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Strategic Analysis of Indian Toothpaste Industry





FMCG refers to Fast Moving Consumer Goods it constitutes all the non-durable goods required for daily or frequently uses. Typically a consumer buys FMCG goods at least ones in a month. The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the economy with a total market size in excess of Rs 60,000 crore. This industry essentially comprises Consumer Non Durable (CND) products and caters to the everyday need of the population. Broadly, FMCG industry can be divided in to following categories.

Household products Household care Healthcare Personal care products FMCG INDUSTRY Branded Foods Health beverages Soft drinks Bottled water Edible oils

Tobacco products Tobacco/ Pan Products Cigarette

Agro products Dairy Poultry Sugar Tea

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Strategic Analysis of Indian Toothpaste Industry



The Ice Ages Dabur was one of the first players in the Indian fast moving consumer goods (FMCG) scene. That was about 115 years ago when the term FMCG had not yet gained currency. The focus then was on providing consumer goods on a large scale. Since then the industry has come a long way what with catchphrases, buzzwords, marketing strategies, advertising all thrown in for good measure. The Middle Ages (The 50's) At the time of India's independence there were many multinationals like HLL, Colgate and Nestle. Out of these companies only HLL had a domestic production base. For other MNCs, the domestic market was too small and the purchasing power of people was too low to entail any serious investment decisions. The Swinging Sixties (60's) The sixties were not too exciting in the Indian context particularly the FMCG sector Inspite of the fact that many more MNC's set up shop in India with a local manufacturing base the scene wasnt too bright. This was due to the fact that the government accorded a misplaced emphasis on the concept of self-sufficiency and due to the heavy influence of socialist philosophy the natural inclination of the government was to frown upon the capitalist multinationals. The Dark Ages (70's) With a socialist government at the helm and the exploits of a rabble-rousing firebrand by the name of George Fernandes the MNC's didn't stand a chance. A statute was promulgated to restrict the equity stake of foreign investment to 40%. That was the straw that broke the camel's back. Coke and IBM decided that they had had enough and they left India .The only major FMCG MNC (that's quite a mouthful) that stayed put was Unilever .It somehow managed to retain a 51% stake by complying with certain government regulations. There weren't too many players in the FMCG scene which was dominated by a few big players. Which meant that there wasn't enough choice for the consumers. With a socialist government at the helm which still thought that capitalism was a dirty word, and a fundamentalist opposition which opposed anything videshi on the grounds that it was videshi, things never looked more bleak for this segment.

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Strategic Analysis of Indian Toothpaste Industry

Liberalisation (The 90's) After the introduction of reforms by the Narasimha Rao - Manmohan Singh duo the MNC's returned in droves. This period was marked by the creation of new categories and also new sub categories within existing categories. Demand was created where there was none by innovative sales and marketing strategies. With a burgeoning middle class that had the required purchasing power the MNC's were faced with the enviable prospect of a growing market that was not yet completely explored. There was a renewed emphasis on the distribution network. More than anything else the nineties will be remembered for the acquisitions of brands .The acquirers were usually multinationals or those with huge resources. The following were the more publicized cases:

The acquisition by HLL of Tomco, Kwality and Kissan and Lakme

Colgate- Palmolive acquired Cibaca Flouride toothpaste brand, and Supreme, Standard Angular and Deluxe Transparent toothbrush brands. Coke acquired thums- up thus having a substantial market share even before setting up a domestic production capability. Even though by conventional financial wisdom these acquisitions did not make much sense, the main reasons for these costly acquisitions were Marketshare- In this industry the profit margins are not very large so profits are determined by sales volume. These acquisitions did certainly push up sales volume.

Preemptive move - Many companies were acquired simply to prevent rivals from taking over the company.


They are used at least once a month They are used directly by the end-consumer 3 Som-Lalit Institute of Business Management

Products belonging to the FMCG segment generally have the following characteristics:

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Strategic Analysis of Indian Toothpaste Industry

They are non-durable They are sold in packaged form They are branded



The main segments of the FMCG sector are: Personal Care: Oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care. Major companies active in this segment include Hindustan Lever; Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble. Household Care: Fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish). Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman. Branded and Packaged Food and Beverages: Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur. Spirits and Tobacco: Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace.

MBA-II 2002 Som-Lalit Institute of Business Management

Strategic Analysis of Indian Toothpaste Industry

An exact product-wise sales break up for each of the items is difficult. The size of the fabric wash market is estimated to be Rs 4500 crore; of household cleaners to be Rs 1100 crore; of personal wash products to be Rs 4000 crore; of hair care products to be Rs 2600 crore; of oral care products to be Rs 2600 crore; of health beverages to be Rs 1100 crore; of bread and biscuits to be Rs 8000 crore; of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore. In volume terms, the production of toilet soap is estimated to have grown by four per cent in 1999-2000 from 5, 30.000 tonnes from 5, and 10,000 tonnes in 1998-99. The production of synthetic detergents has grown by eight per cent in 1999-2000 to 2.6 million tonnes. The cosmetics and toiletries segment has registered a 15 per cent growth in 1999-2000 as against an annual growth of 30 per cent recorded during the period 1992-93 to 1997-98. In the packaged food and beverage segment, ice cream has registered a negligible growth and the soft drink industry has registered a six per cent growth in 1999-2000.



FMCG sales fell in the fourth quarter in April-May 2002 with sales declining by 3.8 per cent YoY during April-May 2002 compared with 2.9 per cent YoY in Q1CY2002. For the period, only the processed foods companies Britannia, Cadbury and Nestl managed to buck the trend and showed growth in sales. Tata Tea, Nirma, HLL, SmithKline and Reckitt reported more than eight per cent YoY decline in sales for the period. As compared to the previous quarter, Nestl, Godrej and Tata Tea showed improving trend in sales. The categories to witness the brunt of slowdown in consumer spending have been toilet soaps, packaged tea, toothpaste, nutritional beverages, milk foods and digestives, which have registered double-digit decline in volumes. With the organized biscuit companies gaining at the cost of the unorganized sector, biscuit volumes grew by 10 per cent YoY. Consumer demand continued to be weak causing overall FMCG sales to slide by 4.4% in May 2002 in value terms, compared to the same period a year ago. Market leader Hindustan Lever Limited's (HLLs) sales were down 10% in May, in line with the earlier two months, as rural demand failed to prop up sales. The segments to witness sales growth during the period have been shampoo, vanaspati, and mosquito repellants, chocolates, vermicelli and hair oils.

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Strategic Analysis of Indian Toothpaste Industry

Improving macro outlook:

However, things have started look up on the economy front. The economy expanded by 5.4 per cent in 2001/02 (April-March), spurred by a rise in farm output, putting India among the ranks of the world's fastest-growing economies. Growth was 4.0 per cent in the previous year. Data in recent months raised hopes of a recovery, especially as the crucial agriculture sector showed a 7.6 per cent expansion in the fourth quarter compared with a 4.0 per cent contraction a year ago. Two-thirds of the Indian population of more than one billion depends on agriculture for its living. A good harvest means better rural incomes which triggers higher demand and spending.



Monsoon hopes:

The progress of the monsoon in the first month (June 1-26, 2002) has been fairly good, with area weighted rainfall at 145.7 or seven per cent above normal. 1.6.2 Lower base effect:

The trend of declining sales is likely to reverse from the next quarter due to a lower base effect and a significant increase in prices of FMCG products. 1.6.3 Rural demand:

Another reason for this is the expectation of improvement in rural demand largely on account of high realizations of cash crops (oil, rubber, etc). While the sales are expected to remain sluggish, the sectors profitability is rather resilient, thanks to pricing power. 1.6.4 Improving macro outlook:

The economy expanded by 5.4 per cent in 2001/02 (April-March), spurred by a rise in farm output. The crucial agriculture sector showed a 7.6 per cent expansion in the fourth quarter compared with a 4.0 per cent contraction a year ago, which is likely to improve the prospects of the sector. The disappointing results of FMCG companies are likely to throw up a good opportunity to enter FMCG stocks. Valuations of most FMCG companies are attractive, in view of their returns ratios and expectations of recovery in growth rates. Two companies that are likely MBA-II 2002 Som-Lalit Institute of Business Management 6

Strategic Analysis of Indian Toothpaste Industry

to fare better are Godrej Consumer and Tata Tea. Godrej Consumer has gained market share (volumes) in all its categories even during sluggish period and is likely to grow further. The other company is Tata Tea, which has been able to reverse decline in market share with the spate of new launches in the premium and economy segment. Its market share (value) in the period has increased to 19.8 per cent, which is the highest level in the last one year. Further improvement at Tetley and benefits of debt refinancing in FY200304 are the triggers for the stock.


1.7.1 Branding:
Creating strong brands is important for FMCG companies and they devote considerable money and effort in developing bands. With differentiation on functional attributes being difficult to achieve in this competitive market, branding results in consumer loyalty and sales growth.

1.7.2 Distribution Network:

Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. Once they are able to create a strong distribution network, it gives them significant advantages over their competitors.

1.7.3 Capital Intensity:

Most product categories in FMCG require relatively minor investment in plant and machinery and other fixed assets. Therefore shortage of product for want of capacity would be a rare phenomenon. The turnover is typically five to eight times the investment made in a green field plant at full capacity. This is also due to the fact that the business being marketing driven, players do not integrate backward. Also, the business has low working capital intensity as bulk of sales from manufacturers takes place on a cash basis.

1.7.4 High Initial Launch Cost:

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Strategic Analysis of Indian Toothpaste Industry

Nonetheless, there is a large front-ended investment made in new products including cost of product development, market research, test marketing and most importantly its launch. To create awareness and develop franchise for a new brand requires enormous initial expenditure is required on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year and these costs progressively reduce as the brand matures, gains consumer acceptance and turnover rises. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories. It is common to give occasional push by re-launches, which involves repositioning of brands with sizable marketing support.

1.7.5 Technology:
Basic technology for manufacturing is easily available. Also, technology for most products has been fairly stable. Modifications/ improvement rarely change the basic process. Nonetheless, major global players spend enormous sums on R&D due to their ability to spread cost over the wider base of their global operations. Their R&D efforts are towards Cost effective manufacturing process without compromising on quality and functional performance. Research driven formulations which give cutting edge. High standards of hygiene/ purity for personal care and food products. Standardized formulation, which can be used across countries.

1.7.6 Marketing Drive:

In relative terms, marketing function has greater importance in FMCG companies. The players have to reach out to mass population and compete with several other brands which essentially offer similar products. The perceived differences are greater than the real differences in the product.

1.7.7 Market Research:

Consumers' purchase decisions are based on perceptions about brands. They also keep on changing with fashion, income and changes in lifestyle. Unlike industrial products, it is difficult to differentiate products on technical or functional grounds. With increasing competition, companies spend enormous sums on product launches. Market research and test marketing become inevitable.

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Strategic Analysis of Indian Toothpaste Industry

1.7.8 Balance Sheets Are Misleading:

The most critical asset for FMCG companies is represented by its brands and distribution network. Brands are bought and sold like any other assets. Typically, when an FMCG business is sold, the value of the brand is several times of that of tangible assets. However as per the current accounting practices in most countries, investment made in building of brands are written off as revenue expenditure. This is due to high risk involved with a new brand, subjectivity involved in its valuation, lack of consistency and difficulty in separating a brand's value from that of tangible assets employed in the business. While a successful brand will pay back the investment several times, in case of brand failure, entire investment has to be written off. High return on net worth of most established companies is also misleading due to the fact that the assets sans brands are considerably understated in the balance sheet.

1.7.9 Third-party Manufacturing

Manufacturing of products by third party vendors is quite common. Third party manufacturing used to give fiscal advantages particularly of excise duties. These have been considerably diluted in the past 7 years of reforms. In the 197-98 budget the government proposed to change the basis of excise levy to MRP basis. A total of 43 product categories have been brought under the MRP net in the subsequent budgets. Besides excise benefit, third party manufacturing also provides other benefits viz. 1. Flexibility in production and inventory planning as the marketing company's decision-making is liberated to a large extent from taking manufacturing overheads into account. 2. Flexibility in controlling labor costs. Most small-scale third-party manufacturers have benefits of direct control of the owner and greater ability to manage local environment. The large organization also runs the risk of unionization. 3. It is beneficial (in terms of logistics) and sometimes essential to get certain products manufactured near the market. A company can tie up with several 3P manufacturers in separate locations, rather than set up own manufacturing facilities.

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Strategic Analysis of Indian Toothpaste Industry

4. The marketing company gives technology, lays down quality standards and typically exercises supervision on manufacturing, cost and quality standards. The marketing company may also co-ordinate raw material procurement to optimize on bulk discounts. While in most cases, manufacturing process is fairly simple, certain products require supply of some critical ingredients by the marketing company (which in turn may be imported from the parent company). It is common to find support in working capital finance also.

1.7.10 Significant Presence of Unorganized Sector

There is a significant presence of unorganized sector in India. In the past, several factors led to mushrooming of small unorganized players with local presence viz. Basic technology for most products is fairly simple and easily available. Fiscal advantages: In India, small-scale sector enjoys (the concessions however have been diluted considerably in the past few years) exemption/ lower rates of excise duty, sales tax etc. This makes them more price competitive vis--vis the organized sector. Remote rural markets: Due to highly scattered market and poor transport infrastructure, very few MNC companies/ organized players have been able to reach out to remote rural areas and even small towns. Low brand awareness: Low brand awareness enables local players to market their spurious look-alike brands.

Cost advantage: Lower overheads due to limited geography, family management, focused product lines and minimal expenditure on marketing.



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Strategic Analysis of Indian Toothpaste Industry

There is a strong MNC presence in the Indian FMCG market and out of the top 10 FMCG companies; four are multinationals while two others have significant MNC shareholdings. Unlike several other sectors where multinationals have entered after 1991, MNCs have been active in India for a long time. The top five listed FMCG companies on the basis of their sales turnover in the last financial year (either year ended December 31, 1999 or March 31, 2000) are:

Company Name Hindustan Lever Ltd. I T C Ltd. Nirma Ltd. Nestle India Ltd. Britannia Industries Ltd. Colgate-Palmolive (India) Ltd. Godfrey Phillips India Ltd. Dabur India Ltd. Smithkline Beecham Consumer Healthcare Ltd. Godrej Soaps Ltd. Marico Industries Ltd. Cadbury India Ltd. Procter & Gamble Hygiene & Health Care Ltd.

sales Rs. Crores 10978.31 7971.94 1717.88 1546.43 1169.84 1123.53 1082.63 1046.28 743.38 714.74 649.05 511.08 492.85

Profit After Tax Rs. Crores 1073.73 792.44 234.1 98.47 51.02 51.79 42.1 77.67 97.61 61.89 35.73 36.7 75.03

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Strategic Analysis of Indian Toothpaste Industry

Reckitt & Colman Of India Ltd. I S P L Industries Ltd.

435.33 21.57

31.47 0.04

Among the major companies, Hindustan Lever has a strong presence in the food, personal care and household care (detergents) sectors; ITC is the market leader in cigarettes; Nirma has a strong presence in the detergent market; Nestle and Britannia are active in the food sector and Colgate has a strong presence in the oral care segment.

India is one of the worlds largest producers for a number of FMCG products but its FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential for increasing exports but there are certain factors inhibiting this. Small-scale sector reservations limit ability to invest in technology and quality up gradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce scope for export to developing countries.

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Strategic Analysis of Indian Toothpaste Industry



The FMCG sector is a key component of Indias GDP and is a significant direct and indirect employer. It is the fourth largest sector in the economy and is responsible for five per cent of total factory employment in the country. The sector also creates employment for three million people in downstream activities, much of which is disbursed in small towns and rural India. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality the sector meets the every day needs of the masses, across the country. Low-priced products contribute the majority of the sales volume and lower income and lower middle income groups account for over 60 per cent of the sectors sales. Moreover, rural markets account for 56 per cent of total domestic FMCG demand and FMCG outlets reach more villages than any other basic facility such as primary schools or bus facilities. The FMCG sector has several other salient features. It has strong links with agriculture and 71 per cent of sales come from agro-based products; it is a significant value creator with a market capitalization second only to the IT sector and it is a key contributor to the exchequer. In 1998-99, it accounted for eight per cent of total corporate tax; six per cent of central excise revenue and seven per cent of state tax revenues. The FMCG sector has traditionally grown at a very fast rate and has generally out performed the rest of the industry. Over the last one year, however the rate of growth has slowed down and the sector has recorded sales growth of just five per cent in the last four quarters. The outlook in the short term does not appear to be very positive for the sector. Rural demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has already downscaled its projection for agriculture growth in the current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown in the economy is also likely to have an adverse impact on disposable income and purchasing power as a whole. The growth of imports constitutes another problem area and while so far imports in this sector have been confined to the premium segment, FMCG companies estimate they have already cornered a four to six per cent market share. The high burden of local taxes is another reason attributed for the slowdown in the industry At the same time, the long term outlook for revenue growth is positive. Give the large market and the requirement for continuous repurchase of these products, FMCG companies should continue to do well in the long run. Moreover, most of the companies are

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

concentrating on cost reduction and supply chain management. This should yield positive results for them.

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Strategic Analysis of Indian Toothpaste Industry



Tax reforms The government has gradually removed the restriction on imports of consumer goods in the country and also significantly reduced excise duties {25% in 91-92 to 15% in 0102}. The domestic tax structure of these products, however, has not been rationalized to provide level playing field for competition this is adversely affecting the FMCG industry and could have far reaching adverse impact. The following taxation issues need urgent attention of the government: 1) Irrational domestic tax structure encouraging imports Significant reduction in custom duty rates of the consumer goods has made imported products cheaper as compared to indigenously manufactured products, due to irrational domestic tax structure. For instant, goods manufacturing in India suffered for cascading effects of taxes on inputs as additional cost compared to imports. The cascading effects of sales tax and local levies on inputs used in domestic manufactured should be eliminated by providing either MODVAT credit or by introducing national VALUE ADDED TAX. Covering both central and state taxes on an urgent basis. Moreover, maximum retail price based excise duties levies on a large number of FMCG products. Countervailing duty in the same product when imported is charged on CIF value. The MRP base assessable for excise does not allow abatement for cost manufacturing costs such as advertising and selling expenses whereas CIF value considered for the purpose of import duty does not include costs of these elements incurred subsequently by imports. 2) Inverted duty structured for selected inputs Duty on certain raw material higher or the same as compared to finished products in which these materials are used. In addition custom duty, raw materials are also subject to sales tax and octroi and therefore total tax incidence and cost of indigenous goes up.

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Strategic Analysis of Indian Toothpaste Industry

The import duty on raw materials needs to be rationale so that it dose not exceed 60 to 70 percent of the duty on finished goods.

3) Contract manufacturing: As FMCG companies concentrate on brand building, product development and creating distribution networks, they are at the same time outsourcing their production requirements to third party manufacturers. Moreover, with several items reserve for the small-scale industries and with these SSI units enjoying tax incentives, the contract manufacturing route has grown in importance and popularity.



FMCG growth is directly linked to growth of Indian economy. The sector will be the biggest beneficiary when the economy turns around and rural demand picks up. This indicates immense potential for FMCG in India over the long term. Duty stagnant market in Urban India, rural market can be developed. This depends on the monsoon, as rural economy is heavily dependent on agriculture.


Life style: A considered part of rural population now has access to television and cable television and aspiration about life style are changing fast. Rural India accounts for over 70 percent of the countrys population. Income level: Income levels are low and consumers are highly price sensitive. Lower income and lower middle groups accounts for over 60 percent of the sectors sales. Local / unorganized players operating at low overheads will continue to give stiff competition.

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Strategic Analysis of Indian Toothpaste Industry



Basic technology for manufacturing is easily available. Also, technology for most products has been fairly stable. Modification / improvements rarely change the basic process. Nonetheless, major global players enormous sums on R&D due their ability to spread cost over the wider base of their global operations. Their R&D efforts are towards Cost effective manufacturing process without compromising on quality and functional performance. Research driven formulations, which give cutting edge. Standardize formulation, which can be used across countries.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



Well-established distribution network extending to rural areas. Strong brands in the FMCG sector. Low cost operations


Low export levels. Small scale sector reservations limit ability to invest in technology and achieve economies of scale. Several "me-too products.


Large domestic market. Export potential Increasing income levels will result in faster revenue growth.

