Cavinkare Pvt Ltd Serving Low Income Consumers

7/24/2019 Cavinkare Pvt Ltd Serving Low Income Consumers

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ASIAN CASE RESEARCH JOURNAL, VOL. 12, ISSUE 1, 128 (2008)

2008 by World Scientific Publishing Co.

ACRJ

This case was prepared byProfessor Anand KumarJaiswal of the Indian Insti-

tute of Management, Ahmed-abad and Professor PingaliVenugopal of Xavier LabourRelations Institute (XLRI),Jamshedpur, as a basis forclassroom discussion ratherthan to illustrate either effec-tive or ineffective handling ofan administrative situation.

Please address all corre-spondence to Anand KumarJaiswal, Visiting AssistantProfessor of Marketing, In-dian Institute of Management,Vastrapur, Ahmedabad

380 015, India. E-mail:[email protected].

Cavinkare Private Limited: ServingLow Income Consumers

Having successfully played David to the Goliaths

of the FMCG world, C. K. Ranganathan has now

set his sight on transforming his Chennai-based

Rs.2,640 million company into a billion-dollar

entity (Rs.52,000 million to be precise) within the

next decade. Ranganathan, the moving force

behind the sachet revolution in the country,

is the man who took shampoos and perfumes

from urban store shelves to rural homes, thereby

changing the dynamics of consumer product

marketing forever. The experimentation and in-novation that CavinKare brought to the market

redefined FMCG marketing in India.

The Economic Times, 18 October 2004

The Economic Times Awards for Corporate Excellence for

2004 had just been announced. The Entrepreneur of the Year

award winner was C. K. Ranganathan, Managing Director of

CavinKare Private Limited.

Receiving the award had been a moment of pride

for C. K. Ranganathan. His joy soared later when C. K.Prahalad,a who himself had been trying to educate

corporations on how to tap the bottom of the pyramid

aC. K. Prahalad is regarded as one of the influential business strategy thinkers.

Prahalads recent work The Fortune at the Bottom of the Pyramid: Eradicating Poverty

Through Profitshas become one of the dominant ideas of discussion among practising

managers, academicians and policy makers. Prahalad posits that MNCs can do

profitable business with 4 billion customers at the bottom of the economic pyramid

and this will help in lifting the poor out of poverty.


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markets, wished him saying, It makes me proud to seesomebody from my country and hometown preaching

through practice.1 Starting his business with a modest

capital of Rs.15000, Ranganathan had come a long way to

receive the Entrepreneur of the Year award. His company

CavinKare had not only survived cut-throat competition

from established multi-national corporations (MNCs), but

also had grown impressively over the years. It had suc-

ceeded in carving out a share of the Indian fast moving

consumer goods (FMCG) market through innovation, value

pricing, product differentiation and understanding of con-sumer mindsets. It evolved a new business model to serve

low income markets profitably.

HISTORICAL BACKGROUND OF CAVINKARE

CavinKare Private Limited was born out of the entre-

preneurial zest of C. K. Ranganathan. He had a family

business of small-scale pharma packaging and cosmetics

manufacturing in Cuddalore, a small coastal town in the

state of Tamil Nadu in the southern part of India. Aftercompleting his graduation, Ranganathan joined his family

business. In 1983 he started his own company in a small

boarding room. His entrepreneurial zeal and single-minded

commitment to business helped him in his pursuit. Twenty

years hence, his company emerged as a strong player in the

Indian fast moving consumer product market, offering a

range of hair care, skin care and personal care products. The

company had several known brands in its portfolio such

as Chik (shampoo, talc), Meera (herbal powder, liquid hair

wash, shampoo, hair oil), Nyle (herbal shampoo), Fairever

(fairness cream), Spinz (perfumes, deodorants and talc),

Indica (hair dye), Raaga Cool (cooling hair oil) and Karthika

(hair wash powder). Most of its brands held number one

or number two position in terms of market share. It was

credited as a consumer product company that had the best

new brand success ratio in the industry.2

The company was originally started as Chik India

in 1983. It changed its identity twice since then. It became


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CAVINKARE PRIVATE LIMITED 3

Beauty Cosmetics Private Limited in 1990. In 1998 it becameCavinKareb Private Limited with the aim of going beyond

cosmetics and offering a wide range of consumer products.

