unavailability of appropriate tools to evaluate the
rural market behavior. The problem arises because of general lack of education resulting in
low awareness about the products and hence the inability to respond to the queries of the
researcher in these areas. Conventional research tools do not work in these markets, as
these are difficult to comprehend for the illiterate and semi-literate rural people.
The typical research scales used are for ranking, rating and attitude measurement, limiting
the research questions to simple yes/no kinds that do not bring the true essence of the
research process. In an effort to look in to this issue two students from Management
Development Institute, Gurgaon along with Pradeep Kashyap, director of Marketing And
Research Team (MART) tried working out on some possible solutions to this problem. The
limitation of conventional research tools during the research project prompted them to look
at alternative sources to solve this problem and the results were favorable.
Colors are very strong indicators, and forms, of expressing the feelings in the rural areas
and there are tools devised with colors that represent and reflect the right answer to the
researchers' queries. The selection of colors is done on the basis of the association of rural
people with these colors. For instance, it has been observed that dark green represents a
good crop or Haryali (as they call it) and hence represents prosperity and is considered to
be the best. Light green represents not very good crop and stands next to dark green color.
Yellow represents dry sand or a dry field and hence comes next. Orange is the color of the
setting sun and represents the end of the day and hence is placed after yellow and just
before red, a color that represents danger to them. Such hypothesis has been working well,
according to MART, and it has incorporated these tools in its research projects.
This is probably the beginning to a new form of research and analysis that might change
the paradigm of rural marketing research and, who knows, one might just see this field
blossom into a specialized research activity. If a simple ranking and rating is achieved, a
lot can be explained about the rural preferences and behavior providing the marketers and
manufacturers of goods specific to the rural markets get that meaningful insight to be able
to help grow the markets in these areas.

5.5.4

RURAL MARKETING-CHALLENGES AND OPPORTUNITIES

The Indian rural market with its vast size and demand base offers great opportunities to
marketers. Two-thirds of countries consumers live in rural areas and almost half of the
national income is generated here. It is only natural that rural markets form an important
part of the total market of India. Our nation is classified in around 450 districts, and

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approximately 630000 villages, which can be sorted in different parameters such as

literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc.
The success of a brand in the Indian rural market is as unpredictable as rain. It has always
been difficult to gauge the rural market. Many brands, which should have been successful,
have failed miserably. More often than not, people attribute rural market success to luck.
Therefore, marketers need to understand the social dynamics and attitude variations within
each village though nationally it follows a consistent pattern.
One major problem for rural market is a huge urban-rural consumption mismatch.
According to estimates, penetration of toothpaste is a healthy 75-80% in urban India,
whereas it is only 15-20% in rural India. As a result, urban India contributes 65% to the
total volumes in the oral care business. The per capita consumption of toothpaste in urban
India is 153 grams per annum, almost 4 times of rural India. With urban India already
highly penetrated incremental growth becomes difficult.

In order to reduce this mismatch, both Colgate and HLL have taken to the rural market
with gusto. HLL already is the trendsetter in recognising rural potential. Colgate too has
initiated operation Jagruti to improve its rural penetration. The aim is to educate the
masses about oral care and its benefits vis--vis traditional teeth cleaning methods like
datoon (neem plant).
The focus has also shifted to children. Corporates realise that oral care is a lifelong habit
and once developed in a child, generates lifelong customers. So, oral care companies are
tying up with schools to educate children on oral care. The focus of advertising in print and
television has also shifted to children. Also, the focus is on brushing twice a day, in a bid to
expand per capita volume growth.

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Though market expansion has hit a roadblock in recent times, with improvement in rural
economy and the measures taken by the industry to improve usage of products, the oral
care market is likely to show an improvement in the long term.
While the rural market certainly offers a big attraction to marketers, it would be naive to
think that any company can easily enter the market and walk away with sizable share.
Actually the market bristles with variety of problems. The main problems in rural
marketing are:
Physical Distribution
Channel Management

5.5.5

PROMOTION AND MARKETING COMMUNICATION

The problems of physical distribution and channel management adversely affect the
service as well as the cost aspect. The existent market structure consists of primary rural
market and retail sales outlet. The structure involves stock points in feeder towns to service
these retail outlets at the village levels. But it becomes difficult maintaining the required
service level in the delivery of the product at retail level.
One of the ways could be using company delivery vans, which can serve two purposes- it
can take the products to the customers in every nook and corner of the market and it also
enables the firm to establish direct contact with them and thereby facilitate sales
promotion. However, only the bigwigs can adopt this channel. The companies with
relatively fewer resources can go in for syndicated distribution where a tie-up between
non-competitive marketers can be established to facilitate distribution.
As a general rule, rural marketing involves more intensive personal selling efforts
compared to urban marketing. Marketers need to understand the psyche of the rural
consumers and then act accordingly. To effectively tap the rural market a brand must
associate it with the same things the rural folks do. Utilizing the various rural folk media to
reach them in their own language and in large numbers so that the brand can be associated
with the myriad rituals, celebrations, festivals, melas and other activities where they
assemble, can do this.
Effective Communication Media and Methods for Rural Audience
There are three major factors to be kept in mind while selecting the media:

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The market to be reached

The pros and cons of a particular medium
The most appropriate media to reach the particular market.