1.11.4 THREATS

Imports Tax and regulatory structure Slowdown in rural demand

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Strategic Analysis of Indian Toothpaste Industry



Throughout civilization, man has always needed to have healthy teeth, the primary reason being for survival. Today we do not really need teeth for survival, it could even be said that they play a far more aesthetic role in our lives. The development of toothpaste began as long ago as 300/500BC in the ancient countries of China and India. According to Chinese history, a learned man, Huang-Ti, studied the care of teeth and claimed different types of pain felt in the mouth could be cured by sticking gold and silver needles into different parts of the jaw and gum. It was theories such as these that led to the development of dental cream. During the years 3000/5000BC, Egyptians made toothpaste using a recipe of powdered ashes of hooves of oxen, myrrh, powdered and burned egg shells and pumice. Directions were given that all should be mixed together, but there were no specific instructions as to how the powder should be used. It is assumed that the ancient Egyptians used their fingers to rub the mixture onto teeth. The tooth stick, the forerunner of the toothbrush had not, as far as is known, been discovered at this time. From the records of the ancient countries of India, China and Egypt, it was the Greeks and Romans who developed and improved toothpaste. The Greeks and Romans who developed a leaden instrument for the extraction of teeth were also the first to bind loose teeth together and to support artificial teeth by means of gold wire.

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Strategic Analysis of Indian Toothpaste Industry

With the fall of the Roman Empire, the evolution and development of toothpaste became less clear and little is known of any changes in the years between the coming of Christ and 1000AD. During 1000AD, evidence shows the Persians further developed toothpaste. According to writings, advice was given on the dangers of using hard toothpowders and recommendations were made to make toothpowder from burnt hartshorn, the burnt shells of snails and oysters and burned gypsum. Other Persian recipes included dried animal parts, herbs, honey and minerals. One formula for strengthening teeth included green lead, verdigris, incense, honey and powdered flint stone. Toothpowder or dentifrice was first available in Britain in the late eighteenth century. It came in a ceramic pot and was available either as a powder or paste. The rich applied it with brushes and the poor with their fingers. The powders were developed by doctors, dentists and chemists and often contained ingredients that were highly abrasive and harmful to the teeth, such as brick dust, china, earthenware or cuttlefish. To make them more palatable, toothpowders contained glycerin. By the early nineteenth century, the ingredient strontium was introduced. It was used primarily to strengthen teeth and reduce sensitivity, but it only really concentrated on the gums. In the late eighteenth century, borax powder was used to get the foaming effect. In 1873, Colgate introduced aromatic toothpaste in a jar in the U.S. In 1896, Colgate Dental Cream was the first to be packaged in collapsible tubes similar to those in use today. Before the Second World War, the majority of toothpaste on the market used soap as an emulsifying agent, even though it was known that soap had certain inherent defects. Following the Second World War, advancements in synthetic detergents meant soap was no longer used in toothpaste and emulsifying agents such as Sodium Lauryl Sulphate and Sodium Ricinoleate used instead. Toothpaste manufactures such as Colgate continue to research and improve the efficiency of toothpaste. The discovery that fluoride and fluoride compounds, when introduced into toothpaste, strengthened the enamel against tooth decay was a significant step forward.

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Strategic Analysis of Indian Toothpaste Industry

Trials in the UK which lasted for 3 years showed that dental decay was reduced by as much as one third by regular use of Colgate toothpaste containing fluoride.



Advertisements seem to suggest that we need tartar control toothpaste for removing tartar, a whitening toothpaste to brighten teeth, and even a gum care toothpaste to prevent gum disease. What is the most effective toothpaste? This a common question asked by not only patients but many people you meet. Many advertisements seen confuse an individual in this regard. One is advised not to go after the advertisements but if in doubt consult your dentist if one is not able to decide on his own about choosing a Toothpaste.

2.2.1 Toothpastes vs. Gels

Only their physical appearance and a taste is the difference between pastes and gels. While gels may seem less abrasive than pastes,this is not the case. Actually, gels can be more abrasive because of the silica used to make them. However, both are safe, effective cleaners; use whichever you like!

2.2.2 Tartar Control Toothpastes

Most studies suggest that tartar control toothpastes do not remove tartar. They may prevent the accumulation of additional tartar, however. They do not reduce the tartar that forms below the gum line, which is the area where tartar can cause gum disease. 2.2.3 Gum Care Toothpastes

Gum Care toothpastes also have questionable efficacy. This type of paste contains stannous fluoride as compared to sodium fluoride found in other types of paste. While some studies show stannous fluoride may be helpful in reducing the incidence of gingivitis (a reversible form of gum disease), it has also been suggested stannous fluoride is not as affective in prevention of cavities vis a vis sodium fluoride. Any toothpaste containing fluoride is normally recommended.

2.2.4 Baking Soda Toothpastes

Although these have'nt become very popular in India, they are available. There are no conclusive studies that prove baking soda toothpastes significantly reduce cavities MBA-II 2002 Som-Lalit Institute of Business Management 21

Strategic Analysis of Indian Toothpaste Industry

compared to other toothpastes. Some people enjoy the taste and feel of baking soda or mint toothpastes. The attractive taste of baking soda and mint toothpastes may encourage people to brush longer. Many baking soda toothpastes may also contain peroxides which can irritate and damage gum tissue.

2.2.5 Abrasive Smoker's Toothpastes and Toothpowders

These toothpastes are not recommended as they can cause recession of the gums and abrasion (slow removal) of tooth structure. The best way to rid your teeth of smoking stains is to stop smoking and, then, have a professional cleaning by a dentist.

2.2.6 Desensitizing Toothpastes

These pastes do actually work for a majority of the people using them. Generally, they are needed when a patient has had gum recession, thereby exposing the root of the tooth. Once this exposure occurs, a tooth can be sensitive to cold, hot, touch, sweet, or sour. There many brands available in the market and they may have different ingredients; therefore, if one brand does not work, try a different brand. Note: you should have any sensitivity checked by your dentist first to be sure it is not a more serious problem. But be careful these pastes are to be used only as professionally advised and not as regular tooth pastes.

2.2.7 Whitening Toothpastes

One must be careful when using these due to their abrasiveness. These should not be used exclusively but should be incorporated into a routine using a fluoride paste. Do not use a whitening paste every time you brush; use only once every day or two. Certain brands can be more abrasive than others. Their efficacy is questionable. Some people claim to notice a brightening of tooth color, while others notice no change. This difference is partly due to variety in diet and tooth structure among people. If you are serious about whitening your teeth, you should discuss various options, including bleaching, with your dentist.

2.2.8 Ayurvedic Pastes/Homeopathetic Pastes

In India many Ayurvedic and Homeopathic Pastes containing Herbs and Ayurvedic and Homeopathic Medicines are available. These Herbs are used in this country since centuries to cure Dental Diseases but the exact effect of these in Paste form is not available.

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Strategic Analysis of Indian Toothpaste Industry



The 90,000 TPA oral care segment contributes around Rs 21 bn to this pie. The segment has many players in many sub-segments. The major players in the oral care market are Colgate (over 50% share), Hindustan Lever (36%), SmithKline Beecham (4-5%), Balsara, Dabur, Himalaya Drug, Anchor, Gillette and Forhans.


Colgate HLL Smithklinebeechem Balsara,Dabur, Anchor,Forhans Others

MARKET SHARE Colgate HLL Smithkline-beechem Balsara,Dabur, Anchor,Forhans Others

% 50 36 4 7 3

It is apparent that Colgate and Hindustan Lever (HLL) call the shots in this segment, which has been traditionally growing 9-10%. However, in the last couple of years growth has turned sluggish at 3-5%. Infact, market leader Colgate has stated that growth has been stagnant in the last few months of FY02. India being a price sensitive market, the growth strategy revolves around pricing strategies. Colgate prices some of its products at a premium to HLL. However, competition has expanded to product differentiation also (gels, gum care, calci guard, mouth wash, toothpowder and different type of flavours). Since these two companies dominate the segment, much of the tug of war over pricing, product segments and initiatives come from them. While HLL is constantly trying to inch up market share ladder, Colgate tries to hold onto its pie and consolidate. As a result, ad expenses are pretty high in the segment. While we dont have figures for HLLs advertisement support to its oral care business, Colgate spends over 20% of its revenues on promotions and advertisements. But if the market is not growing, why are these two majors competing so fiercely? Because not withstanding the recent stagnation, the oral market has a huge potential to expand. As per estimates, an average Indian consumes 82 grams of toothpaste per annum. In contrast,

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Thailand consumes 262 grams, Mexico 376 grams and the US per capita consumption stands at over 6 times India levels (518 grams).

In Apr-Nov 01, production of soaps increased by around 4%, detergents by 4.9% and toothpaste by around 19% when compared to the corresponding period of the previous fiscal.

Segments Toilet soaps Detergents Hair colour Skin care Oral care

Market size 46.0 38.0 2.4 7 21

Penetration Rural 85.0% 85.0% 10.0% 10.0% 20.0%


(Rs bn) Urban 95.0% 95.0% 20.0% 40.0% 75.0%

India's rural markets have seen a lot of activity in the last few years. Since urban markets are saturated in most categories, future growth can come only from deeper rural penetration. FMCG majors are aggressively looking at rural India since it accounts for 70% of the total Indian households.

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Strategic Analysis of Indian Toothpaste Industry

Raw material prices play an important role in determining the pricing of the final product. The industry is volume driven and is characterized by low margins. The products are branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. Despite the strong presence of MNC players, the unorganised sector has a significant presence in this industry. Brand building and extensive distribution network is a key factor. A successful brand is a precious asset, which could fetch a price many times the cost of assets required to make the product. A study conducted by A&M-ORG-MARG reflects that the share of branded goods is high for a number of daily used products. Branded goods comprise of 65% of sales in villages and the share of non-branded products is shrinking dramatically.

Many of the companies are still keeps pace meeting the demand by product innovation. These innovations to the toothpaste industry are cosmetic. Indian consumer demographics and consumption pattern and lack to the Indian consumer toward oral hygiene are major threats to the toothpaste manufacturers. Many people in India still clean their teeth with traditional products like neem twigs, salt, ash, tobacco or other herbal ingredients. Average all India per capita consumption of toothpaste is a dismal 82gms.The dentist to population ratio is a critically low 1:45000 in the country. This results in low oral hygiene consciousness and widespread dental diseases. Less than 15% of the Indian toothpaste users brush twice a day. The toothpaste market grew at a CAGR of 7-8% between 19952000. But in 2001 the market grew by only 4%.Colgate and Hindustan Lever together account for over 85% of the organized toothpaste market. Red and Black toothpowder still accounts for 35% of the toothpowder market. In toothpowders, Colgate and Dabur are the leading players sharing between them 75% of the market. Penetration of toothpowder in the urban areas has been declining, as more and more consumers switch from powders to paste. Brand loyalty is quite high for toothpastes, but is extremely low for toothbrushes.10 years ago the most expensive toothbrush was priced at Rs4.

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Strategic Analysis of Indian Toothpaste Industry



2.4.1 Background
At the time of independence (1947) MNCs were allowed to operate in India, but the Indian market was too small for global MNCs. HLL had a manufacturing base, Colgate and Nestle mainly undertook only trading activities. In the early '60s, several MNCs set up manufacturing base in the country. The government policies continued to be protective, modeled on socialistic pattern with strong emphasis on self sufficiency. As a result economic growth was slow (around 3.5% pa which many economists dubbed as Hindu rate of growth) and India's share in international trade was nominal (even today India's share in international trade is only 0.6%). Slow growth was aggravated by major set backs in the late 60's due to drought and in the early 70's due to oil shock. In 1978, the new Government in power reserved several product categories for small-scale. It also forced MNCs to dilute their equity stake to 40% or leave the country. IBM, Coca-Cola and several others decided to leave. Amongst major MNCs, Unilever (HLL) was the only one which managed to retain 51% foreign stake by complying with the Government conditions of minimum 10% export and 60% turnover from priority sectors. Thus HLL got into the business of fertilizer and chemicals. In the '80s, when the underlying factors for the economy were strong such as major oil discovery at Bombay High, satisfactory monsoon, stable oil prices etc, the economic growth averaged 5% pa, much lower than its potential. Several FMCG products such as toiletries and cosmetics which are essentially mass consumption items, became luxury products due to exorbitant burden of excise duties, sales tax (which added up to over 150% on basic price). Local players sans technology and capital were not able to provide good quality products.

2.4.2 Liberalization:
Foreign exchange crisis in 1991 (precipitated by Kuwait war) proved to be blessing in disguise, due to which IMF suggested reform process began. The reforms have continued over the last few years. The economic growth rate is averaging 5-6% pa which is likely to continue. This growth rate in GDP will imply 4-5% volume growth in mature categories and 8-10% pa growth in

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

upcoming categories where penetration levels are low. More importantly, the organized sector will witness even a faster growth at the cost of the unorganized sector.

2.4.3 Positive Factors for Strong Demand Growth

Oral care products are expected to record strong demand growth, with improved standard of living, and greater awareness and penetration levels. The following are the key factors which are expected to trigger growth in the sector :


Duty rates have been slashed:

There has been a progressive reduction in excise duties on major FMCG product categories. 2. Falling Excise Duty Rates:

The excises duty and customs on toothpaste products are reduced form 35% in 1991-92 to 16% in 2001-02.


Abatement on MRP

Excise 2000-01 2001-02 Nil 16% 4% 16% 16% 32%

Customs (Basic) 2000-01 35% 35% 35% 35% 35% 35% 2001-02 35% 35% 35% 35% 35% 35%

Tooth Powder Tooth Paste Tooth Brush Toilet Soap Synthetic Detergents Cosmetics & Toiletries

NA 35% NA 35% 35% 50%

Nil 16% Nil 16% 16% 32%

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Strategic Analysis of Indian Toothpaste Industry


Licensing restrictions:

Licensing restriction have been eased considerably. There is a general political consensus on these reforms and the process seems irreversible. 4. Local players:

Dominance of local unorganized players will decline with level playing field to technologically and financially stronger MNCs. 5. Media reach:

Media reach has increased at a rapid pace. A considerable part of rural population now has access to cable TV, as a result of which aspirations and lifestyles are changing fast. 6. Economic growth:

Economic growth is likely to accelerate, which will result in more than proportionate growth in most product categories, as the current penetration levels are very low.



New MNC entrants will face several hindrances in converting the latent potential of Indian market as: Income levels are low and consumers are highly price sensitive. Local/ unorganized players operating at low overheads will continue to give stiff competition. Distribution is handled by incredible 5mn nos of retail outlets. Super markets virtually do not exist in India. This makes logistics particularly for new players extremely difficult. Infrastructure such as cold storage, road transportation is woefully inadequate and inefficient. Urban transport system is overloaded.

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Strategic Analysis of Indian Toothpaste Industry


Hindustan Lever Ltd. o Pepsodent 2 in 1 o Pepsodent Gel o Close up o Close up Lime fresh (recently launched) o Pepsodent powder Colgate-palmolive o Colgate Gel o Colgate Total o Colgate Herbal o Colgate powder Procter & Gamble o Crest Balsara o Promise o Promise Gel o Miswak o Babool Vicco Laboratories

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Strategic Analysis of Indian Toothpaste Industry

o Vicco vjradanti


Classical theories of international trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit. Factor endowments include land, natural resources, labor, and the size of the local population. Porter used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries. The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage. These ingredients are: 1. the availability of resources and skills, 2. information that firms use to decide which opportunities to pursue with those resources and skills, 3. the goals of individuals in companies, 4. The pressure on companies to innovate and invest. The points of the diamond are described as follows.


India is one of the fast growing countries in developing nations. FMCG industry is one of the key industries in India and it is fourth largest contributor to GDP.

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Strategic Analysis of Indian Toothpaste Industry

Due to liberalization country had created its own important factors such as skilled resources and technological base. After liberalization India had got high growth in skill labor and adopted latest technology. After entry of many new entrants and MNCs in the country industry had experienced tough competition. Indian toothpaste industry experiences high competition from traditional sources which rural population are still using like neem twings, coal powder etc. Porter's Diamond Model

Firm Strategy, Structure, and Rivalry

Factor Conditions

Demand Conditions

Related and Supporting Industries

Powerful brands like HLL pepsodent, Colgate enjoys high degree of power due to brand penetration and brand preference.


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Strategic Analysis of Indian Toothpaste Industry

The progress of the monsoon in the first month (June 1-26, 2002) has been fairly good, with area weighted rainfall at 145.7 or seven per cent above normal. The trend of declining sales is likely to reverse from the next quarter due to a lower base effect and a significant increase in prices of FMCG products. Another reason for this is the expectation of improvement in rural demand largely on account of high realizations of cash crops (oil, rubber, etc). While the sales are expected to remain sluggish, the sectors profitability is rather resilient, thanks to pricing power. Dominance of local unorganized players will decline with level playing field to technologically and financially stronger MNCs. Economic growth is likely to accelerate, which will result in more than proportionate growth in most product categories, as the current penetration levels are very low. India is the second largest country in world population wise. UN estimates indicate that currently Indian population is 1026mn out of which 40 % people are living in urban one rest are in rural areas. Rural migration to urban areas had changed the life style of the consumer to very extent.


The major supporting industry to toothpaste industry as well as FMCG industry is Agriculture industry. Agriculture growth rate and FMCG growth rate is as given under

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Strategic Analysis of Indian Toothpaste Industry

FMCG growth rate Vs. Agriculture growth rate

20 15 10 5 0
1 994 1 995 1 996 1 997 1 998 1 999 2000 2001

Percentage growth

Year FMCG grow th rate Agriculture grow th rate

From above graph we can see that FMCG growth rate is somewhat depends upon agriculture industry. During the last two years agriculture industry has been declining due to bad monsoon and less government concentration on the industry.


Structure of the industry is as mentioned earlier. Two major players of toothpaste industry HLL and Colgate have more than 60 % market share together, Due to such high brand penetration and brand awareness they enjoys relatively high power than other national manufacturers. MNCs have dominated the industry and created high entry barrier. The business itself is highly capital intensive and technology intensive. Technology required is easily accessible but it is costly. This creates high competitor rivalry.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry




Economies of scale:

In case of the toothpaste industry economics of scale can be achieved through better utilization of the capacity and purchasing of the raw material in bulk. In this way per unit cost of the toothpaste can be reduced. But in Indian context the consumption pattern of the consumer threaten this opportunity.

Entry Barrier:

For starting the business at national level of global level requires huge investment better understanding of the consumer demographics. Also too many established players in this industry make the entry difficult.

Easy access to the distribution channel:

As the FMCG goods are those that consumer buys at least once in month and toothpaste are of daily use distribution channel plays major role to achieve high. India has very huge number of retail outlets of both organized and unorganized level, it has good distribution network and easy access to it. But spread of this network and to cope this is a difficult task to perform.

Cost advantages:

Economies of scale give the industry cost advantage. New technology as adopted by the HLL (TPM) can give the industry cost advantage.


May established players give stuff competition to the new entrants as in the case of Choice toothpaste.

Government action:

Government action is favorable to the toothpaste industry as the government had reduced the excise duty form 25% in 1991-92 to 16% in 2001-2002.

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Strategic Analysis of Indian Toothpaste Industry


The product differentiation is very low. All the products seem to be homogenous. So differentiation in the toothpaste industry is low. All the producers have to do some cosmetic innovation such as packaging, color etc. To conclude threats to entry in the toothpaste industry is low. But the established players like HLL, Colgate may give stiff competition.


As there are large numbers of suppliers of the toothpaste and the market is perfect competitive, the buyer enjoys high power. The retail outlets are providing varieties of toothpaste this is another threat to the toothpaste industry. The prices of the products of the major players are nearly same, so cost of switching form one company to other company is very low.


The power of suppliers is in the case of some powerful brand i.e. HLL, Colgate. The switching cost is low also for the supplier if they can achieve the same quality and price from another supplier.


The unorganized players and also the ayurvedic products are the substitute to the industry. In Indian context the traditional substitutes such as neem stick, coal powder is major substitutes of the toothpaste industry.


The competitors rivalry of the toothpaste industry intensifies due to established players.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry




Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Tax policy: Significant reduction in custom duty rates of the consumer goods has made imported products cheaper as compared to indigenously manufactured products, due to irrational domestic tax structure. For instant, goods manufacturing in India suffered for cascading effects of taxes on inputs as additional cost compared to imports. The Indian toothpaste industry is well benefited form the Indian government as the excise duties is reduced form 25% in 1991-92 to 16% in 200102. The excise duties are also reduced gradually on toothpaste industry. But the cascading effects of sales tax and local levies on inputs used in domestic manufacture nullify the effects of the tax reduction. Political stability: As everybody knows Indian governments instability the toothpaste industry is also threatens by the new tax policies by new government.


Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macro economy: Economic growth:

Government expressed confidence in attaining the desired 8.0 per cent growth annually during the next five years but expressed concern over the worsening of fiscal situation of states.

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Strategic Analysis of Indian Toothpaste Industry

Interest rates: Interest rates have vast impact on any industry. Currently interest rate in India is 7.75%. Interest rates are continuously reducing form 16% in 1996 to 7.75% in

2002. This reduction in interest rates is positive trigger for the Indian toothpaste industry. Inflation rate: Annual inflation rate has been rose by 0.19 percentage points to 5.41 per cent for the week ended August 11 as primary and manufactured products became costlier. The point-to-point inflation rate based on wholesale price index (WPI) for all commodities (base: 1993-94 = 100), which had risen by 0.29 percentage points to 5.22 per cent in the previous week, rose again even as fuel price remained firm and the index was 6.31 per cent a year ago.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry


Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer needs and the size of potential markets. Some social factors include: Health consciousness: The personal care is undoubtedly health consciousness. But the Indian consumer especially rural consumers are not so much health consciousness. So the local small-scale manufacture can also meet their demands. The government had established the standards for the toothpaste manufactures to fulfill. The ingredients to the toothpaste should meet the government standards. The dentist ratio in India is 1:35000, which shows minor consciousness to oral care. Population growth rate: In 1990, Indias population was 835 million. Within a decade it increased to 997 million and by May 2000 it reached one billion. The decennial growth has, however declined from 2.1% to 1.59% by 2000.

The rate of decline is still slow although the Government of India is sparing no efforts to bring the population to a steady level. However, India is a vast country MBA-II 2002 Som-Lalit Institute of Business Management 38

Strategic Analysis of Indian Toothpaste Industry

and being multi-cultural, multi-lingual and multi-religious, any Government policy to tackle the population problem is difficult to implement effectively. Life style: Indian life style has gone to dynamic. Reach of media and television had increased up to 59%, thus making the consumer more aware about the products available in the market and competitors product. The migration of the rural people form rural to urban areas makes them more consciousness about the healthcare. So this is positive trigger to the Indian toothpaste industry. Indian consumer consumption pattern: Indian consumption pattern of toothpaste do not stand advantageous to Indian toothpaste manufacturers. The reach of the toothpaste is 75% and 20% in urban and rural areas respectively. Only 15% of the people brush twice a day. Due to these India has minimal 82 gms per capita consumption of the toothpaste as compared to 320 gms in Europe and 220 gms in Indonesia.+ Most of the villagers are still using natural substitutes such as neem stick, coal powder etc.


Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include: R&D activity: The expenditure on R & D efforts are increased continuously by most of the countries to emphasize on latent demands of the Indian consumer as the Indian buyers enjoys large power in FMCG sector. R & D efforts are also helps the industry to cut the cost of the product and to achieve the better quality. Automation: The automation in the most of the manufacturing industry has now reached at high level. The recently adopted Total Productive Maintenance method for manufacturing had attracted more manufacturers as the cost of the products is reduced and reasons of the failure can be known and high quality can be reached.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Industrial growth: India's industrial production jumped by 5.7% in August 2002 as against 3% in the same month last year. Industrial output during April-August 2002/03 climbed by 4.9% compared with 2.4% in the corresponding period last year. The manufacturing sector, the barometer of the health of the economy, grew by 5.9% in August 2002 compared with 3.3% in the same month a year-ago.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



Colgate Palmolive (India) Limited is India's leading manufacturer of scientifically proven products in oral and personal care. From a modest beginning in 1937, today the company has a turnover of over Rs 1100 crores. In India, Colgate - Palmolive has the widest distribution network with 2.7 million retail outlets, of which 8 lakh outlets are serviced directly. Our innovative and effective products have earned us the confidence and trust of millions of consumers in the country. Our commitment to consistently deliver superior quality products fuels our vision - To be the innovative leader with our brands, everyday in every home. Colgate Palmolive is the Market Leader in Oral Care with its products under the Colgate' brand. Our wide range of toothpastes include Colgate Total and Sensation whitening in the premium segment, followed by Colgate Fresh Energy Gel, with Colgate Dental Cream, the flagship brand, in the mid-price segment. In the year 2000, two new variants were launched, Colgate Herbal with the goodness of Indian herbs and Colgate Cibaca Top in the economy segment. Both these have been very well received in the Indian market. Colgate toothpowder continues to be the market leader in its segment. In Toothbrushes again Colgate retains pride of place as the market leader. The innovate Navigator toothbrush launched in 2000, along with Zig Zag Flexible launched recently have helped Colgate retain the No.1 position. Colgate Palmolive is also a leading manufacturer of quality personal care products under the Palmolive' brand. These include our range of quality soaps, Palmolive Naturals in the popular segment and Palmolive Extra Care in the premium category, and Palmolive Charmis, a moisturizing Cold Cream. In year 2000, to further strengthen the premium category, New Transparent Palmolive Naturals soaps were launched, which have been well appreciated. Colgate Palmolive is the market leader in Shave Creams and has a wide range of toiletries for men ranging from After Shaves to Shave Foams and Gels including brushes and rounds. We also have a presence in the Hard Surface Care segment with Axion, the dish cleanser.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

The company stands for quality products, strongly held values and a world of talented people. Colgate provides a stimulating work environment that helps each individual realize their potential and give their very best. We offer an exciting and challenging work atmosphere by ensuring that training, education, sequence of assignments and performance evaluation all work in tandem to enhance personal and professional effectiveness. Our transparent working culture allows you to take the initiative and chart your own progress path. A career with Colgate ensures early responsibility, involving important projects where contributions have value and impact allowing for considerable early visibility.

3.1.1 Operations
In the oral care segment, CPIL has a presence in the toothpaste, toothpowder and toothbrush segments. The company's flagship brand Colgate is well entrenched and has become generic for the toothpaste category. CPIL's strengths lie in its brands and wide distribution network. Importantly, the company's brands enjoy high recall in the rural areas where the penetration of modern dental care products is still relatively low. Thus, CPIL is well placed to benefit from increase in rural penetration and the resultant increase in the size of the overall market. The company was the dominant leader in the toothpaste market and enjoyed a marketshare of 60 per cent till the entry of HLL. HLL identified new niches and used aggressive marketing to gain a foothold in the category. Subsequently, CPIL's marketshare declined from the earlier levels and is currently estimated at around 50 per cent.

3.1.2 Oral Care Products

Oral care portfolio consists of following products Product Colgate Sensational Whitening Colgate Total Colgate Fresh Energy Gel Colgate Super Shakti Calcium Colgate Herbal Segment Premium Premium Gel segment Popular segment Popular segment

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Colgate Cibaca Top Colgate tooth powder

Economy segment Economy segment

3.1.3 Toothpaste blockbuster brands

Brand Colgate dental cream Colgate gel Cibaca Colgate Herbal

Market share (%) 39.1 5.2 4.1 2.2 Source: Colgate India Percentage market share in Jan '01

CPIL was able to arrest the decline in its market share on the basis of a two pronged strategy. (The company claims to have a market share of around 52 percent in the toothpaste market and around 46.3 percent in the toothpowder market. Besides, it remains a market leader in the toothbrush market with a 45 percent market share, post Cibaca takeover.) Colgate's market shares: A turnaround in the offing

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Strategic Analysis of Indian Toothpaste Industry

First, it introduced an entire range of toothpaste to match HLL's segmentation. Thus Colgate Dental Cream was repositioned as Colgate Supershakti and seems to be doing quite well. Next came the Gel variant followed by Colgate Total, Colgate Sensation Whitening and Colgate Strips. Secondly, it refocused on strengthening its distribution network. So far, the Colgate toothpaste reaches 20,000 villages and the company plans a foray into 140,000 villages within next five year's. Even in the past Colgate, has come back after being written off, whether in the USA (vs. P & G) and in Thailand (vs. Unilever) following the same strategies of product segmentation, aggressive marketing and focus on distribution. During the first three-quarters also the performance seems to be on similar lines. While the first quarter topline saw a 22 percent jump in the topline, this was primarily due to new product launches and re-launching of Colgate Dental Cream and pushing these products through the distribution pipeline. What was encouraging however, was the increase in operating margins by 1.5 percent over the first half of the last year despite high decibel advertising. During this period, the company regained market share of around 3 percent. (The margins had dropped from 22 percent in FY 93 to 8.40 percent in FY99 primarily due to the increase in advertising expenditure as a percentage of sales from 8.5 percent in FY 96 to 20 percent in FY 99.) During the first nine months the company has reported a jump in the pre-tax profit by almost 34 percent over the corresponding period of the last year, a sign of much improved operational performance. The company has beefed up its management bringing in Mr. Derrick Samuel as managing Director (In the past Mr. Samuel headed Colgate's operations in the South Pacific and has a record of engineering volume growth and building strong trade partnerships) and Mr. Vikram Kaushik (who headed Britannia's bakery operations and achieved commendable results). CPIL remains a zero debt company and will continue to report a return on capital exceeding 20% in the current year too. The fightback has begun and one can hope for a sparkling performance in the coming year, tough competition from HLL notwithstanding

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Strategic Analysis of Indian Toothpaste Industry



Procter & Gamble (P&G) originated, in 1837, as a partnership between William Procter and James Gamble. The company originated as a soap and candle manufacturer. 153 years later, Procter and Gamble has matured into a giant corporation, marketing approximately 300 brands to nearly 5 billion consumers worldwide, with sales totaling around $39 billion annually. P&G produces non-durable consumer goods, particularly in the areas of cleaning and hygiene. Other subsidiaries include the Iams Corporation, maker of premium-priced pet food, and Procter & Gamble Pharmaceuticals, specializing in the areas of cardiac, respiratory, and anti-inflammatory agents, as well as toothpaste. P&G is also the owner of two soap operas: Guiding Light and As the World Turns. P&Gs market is mature, with only small year-to-year growths in sales. These sales are often consumer-driven; so efficient marketing is an absolute necessity. However, an element of luck also is involved, particularly when determining consumer needs and future trends. The non-durable consumer goods market is diverse, but in general is headed by a few large multi-national corporations, such as Johnson & Johnson, Unilever, ColgatePalmolive, and Kimberly-Clark. Competition to determine the consumers preferred product can be fierce, requiring large resources, and the ability to finance marketing campaigns. Thus, entry into this market is difficult for any but the largest of companies. (See Figure 1 for historical net sales for P&G and its competitors.) P&G is larger in scope than most of its competitors across its market, which could be a blessing (from crossproduct marketing) or a curse (P&G might be too big a company to effectively manage).


Crest is a highly respected brand name in the oral care industry. We at Crest are a premier global provider of high quality oral hygiene products.


Crest has a continuing commitment to the Dental Community to create products that benefit the well being of our global consumers and the world they live in. It is our responsibility to our shareholders to be profitable and stimulate the highest possible return

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Strategic Analysis of Indian Toothpaste Industry

for our shares. Our policies regulating employee behavior ensure that our employees receive the utmost treatment and respect. We believe that doing what is right for the business with integrity will lead to mutual success for the company and all individuals involved.


Crest aspires to become the worldwide leader in high quality oral care products that not only benefits the consumer but the community and environment around them. By being leaders in innovative products that aid in the well being of our consumers and adhere to highest environmental regulations and participating in events that foster dental education, we will continue taking steps towards accomplishing this vision.


Increase the sales of toothpaste worldwide by 40% by the year 2005. Develop and launch new advertising campaigns 30% by the year 2004.


Procter and Gambles (P&G) research and development (R&D) budget, consisting of 4% of sales income, is not only employed for the development of new products, but also for improving existing products and researching methods of environmental efficiency and protection. The companys research budget amounts to about $2 billion annually. This commitment to innovation wins the company about 3000 new patents every year. In doing so, the company employs more Ph.D. scientists than Harvard, Stanford, and MIT combined. In its company web page, P&G notes that it plans to meet and exceed the requirements of all environmental laws and regulations and in addition to continually assess...environmental technology and programs and monitor progress toward environmental goals. This premise is beneficial to the company, as by employing more environmentally-friendly strategies, the company is not only following regulations and preserving the environment, but it is also saving some costs. Procter and Gambles Environmental Sciences Department uses a multidisciplinary approach in problem solving. Scientists from backgrounds as diverse as atmospheric

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Strategic Analysis of Indian Toothpaste Industry

sciences to engineering work together to find solutions to environmental problems. Procter and Gamble has focused its resources on research in the following categories, some of which are summarized in Table 1 and below:

Minimizing transport of waste by river systems. Reducing company-generated waste. Reducing packaging of products. Reducing energy and water consumption. Using raw material from recycled sources. Lowering contribution to the greenhouse effect. Table 1: Manufacturing and Waste Cost Summary (Source:
1 Units are in thousands of metric tons

2000 Sustainability Report)



Packaged Products shipped Raw Materials From Recycled Sources Packaging Used Packaging Used From Recycled Sources

1999/2000 15,229 476 1,293 444 879 55% 317 12 39 19

1998/1999 14,644 380 1,375 490 863 56% 271 27 31 20

14,436 400 1,367 455

1.1.2 1.1.3

Generated Waste % Recycled / Reused Waste 893 53%

1.1.5 1.1.6 1.1.7 1.1.8

Solid Waste (NonHazardous) Solid Waste (Hazardous) Effluents (Excluding Water) Air Emissions 324 12 37 20

The company is active in reducing the uncertainty of ecological risk. For example, in the 1960s it was first realized that detergents could have an impact on water and wastewater treatment plants. Since then, the company has focused its attention on the ingredients used in its products. They have been one of the first companies to determine methods for measuring biodegradability rate through the development of the Sturm test. For example, according to Dr. Anna Palmisano, former P&G environmental scientist, numerous MBA-II 2002 Som-Lalit Institute of Business Management 47

Strategic Analysis of Indian Toothpaste Industry

degradability tests were conducted on the Tide brand showing that the detergent is fully degradable in fresh water and slowly degradable in salty water. Furthermore, to expand its commitment to the environment, in 1984, the company built an experimental stream facility (ESF), one of the only such facilities in the world, to model the transport of pollutants and their effect on the ecosystem. As an applicable example, a recent study at P&Gs stream facility assessed the rates and methods by which alkyl sulfates, found in shampoos and detergents, break down with the help of enzymes produced by microorganisms found in the environment. As a result of studies, such as the two mentioned above, all Procter and Gamble soaps, detergents, and shampoo products have been determined safe for disposal in the septic system. However, Procter and Gamble continuously accesses the ecological risks, if any, implemented by its products. Another arena in which the company has focused its attention on is materials ecoefficiency, or minimizing waste by using recycled products, decreasing the amount of packaging used in products, and using concentrated formulas. Since 1989 they have been able to reduce their packaging needs by 25%. A notable example is replacing the cardboard boxes of Pampers diapers with polyethylene packaging in Western Europe. According to the company, this innovation is not only more favorable to consumers and retailers, due to the ease in handling and opening of the package, but it is also saving 14,000 metric tons of cardboard each year and reducing the weight of diaper shipping packages by 90%. This change has not only reduced cardboard waste but it has also increased the amount of diapers that can be transported at one time, thereby decreasing transportation costs and trip frequency. The company claims through research to have reduced diaper thickness without compromising quality. Of course, prior to embracing the less packaging approach, life cycle inventories were conducted to compare the environmental profiles of both packaging methods. Therefore, by employing a new method of packaging, the company is improving on an old, yet popular product, responding to consumer and environmental needs, and at the same time reducing its own costs. Procter and Gamble uses recycled products in its packaging as much as possible, this includes plastic as well as paper products. Most recently, on November 15, 2000, P&G donated its paper recycling technology, including rights to future income, to the North Carolina State University. This process, which already has about 79 worldwide patents, sorts paper fibers according to length, coarseness, and stiffness through a sequential centrifuging and screening process. This method helps eliminate the quality degradation of paper over time; therefore, it can be recycled several times. The companys goal in this donation was not only educational, but as Gil Cloyed, P&Gs CTO, notes, each year the company produces many more innovations that they can possibly develop (P&G Press,

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Nov. 15, 2000). Therefore, Procter and Gamble passed the technology on to those who could improve it and make it commercially feasible. Energy eco-efficiency and reducing the generation of greenhouse gases, such as carbon dioxide, are yet other issues that P&G researches. The companys environmental efforts in these cases also save it some costs. For example, before investing in heating or cooling systems, P&G first analyzes the costs of insulating the whole building instead. Although the result may result in huge cost upfront, in the end, the company will be able to save utility costs through this research. According to P&Gs 2000 sustainability report, since 1985, company energy use has been nine times more efficient. Furthermore, by switching to cleaner fossil fuels and installing scrubbers, they have been able to not only reduce carbon dioxide emissions, but also increase production efficiency per ton of carbon dioxide (three and a half times more since 1990). Procter and Gamble had once been targeted by animal rights groups for its product testing on animals. One action group, Defense of Animals, even set a Global Day of Action against Procter and Gamble. In a forward-looking move, P&G announced on June 30, 1999, in response to these protests, that it would no longer test on animals (P&G Press). P&G no longer performs animal testing for its fabric care, home, or beauty products in any of the countries where the company operates, except when required by law.


Procter and Gamble is one of the 28 companies belonging to the Global Environmental Management Initiative (GEMI). As Marc Epstein notes, the goal of these companies is to implement total quality environmental management (TQEM), a current trend in management practice. W. Edwards Deming, a statistician, developed this management practice during World War II. However, Abt Associates, a Boston consulting firm, modified it. TQEM is based on a Plan Do Check Act (PDCA) cycle. Procter and Gamble adopted this cycle in the mid-1980s. A summary of this cycle follows. The Plan Stage: Involves assessment of each process (whether handling, equipment change, etc.) to be assessed by environmental experts.

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The Do Stage: Includes regular measurement of waste (in all forms), training of personnel in good environmental practices, and emergency drills.

The Check Stage: Statistics are used to monitor environmental performance and internal audits are conducted annually.

The Act Stage: Policies and standards are implemented worldwide and experience and information is shared. In addition, each plant has an environmental program leader responsible for managing improvement.

3.2.8 Legal Incentives on Complying with Environmental Regulations

The fear of criminal liability and regulations is a strong factor in encouraging environmental efficiency. For example, as Professor Marc Epstein notes, with fines reaching $25,000 per violation, per day, companies have strong incentive to avoid such fines, which will tarnish their image as well. Furthermore, officers, directors, and even employees of the company could now be prosecuted for not following environmental regulations (Ibid). Therefore, at such high stakes, corporations are almost forced to comply with environmental protection. Procter and Gamble has been successful in complying with regulations and has reduced its environmental violations considerably. According to data from the companys sustainability report, since 1997, the company has reduced the amount it was fined by 18% ($73,100 in 1997/8 compared to $13,400 in 1999/2000).

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Strategic Analysis of Indian Toothpaste Industry


1. Internal Industry Competition: SAlthough a few large corporations, such as Unilever and Johnson and Johnson, dominate the industry, industry competition is high. Moreover, competition can lie in one or several product lines that each company produces. 2. The bargaining power of suppliers: As a large producer of consumer goods, Procter and Gamble is able to choose from many suppliers. With the environmental movement, the company has focused its attention on suppliers who comply the most with environmental regulations, monitoring their activities. 3. The power of buyers: The bargaining power of buyers has increased over the years. P&G has spent years cultivating relationships with Wal-Mart and other large chains, creating special marketing teams to work closely with the retailers to promote P&G brands. However, a single policy may not be suitable for all P&G buyers. When P&G adopted an everyday low price strategy, it developed it in conjunction with Wal-Mart and pushed other retailers, such as Frances Carrefour, to adhere to the same pricing policy. 4. The power of substitutes: Substitutes threaten the market as similar consumer products with better reformulations or more features could easily displace current product lines if change is low. For example, the addition of more tartar control measures pushed sales of Colgate toothpaste past Crest in the market. 5. New entrants: Entrance into the non-durable consumer product market and the pharmaceutical industry requires large capital for R&D and advertisement. Therefore, entrance into the market could be very difficult.

