Sowmini
Head, Learning & Development
Pon1965
Construction
+1 Other

Thread Started by #sachin_261278

The Nirma Story

"It all started to earn a side income, and at that stage, I had never imagined this kind of success."

- Karsanbhai Patel, CMD, Nirma Ltd.

"Like other FMCGs, we have not concentrated only on marketing strategy. From the very beginning,

operational strategy in cost containment, backward integration, economies of scale, innovative

production, packaging and penetration schemes have received equal attention."

- Hiren K Patel, CMD, Nirma Consumer Care Ltd. (Nirma's marketing arm)

Introduction

In the early 1970s, when Nirma washing powder was introduced in the low-income market, Hindustan

Lever Limited (HLL)

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reacted in a way typical of many multinational companies. Senior executives

were dismissive of the new product: "That is not our market", "We need not be concerned." But very

soon, Nirma's success in the detergents market convinced HLL that it really needed to take a closer

look at the ow-income market.

Starting as a one-product one-man outfit in 1969, Nirma became a Rs 17 billion company within three

decades. The company had multi-locational manufacturing facilities, and a broad product portfolio

under an umbrella brand – Nirma. The company's mission to provide, "Better Products, Better Value,

Better Living" contributed a great deal to its success. Nirma successfully countered competition from

HLL and carved a niche for itself in the lower-end of the detergents and toilet soap market.

The brand name became almost synonymous with low-priced detergents and toilet soaps. However,

Nirma realized that it would have to launch products for the upper end of the market to retain its middle

class consumers who would graduate to the upper end.The company launched toilet soaps for the

premium segment. However, analysts felt that Nirma would not be able to repeat its success story in the

premium segment. In 2000, Nirma had a 15% share in the toilet soap segment and more than 30% share

in the detergent market. Aided by growth in volumes and commissioning of backward integration

projects, Nirma's turnover for the year ended March 2000 increased by 17% over the previous fiscal, to

Rs. 17.17 bn.

A Humble Beginning

In 1969, Karsanbhai Patel (Patel)

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, a chemist at the Gujarat Government's Department of Mining and

Geology manufactured phosphate free Synthetic Detergent Powder, and started selling it locally. The

new yellow powder was priced at Rs. 3.50 per kg, at a time when HLL's Surf was priced at Rs 15.

Soon, there was a huge demand for Nirma in Kishnapur (Gujarat), Patel's hometown.

He started packing the formulation in a 10x12ft room in his house. Patel named the powder as Nirma,

after his daughter Nirupama. Patel was able to sell about 15-20 packets a day on his way to the office

on bicycle, some 15 km away. Thus began the great journey.By 1985, Nirma washing powder had

become one of the most popular detergent brands in many parts of the country. By 1999, Nirma was amajor consumer brand – offering a range of detergents, soaps and personal care products. In keeping

with its philosophy of providing quality products at the best possible prices, Nirma brought in the latest

technology for its manufacturing facilities at six places

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in India. Nirma's success in the highly

competitive soaps and detergents market was attributed to its brand promotion efforts, which was

complemented by its distribution reach and market penetration. Nirma's network consisted of about 400

distributors and over 2 million retail outlets across the country. This huge network enabled Nirma to

make its products available to the smallest village.

After establishing itself in India, Nirma expanded to markets abroad in 1999. Its first foray was into

Bangladesh, through a joint venture – Commerce Overseas Limited. Within a year, the brand became

the leader in the detergent market in Bangladesh. The company also planned to enter other regions like

the Middle East, China, Russia, Africa and other Asian countries.

