The Hindu Business Line : Cashing in on premium

The Indian consumer is still a value-for-money person but buys more premium products now. FMCG companies forced to keep prices down in the mass segment find that premium products can help improve profitability.

FMCG biggie Hindustan Lever launches Perfect Radiance as a premium variant of its Fair & Lovely range; follows it with a pricey shampoo variant in Lakme and will soon add hair sprays and mousses. P&G, in turn, puts out a premium aloe vera variant of Head & Shoulders, while several other of its top-end brands are sold through local distributors. More instances abound: Colgate with its aromatherapy range of soap gels, Marico's Parachute after shower hair cream for men ... marketers are cottoning on to the fact that there's cream to be had at the high end of the market.

Putting behind discount days and four-for-the-price-of-three the FMCG industry is crowding the top-end of the market with goods. With consumers who are graduating to using more premium products marketers are cashing in on the trend by introducing more high-value products. At the same time the middle-class market is expanding with consumers moving into the branded segment. Considering mass products get volumes but do not necessarily make money, FMCG players today opt for a portfolio with a mix of both mass and premium products to tap into this trend. However, there is always pressure on margins with the high cost of marketing and distribution.

Observes Sabyasachi Misra, Senior VP, Lowe, "Consumers want to indulge themselves. Self-gratification, especially with luxury products, is on the rise. Besides, new retail formats are driving the demand for high-end products. Companies feel that they can now target the affluent consumers and it is possible to get at the high-end retail malls." In fact, most marketers are trying out more variants and making more value-additions to their products to be eligible to command a premium.

Gone are the days of price cuts and the downward spiral the FMCG business faced. Industry is buoyant; now that consumers' basic necessities have been fulfilled, it's time for them to splurge, say analysts.

Take some of the recent examples of FMCG companies expanding their premium portfolio. P&G enhanced its already premium offerings by introducing two new variants for its detergent brand, Ariel, with fragrances called Spring Clean and Fresh Clean. Recently, it also decided to stretch its shampoo brand of Head & Shoulders to an aloe vera variant.

The MNC, however, already has a plethora of premium brands in the Indian market through local distributors. Brands such as Oil of Olay, Herbal Essence, Max Factor, Hugo, Cover Girl, Vidal Sassoon and Clairol. "We call them the export brands and will not take them on unless there are volumes," states Rahul Malhotra, Associate Director (Marketing), P&G, at a press conference recently to launch its new H&S variant. Obviously, the company is open to bringing these brands on board once the market accepts them — which may be imminent considering the changing dynamics of Indian consumers' spending.

Providing further insight into the changing consumer needs, Vineet Sodhani, Head (Marketing & Client Servicing), Hansa Research, says: "The Indian middle class is growing. Within it there are two tiers. At the lower tier there are already people moving into the middle class and getting brand-conscious while those in the upper tier are getting ready to graduate into the rich class. They are the ones looking for value pricing."

Adds Vidyadhar Wabgaonkar, Vice-President (Strategic Planning), FCB Ulka, "Traditionally, the Indian markets have been a steep pyramid. The broad and thick bottom of the pyramid was made up of the unorganised sector and Nirma-like basic products for basic people at the very basic price. The premium tier of the pyramid used to be dwarfed. The overall market pyramid has become much less steep over time. Economy brands, regional brands, small packs all have been eating away at the unorganised sector. They are shifting the mass at the bottom, upwards. At the same time, there has almost been a revolution at the top. Liberalisation and economic growth have created a rapidly growing affluent class in numbers and much more in purchasing power. They are ready to pay a premium for sophistication, for experiential benefits and even for image and other intangibles."

Industry observers say that if this group is not addressed by premium, world-class products and services, they will turn to international offerings. In fact, when FDI is allowed in retail over time, foreign money will chase higher returns by offering international, premium products and services. In a way, wise Indian marketers addressing the premium categories have understood this trend and are building their offering and brand image well in time to fight impending competition from blue-blooded overseas competitors. The changing values in society, where self-indulgence was taboo, to `it is ok to reward oneself and one's family at the end of a hard day's work' has helped the consumption of premium categories.

On the flip side, industry observers feel this evolving premium segment with marked concentration in large cities and a certain presence in other areas offers interesting margins and profit opportunities. These margins are a true relief for the national marketers who are finding their margins squeezed badly at the bottom on account of intense competition and rising costs.

At the same time, there is no ignoring the mass segment either and in spite of high margins, FMCG players would rather have a mix in their portfolio. Observes Santosh Desai, President, McCann Erickson, India, "While the premium end has become an entity of sorts, FMCG marketers have to eventually bet on the mass end." Considering a mass player like Godrej is still treading softly in the high-end segment (it has products such as the Cinthol hand sanitiser and the Snuggies brand of diapers), it goes to show that FMCG brands are still strong at the mass end. Hoshedar Press, President, GCPL, claims, "While FMCG players may believe in having a mix, consumers are still driven towards the value-for-money segment. While in hair colour, there may a bit of a shift towards the high end, Indians are still not at a stage where they are comfortable spending on steeply-priced products."

Meanwhile, even Colgate has tried its hand at the premium segment when it launched its aromatherapy range of skincare products such as hand-washes and bathing gels. Using pure essential herb-based oils, the products were being imported from Colgate's other South-East Asian subsidiaries. The toothpaste major would have aimed to recover from this segment the margins lost from its mass-based products.

While brands move away from the sachet culture, the need of the hour seems to be market segmentation to cater to the expectations of consumers exposed to international trends. Take the case of Marico Industries, which has always believed in giving a `premium' edge in its FMCG portfolio, beginning with Saffola. To buck the slowdown in the FMCG sector, the company hedged its risks by foraying into the high-end services sector with its Kaya Skin Clinics. Of late, it has decided that segmenting the market with its offerings would be the way forward considering it has stretched its Parachute brand into the male grooming category with Parachute After Shower Hair Cream. In fact, the need to look and feel good has become imperative for consumers who are ready to indulge themselves. Observes Saugata Gupta, Chief, Marketing, Marico Industries, "The need for males to look good has never been more important." Foraying into the premium male grooming category, Marico has ensured that the packaging for the range is also premium and international.

"Today FMCG companies are peddling both mass and premium products. They are trying to launch and market premium products to push up their profitability. After all FMCG products are under cost pressure due to rising crude/petro-product prices because that increases packaging costs, logistics and freight costs. However, MRPs cannot be pushed up to be commensurate with enhanced competition. Hence, the only option is to get into the premium end where price is relatively inelastic and that is why we see high-end Lakme products from HLL and high-end food products from ITC," explains Peshwa Acharya, GM, Marketing, Essar Teleholdings Ltd. Both consumers and marketers are thus ready to go up the value chain since the trickle down effects of liberalisation are here to stay.

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