Any medium chosen must be able to attain at least two aims:

It is to reach the maximum number of prospects
It must attract the attention of such prospects
The promotion media and methods could be broadly classified into formal media and
informal/rural specific media.
Formal media
Formal media includes Press and Print, TV, Cinema, Radio , and Point of Purchase and
Outdoor advertisement. Reach of formal media is low in rural households (Print: 18%, TV:
27% , Cinema: 30% and Radio: 37%) and therefore the marketer has to consider the
following points:
Newspapers and Magazines
English newspapers and magazines have negligible circulation in rural areas. However,
local language newspapers and magazines are becoming popular among educated families
in rural areas. Eg. Of newspapers such as Eenadu in A.P., Dina Thanthi in Tamil Nadu ,
Punjab Kesari in the north, Loksatta in Maharashtra and Tamil Magazine Kumudam. They
are very popular in rural areas.
Television
Television has made a great impact and large audience has been exposed to this medium.
HLL has been using television to communicate with the rural masses. Lifebuoy, Lux ,
Nihar oil,etc. are some of the products advertised via television. Regional TV channels
have become very popular especially in southern states. Eg. Like Sun TV is very popular
even in rural areas in Tamil Nadu and Asianet is a preferred regional channel in Kerala.
Many consumer goods companies and fertilizer companies are using these TV channels to
reach the rural consumer.

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Radio
Radio reaches large population in rural areas at a relatively low cost. Colgate, Jyoti Labs,
Zandu Balm, Zuari Industries are some of the companies using Radio communication
programme. There are specific programmes for farmers like Farm and Home / Krisha
Darshan in Regional languages. The farmers have a habit of listening to regional news /
agricultural news in the morning and late evening. The advertisement has to be released
during this time to get maximum coverage in rural areas. Another advantage is that the
radio commercial can be prepared at short notice to meet the changing needs of the rural
folk . Consider the effectiveness of releasing a pesticide ad at the time of outbreak of a pest
or disease in crops.
Cinema
About 65% of the earnings from cinema are from rural markets. Film viewing habit is high
in certain states like Tamil Nadu, Karnataka and Andhra Pradesh. Village theatres do
roaring business during festivals by having four shows per day. The monthly charge for
showing an ad Film is within Rs. 500. Local distributor or dealer who has good contacts
with cimema houses in villages can easily monitor this activity. Films on products like
Vicks, Lifebuoy, and SPIC fertilizers are shown in rural cinema halls. Apart from films, Ad
slides can also be screened in village theatres.
Outdoor Advertisements
This form of media, which includes signboards, wall painting , hoarding , tree boards , bus
boards , dealer boards , product display boards, etc is cost effective in rural areas. Symbols.
Pictures and colours should be used in POPs meant for rural markets so that they can easily
identify the products. Generally rural people prefer bright colours and the marketer should
utilize such cues.
Point of Purchase
Display of hangings, festoons and product packs in the shops will catch the attention of
prospective buyers. However, a clutter of such POP materials of competing companies will
not have the desired effect and is to be avoided.

