CavinKare Private Ltd: Serving Low Income Consumers

Gopi Khunt

Imran Dobiwala(Rural Marketing)

1 1 / 1 3 / 2 0 1 4

This research paper prepared by Professor Anand Kumar Jaiswal of the Indian Institute of Management and Professor Pingali Venugopal Of Xavier Labour Relation Insatitute. The paper discuss about the CavinKare rural marketing strategy by serving low income consumer.

Case Study: CavinKare Private Ltd: Serving Low Income

Consumers

CavinKare is one of the most successful company who reached to the rural

market by adopting low price strategy they taped the rural market. The

Ranganathan started his business with 15000 Rs. and within a decade that

company reached to 2640 billion Turnover Company. Their Chik Shampoo was

one of the successful on product in Indian FMCG market. Fewer products

names are given below:

Products Range:

Personal Care

Hair Care:

o Chik Shampoo

o Nyle Herbal Shampoo

o Meera Badam Shampoo

o Indica Hair Colorant

Ethnic Care:

o Meera Hair Wash Powder

o Karthika Hair Wash Powder

o Meera Herbal Hair Oil

Skin Care:

o Fairever

o Spinz Talc

o Spinz Deodorants

o Nyle Cold cream and lotion

Food Division:

o Ruchi Pickles

o Chinni's Pickles

o Chinni's Masala

o Chinni's Vermicelli

o Ruchi Gulab Jamun Mix 10

Competitive Analysis

Major Competitors:

HUL

P&G

Dabur

Himalaya health care

Case Study Facts

Main Issues:

1. Low untapped region:

All the companies are well trapped in the urban regions. But now CavinKare has fully

trapped the rural market by introducing chik shampoo and other competiors followed further

this strategy of entering into rural region.

2. Initially all companies were selling the shampoos in bottles but chik was only the one who

introduce sachet, first they apply the pricing strategy of sachet by Rs.2, then they were not

able to trap the market according to their expectation. So further they modified the pricing

strategy and made it to Rs. 0.50, because of this they were able to capture the market share of

23% in 2003.

3. It faced hurdles in its drive for expansion at national level.

4. The foremost challenge was to establish a nationwide distribution network. Distribution

network was very poor nationwide, so they were not able to grab the potential strength of the

rural market.

5. Rural markets were characterized by poor physical infrastructure. Large parts of markets

were not connected by roads. The challenges to companies in logistics, product shipment,

delivery of stocks and reaching out to retailers.

6. Rural consumers in the beginning were not much attracted towards the chik shampoo,

because they believed it contain harsh chemicals and familier with their ordinal soaps.

7. Reduced cost structure in rural market was unable to sell low income people and further

without compromising on the product quality started with proper structuring for the rural

products.

Overcome of above issues:

1. CavinKare was successful in increasing its penetration of rural markets by focusing

on periodic market.

2. CavinKare had built a strong distribution network that could move its products to

every corner of India. Extending distribution access was the key to marketing chik

shampoo to rural consumers. Its reach of rural markets was better than most other

consumer goods companies.

3. First customers thought that these kinds of shampoos are for urban people, so they

don’t find any harm in using soap. But then CavinKare team members gave them

demonstration by washing their hair and explain the difference.

4. First they came up with Rs.2 that was not affordable by rural people, so they changed

the pricing strategy and made it to Rs. 0.50.

5. Chik shampoo bottles to some extent were able to break the common notion that only

rich people uses bottles and then CavinKare change their bottles in the form of sachet

and made it affordable for everyone.

6. Continuous and close engagement with customers helped CavinKare in understanding

the tastes and preferences of Indian customers.

7. By outsourcing manufacturing Chik Shampoo company had been able to maintain a

clear focus on marketing and distribution.

Que. 1. Indian FMCG market set to very complex and dominated by big players with a

sizable market share. Do you think it was a well thought out strategy for rural segment

adopted by Chik Shampoo as a main cause of success?

Answer:

Indian FMCG market is set to very complex and dominated by big players with a sizable

market share. The Hindustan Lever’s had 70% of shampoo market share in India. Who were

the leader in the Indian market but they were mostly dealing with urban market. HUL was

experienced player in market by having Clinic Plus and Sunsilk brand. On the other side

Procter & Gamble also holds a strong in detergent segment, Head & Shoulder and Pantene

brand under their. Dabur was also a leading player with ayurvedic and medical products.

Their Vatika was direct compete with Nyle brand of CavinKare. The other players are like

Godrej, Jhonson & Jhonson etc. also in FMCG segment. The largest number of competitors

were holding good market share in urban area. But there were no any competitors in rural

market. Most of the competitors were concerning with profit by dealing with urban market.

