More Value Per Paisa

Lata Deshpande is a thirty-something housewife. It being the first week of the month, she is at the grocer's, monthly order in fist. The grocer, who's known Lata for the past eight months, has his boy fill the bag. As he goes about making the cash slip, he sees that Lata is asking for alternatives to some of the products on her list. And that she is settling for cheaper options in some cases. "If the hike in phone charges, cooking gas and school fees was not enough, BEST (Mumbai's public bus service) hiked fares yesterday," she mutters resentfully. Lata's resentment is Lever's predicament.

 

Customers like Lata affected Lever's personal products sales in 1999 significantly. The growth of the personal products division fell by 10 per cent. "We attribute this to a phenomenon called downtrading where consumers buy a brand cheaper than their usual preference," says Dalip Sehgal, marketing controller, personal products division, Hindustan Lever.

Marketers across categories like soaps, shampoos, detergents and toothpastes use this factor to explain the cloudy firmament in 1999. They have been addressing it with cheaper units. "Noticing that consumers were looking for cheaper options, we came up with 50 p packs of Chik shampoo in 1999," says C K Ranganathan, managing director, Cavinkare.

The premium segment in these categories, it seems, has taken a beating. "Look at soaps," says a senior marketing executive at Godrej Soaps. "The 5-lakh-tonne market has been almost stagnant for the last few years. But within that, the sub-popular segment (Rs 6.50 for 75g as against a popular variant at Rs 10) has grown by 10-15 per cent since 1997 and now forms 20 per cent of the total market." The premium end (Rs 13 and above) has been stagnant. "But interestingly, people have graduated from the carbolic end (Lifebuoy) while a lot have downtraded from the popular segment," he adds. This happened, believes the company, as successive price hikes left a wide gap open between the popular and premium end and players like Nirma fit that value slot strategically (with Nima).

As a result, Lever brands are losing share to brands like Nima (Rs 6 for 75 gm, while a Lux or a Rexona comes for Rs 8.50). Nima has grown to a significant 3 per cent share in the Rs 3,500 crore toilet soaps market. Now consider toothpaste. "We introduced Close-Up Oxy-fresh at the premium end a year ago," recalls Sehgal. "The brand currently has just about 1 per cent share in the Rs 900 crore toothpaste market," he admits. Lever had expected a 4 per cent in this period. Turn to haircare. Levers' premium shampoo brand, Organics, has a mere 2 per cent share close to six years after its launch. While repositioning the brand last year, the company had projected a share of 10 per cent in 12 months.

What happened? Is the customer actually buying a cheaper alternative? Or is there something amiss in the price-value equation?

Smart buy

"We have seen telephone costs go up, as also the cooking gas prices. Education is becoming more and more expensive. So although inflation is being pegged at just about 4-5 per cent there is a hidden inflation added to it," reasons Sehgal. That, he believes, has seen the consumer tighten her purse strings on personal product purchases.

Is this the sole reason? If the soaps market is an indication, analysts believe that the customer is getting a perceptibly similar value at a lower price and hence downtraded. "Downtrading in the toilet soap market is because of the systematic 10 per cent hike that most players were taking every year in prices," reasons one manufacturer. "This created a huge gap in the price segments. Nima came in at Rs 12 for 150 gms and managed to plug the gap."

Kingsuk Sikdai, president, Pathfinders (a market research agency), agrees. "The Indian consumer is extremely price-conscious and won't pay for something in which he does not see incremental value," he says. "So in effect, companies are not matching the premium they are charging for their products with adequate increase in product attributes and usage."

An industry observer elaborates: "Take soaps. Although packaging has become glossy, the value addition in the product itself has gone down. The TFM (total fatty matter or fat content) has gradually been decreased by most players as a cost-cutting measure. And they are feeling the pinch now, which is being attributed to downtrading." Brands like Lever's Lux, Rexona and Hamam, Wipro's Santoor and more recently, Colgate-Palmolive's Palmolive soap are bathing bars with fat content below 60 per cent. Earlier, fat content in these brands ranged between 60 and 70 per cent, he says. Ask others and it turns out they see this as actually a reaction to downtrading.

Whichever way you look at this conundrum, the truth is the consumer is getting smarter across the SECs. She is placing the right premium on value. The price-value equation is being increasingly questioned. Gillette, one of the world's true premium brands in the personal products arena, is a good example.

Where's the value?

