The Hindu Business Line : Of pyramids and markets

To the delight of writers and teachers of management, ours is an era of continuous supply of new buzzwords. First it was making fortunes at the `bottom of the pyramid'; a bonanza awaited the patient and far-sighted multinational corporation if it played its cards right in the emerging markets of the world. It was possible to look at the inconvenience (to borrow a classic phrase from G.K. Chesterton) as an adventure: of selling in low price, low volume markets, thus making a fortune out of selling to the poor of the world. This bottom was variously estimated at two to four billion people.

Now Harish Manwani, Chairman of Hindustan Lever Ltd (HLL) has given us `straddling the pyramid'. Thus, the same company could market a range of very different models and brands of essentially the same end-use product with subtly or strongly distinguished benefits; seeking, in short, to be all things to all women.

Certainly there have always been a number of price points within the vast Indian market. Soaps and shampoos, cars and refrigerators have tended to be sized to suit different pockets and budgets. In itself, the idea is not new. Alfred P. Sloan, credited with having created the divisionalised corporation almost single-handedly, describes in My Years with General Motors how he had to first rationalise the various models derived from the independent companies bearing those names. So Buick, Pontiac, Chevrolet, Oldsmobile and Cadillac were arranged in a ladder of price-points, each gaining the most from a different consumer group, while trying to avoid inter-brand conflict as far as feasible. But Manwani's point is different for two very significant reasons. Both are worth pondering over for all Indian marketers regardless of the category they are in.

Additional purchasing power

The first is the unprecedented all round growth in the economy. This has meant numbers going up to quite significant `critical mass' levels in all socio-economic classes. Even as recently as the early 1990s, when the economy was opened up, many international companies came into India salivating at the prospect of large volume business because of the now infamous "three hundred million strong" middle class. Those of us grown weary of such figments of media hyperbole knew that only the very basic essentials such as bicycles, washing soap and toothpaste reached a significant section of the rural population and even then the per capita consumption or penetration was quite low by international standards. Yet the propagandists went ahead and some of the people were fooled some of the time. Ray Ban sunglasses and Mercedes cars weren't about to be snapped up in huge quantities by this middle class. Indeed, even the market for the lower-end 800 cc cars had to await the days of cheap credit before it saw growth. Today, however, some five to six years of the compounding effect of 6 per cent plus annual real growth in GDP has meant some additional purchasing power in the hands of consumers. What is more, the absolute numbers have begun to look attractive. Ten per cent of all Indian families, say, is now around 20 million plus households — and a nice juicy bit of the market and huge compared to almost any country other than the US. Remember, all of Germany is 75 million people or so.

The second point of difference to note, apart from growth, is the key consumer insight that the lower income, low-unit price segment does not want shoddy or cheap looking products. Aspiration levels in our society have certainly sky rocketed in the past decade with wider exposure of an enormous youth population, exposed to dazzling demonstrations of prosperity through cinema, high-key display in retailing, cheap travel and multi-channel television.

Therefore, the buyer of the so-called `low-end' model doesn't want to be labelled as a low-end person! She wants the same snazzy designer looks from her clothes and cosmetics, or her scooter as found in the premium counterparts. There is no more room for obviously `stripped-down' versions. Marketers must therefore save costs in invisible, innovative ways and not by scaling down performance - a very tall order indeed. HLL calls this the `challenge cost'. This is nothing peculiar to household products. Automotive products and appliances, which face Chinese competition of acceptable quality, are challenged by prices 40 per cent below theirs, and in some cases below Indian material costs. The HLL Chairman, however, argues quite convincingly that the company in particular is uniquely placed to take advantage of this opportunity.

Some generic solutions

Pulling off the double-act of low cost and high styling and performance is a tough job. At its worst, it is almost an impossible challenge; yet the solutions found by some industries are worth looking at in detail before dismissing this as a theoretical goal. Relentless value analysis, value engineering, outsourcing, reducing indirect costs and scale economies have been some of the generic solutions. Lever in particular took significant advantage of scale of buying and managing working capital; they booked up the capacities of many under-utilised, sick or dying regional factories that would otherwise have had to shut down.

Although HLL started off with some in-built advantages it was still not a cakewalk. Having been in the Indian market for a century with relatively inexpensive household personal care products, they were certainly blessed with an overwhelming presence in the household. Brands such as Sunlight, Lifebuoy, Lux and Surf, were known among even the illiterate by colour and symbol and seldom seen as alien. This also meant the company acquired an intimate knowledge of the modal Indian family (as opposed to metropolitan upper income) with all its variety in language, culture, food habits and so on. When it became too complacent and inward looking, relying on the undoubted reach of distribution and size of promotional efforts, as we all know, the low-cost competition taught it a lesson in marketing myopia that the company would not forget easily.

In more recent times, it has managed to shed much of the multiplicity of businesses yet retaining the advantages of brands differently perceived by the consumer. In a strange way the fact that there is no single Lever identity has also helped.

Success secret

In the process one might also ask what happened to focus, economy of effort, sticking to the knitting and concentrating on the core competence and so on — to mention a few more of the fashionable jargon that has held sway over the minds of managers. How does one reconcile these with the proposed multi-layered strategy? The root causes of the reconciliation (if needed) lie in the very history and structure of the company. As already well known, HLL's success secret is a long history of attention to building talent and building brands — acquiring, nurturing, deploying and exploiting them expertly.

In people development at least, the Indian company apparently is an internal example within the Unilever world. Necessity and the compulsions of wanting to remain an international company has long ago made the Indian arm focus on indigenous research and development. Together with the other advantages mentioned, this gives a solid platform for the company at its present size to build further. The unfortunate part of its recent history has been the travails of absorbing the haphazard acquisitions and mergers, some of them clearly not well-considered. Rationalising the portfolio of companies has been a mammoth task that has certainly taken time and a toll of the market perception of its value. Yet, few companies share this history or assortment of strengths; therefore the "let's do what HLL does" is an easy temptation that others would be well advised to avoid. The multi-business, multi-brand game is not for all.

(The writer, a former Director of IFMR, is a management consultant. He started his corporate career in HLL as a management trainee in 1966)

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