Key milestones in the journey of CavinKare are given in

Exhibit 1. The company had a turnover of Rs.850 million

in 199899 which rose to over Rs.2640 million in 2003

(Exhibit 2). Since 1994 onwards, it had been growing at a

compounded annual growth rate (CAGR) of about 31%.2

RURAL MARKETS: UNTAPPED OPPORTUNITY

The rural population in India represented a vast untapped

market. In terms of size alone, the rural markets were too

big to be ignored. These markets accounted for over 620

million or 74.27% of the population of India. Rural markets

contributed almost 60% to Indias gross domestic product

(GDP). The size of the middle-class consumers in rural areas

was the same as in urban areas.3

The composition of rural markets for different product

categories based on prices is given in Exhibit 3. The rural

market for products priced below Rs.1000 comprised over70 million households. Exhibit 4 provides the market size

of rural markets in terms of the number of households

based on income categories. About 102 million (86%)

households in rural India and about 131 million (about 80%)

of all households in India had an annual income less than

Rs.45000.

Penetration (the percentage of households consuming

a particular product at least once a year) of different

consumer product categories in rural and urban areas is

given in Exhibit 5. For categories such as toothpaste, hair

wash (which mainly consisted of shampoos) and dish wash

products, penetration level in rural areas was substantially

lower than in urban areas. In 2002, rural penetration level

for hair wash products was about 16% against urban

penetration of 40%. The overall consumption of consumer

bCavinis a literary word in Tamil language, symbolizing beauty and grace, while Kare

comes from the English word care.


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product categories in India was in general significantly lowerthan in other developing countries in Asia. For example in

2004, per capita consumption of shampoos (in Rs.) was just

26 as against 48 and 52 in China and Indonesia respectively.

Comparison of per capita consumption of selected consumer

product categories in India, China and Indonesia is provided

in Exhibit 6. Of late, categories such as shampoos and

skin cream had recorded high growth. Exhibit 7 provides

penetration versus growth rate figures for selected product

categories.

CHIK SHAMPOO: PRODUCT FOR THE LOW

INCOME CONSUMERS

Chikc shampoo is the best example of CavinKares success

in tapping low income markets in India. The company had

launched it in 1983. It was targeted at the lower middle class

and semi-rural population with monthly income of Rs.1500

3000.4 At that time more than 100 brands of shampoo were

available. However, they had very low awareness among

consumers. There was a need for a superior quality shampoowith appealing perfume and available at affordable price.

Chik shampoo started differentiating itself on the basis of

quality and superior fragrance. It used a French perfume in

its formulation. National brands such as Sunsilk and Clinic

Plus from Hindustan Lever Limited (HLL)d were mainly

targeted at urban consumers and had virtually ignored

rural markets. CavinKare saw profitable opportunities in

selling products to rural consumers and also consumers in

small towns.

EDUCATING CONSUMERS

Rural consumers had been using ordinary soaps to bathe

and wash their hair. They had not seen any visible damage

cChik was coined from the name of Ranganathans father Chinni Krishnan.dHindustan Lever Limited is a subsidiary of Unilever in India.


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of their hair by using ordinary soaps. The company realizedthat they could be convinced to try out a shampoo through

proper consumer education. It developed a communication

plan to connect with the consumers and create brand

awareness. In the initial years it relied heavily on radio

for mass media advertising. Radio advertisements made

use of popular movie dialogues supporting the brand.

Popular movie stars from South India like Amla, Khusboo

and Manorama endorsed the brand. Movie stars were very

popular among the majority of the population in South

India. Understanding this consumer insight and leveragingmovie stars mass appeal helped in making Chiks marketing

communication effective.

The company also realized that most of the rural

consumers had no idea how to use shampoo. Company

officials traveled in vans to rural areas for live demonstration

of shampoo usage and product benefit. It started aggressive

road shows to educate villagers how to lather, wash and

comb hair. Wall paintings and video-on-wheels formed a

major chunk of the advertising campaign. It used video on

wheels to screen popular movies for the public. Along with

free screenings of movies, it distributed free samples aimedat creating brand awareness among users. In addition, it

went for large scale door-to-door sampling. The strategy

worked quite well in increasing the awareness about the

shampoo usage and weaning the rural population away

from soap and traditional items used for washing hair.

These road shows and promotion helped to increase sales

from Rs.0.5 million in 1984 to Rs.3.8 million in the next

year.6

In the early days, the company had launched a novel

consumer promotion scheme to create the consumer pull

and induce trials. Under this scheme, anyone who returned

four empty shampoo sachets of Chik to the retailer got one

sachet free. It got good response from users, making hordes

of consumers asking for Chik shampoo at nearby retail

outlets. The scheme ran for one year and was successful in

increasing Chiks awareness.


