The Hindu Business Line : Marico Industries: Betting on brand equity

MATERIAL costs are likely to have posed a big challenge for Marico Industries in 2003-04. During the year, prices of key inputs for hair oils- ruled 30 per cent higher compared to the previous year. Sunflower and safflower oil, which go into Marico's cooking oil brands, were also 11 and 20 per cent higher. But scale economies and a well-thought out pricing strategy appear to have helped Marico protect its profit margins from increasing input prices. For the year 2003-04, Marico's material costs, as a proportion of sales, were at 64.5 per cent, practically unchanged from the previous year.

To begin with, the company does not hesitate to pass on increase in input costs to consumers, because it thinks its brand equity justifies it. "We work on a margin per kg basis, rather than on a margin per rupee of sales basis. As a result, all increases or decreases in raw materials are effectively passed on to the consumers. This ensures that our margins are by and large, maintained in rupee terms, regardless of the changes in the underlying raw materials," explains Mr Milind Sarwate, the company's Chief Financial Officer. But pricing strategies are worked to ensure that Marico's brands retain their edge over competing products. The attempt is to ensure that the company's brands offer a "value-added" proposition to consumers, so that they would be preferred over pure commodities.

This approach, Mr Sarwate says, has helped the company rein in its material costs within a narrow band, even as underlying commodity prices swing. From the experience with Parachute coconut oil, Marico's faith in its brand equity does appear justified. Despite the price spiral in coconut oil, Parachute has managed to add 2.5 percentage points to its market share, over the past year.

This apart, being a really big buyer of agri-commodities has also helped the company save on procurement costs. With well over half of the branded coconut oil market under its belt, Marico is the largest single buyer of copra in the country. In fact, it claims that it buys one out of every 25 coconuts grown in India! Given its large requirements, Marico says it has developed a network of suppliers spread over all the copra-producing states. Again, on safflower seeds, Marico has the advantage of being one of the largest domestic buyers. "Scale has surely helped us have the best cost structure in the industry, for the targeted quality of inputs," says Mr.Sarwate.

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