Top Gum

is taken care of, the strategy becomes so much easier to implement.

It is a well acknowledged fact that the bases of successful business strategies run the entire gamut from product differentiation to low cost position. Not so well acknowledged is the importance of timing an entry into the market. And often time may be the biggest differentiator between the winner and the loser in a product market.

The recent success of Perfetti in the oral gratifier market can be largely attributed to timing. Perfetti, after only two years of operation, has donned the mantle of the market leader. It now controls almost 40 per cent of the chewing gum and bubble gum market. At the face of it, there is nothing spectacular about the company's strategy. What is important, however, is its understanding of the fact that market structure and the consumer behaviour had changed and left gaps in the market. Perfetti utilised this knowledge to its advantage by launching a flurry of products which homed into the gaps.

 

The early years

Even a few years before Perfetti made its entry, the market was different. Till 1993-94, the oral gratifier market, was growing very slowly. From chocolates at the top-end to the hard-boiled confectionery at the lower end all had been recording growth rates ranging between 15 to 22 per cent.

Most of the brands Melody, Poppins, Chiclets etc had lost a bit of sheen. And oral gratifiers had been targeted towards the most obvious segment children.

And almost all had failed to keep alive the excitement around the brand possibly the only sustainable advantage in a market catering

to children. And these children had responded by showing no particular preference for any brand. Though products such as Coffee-Toffee tried to distinguish themselves as toffee, retailer push worked heavily. And children were happy to buy any brand as long as it fitted in their average value of purchase of Rs 2-3.

Around this time things started to change. To increase consumption, at the top end of the market, chocolates started to have a positioning biased towards the adults. They also became more and more occasion specific. The price points of chocolates also floated up.

Then in came Polo and adopted a marketing strategy which was geared to create a market among adults. While children too were in its ambit, it was looking more towards the adults market to give it a more stable user base.

As a result of these activities, the confectionery market in India saw a massive growth. All the categories grew at rate more than 30 per cent per year. By 1996, the market size stood at an impressive Rs 200 crore, up from a meagre Rs 30 crore in 1994. Topping them all was the chewing gum and the bubble gum segment after a string of multinationals barged into this market in quick succession. Due to these changes, the segment below Rs 2 fell vacant. This is where Perfetti moved in.

Launched in October 1994, it introduced three different products for three different segment within a very short span of time. First among them was Center fresh which was a novel product in the Indian market. It had a liquid portion inside and was targeted universally. Next in line was Big Babol, a soft non-sticky bubble gum specifically targeted at the six to 14 year age group. The other product Brooklyn a conventional chewing gum aimed at the age group above sixteen, specifically the college going crowd. Recently, the company has launched a crunchy candy, Alpine Liebe, which, in a way, is different from its other products.

Initial hiccups

But sailing was far from smooth. In the initial stage it had suffered some serious setbacks. Success in this particular market segment crucially hinges upon a number interrelated issues. And synchronisation between them is important for the business. Perfetti initially faltered because it was unable to do that.

To begin with, Perfetti introduced its products a wee bit too fast. In October 1994 it introduced Center fresh with a liquid portion inside which made it totally different from the products available in the Indian market till then. Then it was Big Babol's turn which was launched in January 1995. Close on its heels came Brooklyn.

But this strategy of offering the consumers a choice (of whole range of products) actually backfired. And that was quite obvious given the fact that the market was pretty underdeveloped when the multinational came in and for the first time the consumers were exposed to the international standards. As a consultant points out, Consumers failed to und-erstand the differences between the three products of the company, as the interval between each launch was very short.

As a result, although the company had distinct target groups for the three products, the three brands were actually jointly pitted against the other players for market share. As one retailer at S N Market, New Delhi, confirms, Customers had no obje-ction in accepting any of the products instead of others in case of nonavailability of a specific brand.

Perfetti also faced the problem of merchandising. Distribution is the single most important factor for success in this market as in any other impulse purchase product. And for a starter it is certainly difficult to build up that network right at the beginning.

The problem of distribution was compounded by the fact that the retailer's margin offered in this segment is quite small. Today, the margin offered by Perfetti averages around 12.5 per cent of the retail price. As a result, unless there is substantial sales there is very little incentive for the retailer's to push the products. Because only high sales can compensate for the low margin by keeping the retailer's profit at a respectable level. So new entrants are in a way discriminated against by the mode of functioning of the market.