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SWOT analysis of Procter & Gamble reveals a company with plenty of resources but also a significant number of possible weaknesses in its corporate strategy. 1) STRENGTHS: P&Gs strengths in product lines have been enough to make the company a formidable competitor in the consumer goods market. Its development of new consumer categories has propelled it to the number one position in many consumer product categories. P&G also has developed strong, proven market techniques with which to sell its products, and its total sales in 1999 amounted to $37 billion. In addition, P&G has put millions into research and development of new products, as well as pre-market tests of its consumer goods for both efficacy and usefulness to consumers. Moreover, Procter and Gambles environmental policy is successful, as they have created a much more sustainable business than their competitors. The key strength for Procter and Gamble Co. currently is that of product innovation. Currently the company has the experience and the resources to exploit this opportunity. Procter and Gamble Co. are seen as an industry innovator and leader. However, we are not using our capabilities to the fullest. We are not introducing our products quickly enough out onto the market. Through this aspect, we are not able to introduce our products to our consumers before our competition even though we have the ability and the resources which we need. Procter and Gamble Co. do have the experience and the resources to exploit its key opportunity. It is a company that is among the top ten patent-producing companies in the world. It holds more than 27,000 patents and it applies for about 3,000 more every year. Not only has this company been in the industry for a long time, it also heavily invests in its research department.

P&Gs weaknesses are numerous, and best represented in the rise and fall of its previous CEO, Durk Jager. Jager, promoted to CEO after spending 30 years with the company, exemplifies P&Gs insistence on promoting managers from its own staff, and refusing to seek outside management consultants. Jager, however, was considered a risk taker, attempting to create a new business for the 21st century, unlike his consensus-oriented

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Strategic Analysis of Indian Toothpaste Industry

predecessor, John Pepper. Investors originally welcomed Jager as a sign that P&G would continue to adapt its company to new markets. For years P&G had outlined exacting methods for advertising, management requests, and product research, resulting in an informal nickname for the tightly controlled people under this system: Proctoids. Jager instituted Organization 2005, an 8-year project to streamline P&Gs endless bureaucracy and free the company from its time-tested development and marketing procedures. Jager also focused on the Internet as a possible vehicle for future growth, providing helpful consumer information on the P&G web page, as well as helping to create a company-wide intranet (P&G was one of the first companies to do so). In the end, however, Jagers brash style (earning him the nickname Crazy Man Durk) and overly optimistic projections of future growth caused P&Gs corporate board to remove him and refuse to give him a senior position on the board, the first time they had ever done this. Instead, the board of directors promoted A.G. Lafley to the CEO position (after he had spent 21 years working with P&G), and brought back John Pepper as chairman of the board. Lafley at once said that P&G would instead focus on its core businesses, which are not in our opinion the organizations main problem. P&Gs greatest weakness is that the company is too large to be innovative, and its bureaucracy is highly resistant to any change in the way P&G does business, from product development to marketing. This means that a company with billions in revenues, and a budget of 4% of sales in research and development yearly, has done next to nothing to change the company or create new product categories that would truly attract consumers, as their other products have in the past. P&G refuses to take a chance that one of its products could fail, and as a result only comes out with minor new additions to its old products, such as Tartar Control Crest. In general, it takes P&G up to 5 years to bring a product to market; this can be as much as twice the time needed for its major competitors, who are no small companies themselves. Because of this slow R&D development, P&Gs dominant position in several consumer categories has been slipping over time. In addition, P&Gs employees are stifled from making the kinds of innovations that could sustain P&Gs product growth. Former employees of P&G who left because of the stifling bureaucracy include Steve Case of Apple, Bob Herbold of Microsoft, and Scott Cook of Intuit each of them innovators in the technology industry In their own right. The key threat for Procter and Gamble Co. is the exposure to market risk. Procter and Gamble is in a very price competitive industry and in order to survive they must keep this in mind. Historically, Procter and Gamble Co. was unwilling to lower its prices and unable to prove itself as an innovator. Therefore, it has lost around 10% of its market

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Strategic Analysis of Indian Toothpaste Industry

share over the past five years. In addition, about three years ago, Colgate-Palmolive, our main competitor, took over as the leader in the toothpaste market. The great exposure to market risk can cause Procter and Gamble Co. to further lose market share. Even though Procter and Gamble Co. holds about 27% of the toothpaste market, their position is not as good as Colgate-Palmolives whopping 36%. If the competitions begin to quickly introduce and better market their products, Procter and Gamble will incur further loss of market share. In order to deal with this threat, would have to make sure that we keep our current market share, if not increase it. We will accomplish this by narrowing our focus on the oral care section of the Corporation. We will have to spend more time and effort in our marketing department. We also need to be sure that we keep on top of new emerging trends in the oral care market.

P&Gs greatest opportunities lie more in the companys market share and large budget, than its investments in innovation. Total market demand for consumer products is unlikely to decrease much, if any, over the next few years, particularly with increasing international demand. P&G also has a significant yearly investment in research and development, which could pay off more if the company focused on bringing products to market faster. The sheer number of brands that P&G controls suggests that divestitures might be one of the best options for P&G, possibly to the point of breaking up the company, like AT&T has done recently. Already, P&G, in its attempt to focus on its core businesses, has sold off such well-known consumer products as the acne-fighter Clearasil and its shortening and cooking oil businesses. P&G might also see new opportunities in selling its consumer products internationally, particularly to developing countries. While its R&D investments could potentially produce more attractive innovations in its consumer products, P&Gs bureaucratic methods have stifled this opportunity.

In essence, P&Gs greatest threat is itself. The company has sustained itself for many years simply from sheer momentum: its brands led consumer categories from toothpaste to laundry detergent to pharmaceutical products. Complacency has led P&G to renounce changes that could allow it to produce innovations faster, resulting in the loss of leadership over many of the consumer categories that it developed. Its recent changes in leadership, particularly the sacking of Jager as its CEO, may prove to hurt rather than help its

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prospects over the long run. Its competitors, such as Johnson & Johnson and Unilever, are not much more nimble than P&G; instead, they have focused on particular consumer categories and are able to develop a company-wide dominance in these categories. For example, Johnson & Johnson is known primarily for products in the bathroom and medicine cabinet, from shampoos to toothpaste to pain relievers. Because P&G has had trouble creating new consumer demands, as it did for Tide in the 1960s, its future growth prospects are small and investment in the company is unattractive. Its unrealistic growth projections, which have suggested up to 12% gain yearly, have not helped investor trust.


Incorporating environmental strategies, such as those employed by Procter and Gamble, are not only methods of increasing efficiency and reducing costs, but as Michael Porter points out, corporate environmental strategy is now a competitive factor in industry if it encourages innovation. Porter views pollution as economic inefficiency, as waste costs both the consumer, for discarding usable material, and the producer, because of resource inefficiency. He encourages reusing, increasing process yields, and better utilization of byproducts. By employing efficiency in production, Porter believes that costs, such as waste handling, transportation and disposal could be reduced, and in some cases eliminated (Ibid). With the increase in environmental awareness, companies are encouraged to respond, not only to follow regulations, but also to remain competitive. Procter and Gamble is certainly not an exception. In effect, Procter and Gambles environmental policy closely mimics their desire to avoid conflict where possible. Their non-confrontational nature is evident in their removal of their former brash CEO, and discontinuing animal testing shortly after animal rights groups began protesting. According to a technical report by the United Nations Environmental Programme, Procter and Gamble was among the first 100 companies to publish a corporate environmental report, starting in 1993. Procter and Gambles environmental sustainability policy focuses on economic progress, social development, and environmental concerns, with the objective of ensuring a quality of life for future generations at least as well as todays. P&G has been able to capitalize on its environmental measures. For example, P&Gs Witzenhausen Tissue and Towel plant, with the cooperation of all employees, was able to MBA-II 2002 Som-Lalit Institute of Business Management 55

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get a separated clean waste stream which could in turn be recycled by other companies. This measure resulted in a $200,000 saving for P&G in 1999/2000. Moreover, through partnerships with other companies, its Belleville, Ontario plant has been able to implement a scrap recycling program, saving the company $944,492 annually and increasing plant revenues by $114,468. As a large corporation, Procter and Gamble has the power to choose from many suppliers and contractors. Therefore, it ensures that its employees, contractors, and suppliers meet or exceed all local and national environmental laws by conducting annual audits. The company does not remain with suppliers persistently out of compliance. In addition, paper products at P&G are produced from pulp derived from sustainable managed forests. It does not use wood from old growth forests or rainforests. These policies are not only environmental-friendly, but also attractive to consumers. A large number of Procter and Gambles products, such as Oil of Olay cleansing products and Cover Girl cosmetics, are marketed toward the younger generation, whose culture incorporates a strong awareness of the environment. As Michael Porter notes, competitive advantage and increased innovation are among the strengths of environmentalism as a corporate strategy. For example, by changing such aspects as the packaging of an old product, the company is not only operating more efficiently, but also using environmental products as a marketing tool: a new look can enhance consumer interest in an old product. Among innovative products sparked by environmentalism are the Pur water filtration system, and Fit, a fruit and vegetable rinse.



Procter and Gambles corporate options are many, particularly given its wide scope in consumer products and high cash flow. Options include: Maintaining the current strategy, attempting to retain value in its current product lines by introducing incremental innovations to its products, such as tooth whitening for Crest, and increasing advertising. By itself, this is a purely defensive strategy for retaining market share for as long as possible. However, the problem with P&Gs current stance is that it does not position the company to be able to create bold new consumer product lines. Much of the last 30 years has been spent defending its old product lines, and as a result P&G has been slowly losing market share to its competitors.

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Reduce research and development costs. This might go hand in hand with the current defensive strategy. However, it is worth noting that the 5-year delay in getting products to market means that the millions P&G spends on R&D each year are going to waste. In addition, all that money has not produced a blockbuster new product for P&G in years. Of course, without all the research and development of new products, P&G might doom itself to continuously dwindling market share for its product lines. However, cutting costs here might not be a bad idea in an attempt to boost sagging profit margins. Hiring outside management consultants or outside executives. P&G has been insistent on using its own people to analyze its problems, and in fact its CEOs have consistently been people who have worked for P&G for decades. Even Durk Jager had been a P&G employee for most of his life. Hiring any outsiders, for CEO or management consulting, might be a great benefit in bringing other companies solutions for problems to P&G. However, a small difficulty with this is that it breaks a long-held P&G tenet that if one takes a job with the company, one will have job security and promotion within P&G. This job security is somewhat outdated in the fast-paced Internet economy, but also is one of P&Gs main selling points to possible future employees. Streamlining bureaucracy. This was the pet project of Durk Jager, who spent millions of dollars restructuring P&G, making it more innovative. This should be P&Gs main goal, particularly given its poor return on its R&D investments. The P&G bureaucracy has stifled innovation, enforced uniformity, resisted change, and also helped to turn off employees who truly could have helped the company innovate. This is a recipe for self-destruction. The unfortunate problem is that the bureaucracy will fight back against any major changes to its structure. While Jager was ostensibly removed because he could not meet growth projections, it is more likely that his take-charge style offended many of the entrenched P&G managers. Any similar attempt to streamline the company further may meet the same fate. Increase web sales and information; use the Internet as an added benefit to consumers. This was another one of Durk Jagers pet projects, attempting to reorient one of the benchmarks of the old economy toward using Internet technology to benefit itself (though corporate intranets) and consumers (through information). It might also help to market products and services in the growing business-to-business Internet market. To some extent, Jagers strategies have helped the company, though as we found out, P&Gs web site can be rather

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confusing. However, P&G cannot make the transition to a fully Internet-oriented company, because direct sales through the Internet are likely to anger P&Gs current product distribution methods, particularly from sales to supermarkets. Increase consumer focus on environmental marketing. Because P&Gs attention to environmental issues in its products and packaging is so great, one of the great curiosities is why P&G does not stress this more in its advertising. At the very least, such environmentally-oriented ads would give P&G a better corporate image in the public eye given its current growth troubles, this might be useful. Stressing green marketing might help differentiate its products in a time when they are getting overtaken by other corporate brands. It is also unlikely that there would be much if any drawback to doing this: making consumers more environmentallyconscious when buying products and pushing itself as an environmentally friendly company can only help its sales growth. Focus more on international markets. P&G does sell significant numbers of its products outside the United States, and so far it has run into problems from other foreign competitors, most particularly Unilever. International markets show much more of a potential for growth than the U.S. market, so this might be one relatively easy way to get P&Gs sales growing again. Investing internationally does have its drawbacks, though, particularly when foreign economies may be more fragile than the U.S. Currency shifts already have hurt P&G sales, particularly in Asia, and focusing more in the international arena could leave P&G exposed to this sort of global economic turmoil. Selling off parts of the company that arent core product lines. This is to some extent a defensive strategy, but it allows P&G to focus more on developing new products, rather than taking care of product lines that it created but is no longer sustaining in any significant fashion. Already, P&G has sold off its Clearasil and cooking oil products to smaller companies. The difficulties here lie in determining which products are central to P&Gs long-term strategy. P&G has so many different product lines that it may find it difficult to focus simply on one set of products without sacrificing well-known brands to other companies. Clearasil, a well-known acne and skin care line, is a good example of this. In particular, without a thorough reorganization of the company, divestitures might be piecemeal at best. Breaking up or drastically reorganizing the company. This might be the best way for P&G to ensure its long-term growth. In addition to freeing up its research and

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Strategic Analysis of Indian Toothpaste Industry

development from its bureaucracy, this also could signal investors that P&G is serious about truly remaining the preeminent consumer goods company. This may be much more of a long-term goal, which could cause short-term problems for investors. Such a breakup could also cause quite a bit of short-term chaos, which might lead some to believe that it is ineffective to enact such a breakup

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Hindustan Lever (HLL), a 51% subsidiary of Unilever, is Indias largest FMCG company with sales of Rs 110 bn (2001). It forms around 5.5% of Unilevers global turnover and a sizeable 32% of Unilevers Asia Pacific business. The companys topline has registered at a CAGR of 20% in the last 10 years. Its profits have logged in CAGR of 36% over the same period. However, in the last few years, HLLs topline growth has shown signs of tiring. In the last 4 years, HLL has recorded a topline CAGR of 5%, which is largely due to the sluggishness prevailing in the economy. Soaps and detergents contribute nearly 48% of HLLs topline. This segment is one of the worst affected during the slowdown. Globally, Unilever is changing the way it does business. The Group is no longer interested in having a large number of brands and product offerings in the FMCG spectrum. Instead, it is looking at scaling down and concentrating on those businesses that contribute substantially to its bottomline. It has exited adhesives and specialty chemicals business in the last few years. It is looking at margin expansion in all its businesses. HLL is following the parents strategy of refocusing its efforts on its core business and brands. It has initiated measures to prune the number of brands from 110 down to 40. HLL found that only these 40 brands contributed around 90% to the turnover and over 110% to its bottomline. Apart from this, the company is exiting businesses to lend focus to its business plan. In the last couple of years, HLL has exited the businesses of animal feeds, speciality chemicals and seeds. Leather and marine export businesses are next in line. The hiving off of businesses will bring in extraordinary income for the company going forward. In 2001, HLL has earned Rs 1.6 bn through sale of non-core businesses. These efforts have resulted in margin expansion for the company. Its operating margins have improved from 10.7% in 1998 to 15.6% in 2001. Though this trend is well poised to continue in future too, the margin expansion going forward is likely to slow down.

3.3.2 Corporate Purpose

Our purpose in Unilever is to meet the everyday needs of people everywhere to anticipate the aspirations of our consumers and customers and to respond creatively and MBA-II 2002 Som-Lalit Institute of Business Management 60

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competitively with branded products and services which raise the quality of life. Our deep roots in local cultures and markets around the world are our unparalleled inheritance and the foundation for our future growth. We will bring our wealth of knowledge and international expertise to the service of local customers - a truly multi-local multinational. Our long term success requires a total commitment to exceptional standards of performance and productivity, to working together effectively and to a willingness to embrace new ideas and learn continuously. We believe that to succeed requires the highest standards of corporate behaviour towards our employees, consumers and the societies and world in which we live. This is Unilevers road to sustainable, profitable growth for our business and long term value creation for our shareholders and employees.

3.3.3 Fast Facts

Indias largest fast moving consumer goods company 30 Power Brands Leadership in home and personal care, foods and beverages About 40,000 employees (including group companies) Golden Super-Star Trading House; Net foreign exchange earner Business Structure

3.3.4 History
1888 1918 1931 Sunlight introduced in India Vanaspati launched through imports Unilever registers company in India Hindustan Vanaspati Manufacturing Company 61 Som-Lalit Institute of Business Management

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Strategic Analysis of Indian Toothpaste Industry

1933 1935 1956 1958 1979 1993 1994 1995 1996

Lever Brothers India Limited incorporated to manufacture soaps United Traders Limited incorporated in India to market personal products HVM, LBIL, UTL merge toform HLL HLRC starts functioning Chemicals complex commissioned in Haldia TOMCO merges with HLL JV, Kimberley-Clark Leverformed Lakme Lever formed HLL and BBLIL merge

3.3.5 Milestones
1998 2000 2001 Ponds India Ltd merges with HLL HLL acquires Lakme HLL acquires Modern Foods Project Shakti, HLLs partnership with rural Self Help Groups Launch of HLLs etailing service- Sangam, Max confectioneries launched 2002 Lever Ayush launched 2003 HLL Pepsi distribution alliance 2003 Launch of Hindustan Lever Network

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Strategic Analysis of Indian Toothpaste Industry

3.3.6 Categories & brands

Soaps Detergents Household Care Oral Care Skin Care Hair Care Deodorants Colours Beverages Foods Cooking Oils Ice Creams Healthcare Confectioneries Lifebuoy, Lux, Liril, Breeze, Hamam Wheel, Rin, Surf Vim, Domex Close-up, Pepsodent Fair & Lovely, Lakme, Ponds, Vaseline, Pears Sunsilk, Clinic, Nihar Axe, Rexona, Denim, Ponds Lakme, Elle 18 Taj Mahal, Lipton Yellow Label, Lipton Ice Tea, 3 Roses,Red Label, Taaza, A1, Bru, Green Label Knorr Annapurna, Kissan Dalda Kwality Walls Lever Ayush Max

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Strategic Analysis of Indian Toothpaste Industry

Network Marketing -

Hindustan Lever Network

3.3.7 Changing Face of the Indian Consumer

More aware and selective Has faster changing needs and habits Increased ability to spend on a wide range of products Availability and willingness to use credit Quality conscious Rural consumers are specially price sensitive

3.3.8 Distribution Network

In the he Indian Marketplace Urban Cities / Towns 3700 Outlets 1.5 million Rural Villages 627000 Outlets 3.3 million

3.3.9 The Reach

7500 redistribution stockists Direct coverage of 1.5 million (urban) of Indias 4.8 million retailers Urban Rural Cities / Towns Outlets Villages Outlets 3700 1.5 million 627000 3.3 million


Oral care category:

Hindustan Lever Limiteds (HLL) Oral Care category grew by 6% in 2001. The growth was significantly stronger at 18% in the December quarter. Resources are now focussed entirely on Pepsodent and Close Up. This focus helped reverse the declining trend witnessed in 2000.

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Strategic Analysis of Indian Toothpaste Industry

Market share of Pepsodent and Close Up toothpastes together is now 36.3%. It is an increase of 1.3% between the March quarter and December quarter. Market share in urban areas has increased by a higher 3.1%. This was achieved inspite of intense competition. HLL relaunched Pepsodent in 2001, with a return to its core equity of extended protection from germs. The relaunch has resulted in a 2.3% increase in market share. Pepsodent 2-in1 also went through a highly effective relaunch. Region-specific pack sizes were introduced, depending upon consumer purchase behaviour. A new communication package supported the growth of Close Up. Two innovative products, Close Up Whitening Toothpaste and Close Up Whitening Toothbrush, have been launched. These have received good response. The category is now fully geared to consolidate the gains. Brand focus has opened up the categorys outlook to growth opportunities in response to very low toothpaste consumption and penetration.


Supply chain A new Initiative

Hindustan Levers complex supply chain is taking a leap, leveraging next generation information technology and new business processes. Launched in 2001, Project Leap is an end-to-end supply chain initiative. This represents one of the largest B2B e-commerce initiatives ever undertaken in India and will reach towns where even local Internet infrastructure has not reached. It begins with the supplier, runs through the factories and depots, and reaches up to the redistribution stockists (RSs). The objective is to catalyse HLLs growth by ensuring that the right product is available at the right place in right quantities, on a continuous replenishment basis. Leap also aims to reduce inventories and improve efficiencies right through the extended supply chain. RSNet is the front-end initiative of Leap, connecting stockists through an Internet-based system. It provides linkages with the RSs transaction systems, enables monitoring of stocks and secondary sales, and optimises RS orders and inventories. It has already been extended to more than 1000 Home & Personal Care stockists in 100 cities and towns, accounting for nearly half the turnover of the HPC business.

