“What Got You Here Won’t Get You There” - Is Patanjali listening?

“Patanjali Clocks Whopping Rs 10,000 Cr Revenue, Becomes 3rd Largest FMCG Player; Will Soon Open ‘Nutritious Restaurants’”

“Patanjali eyes 2-fold rise in revenue to Rs 20,000 cr in FY18; to be biggest swadeshi brand in 2 yrs”

These and similar headlines with unsubtle exuberance were making its headway about an year back. Interestingly, both the headlines are picked up from the news in the month of May in 2017.  Patanjali had a meteoric rise from when it started in 1997 as a small pharmacy to an FMCG force to reckon with. With revenue figures of 10,561 crores Rs in FY 2017, it was rubbing shoulders with the big boys of FMCG in India.

Patanjali's Year on year Revenue in Cr Rs

While the target to close the FY 2018 at 20,000 cr Rs, set by the company for itself, at the start of the year was always ambitious, the result that is going to come out for FY 2018 is expected to be oonly marginal better than last year. So much so, that the company is expected to close the year with revenue a little higher than the FY 2017, reflecting a near flat growth.

Where did the company misfire? What led to the sudden speed-braking of the supercharged company? Well, the answer lies in what made it an overnight success. The company got too focused on sales targets and in the process became myopic.

This was exacerbated by the compulsive expansion, which strayed the company from serving the consumers with the best. Let’s look at some more specific reasons that have been attributed to the bad year of the company.

• Product and Price Issues
• Quality: There has been an increasing clamor around the quality of Patanjali products. It is not uncommon to read negative reviews about some of the Patanjali products on internet. This has significantly affected the loyalty towards the products and repeat purchase.
• Not so much value for money: While Patanjali started with the economic value for money products, there has been a shift towards premiumization. Quite a few Patanjali products have now been moved towards the premium segment and the prices are pretty similar to he other competitors in the market.

• Channel and Supply Issues
• Channel Conflict: As Patanjali, in its mission towards making the product available to customer everywhere, started selling out products to various channel partners, a conflict has risen between them on margin, supply and pricing.
• Supply Issues: With the expanded demand for the product, the logistical push has not happened and the very frugal distribution model has not come under the fire. Issues like intermittent supply, preferential supplies and holding up of orders for having minimum supply volume in the area has led to retail vying for fast running items. This has not only irked the retailers, but also the modern trade set pus which have very high real estate cost.

• CAPEX and Acquisition
• The falling profit margin, as per the company has also been because of the heavy investing that the company claims has been making in the food processing and production capabilities
• Patanjali has emerged as the highest bidder for the Ruchi Soya, which is famous for selling Nutrela soya chunks. This added expense is also going to hit the operational capabilities of the company.

• Macro Issues
• Lingering effects of the demonetization has also been blamed for the flat growth this year, though the issue along with the GST challenges is a generic phenomenon that affected the whole industry and not just Patanjali.
• While touted as a great help in long term to the economy, in the short terms this has been a major issue in the country owing to lack of awareness to handle the new systems and dependency on each supplier for the filing to right GST.

• Related and Unrelated Diversification
• A very critical reason for the flat growth of the company has been its overly enthusiastic demeanor towards expansion in the new categories. It currently sells 1,000 products spanning home care, personal care and packaged foods, and will soon launch apparel. Some of the other recently launched as well as planned diversifications that the company has are as below –
• Media and broadcasting through three broadcasting channels for southern part of India
• Solar power by acquiring Advance Navigation and Solar Technologies
• Patanjali has already launched a Sim with BSNL as a co-branded product
• Patanjali launched a communication app akin to WhatsApp, Kimho
• Besides, the company is also planning to foray into dairy products
• The company has already chalked about plans to enter into apparel, clothing and garments segment this year

• Changing Competitive Scenario
• Unlike the initial years when Patanjali caught the other FMCG giants off-guard with no herbal or Ayurvedic offerings in their stable, situation has changed a lot now. All the FMCG companies are having brands in this space and hence it is not any more Patanjali’s exclusive territory. For example, HUL, the country’s largest FMCG firms bought Indulekha, the Ayurveda hair-care brand in 2015 and relaunched Ayush in 2016.