The Road to Success

The use of detergent powder was pioneered in India by HLL's

Surf in 1959. But by the 1970s, Nirma dominated the detergent

powder market, simply by making the product available at an

affordable price. In 1990, Nirma entered the Indian toilet soaps

market with its Nirma Beauty soap. By 1999, Nirma became

India's second largest manufacturer of toilet soaps by acquiring

a 15% share of the 5,30,000 tonnes

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per annum toilet soap

market. Though way behind HLL's share of 65%, Nirma's

performance was remarkable as compared to Godrej, which had

a share of 8% (Refer Figure I). By 1999-2000, Nirma had also

garnered a 38% share of India's 2.4 million tonnes detergents

market. HLL's share was 31% for the same period (Refer Figure

II).• Higher Costs - NO

Within a short span, Nirma had completely rewritten the rules of the game, by offering good quality

products at an unbeatably low price. Nirma's success was attributed to its focus on cost effectiveness.

From the very beginning, Patel had focussed on selling high-value products at the lowest possible

price. The company endeavored to keep improving quality while cutting costs.

To keep production costs at a minimum, Nirma sought captive production plants for raw materials. This

led to the backward integration programme, as a part of which, two state-of-the-art plants were

established at Baroda and Bhavnagar, which became operational in 2000. This resulted in a decline in

raw-material costs.

The two new plants were completed ahead of schedule and at a much lower cost than estimated. The

second phase of the Baroda plant was completed six months ahead of schedule and at a cost of Rs.2.5bn as against the original estimated cost of Rs. 2.8 bn. The Bhavnagar plant was completed in a record

time of two years at a cost of Rs.9.85 bn as against the original estimated cost of Rs. 10.36 bn. The staff

strength at this plant was a low 500. In contrast, Tata's Chemical's plant, which was about twice the

capacity, employed 10 times the number of people. The Baroda plant produced 65000 tpa of N-Paraffin

for Linear Alkyl Benzene (LAB) and Synthetic detergents. The technology for this plant was sourced

from UOP Inter Amercana, USA.

The Bhavnagar plant could produce 4,20,000 tpa of soda ash. The Akzo Dry Lime technology used in

this plant was sourced from Akzo Nobel Engineering, Holland. The plant had 108 km of salt bunds,

which would help it to produce vacuum iodised salt in the future.

Said Patel, "We have a capacity of producing three lakh tonnes of pure salt. No one, except Tata Salt,

has a similar plant in the country." Nirma also curtailed its costs of distribution by eliminating

intermediaries.

The product went directly from the factory to the distributor. Hiren K Patel (Hiren), CMD, Nirma

Consumer Care Ltd. explained, "An order is placed and the truck leaves straightaway. It is like a

current account.We send the stock, they send the money." The company maintained depots in states like

Andhra Pradesh, Tamil Nadu and southern Karnataka, as getting stocks to these areas was sometimes

difficult. In states like Uttar Pradesh and Madhya Pradesh, stocks were delivered directly from the

plants. In March 2000, in a further cost reduction exercise, Nirma opted for in-house printing and

packaging by acquiring Kisan Industries at Moriya, near Ahmedabad. Nirma hoped this would improve

the quality of its packaging.

• Brand Wars - YES

Nirma also had innovative marketing strategies. In the mid-nineties, Nirma successfully extended its

brand to other product categories like premium detergents (Nirma Super Washing Powder and

Detergent Cake), premium toilet soaps (Nirma Premium, Nima Sandal, Nirma Lime Fresh). It followed

its original marketing and pricing strategies in the economy segment as well as in the premium

segment. In 2000, the company entered the hair care market with Nirma Shikakai, Nirma Beauty

Shampoo, and Nirma Toothpaste. Unlike detergents, soaps were a personal-care product. Many

customers had deep psychological bonds with their soap brands. Moreover, the market was segmented

by HLL by price, by scent appeal, and by brand personality

So, Nirma positioned Nirma Bath against Lifebuoy

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, Nirma Beauty Soap against Lux

6

, Nima Rose

against Breeze

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, and Nima Lime against Jai Lime

8

. Explaining how Nirma hoped to win this game,

playing by HLL's rules, Hiren said, "World-wide, there are only four or five platforms – floral, beauty,

health, freshness – which account for most of the soaps sold." Nirma produced high-fatty-matter

9

soaps

with the right scents, and priced them much lower than other brands. This created the 'sub-premium'

segment. Nirma also mastered the game of managing the geographical diversity of consumer

preferences.