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SINGLE-SERVE SACHETS

Ranganathans father Chinni Krishnan had pioneered the

concept of sachets when he introduced Velvette shampooe

in sachets in 1976. Through Chik, Ranganathan popularized

the sachet concept. Ranganathan was often referred as the

moving force behind the sachet revolution in India.2Sachets,

a form of low unit packs (LUPs), played an important role in

capturing the market initially for Velvette and later for Chik.f

Single serve sachets gave boost to shampoo consumption in

India and were especially suitable for rural markets. Theygot high acceptance among rural and low income urban

consumers who could not afford the comfort of inventory.

Because of limited cash, these consumers preferred not to

stock up and thus block money for shampoo, a product

perceived to be less essential. Besides low cost, sachets

offered the convenience of buying the product only when it

was needed. Sachets also helped in minimizing the risk of

trial. Sometimes consumers did not want to be tied down to

a particular brand. Low price came in handy for consumers

to try out different brands.

In recent years shampoo sachets showed fastergrowth than bottles. For instance, during 19972002, sachets

sales grew at a rate of 15% whereas shampoo bottles sales

grew at about 3% growth rate.6 The share of single serve

sachets as a proportion of total shampoo market had also

increased gradually over the years (Exhibit 8).In 2002,single

serve sachets accounted for approximately 64% of the total

shampoo consumption in terms of volume and 60% in terms

of value.7

eAfter Ranganathans father demise in 1979, Velvette shampoo brand was owned

by Velvette International. Ranganathans brother C. K. Rajkumar was the promoter

of Velvette International. Velvette was a popular brand in the 1980s. It became the

largest selling shampoo brand in 1991 with a market share of 29.32%. However,

in the late 1990s it could not survive the competition and the company started

accumulating losses. The main problem was that the company could never set up its

own nationwide strong distribution network.fCavinKare sourced packaging materials from its associate company, Packaging

India Private Limited. This helped it to get packaging materials at lower costs than

its competitors.


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EXTENDING DISTRIBUTION REACH

CavinKare launched Chik shampoo at the national level in

1993. The company faced hurdles in its drive for expansion

at the national level. The foremost challenge was to establish

a nationwide distribution network. Chik brand was targeted

at rural consumers primarily, although price conscious

consumers from small towns also became regular buyers.

For targeting rural consumers, the biggest impediment

was distribution access. Rural markets being harder to

reach present a different kind of challenge for any marketer.Rural markets had spread over 600,000 villages. Over

103,952 villages (18%) had a population less than 200 while

141,143 (24%) villages had population between 200 and

500 (Exhibit 9). About 82% of the rural population lived

in villages with a population of less than 5,000. Retail

density (number of retail outlets per thousand population)

was extremely low in rural areas. Rural markets were

characterized by poor physical infrastructure. Large parts of

the markets were not connected by roads. The thin dispersal

of rural markets posed serious challenges to companies in

logistics, product shipment, delivery of stocks and reachingout to retailers.

To gain distribution access, CavinKare approached

rural consumers in an innovative manner. It started tapping

periodic markets like haats and melas. Haats and melas had

been performing the periodic marketing function in rural

area for years. A periodic market was a public gathering

of buyers and sellers meeting at a customary location at

regular intervals. Haats were periodical markets held once

a week. For CavinKare haats acted as a very useful means

of reaching out to rural consumers. They played a critical

role in accessing consumers in remote and less prosperous

villages. Most of the haats were attracting consumers living

within a radius of 1215 km. Haats could serve about 4000

rural consumers dispersed over 1015 villages. For rural

consumers, the importance of a particular haat was often

based on the number of stalls selling urban products

such as cosmetics. The intensity of transactions varied,

based upon the season. Transactions generally went up


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considerably soon after the harvest season. Most melas(fairs)were generally held after the harvest season, so villagers

had enough cash in hand. Melasattracted a large number of

buyers from distant places also.

A rural marketing study on haats found that even

when the same products were available in the village retail

outlet, 58% of rural consumers visiting haats preferred to

purchase those from the haat. The key reasons were better

prices, quality and product assortment available in haats.8

Approximately 47,000 haats and 25,000 melas were held

in rural areas every year (Exhibit 10). These places werecharacterized by high per capita spending, sometimes

greater than in urban areas. On average, haats had Rs.0.2

million of business transaction in a single day, while average

sales per melawas Rs.1.43 million.9 CavinKare was successful

in increasing its penetration of rural markets by focusing on

these periodic markets.