There were enough potential opportunities in rural market.

Strategy for rural segment adopted by Chik Shampoo:

Segmentation, Targeting & Positionning:

C.K. Ranganathan got awards of successful entrepreneur for the Chik Shampoo. His

entrepreneurial spirit and commitment to business helped company to works towards strategy.

First Ranganathan identify the potential untapped market and future growth of the rural market

on the basis of population, consumption patterns and competition. For the chik shampoo they

have targeted lower middle class and semi-rural population with monthly income of Rs. 1500-

3000. They had set up positioned to hold the lowest price product in the rural market other than

existing competitors.

After deciding the STP model they have focused the four basic rural marketing principles which

every organisation should have to develop. Those are as follows:

Awareness- Promotion

At the time of launching of Chik shampoo there was a need for a superior quality shampoo with

appealing perfume and available at affordable price. When the chik shampoo launched company

shows that rural consumers had been using soaps to bath and wash their hair. The company

realized that they need to increase awareness level of shampoo in rural area because most of the

peoples as habitual to use the ordinal soaps. That’s why company had started radio advertisement

by using popular dialogs, endorsing south Indian stars like Manorama, Amla, Khushboo etc. to

appeal customer about Chik Shampoo. Company also realized that most of the rural people don’t

know how to use the shampoo for that Company official travelled in vans and give

demonstration, road shows, wall paintings, video on wheels, distributing door to door free

sample. That increase sales from Rs. 0.5 million in 1984 to Rs. 3.8 million. Company also launch

promotional schemes like returns four empty Chik shampoo and get one free from nearer retailer

stores.

Acceptability - Product:

The Ranganathan had set up low price for the rural consumer. He implemented his father sachet

concepts in Chik Shampoo. Ranganathan launched low unit packs (LUPs) that played an

important role in capturing the market. Sachet accepted among rural and low income urban

consumers who could not stock up and block money by purchasing shampoo bottles. Sachets

offered choice consumer buy when they need it, and low price also motivate new users to try the

shampoo. That increased their sales up to 15% of sachets as compare to bottles sales growth of

3%.around 64% of sales comes from sachet shampoo. That concepts made successful to Chik

shampoo.

Availability - Place:

After the death of Ranganathan’s father in 1979, Velvetto shampoo brand owned by his brother

C.K. Rajkumar was promoter of Velvetto International. But after a few years it was incurring

losses not because of management changes but the lack of proper distribution channel.

CavinKare facing the problem of road connectivity in rural areas. It is difficult for company for

logistic, product shipments, delivery of stocks and reaching put to retailors. For that solution

CavinKare started periodic marketing, in which they were selling shampoo in haats and melas.

Haats were set up in once in a week. Haats could serve 4000 rural consumers with 10-15

villages. That is new way of distribution channel increase sales in haats 0.2 million and in melas

1.43 million. There were a 58% consumers who were purchasing shampoo in haats or melas that

shampoo also were available in their villages. From the distribution channel company reached to

5.5 million retail outlets all over the India. The strong distribution channel leads them successful

to deliver shampoo to their potential customer easily.

Affordability – Price:

There were also consumers who were still thinking that price of the Chik Shampoo is still

unaffordable to them. AS per the calculation it comes that individual person should spend 40

Rs. Per month for shampoo. This was higher than the ordinal soap so company come up with

price innovation providing 4ml sachet of Chik Shampoo just in 0.50 paisa in Sept. 1999. That

price strategy works and it increased market share from 5.61% in 1999 to 23% in 2003. That

increases consumption of shampoo in rural market so that any common man can afford it.

Company also reduce the price of the shampoo bottles to maintain the demand of the shampoo

bottles. The prices of the sachet and shampoo bottles were almost equal. Chik Shampoo bottle

got favourable response from the rural markets and poor people can also satisfied with sachet

shampoo.

If we talks about the strategy of Chik shampoo, their marketing mix for rural market were very

well established. Their core basic elements for success of their strategy was:

Converting consumer insights into superior product

Developing product suitable for target markets

Altering the traditional cost structure

Launching products at new price points and establishing a distribution network with

high reach.

At lastly, serving low income consumers helped CavinKare to remain dominant player in

FMCG market.

Que. 2. In the light of above case identifies the reasons and factor in growth of Chik

Shampoo. Is the size of the segment one of the main reasons for its exponential growth?

Discuss what the parameters are on which rural markets one more attractive than the

urban market?