Patanjali hit the nail right when it built its USP on ayurvedic offerings at a time when people had started looking for natural and herbal options for the personal care products. Unpreparedness of the other companies in his space and a strong brand ambassador in Baba Ramdev catapulted the company to top-5 FMCG companies in the country in terms of revenue.

However, they cannot rest on their past laurels and as Marshall Goldsmith said in his book “What Got You Here Won’t Get You There”, the first step to change is wanting to change. Patanjali need to take a deep hard look at their business model and ensure that they adopt strategies that are apt for a company their size. In the timeless book on Marketing by Al Ries and Jack Trout, Marketing Warfare, authors suggest that a company needs to adopt strategies based on what they are – leader, challenger, flanker or Guerrilla, depending upon the size, market share and available resources. Patanjali has to accept the fact they are no more a Guerrilla in the market but a credible Challenger, and hence their marketing strategies need an overhaul before they get trapped in their own web.

Facebook's Sandy: The hero it deserves?

Facebook might be having a midlife crisis. More precariously, it is at a time when the number of young users are finding solace on much younger platforms like Instagram, Snapchat and Pinterest. Facebook is trying hard to woo the younger lot which made it the biggest country in terms of Facebook users in the world last year. With about 250 million users and counting, it has maintained a comfortable margin against the second biggest country in terms Facebook users, the US.

Number of Facebook users in countries (in millions)

The phenomenon is not restricted to any particular country or continent, this is spread across the globe, more so in western countries. Guardian quoted in one of its report that teens and young adults are ditching Facebook, while its popularity grew among people over 55 years. It went on to state that in 2018, 2.2 million 12- to 17-year-olds and 4.5 million 18- to 24-year-olds will regularly use Facebook in the UK, 700,000 fewer than in 2017, as younger users defect to services such as Snapchat.

Some of the reasons that has led to this phenomenon is, Facebook is facing competition from Pinterest and Instagram which have novelty and exclusivity factors attached to it as yet. This is an obvious advantage to the younger audience. Secondly, with lot of people in their 40s and 50s joining Facebook, a lot of young people are finding their parents and relatives on the network and are trying to avoid activities that make them cognate to these people. Thirdly, advertising has so far been non-intrusive in case of other platforms like Snapchat, Instagram and Pinterest unlike Facebook. This makes these platforms friendlier. Fourthly, Platforms like Instagram and Pinterest are more visual and attractive, especially to the younger audience. With falling data costs, it is cheaper and easier to access picture and video content, hence upping the usage of these platforms against Facebook. Finally, Facebook due to its multiple functionality is considered as a generic social solutions without a serious attempt to solver one networking problem. Other platforms have considerably simpler usage features and functionalities, making them practical and relevant to the younger audience.

It is strange then, that out of the series of advertisements that Facebook came up with in a recent campaign, the first one had a protagonist, who ostensibly calls himself Sandy and boasts his flamboyant yet family-oriented lifestyle. Sandy is in his fifties. Is it a self-goal or a bigger strategy by Facebook? At a time when Facebook needs to strengthen its credentials as a young social network, for functional as well as demographic reasons (two-third of India population is below 35 years of age), is promoting itself as a preferred social networking medium of people in fifties a good strategy?

I am Sandy!

Facebook, however, has supplemented this ad with other ads too that are having younger protagonists, it is still baffling that why would Facebook want to woo a segment of older population at the cost of a swelling younger audience. The segment which has made Facebook what it is in India, the biggest social network in the country and the country with the largest number of Facebook users in the world? Time will tell. 

Will Ayush be able to challenge the Patanjali juggernaut?

It was in 2001 that Hindustan Unilever (HUL) launched Ayush, the Ayurveda based portfolio of wellness products. The brand was later shut down as it didn’t find much traction with the audience. The brand was ostensibly targeted at the premium customers who would embrace it for its ayurvedic core values. HUL representatives claimed that the products were ‘ahead of time’.

The Rise of Patanjali

The year 2006 welcomed another kid on the CPG (Consumer Packaged Goods) platform that touted itself as the ayurvedic alternative for all the ‘unhealthy’ and ‘westernised’ products. Clubbed with the ‘nationalist’ sentiment the brand struck a chord with a mass audience, majorly due to its brand ambassador, Yoga-guru Baba Ramdev. To add, right pricing for the right audience hit the sweet spot of the Indian consumers and the cash registers stated ringing for the brand. Patanjali soon became a household name and crossed a revenue mark of 10,000 crores in the last financial year displacing major bigwigs of the FMCG (Fast Moving Consumer Goods) industry.