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Direct mail advertising

It is a way of passing on information relating to goods or services for sale , directly or
potential customers through the medium of post. It is a medium employed by the advertiser
to bring in a personal touch. In cities lot of junk mail is received by all of us and very often
such mails are thrown into the dustbin whereas a villager gets very few letters and he is
receptive to such mailers. Some of the importants:
1. The mailing list is to be updated at least on a year-to-year basis.
2. The name of the recipient together with the fathers name has to be included in the
address.
3. The message should be in regional language and should contain pictures & local
phrases.
4. It is preferable to mention the address of the local dealers/distributors to increase
their involvement in the business.
5. The mailing is to be timely. Direct mailers on consumer durables to be sent after the
harvesting season so that the farmers will have money for purchasing the same.
6. The company representative / local dealer could meet the recipient of such letters at
random to gauge the response for such circulars.
Wall painting
Wall painting is an effective and economical medium for communication in rural areas,
since it stays there for a longtime depending upon the weather conditions. The cost of
painting one square foot area is just Rs. 10. Retailers welcome painting of their shops so
that the shop will look better. Walls of farm houses, shops and schools are ideal places for
painting and the company need not have to pay any rent for the same. The walls have to be
painted at least one or two feet from ground level. It is better to take permission of the
owner. Very often the owner takes responsibility for taking care of the wall painting.
Painting to be avoided during election time rainy season. The matter should be in the form
of pictures , slogan for catching the attention of people. A wall painting of 100 square feet
is quite adequate to convey the message about a product or service. The local distributor /
dealer who knows the market and people could be involved in selection of spots and for
arranging wall painting. Companies marketing TV, Fans, branded coffee / tea, toothpaste ,
pesticides, fertilizers, etc use wall painting as a promotion medium in rural areas.
Tree boards are painted boards of about two square feet in dimension having the picture or
name or slogan of the product painted on it. The cost of such a painted board is about Rs.
80. These boards are fixed to the trees on both sides of the village road at a height of about
10 feet from ground level. These boards attract the attention of slow moving vehicles like
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cycles, bullock carts and tractors and people walking on the road. Considering the poor
condition of roads , even the buses move at slow speed through village road. Tree boards
are extensively used by fertilizer and pesticide companies in rural areas. Tree boards are
low priced promotion items and can be used by consumer goods companies also.
Informal / Rural Specific media
Informal / Rural Specific media with effective reach and personalized communication will
help in realizing the promotional objectives. A variety are used by companies , some of
them are as below.
Farm-to-Farm / House-to-House visit
This approach has been found to be very effective for agricultural machinery, animal health
products and agricultural inputs. Rural people prefer face-to-face communication and farm
visits facilitate two-way communication. The advantage is that the sales person can
understand the needs and wants of the rural customer by directly discussing with him and
answer his queries on products and services. Potential customers in the village are
identified and the companys / distributors representative makes farm-to-farm visits and
highlight the benefits of the products. The person carries with him literature in local
language and also the samples of products. The person does not sell the product but only
promotes the use of the product. Very often the local dealer also joins the representative in
making farm-to-farm visits. The dealer clarifies the terms and conditions of sale and also
makes independent follow up visits for securing orders. Many LIC agents and companies
dealing with high value consumer durables have tried this approach with success in rich
rural areas.
Opinion leaders
Villagers place more emphasis on the experience of others who have used a product / brand
to make purchase decision. Opinion leader is a person who is considered to be knowledge
and is consulted by others and his advice is normally followed. Such opinion leaders could
be big landlords , bank official , panchayat president , teachers , extension workers,etc.
Asian paints promoted its Utsav brand of paint by painting the Village Sarpanchs house a
few months prior to the launch to demonstrate that the paint does not peel off. Mahindra
tractors use bankers as opinion leaders for their product.