Answer:

Target Customer:

In India 74.27% population lives in rural market that contribute almost 60% to India’s gross

domestic product. The product purchased by 70 million household in rural market whose price is

lower than 1000. The penetration (the % of household consuming a particular product at least

once a year) in hair wash only about 16% as compare to 40% of urban market. By knowing this

market opportunity Chik Shampoo targeted lower middle class and semi-rural population with

monthly income of Rs. 1500-3000. By keeping in mind they had built up their promotional

programed, distribution channel, price strategy, understanding consumer mind set etc. that

strategy helped them to success.

Promotional strategy & Awareness:

Rural consumer had been using normal soaps to wash their hair and bath. It is very difficult to

convince them to use the Chik Shampoo. Rather than directly selling the product they had first

increase their awareness level. For that company used radio advertisement by using popular

dialogs, endorsing popular stars from South India Like Amla, Khushboo and Manorama that

appeals the consumer about Chik Shampoo.

Most of the rural people don’t know how to use shampoo. Through Vans, wall paintings, video

on wheels, door to door sampling company made effective promotion and awareness level. That

increased sales from 0.5 million to 3.8 million in 1984. By this it educate consumers how to use

and what are the benefits of shampoo and influence them to buy the Shampoo. Company also

launched a novel consumer promotion scheme under this anyone who returned four empty sachet

shampoos to retailer got one sachet free, that increased Chik’s awareness and demand.

Pricing strategy:

The Chik Shampoo provides lowest price other than from their competitors. Their lowest pricing

strategy makes them successful in rural market. Ranganathan comes up with low units packs

(LUPs) so that consumers can afford it and use it when they need it. The rural people thought

that by purchasing bottles, it blocked their money. The LUP strategy also reduces consumer risk

of trial. Low price shampoo in small packets were also attracting to new customers. That

decision leads to increase in the sales of sachets 15% as compare to 3% growth of shampoo

bottles.

Although CavinKare charging less price other than from their competitors, but a major

population was not afford it. Customers who were saying that the soap which they were using

not affecting their hair visibly. The shop which consumers were using it cost Rs. 8 so company

should have to come up with lower than that. From their R&D CavinKare come up with price

innovation that launched 4ml Chik Shampoo price at 50 paisa. That everyone can afford it. That

was great success. After this price innovation the market share of Chik Shampoo increased from

5.61% in 1999 to 23% in 2003. The bottle price also decreased so bulk buying more affordable

to consumer. It was breaking the common notion that only rich man can afford the shampoo

bottles.

Innovation:

Innovation of using periodic markets like haats and melas for distribution of Chik shampoo,

pricing Chik shampoo at 50 paisa, introducing floral fragrances in shampoo for the first time etc.

that increase their sales from 850 million Rs. to 2640 million. The CavinKares’s innovation

strategy was the key elements of the success of Chik Shampoo.

Distribution Channel:

There is around 80% population live in villages but rural market facing the problem of

connectivity because a largest part of the markets not connected by roads. That were creating

problem of logistic, product shipment, delivery of stocks and reaching out to retailers. For that

Cavinkare started Haats (Village Fairs) and Melas where Haats were held once in a week. Haats

served about 4000 consumers covers 10-15 villages. The result shows that 58% consumers were

purchasing in haats and melas which were also available in village. The new channel of this

haats generates average 0.2 million and melas generates 1.43 million sales. CavinKare’s

distribution system reached out to 0.75 million outlets. their strong distribution network as

compare to other competitors one of the major success key factors of Chik Shampoo.

Understanding of Consumer mindset:

Company was dealing in that market where the potential consumer haven’t aware about

shampoo. By doing research company came to know about the consumer expectation and there

taste & preferences. According to that company deals with consumer. For example consumers

were not affording bottles so company launched Sachet in small packet so everyone can afford it.

By moving forward with consumer mindset makes them successful.

Out Sourcing manufacturing Operations:

By outsourcing manufacturing it helps them to reduce cost and maintain the quality of product.

In 1983 company realized that they were not technological entry barriers. It helps to reduce

working capital requirement, focus on the marketing and distribution channel. The quality of

product maintains by company. Manufacturer had been solely had to supply product to

CavinKare. The manufacturing unit also enjoying the tax benefits of government for example in

Podicherry, a South Indian City that gives local manufacturing units.

Is the size of the segment one of the main reasons for its exponential growth?

From the overall Indian population, almost 75% population lives in rural market. That shows the

potential growth to Chik shampoo to enter in to rural market. On the other side the 70 million

people purchases less than 1000 Rs. Product in a year. That shows potential consumer

consumption patterns. According to that Chik shampoo targeting lower middle class and semi-

rural population with having monthly income of Rs. 1500-3000. As per the data, the percentage

of household consuming a particular product at least once a year in hair wash only about 16% as

compare to 40% of urban market. That shows the exponential growth of the rural market to

company and growth of the Chik Shampoo.