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Strategic Analysis of Indian Toothpaste Industry

Information on secondary sales from Gandhidham to Guwahati is now available on the RSNet every day. By mid-2002, more than 70% of HLLs turnover will be on the Internet. Backing this up is the Internal Network Planner and Optimiser. It handles the complex task of managing the planning, production and distribution requirements on an integrated basis. Already implemented in a part of the HPC business, it will handle the complex task of deciding which pack must be produced where, and where should it be despatched to effectively meet the orders generated on RSNet. This new model will help ascertain the daily stock positions at each point in the supply chain, projected stock requirements at these points, and plan for its replenishment with complete transparency right across the supply chain. The frequency of production planning is being compressed, with a capability to plan on a daily and even a shift level on a nationally optimised basis. Production planning being synchronised with the movement of stocks for each pack at every depot, production plans will closely match changes in market offtake. A built-in network optimiser will generate the most optimised production plan based on total supply chain cost. The distribution optimiser directs the outward flow of goods from the factories to the depots on a daily optimised basis. The last leg of Project Leap is Supplier Net, which links the suppliers into the chain. Suppliers get visibility, in a seamless manner, into the inventory levels of raw materials/ packaging materials at the factories and the projected requirements. They will also have full online access to scheduled orders, receipts of supplies sent, quality control status at the factories and payments cleared. Project Leap in its entirety is being extended to all the businesses in 2002. The integrated supply chain aims at minimising cost while improving customer service. A key enabler of cost reduction is in optimising the total supply chain cost instead of individual links of the chain.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry


The Contemporary Distribution Network


Manufacturing Locations

World-Class Facilities 100 units across the country TPM in all key factories About 28 factories in backward areas About 2000 suppliers Sick companies turned around


Best-in-Class Employees

Systematic training ensures best-in-class employees Harmonious and cordial industrial relations at factories Production and productivity rates among the best in the Unilever world MBA-II 2002 Som-Lalit Institute of Business Management 67

Strategic Analysis of Indian Toothpaste Industry


Developing & Using Relevant Technology

Building the Base Largest private sector research facility Two Research Centres - Mumbai & Bangalore Over 100 highly-qualified scientists Benefits of Research We have found that research can be applied with enormous benefit across every one of our businesses, ranging from seemingly simple consumer products to industrial chemicals and machinery. It is a mistaken belief that research is only relevant to what seem to be high tech areas; there are always opportunities to use research to reduce costs, improve performance and provide new products and benefits.


Key Successes
Import substitution - Non-conventional oils for soap making. Estimated savings of US$1.2 billion. Understanding soap structure and functionality Fair & Lovely - A global mega brand Tea Science Eutectics for cold chain Using R&D for manufacturing excellence


The Philosophy
Focus on grooming managers from within the country Provides people the thrill of business and diversity of experience Nurturing Top Talent, Encouraging Teamwork Commitment to attract, develop and retain the highest quality of talent Process in place to identify & develop potential early in peoples career Smaller, independent business units to ensure entrepreneurial teamwork

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry


Commitment to Society

Proactive Social Development - Rural Development - Basic Education - Care and education for abandoned, special children - Caring for HIV-positive patients - Reconstruction & relief post natural calamities, Sustainable development - Energy Conservation - Water Conservation - Tree Plantation - Watershed Development Asha Daan Run by the Missionaries of Charity, and supported by HLL, Asha Daan has been home to over 20,000 infants, destitute men and women and HIV positive patients Ankur & Kappagam Centres for special children in Assam & Tamil Nadu, imparts special education and services to severely disabled children Yashodadham A village in Gujarat, rebuilt and dedicated to its 1100 residents after the earthquake in 2001 Spread over 25 acres, it has 289 dwelling units, school, playground for children, community centre, anganwadi and health centre

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Strategic Analysis of Indian Toothpaste Industry




1) Excellent Management quality HLL has earned reputation for having one of the most professional and high quality management in the country. 2) Excellent Equity valuation HLL is the largest corporate in terms of market capitalization. HLL has consistently recorded strong earnings growth and pays out 65% of its earnings to shareholders. Several FMCG funds have been set up recently, which would allocate significant part of their portfolio to HLL. 3) Distribution Network Distribution network spans across the length and breadth of the country HLLs distribution network is recognised as one of its key strengths which helps reach out its products across the length and breadth of the country. HLLs distribution network directly covers the entire urban population, and also reaches as far as villages with population over 2000. The products are manufactured across the country, and are distributed through a network of about 7,500 Redistribution Stockists (RSs).Its extensive distribution network (over 1 m retailers). In a significant move, with long-term benefits, HLL has mounted an initiative, Project Streamline, to further increase its rural reach. The distribution is being extended to villages with less than 2000 people with the help of rural stockists. As a result, the distribution network directly covers as of now about 46 per cent of the rural population. 4) Market leadership in detergents market and fabric wash industry and largest player in Toilet soaps industry.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

5) The most potent weapon in HLL's armory is its indituality of brands. The company has got brands that compete across segments ranging from detergents (Rin, Surf, Wheel) and soaps (Lux, Lifebuoy, Pears, Dove). 6) HLL has created a Strong Brand equity. HLL offer to consumers a broad portfolio of products at multiple price points in the Detergents and Soaps.

THREATS Slowdown in rural demand due to slow down in agriculture sector. Emergence of small but strong regional players likes Nirma is giving tuff competition to HLL to maintain his market share in soaps and detergents.

WEAKNESS Several "me-too products.

OPPORTUNITIES: HLL is gearing up for a billion dollar sourcing business out of India. Already one of largest exporters, HLL exports are worth almost Rs 1500 crore So, this implies that HLL should focus more on outsourcing the materials to its parent company unilever.



Porters five-force industry analysis can be used to get a general over view of the threats to the profitability of oral care business. Though the model does not help in analyzing firm specific demand, it gives some information of its business environment. Internal Industry Competition: Hindustan Lever face stiff competition from Colgate dental in toothpaste market. Colgate is the market leader in toothpaste market. Further more the company faces

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

competition from the new entrants like Anchor which is doing good in rural market in India. The bargaining power of suppliers: As a large producer of consumer goods, HLL is able to choose from many suppliers. With the environmental movement, the company has focused its attention on suppliers who comply the most with environmental regulations, monitoring their activities. The power of buyers: The bargaining power of buyers has been increased over the years as there are number of players in the industry. The difference in price of various product is nominal. Furthermore the direct supplier of product i.e. retailers are stocking almost all products the buyers are enjoying high power. That is why now all the companies are giving special attention to the distribution of the product because the industry is dominated by the availability of the product to the consumer. The power of substitutes: If there are no traditional substitution of the toothpaste then the company with good rural penetration can have the high market share, because still in rural part of India, which is the major chunck of the Indian population uses traditional ingredients like neem twings, meswak twings, coal powder etc. Entry barriers Entrance into the non-durable consumer product market and the pharmaceutical industry requires large capital for R&D and advertisement. Therefore, entrance into the market could be very difficult

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



Major competitors of Procter and Gamble are HLL and Colgate. Both of these companies enjoys market share of more than 60% in India. Procter and Gamble have market share of 36% in global market. HLL and Colgate also leads in annual sales as compared to Procter and gamble in India. Colgate uses its internal distinctive competency to inflict damage on Crest by displaying its first introduction to the toothpaste industry as: We at Colgate are the 1st company to give an anti-bacterial toothpaste since 1968 and we are still bringing in better news, thats something to smile about. Colgates Total antibacterial toothpaste is an example of a successful and well-supported product introduction. Within the first four months of its domestic release, Total claimed more market share than P&G CrestColgates first such success since 1968. One of the key weaknesses of Colgate is Crest was the first fluoride toothpaste to be endorsed by the ADA. Crest should focus on the newer releases of the industry, such as battery powered toothbrush appliances. The electic dental appliances rose to $350 million and will rise to $500 million by 2005, so a concentrated marketing advertisement on the new Crest SpinBrush took advantage of this new segment. P&Gs is one of the more dominant global marketers, spending $4.7 billion worldwide on advertising during 1998 ( of which $1.7 billion was in the United States). P&G budget was $1.3 billion more than its nearest competitor, Unilever which spent $.7 billion in the U.S. In concentrating P&Gs spending on Crests new releases, it will then re-establish market share in the toothpaste industry.

Competitive position of various FMCG companies are as follows:

P&G Procter & Gamble Hygiene and Health Care Limited (PGHH) is one of India`s leading FMCG companies in the healthcare and feminine protection segments. The company`s other interests include hair care, detergents, and personal care categories. Its power brands, `Vicks` and `Whisper`, are virtually unrivaled leaders in their respective segments. For the past three years (since 1998) the company has grown at a CAGR of 2%.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

HLL Hindustan Lever Ltd. (HLL), Indias largest fast moving consumer product company enjoys a market leadership in soaps, detergents, color cosmetics, ice creams and packed tea. The company, which had once a portfolio of 110 brands, is now actively looking to prune the number of brands to around 30 in the next few years. These 30 brands accounted for over 100% of its profits. DABUR Established in 1884 Dabur India had its interest in the ayurvedic specialties and healthcare products. However, with time it has diversified into personal care, pharmaceuticals, and food. The companys leading brands are Dabur Amla Hair Oil, Vatika, Chayawanprash, Lal Dant Manjan, Hajmola digestive pills and candy. Jointly the top five brands contributed to 55% of the companys revenues in FY01. The company for the past four years, its topline has grown at an impressive CAGR of 13%.



Companies sales(000) HLL Colgate P&G Dabur Balsra 103.37 10.25 3.24 9.34 1.26 marketing expense(000) 11.42 2.10 0.41 2.01 0.20

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

strategic group analysis

140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 -20.00 0 marketing expense

hll colgate p&g dabur balsra 2 sales 4 6

The strategic group analysis gives an idea about the players in the market which we took for strategic group analysis how they are performing? Who is in competition with whom? What are the strategic opportunities? These all are some basic questions that are taken in to consideration when we are making strategic group analysis. Here the companies we have taken for the strategic group analysis are Hindustan Lever Limited, Procter & Gamble, Colgate, Dabur and Balsara. We taken two parameters to do the strategic group analysis are sales on the X-axis and marketing expense on the Y-axis. We compared on the above two parameters that which company in the group has the advantage of spending much amount due to good sales are drawn in the chart and the values of the sales and marketing expense are given in the table. As the chart clearly shows that Hindustan Lever is enjoying to spend huge amount on marketing because the company has good sales figures which allow them to spend the amount they want to spend. Second is Colgate has also good sales which allows them to spend the amount decided on marketing. Then in the line there are Dabur, P&G and Balsara which also spending

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

amounts on the marketing but not as HLL or Colgate because they dont have that much sales which allows them to spend the bigger amount on marketing. As far as competition is concerned HLL has the huge sales and others are with lower sales this means not that HLL has no competition but they have not to worry much about the competitors. But for Colgate and Dabur we can say that both are in direct competition with each other cause their sales figures have no much bigger difference and both of them are spending much more same amount on marketing expense so both companies have to gear up their efforts to cope up with the competitors. P&G and Balsara in the group are also in competition with each other but Balsara has to think of that because P&G is the international company which has good base and Balsara is Indian company which required to spent huge amounts on marketing expense which may gear up their sales. All the companies are spending the amounts on marketing as per their ability to spend and try to gain the market through it competition is faced by every players in the market but some like HLL and Colgate ahs advantage of good sale which allow them to spend the amounts they desire on marketing. Some of the players are in direct competition with others as the chart and table above gives us clear picture of that. The which are in facing cut throat competition from others in the groups have to try to gear up their sales so that they can able to spend the amounts on marketing which may lead to increase in the sales in comparison of the past. This gives us the idea that HLL in the group is at level where it has low competition and Balsara has to face stiff competition in the group from other players in the group. Other players do have to face medium competition which they can overcome by concentrating on certain strategies and can able to increase the sales for that they have to also spend the amount bugger than the amount they are currently spending if the competitors have amounts to spend on marketing than they can able to increase the market share of the company.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry


A ratio is an arithmetical relationship between two figures. Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. In financial analysis a ratio is used as a benchmark for evaluating the financial position and performance of a firm. Several ratios, calculated from the accounting data, can be grouped in to various classes according to financial activity or function to be evaluated. We have calculated certain ratios of the Hindustan Lever ltd., Colgate-Palmolive, Procter & Gamble, Dabur ltd and Balsara Hygiene ltd for our study of the toothpaste industry and made comparisons of them. We have calculated these ratios for the five years. The financial information we are able to get from the annual reports of the companies mentioned above. The ratios are as follows.



4.1.1 Current Ratio

0112(12) HLL 1.05 Colgate 1.05 p&g 1.55 Dabur 2.41 Balsara 2.24 0012(12) 0.88 0.98 1.23 2.41 2.63 9912(12) 1.07 1.34 1.31 3.60 2.74 9812(12) 1.09 1.22 0.96 3.56 1.83 9712(12) 1.06 1.42 1.22 3.47 1.73

As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. Here the current ratios for HLL are 1.05, Colgate is 1.05, p&g is 1.55 , Dabur is 2.41 and for the MBA-II 2002 Som-Lalit Institute of Business Management 77

Strategic Analysis of Indian Toothpaste Industry

Balsara it is 2.24. It is growing simultaneously for HLL and it is grows in last year. In the case of Colgate it is increase for last year but it is less compare to 1997, 1998 and 1999. In case of p&g it shows the increasing trend but in the case of Dabur it is decreasing it suggests that company is much aggressive in current assets, they dont wont their fund idle in current assets.

4.1.2 Quick Ratio

0112(12) 0.60 0.83 1.33 1.47 2.07 0012(12) 0.50 0.75 1.06 1.56 2.28 9912(12) 0.60 1.03 1.01 2.34 2.30 9812(12) 0.61 0.92 0.76 2.26 1.34 9712(12) 0.55 0.81 0.95 2.23 1.26

HLL Colgate p&g Dabur Balsara

Generally, a quick ratio of 1 of 1 is considered to represent satisfactory current financial condition. Although quick ratio is a more penetrating test of liquidity then the current ratio. Thus a company with a high value of quick ratio can suffer from the storage of funds. i.e. it has show paying and doubtful and long duration outstanding debtors. These ratios for the HLL, Colgate, p&g , Dabur and Balsara are 0.60, 0.83 , 1.33 , 1.47, and 2.07 respectively in the year 2001. It is sufficient in the HLL and Colgate. In the case of p&g , Dabur and Balsara it is more then one interpreted as a larger part of the current asset of the firms is not tie up in slow moving and not salable inventories and slow paying debts. Their current liabilities are sufficient in context with quick ratio.


Inventory Turnover Ratio

0112(12) HLL Colgate P&G Dabur 10.26 16.44 16.63 7.94 0012(12) 10.34 13.99 14.75 9.23 9912(12) 8.96 15.56 11.86 8.02 9812(12) 9.64 12.75 10.89 8.07 9712(12) 8.52 8.35 12.34 7.68

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Strategic Analysis of Indian Toothpaste Industry







Above mention are the inventory turn over ratios of the companies Balsara has the highest ratio in the last year and others have no much fluctuation in the ratios as the table above shows us.

4.1.4 Fixed Assets Turnover Ratio

0112(12) HLL Colgate P&G Dabur Balsara Interpretation The fixed turn over ratios of the companies is shows that Balsara has the high ratio in comparison of other companies, which have the lower ratios in all the years. 6.21 4.09 1.85 2.97 14.40 0012(12) 6.92 4.24 1.89 3.10 12.46 9912(12) 7.54 4.05 1.84 2.82 13.42 9812(12) 7.46 3.61 1.72 2.85 14.23 9712(12) 7.54 5.23 1.76 2.92 13.10

4.1.5 Dividend payout Ratio

0112(12) HLL Colgate P&G Dabur Balsara MBA-II 2002 Som-Lalit Institute of Business Management 75.16 87.77 56.52 24.41 43.78 0012(12) 71.93 197.81 116.14 36.90 37.75 9912(12) 66.46 87.43 21.63 38.93 16.80 9812(12) 65.94 89.34 152.22 27.62 24.29 9712(12) 66.46 50.95 37.57 21.99 12.48 79

Strategic Analysis of Indian Toothpaste Industry

Interpretation The dividend pay out ratio gives idea of all the companies have high dividend pay out ratio except Dabur and Balsara. Which shows that all the companies have good share market?

4.1.6 Earning per share (Rs):

0112(12) HLL Colgate P&G Dabur Balsara 7.05 5.06 32.43 2.13 2.87 0012(12) 6.21 4.34 28.63 28.11 6.88 9912(12) 49.60 3.93 32.91 19.03 5.09 9812(12) 42.91 3.29 27.14 14.35 4.78 9712(12) 29.12 5.85 19.46 15.59 8.01

the Earning per Share ratios shows us that P&G has the highest EPS ratio in the group. And others have relatively lower ratios.

4.1.7 Dividend per Share

0112(12) HLL Colgate P&G Dabur Balsara 5.00 4.25 20.00 0.50 1.00 0012(12) 3.50 8.25 40.00 10.00 1.00 9912(12) 29.00 3.00 7.50 10.00 1.00 9812(12) 22.00 3.00 40.00 5.00 1.00 9712(12) 17.00 3.00 7.50 3.50 1.00


MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

This ratio gives us the idea about how much the companies are paying dividend to their customers. Here also P&G high DPS Ratio in comparison of other companies.

4.1.8 Gross Profit Margin (in %)

0112(12) HLL Colgate P&G Dabur Balsara 15.26 7.64 21.31 8.52 4.47 0012(12) 13.42 6.82 18.20 9.82 3.88 9912(12) 11.29 7.42 18.34 7.84 2.92 9812(12) 10.45 6.91 16.26 7.62 3.99 9712(12) 9.20 12.40 13.54 8.37 5.78

The ratio above shows P&G has the high GPM ratio then HLL has the second highest ratio. Other companies have low ratio in comparison if others.

4.1.9 Net Profit Margin (in %)

0112(12) HLL Colgate P&G Dabur Balsara 13.63 6.10 18.34 5.79 0.72 0012(12) 11.96 5.44 19.91 7.57 0.86 9912(12) 10.22 4.75 17.36 8.03 1.94 9812(12) 8.31 4.70 13.91 5.78 1.64 9712(12) 7.02 8.32 10.93 5.71 3.52

The ratio above shows P&G has the high GPM ratio then HLL has the second highest ratio. Other companies have low ratio in comparison if others.

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Strategic Analysis of Indian Toothpaste Industry




DU PONT ANALYSIS OF PROCTER AND GAMBLE LTD. 2002 2001 2000 1999 1998 PAT 701.73 619.64 712.29 587.39 421.19 Sales 4094.16 4075.93 4216.44 4058.53 3889.84 PAT/Sales 0.171 0.152 0.169 0.145 0.108 Sales 4094.16 4075.93 4216.44 4058.53 3889.84 Total Assets 2178.64 1838.03 2029.63 1661.52 2147.28 Sales/Total assets 1.879 2.218 2.077 2.443 1.812 Total Assets 6097.17 5530.61 6026.48 5471.38 4886.54 Equity 2178.64 1838.03 2029.63 1661.52 2147.28 Total Assets/Equity 2.799 3.009 2.969 3.293 2.276 Combined Value PAT/Equity (PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity) 0.901 1.014 1.042 1.164 0.446

The above table shows Du pont analysis for Procter and Gamble Ltd. The PAT to sales ratio is increasing from 0.108 in 1998 to 0.171 in 2002 which shows that the companies overall effiency of production, administration, selling, financing, pricing has been increased. This ratio shows the earning left for share holder as a percentage of net sales. The asset turn over ration that is Sales to total assets ratio is increasing from 1.812 in the year 1998 to 2.218 in the year 2001, but the ratio is declined in the year 2002 to 1.879. This ratio is the identification of the companys efficiency of efficient assets management. The total sales to Equity ratio is increasing from 2.276 in year 1998 to 3.009 in 2001 and again it is reduced to 2.799 in year 2002.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

The final ratio PAT to Equity is reducing in the year 2002. This is because of companys inefficiency in assets management and total assets to equity ratio.