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The Melas
Melas are of different types i.e. commodity fairs , cattle fairs and religious fairs and may
be held only for a day or may extend over a week. Many companies have come out with
creative ideas for participating in such melas.
Paint companies supporting Pola fair in Maharashtra by paninting the horns of bulls,
screening of popular films along with ad films by fertilizer / pesticides companies in south.
A few points to be considered are: Preparation of a list of Melas where the company wants
to participate based on the prospects for the companys products , involve local distributor
for local help and guidance , arrange for generators since electricity supply is erratic , give
through training for the sales person to answer queries , decorate the stall with posters, cut
outs, banners, arrange for display of the products and organize luck draws / scratch cards to
attract the people to the stall. It is better to plan for a follow up the visits to see the impact
of such an activity.
The Haats
Traditionally on certain days of the week , both the sellers and buyers meet in the village to
buy and sell goods and services. These are the Haats that are being held regularly in all
rural areas. The sellers arrive in the morning in the haat and remain till late in the evening.
Next day they move to another haat. The reason being that in villages the wages are paid
on weekly basis and haat is conducted on the day when the villagers get their wages. For
the marketer, the haat can be an ideal platform for advertising and selling of goods. Display
of posters, banners and products, conducting film shows and mike publicity could be
carried out in the haats. By participating in the haats and melas, the company can not only
promote their products but also understand the shared values, beliefs and perceptions of
rural customers that influence his buying behaviour.
Folk dances are well appreciated form of entertainment available to the village people. The
folk dance Kuravan Kurathi is popular in Tamil Nadu. The troupe consists dancers,
drummers and musicians and they move in a well decorated van from one village to
another village singing and dancing. In a day the troupe covers about 8-10 villages. As
soon as the van reaches a village, film songs are played to attract the attention of the
villages. This is followed by folk dances.
Mike announcement is made about the companys products and leaflets are distributed.
After the dance programme , queries, if any , about the products are answered by the sales
person. Folk dance programme costs about Rs. 5000 per day and therefore these
programmes are conducted during the peak season in selected markets. Thums Up has
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sponsored Lavnis , the folk dance programme of Maharashtra and over 30 programmes
have been arranged in selected rural markets.
Audio Visual Publicity Vans
Audio Video unit is one of the effective tools for rural communication. The van is a mobile
promotion station having facilities for screening films slides and mike publicity. Portable
exhibition kit can be carried in the van and an exhibition of the products could be put up as
and when required. Agricultural input companies regularly use AVP vans for promoting
their products. Companies such as HLL, Colgate, Phillips have made effective use of AVP
vans for popularizing their products in rural areas.
A few points to be considered for effective AVP unit operations are : Preparation of a route
plan covering key villages / markets, giving advance information regarding film shows in
the selected villages, involvement of local distributors / dealers in publicity campaign ,
through training to the mechanic to take care of the instruments, availability of generator in
the van, experienced sales person who is fluent in the local language and can answer
queries of customers. During day time , the unit is used for mike publicity , pasting of
posters and distribution of literature. In the evening , with the help of local dealer /
distributor and opinion leaders, film shows are organized in two / three different villages.
As per the plan , the van reaches the first village in the evening. A suitable place such as
village ground , school , and panchayat hall is selected for the meeting as well as film
screening. A few film songs are played to attract the attention to the villagers. The sales
person makes a brief talk about situation in the village, the products and the benefits. The
ad film is screened along with some popular film shots and this continues for about 30
minutes. At the end of the film show, he distributes handbills and answers queries of the
customers. The whole operation takes about 1-2 hours depending upon the products under
promotion , number of participants in the meeting and time taken for question and answers.
The van moves to next village for the second film show. The company representative visits
the villages at random meeting dealers and key customers to know the impact of the AVP
operation. The cost of running a fully equipped AVP unit is about Rs. 4000 per day and
AVP van operation has to be considered as an investment for business development in rural
areas.
Product display contests
Package is an integral part of the product. Its main purpose is to protect the product during
transit , to preserve the quality and to avoid any loss in quality and quantity. Now-a-days,
companies are making lot of efforts to produce good quality packages as the package is the
face of the brand and carry advertising value. The introduction of sachet packing ,created a
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revolution in the shampoo industry. Velvette and Chik shampoo by beauty cosmetics , now
known as Cavinkare in south. Sachets eater to the first time shampoo users who are price
conscious. Similarly, Mediker (anti-lice product) is being made available in 5ml sachet to
school going children and young women in rural areas.
The main purpose of display contest is to remind the customer to buy the product as soon
as he enters the shop. Another objective is to influence the dealer to stock the product and
support the company in increasing the sales. The display contest has to be announced well
as in advance and promotional materials to be distributed to all selected dealers in a
geographical area. Prizes for best displays are announced to motivate the dealers. The
contest lasts for about a month. Dealer incentives based on the counter sales of the
products to be announced to increase counters sales. A well planned Product display
contest not only increases the involvement of dealers in the companys products but also
increases the sales during the contest period. Product display contests could be organized
successfully in prosperous rural markets for promoting consumer goods such as shampoos,
soaps and toothpaste.
Field demonstration
Field demonstration is based on the extension principle seeing is believing and is one of
the most effective methods to show the superiority of the companys products to the
customers. Spraying a particular brand of insecticide against insect pests and showing the
farmer how effectively the insects are controlled , application of Urea fertilizer in Paddy
fields to show the luxurious growth of the crop and demonstrating the use of tractor /
implements for different agricultural operations. A progressive farmer who is an opinion
leader is selected and the demonstration is conducted in his field in the presence of a group
of farmers in the village. The farmers observe the results in the field and local dealer calls
on them in their farms and persuades them to buy the particular brand of pesticide or
fertilizer. Similarly effectiveness of detergents , vacuum cleaners, mosquito coils could be
promoted by demonstrations in selected markets.
Field days are extension of field demonstrations. One of the main objectives of following
modern agricultural practices is to increase the yield. The company organizes
demonstrations in a piece of land belonging to a progressive farmers. All the fertilizers ,
pesticides, Nutrients, etc are applied after making field observations. Just before harvest .
all important farmers are invited to see demonstration plot and see for themselves how the
yields are better in the plot compared to other fields. Field demonstrations / field days
consume lot of time and efforts and therefore have to be planned well.

