The Hindu Business Line : Beating back price warriors

LOWER-PRICED stalwarts may well have to overhaul their strategies to retain a hold on the fast moving consumer goods (FMCG) market this year. All through last year and the latter half of 2003, low-priced brands with a strong regional recall had successfully become challengers to the established majors, giving the latter a run for their money. Whether it was the case of Anchor and Ajanta against mighty Colgate in toothpastes or Ghadi versus the Surf, Ariel and Tide portfolio in detergents, it looked as if the multinational companies were helpless against the challenger brands, who were selling at significant price discounts.

But this scenario has altered dramatically over the last few months, thanks largely to the aggressive pricing strategy of the big boys in FMCG. All through 2004, national players such as Hindustan Lever Ltd (HLL), Procter & Gamble (P&G), Dabur India and Colgate Palmolive have fought a bitter war, offering consumers a better price-value equation across detergents, oral care products, soaps and shampoos.

And the results are there for all to see. Slowly but surely, the national players have managed to snatch market share from the regional brands in most FMCG categoriesAnd this analysis appears to be particularly true if one looks at the discount (lower price-end) segment of each product category in FMCG.

Take the case of the Rs 2,500-crore oral care market. Challenger brands such as Anchor, Ajanta and Babool — which ruled the discount segment of toothpastes till about 8-10 months ago — have given way to brands with a national footprint. Analysts said that earlier Anchor and Ajanta accounted for more than 80 per cent of the discount segment in toothpastes. But after Colgate launched Cibaca Top at prices similar to these two brands and took the battle right into their turf, the market dynamics changed. As per the latest estimates, the combined muscle of Anchor and Ajanta in the discount toothpaste segment has been reduced to 50 per cent, with Cibaca Top contributing the other half.

S. Raghunandan, Vice-President-Sales at Dabur India Ltd (DIL), says Babool — the toothpaste brand of the erstwhile Balsara, which DIL acquired recently — was also a victim of this strategy. "But we are now reworking the entire value proposition of Babool. This brand has lost considerable share due to aggressive pricing by market leaders. What we want to do is give Babool new pricing, improved packaging and fresh communication."

He said DIL's target is to double the sales of Babool within the next two years. Only after Babool is successfully relaunched will Dabur begin to work on the two other toothpaste brands it acquired from Balsara — Promise and Meswak — which have suffered a similar fate.

The story appears to be similar in detergents. Ghadi has lost its standing by a couple of percentage points over the last 12-15 months.

A. Satishkumar, Managing Director at Henkel Spic, says his company has refrained from making large-scale price corrections. "The share of Henkel's brands in the overall detergent market has been maintained at five per cent throughout 2004 and continues to remain there this year too. We have not lost market share since we continue to largely maintain prices," he said.

Nirma has also lost some market share whereas HLL's Wheel has gained a couple of percentage points during the last one year. It's the same case with shampoos, with challenger brands such as Ayur, Chik and Nile losing out and national ones such as Vatika, Pantene and Head & Shoulders gaining a couple of percentage points in terms of market share.

But will this resurgence of the national level players continue? Over the last several months, market leaders across each product category have cut prices, spruced up distribution and offered better value for money, luring consumers towards their brands. Analysts say that as long as market leaders maintain a grip on the price-value equation, the FMCG consumer will continue to patronise these brands.

Discount chain Subhiksha's Managing Director, R. Subramanian, points out that the lack of innovation by challenger brands has also led to their apparent marginalisation. "These brands have not innovated - they launched with an offering and have not been able to grow beyond it. Sometimes, their overheads have also grown, resulting in margin pressures. The challenger brands have to stay focused on narrow niches in terms of product offering and geography, otherwise there will be a lot of pain for them."

Analysts also point out that while volume market share gains for national-level brands may have been significant, their consequent value gains have been much lower. "Having slashed prices mercilessly through most of last year, the large FMCG companies have realised that there is little scope for further pricing action. Besides, input costs have been rising steadily over the last couple of months, making it all the more difficult for these companies to pursue further price discounts."

So, if one were to take a close look at the March quarter of 2005, most FMCG companies have begun to raise prices by small amounts.

And the battle has already shifted from being price-centric to feature-centric. Amit Adarkar, Vice-President at research agency Synovate, said pricing would no longer be the dominant platform for market share battle; innovation will assume significance.

"Prices have bottomed out in most FMCG products. The next big discontinuity will be in terms of product variety. So, the toilet soaps category may see liquid soaps and shower gels being launched, confectionery may see more launches in sugar-free and multi-flavour platforms. And there could be more multi-functional toothpastes on offer," he says.

He endorses Subramanian's viewpoint that challenger brands would do well to concentrate on regional niches with specific value propositions instead of trying to emulate the national leaders in each product category. Now, it is up to the regional players to come up with the next salvo.

Picture by Ramesh Sharma

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