Why rural markets more attractive than the urban market?

One of the major reasons is population. 74.27% population lives in rural market. The rural

markets were too big to serve consumer.

Rural market contributed 60% to India’s GDP. That shows the income level of the consumer,

rest of the percentage is urban market which was lower than the rural market.

Around 70 million consumer purchased below 1000 Rs. That shows the consumption

patterns of consumers.

In 2002, rural penetration for hair wash product was 16% in front of urban penetration of

40%. That shows market potential.

As compare to urban, in rural areas the sales volume is very high. The HUL focused on profit

by selling mainly it in to urban market but the potential sales volume is high in rural market

that opportunity took by Chick shampoo.

The consumers are habitual to use one brand; if they liked our brand for a longer time of

period they will continue to use it. As compare to urban the consumers are brand switchers.

There is less competition as compare to urban market. Clinic Plus, Sunsilk, Pantene, Head &

shoulders, Vatika, Johnson & Johnson etc. mostly concentrating in to urban market.

QUESTION:3 : Understanding the importance of rural market, brings out its relevance for

the business organization to capture the unexplored territory.Also highlight the importance

of four A’s in understanding its attractiveness.

ANSWER: In recent years, the rural markets have acquired a greater significance and has

become the top most target of almost all the industries like FMCGs, Pharmaceuticals, Service

sectors, Automobile, Telecom, Textiles and many more. The overall growth of the economy has

resulted into substantial increase in the purchasing power of the rural communities.

Why Rural Market:

The size of the rural market is quite high in India. Nearly 75% of Indians are living in towns and

villages. The rural area in India is vastly distributed and covers around 70 % of the total area.

India has about 6, 38,000 villages and 5,100 towns and so has a significant potential growth for

almost all the sectors.

RURAL MARKETING

The concept of Rural Marketing in India Economy has played an influential role in the lives of

people. The rural market in India is not a separate entity in itself and it is highly influenced by

the sociological and behavioral factors operating in the country. Rural marketing determines the

carrying out of business activities bringing in the flow of goods from urban sectors to the rural

regions of the country as well as the marketing of various products manufactured by the non-

agricultural workers from rural to urban areas. The rural market in India is vast, scattered and

offers a plenty of opportunities in comparison to the urban sector. It covers the maximum

population and regions and thereby, the maximum number of consumers.

'Go rural' is the slogan of marketing guru's after analyzing the socio-economic changes in

villages. The Rural population is nearly three times of the urban, so Rural consumers have

become the prime target market for consumer durable and non-durable products, food,

construction, electrical, electronics, automobiles, banks, insurance companies and other sectors

besides hundred per cent of agri-input products such as seeds, fertilizers, pesticides and farm

machinery.

However, the success of the product in the rural market is as predictable as rain. It has always

been difficult to understand the rural markets. Marketers need to understand the social dynamics

and attitude variations within each village. But by overcoming the challenges and looking into

the opportunities which rural markets offers to the marketers it is said that the future is very

promising for those who understand the dynamics of rural markets and exploit them to their best

advantage. Rural markets face the critical issues of Distribution, Understanding the rural

consumer, Communication and Poor infrastructure.

The marketer has to strengthen the distribution and pricing strategies. Improvement in

infrastructure and reach, promise a bright future for those intending to go rural. Rural consumers

are keen on branded goods nowadays, so the market size for products and services seems to have

burgeoned. The rural population has shown a trend of wanting to move into a state of gradual

urbanization in terms of exposure, habits, lifestyles and lastly, consumption patterns of goods

and services.

To expand the market by tapping the countryside, many MNC's are foraying into India's rural

markets. Among those that have made headway are Hindustan Liver, Coca-Cola, LG electronics,

Britannia, Colgate Palmolive and the foreign invested telecom companies. These companies'

foreseeing the vast size and demand in the rural market cannot afford to ignore. Rural market

accounts for half the total market for TV sets, Fans, Pressure cookers, bicycles, washing soap

and tooth powder where FMCG products in rural products in rural markets is growing much

faster than the urban counterpart.

With a near saturation and stringent competition in urban India, a large indefinite number of

product manufacturers are pushed to chalk out bold new strategies for targeting the rural

consumers. Today, even in the remote towns and villages it is possible to find many branded

consumer goods, even in the paan shops and kirana shops such scenario exists. Percentage of

BPL (below poverty line) families declined from 46% to 27% and this apparently indicates that

the purchasing power of the rural communities has increased.

More than 50 percent of the sales of FMCG and durable companies come from the rural areas.