For instance, the North preferred pinks soaps and while the South preferred green ones. Sandal soaps

were more popular in the South. Initially, the advertising spend of the company was very low, as

compared to other FMCG companies. Nirma spent only 1.25-2% of its turnover on advertising as

compared to the normal 6-10%.

For endorsing soaps, the company used starlets like Sangeeta Bijlani, Sonali Bendre, and Riya Sen,who were relatively unknown at that time. The advertisement messages were also very simple and

focused on the benefit of the product. Nirma always preferred to place the product on the shelves first,

receive feedback, and then create an enduring ad campaign.While introducing toilet soaps and

detergents in the premium segment, Nirma relied on its time-tested weapon – Price. The company

planned to concentrate on volumes in these segments as well. But there was a change in the margins

given to retailers. Unlike the economy products, where the cost benefits were passed on to the

consumers, Nirma passed on this benefit to the retailers. It gave them huge margins. For instance, for

Nirma premium soap, it offered 52% and for Nirma shampoo, it offered an unbelievable margin of

140%. Analysts were skeptical about Nirma's chances of success in the premium segment of the soaps

market.

Unlike detergents, the soaps and shampoo market was highly fragmented. There were about 15-20

brands, and it was difficult for any soap to get a sizable market share. Moreover, this market was less

price sensitive. So, it was difficult for any company to sustain itself on price alone. Analysts felt that it

would take years to change Nirma's brand image. According to a survey conducted by Samsika

Marketing Consultants, Nirma's marketing firm, Nirma was considered to be a cheap brand. Many

people were almost ashamed to admit that they were using it.

To shed this image, in the late nineties, Nirma released corporate

advertisements worth Rs 10 bn throughout India. Analysts felt

that the fast growing shampoo market was a better bet than the

premium soaps market. In India, only 30% of the population

used shampoos and more than 70% of this group was in the

urban areas. However, according to some analysts, though the

perceived potential of the rural market was very high, in actual

practice, it was difficult to persuade rural folk to use shampoos.

Another problem Nirma faced was that of inadequate

infrastructure. Though it had a strong presence in the smaller

towns and villages, it lacked the network necessary for

penetrating urban areas. Thus, Nirma's entry into premium

soaps and shampoos seemed to have failed.The Road Ahead

Though Nirma was better known as a producer of low-cost economy range of products, it was

successful in the middle- and up-market segments. But at the same time, competition was also

increasing. While HLL continued to be a major competition, P&G and Henkel SPIC also adopted

aggressive measures

10

. Players from unorganized sector were also adding to the competition in the

detergents and washing powder industry. However, Patel was confident of tackling the competition. He

said, "We hold the price line and the satisfied consumer naturally reverts to us." In the past three

decades, the brand had grown in value and volume on the basis of his success formula: "A customer

does not look for one-time frills or feel-good factors. Rather, the householder wants a long term

solution to his or her needs." What remained to be seen was whether Nirma's cost-focussed model

would be a success in the long run.
2nd April 2012 From India, Vadodara
Beautiful content but difficult to read because of the copy & paste. It’d be helpful if you could just post a link to the original article on the Web.
2nd April 2012 From India, Ghaziabad
It might be a "cut and paste job" as Mr.Nashbramhall has commented. Though it is difficult to understand the meaning of that comment, nevertheless, guess this story is not read by many and it is very inspiring story worth sharing.
Thanks many, Sachin for sharing what you read....
Regards
Sowmini.
3rd April 2012 From India, Madras
Dear Sowmini, I had taken the story from Project work in management.The format in which it was prepared was not pasted well sorry for the inconvenience in reading by other Members Regards, Sachin
3rd April 2012 From India, Vadodara
Nirma has finally failed. It did not attract the Customers in the long run due to its undesired chemical composition. Pon
3rd April 2012 From India, Lucknow
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