DU PONT ANALYSIS OF HLL PAT Sales PAT/Sales Sales Total Assets Sales/Total assets Total Assets Equity Total Assets/Equity Combined Value PAT/Equity 2001 16404 109719 0.150 109719 31274.3 3.508 31274.3 28235.7 1.108 2000 13273.2 106037.9 0.125 106037.9 25998.3 4.079 25998.3 22681.6 1.146 1999 10737.4 101424.9 0.106 101424.9 22805.3 4.447 22805.3 18832 1.211 1998 8059.3 94818.5 0.085 94818.5 19773.4 4.795 19773.4 14934.6 1.324

(PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity) 0.581 0.585 0.570 0.540

The above table shows Du pont analysis for Hindustan Lever Ltd. The PAT to sales ratio is increasing from 0.085 in 1998 to 0.150 in 2001 which shows that the companies overall effiency of production, administration, selling, financing, pricing has been increased. This ratio shows the earning left for share holder as a percentage of net sales. This shows that company has good share holder earning. The asset turn over ration that is Sales to total assets ratio is continuously reducing from 4.795 in the year 1998 to 3.508 in the year 2001, but the ratio is declined in the year 2002 to 1.879. This ratio is the identification of the companies efficiency of efficient assets management. So the company ability to manage the assets has been reduced.

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Strategic Analysis of Indian Toothpaste Industry

The total sales to Equity ratio is reducing from 1.324 in year 1998 to 1.108 in 2001. The final ratio PAT to Equity is reducing in the year 2002. This is because of companies company net profit to sales ratio. Company sales have been increased continuously.


DU PONT ANALYSIS of Colgate-Palmolive Ltd. 2002 PAT Sales PAT/Sales Sales Total Assets Sales/Total assets Total Assets Equity Total Assets/Equity Combined Value PAT/Equity 687.79 11131.2 5 0.062 11131.2 5 2568.9 4.333 2568.9 2476.42 1.037 2001 590.61 11226. 5 0.053 11226. 5 2521.6 3 4.452 5530.6 1 2391.1 3 2.313 2000 531.35 10736.8 2 0.049 10736.8 2 3069.71 3.498 6026.48 3002.48 2.007 1999 447.32 9553.2 0.047 9553.2 2988.6 7 3.196 5471.3 8 2937.4 3 1.863 1998 795.48 9459.16 0.084 9459.16 2981.39 3.173 4886.54 2932.93 1.666

(PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity) 0.278 0.542 0.347 0.279 0.445

The above table shows Du pont analysis for Hindustan Lever Ltd. The PAT to sales ratio is reduced from 0.084 in 1998 to 0.062 in 2001 which shows that the companies overall effiency of production, administration, selling, financing, pricing has

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

been reduced.. This ratio shows the earning left for share holder as a percentage of net sales. This shows that company has lost good share holder earning. The asset turn over ration that is Sales to total assets ratio is continuously increasing from 3.173 in the year 1998 to 4.333 in the year 2002,. This ratio is the identification of the companys efficiency of efficient assets management. So the company ability to manage the assets has been increased. The total sales to Equity ratio is reducing from 1.666 in year 1998 to 1.037 in 2001. The final ratio PAT to Equity is reducing in the year 2002. This is because of companies company net profit to sales ratio has been reduced continuously.. Company sales has been increased continuously

4.2.4 DABUR INDIA Ltd.

DU PONT ANALYSIS OF DABUR INDIA LTD. 2002 PAT Sales PAT/Sales Sales Total Assets Sales/Total assets Total Assets Equity Total Assets/Equity Combined Value PAT/Equity 609.51 11069.11 0.055 11069.11 6097.17 1.815 6097.17 4003.7 1.523 2001 801.73 11132.54 0.072 11132.54 5530.61 2.013 5530.61 3622.02 1.527 2000 542.82 10040.52 0.054 10040.52 6026.48 1.666 6026.48 3200.37 1.883 1999 409.21 8812.67 0.046 8812.67 5471.38 1.611 5471.38 2615.03 2.092 1998 444.89 7832.89 0.057 7832.89 4886.54 1.603 4886.54 2272.55 2.150

(PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity) 0.152 0.221 0.170 0.156 0.196

The above table shows Du pont analysis for Dabur India Ltd.

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Strategic Analysis of Indian Toothpaste Industry

The PAT to sales ratio is increasing from 0.057 in 1998 to 0.072 in 2001 which shows that the companies overall effiency of production, administration, selling, financing, pricing has been increased.. This ratio shows the earning left for share holder as a percentage of net sales. This shows that company has lost good share holder earning. But the ratio has been reducing in the year 2002 which is negative trigger to the company. The asset turn over ration that is Sales to total assets ratio is continuously increasing from 1.603in the year 1998 to 2.013 in the year 2001,. This ratio is the identification of the companys efficiency of efficient assets management. So the company ability to manage the assets has been increased. But in the year 2002 ratio has been reduced to 1.815 which shows that company ability to manage the assets has been reduced. The total sales to Equity ratio is reducing from 2.150 in year 1998 to 1.523 in 2001. The final ratio PAT to Equity is reducing in the year 2002. This is because of companies company total assets to equity ratio have been reduced continuously. But during the year 1998 to 2002 the overall ratio had good position because of the better assets management.


DU PONT ANALYSIS of Balsara Hygiene Products Ltd. 2000 1999 1998 1997 1996 PAT 11.15 26.69 19.75 18.55 31.07 Sales 1352.78 1,304.41 1297.38 1066.34 877.33 PAT/Sales 0.008 0.020 0.015 0.017 0.035 Sales 1352.78 1304.41 1297.38 1066.34 877.33 Total Assets 336.35 415.01 424.13 252.41 222.73 Sales/Total assets 4.022 3.143 3.059 4.225 3.939 Total Assets 336.35 415.01 424.13 252.41 222.73 Equity 165.3 159.94 156.18 134.28 122.7 Total Assets/Equity 2.035 2.595 2.716 1.880 1.815 Combined Value PAT/Equity (PAT/Sales)*(Sales/Total assets)*(Total Assets/Equity) 0.067 0.167 0.126 0.138 0.253

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Strategic Analysis of Indian Toothpaste Industry

The above table shows Du pont analysis for Balsara Hygiene Products Ltd. The PAT to sales ratio is continuously reducing from 0.035 in 1998 to 0.008 in 2002 which shows that the companies overall effiency of production, administration, selling, financing, pricing has been reduced. This ratio shows the earning left for share holder as a percentage of net sales. This shows that company has lost good share holder earning. But the ratio has been reducing continuously which is negative trigger to the company. The asset turn over ration that is Sales to total assets ratio is continuously increasing from 3.939 in the year 1998 to 4.022 in the year 2002,. This ratio is the identification of the companys efficiency of efficient assets management. So the company ability to manage the assets has been increased. The company has highest assets management ratio among the competitors which is positive aspect of the company. The total sales to Equity ratio is reducing from 0.253 in year 1998 to 0.067 in 2002. The final ratio PAT to Equity is continuously reducing from 0.253 in 1998 to 0.067 in 2002. This is because of companies company net profit margin ratio has been reduce continuously reducing.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in places a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, ColgatePalmolive and Britannia Industries are only a few of the FMCG majors who have been gungho about rural marketing. With reason.

The lure
Indias agrarian economy is fundamentally strong. Rural India accounts for as much as 70 per cent of the nations population. That means rural India can bring in the much needed volumes and help FMCG companies to log in volume-driven growth. That should be music to FMCGs who have already hit saturation points in urban India. Certainly, rural marketing holds the key to success of FMCG companies, which are desperate to find ways out to gain deeper penetration. Not just the rural population is numerically large; it is growing richer by the day. Of late, there has been a phenomenal improvement in rural incomes and rural spending power. Successive good monsoon has led to dramatic boost in crop yields. Consider this statistics: food grain production touched 200 million tonnes during fiscal 1999 against 176 million tonnes logged during fiscal 1991. c. And the future is expected to be more promising. Consider this statistics from a National Council of Applied Research (NCAER) survey: lower income group is expected to shrink from over 60 per cent (1996) to 20 per cent by 2007 and the higher income group is expected to rise by more than 100 per cent. And most FMCG segments are expected to log in double-digit growth.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Value-volume trade-off
Most Indian FMCG majors know this well. That is why FMCG companies such as Marico Industries are gearing up for bigger advertisement and sales promotion campaigns aimed at the rural buyer. Maricos high-pitch rural marketing exercise involves repositioning brands, repackaging products and re-pricing them, all with an eye on the rural wallets. The company has been working constantly on extending its parallel rural sales and distribution networks, which already finds a place among the industrys top three. Okay, there is a hiccup here. Concerns abound over the inability of rural markets to meet the soaring rural ambitions of the Indian FMCG majors. Is the perception that big guns such as Hindustan Lever are on the verge of diluting their rural focus true? Does the urban consumer featured on the cover of Hindustan Levers 1998 annual report reflect this shifting focus? Says Namit Nayegandhi, an analyst with the Mumbai-based Motilal Oswal Securities: "It is a tactical shift, just a trade-off between value and volume, between the urban market and the rural market". Nayegandhi sounds sense. For, focusing all out on one of these markets at the cost of the other could be suicidal. That is why a few FMCG companies are not putting in concerted efforts to tap the rural market. Consider the case of Cadbury. The company has clarified that the rural market is not for it, at least for now. Meanwhile, Marico is trying hard to get into the premium-end hair-oil market. What do all these portend? Rural marketing could open the doors of paradise, but the path is paved with thorns. One major limitation here is this: most FMCG players just do not have the critical size for going all out for rural marketing. That is why most FMCG players are expected to concentrate both on rural and urban marketing: focus on urban markets for value and focus on rural markets for volumes. One result-oriented marketing strategy here is this: offer value-additions to existing lines to lure the urban consumer and alongside offer the rural consumer wide-ranging choices within a single product category in a bid to generate high volumes.

More obstacles
There are more problems in rural marketing. Success in rural marketing calls for a sound network and a thorough understanding of the rural psyche. Rural consumers pricesensitivity is something the FMCG players should be alive to. Rural income-levels are largely determined by the vagaries of monsoon and thus rural demand is not a steady horse to ride on.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

This makes rural marketing a gamble. It is more than a gamble for FMCG minors who do not have a clutch of strong brands across product segments. These FMCG minors are not able to cross-subsidize their products and go for product experimentation. The result: FMCG minors have a limited reach, are not able to erect entry barriers and have no ways to minimise the impact from loss of sale opportunities. The vast and diverse rural market calls for multi-tiered distribution networks, efficient logistics and friendly infrastructure.

Uphill task
The real test still lies ahead. One major hurdle in rural marketing is: whether an FMCG player will be able to offer the best price and aspirational values to the rural consumer who has a peculiar tendency to mimic his urban counterpart. Says Nayegandhi: "This calls for efficient marketing. FMCG players need to position their products properly, reach out to the masses effectively and convey the right message." So, what should the FMCG players do now? They should not only price their products competitively, but also offer their rural prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for Indian FMCG players: put in place an aggressive cost structure which would enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Consider the case of Marico: its material cost works out to a high of 59 per cent on sales. Therein lies the rural marketing paradox. However, customer-centric and market-savvy FMCG companies have always chased prospects when they perceive there is a latent demand. For instance, Hindustan Levers Rin, Surf and Lux are available even in Indias most obscure villages. Hindustan Lever had given shape to its rural strategy a few years ago when it perceived that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat that focused on personal care products made the most out of surging rural incomes. The result was there for all to see. The company has been able to clock in double-digit profits every three years and log in double-digit revenues every four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and convenientlypackaged products designed for the rural masses have been other pioneers in rural marketing.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Thus, Britannia and Colgate-Palmolive have been able to derive more than 30 per cent of their revenues from rural markets. Sure, there is a lot of money in rural India. But, there are obstacles. The biggest obstacle is that the rural consumer is still evolving. Only FMCGs with deeper pockets, unflinching rural commitment and staying power can play this rural game.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry





28 7 593 5,564 5,161 640,000





MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

YEAR 1951 1961 1971 1981 1991 2001 5.2.5

POPULATION 361,088,090 439,234,771 548,159,652 683,329,097 843,387,888 1,027,015,247

ABSOLUTE 42,427,510 78,146,681 108,924,881 135,169,445 163,058,791 180,627,359

PER CENT 13.31 21.64 24.8 24.66 23.86 21.34



Population (mn) Rural (mn) Urban (mn) Rural % Urban %

West Rajasthan Goa Maharashtra Gujarat Total West West (%) 44.0 1.2 78.9 41.3 165.4 19.7 33.9 0.7 48.4 27.1 110.1 10.1 0.5 30.5 14.2 55.3 77.0 59.0 61.3 65.6 66.6 23.0 41.0 38.7 34.4 33.4

East Manipur Nagaland Bihar West Bengal 1.84 1.21 86.4 68.1 1.33 1 75 49.4 0.5 0.21 11.40 18.7 72.3 82.6 86.8 72.5 27.7 21.0 15.2 37.9

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Arunachal Pradesh Sikkim Assam Meghalaya Orissa Total East East (%)

0.9 0.41 22.4 1.8 31.6 214.7 25.5

0.8 0.37 19.9 1.4 27.4 176.6

0.1 0.04 2.5 0.3 4.2 37.95

88.9 90.2 88.8 77.8 86.7 82.3

12.5 10.8 12.6 21.4 15.3 21.5

North Delhi Chandigarh Madhya Pradesh Punjab Haryana Uttar pradesh Himachal Pradesh Jammu & Kashmir Total North North (%) South 9.4 0.6 66.2 20.3 16.5 139.1 5.2 7.7 265.0 31.5 0.9 0.1 50.8 14.3 12.4 111.5 4.7 5.9 200.5 8.4 0.6 15.3 6.0 4.1 27.6 0.4 1.8 63.6 10.1 10.3 76.8 70.5 75.3 80.2 90.9 76.4 75.7 89.9 89.7 23.2 29.5 24.7 19.8 9.1 23.6 24.3

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Tamil Nadu Andhra Pradesh Kerala Karnataka Total South South (%)

55.9 66.5 29.1 45.0 196.4 23.3

36.8 48.6 21.4 31.1 137.9

19.1 17.9 7.7 13.9 58.6

65.9 73.1 73.5 69.2 70.2

34.1 26.9 26.5 30.8 29.8

Union Territories Andaman Nicobar Dadara & Nagar Haveli Daman & Diu Lakshwadeep Pondicherry Total UT Other states 0.3 0.1 0.1 0.1 0.8 1.4 3.4 0.21 0.13 0.05 0.02 0.3 0.7 2.7 0.07 0.01 0.05 0.03 0.52 0.7 0.7 73.3 91.5 53.2 43.7 36.0 50.7 78.5 26.7 8.5 46.8 56.3 64.0 49.3 21.5

All India







AGE PROFILE TOTAL Total population: 846 million

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Nearly 75% of Indias population is less than 35 years of age. Census '91. 5.2.7 AGE PROFILE URBAN Total Population : 846 million

Young adults and middle aged individuals higher proportion Census '91 5.2.8 AGE PROFILE TOTAL Population : 629million.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Teenagers constitute higher proportion in rural India. 5.2.9 FAMILY STRUCTURE

Homes with toddlers/ children and young adults are large groups Families without children comprise more than 15% of households.



MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Gradual breakup of joint family system 5.2.11 FAMILY STRUCTURE URBAN

Joint families have been reduced to just one-fourth of all families while nuclear families have leapt up to nearly two-thirds of all families. 5.2.12 INCOME LEVELS -URBAN MBA-II 2002 Som-Lalit Institute of Business Management 98

Strategic Analysis of Indian Toothpaste Industry

Only 10% of Indias urban population earns above Rs 6000 pm. 5.2.13 HIGHER EARNING LEVEL

A more affluent country


LITERACY % Male Female Urban 81.1 64.1 Rural 57.8 30.6 Total 64.1 39.3

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry







1985-86 (%) Personal products Washing Cake Washing Powder Toilet Soap Tooth Paste Tooth Powder Talcum Powder Face Cream Lipstick* Nail Polish* Hair Oil/Cream Shampoo* Food & beverages Cooking medium oil Cooking medium vanaspati 83.93 31.15 83.92 37.37 18.46 18.46 31.59 35.16 6.98 0.56 2.34 52.97 5.4

1995-96 (%)


91.82 55.37 97.92 32.97 37.03 36.85 14.82 1.18 3.14 73.14 8.1

7.9 18 79.46 14.51 5.44 1.69 7.84 0.62 0.8 20.17 2.7

89.82 36.55

5.89 5.4

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Strategic Analysis of Indian Toothpaste Industry

Packaged Biscuits Tea Health Beverages Cigarettes

14.52 72.56 2.35 13.65

23.11 83.58 5.16 18.68

8.59 11.02 2.81 5.03

* The penetration rates of lipstick, shampoo & nailpolish are available from 199293 onwards only. Therefore 85-86 numbers refer to penetration in 1992-93 Source : NCAER



About 75% of the total populations live in villages. There are states like U.P., Bihar, Rajasthan and Orissa where rural population varies from 80-90 percent. Only 6,300 villages have a population of more than 500 or less. Any rural market that exists in an area with a population of less than 10,000 and where the density of population and infrastructure is low is a rural market. Agriculture and related activities contribute to about 75% of the income in rural markets. Rural marketing broadly involves reaching the rural customer , understanding their needs and wants, supply of goods and services to meet their requirement , carrying out after sales service that leads to customer satisfaction and repeat sales. The size of rural market in 1992 was about Rs. 40,000 crore, made up of Rs. 22,000 crore for non-food and Rs. 18,000 crore for food items. It is projected to be about Rs. 1,00,000 crore by 2000. The share of certain consumer goods in rural market is more than the urban market, e.g. 75% of bicycles, 75% of radios, 70% of mechanical watches , 65% of sewing machines ,60% of table fans, 56% of batteries, 51% of tea, and 55% of washing cakes/bars are consumed in rural media. Creative marketers

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Intensified competition in urban markets has resulted in increase costs but not high market share and profits. E.g. the products of HLL are made available in rural market with a population of upto 20,000 through C&F agents, stockists, Wholesalers, and retailers. Bisleri mineral water is available in some rural markets. Bournvita and Horlicks are served in good restaurants in prosperous rural areas. Marico parachute hair oil has already entered rural markets. Realising that packaging could make a big difference in rural markets ; Procter and Gamble have introduced Mediker in 10 ml packs. Similarly Colgate have 10 gm sachets for their toothpaste. 5.4 CHALLENGES IN RURAL MARKETING

Literacy: There are not enough opportunities for education and literacy level is low (36%) compared to all India average of 52%. Seasonal demand: Demand for goods in rural markets depends upon agricultural situation, as agriculture is main source of income. Transportation: Many rural areas not connected by rail transport. Kacha road become unserviceable during monsoon and interior villages gets isolated. Distribution: High cost of distribution. Communication problems: Facilities such as telephone, Fax, telegram is rather poor in rural areas. Buying decisions: Rural consumers are cautious in buying and decisions are slow and delayed. They like to give a trial and only after getting personal satisfaction, they adapt the practice. Sales promotion media and methods: MBA-II 2002 Som-Lalit Institute of Business Management 102

Strategic Analysis of Indian Toothpaste Industry

Television has made a great impact and large audience has been exposed to this medium. Radio reaches large population in rural areas at a relatively low cost. However reach of formal media e.g. Print ( 18%), TV (27%), Cinema (30%) and Radio (37%) is low in rural households therefore the marketer has to undertake rural specific sales promotion activities such as participation in melas/fairs, haats ( village level markets/shandi) conducting group meeting of potential users of products, van publicity, village film shows and demonstration. According to Rajiv Monga , Managing Director and Chief Executive Officer of Rural Communications and Marketing (RC&M), a company engaged in the promotion of goods in the rural markets, Promotion in rural areas need to be carried out very carefully as the people are very brand loyal. It has been seen often that in one village only one brand is prevalent. This is not due to lack of supply of other competing brands, but simply because that brand entered the market first. But the flipside is that if one brand turned out to be faulty in one household, it would be boycotted by the whole village.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry




A CONCEPT Definition of Rural Marketing : No other country exists on earth, which offers such a dazzling array of Entertainment choices as India does! In India, entertainment encompasses a wide plethora of options. Right from cinema (the largest of its kind in the world) to television (amongst the fastest growing in the world) to soothing music (the most diverse in the world) to awesome festivals (richest in culture) and richest-possible food and finally its fanatical devotion to sports like cricket. Travel in India constitutes a major component of Indian leisure and entertainment industry. India offers mind-boggling variety for travel from highest mountain ranges of the world to serene beaches to historical forts, palaces and temples to beautiful deserts. Exotic forests and national parks in India are un-comparable in the world. Scenic hill-stations (mountain resorts) still remain popular Indian travel hot spots. Music in India is as rich as can be. Music in India is a means for spiritual exploration, a path of realisation, in addition to deriving aesthetic entertainment. Be it classical or the folk or the modern Indian pop-bhangra, Indian music reflects Indian life, having no predetermined beginning or end, but flowing uninterrupted through the composer-performer. The purpose of Indian music is to refine one's soul, discipline one's body, to make one aware of the infinite within one, to unite one's breath with that of space and one's vibrations with that of the cosmos. The basic tenets of classical music have been laid down by numerous ancient texts. The classical music is not pre-conceived but pre-written. While the underlying notes are prewritten, within the framework of the rules governing the raaga, the musician has complete freedom to exercise full imagination and creativity. In tribal societies, from birth to death, songs, dances and musical instruments are used to mark every occasion. The origins of classical music are also traced back to tribal tunes and songs.