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Life Style Marketing

Each rural market segment has certain special features i.e. they share common life-style
traits. They include village sports, religious events, prominent personalities and role
models. The company can initiate certain activities like sponsoring melas and local
festivals , village sports , community garden maintenance , scholarship , yield contest ,
health care programmes , village adoption , etc that gel with the pattern of life in villages.
Through these activities the company can create long term relationship with the rural
consumers for mutual benefits. There are abundant instances of textile mills maintaining
community gardens , mineral water companies supplying clean drinking water during
summer festivals in villages, consumer goods companies sponsoring Kabbadi, etc.
It should be noted that many companies do not have the minimum required volumes of
sales to go all out for rural marketing and therefore they are working both in urban and
rural markets. Companies with long term plans, high level of commitment to rural markets
and range of products that will meet the requirements of consumers , strong distribution set
up backed by committed field force and promotion will only be successful in the market
place.
Delivering a better standard of living and quality of life will be new role for rural
marketing. The companies entering rural markets have a major role to play by carrying
developmental messages to the less informed rural population. Considering the dynamics
of the rural market , uniqueness of rural customer and the distribution infrastructure , the
marketer has to formulate an appropriate strategy to reach the rural population.

Buying rural media

More often than not , sometimes even in case of brands getting significant volumes from
rural markets , the resources allocated for rural advertising are ad hoc or residual remnants
of the overall budget.
Step 1
Familiarity with the markets one is buying media for is imperative.
It is imperative that one should have visited rural markets, spent time living with the rural
families and perhaps, ploughing the fields before one attempts to buy any media.
Step 2

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Gather data about rural areas, not only data like media habits or readership, etc. but also
data about the market. How many villages are there in the district one is covering ; How
many of these have primary schools or primary health centers; do they have roads
,electricity ,post offices, telephone facility , weekly markets,etc; What is the male/female
split by village, literacy levels by sex,etc.
Step 3
You never buy media, you either tailor-make media or create media.
Options: Tile the village well and brand it.
Wall paintings may be effective or perhaps primary health centre or panchayat office is the
best place to catch the residents attention.
Step 4
Choosing the media partner is important and should be done with care.

Step 5
Monitoring is the single most important factor for the success or failure of a rural media
buying operation.

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5.5.6

POSSIBLE DISTRIBUTION STRATEGY

We are using the Data of NCAER and RK Swamy / BBDO for deciding on the strategy as
discussed below.
We study the rural consumer and adopt marketing strategies for capturing his product
preference keeping in mind : Income levels , Education , Infrastructure , Communication
and Buying Behaviour of the area under study.
Target Consumers:
Urban

Rural

Lower

Lower Middle

Middle

Upper Middle

High

/ Indicates that the area is already covered by current distribution.

- Indicates that this area need not be targeted of now as it will require rural development of
the area and people by the government, which outside any companys scope.
# Indicates that this area needs to be focused upon keeping in mind the resources of the
company and the external environment.
Inferences for rural markets ( Number of HouseHolds(hds) in 000s )
NORTH
Rural

Middle

Urban

1993-94

Growth over
87-88

2879

115.33%

Lower

1993-94

Growth over
87-88

4430

-4.38%

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Upper
middle

934

306.09%

High

714

543.24%

Total

4527

Lower
Middle

3812

Total

8242

Rural hds forms 13% of 34240 hds i.e. total population

Urban hds forms 70% of 11719 hds i.e. total population

1.55%

SOUTH
Rural

Urban

1993-94

Growth over
87-88

Middle

1944

115.52%

Upper
middle

608

496.08%

High

197

278.84%

Total

2749

1993-94

Growth over
87-88

Lower

5516

-1.13%

Lower
Middle

4043

17.35%

Total

9559

Rural hds form 9.5% of 28930 hds i.e. total population

Urban hds form 76% of 12571 hds i.e. total population

EAST
Rural

Urban

1993-94

Growth over
87-88

Middle

2077

62.01%

Upper
middle

659

170.08%

1993-94

Growth over
87-88

Lower

2450

7.36%

Lower
Middle

4043

-1.49%

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High

320

Total

3056

146.15%
Total

4831

Rural hds form 10% of 2893030419 hds i.e. total population

Urban hds form 65% of 7379 hds i.e. total population

WEST
Rural

Urban

1993-94

Growth over
87-88

Middle

1718

150.44%

Upper
middle

663

366.90%

High

391

662.71%

Total

2772

1993-94

Growth over
87-88

Lower

3408

49.60%

Lower
Middle

3992

17.24%

Total

7400

Rural hds form 13% of 20706 hds i.e. total population

Urban hds form 65% of 11355 hds i.e. total population

Strategy for distribution

Housewife they need to be approached through ladies selling accessories on a day-to-day
basis.
Salary earner & Professionals Direct through Distributor or through traditional retail
channel on a twice a week basis for the former case.
Cultivator & Wage Earner they need to be approached through Local Traders on a daily
evening basis.
Family they can be approached through participation in Melas and Haats on a weekly
basis. Stalls can be maintained either by the distributor or the company representative.