Baba Ramdev, who already had won millions of followers through his Yoga practice, promoted the products in an unbashed manner. For his followers it was a marriage made in heaven between their favourite Yoga-guru and Ayurvedic products. His follower base that majorly came from tier-2 and below cities stood by Patanjali and helped it rise miraculously. Media channels like Aastha and Sanskar in the played a major role in making Baba Ramdev a houshold name in 2000s. Even he himself acknowledge the fact that media was a big factor in the rise of the brand.

India is a price sensitive market when it comes to CPGs and the right pricing almost always holds the key for the success of a product. Failure to do so can wipe the brand off the shelves of stores and minds of customers in no time. Patanjali got it right here too.

Patanjali hit the jackpot with the trinity of – Brand Ambassador, Brand Resonance and Pricing. A very difficult but extremely rewarding endeavor.

Positive Word-of-Mouth

Patanjali also succeeded in acquiring new customers and retain the old ones by creating a positive perception of the quality of products, which was subconsciously influenced by its reasonable prices. After consumer acquisition, Patanjali products were able to make good of the promise made to them hence eliciting a positive post-purchase behaviour largely driven by the Halo effect and lower financial risk due to cheaper products.

On the other hand when Ayush was launched as a premium brand in 2001, the market wasn’t gungg-ho about Ayurveda based products. Ayush could not offer anything concrete to its audience to trust (HULs house of brand strategy was not very helpful). Subsequently, the audience turned a blind eye to the products. The Brand had to be shut in the aftermath of consistent poor performance.

Brand Ambassador

Among the three aspects highlighted, Brand Ambassador was the key in the phenomenal rise of the Patanjali Brand. Baba Ramdev never shied away from marketing Patanjali brand and while his followers went by every word he said about the products and Patanjali, even those who did not follow Baba Ramdev were able to trust the credibility around the brand. His unapologetic rant against the MNCs also made him the poster-boy of nationalistic sentiment that clicked with the burgeoning middle class of the country. On the other hand, Ayush has brought in film stars Akshay Kumar and Tamanna as brand ambassadors. This was a run-of-mill approach as both the actors have no genuine link with Ayurveda and are seen in many other ads that create more confusion then clarity. The ad showing the actors also chose to claim to be the real Ayurveda based brand which may be perceived as arrogant or even petty. Due to the missing connect with the core offering of the brand, the ambassadors stand no chance against the massive appeal of Baba Ramdev and his Patanjali products.

Brand Resonance

The core offering of the Patanjali brand was no-nonsense Ayurveda based products which didn’t have fancy packaging and touched up images of good looking models. The ads also didn’t look ‘rich’ and were intentionally painted ‘simple’ to demonstrate its values. This strategy personified the brand as honest, simple and trustworthy, hence making people believe in the offering. Ayurveda based products must be able to invoke emotions like  purity and trust due to many factors like – lack of knowledge in people regarding the roots of the products, formulation and application, mushrooming of a huge number of Ayurveda based product companies and finally the perceived physical and health risks involved in using the products. Ayush has maintained its premium packaging and hasn’t been able to come up with a major differentiator vis a vis a host of other products available in the market. In absence of a strong usp, it hasn’t been able to make any specific place for itself in the segment.

Pricing

In terms of pricing, while Ayush has shed the premium tag with its re-launch a quick analysis of the products show that they are still quite expensive than Patanjali. The Ayush products taken into consideration are anything between 33% to 94% expensive than Patanjali products. Clearly, the reference point for Ayurveda based products in customers’s mind is Patanjali and a quick comparison between Patanjali and Ayush products will lead to an easy choice for her, if it is based on price only. With a more than satisfied customer base of Patanjali products, Ayush doesn’t have footing on the quality attribute either while some detractors and a small customer base who map uality on price may give Ayush a shot. But this will be a small base, far from viability for HUL. Hence, the price point becomes even more important which doesn’t seem to be helping Ayush.