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Strategic Analysis of Indian Toothpaste Industry

The music of India is a mosaic of different genres and levels of sophistication. At one extreme, classical music is performed in the urban concert halls for purely artistic reasons, and, at the other, many kinds of functional rural music accompanies life cycle and agricultural rites. In between are many other musical genres of different regions of the country, reflecting the diversity of its peoples, their life-styles, and their languages. The Indian society is a complex social system with different castes, classes, creeds and tribes. The high rate of illiteracy added to the inadequacy of mass media impedes reach almost to 80% of India's population who reside in village. Mass media is too glamorous, interpersonal and unreliable in contrast with the familiar performance of traditional artist whom the villager could not only see and hear, but even touch. Besides this villagers are more conservative buyers then their urban counterparts. Their desire to innovate with new product is restricted. Traditional media can be used to reach these people in the marketing of new concept. The traditional media with its effective reach, powerful input and personalized communication system will help in realizing the goal. Besides this when the advertisement is couched in entertainment it goes down easily with the villager. Demonstration: "Direct Contact" is a face-to-face relationship with people individually and with groups such as the Panchayats and other village groups. Such contact helps in arousing the villager's interest in their own problem and motivating them towards self-development. Demonstration may be A. I. Method demonstration ii. Result demonstration B. I. Simple Demonstration ii. Composite Demonstration

The five steps to make any demonstration effective are below: Information about people Objectives to be accomplished Demonstration plan & Execution of the plan

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Strategic Analysis of Indian Toothpaste Industry

Evaluation of the demonstration Reconsideration after evaluation.

In result demonstration, help of audio -visual media can add value. Asian Paints launched Utsav range by painting Mukhiya's house or Post office to demonstrate that paint does not peel off. 5.5.2 FEATURES OF RURAL MARKETING 1. Large and Scattered market: The rural market of India is large and scattered in the sense that it consists of over 63 crore consumer from 5, 70,000 villages spread throughout the country. 2. Major income from agriculture: Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied with agricultural prosperity. 3. Low standard of living: The consumer in the village area do have a low standard of living because of low literacy, low per capita income, social backwardness, low savings, etc. 4. Traditional Outlook: The rural consumer values old customs and tradition. They do not prefer changes. 5. Diverse socio-economic backwardness: Rural consumers have diverse socio-economic backwardness. This is different in different parts of the country. 6. Infrastructure Facilities: The Infrastructure Facilities like roads, warehouses, communication system, financial facilities are inadequate in rural areas. Hence physical distribution becomes costly due to inadequate Infrastructure Facilities.

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Strategic Analysis of Indian Toothpaste Industry



There has been always a vast difference between the two markets for a long time now. The difference is not only between urban and rural but also within the rural areas -- between regions, states and districts. There is a difference in the media reach, the education levels, in the culture and the type of products that the two markets are exposed to and this leads to a difference in the two markets. The difference is in things like -- how do you celebrate New Year, how do you celebrate birthdays? Small things like these are celebrated in a completely different manner when the rural and the urban customers are concerned. There is a vast difference in the lifestyles of the people in the two regions. The kind of choices of brands that an urban customer enjoys is different from the choices available to the rural counterparts. The rural customer usually has 2 or 3 brands to choose from whereas the urban one has multiple choices. The difference is also in the way of thinking. The rural customer has a fairly simple thinking as compared to the urban counterpart. But with technology coming in, mass media reach and the literacy levels going up - this divide is expected top reduce. The biggest thing is that there is lack of any research into the consumer behavior of the rural areas. There is considerable amount of data on the urban consumer regarding things like -- who is the influencer, who is the buyer, how do they go and buy, how much money do they spend on their purchases, etc. but on the rural front the effort has started to happen now. So we need to understand the buyer. Also, whatever little understanding we have is not for the entire industry. There is no collective effort. Some people have spent time in the rural markets, carried out studies and have understood the rural behavior, but their works have not been passed or known to the rest of the industry. So, an in depth understanding of the consumer is one key area that the industry needs to work on. There are vast differences in the rural areas as well. There are some 5,60,000 villages and some 525 districts and each one is different from the other. The geographical spread is not as homogeneous as it is with the urban areas owing to vast cultural differences. So an in depth understanding of the areas is what is required. The field of rural marketing has been witnessing a lot of action from both the fast moving consumer goods (FMCG) sector and consumer products manufacturers but, there has been little success in the manner in which rural research is carried out.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

The limitation lies in the inadequate or unavailability of appropriate tools to evaluate the rural market behavior. The problem arises because of general lack of education resulting in low awareness about the products and hence the inability to respond to the queries of the researcher in these areas. Conventional research tools do not work in these markets, as these are difficult to comprehend for the illiterate and semi-literate rural people. The typical research scales used are for ranking, rating and attitude measurement, limiting the research questions to simple yes/no kinds that do not bring the true essence of the research process. In an effort to look in to this issue two students from Management Development Institute, Gurgaon along with Pradeep Kashyap, director of Marketing And Research Team (MART) tried working out on some possible solutions to this problem. The limitation of conventional research tools during the research project prompted them to look at alternative sources to solve this problem and the results were favorable. Colors are very strong indicators, and forms, of expressing the feelings in the rural areas and there are tools devised with colors that represent and reflect the right answer to the researchers' queries. The selection of colors is done on the basis of the association of rural people with these colors. For instance, it has been observed that dark green represents a good crop or Haryali (as they call it) and hence represents prosperity and is considered to be the best. Light green represents not very good crop and stands next to dark green color. Yellow represents dry sand or a dry field and hence comes next. Orange is the color of the setting sun and represents the end of the day and hence is placed after yellow and just before red, a color that represents danger to them. Such hypothesis has been working well, according to MART, and it has incorporated these tools in its research projects. This is probably the beginning to a new form of research and analysis that might change the paradigm of rural marketing research and, who knows, one might just see this field blossom into a specialized research activity. If a simple ranking and rating is achieved, a lot can be explained about the rural preferences and behavior providing the marketers and manufacturers of goods specific to the rural markets get that meaningful insight to be able to help grow the markets in these areas.



The Indian rural market with its vast size and demand base offers great opportunities to marketers. Two-thirds of countries consumers live in rural areas and almost half of the national income is generated here. It is only natural that rural markets form an important part of the total market of India. Our nation is classified in around 450 districts, and

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

approximately 630000 villages, which can be sorted in different parameters such as literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc. The success of a brand in the Indian rural market is as unpredictable as rain. It has always been difficult to gauge the rural market. Many brands, which should have been successful, have failed miserably. More often than not, people attribute rural market success to luck. Therefore, marketers need to understand the social dynamics and attitude variations within each village though nationally it follows a consistent pattern. One major problem for rural market is a huge urban-rural consumption mismatch. According to estimates, penetration of toothpaste is a healthy 75-80% in urban India, whereas it is only 15-20% in rural India. As a result, urban India contributes 65% to the total volumes in the oral care business. The per capita consumption of toothpaste in urban India is 153 grams per annum, almost 4 times of rural India. With urban India already highly penetrated incremental growth becomes difficult.

In order to reduce this mismatch, both Colgate and HLL have taken to the rural market with gusto. HLL already is the trendsetter in recognising rural potential. Colgate too has initiated operation Jagruti to improve its rural penetration. The aim is to educate the masses about oral care and its benefits vis--vis traditional teeth cleaning methods like datoon (neem plant). The focus has also shifted to children. Corporates realise that oral care is a lifelong habit and once developed in a child, generates lifelong customers. So, oral care companies are tying up with schools to educate children on oral care. The focus of advertising in print and television has also shifted to children. Also, the focus is on brushing twice a day, in a bid to expand per capita volume growth.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Though market expansion has hit a roadblock in recent times, with improvement in rural economy and the measures taken by the industry to improve usage of products, the oral care market is likely to show an improvement in the long term. While the rural market certainly offers a big attraction to marketers, it would be naive to think that any company can easily enter the market and walk away with sizable share. Actually the market bristles with variety of problems. The main problems in rural marketing are: Physical Distribution Channel Management



The problems of physical distribution and channel management adversely affect the service as well as the cost aspect. The existent market structure consists of primary rural market and retail sales outlet. The structure involves stock points in feeder towns to service these retail outlets at the village levels. But it becomes difficult maintaining the required service level in the delivery of the product at retail level. One of the ways could be using company delivery vans, which can serve two purposes- it can take the products to the customers in every nook and corner of the market and it also enables the firm to establish direct contact with them and thereby facilitate sales promotion. However, only the bigwigs can adopt this channel. The companies with relatively fewer resources can go in for syndicated distribution where a tie-up between non-competitive marketers can be established to facilitate distribution. As a general rule, rural marketing involves more intensive personal selling efforts compared to urban marketing. Marketers need to understand the psyche of the rural consumers and then act accordingly. To effectively tap the rural market a brand must associate it with the same things the rural folks do. Utilizing the various rural folk media to reach them in their own language and in large numbers so that the brand can be associated with the myriad rituals, celebrations, festivals, melas and other activities where they assemble, can do this. Effective Communication Media and Methods for Rural Audience There are three major factors to be kept in mind while selecting the media:

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

The market to be reached The pros and cons of a particular medium The most appropriate media to reach the particular market.

Any medium chosen must be able to attain at least two aims: It is to reach the maximum number of prospects It must attract the attention of such prospects The promotion media and methods could be broadly classified into formal media and informal/rural specific media. Formal media Formal media includes Press and Print, TV, Cinema, Radio , and Point of Purchase and Outdoor advertisement. Reach of formal media is low in rural households (Print: 18%, TV: 27% , Cinema: 30% and Radio: 37%) and therefore the marketer has to consider the following points: Newspapers and Magazines English newspapers and magazines have negligible circulation in rural areas. However, local language newspapers and magazines are becoming popular among educated families in rural areas. Eg. Of newspapers such as Eenadu in A.P., Dina Thanthi in Tamil Nadu , Punjab Kesari in the north, Loksatta in Maharashtra and Tamil Magazine Kumudam. They are very popular in rural areas. Television Television has made a great impact and large audience has been exposed to this medium. HLL has been using television to communicate with the rural masses. Lifebuoy, Lux , Nihar oil,etc. are some of the products advertised via television. Regional TV channels have become very popular especially in southern states. Eg. Like Sun TV is very popular even in rural areas in Tamil Nadu and Asianet is a preferred regional channel in Kerala. Many consumer goods companies and fertilizer companies are using these TV channels to reach the rural consumer.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Radio Radio reaches large population in rural areas at a relatively low cost. Colgate, Jyoti Labs, Zandu Balm, Zuari Industries are some of the companies using Radio communication programme. There are specific programmes for farmers like Farm and Home / Krisha Darshan in Regional languages. The farmers have a habit of listening to regional news / agricultural news in the morning and late evening. The advertisement has to be released during this time to get maximum coverage in rural areas. Another advantage is that the radio commercial can be prepared at short notice to meet the changing needs of the rural folk . Consider the effectiveness of releasing a pesticide ad at the time of outbreak of a pest or disease in crops. Cinema About 65% of the earnings from cinema are from rural markets. Film viewing habit is high in certain states like Tamil Nadu, Karnataka and Andhra Pradesh. Village theatres do roaring business during festivals by having four shows per day. The monthly charge for showing an ad Film is within Rs. 500. Local distributor or dealer who has good contacts with cimema houses in villages can easily monitor this activity. Films on products like Vicks, Lifebuoy, and SPIC fertilizers are shown in rural cinema halls. Apart from films, Ad slides can also be screened in village theatres. Outdoor Advertisements This form of media, which includes signboards, wall painting , hoarding , tree boards , bus boards , dealer boards , product display boards, etc is cost effective in rural areas. Symbols. Pictures and colours should be used in POPs meant for rural markets so that they can easily identify the products. Generally rural people prefer bright colours and the marketer should utilize such cues. Point of Purchase Display of hangings, festoons and product packs in the shops will catch the attention of prospective buyers. However, a clutter of such POP materials of competing companies will not have the desired effect and is to be avoided.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Direct mail advertising It is a way of passing on information relating to goods or services for sale , directly or potential customers through the medium of post. It is a medium employed by the advertiser to bring in a personal touch. In cities lot of junk mail is received by all of us and very often such mails are thrown into the dustbin whereas a villager gets very few letters and he is receptive to such mailers. Some of the importants: 1. The mailing list is to be updated at least on a year-to-year basis. 2. The name of the recipient together with the fathers name has to be included in the address. 3. The message should be in regional language and should contain pictures & local phrases. 4. It is preferable to mention the address of the local dealers/distributors to increase their involvement in the business. 5. The mailing is to be timely. Direct mailers on consumer durables to be sent after the harvesting season so that the farmers will have money for purchasing the same. 6. The company representative / local dealer could meet the recipient of such letters at random to gauge the response for such circulars. Wall painting Wall painting is an effective and economical medium for communication in rural areas, since it stays there for a longtime depending upon the weather conditions. The cost of painting one square foot area is just Rs. 10. Retailers welcome painting of their shops so that the shop will look better. Walls of farm houses, shops and schools are ideal places for painting and the company need not have to pay any rent for the same. The walls have to be painted at least one or two feet from ground level. It is better to take permission of the owner. Very often the owner takes responsibility for taking care of the wall painting. Painting to be avoided during election time rainy season. The matter should be in the form of pictures , slogan for catching the attention of people. A wall painting of 100 square feet is quite adequate to convey the message about a product or service. The local distributor / dealer who knows the market and people could be involved in selection of spots and for arranging wall painting. Companies marketing TV, Fans, branded coffee / tea, toothpaste , pesticides, fertilizers, etc use wall painting as a promotion medium in rural areas. Tree boards are painted boards of about two square feet in dimension having the picture or name or slogan of the product painted on it. The cost of such a painted board is about Rs. 80. These boards are fixed to the trees on both sides of the village road at a height of about 10 feet from ground level. These boards attract the attention of slow moving vehicles like MBA-II 2002 Som-Lalit Institute of Business Management 113

Strategic Analysis of Indian Toothpaste Industry

cycles, bullock carts and tractors and people walking on the road. Considering the poor condition of roads , even the buses move at slow speed through village road. Tree boards are extensively used by fertilizer and pesticide companies in rural areas. Tree boards are low priced promotion items and can be used by consumer goods companies also. Informal / Rural Specific media Informal / Rural Specific media with effective reach and personalized communication will help in realizing the promotional objectives. A variety are used by companies , some of them are as below. Farm-to-Farm / House-to-House visit This approach has been found to be very effective for agricultural machinery, animal health products and agricultural inputs. Rural people prefer face-to-face communication and farm visits facilitate two-way communication. The advantage is that the sales person can understand the needs and wants of the rural customer by directly discussing with him and answer his queries on products and services. Potential customers in the village are identified and the companys / distributors representative makes farm-to-farm visits and highlight the benefits of the products. The person carries with him literature in local language and also the samples of products. The person does not sell the product but only promotes the use of the product. Very often the local dealer also joins the representative in making farm-to-farm visits. The dealer clarifies the terms and conditions of sale and also makes independent follow up visits for securing orders. Many LIC agents and companies dealing with high value consumer durables have tried this approach with success in rich rural areas. Opinion leaders Villagers place more emphasis on the experience of others who have used a product / brand to make purchase decision. Opinion leader is a person who is considered to be knowledge and is consulted by others and his advice is normally followed. Such opinion leaders could be big landlords , bank official , panchayat president , teachers , extension workers,etc. Asian paints promoted its Utsav brand of paint by painting the Village Sarpanchs house a few months prior to the launch to demonstrate that the paint does not peel off. Mahindra tractors use bankers as opinion leaders for their product.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

The Melas Melas are of different types i.e. commodity fairs , cattle fairs and religious fairs and may be held only for a day or may extend over a week. Many companies have come out with creative ideas for participating in such melas. Paint companies supporting Pola fair in Maharashtra by paninting the horns of bulls, screening of popular films along with ad films by fertilizer / pesticides companies in south. A few points to be considered are: Preparation of a list of Melas where the company wants to participate based on the prospects for the companys products , involve local distributor for local help and guidance , arrange for generators since electricity supply is erratic , give through training for the sales person to answer queries , decorate the stall with posters, cut outs, banners, arrange for display of the products and organize luck draws / scratch cards to attract the people to the stall. It is better to plan for a follow up the visits to see the impact of such an activity. The Haats Traditionally on certain days of the week , both the sellers and buyers meet in the village to buy and sell goods and services. These are the Haats that are being held regularly in all rural areas. The sellers arrive in the morning in the haat and remain till late in the evening. Next day they move to another haat. The reason being that in villages the wages are paid on weekly basis and haat is conducted on the day when the villagers get their wages. For the marketer, the haat can be an ideal platform for advertising and selling of goods. Display of posters, banners and products, conducting film shows and mike publicity could be carried out in the haats. By participating in the haats and melas, the company can not only promote their products but also understand the shared values, beliefs and perceptions of rural customers that influence his buying behaviour. Folk dances are well appreciated form of entertainment available to the village people. The folk dance Kuravan Kurathi is popular in Tamil Nadu. The troupe consists dancers, drummers and musicians and they move in a well decorated van from one village to another village singing and dancing. In a day the troupe covers about 8-10 villages. As soon as the van reaches a village, film songs are played to attract the attention of the villages. This is followed by folk dances. Mike announcement is made about the companys products and leaflets are distributed. After the dance programme , queries, if any , about the products are answered by the sales person. Folk dance programme costs about Rs. 5000 per day and therefore these programmes are conducted during the peak season in selected markets. Thums Up has MBA-II 2002 Som-Lalit Institute of Business Management 115

Strategic Analysis of Indian Toothpaste Industry

sponsored Lavnis , the folk dance programme of Maharashtra and over 30 programmes have been arranged in selected rural markets. Audio Visual Publicity Vans Audio Video unit is one of the effective tools for rural communication. The van is a mobile promotion station having facilities for screening films slides and mike publicity. Portable exhibition kit can be carried in the van and an exhibition of the products could be put up as and when required. Agricultural input companies regularly use AVP vans for promoting their products. Companies such as HLL, Colgate, Phillips have made effective use of AVP vans for popularizing their products in rural areas. A few points to be considered for effective AVP unit operations are : Preparation of a route plan covering key villages / markets, giving advance information regarding film shows in the selected villages, involvement of local distributors / dealers in publicity campaign , through training to the mechanic to take care of the instruments, availability of generator in the van, experienced sales person who is fluent in the local language and can answer queries of customers. During day time , the unit is used for mike publicity , pasting of posters and distribution of literature. In the evening , with the help of local dealer / distributor and opinion leaders, film shows are organized in two / three different villages. As per the plan , the van reaches the first village in the evening. A suitable place such as village ground , school , and panchayat hall is selected for the meeting as well as film screening. A few film songs are played to attract the attention to the villagers. The sales person makes a brief talk about situation in the village, the products and the benefits. The ad film is screened along with some popular film shots and this continues for about 30 minutes. At the end of the film show, he distributes handbills and answers queries of the customers. The whole operation takes about 1-2 hours depending upon the products under promotion , number of participants in the meeting and time taken for question and answers. The van moves to next village for the second film show. The company representative visits the villages at random meeting dealers and key customers to know the impact of the AVP operation. The cost of running a fully equipped AVP unit is about Rs. 4000 per day and AVP van operation has to be considered as an investment for business development in rural areas. Product display contests Package is an integral part of the product. Its main purpose is to protect the product during transit , to preserve the quality and to avoid any loss in quality and quantity. Now-a-days, companies are making lot of efforts to produce good quality packages as the package is the face of the brand and carry advertising value. The introduction of sachet packing ,created a MBA-II 2002 Som-Lalit Institute of Business Management 116

