A CASE STUDY ON

NIRMA
Introduction :
In the early 1970s, when Nirma washing powder was introduced
in the low income market, Hindustan Lever Limited (HLL)1
reacted in a way typical of many multinational companies.
Senior executives were dismissive of the new product: "That is
not our market", "We need not be concerned." But very soon,
Nirma's success in the detergents market convinced HLL that it
really needed to take a closer look at the low-income market.
Starting as a one-product one-man outfit in 1969, Nirma
became a Rs 17 billion company within three decades. The
company had multi-locational manufacturing facilities, and a
broad product portfolio under an umbrella brand Nirma. The
company's mission to provide, "Better Products, Better Value,
Better Living" contributed a great deal to its success. Nirma
successfully countered competition from HLL and carved a
niche for itself in the lower-end of the detergents and toilet
soap market.
However, Nirma realized that it would have to launch products
for the upper end of the market to retain its middle class
consumers who would graduate to the upper end.
The company launched toilet soaps for the premium segment.
However, analysts felt that Nirma would not be able to repeat
its success story in the premium segment. In 2000, Nirma had a
15% share in the toilet soap segment and more than 30% share
in the detergent market. Aided by growth in volumes and
commissioning of backward integration projects, Nirma's
turnover for the year ended March 2000 increased by 17% over
the previous fiscal, to Rs. 17.17 bn.

A Humble Beginning
In 1969, Karsanbhai Patel (Patel)2, a chemist at the Gujarat
Government's Department of Mining and Geology
manufactured phosphate free Synthetic Detergent Powder, and
started selling it locally. The new yellow powder was priced at
Rs. 3.50 per kg, at a time when HLL's Surf was priced at Rs 15.
Soon, there was a huge demand for Nirma in Kishnapur
(Gujarat), Patel's hometown.
He started packing the formulation in a 10x12ft room in his
house. Patel named the powder as Nirma, after his daughter
Nirupama. Patel was able to sell about 15-20 packets a day on
his way to the office on bicycle, some 15 km away. Thus began
the great journey.
By 1985, Nirma washing powder had become one of the most
popular detergent brands in many parts of the country. By
1999, Nirma was a major consumer brand offering a range of
detergents, soaps and personal care products. In keeping with
its philosophy of providing quality products at the best possible
prices, Nirma brought in the latest technology for its
manufacturing facilities at six places3 in India. Nirma's success
in the highly competitive soaps and detergents market was
attributed to its brand promotion efforts, which was
complemented by its distribution reach and market
penetration. Nirma's network consisted of about 400
distributors and over 2 million retail outlets across the country.
This huge network enabled Nirma to make its products
available to the smallest village.
After establishing itself in India, Nirma expanded to markets
abroad in 1999. Its first foray was into Bangladesh, through a
joint venture Commerce Overseas Limited. Within a year, the
brand became the leader in the detergent market in
Bangladesh. The company also planned to enter other regions
like the Middle East, China, Russia, Africa and other Asian
countries.
The Road to Success
The use of detergent powder was pioneered in India by HLL's
Surf in 1959. But by the 1970s, Nirma dominated the detergent
powder market, simply by making the product available at an
affordable price. In 1990, Nirma entered the Indian toilet soaps
market with its Nirma Beauty soap. By 1999, Nirma became
India's second largest manufacturer of toilet soaps by acquiring
a 15% share of the 5,30,000 tonnes4 per annum toilet soap
market. Though way behind HLL's share of 65%, Nirma's
performance was remarkable as compared to Godrej, which had
a share of 8% (Refer Figure I). By 1999-2000, Nirma had also
garnered a 38% share of India's 2.4 million tonnes detergents
market. HLL's share was 31% for the same period (Refer Figure
II).
Higher Costs - NO
Within a short span, Nirma had completely rewritten the rules
of the game, by offering good quality products at an unbeatably
low price. Nirma's success was attributed to its focus on cost
effectiveness. From the very beginning, Patel had focussed on
selling high-value products at the lowest possible price. The
company endeavored to keep improving quality while cutting
costs.
To keep production costs at a minimum, Nirma sought captive
production plants for raw materials. This led to the backward
integration programme, as a part of which, two state-of-the-art
plants were established at Baroda and Bhavnagar, which
became operational in 2000. This resulted in a decline in raw-
material costs.
The two new plants were completed ahead of schedule and at a
much lower cost than estimated. The second phase of the
Baroda plant was completed six months ahead of schedule and
at a cost of Rs.2.5 bn as against the original estimated cost of
Rs. 2.8 bn. The Bhavnagar plant was completed in a record
time of two years at a cost of Rs.9.85 bn as against the original
estimated cost of Rs. 10.36 bn. The staff strength at this plant
was a low 500. In contrast, Tata's Chemical's plant, which was
about twice the capacity, employed 10 times the number of
people. The Baroda plant produced 65000 tpa of N-Paraffin for
Linear Alkyl Benzene (LAB) and Synthetic detergents. The
technology for this plant was sourced from UOP Inter
Amercana, USA.
The Bhavnagar plant could produce 4,20,000 tpa of soda ash.
The Akzo Dry Lime technology used in this plant was sourced
from Akzo Nobel Engineering, Holland. The plant had 108 km of
salt bunds, which would help it to produce vacuum iodised salt
in the future.