"There is no downtrading in our category," confirms Zubair Ahmed, managing director, ISPL (Gillette's Indian subsidiary). For a company like Gillette, in fact, which relies a lot on upgrades to retain its position, downtrading could be a nightmare. Commenting on the scene in the soaps and detergents market, Ahmed says, "It has happened in soaps and detergents where there is little to choose between one soap and the other. Not in this market. There is an appreciable shaving difference between our products and the cheaper ones. Therefore, people usually do not switch to cheaper alternatives once they have used the premium stuff."

Ahmed cites the example of Mach 3, its latest premium shaving product. "We have found that of all the people who use the razor, 80 per cent continue to use it. Now, while this sells at a 50-55 per cent mark-up over Sensor Excel (Rs 40 for a blade), these people are not moving down to the other brand." Sensor Excel, on the other hand, has a 60 per cent retention rate. "In other words, downtrading is rare. What happens instead is that initial sales for the Mach3 come from a lot of Sensor users who upgrade," he says.

If anything, a premium tack has actually been working in the consumer electronics arena, notwithstanding Akai, and later Aiwa's, promo-aggression. "Brands like LG and Samsung have built a premium image around themselves and our research tells us that consumers are actually surprised by the price they have to pay for the product. You know, they expect a Sony kind of pricing for the products and are happy to find that it is prices just a bit above BPL," says Francis Xaviers, managing director, Francis Kanoi Marketing Planning Services (a research firm specialising in consumer durable research).

"Our approach has been different. We don't see premium as only expensive. It is all about getting the finest product, not necessarily at a high price, but at a competitive one. We are trying to get the consumer to define premium more as a function of technical superiority, than price," says Ajay Kapila, vice president, LG Electronics India.

"I do not see downtrading happening in the consumer electronics category," affirms Rajeev Karwal, senior vice-president, consumer electronics, Philips India. "Sales of our most expensive TV brand Plasma (priced at Rs 8 lakh) have grown threefold over last year's sales. So while last year we sold just about 15 pieces, this year we have already sold 45 pieces." Karwal reasons that in consumer electronics, the benefits in a product are demonstrable which in turn helps in developing brand loyalty. "In categories like personal products, the benefits are largely perceptive created through endorsements by film stars. It is not exactly demonstrable. Hence, loyalty levels are lower and price differentiation influences purchases," he adds.

Here, climb easy

Another hypothesis suggests that since intensive competition in categories with lot of pent-up demand exposed the Indian consumer to the best deals, she is viewing every other product with a similar eye now. Could the increased spends on these categories have resulted in a consumer spending a lesser proportion to the more-used-to categories like soaps and shampoos?

For now, most companies are trying to add value at every price point. Lever is trying to hit two birds with one stone. "We have launched a whole lot of sachets in various categories, be it fairness cream or toothpastes," says Sehgal. Most of these sachets are priced at Rs 5 and the company hopes to prevent a loss of existing users while bringing in new users into the fold by reducing the entry price. And just as Nirma beat Lever to the finish line in soaps and detergents with its discount brands, Lever seems to be attempting a Nirma on Colgate. Last week, it introduced a discount toothpaste brand, Aim. It is almost half the price of the available brands (Rs 8 for a 50 gm pack as against a minimum of Rs 14 for any other brand). Sehgal is looking at a 5 per cent value share for the brand this year.

Cavinkare test-marketed smaller, 50ml shampoo bottles in Andhra Pradesh for Rs 6. "The price of a similar sachet is Rs 6.50," explains Ranganathan. "This is one of the measures we are taking to keep people from downgrading to sachets." Companies like Tanishq are rethinking retail outlets and product offerings. "Last year we carried out an exercise called 'Titanisation of Tanishq'," says Priyadarshi Munshi, marketing executive, Tanishq. The brand upgraded all gold products from 18 carat to 22 carat while widening the range immensely. If the entry price was Rs 5,000 earlier, it is down to as low as Rs 600 now. Baskin Robbins took a 20 per cent price cut in 1998 when it realised customers saw the same value in cheaper brands. "Now we are planning a whole range of stick ice-creams priced between Rs 15 to Rs 20 this year," says Rajeev Verma, assistant country manager, Allied Domecq, (the parent company of Baskin Robbins).

Others can take a lead from Gillette's simple method to encourage upgrades. It has a hierarchy of products that runs thus: P2, Sensor Excel, Mach 3. Apart from regular advertising and promotions, it runs 'razor placement programmes'. Here, if a customer buys a pack of P2 razors, he gets a coupon that waives Rs 50 from the price of a Sensorexcel. If Lata sees this, bet she may think twice before disappointing her hubby.