In a nut-shell, Ayush’s relaunch by HUL may be more of optimism and an 'easy way out' rather than a of rational ‘Product Development’ growth strategy. Whether Ayush has more punches to pull in future, only time will tell. As of now, it doesn’t seem to be too much of a worry for Patanjali.

India-Bharat divide and enablers in personal data revolution

India is the fastest growing big economy in the world right now and among many enablers and outcomes, internet revolution, or to say more specifically, ‘personal internet revolution’ is an intricate mix of reality and hype.

With two-third of the Indian population below the age of 35 years and more than half of it belonging to the Millenials (born between 1980-2000); smart-phone tusnami backed personal internet revolution could never have been possible without this big chunk. The mobile internet users in India are estimated to be more than 350 million by end of June.

But among these generalist claims and macro statistics, the intricate mix of hype and reality on the ground is quite easily ignored. This mix and its immense quantum in terms of differences, is what will drive the future of data revolution, which has been ignored as suited for the present hoopla on the subject. This intricate mix, which many may call a divide between India and Bharat (for various social and commercial subjects), is however, not a destructive force or a warning for future. It is rather a huge opportunity, waiting to be exploited and rode upon with success, if only, we accept and appreciate this divide. What else would you call a situation where the phenomenal growth has been rendered without even appropriately involving a huge chunk of population(Tier-3 and below have less than 30% of mobile internet users). The personal data revolution is not a nation’s or service provider’s success story, as yet. It is an astonishing but very limited outcome of narrow commercial business plans, meant to pluck the low hanging fruits only.

Majority of online traffic, heavy social media engagement (videos, video chats etc) and online commerce is still limited to top metros and tier-1 cities. The usage adoption in tier-III cities and below has been fast but with interesting riders in terms of adoption, usage and upgrade. This means that the personal data revolution achieved so far is encouraging but constrained and the next wave of revolution will have to come from smaller cities, towns and villages. Are service providers ready to tap these markets?

Below are some basic differences in the consumer profile and consumption patterns in geographical areas which have not been perfected by the data revolution champions. Without understanding these in detail, the ‘personal data revolution’ can never be extended to the huge chunk which is still waiting for that precious network signal without the need of exchanging their precious fortune.

Following insights among others, were particularly interesting to understand the profile and consumption patterns of the internet aspirants of ‘Bharat’s Millenials’ -

·        

• Smart phone/Tablet is the next big purchase for majority of the feature phone owners, for the sole reason of being able to browse data
• Smartphones have made inroads but not as conspicuously as in bigger cities, with balanced mix of local budget brands like intex and Lava, cheaper Chinese handsets and mid to upper brands like Micromax and Samsung
• For majority of data users, current data expense is between 100-200 Rs. In some cases this is more than monthly voice/sms expense.
• 2G is predominantly used for internet consumption, for the sole reason of it being cheaper than 3G
• Users are brand agnostic and switch internet and voice service providers based on value offered(based on temporary promotional offers). Dual sim phones have helped this trend.
• Social (WhatsApp, FB, Chat) is the major traffic generator, while Travel/commuting is catching up
• Almost 80% of respondents were dissatisfied with the 2G performance in terms of speed and also questioned value for money against 3G (Approx 1 GB plan for 3G is 250 Rs and for 2G is 175 Rs)
• Only reason to not switch to 3G in spite of inconvenience and dissatisfaction over 2G services, is cost
• An alarming trend that came out was that just like their metro-cities and Tier-2 cities counter-parts, Smartphones are becoming an addiction with majority accepting to check the phone the first thing in the morning and the last thing in the night. Many accepted to have developed a habit to sleep at night while checking phone, as compulsion.
• In order to restrict the cost of data consumption, following methods are widely adopted –
• Visiting college and school libraries, shopping malls etc where WiFi is available
• Almost always try to share app between friends through tools like Xender and Appshare  rather than downloading
• Avoid downloading heavy apps to save data
• Avoid updating apps in spite of reminders till it is unusable, often ditch the app if is not considered worth of spending data to update
• For almost half the users, data consumption is sporadic, by keeping the data turned off and switching on only when intended to use(chat, check facebook, check/send an email etc)

                      

 
      There are various insights that can be drawn from the above results but clearly only two factors drive data consumption in the smaller cities and towns – Cost and internet speed.