Over the years CavinKare had built a strong

distribution network that could move its products to every

corner of India. For CavinKare, extending distribution

access was the key to marketing Chik shampoo to rural

consumers. Its reach of rural markets was better than mostother consumer goods companies. There were a total of

3.6 million retail outlets in rural areas and about 2 million

rural retail outlets sold consumer goods.8 Overall India had

more than 5.5 million retail outlets for consumer products.10

CavinKares distribution system reached out to 0.75 million

outlets.11 Its rival Hindustan Lever had a direct coverage of

about 1 million outlets.12

REINVENTING PRICE-PERFORMANCE

RELATIONSHIPS

In the mid 1990s the company realized that other than

distribution access there were obstacles coming on the

way of large scale adoption of shampoo by consumers

especially from the rural areas. Shampoo as a product was

perceived to contain harsh chemicals. It was viewed more

as a glamour and lifestyle product than a necessity. Many


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consumers used shampoo only on special occasions such asweddings, parties, etc. Shampoo companies were finding it

tough to convince consumers to switch over from ordinary

toilet soaps and other traditional alternatives to shampoos.

Usage of natural conditioning agents such as henna was

quite prevalent. Even Hindustan Levers former chairman

M. S. Banga had admitted that though Hindustan Lever

had 70% share of the shampoo market, it had just 10%

of the hair wash occasions in the country.13 Compared to

other consumer product categories, shampoo had a very

low penetration level (Exhibits 4 and 5). Hence the markethad great potential for volume expansion by recruiting

new users and driving volume growth. The biggest barrier

in attracting non-users was the high price of commonly

available shampoos. Despite the availability of low unit

packs, a major portion of potential user population was

finding them unaffordable.

In 1999 CavinKare came up with a pricing innovation

that had a big impact on shampoo consumption in rural

India. An important customer insight led to this innovation.

While interacting with rural consumers, company officials

noticed that usage of ordinary soap for washing hair wasstill very high. When they tried to convince that soap could

damage hair, they got a very straightforward answer.

Customers said that they had been using soap on hair for

generations and nothing had happened to their hair. Though

soap application could result in rough texture, there was no

visible damage. This led to the realization that persuading

consumers to switch over to shampoos would not be easy.

Though mass media advertisements and celebrity

endorsements had created an aspiration value for shampoo,

price was proving to be an inhibitor. CavinKare did some

simple calculations. At Rs.2 a sachet of shampoo and four

washes a month, per person spending on washing hair

worked out to Rs.8 per month. On average, the number of

adults per household in villages was five. So a family had to

invest a total of Rs.40 for hair wash alone. This was clearly

unaffordable for rural consumers. Consumers would be

averse to incur a high expenditure just to keep their hair

clean. Soap was, thus, preferred over shampoo. The average


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cost of soap was around Rs.8. Besides, it could be used for alonger duration by the entire family and for bathing as well.

CavinKare conducted a survey in rural areas and got the

feedback that if the total cost of hair wash per person could

be cut down to Rs.2 per month, the rural consumer would

be willing to try out shampoos.14 Armed with this insight,

CavinKare worked backwards. Its research and development

(R&D) division took the task of altering existing formulation

and finding cost-effective substitutes. The division developed

a new formulation at reduced cost without sacrificing quality

and efficacy. The new formulation enabled the company tolaunch a 4-ml sachet of Chik shampoo priced at 50 paise in

September 1999. The launch was a great success. The market

share of Chik after the launch jumped from 5.61% in 1999 to

over 23% in 2003 (Exhibits 11, 12 and 13). Chik sachet made

shampoo as a category more accessible to rural consumers.