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Thus, the strategy is to target the middle, upper middle and high class in the rural areas
which around 10% of the total rural population zone wise. Targeting this segment can also
be used at the same time for selling to lower and lower middle class in the urban areas
which forms around 70% of the total urban population zone wise. The aim is to obtain
synergies among income groups and education levels apart from their lifestyles and
standard of living.

5.5.7

SUPPLY CHAIN MANAGEMENT & EFFICIENT CONSUMER RESPONSE

Supply chain management and logistics are the new buzzwords of Indian industry. After a
series of changes in the business process like Business Process Re-engineering (BPR),
ERP, Restructuring and Rightsizing, supply chain management offers the best long term
solution to improve profitability in demand slowdown.
In the FMCG sector HLL has initiated Operation Leap to reap gains from its vendors,
plants and retailers. HLL showed just 2% growth in sales in the first quarter of 2001-02,
but its net profit rose by 21%. Analysts agree that this is a direct consequence of handling
its vast network suppliers, vendors, truckers, contract manufacturers and retailers very
tightly and systematically.
An ETIGs study of 29 FMCG companies reveals a total spending of nearly Rs. 650 crores
on logistics in 2000 accounting for 3% of the net FMCG sales of Rs. 29,000 crore. In terms
of percentage to sales , logistics costs have decreased by 0.7 % over the past five years.
Distribution cost as a ratio of Total Sales
1996

1997

1998

1999

2000

CAGR*

Overall
Industry

2.1

2.2

2.3

2.2

2.1

0.4

FMCG

2.7

2.5

2.4

2.4

2.6

(0.6)

Efficient consumer response is the way to go for firms with a large stock keeping units
(SKU) count.
Never before has the impact of the adage claiming that the only constant in life is change
been so hard as it is now. To the consumer, it means better services and products at

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competitive rates. To the global firms, it means one more market which will recognise the
superiority of their products and will add to their revenues.
But is that all? Does it also not mean the establishment of processes that have, over years
and over geographies developed into powerful quasi-institutions? Does it not mean
commitment of the highest kind in developing a market which has its own share of
idiosyncracies?
To my mind,the one thing that is certainly getting introduced into the Indian markets is a
sense of transparencyas the consumer goes out to make her purchases in the marketplace. She no longer needs to buy her products in an environment where there is
uncertainty related to product quality, pricing or, the promotions on offer. With
organizations trying all that they can to win the consumer, she is assured of the best deal.
The fallout of the chance
With such changes being inevitable, there is an obvious sense of discomfort that a lot of
players in the Indian industries would be experiencing. They have been successful in the
past but may not necessarily know the new rules that have come to define the game. And
suddenly, they find themselves in an environment where the ethos of the new rules are
competing against them.
5.5.8

EFFICIENCY AS A STRATEGY

The need to win the consumer has become so very obvious today that any organisation that
has not given serious thought to this particular activity is bound to perish. Sounds cliched?
So, how do you do it? Answer the question everyday and you have probably taken care of
your survival for that particular day. Fail to answer it and see where you land up!
In the more mature markets of the US and Europe, manufacturers and retailers in some of
the industries, notably, foods, groceries and other FMCG products, were trying to answer
similar questions some time back. Some of them formulated some answers and grew from
strength to strength while the others couldnt and somehow lost their way to become nonentities. One of the answers that emerged along the search for the right answer was the
concept of Efficient Consumer Response or ECR.
ECR could be defined as a holistic, joint manufacturer and retailer strategy to increase
consumer value by removing non value-added cost from the entire Supply Chain. For
companies that have taken the effort to integrate the various elements of the Supply Chain,
the results have been phenomenal in terms of the improvements to the bottom line.

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Companies and industries have saved billions of dollars simply by practicing the ECR
principles sincerely.
The ECR elements
ECR has four basic elements all of which, when applied holistically to a business
environment, can reap very rich rewards. These are:
5.5.9

THE STRATEGY OF EFFICIENT ASSORTMENT

This strategy has to do with optimizing the productivity of inventories and store space at
the consumer interfaces. This would imply that there is a need to understand the business
in great detail and of allowing space only for those stock keeping units (SKUs) which
contribute in a meaningful way to the category business. A lot of SKUs are introduced by
manufacturers as flankers to the mother brand as a knee-jerk reaction to competition or
as a management mandate to be creative and innovative. Since these flankers or
extensions never had a reason to exist in the first place itself, their presence in the stores
stands out by their insufficient consumer demand. Such products go against very basic
tenets of business, that of providing to the consumers the best available product in the
freshest possible condition.
Any ECR analysis would throw up such SKUs as candidates for immediate discontinuance
and serious commitment to the strategy would demand that the manufacturer and retailer
do not try to dupe the consumer by attempting to sell such products.
Transparency would be the essential theme as every manufacturer and retailer would look
at maintaining the right product mix in their line-up and not a weird clutter of brands that
serve only to confuse consumers! Just as an illustration. It is interesting to note that an
FMCG giant grew its cosmetic business in Japan despite reducing the number of SKUs
that the category offered at some time: shows how commitment to the right principles
always pay off in the long run.