Strategic Analysis of Indian Toothpaste Industry

revolution in the shampoo industry. Velvette and Chik shampoo by beauty cosmetics , now known as Cavinkare in south. Sachets eater to the first time shampoo users who are price conscious. Similarly, Mediker (anti-lice product) is being made available in 5ml sachet to school going children and young women in rural areas. The main purpose of display contest is to remind the customer to buy the product as soon as he enters the shop. Another objective is to influence the dealer to stock the product and support the company in increasing the sales. The display contest has to be announced well as in advance and promotional materials to be distributed to all selected dealers in a geographical area. Prizes for best displays are announced to motivate the dealers. The contest lasts for about a month. Dealer incentives based on the counter sales of the products to be announced to increase counters sales. A well planned Product display contest not only increases the involvement of dealers in the companys products but also increases the sales during the contest period. Product display contests could be organized successfully in prosperous rural markets for promoting consumer goods such as shampoos, soaps and toothpaste. Field demonstration Field demonstration is based on the extension principle seeing is believing and is one of the most effective methods to show the superiority of the companys products to the customers. Spraying a particular brand of insecticide against insect pests and showing the farmer how effectively the insects are controlled , application of Urea fertilizer in Paddy fields to show the luxurious growth of the crop and demonstrating the use of tractor / implements for different agricultural operations. A progressive farmer who is an opinion leader is selected and the demonstration is conducted in his field in the presence of a group of farmers in the village. The farmers observe the results in the field and local dealer calls on them in their farms and persuades them to buy the particular brand of pesticide or fertilizer. Similarly effectiveness of detergents , vacuum cleaners, mosquito coils could be promoted by demonstrations in selected markets. Field days are extension of field demonstrations. One of the main objectives of following modern agricultural practices is to increase the yield. The company organizes demonstrations in a piece of land belonging to a progressive farmers. All the fertilizers , pesticides, Nutrients, etc are applied after making field observations. Just before harvest . all important farmers are invited to see demonstration plot and see for themselves how the yields are better in the plot compared to other fields. Field demonstrations / field days consume lot of time and efforts and therefore have to be planned well.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Life Style Marketing Each rural market segment has certain special features i.e. they share common life-style traits. They include village sports, religious events, prominent personalities and role models. The company can initiate certain activities like sponsoring melas and local festivals , village sports , community garden maintenance , scholarship , yield contest , health care programmes , village adoption , etc that gel with the pattern of life in villages. Through these activities the company can create long term relationship with the rural consumers for mutual benefits. There are abundant instances of textile mills maintaining community gardens , mineral water companies supplying clean drinking water during summer festivals in villages, consumer goods companies sponsoring Kabbadi, etc. It should be noted that many companies do not have the minimum required volumes of sales to go all out for rural marketing and therefore they are working both in urban and rural markets. Companies with long term plans, high level of commitment to rural markets and range of products that will meet the requirements of consumers , strong distribution set up backed by committed field force and promotion will only be successful in the market place. Delivering a better standard of living and quality of life will be new role for rural marketing. The companies entering rural markets have a major role to play by carrying developmental messages to the less informed rural population. Considering the dynamics of the rural market , uniqueness of rural customer and the distribution infrastructure , the marketer has to formulate an appropriate strategy to reach the rural population.

Buying rural media

More often than not , sometimes even in case of brands getting significant volumes from rural markets , the resources allocated for rural advertising are ad hoc or residual remnants of the overall budget. Step 1 Familiarity with the markets one is buying media for is imperative. It is imperative that one should have visited rural markets, spent time living with the rural families and perhaps, ploughing the fields before one attempts to buy any media. Step 2

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Gather data about rural areas, not only data like media habits or readership, etc. but also data about the market. How many villages are there in the district one is covering ; How many of these have primary schools or primary health centers; do they have roads ,electricity ,post offices, telephone facility , weekly markets,etc; What is the male/female split by village, literacy levels by sex,etc. Step 3 You never buy media, you either tailor-make media or create media. Options: Tile the village well and brand it. Wall paintings may be effective or perhaps primary health centre or panchayat office is the best place to catch the residents attention. Step 4 Choosing the media partner is important and should be done with care.

Step 5 Monitoring is the single most important factor for the success or failure of a rural media buying operation.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



We are using the Data of NCAER and RK Swamy / BBDO for deciding on the strategy as discussed below. We study the rural consumer and adopt marketing strategies for capturing his product preference keeping in mind : Income levels , Education , Infrastructure , Communication and Buying Behaviour of the area under study. Target Consumers: Urban Lower Lower Middle Middle Upper Middle High # # / / / Rural # # #

/ Indicates that the area is already covered by current distribution. - Indicates that this area need not be targeted of now as it will require rural development of the area and people by the government, which outside any companys scope. # Indicates that this area needs to be focused upon keeping in mind the resources of the company and the external environment. Inferences for rural markets ( Number of HouseHolds(hds) in 000s ) NORTH Rural 1993-94 Middle 2879 Growth over 87-88 115.33% Lower Urban 1993-94 4430 Growth over 87-88 -4.38%

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Upper middle High Total

934 714 4527

306.09% 543.24%

Lower Middle





Rural hds forms 13% of 34240 hds i.e. total population Urban hds forms 70% of 11719 hds i.e. total population

SOUTH Rural 1993-94 Middle Upper middle High Total EAST Rural 1993-94 Middle Upper middle 2077 659 Growth over 87-88 62.01% 170.08% Lower Lower Middle Urban 1993-94 2450 4043 Growth over 87-88 7.36% -1.49% 1944 608 197 2749 Growth over 87-88 115.52% 496.08% 278.84% Total 9559 Lower Lower Middle Urban 1993-94 5516 4043 Growth over 87-88 -1.13% 17.35%

Rural hds form 9.5% of 28930 hds i.e. total population Urban hds form 76% of 12571 hds i.e. total population

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Strategic Analysis of Indian Toothpaste Industry

High Total WEST

320 3056

146.15% Total 4831

Rural hds form 10% of 2893030419 hds i.e. total population Urban hds form 65% of 7379 hds i.e. total population

Rural 1993-94 Middle Upper middle High Total 1718 663 391 2772 Growth over 87-88 150.44% 366.90% 662.71% Total Lower Lower Middle

Urban 1993-94 3408 3992 Growth over 87-88 49.60% 17.24%


Rural hds form 13% of 20706 hds i.e. total population Urban hds form 65% of 11355 hds i.e. total population

Strategy for distribution Housewife they need to be approached through ladies selling accessories on a day-to-day basis. Salary earner & Professionals Direct through Distributor or through traditional retail channel on a twice a week basis for the former case. Cultivator & Wage Earner they need to be approached through Local Traders on a daily evening basis. Family they can be approached through participation in Melas and Haats on a weekly basis. Stalls can be maintained either by the distributor or the company representative.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Thus, the strategy is to target the middle, upper middle and high class in the rural areas which around 10% of the total rural population zone wise. Targeting this segment can also be used at the same time for selling to lower and lower middle class in the urban areas which forms around 70% of the total urban population zone wise. The aim is to obtain synergies among income groups and education levels apart from their lifestyles and standard of living.



Supply chain management and logistics are the new buzzwords of Indian industry. After a series of changes in the business process like Business Process Re-engineering (BPR), ERP, Restructuring and Rightsizing, supply chain management offers the best long term solution to improve profitability in demand slowdown. In the FMCG sector HLL has initiated Operation Leap to reap gains from its vendors, plants and retailers. HLL showed just 2% growth in sales in the first quarter of 2001-02, but its net profit rose by 21%. Analysts agree that this is a direct consequence of handling its vast network suppliers, vendors, truckers, contract manufacturers and retailers very tightly and systematically. An ETIGs study of 29 FMCG companies reveals a total spending of nearly Rs. 650 crores on logistics in 2000 accounting for 3% of the net FMCG sales of Rs. 29,000 crore. In terms of percentage to sales , logistics costs have decreased by 0.7 % over the past five years. Distribution cost as a ratio of Total Sales 1996 Overall Industry FMCG 2.1 2.7 1997 2.2 2.5 1998 2.3 2.4 1999 2.2 2.4 2000 2.1 2.6 CAGR* 0.4 (0.6)

Efficient consumer response is the way to go for firms with a large stock keeping units (SKU) count. Never before has the impact of the adage claiming that the only constant in life is change been so hard as it is now. To the consumer, it means better services and products at MBA-II 2002 Som-Lalit Institute of Business Management 123

Strategic Analysis of Indian Toothpaste Industry

competitive rates. To the global firms, it means one more market which will recognise the superiority of their products and will add to their revenues. But is that all? Does it also not mean the establishment of processes that have, over years and over geographies developed into powerful quasi-institutions? Does it not mean commitment of the highest kind in developing a market which has its own share of idiosyncracies? To my mind,the one thing that is certainly getting introduced into the Indian markets is a sense of transparencyas the consumer goes out to make her purchases in the marketplace. She no longer needs to buy her products in an environment where there is uncertainty related to product quality, pricing or, the promotions on offer. With organizations trying all that they can to win the consumer, she is assured of the best deal. The fallout of the chance With such changes being inevitable, there is an obvious sense of discomfort that a lot of players in the Indian industries would be experiencing. They have been successful in the past but may not necessarily know the new rules that have come to define the game. And suddenly, they find themselves in an environment where the ethos of the new rules are competing against them. 5.5.8 EFFICIENCY AS A STRATEGY

The need to win the consumer has become so very obvious today that any organisation that has not given serious thought to this particular activity is bound to perish. Sounds cliched? So, how do you do it? Answer the question everyday and you have probably taken care of your survival for that particular day. Fail to answer it and see where you land up! In the more mature markets of the US and Europe, manufacturers and retailers in some of the industries, notably, foods, groceries and other FMCG products, were trying to answer similar questions some time back. Some of them formulated some answers and grew from strength to strength while the others couldnt and somehow lost their way to become nonentities. One of the answers that emerged along the search for the right answer was the concept of Efficient Consumer Response or ECR. ECR could be defined as a holistic, joint manufacturer and retailer strategy to increase consumer value by removing non value-added cost from the entire Supply Chain. For companies that have taken the effort to integrate the various elements of the Supply Chain, the results have been phenomenal in terms of the improvements to the bottom line.

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Strategic Analysis of Indian Toothpaste Industry

Companies and industries have saved billions of dollars simply by practicing the ECR principles sincerely. The ECR elements ECR has four basic elements all of which, when applied holistically to a business environment, can reap very rich rewards. These are: 5.5.9 THE STRATEGY OF EFFICIENT ASSORTMENT

This strategy has to do with optimizing the productivity of inventories and store space at the consumer interfaces. This would imply that there is a need to understand the business in great detail and of allowing space only for those stock keeping units (SKUs) which contribute in a meaningful way to the category business. A lot of SKUs are introduced by manufacturers as flankers to the mother brand as a knee-jerk reaction to competition or as a management mandate to be creative and innovative. Since these flankers or extensions never had a reason to exist in the first place itself, their presence in the stores stands out by their insufficient consumer demand. Such products go against very basic tenets of business, that of providing to the consumers the best available product in the freshest possible condition. Any ECR analysis would throw up such SKUs as candidates for immediate discontinuance and serious commitment to the strategy would demand that the manufacturer and retailer do not try to dupe the consumer by attempting to sell such products. Transparency would be the essential theme as every manufacturer and retailer would look at maintaining the right product mix in their line-up and not a weird clutter of brands that serve only to confuse consumers! Just as an illustration. It is interesting to note that an FMCG giant grew its cosmetic business in Japan despite reducing the number of SKUs that the category offered at some time: shows how commitment to the right principles always pay off in the long run.

5.5.10 THE STRATEGY OF EFFICIENT REPLENISHMENT It is often said that this is the strategy where it all started off from! Simply put, this refers to Just-in-Time inventory management. As opposed to suppliers pushing inventory through the supply chain, this strategy focuses on consumer demand to pull products through the same chain. The complete accent is on optimizing time and simultaneously cost in the replenishment system.

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry

Sincere commitment to this strategy has obvious cost benefits as it leads to reduction in manual inventions and excess inventories. Also, this provides a good indication of the actual state of the business as cash flows improve considerably since the cash tied up in inventories spread across the length of the supply chain is released. Apart from the cost benefits, the long term benefits accruing to the organization are in that this strategy increases consumer satisfaction and builds loyalty to brands.These benefits would lead to growth in an otherwise stagnant market 5.5.11 THE STRATEGY OF EFFICIENT PROMOTION: This strategy focuses on the maximization of the total system efficiency of trade and consumer promotions that are offered by manufacturers and retailers. Most often, promotions are offered with the end objective of increasing sales through pushing products into the system, irrespective of existing inventories. There are studies, which show that most products have abnormal skews in their sales pattern over a period of time. During a sales promotion, the objective is to increase inventories at trade by offering some incentive to trade to buy. The results, once the promotion is over, are so abysmal that the short-term nature of the offer becomes obvious. The same applies to a lot of consumer promotions where the consumer refuses to buy once the promotion is over since she has enough inventory to last her for some time to come! Despite these leanings, we seem to repeat such tactics since nobody is willing to apply their minds to the issue of building the business. It is interesting to note over here the way in which a rejection of this particular strategy also automatically leads to the rejection of the earlier strategies of efficient assortment and replenishment innovative and creative solutions need to be found to grow the business on a consistent basis and not just for the period of the offer. How about a revolutionary value pricing strategy flowing out of the strategy of efficient promotion? If a company were to take all of its promotion fund, typically used for special, temporary activities, and instead use this money to offset price increases so that the product is made available to the consumer at a lower everyday price, wouldnt the consumer love it? Imagine having to pay lesser for a better and fresher product! 5.5.12 THE STRATEGY OF NEW PRODUCT INTRODUCTION: A commitment to this strategy would maximize the effectiveness of new product development and introduction activities. In terms of understanding this better, one needs to look at this as just the corollary to the strategy of efficient product assortment. Imagine

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Strategic Analysis of Indian Toothpaste Industry

organizations spending enormous amounts of time in clearing-up the mess brought about by having unnecessary products and then going all over the place to replicate the same error!

MBA-II 2002 Som-Lalit Institute of Business Management


Strategic Analysis of Indian Toothpaste Industry



3065027 452 580781 3697 8385.84 4352.16 4033.68 2157.72 6228.12 274 52.21 80 5781

Area (sq.Kms) No. of district Total no. of inhibited villages Total no. of towns Population (lakhs) Male Female Urban Rural Density Literacy rate (%) Infant mortality rate (per 000 births) Per capita SDP 5.6.1 RURAL CLASSIFICATION No. of villages 103952 141143 144998 114395 62915 10597 2779 580779 % 17.9 24.3 24.97 19.70 10.83 1.82 0.48 100

Village class Less than 200 201-499 500-999 1000-1999 2000-4999 5000-9999 10,000 & above Total 5.6.2

Population lakhs 105.32 484.62 1043.57 1602.94 1855.73 698.39 437.57 6228.12

in % 1.69 7.78 16.7 25.74 29.8 11.21 7.03 100%

POPULATION CLASS (1991) Population in Male % 52.8 51.59 51.9 Female % 47.2 48.41 48.10 Total % 100 100 100 lakhs 2157.72 6228.12 8385.84

Urban Rural Total

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Strategic Analysis of Indian Toothpaste Industry


URBAN CLASS (1991) No. of towns 23 31 246 344 944 2108 3697 LITERACY (1991) Literacy % 73.08 44.69 52.21 Literates in Male % 58.82 66.87 63.89 Female % 41.18 33.13 36.11 ( % of individuals) Rural 24.1 12.5 50 13.6 33.6 30.7 76.1 22.5 15.3 33.4 20.1 1.2 20.8 2.2 13.1 19.5 45.0 20.8 Total 33.5 4.3 28.8 5.4 18.7 Total % 100 100 100 % 0.62 0.84 6.65 9.30 25.53 57.02 100 Population lakhs 709.97 214.50 476.2 235.54 286.88 233.88 2157.22 in % 32.90 9.94 22.07 10.92 13.3 10.84 100

Town class Metros I IA II III IV Total 5.6.4

Total No. of literacy (in lakhs) 3592.84 Urban Rural Total

Urban Rural Total 5.6.5

lakhs 1331.40 2261.44 3592.84

EXPOSURE TO MEDIA (1997) Urban 58.6

PRINT English news paper Indian language news paper English magazine Indian language magazine CINEMA T.V. RADIO

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Strategic Analysis of Indian Toothpaste Industry






GROWTH IN CONSUMPTION OF FMCG (source E.T.) Pre-reform period Post-reform period Rural 17.5 15.7 12.5 12.8 13.7 92-93 to 97-98 Urban 10.1 12.9 13.2 15.3 16.9 Rural 10 10.7 11.9 13.4 12.4

87-88 to 92-93 Income group Urban Low 17 LM 13.8 M 11.4 UM 10.7 H 8.3 ( % Average p.a. per household ) 5.6.7 Factors Growth in penetration Growth in intensity of use Growth in income Growth in population ( figures in %) 5.6.8

FACTORS AFFECTING CHANGE IN MARKET SIZE 1992-93 21 22 26 30 1995-96 37 26 20 17

The households were classified into six categories by their major source of income CONSUMPTION OF HOUSEHOLD INCOME (PER CENT) Rural 35.37 11.16 17.42 20.29 7.56 8.20 100 321488 Urban 1.72 20.74 54.07 0.74 4.94 17.79 100 254864 All India 20.49 15.39 33.63 11.65 6.40 12.44 100 576312

Source of income Self-emp farm Self-emp non-farm Salary Agricultural wages Non-agricultaral wages Others All sources Estimated income

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Strategic Analysis of Indian Toothpaste Industry

(Rs crore) (Economic and Political Weekly, July 15,2000) 5.6.9 POPULATION CLASSIFICATION (1991) Population Urban Rural Total lakhs 142.46 270.64 413.10 Male % 52.44 51.30 51.70 Female % 47.56 48.70 48.70 Total % 0100 100 100

5.6.10 URBAN CLASSIFICATION (1991) Town class Metros I IA II III IV Total No. of towns 3 1 17 27 49 128 225 % 1.33 0.44 7.56 12.00 21.78 56.89 100 Population lakhs 59.58 6.54 28.67 18.10 14.73 14.84 142.46 % 41.82 4.59 20.12 12.70 10.34 10.42 100

5.6.11 RURAL CLASSIFICATION (1991) Villages class Less than 200 201-499 500-999 1000-1999 2000-4999 5000-9999 10000 & above Total No. of villages 1019 2875 4634 5432 3418 575 75 18028 % 5.65 15.95 25.70 30.13 18.96 3.19 0.42 100 Population lakhs 1.18 10.22 34.06 77.47 100.67 37.55 9.49 270.64 % 0.44 3.77 12.58 28.63 37.20 13.87 3.51 100

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Strategic Analysis of Indian Toothpaste Industry

5.6.12 ESTIMATED NO. INDIVIDUALS IN 000s (12 years +) (1997) Urban Rural Total 5.6.13 EXPOSURE TO MEDIA (1997) (% of individuals) Print English newspapers Indian language newspapers English magazines Indian language magazines Cinema T.V. Radio Not exposed to any of the above media Urban 60.3 4.4 58.7 7.6 25.0 22.2 76.7 9.9 13.7 Rural 25.6 0.3 25.4 0.3 4.9 5.9 30.0 5.2 57.1 Total 38.4 1.8 37.7 2.9 12.3 11.8 47.1 6.9 41.1 12191 21013 33204

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Strategic Analysis of Indian Toothpaste Industry

Reports and Magazines Saket Industrial Digest CMIE year book RBI yearly report Economic Survey RK Swamy / BBDO Journal on Indian Demographics (1998) Indian Demographics (NCAER , S.L. Rao) (1996) Online data www.indiainfoline.com www.worlddentalfoundation.com www.euqitymaster.com www.hll.com www.colgate-palmolive.com www.p&g.com Search Engine www.google.com www.khoj.com

MBA-II 2002 Som-Lalit Institute of Business Management