The Hindu Business Line : And now, shampoo wars

Post-detergent wars, the two FMCG majors, HLL and P&G, are now battling it out in shampoos. But, the battle could affect bottomlines and attune buyers to price bargains rather than value, which could prove detrimental in the long run.

IT took almost two weeks for it to react, but Procter & Gamble decided to join battle with Hindustan Lever in the next round. This time the product is shampoo. After the aggressive price cut in detergents by P&G, this time HLL turned aggressor with a one-for-one shampoo free offer for its Sunsilk and Clinic brands. P&G's riposte was to cut prices for its Pantene brand, and throw in a new variant, Pantene Hair Fall Control, to change the dynamics of the competitive shampoo market.

The same morning that P&G was launching its new shampoo — the fifth country for its launch — HLL reacted by splashing ads of its Silky Strength variant from Sunsilk Naturals across the mainline dailies. The shampoo wars continue, but with a difference.

While a price cut is seen as a sustained and committed initiative, a promotional offer is always short-lived, say market analysts. The shampoo category is not exactly growing by leaps and bounds and in this scenario, a price reduction could lead to some amount of growth unlike a freebie offer which just manages to take away shares temporarily, analysts tracking the FMCG industry say.

According to Atul Rastogi, research analyst at Motilal Oswal Securities, "Price cuts are more permanent than the temporary promotions which do not promote growth for the category. This latest such offer shows commitment on the part of P&G to grow the category."

Citing reasons similar to those offered when it cut prices of its detergents, P&G officials claim that this time too there were "cost efficiencies which it could pass on to the consumer." These would range from local sourcing of raw materials to optimising its distribution system to absorb the added costs.

However, there were no comments forthcoming from P&G on the impact price cuts could have on its margins. Nor does the company claim that it is a reaction to HLL's latest one-plus-one-free shampoo offer. Says Oona Dhabar, Country Market Research Manager, P&G, "It is not a reaction to HLL. We have been evaluating the value proposition for Pantene for a while."

Pantene and its variants continue to be sourced from P&G's subsidiary in Thailand. Attracting import duties at 15 per cent, the shampoos have been retailing at a higher premium to HLL's offerings. However, in spite of the latest price-offs, Pantene will now retail at Rs 51 for 100 ml while HLL's Sunsilk would continue to be sold at a lower price at Rs 50 for 125 ml.

"Pantene is perceived as an aspirational brand of superior quality but consumers found the price a key deterrent. The new pricing makes Pantene affordable and within the reach of value-conscious Indian consumers," says Dhabar.

But analysts feel that a 16 per cent price cut on Pantene is not going to have much impact on consumers. "Basically, what P&G is doing is cutting its bottle's premium over sachets. It is not a significant price cut as such," says an analyst at ICICI Securities. At the same time P&G is reducing the price gaps between its own brands. While Pantene and Head & Shoulders are sold at nearly similar price points, bringing down Pantene prices would place it between Rejoice (Rs 39 for 100 ml) and Head & Shoulders (Rs 64 for 100 ml) and thereby segment P&G's shampoo brands at different price points.

Agreeing that the Pantene price offs are not that significant, Yasmin Shah, research analyst at ASK Raymond James, says, "In all probability HLL might extend its one-plus-one longer than expected, since there is no question of reducing prices any further."

Meanwhile, HLL, which was expecting P&G to retaliate, was not entirely surprised by its move to slash prices for Pantene. Claims Mukul Deoras, Category Head (Hair Care), HLL, "P&G will get affected the same way we are," alluding to the margins being bruised as a result of such an exercise. But Motilal Oswal's Rastogi feels that HLL is expected to bruise its margins further since it is the market leader and operates on a higher base compared to P&G's shampoo brands.

However, unlike in the case of detergents, HLL has the first-mover advantage in the shampoo war. Industry observers feel that consumers would already have bought adequate packs of Sunsilk and Clinic Plus to last them for a while and might not need immediate replenishment even if they were offered a lesser-priced Pantene.

"Since P&G has not reacted immediately to HLL's offer, volumes have already been picked up by HLL. In the case of shampoos HLL has pre-empted P&G and has already managed some volume growth for itself," says ASK Raymond James' Shah.

Besides, Sunsilk already has a pink silky strength variant to take care of hair fall. Pantene's new variant also sports pink sachets and bottles and claims to reduce hair fall due to breakage up to 50 per cent in two months.

However, P&G believes that it is opening up a new category under hair care. It also feels that it is addressing the Indian woman's hair concerns. Adds Dhabar, "More Indian women have hair fall compared to women elsewhere." Ashok Chhabra, Executive Director, P&G, feels likewise. Says he: "We believe we are launching a new variant which has not been there in the market before. It will address a new area under hair fall."

At the same time there could be overlaps in usage with the existing variants of Pantene. For instance, there already exists a variant within the Pantene franchise which could offer similar benefits as the new Hair Fall Control offering, according to industry observers.

Meanwhile, trade sources indicate there could be further action. HLL is expected to re-launch Clinic Plus and might also increase the volume of its sachets. There are also likely to be new SKUs in this category with even lower price points.

While price dynamics of the shampoo category keep changing, the chances of such wars spilling to more FMCG categories seem imminent. "It all depends on how saturated the category is. Competitive pressures are likely to be faced in categories, which are not adequately penetrated," observes Nikhil Vora, Senior Vice-President at SSKI Securities.

All in all, the present price wars may not help in reviving the sluggish FMCG category. As Anil Naik, Chief Executive, Sudit Consultancy Services, says, "The dark side is that the price wars not only affect the bottomline but also attune buyers to price bargains rather than value. The buyers look for the price gains only, which is detrimental in the long run. The price drop on the large packs seems to be aimed at emphasising the large packs more than the sachets as the players want to push volumes. With higher volumes, the price drop could be comfortably cushioned." The last word hasn't been written on the FMCG wars.

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