5.5.10 THE STRATEGY OF EFFICIENT REPLENISHMENT

It is often said that this is the strategy where it all started off from! Simply put, this refers
to Just-in-Time inventory management. As opposed to suppliers pushing inventory through
the supply chain, this strategy focuses on consumer demand to pull products through the
same chain. The complete accent is on optimizing time and simultaneously cost in the
replenishment system.

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Sincere commitment to this strategy has obvious cost benefits as it leads to reduction in
manual inventions and excess inventories. Also, this provides a good indication of the
actual state of the business as cash flows improve considerably since the cash tied up in
inventories spread across the length of the supply chain is released. Apart from the cost
benefits, the long term benefits accruing to the organization are in that this strategy
increases consumer satisfaction and builds loyalty to brands.These benefits would lead to
growth in an otherwise stagnant market
5.5.11 THE STRATEGY OF EFFICIENT PROMOTION:
This strategy focuses on the maximization of the total system efficiency of trade and
consumer promotions that are offered by manufacturers and retailers. Most often,
promotions are offered with the end objective of increasing sales through pushing products
into the system, irrespective of existing inventories.
There are studies, which show that most products have abnormal skews in their sales
pattern over a period of time. During a sales promotion, the objective is to increase
inventories at trade by offering some incentive to trade to buy. The results, once the
promotion is over, are so abysmal that the short-term nature of the offer becomes obvious.
The same applies to a lot of consumer promotions where the consumer refuses to buy once
the promotion is over since she has enough inventory to last her for some time to come!
Despite these leanings, we seem to repeat such tactics since nobody is willing to apply
their minds to the issue of building the business. It is interesting to note over here the way
in which a rejection of this particular strategy also automatically leads to the rejection of
the earlier strategies of efficient assortment and replenishment innovative and creative
solutions need to be found to grow the business on a consistent basis and not just for the
period of the offer. How about a revolutionary value pricing strategy flowing out of the
strategy of efficient promotion? If a company were to take all of its promotion fund,
typically used for special, temporary activities, and instead use this money to offset price
increases so that the product is made available to the consumer at a lower everyday price,
wouldnt the consumer love it? Imagine having to pay lesser for a better and fresher
product!
5.5.12 THE STRATEGY OF NEW PRODUCT INTRODUCTION:
A commitment to this strategy would maximize the effectiveness of new product
development and introduction activities. In terms of understanding this better, one needs to
look at this as just the corollary to the strategy of efficient product assortment. Imagine

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organizations spending enormous amounts of time in clearing-up the mess brought about
by having unnecessary products and then going all over the place to replicate the same
error!

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5.6

ALL INDIA DEMOGRAPHICS

Area (sq.Kms)
No. of district
Total no. of inhibited villages
Total no. of towns
Population (lakhs)
Male
Female
Urban
Rural
Density
Literacy rate (%)
Infant mortality rate (per 000 births)
Per capita SDP
5.6.1

3065027
452
580781
3697
8385.84
4352.16
4033.68
2157.72
6228.12
274
52.21
80
5781

RURAL CLASSIFICATION

Village class

No. of villages

Population

Less than 200

201-499
500-999
1000-1999
2000-4999
5000-9999
10,000 & above
Total

103952
141143
144998
114395
62915
10597
2779
580779

17.9
24.3
24.97
19.70
10.83
1.82
0.48
100

lakhs
105.32
484.62
1043.57
1602.94
1855.73
698.39
437.57
6228.12

1.69
7.78
16.7
25.74
29.8
11.21
7.03
100%

Female %

Total %

5.6.2

in %

POPULATION CLASS (1991)

Population

in Male %

Urban

lakhs
2157.72

52.8

47.2

100

Rural
Total

6228.12
8385.84

51.59
51.9

48.41
48.10

100
100

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5.6.3

URBAN CLASS (1991)

Town class
Metros
I
IA
II
III
IV
Total
5.6.4

No. of towns
23
31
246
344
944
2108
3697

Population

0.62
0.84
6.65
9.30
25.53
57.02
100

lakhs
709.97
214.50
476.2
235.54
286.88
233.88
2157.22

in %
32.90
9.94
22.07
10.92
13.3
10.84
100

LITERACY (1991)