Said Patel, "We have a capacity of producing three lakh tonnes
of pure salt. No one, except Tata Salt, has a similar plant in the
country." Nirma also curtailed its costs of distribution by
eliminating intermediaries.
The product went directly from the factory to the distributor.
Hiren K Patel (Hiren), CMD, Nirma Consumer Care Ltd.
explained, "An order is placed and the truck leaves
straightaway. It is like a current account.
We send the stock, they send the money." The company
maintained depots in states like Andhra Pradesh, Tamil Nadu
and southern Karnataka, as getting stocks to these areas was
sometimes difficult. In states like Uttar Pradesh and Madhya
Pradesh, stocks were delivered directly from the plants. In
March 2000, in a further cost reduction exercise, Nirma opted
for in-house printing and packaging by acquiring Kisan
Industries at Moriya, near Ahmedabad. Nirma hoped this would
improve the quality of its packaging.
Brand Wars - YES
Nirma also had innovative marketing strategies. In the mid-
nineties, Nirma successfully extended its brand to other product
categories like premium detergents (Nirma Super Washing
Powder and Detergent Cake), premium toilet soaps (Nirma
Premium, Nima Sandal, Nirma Lime Fresh). It followed its
original marketing and pricing strategies in the economy
segment as well as in the premium segment. In 2000, the
company entered the hair care market with Nirma Shikakai,
Nirma Beauty Shampoo, and Nirma Toothpaste. Unlike
detergents, soaps were a personal-care product. Many
customers had deep psychological bonds with their soap
brands. Moreover, the market was segmented by HLL by price,
by scent appeal, and by brand personality.
So, Nirma positioned Nirma Bath against Lifebuoy5, Nirma
Beauty Soap against Lux6, Nima Rose against Breeze7, and
Nima Lime against Jai Lime8. Explaining how Nirma hoped to
win this game, playing by HLL's rules, Hiren said, "World-wide,
there are only four or five platforms floral, beauty, health,
freshness which account for most of the soaps sold." Nirma
produced high-fatty-matter9 soaps with the right scents, and
priced them much lower than other brands. This created the
'sub-premium' segment. Nirma also mastered the game of
managing the geographical diversity of consumer preferences.
For instance, the North preferred pinks soaps and while the
South preferred green ones. Sandal soaps were more popular in
the South. Initially, the advertising spend of the company was
very low, as compared to other FMCG companies. Nirma spent
only 1.25-2% of its turnover on advertising as compared to the
normal 6-10%.
For endorsing soaps, the company used starlets like Sangeeta
Bijlani, Sonali Bendre, and Riya Sen, who were relatively
unknown at that time. The advertisement messages were also
very simple and focused on the benefit of the product. Nirma
always preferred to place the product on the shelves first,
receive feedback, and then create an enduring ad campaign.
While introducing toilet soaps and detergents in the premium
segment, Nirma relied on its time-tested weapon Price. The
company planned to concentrate on volumes in these
segments as well. But there was a change in the margins given
to retailers. Unlike the economy products, where the cost
benefits were passed on to the consumers, Nirma passed on
this benefit to the retailers. It gave them huge margins. For
instance, for Nirma premium soap, it offered 52% and for Nirma
shampoo, it offered an unbelievable margin of 140%. Analysts
were skeptical about Nirma's chances of success in the
premium segment of the soaps market.
Unlike detergents, the soaps and shampoo market was highly
fragmented. There were about 15-20 brands, and it was difficult
for any soap to get a sizable market share. Moreover, this
market was less price sensitive. So, it was difficult for any
company to sustain itself on price alone. Analysts felt that it
would take years to change Nirma's brand image. According to
a survey conducted by Samsika Marketing Consultants, Nirma's
marketing firm, Nirma was considered to be a cheap brand.
Many people were almost ashamed to admit that they were
using it.
To shed this image, in the late nineties, Nirma released
corporate advertisements worth Rs 10 bn throughout India.
Analysts felt that the fast growing shampoo market was a
better bet than the premium soaps market. In India, only 30%
of the population used shampoos and more than 70% of this
group was in the urban areas. However, according to some
analysts, though the perceived potential of the rural market
was very high, in actual practice, it was difficult to persuade
rural folk to use shampoos. Another problem Nirma faced was
that of inadequate infrastructure. Though it had a strong
presence in the smaller towns and villages, it lacked the
network necessary for penetrating urban areas. Thus, Nirma's
entry into premium soaps and shampoos seemed to have
failed.
The Road Ahead
Though Nirma was better known as a producer of low-cost
economy range of products, it was successful in the middle-
and up-market segments. But at the same time, competition
was also increasing. While HLL continued to be a major
competition, P&G and Henkel SPIC also adopted aggressive
measures10. Players from unorganized sector were also adding
to the competition in the detergents and washing powder
industry. However, Patel was confident of tackling the
competition. He said, "We hold the price line and the satisfied
consumer naturally reverts to us." In the past three decades,
the brand had grown in value and volume on the basis of his
success formula: "A customer does not look for one-time frills
or feel-good factors. Rather, the householder wants a long term
solution to his or her needs." What remained to be seen was
whether Nirma's cost-focussed model would be a success in the
long run.