Priced at 50 paise, Chik became the recruitment brand for

the industry. This led to shampoo usage growing in rural

markets at a rate almost twice that of the urban market. In

the late 1980s, the contribution of the rural market was in

the region of 15%. It had grown to 35% in 2002.6

In 2000, CavinKare extended the price reduction toshampoo bottles also. This move was aimed at making bulk

buying more affordable for consumers. In the case of Chik,

the cost per ml shampoo is the same for both bottles and

sachets unlike other brands (Exhibit 14).g By keeping costs

equal CavinKare attempted to upgrade users from sachets

to bottles. Chik shampoo bottles got a favourable response

in the market. To a certain extent, it was successful in

breaking the common notion that only the rich can afford

the shampoo bottles, and the poor have to be satisfied with

sachets.

gTraditionally in the Indian market the consumers had to pay different prices per

unit volume based on whether they were buying sachets or bottles. For example, the

cost of sachets of Sunsilk Black is approximately Re. 0.25 per ml (an 8 ml sachet of a

good quality shampoo costs Rs.2). On the other hand, the cost of shampoo in a bottle

is approximately Re. 0.50 per ml (a 200 ml bottle costs about Rs.99). This is shown

in Exhibit 14. This price differential also has contributed to the popularity of single

serve sachet. By creating this price differential, companies such as Hindustan Lever

and P&G actually promote downgrading of consumers from bottles to sachets.


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FOUCS ON INNOVATION

Focus on innovation was the key element of CavinKares

business strategy of targeting low income markets. In

addition to channel innovation of using periodic markets

like haatsand melasfor distribution of Chik shampoo, pricing

Chik shampoo at 50 paise, introducing floral fragrances in

shampoo for the first time, the company can be credited

with several other low income market innovations in other

product categories. It launched Spinz perfume in a small

pack called Dab-on which was typically for a one-weekusage. It also introduced a single use perfume Singlez.

Continuous and close engagement with customers

helped CavinKare in understanding the tastes and

preferences of Indian customers. Company representatives

traveled extensively and spent substantial time in rural and

far off areas. This gave them first-hand experience of ground

realities and the heterogeneity of Indian markets. It enabled

the company in identifying consumer needs and gaps earlier

than the competitors.

CavinKare followed a four-fold strategy for promoting

the culture of innovation within the organization:

Constant engagement with customers to gain special

insights.

Screening customer insights for their potential and

translating them into meaningful products.

Challenging all conventional ways while translating

insights into products.

In the case of problems, going back to the customer again

to refine products and re-launching improved ones.

The working culture in the organization was designedto support innovation. To promote newer ideas and develop

an entrepreneurial spirit among employees, the company

had a special system in place. Any employee who came

up with a new idea would get a budget to pursue it and

to develop a commercially viable product. Even though

the success rate was 2030%, it helped the company in the

innovation of products and practices regularly.


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OUTSOURCING MANUFACTURING OPERATIONS

Reduced cost structure was another factor which enabled

CavinKare to sell quality products to low income customers.

In product manufacturing, it was the first among Indian

companies to derive the advantage of business process

outsourcing.2Since 1983, the company had been outsourcing

its manufacturing operations when it realized that shampoo

manufacturing did not have technological entry barriers.

Outsourcing reduced CavinKares overheads considerably.

Apart from cost saving in product manufacturing, out-sourcing helped CavinKare to become a nimble and agile

organization. It gave high flexibility in the selection of

product mix and reduced its working capital requirements.

Furthermore, the company had been able to maintain a clear

focus on marketing and distribution. While outsourcing

manufacturing, it developed a system and processes for

ensuring quality of its products. It followed the model of

exclusive outsourcing. Under this the manufacturing firm

would have to supply its products solely to CavinKare.

This ensured all the advantages of in-house manufacturing

operations. It associated with people enjoying highcredibility for making quality products. It set up strict

standards for manufacturing, which all the suppliers had to

adhere to and a strict system for monitoring the quality of

outsourced products.h

COMPETITION

The market for shampoo was characterized by the presence

of multinational companies and local players.

Hindustan Lever Limited (HLL): Hindustan Lever

was a 51% Indian subsidiary of Unilever, an Anglo-Dutch

consumer goods company. Hindustan Lever was one of the

most dominant consumer products companies in India. It

was present in virtually every category of the fast moving

hMost third party manufacturers supplying products to CavinKare were situated in

Podicherry, a South Indian city that gave many tax benefits to local manufacturing

units.


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consumer products market. Hindustan Lever had two mainshampoo brands Clinic Plus and Sunsilk. Clinic Plus,

launched in 1971, was positioned as the shampoo that

makes your familys hair healthy and glowing. It appealed

largely to urban middle-class consumers. It was targeted at

mothers, educated yet assessing their self-esteem through

their childrens achievements. Hindustan Lever launched

Clinic All Clear in 1987 as therapeutic-anti dandruff

shampoo. Sunsilk beauty shampoo, available since 1964, was

positioned as the hair expert.