It is incorrect to assume that the customers are agnostic about the performance of the service just because they continue to use it. They are constrained by the pocket size and the marginal value offered by the service for every extra rupee spent. In many case the experience with 3G services had not been so significantly different from the experience these customers have had with 2G services, so they have developed a mindset that there is no actual difference between the two and hence continue to use 2G despite having ability to pay for 3G services. This is a technical and infrastructural issue where the service provider is unable to provide the premium experience despite charging higher amount.

‘Bharat’ is eagerly waiting for the Service providers to take cognizance of the ability and revenue strength of this segment, it is the providers who have to respond to this opportunity, but not with slight tweaking in their services designed for the metro-customers but design services keeping in mind the user profiles and consumption habits of its inhabitants.

  Jio with its aggressive plans in terms of costs and services has all the elements to woo this segment and if it can deliver superior services with lesser cost, they will embrace it wholeheartedly. However, hard companies may try, this segment remains a brand agnostic one and better value offering will always win.

Jio’s aggressive stance will surely influence and drive others to look at their pricing and product strategies and quite possibly reduce their own offering prices, if not match it with Jio. In either case, entry of Jio into the segment will, inadvertently, as part of its aggressive competitive tactic, address the issues ‘Bharat’ customers have been having and as a positive outcome will contribute to the next wave of personal data revolution. 

Inner-circle counter branding- Ear and eyes open!

I recently came across a print-ad for Nasaka water purifier from Okaya group, and in no time a peculiar fact hit me. Veteran actress Shabana Azmi is seen endorsing the water purifier in the ad. The peculiar fact was that her son (from Javed Akhtar’s first wife, Honey Irani) is also seen endorsing the same category product, Pureit from HUL.

While, it is understandable that Farhan Akhtar is not Shabana Azmi's own son, and this conflict can very well be no conflict, an important question to ask here is, how credible does a product endorsement come across, when close family members, with equally strong brand image and credibility, endorse or anti-endorse products that are in direct competition or even substitution of that product or category.

The context and its implications of such a situation, also makes it imperative to judge if it is critical now to extend the boundary of due diligence and selection process for a brand ambassador beyond the individual to his closest set of people? Simply put, how pertinent it is to given to the individual’s image, appeal, relevance and credibility, should or shouldn’t the inner-circle deserves some notes and thinking, before inking  that million dollar deal?

Coming back to the first example cited, Both Shabana Azmi and Farhan Akhtar are known to be thinking actors and have associated themselves to a social cause every now and then. They have also managed to stay away from any major controversy adeptly, while being known for speaking their mind up. Crafty! Such attributes make them very attractive brand ambassadors for food and health category. Hence, Okaya and HUL were both bang on with the choice of their endorsers. However,  Okaya recently got Shabana Azmi to promote their Nasaka brand of water purifier, while it was well known that Farhan Akhtar promotes Pureit.

This can be a clean overlooking or may even be a thoughtful move. As Jack Trout and Al Reis suggest, in order to build a positioning in customer’s mind, try manipulating what is already there, instead of trying to create something new altogether. People know Farhan Akhtar and that he promotes pureit. So when Shabana Azmi comes up with an ad for another purifier, it helps than remember Nasaka since they would quickly relate Shabana Azmi to Farhan Akhtar, who is related to Pureit, and in the process will remember Nasak water purifier. Or at least the Nasaka marketers would hope for that.

Now, it is quite possible that people don’t fret much about how endorsements by members of a a particular star family cut, overlap or even counter each other, and they are able to remember them individually only attached to their respective endorsements. However, going by the argument in the last paragraph, connections are the easiest way to remember things, for example, Network maps, and hence it cannot be completely ignored that people may notice that while a male actor is promoting a tobacco brand, his star wife is busy educating people about ill-effects of Tobacco. This will not affect the Tobacco consumers but will definitely raise eyebrows on the sincerity of the star wife, and hence can mar the anti-tobacco campaign.

