This simple idea changed FMCG Market forever | CHIK Shampoo Case Study
People the FMCG market is by far one of the most competitive
markets in the world. The margins are thin, the supply chain is complex and customer retention is very very challenging. So much so that even after pouring in crores of rupees many companies often incur losses and even quit the market
altogether. Which is why since decades, this industry has always had only a handful of players who can afford to pour in crores of rupees just to start a
venture. But you know what, an ordinary middle class Indian came out
with a simple but brilliant idea that ended up changing the dynamics of the entire FMCG
market. And this idea gave rise to what is now about to become a
billion dollar company. And not just that the concept of this idea is now being applied by billion
dollar companies like Coca-Cola and Procter & Gamble also.
The question is- What is so amazing about this idea that it
redefined a billion dollar industry ? And more importantly how can you apply this concept in your
business. So as usual, let's dive into the story. This story dates back to late 1980s India. Back then India was a fairly underdeveloped country and if you ask your parents, they would tell you that back then even shampoos and perfumes were considered to
be luxury products. And as far as brands were concerned most brands didn't even bother to cater to the needs of the
lower middle class people because every brand had a certain segment of the audience
below which they could not do viable business.
Now just to give you a better understanding of the same, if you were to draw a pictorial representation of the
purchase power or affordibility of the audience. For any product it would look like a pyramid. A very simple example of the same is the mobile phone
market. On top of the pyramid you've got these bunch of people who
can afford iPhones and ultra premium Samsung phones. And then below that you've got people who buy OnePlus
phones.
Followed by people who buy Oppo & Vivo. And on the lower end you've got Jio phones and Nokia phone
buyers. and these are the products that will cost you between
₹1000-₹3000. And below this price point of, say, ₹1000 you won't find any reputed company manufacturing phones. Because for any mobile manufacturer, it isn't viable to make
a phone and sell it at a profitable margin below ₹1000. And this segment of the audience, that is, the lowest strata of the customer base is what you call as the bottom of the pyramid. Similarly, if you look at the shampoo market in the 1980s it
looked something like this. On top you had these luxury brands, the imported brands. And after them the only strong contenders were Sunsilk and
Clinic Plus which only catered to the needs of the upper segment of the
pyramid. And the least you could find was a 100 ml shampoo bottle
that would cost you ₹40.
Now the point to be noted over here is that we are talking
about a time wherein even the salaries of white collar employees was in the range
of ₹1000-₹3000 per month. And for them a shampoo bottle of ₹40 was a very big deal. But the shampoo companies didn't even bother to sell to the
rest of the population because they believed that they couldn't do viable business. And that is when the hero of our story, Mr. Chinni Krishnan
had an idea. He was an ordinary middle class person with an extraordinary
inventor's mindset. And he had this philosophy that everything that a rich person can afford should be
accessible and affordable to a poor person also. So one fine day he observed that the pricing of a 100 ml
shampoo bottle was ₹40 and in one bottle you could wash your hair about 20 times
considering 5 ml per wash. So essentially, the cost of one wash was ₹2. So practically speaking, a rich person paid ₹2 per wash and that is when he thought that this ₹2 price is something
that even a lower middle class person can afford.
It's just that he can't afford to pay for the entire bottle
at once. So why not divide the same bottle of shampoo into small
segments and make it affordable for the lower middle class people. And that is how ladies and gentlemen, the idea of sachets
came into existence. Now, Chinni Krishnan Sir did this not just for shampoos but
for many other products like salt and talcum powder also. Initially, the idea was not very successful but his son C.K. Ranganathan took it forward and formed a company called
CavinKare. And he did a thorough market survey and found out that rural families wouldn't spend more than ₹2 per month on
sachets with an estimate that a customer would wash his/her hair
once a week. So they launched 50 paise sachets in Tamil Nadu in 1983. And in just one year they ended up selling 10 lakh sachets. Fast forward to today, CavinKare which started with only
₹15,000 of capital is now a 1100 crore empire.
But the story doesn't end here. The idea of sachets gave the FMCG market 3 incredible
superpowers and these are practical techniques that even you can use for
your startups. Number one, tomorrow if a company wants to launch a new
product or a new flavour of a shampoo, it does not have to spend exorbitantly to manufacture
millions of 100 ml bottles and then wait for the customer's reaction. Now, they could just spend a fraction of that money to make
sachets and they could give it away for free as complimentary
products and see if the customers come back to buy more. The second superpower that this idea gave was through
upsells. For example, if you see the Head & Shoulders sachet it will cost you about ₹4 for an 8.5 ml pack which is about
47p/ml But at the same time if you buy a 180 ml bottle it will cost you ₹150 which is about 83p/ml. If you see, that is about 36% increase in profit from sachet to a bottle. And when you factor in millions of bottles that are being
sold that's a million dollar profit.
So this is how brands first sell smaller packets and once they gain the trust of the customers they increase
the margins on bigger packs which translates into a million dollar profit. And third and most importantly, the concept of bottle of the pyramid is today being used by
multiple brands to penetrate both, into the lower stratas of the society and to make their products more affordable for a larger
segment of the audience. A classic example of the same is ₹20 bottle of Coca-Cola. Now, if you take a step back you'd observe that since the time the ₹20 bottle came out you hardly ever bought the 600 ml version of Coca-Cola. And that is because the quantity is perfect to suffice your
need and it is also super affordable.
Today, Procter & Gamble comes out with smaller versions of
it's products. and nearly every product, starting from soaps to talcum
powder come in mini versions which states the incredible power of this simple idea. And here's where all of us need to understand that regardless of how big the players are in a particular
industry ideas as simple as sachets can also bring about a revolution because they make a product market viable. And these kind of ideas open up gateways of business
opportunities that even the big players never even bother to look into. And that is where you as an entrepreneur could find your pot
of gold. At the end of the day always remember, that the greatest ideas are born not because someone has a
billion dollars or some rich connections but because while the world is busy in it's hustle and
bustle someone cares to take a pause to observe the little things
in our life that we all take for granted. And this gives rise to an idea that changes the world
forever. That's all from my side for today guys. If you learnt something valuable, please make sure to hit
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