Total No. of literacy (in lakhs) 3592.84

Literacy %
73.08
44.69
52.21

Urban
Rural
Total
Literates
lakhs
1331.40
2261.44
3592.84

Urban
Rural
Total
5.6.5

in Male %
58.82
66.87
63.89

EXPOSURE TO MEDIA (1997)

PRINT
English news paper
Indian language news paper
English magazine
Indian language magazine
CINEMA
T.V.
RADIO

Urban
58.6

Female %

Total %

41.18
33.13
36.11

100
100
100

( % of individuals)
Rural
24.1

12.5
50
13.6
33.6
30.7
76.1
22.5

Total
33.5
1.2
20.8
2.2
13.1

15.3
33.4
20.1

MBA-II 2002

4.3
28.8
5.4
18.7
19.5
45.0
20.8

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NOT EXPOSED TO ANY

12.6

47.7

38.1

MEDIA

5.6.6

GROWTH IN CONSUMPTION OF FMCG (source E.T.)

Pre-reform period

87-88 to 92-93
Income group
Urban
Low
17
LM
13.8
M
11.4
UM
10.7
H
8.3
( % Average p.a. per household )
5.6.7

Post-reform period
92-93 to 97-98
Urban
10.1
12.9
13.2
15.3
16.9

Rural
17.5
15.7
12.5
12.8
13.7

Rural
10
10.7
11.9
13.4
12.4

FACTORS AFFECTING CHANGE IN MARKET SIZE

Factors
Growth in penetration
Growth in intensity of use
Growth in income
Growth in population
( figures in %)

1992-93
21
22
26
30

1995-96
37
26
20
17

The households were classified into six categories by their major source of income
5.6.8

CONSUMPTION OF HOUSEHOLD INCOME (PER CENT)

Source of income
Self-emp farm
Self-emp non-farm
Salary
Agricultural wages
Non-agricultaral

Rural
35.37
11.16
17.42
20.29
7.56

Urban
1.72
20.74
54.07
0.74
4.94

All India
20.49
15.39
33.63
11.65
6.40

wages
Others
All sources
Estimated income

8.20
100
321488

17.79
100
254864

12.44
100
576312

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(Rs crore)
(Economic and Political Weekly, July 15,2000)
5.6.9

POPULATION CLASSIFICATION (1991)

Urban
Rural
Total

Population

Male %

Female %

Total %

lakhs
142.46
270.64
413.10

52.44
51.30
51.70

47.56
48.70
48.70

0100
100
100

Population

1.33
0.44
7.56
12.00
21.78
56.89
100

lakhs
59.58
6.54
28.67
18.10
14.73
14.84
142.46

41.82
4.59
20.12
12.70
10.34
10.42
100

Population

5.65
15.95
25.70
30.13
18.96
3.19
0.42
100

lakhs
1.18
10.22
34.06
77.47
100.67
37.55
9.49
270.64

0.44
3.77
12.58
28.63
37.20
13.87
3.51
100

5.6.10 URBAN CLASSIFICATION (1991)

Town class
Metros
I
IA
II
III
IV
Total

No. of towns
3
1
17
27
49
128
225

5.6.11 RURAL CLASSIFICATION (1991)

Villages class
Less than 200
201-499
500-999
1000-1999
2000-4999
5000-9999
10000 & above
Total

No. of villages
1019
2875
4634
5432
3418
575
75
18028

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5.6.12 ESTIMATED NO. INDIVIDUALS IN 000s (12 years +) (1997)

Urban
Rural
Total

12191
21013
33204

5.6.13 EXPOSURE TO MEDIA (1997)

(% of individuals)
Print
English newspapers
Indian language newspapers
English magazines
Indian language magazines
Cinema
T.V.
Radio
Not exposed to any of the above media

Urban
60.3
4.4
58.7
7.6
25.0
22.2
76.7
9.9
13.7

Rural
25.6
0.3
25.4
0.3
4.9
5.9
30.0
5.2
57.1

MBA-II 2002

Total
38.4
1.8
37.7
2.9
12.3
11.8
47.1
6.9
41.1

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BIBLIOGRAPHY
Reports and Magazines
Saket Industrial Digest
CMIE year book
RBI yearly report
Economic Survey
RK Swamy / BBDO Journal on Indian Demographics (1998)
Indian Demographics (NCAER , S.L. Rao) (1996)
Online data
www.indiainfoline.com
www.worlddentalfoundation.com
www.euqitymaster.com
www.hll.com
www.colgate-palmolive.com
www.p&g.com
Search Engine
www.google.com
www.khoj.com

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