Procter & Gamble (P&G): P&G was present incategories like detergents, cosmetics, shampoos and sanitary

towels. The parent company was Americas biggest maker

of household products. It had a strong hold in the detergent

segment in India. It had Pantene and Head & Shoulders

in its portfolio of shampoo brands. Pantene, launched

much later in 1995, differentiated itself as an overall health

shampoo with protein. P&G launched Head & Shoulders as

an anti-dandruff shampoo in 1997.

Dabur: Dabur was a leading Indian company in

consumer products. It was originally associated with

ayurvedic and medicinal products. Over the years itspresence in categories such as hair oil, hair colorant, oral

care and shampoo had grown. It had Vatika herbal shampoo

in the value-added shampoo segment. Vatika was in direct

competition with Nyle, the herbal shampoo brand of

CavinKare.

Other Players: RDM Traders Private Limited (Ayur

herbal shampoo), Godrej (Godrej Colourgloss shampoo a

niche brand for users with coloured hair) and Johnson &

Johnson (medicated anti-dandruff shampoos) were other

players with low presence in the market.

Most of the shampoo brands were positioned around

the health platform, highlighting benefits like lesser or no

hair loss, lesser or no dandruff, no split hair, curing and

avoiding damage to the hair, etc. Till 1999, Chik was known

mainly for its value for money (VFM) preposition. But later

it was positioned around the soft and manageable hair

platform.


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COMPETITORS RESPONSE TO CHIK

Big companies led by Hindustan Lever had always viewed

rural consumers as low margin, hard to tap market.i

Traditionally Hindustan Lever focused more on gross

margins and less on volumes.jAs Chiks volume and market

share grew rapidly, Hindustan Lever realized the potential

of the market it had always overlooked. It responded by

launching Lux shampoo, an extension of its Lux soap brand,

in sachets priced at 50 paise and one rupee. With its value

for money proposition, Lux shampoo tried to lure Chikbuyers. It also introduced its flagship brand Clinic Plus and

Sunsilk in sachets in 2002. Even after Hindustan Levers

competitive reaction, Chik continued to grow impressively

and became the second largest selling brand in the shampoo

category in 2002.

CONCLUSION

Over the years Chik emerged as one of the most popular

and admired hair care brands in India. It won theAdvertising Agencies Association of Indias best brand

performance award in 2003. According to A C Nielsen, Chik

brand cornered revenue of Rs.1.11 million in 2004. It also

entered the list of top 100 consumer brands in India in the

same year.15

iHindustan Lever had also overlooked rural markets and Nirma, an Indian

company, that emerged as market leader in detergents. Nirma started selling a

low cost detergent among rural customers and low income urban customers in the

mid 1980s. Nirma fast captured the market which Hindustan Lever had ignored.

It became the largest selling detergent brand and a household name in India. After

five years, realizing its vulnerability, Hindustan Lever decided to respond to Nirma

by launching its own brand Wheel. For more details see Hindustan Lever Limited

(HLL) and Project Sting Darden School of Business case by P. S. Ahmad and J. Mead

(case no UVA-E-0266).jIn urban markets, Hindustan Levers market dominance enabled it to increase the

prices of most of its products, including shampoo, gradually over the years. This

happened when in many cases the cost of raw material went down significantly.This

vacated considerable space at the bottom end of the market, helping companies like

CavinKare to sneak in (for more information, see The Economist2004, Slow moving;

Consumer goods in India).


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Chiks success had demonstrated that rural consumerscould become just as discerning about brands as urban rich

consumers, if a brand offers a value proposition acceptable

to them. In the case of Chik, instead of gross margin

CavinKare focused on volume growth. Though the low

income market paid a lesser price or used smaller quantities

on a per capita basis, their large size translated into a huge

market for products like shampoos. Even if a company made

low to modest profit per customer, the gross profit could be

significant, sometimes even higher than the urban markets.

CavinKare was one of the few companies whichsaw the economic potential of the dormant buying power

of the low-income population. It identified opportunities

which were ignored by other big companies. Its business

model involved converting consumer insights into superior

products, developing products suitable for target markets,

altering the traditional cost structure, launching products

at new price points and establishing a distribution network

with high reach. The company exemplified that serving rural

and poor consumers is not just about reducing prices. It

involves creativity, flexibility and vision. Its about orienting

the research and development for creating products for thepoor.