In order to ensure that such confusions and complexities are never allowed to find their way in the prospects’ mind, it is important that the due-diligence which is a regular exercise, post personality-alignment between the brand and the prospective endorser, is not just restricted to the prospective endorser but also to his or her inner-circle ie, the closest family members. The due diligence must along with other things (acceptability, appeal, relevance, credibility, social status, legal baggage etc) include a possibility of prospective endorsements and a contingency plan in case the family member’s brand endorsement interferes directly or indirectly with the primary brand endorsement. While this is a internal preventive technique, marketers can also adopt a regulated preventive technique where contracts pertaining to brand endorsements can be made to extend the exclusivity and non-compete clauses to family members. These of course will be difficult to draft as well as implement, and beyond doubt much more expensive.

There are of course various factors to consider before choosing one of the two techniques and a risk-impact analysis is a must before making a final call. These techniques can help marketers avoid losing their sleep over a challenger brand piggy-backing on their brand ambassador’s family member (and hence manipulating an already established positioning of their brand in the prospect’s mind!).

5 things about Patanjali and its product placement in Modern Retail set-up

Patanjali has been at the center of limelight for quite some time now. Many case studies have been piloted and a lot of research has been done to analyze its purchasing, operations, logistics, marketing and to some extent financing.

In this post we will look at the more simpler yet distinct steps it has taken in modern retail in terms of product placement, shelf design and location and assortment display. Here are five things which you may have missed when you passed by the Patanjali ‘mini-store’ in a modern-store.

• Patanjali, with its strong consumer-demand derived strength, has been able to command for itself exclusive mini-store like spaces in the modern retail set-ups. These are a set of shelves especially reserved for Patanjali products. More often than not, these shelves will be separated from the long racks stocked with other manufacturer’s brand-lines, which gives Patanjali a strong visbility and adds to its distinct-ness.

• Apart from the distinct-ness created due to a separate display space creating an anti-me-too impression (much needed differentiation in FMCG domain!), Patanjali is able to keep all its products at one place irrespective of product category (food products like noodles, honey and chyawanprash, and personal care products like bathing bar, face-wash and face creams) that leads to extensive cross-product selling. Customer who would have wanted to buy Patanjali toothpaste can take a long look of, feel the packaging and read the content on the face-wash that is kept just next to it.

• Interestingly, Patanjali is only one of the very few known brands at the moment, who in the modern retail set-ups, have not resorted to multi-unit packings for products such as soaps (bathing and washing bars), toothpaste etc. This means, that consumers who do not want to spend 100 Rs on buying soaps (even if it means buying 3 soap bars) can always pick Patanjali soaps for as cheap as 13 Rs. Also, none of the products offered has gone to package size beyond the nuclear-family packs, hence, none of the product’s price seems outrageous (when your brain is not in the mood to calculate per kg or per 500 gm or per ‘normal unit size’ price of the product, it just renders pricing of bhujia at 200+ Rs (for 1 Kg!), and 400+ Rs corn flakes (1.2 kg!) as outrageously expensive, and for some time putting the “unaffordable” tag on the brand itself.

• Patanjali can attribute its success (provisional revenue for 10 months in FY 16 upwards of 3200 crores Rs) to many things and there is a lot already written about it. One of many such attributes is its products’ direct or indirect link to Ayurvedic roots. Patanjali Yog Kendra and Swadeshi Kendra have been selling ayurvedic products and medicines for quite some time but there haven’t been strong inroads for these products in modern retail set-ups. However, the presence of these products right next to the fast-running ones like soaps, toothpaste and biscuits makes up for their weak revenue generation. These ayurvedic products reinforce the connection of fast running non-medicinal products to ayurveda, just by being placed next to them, and helps in maintaining and growing brand credibility

• Critics observe that one segment which has not accepted the product the way a bigger chunk has accepted it is the Muslim community due to their religious beliefs and also with lack of resonance with the star ambassador of Patanjali, Baba Ramdev. However, the company has tried to make some inroads with the segment by putting the label on their recently launched spices packs in Urdu, along with other Indian languages. While, this is just a start, we may see more such attempts to woo the community by advancing Patanjali products to their ‘consideration set’ from the current ‘evaluation set’. 

Bigger is better, or not! – Package size experiments in Modern Retail

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)

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

The trends and realities leading to these two new packaging concepts are pretty much opposite of what led to the LUP’s success. These attributes can be segmented under the following heads.

• 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

Standard Packaging - Patanjali

• Loss of LUP customers

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.