Perfetti's pricing strategy too was not carefully worked out. It introduced Big Babol and Center fresh at a price of one rupee a piece. But in February 1995, it revised the price to Rs 1.50 a piece for Big Babol and Center fresh. Soon after the entry of Boomer bubble gum, the company again reduced the prices of the brands to Rs1 a piece.

However, A K Dhingra, general manager, Perfetti India Ltd, denies this. He says, Perfetti actually introduced Center fresh at Rs 1.50 a piece. It was only during the test marketing in certain parts of the country that it sold and Center fresh at one rupee. And Big Babol was introduced at Rs1.50 per piece.

That pricing strategy certainly affected since the price elasticity of demand for the market as a whole is very high in product category. The effect is much more pronounced for the bubble gum, which mainly target the children. Since children operate on a shoe-string budget, sales in this segment can be affected substantially by a change in the product price by a meagre 50 paise.

Getting back on track

As realisation dawned on the company, it quickly took corrective action. To grab market share it slashed prices of Big Babol and Center fresh by 50 per cent from Rs 1.50 to Re 1 per piece in July 1995. Incidentally, this was the time when General de Confiteria India Ltd (GCIL) the joint venture between the Dabur and $ 3-billion French company Agrolimen - was entering the market with its Boomer bubble gum brand.

Company sources claim coinage problem also influenced the company to cut the prices of its products. They feel Rs 1.50 was an awkward price because at times it became difficult for the retailer's to return the change. To remove this problem the company decided in favour of cutting the price.

Certainly Perfetti tried to knock the wind out of GCIL's sail in doing so. The move was successful. It also forced its main rival GCIL to reduce its product price only a few weeks back to Re 1 a piece, although it had introduced Boomer at a price of Rs 1.50 a piece. Thus it has undercut the GCIL's revenues in its first year of operations.

Distribution was another area in which Perfetti impr-oved. Initially, it introduced the products only in five-six metros. Now, its distribution network covers around 300 class IV towns with a population of more than 100,000.

The changes are obvious. Earlier retailers themselves used to pick up the products from the wholesalers. This had disadvantages for a product category which offers slim margins. Since the retailers purchase a whole range of products from the wholesalers, whenever there is any kind of shortage in money, products in this category stand greater chance of being removed from the retailers choice. Now, it has appointed distributors to whom it offers margins of about 5 per cent. The advantage: better demand management.

Improving display

To grab shelf space and to create a separate identity for its products, the company provided exclusive display boxes and attractive dispensers to the retailers. Second, the company introduced its products in extremely attractive packages. Center fresh was introduced inside a aluminium foil pack, which was a totally new concept in this market. The appearance of the packets for all the products as a whole were also of much better quality than that was available in the market.

To consolidate the initial gains Perfetti has introduced a whole range of flavours for each of its products. Points out Natalino Duo, managing director, Perfetti India Ltd, Chewing gums and bubble gums offer most versatile product range in the oral gratifiers market and we are trying to offer Indian consumers exactly this.

The company's communication strategy has also an innovative plank to create excitement around the brand. Till the entry of Perfetti the advertisements for the products in this segment were to be modest bland. The only major ad spender was NP which used comic books to advertise its products. Says a market analyst, Earlier products in this category were purchased as a consumer products as they did not have any identity of their own.

In a way, Perfetti has created brand personalities for its brands. After using the international ad for Brooklyn for quite some time, it has recently roped in the Hindi pop star, Suchitra Krishnamurty, for the Brooklyn advertisement which primarily targets the youth. Perfetti's ads for Big Babol using Dinosaurs were also highly successful.

To boost its sales and create excitement around its brands Perfetti started sponsoring sporting events in a big way. Campaigns reached a climax during the Wills World Cup for which one of its brands Center fresh was the official chewing gum. It also came up with extremely interesting contests for kids during the same

period.

The result

After two years of operations Perfetti has successfully positioned its three brands. By using catchy ads and repeating them frequently it has created a fair amount of awareness about its brands. A major part of the credit for its rise goes to its effective communications.

During its entire process it has given the market a facelift by

offering a better and wider product range and hence setting the

standard, which is very close to the international one.