CavinKare as a company established its presence in

the Indian consumer products market. Its innovation led

strategy helped it in broadening its product portfolio and

achieving fast growth over the years. Apart from Chik, its

other products such as Nyle herbal shampoo and Meera

hair wash powder were market leaders in their respective

categories. Fairever fairness cream and Spinz deodorant and

talc also cornered sizable market share amidst tough market

competition. Overall, serving low-income consumers helped

CavinKare to emerge as a dominant and respected player in

the Indian FMCG market.

ACKNOWLEDGEMENTS

The authors are thankful to Mr. C. K. Ranganathan,

Managing Director and Mr. K. S. Ramesh, former Chief


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Executive Officer, for providing valuable suggestionsin the preparation of this case. The authors also wish

to thank senior managers of CavinKare Mr. Tushar

Sadanand Murdeshwar, Mr. Saumitra Prasad, Mr. Soumik

Chakraborthi, Mr. Varun Chopra and Mr. Arun Kumar for

providing necessary help in the preparation of this case.

REFERENCES

1. Economic Times, 2004. When speeds the lever, giants will fall.

December 1.

2. Economic Times, 2004. Show-stopper: Sacheting down the rural

ramp. October 18.

3. C. K. Prahalad and Allen Hammond, 2002. Serving the worlds

poor profitably. Harvard Business Review, 80(9): 4857.

4. Praxis, 2003. The making of Chik. Business Line Publication.

July 2003: 2227.

5. Business Standard, 2002. Strategist. Chik-mate. June 3: 4.

6. Economic Times, 2002. Brand Equity, Sachet up the ramp, March

13.

7. C. K. Prahalad, 2005. The Fortune at the Bottom of the Pyramid:

Eradicating Poverty through Profits, Wharton School Publishing:1819.

8. Venugopal, Pingali, 2002. Accessing rural markets, unpublished

paper, XLRI Jamshedpur: 143.

9. Business Week Marketing Whitebook, 2003. Haats, Mandies and

Melas: 91.

10. ICRA, 2001. Industry Watch Series. The Indian FMCG sector:

144.

11. CavinKare web site. http://cavinkare.com/practices.asp.

Accessed on January 1, 2005.

12. Presentation by HLL executives, 2004. Morgan Stanley Asia

Pacific Summit, Singapore, November 4. http://www.hll.com/

HLL/findinformation/Presentations/MorganStanleyAsia

PacificSummit.pdf. Accessed on January 20, 2005.

13. Hindustan Lever Limited Chairman, Mr. M. S. Bangas briefing

to analysts on 15 February 2001. http://www.hll.com/HLL/

findinformation/speech_excerpts.html. Accessed on November

1, 2004.


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14. Business Standard, 2004. Strategist. Does market research helpincrease sales? February 17: 4.

15. Economic Times, 2004. Brand Equity. Indias top 100 Fast Mov-

ing Consumer Brands. April 4: 1.


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18 ACRJ

Exhibit 1

CavinKare: Milestones

1983 Set out as Chik India, a firm that marketed Chik Shampoo

1990 Set up Beauty Cosmetics Private Limited with the aim of producing world classproducts

1991 Saw the launch of Meera, a herbal hair wash powder

1991 Floated Packaging India Private Limited for supplying packaging laminates

1993 Nyle Herbal Shampoo was launched for consumers beyond the South

1997

Introduced Spinz perfumes to the masses1997 Crossed a turnover of Rs.500 million

1998 Deodorants were added to the Spinz Range

1998 BCL renamed as CavinKare Private Limited to revamp its corporate image

1998 Saw the launch of Fairever, a revolutionary Fairness Cream with saffron

1998 Witnessed the launch of Indica Hair Dye with herbal extracts

1999 Enters Talcum Powder segment in the South

2000 Set up a division for exclusively focusing on its export initiatives

2000 Made its presence online with SAP 4.0B

2000 Changed corporate logo to reflect true personality of the company

2000 Forayed into the Soaps category

2000 Marked an entry into the Cold Cream category

2001 Created an In-house media buying outfit, CavinKare Advertising Private Limited

2002 CavinKare reached Rs.2430 million

2002 Trends In Vogue Private Limited started

2003 Acquired leading pickle brand Ruchi

Source: Provided by the company.


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Exhibit 2

CavinKares Turnover from 19992003 (in Rs. million)

Source: Business India (2003).


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20 ACRJ

Exhibit 3

Composition of Rural Markets: Households (in millions)

Group I = Products priced below Rs.1,000Group II = Products priced between Rs.1,000 and Rs.10,000Group III = Products priced above Rs.10,000

Source: National Council of Applied Economic Research (NCAER).


