THE DIRTY LAUNDRY MARKET

An unpleasant situation in the Indian laundry market — reminiscent of the Nirma onslaught on a
large MNC brand in the late '70s — is posing a new threat to national and regional brands. Except
that this time, there are a multitude of brands eating into the market shares of larger brands which
are already fiercely competing with each other.

It has come to light that over 500 new brands of laundry bars and over 200 washing powders have
mushroomed in the last two years in local and regional markets. These price-warriors, small in
turnover figures but large in numbers, are said to be gnawing at the market shares of leading
national detergent brands, forcing companies to rethink pricing strategies. The surge in the
number of laundry brands during the downturn is being perceived as an attempt by local players
to take advantage of the phenomenon of downtrading.

Home care and personal products maker Hindustan Unilever (HUL) has reported a 1.8% dip in
profits for the current quarter, owing to higher raw material costs and advertising expenses aimed
at driving up volumes. The home and personal care segment grew by a modest 5.2% and foods
segment grew by a stronger 13.4%. The result does not appear to be very encouraging.

The laundry segment by far the company’s most significant business segment continues to be a
major concern for HUL This segment has grown at a poor 2.4% in revenues and has suffered
significantly on the earnings front-registering a 35% drop Y-O-Y. Unless HUL manages to post a
strong and sustained recovery in the laundry segment, the overall growth trajectory for the
company is unlikely to change drastically. However given HUL’s performance in this segment in
recent quarters and growing competition in the category, a strong recovery doesn’t seem
imminent at least in the near term.

Various decisive actions to defend the company’s market share were implemented earlier which
delivered accelerated volume growth in the laundry segment, but the margins were under
pressure. It seems that finally the pricing power is returning to the laundry market.

Procter and Gamble (P&G) which was caught in a price war with HUL in laundry, has launched
an upgraded version of Tide detergent at a higher price. This may well mark an end to a low-
margin phase for players in this category.

Tide Plus has been launched at a maximum price of Rs.70 for 1.1 Kg (currently, being offered at
a special promotion of 10% free). There is thus a grammage reduction from the earlier Tide
version of 1.25 Kg. This translates into a price increase from Rs.56 to Rs.63/kg. However P&G
maintains that this is not a price rise, but the launch of a new upgraded technology “Tide Plus”.

This offers HUL room to take prices up and it can follow suit with an upgraded version of Rin
detergent or a price increase and this can ensure a growth in margins. Earlier HUL detergent

The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical
situation meant to provide students with an opportunity to study, analyze and provide appropriate solutions against the same
and learn the subject objectively.
Portfolio had registered a marginal decline in value growth even when volumes grew at a healthy
pace.

A year earlier when P&G undertook brand activation on tide, by launching the popular priced
variant, Tide Naturals, it has triggered a price war of sorts in the category. HUL which already
faced competition from price-warrior brands in regional markets leading to a down-trading by
consumers, upped the ante when P&G marked an entry into the mass segment.

HUL effected price changes in select laundry SKU’s in January, 2010. The price of Surf Excel
Blue 500 Gm SKU was reduced from Rs.62 to Rs.55, while Rin Powder 1 Kg SKU price was
made available at a reduced price of Rs.50 from Rs.70.

The scramble to garner more volumes in laundry continued with P&G announcing a 25%
increase in grammage on tide Naturals, while maintaining the price of the products.

What ensued was a battle between Tide and Rin by way of television commercials which forced
the two companies to take legal recourse. In early-2000s too, a price war in the same category had
broken out between the two MNC’s, impacting their margins. HUL has taken judicious price
changes from time to time in laundry to ensure that its brands offer competitive value to
consumers.

Presently HUL has a 38% market share, P&G around 13%, Nirma around 14%, Ghari around
10% in the Industry which is around Rs.9000 Cr and growing at a rate of 6-7% /Annum.
Profitability of HUL in detergents is around 12% (Surf – 16%, Rin, 11.5%, Wheel – 10%).

The problem now is whether they need to follow P&G in terms of the Price Strategies adopted.
The company which has increased some market share in the category at the cost of sacrificing
some margins, looks at the present product price changes at P&G as an opportunity to build up
additional market share as well.

The team at HUL is into a fix in terms of choosing between P&G pricing strategy or maintaining
its price or further dropping its price or maintaining its price and adding another variant against
Tide plus or adding another variant against Tide plus with one below the current range as well.
The company instead of following P&G strategies and counteracting it or reacting to it wishes to
lead in terms of pricing their products strategically in the market. They need to consider the price
warriors from the regional markets as well.

Additional Details on the Market:

In 2009-10 (YTD volumes), the premium price segment in washing powders shrunk by 1%, while
the mass segment grew by 2.3%. Whereas, in value (Year 2009-10) regional washing powders
grew by 75.7%, while national players grew by 20.3%. Wheel is a Rs 2100 crore brand now.
Detergent bars comprise 40 per cent of the total market, the powders constitute balance 60 per
cent. The industry can widen its product reach by upgrading consumers to washing machine-

The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical
situation meant to provide students with an opportunity to study, analyze and provide appropriate solutions against the same
and learn the subject objectively.
Oriented detergents, attracting them through detergents with functional benefits such as scents,
creating new forms of products such as liquid detergents and entering adjacent markets such as
the pre-wash and post-wash segments. The premium and mid-range price segments should see
upgrades from the popular price segment users. The lower price point would play a key role. The
bulk pack stock would be crucial in driving volume at the large format retail outlets. The
penetration of detergents in India is 98 per cent and bars 79 per cent. Of this, 55 per cent of
consumption is in urban areas and 45 per cent rural. The laundry-care market is still driven by
detergents. The detergent bars market is big but has flattened with more and more consumers
opting for convenience and better performance of powders versus the bars. Only 20 per cent of
the urban population uses washing machines in India, but this share is increasing due to the rise in
incomes. HUL has reported double digit growth for its Surf Excel Automatic brand used in
washing machines. P&G, another big player in the premium products range, has also introduced
two variants of Ariel for washing machines, namely Front-O-Mat and Ultramatic. Mature markets
around the world have upgraded to washing machine-oriented detergents. Tata Chemicals is
planning to enter the National Market this year in a big way. Likewise there is a lot of activity at
the regional level as well

What you need to do:

i) Kindly prepare a detailed numerical chart for the present market share, brand wise for
the major players.

ii) The company HUL wishes to increase its market share by around 6% this year. Please
advice on the numbers it needs to achieve at the individual brand level.

iii) The company is also planning an increase in margin from 14% to 16%. What would
be your advice to HUL on the Pricing strategy to be adopted at the brand level?

iv) Explain the strategies that the company need to undertake at the product level to
achieve the above.

v) Narrate the competitive scenario for the company this year and provide suitable
contingency strategies against the same.

Kindly use additional secondary data available on the industry for your analysis.

The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical
situation meant to provide students with an opportunity to study, analyze and provide appropriate solutions against the same
and learn the subject objectively.