It was in 1990s when FMCG companies struck the right chord
with its rural consumers riding on a concept introduced by CK Prahalad. Serving
those at the ‘Bottom-of-pyramid(BOP)’, turned out to be phenomenal success. The
success did not constrain itself in the rural markets and proliferated to urban
areas as well.
‘Low unit packing’, or (LUP) was an action borne out of the
call made to serve the BOP customers which helped to create newer markets and penetrate
existing ones for FMCG companies in rural as well as urban areas. Some examples
of LUP were ‘chota coke’ at 5 Rs, shampoos and hair oil sachets at 1Rs (started
with even 0.50 Rs) and Biscuits at 2 Rs.
While much has been written about the concept for all the
long years since, then, this post points out to a contrasting selling and
purchasing behavior emerging now, completely opposite to what led to the rise
and rise of LUPs in late 1990s and much of 2000s.
To establish the contrasts, let’s briefly look at the
reasons which led to the success of LUPs in rural markets. It was when rural and
poor urban markets weren’t considerably tapped by FMCG companies. Products in
most categories posed high purchase risks for customers in these markets and at
most times, were simply unaffordable for them. Lower disposable income with
high seasonal effect, daily or weekly income pattern since most of the
consumers worked as daily wage laborers in fields and sites, bare minimum
expense on hygiene products and branded food items, and unavailability of
affordable yet beneficial options in local shops were some of the major factors
that made LUP a winner.
Smaller units available for consumption on one hand helped
the price sensitive BOP customers to sample the product without much financial
risk, and on other hand paved way for international brands in rural areas as
well as in urban pockets. Consumers were now exposed to quality products from
international FMCG companies like HUL and P&G raising their expectations
from the products they used and consumed. For example, consumers were able to
use urban- & metro- brands like sunsilk, pantene and head & shoulders
shampoos, close-up and pepsodent toothpastes, lux and rexona bathing bars etc.
Fast forward 20 years and a new trend seems to be emerging,
especially with the advent of modern retail (departmental stores, hyper
markets, super markets etc) and fast changing consumer profile. Make no
mistake, two-third of Indian population still lives in villages and many living
town and cities still have smaller incomes, hence LUP as a rural marketing
concept is not going anywhere any soon. However, urban pockets are seeing an
upsurge of two competitive concepts as antithesis to LUP. While their presence
and their strength, at this point is minimal, but it can sure not be ignored. I
call these –
- Big unit packing (BUP)
- Multi-unit packing (MUP)
A Big unit packing, BUP is a large size packing for the
product without any other change. The BUP offers the product in a 2 to 10 times
the package size which it is normally offered in. The package dimension and the
body copy on the package are adjusted to suite the size while the content
remains the same. The pricing of the BUP is almost always kept more attractive for
the obvious higher economic, psychological and social risk the manufacturer
wants the customer to take by buying the bigger pack. The discount can range
from a meager2% to almost 80% in some items. Some product example are 1000 ml shampoo bottle, 2 Kg corn flakes pack,
2.5 liters cold-drink pet bottle, 500 gm butter, 6x100 gm noodle pack etc. (see
images)
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| BUP - Indian Snacks |
 |
| BUP - Corn Flakes |
A Multi unit packing, MUP is bundling of multiple units of
the normal size pack together as an offering, without changing any other
attribute of the pack. More often than not the final package is just tied
together with an adhesive tape or with temporary adhesive to create a bundle(or
simly given out as loose multiple units). The MUPs are not tampered with in
terms of per unit pricing but rather offer a free unit (sometimes more than one
free unit) when bought as a bundle. Hence, these discounts may range from 20%
(for Buy 4 get 1 free) up to 50% (for buy 1 get 1 free), latter generally in
case of private brands at (modern retail stores). Obviously, MUPs offer higher
per unit discount than BUPs but these are also ridden with controversies.
Claims like bundling is resorted to sell products which have reached or about
to reach their expiry dates are common. Also, MUPs for some products like
soaps, have also come under fire as forced marketing where a customer is
deliberately not given an option to buy a single unit. Some examples of MUPs
are Buy 3 get 1 free soaps, Buy 3 get 1 free biscuit packs, Buy 2 get 1 free
deodorant can etc.
 |
| MUP - Bathing Bars |
 |
| MUP - Fruit Juice |
- Consumer
- Higher disposable income with higher spend on food and hygiene categor
- Wants to reduce the physical risk in terms of efforts spent on reaching out to the stores to buy small items, by purchasing in bulk
- Wants to reduce economic risk by getting benefit in terms of per unit reduced price and discounts (& free units in case of MUP) attached to BUPs and MUPs
- Increased brand awareness and brand loyalty creates a favorable perception for bigger brands and companies, leading to reduced perceived health risks and hence higher confidence in buying products in bulk
- Mitigate psychological risk by reducing the frequency of information search and alternative selection process employed during buying cycle (pain of buying something repeatedly)
- Companies
- Helps in improving top-line and bottom-line performance
- Lower attached costs like- packaging, logistics & distribution costs, storage & handling costs etc
- More stable revenues and volume predictions and forecasts for planning
- Ensured of higher number of days of product usage without switching. Very important for products that consumers may take time to get used to or for benefits to be visible.
- Bulk size leads to higher per serving consumption, hence leading to increase in purchase frequency per SKU
- Higher visibility of products in the shelves at the stores due to packaging size. Attractive discounts also help in securing additional promotional space within the stores (Eg. Pepsi in the image)
- Reduced pilferage and wastage costs
- Retailers
- Higher volume turnover and revenue generation
- Lower attached costs like- logistics, storage and handling costs, manpower & admin costs etc
- Reduced pilferage and wastage costs at storage and retail point
However, this new wave of opportunity in retailing hasn’t
come without its own share of challenges for stakeholders like –
- Cumbersome to manage due to larger space requirement and weight
o
Size/bundling should not be increased to an
unmanageable level
- Requires greater per unit investment from the retailer and consumer
o
Strong brand value, channel partnership and
higher margins will encourage the retailer to stock BUPs and MUPs
o
Strong brand promise and its credibility and
reduced buying risks for customer will influence the customer for purchase
- Brand value erosion
o
Quality and packaging must not be compromised in
BUPs, MUPs must not be encouraged. Cross brand selling with smaller value item
is acceptable though (Example, a washing bar cake with 1 kg of washing powder)
- Reference price degradation
o
Consumers process pricing information in many
ways, one of them being reference pricing which is based on fair price, last
price paid and usual discounted price among other attributes. BUPs and MUPs
affect ‘reference price’ in consumer minds for future purchases negatively
- Loss of LUP customers
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| Standard Packaging - Patanjali |
o
LUPs should not be withdrawn from traditional
channels and can be used in modern retail as part of cross-sampling with
related products
o
LUPs, BUPs and MUPs can together go as greater
depth(product variants) in product assortment rather than one substituting the
other
As mentioned earlier LUP is a very strong marketing innovation and is not going to be replaced or withdrawn in near future for economic as well as distribution reasons. Still, BUPs and MUPs are emerging concepts and are much visible in modern retail, while the traditional channel seems to have not been involved in this change to a great extent, for good. How are these concepts developed further by companies and their channel partners; and how are these accepted, ignored or worst, protested against by the consumers, will be an interesting development to watch.
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