The reach has widened to such an extent that companies like ITC, HLL, Hero Honda, TATA,

M&M and many others have special programmes and strategies for capturing rural India.

The marketing strategies adopted for rural market are mainly influenced by two factors. The first

factor is the competitive situation and the next one is the place where it is applied. The strategies

differ from that of urban market; the rural market is more price sensitive at the same time has

preference for both quality and quantity.

Not as like urban market there is a cut throat competition in rural market among the brands, but

then first to take the brand to the retailer’s shelf would be the actual competition.

Rural marketing strategy is based on their A’s – Availability Affordability and Acceptability.

The first ‘A’-Availability emphasises on the availability of the product for the customers, i.e.,

this gives importance on effective distribution through efficient channels of distribution.

The second ‘A’- Affordability which focuses on product pricing, i.e, this gives importance for

smaller packages/pouches easily affordable by families in the rural areas, The third ‘A’ –

Acceptability focuses on convincing the customers to buy the product, i.e., extending suitable

promotional efforts to influence the customers to buy the product. Marketers need to understand

the psycho of the rural consumers and then act accordingly.

Rural marketing involves more intensive personal selling efforts compared to urban marketing.

Firms should refrain from pushing goods designed for urban markets to the rural areas. To

effectively tap the rural market a brand must associate it with the same things the rural

consumers do. This can be done by utilizing the various rural folk media to reach them in their

own language and in large number so that the brand can be associated with the myriad rituals,

celebration, festivals, melas, fairs and weekly hats.

Rural Distribution Strategy:

One of the ways would be using company delivery mass, which can serve two purposes – it can

take the products to the customers in every hook 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 large manufactures can adopt this channel. The companies with relatively

fewer resources can go in for the syndicated distribution where a tie-up between non-competitive

marketers can be established to facilitate distribution.

In recent years, rural markets have acquired significance in countries likeChina and India, as the

overall growth of the economy has resulted into substantial increase in the purchasing power of

the rural communities. On account of the green revolution in India, the rural areas are consuming

a large quantity of industrial and urban manufactured products. In this context, a special

marketing strategy, namely, rural marketing has taken shape. Sometimes, rural marketing is

confused with agricultural marketing – the later denotes marketing of produce of the rural areas

to the urban consumers or industrial consumers, whereas rural marketing involves delivering

manufactured or processed inputs or services to rural producers or consumers. Also, when we

consider the scenario of India and China, there is a picture that comes out,huge market for the

developed products as well as the labor support. This has led to the change in the mindset of the

marketers to move to these parts of the world.

Also rural market is getting an importance because of the saturation of the urban market. As due

to the competition in the urban market, the market is more or so saturated as most of the capacity

of the purchasers have been targeted by the marketers.So the marketers are looking for extending

their product categories to an unexplored market i.e. the rural market. This has also led to the

CSR activities being done by the corporate to help the poor people attain some wealth to spend

on their product categories. Here we can think of HLL (now, HUL) initiatives in the rural India.

One of such project is the Project Shakti, which is not only helping their company attain some

revenue but also helping the poor women of the village to attain some money which is surely

going to increase their purchasing power. Also this will increase their brand loyalty as well as

recognition in that area. Similarly we can think of the ITC E-Chaupal, which is helping the poor

farmers get all the information about the weather as well as the market price of the food grains

they are producing.In other view these activities are also helping the companies increase their

brand value. So as it is given above the significance of the rural market has increased due to the

saturation of the urban market as well as in such conditions the company which will lead the way

will be benefited as shown by the success of HUL and ITC initiatives.

The other distribution strategies for the rural population are as under:

i. The general insurance companies may promote their policies of health insurance, crop

insurance and vehicle insurance through the existing co-operatives.

ii. Marketers may arrange more number of wave-houses for storage and re-packaging into

smaller pouches for which employing local villages will work profitable and popular.

iii. All communication in the rural areas must be in the regional language and dialects.

iv. Markets need to develop innovative packaging technology which would be economic,

protective and improve shelf-life of goods.

v. In addition to focusing on targeted promotions and advertising, there is an urgent need to work

on economical packaging, dual pricing and special size of PMCQ and household products.

vi. Marketers need to place emphasis on retailers directly rather than depending on the

wholesalers for distribution in the rural market as this has not proved to be very effective

marketing channel.

vii. Marketers targeting the rural market should be well aware about the seasonality of the

business. Because the trade is seasonal, employment and disposable income can fluctuate arrange

the villages during the year. This means that business should view market research data that

relies on yearly aggregate statistics with caution.

viii. Marketers must trade off the distribution cost with incremental market penetration.