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Annual Income(in Rupees) at 199495 prices

ClassificationNumber of Households

Urban Rural Total

215,000 The rich 0.8 0.4 1.2Total Number of Households 46.6 118.2 164.8

Exhibit 4

Number of Households (in millions) by Annual Income (199596)

Source: National Council of Applied Economic Research (NCAER).

Exhibit 5

Rural and Urban Penetration of Consumer Products(in percent, 2002)

Source: Indian Readership Survey, 2002.


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22 ACRJ

Source: Presentation by S. P. Mustafa, Vice President, Treasury, M&A & Investor Relations at the Morgan Stanley Asia

Pacific Summit 2004, November 4, 2004 in Singapore. http://www.hll.com/HLL/findinformation/Presentations/

MorganStanleyAsiaPacificSummit.pdf.

Exhibit 6

Per Capita Consumption of Some FMCG Categories (in Rs., 2004)


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Exhibit 7

Penetration vs Growth Rate of Some Consumer Products (in 2002)

Penetration %

Growth %

Toilet

Laundr - NSD

Sham oo

Toothpast

Skin Creams

5 10 15

Ice-Creams

Tea

Tomato

Staple

Deodorant

Colour Cosmetics

Dish Wash

90

50

30

70

Source: http://www.hll.com/Hll_Flash/finance/hindustan_final.ppt.


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24 ACRJ

Source: Prahalad, C. K., The Fortune at the Bottom of the Pyramid, 2005.

Exhibit 8

Sachet as a Percentage of Total Shampoo Category


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Village Class No. of Villages Percentage Population(in millions)

Percentage

Less than 200 103952 17.9 10.532 1.69

201499 141143 24.3 48.462 7.78

500999 144998 24.97 104.357 16.76

10001999 114395 19.70 160.294 25.74

20004999 62915 10.83 185.573 29.8

50009999 10597 1.82 69.839 11.21

10000 & above 2779 0.48 43.757 7.03

Total 580779 100 622.812 100

Exhibit 9

Distribution of Villages in India

Exhibit 10

Haats (Village Fairs) and Melas in Rural India

Source: RK Swamy/BBDO, Guide to Market Planning, 1999.

Source: Business Week Marketing Whitebook, 2003.

Haats

Total number of Haats 47000Average sale per day Rs.0.225 million

Number of sales outlets/Haats 300+

Number of visitors per Haat 4500+

Average sale per outlet Rs 900

Village covered by a Haat 20-50

Melas

Total number of Melas 25000

Average sale per Mela Rs.1.43 million

Number of sales outlets/Mela 850


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26 ACRJ

Exhibit 11

Rural Market Share of Shampoo Brands, All India (in Volumes)

Exhibit 12

Chik Shampoos Position in Rural Market (2002)

Brand Nov. 2002 Dec. 2003 Jan. 2003 Feb. 2003 Mar. 2003 Apr. 2003

Chik 39.02 39.38 41.19 39.93 39.68 39.11

Clinic Plus 27.89 27.33 26.69 29.12 29.83 31.44

Lux 9.56 8.81 8.14 8.06 7.84 8.41

States No. of VillagesMarket Share

(Volume, in Percent)Position

Uttar Pradesh 1,07,440 66.86 1

Madhya Pradesh 55,392 21.96 2

Bihar 45,113 31.82 1

Andhra Pradesh 28,123 39.01 1

Tamil Nadu 16,870 45.77 1

Orissa 55,352 18.42 2




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Exhibit 13

Chik Market Share (Volume in Percent)



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28 ACRJ

Shampoo Brand

Bottle Sachet

Quantity(ml)

MRP(Rs)Cost

per mlQuantity

(ml)MRP(Rs)

Costper ml

Clinic All Clear 160 81.4 0.51 8 2.5 0.31

Clinic Plus 160 71.2 0.45 8 2 0.25

Head & Shoulders 200 122 0.61 5 3 0.60

Head & ShouldersMenthol 180 122 0.68 10 5 0.50

Pantene Normal Hair 200 112 0.56 5 2 0.40

Sunsilk Fruitamins 200 95 0.48 8 2 0.25

Sunsilk Black 200 99 0.50 8 2 0.25

Chik 50 6 0.12 6 1 0.17

Source: Based on information provided by the company.

Exhibit 14

Retail Prices of Sachets and Bottles


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Cavinkare Pvt Ltd Serving Low Income Consumers

Documents