Interesting Case Study

Last week, I met Chamanbhai. In a way, he is my nemesis, and now he appears to be an enigma! Chamanbhai has been my arch-rival - the man who, in the last one year, has taken away 5% of our marketshare. Five, in fact, is the least he has taken away, if you look at Mumbai only. But in various other markets in Maharashtra and Gujarat and some places in North India, it is a double-digit figure. So Chamanbhai remained an unpleasant and unlikeable character for the reasons stated above. Then I met him. But first let me tell you briefly what Chamanbhai's (CB) business is. He makes soaps and toothpowder. I am a sales manager at Keppler India and we make soaps and other things like hair oils and health products. We are not among the big boys, but we make very good toilet soaps and, recently, we started making fancy face washes and liquid hand washes. We have been in fast-moving consumer goods (FMCG) for some 20 years. First, we were on our own as an Indian company, then, about 10 years ago, we married into a global name that allowed us to take the MNC tag. All was well until four years ago, when CB launched his soap, Raaga.

As an MNC, we didn't even notice Raaga. Some boys in the field would say: 'Raaga is picking up', and we, sales managers, would say: 'What is this Raaga-Shaaga? Tell us how Liril is doing, how Camay is doing...'. The stuff hit the fan when, early this year, Raaga picked up 11% of our central India sales. There was panic. 'What is Raaga,' went the cry. Then we heard about CB.

That was when that I wanted to know more about CB. I called up a few newspapers and magazines, but all they could give me was his telephone numbers (Oh no, CB did not use a cellphone.) But no information on the man. Then one day last week I was flying to Nagpur. At the airport, I saw this simple man dressed in trousers and a check shirt with a lot of people gathering around him. I discovered, to my dismay, that this was CB! I stood watching him for a while, then I went up to meet him. "I am Kapil Vats from Keppler India," I said. He shook my hand warmly and said: "How gracious of you to want to meet a man like me! Saab, I make a soap for the working class, what interest could you have in me?" I asked him if we could check in together so that we could sit on adjoining seats and talk. But CB was flying economy and I business class. Anyway, we found seats in economy and we spoke for the two hours it took us to reach Nagpur. And when I got off at Nagpur, I knew why Raaga was so successful. Let me share with you some 'CB truths'.

CB is making a lot of money but he is not greedy. He, too, looks at volume expansion and profits, but he will not opt for the price increase route. I had asked him if, after some new duty increases, he would take a price increase and he said in his own desi style of thinking: 'Saab, the consumer is buying because at this price, it is value for money. The very fact that the consumer is buying so much indicates that this price point is the best.

'Look at the way CB is operating and learn from that what makes him successful. He has no foreign travel. This is critical. And look at us, one parent company office, one regional office (that was a recent addition), and see how many times and how many people have gone overseas! Conferences, seminars, global quality standardisation - just see how many inane reasons we have travelled for. CB's managers have not gone overseas even to study what is happening there! He tells me: 'Kya karna hai, saab? Woh bhi sabun, yeh bhi sabun. Now to go and study how they are adding fragrances or why lavender is better than floral, why do I need to study them and their experiences when my consumers are here and their markets are here?'

Last year, we had a regional sales conference where we had 48 sales managers and heads conferring. So far so good. But I saw the expense book and found that the conference cost Rs 27 lakh, covering travel, hotel, taxi hire, (everyone wanted a Honda City, Why?) Then company product hampers worth Rs 500 per person as 'giveaways'. Then T-shirts were made and printed with ludicrous messages like 'Shooting Stars'.

Special leather folders were made with names embossed. And, finally, everyone was gifted a gold Cross pen. Why? Because we have exceeded our targets for the year! But in all this, we gave away all the profits! Do you see CB and Raaga soaps doing that?

Then, last year, we initiated that research on product quality with the intention of modifying the material we were using to see in what way we could improve quality yet reduce costs. But our research did not amount to much. If anything, it suggested substitution of expensive materials with less expensive ones, and the CEO came down on that heavily. CB won't do all this. This reminds me of what a friend in a foods company once did to make gulab jamuns. He pried open the gulab jamun and found that the halwai uses khoya, milk and what not. His research people said: 'Oh, all this is meaningless tedium, we will use milk powder; it reduces your formulation.' So they used milk powder and got something that looked beautiful and was a lot like the original gulab jamun. But it did not taste as good. So when you create formulations with the intent of reducing cost, you produce something that resembles the real thing, but at the end of all that, did he get a real gulab jamun or a lemon?

The problem is that here we are not willing to accept that. We refuse to admit that Raaga is doing a terrific job, the consumer likes it, it has a better delivery, it is demanded by retail, it holds its fragrance till the last drop, and the fact that it is a better soap. No sir. In every presentation, I hear this: 'Our quality is superior, we have small distribution glitches which sales must crack, the product is terrific, we will give competition a great run for their money.' But never do we address this question: 'Why is Raaga doing so well? Why has Silky (our soap) lost parts of the northern and western markets to Raaga? Is this due to distribution? What is so right about Raaga's distribution?'

When I asked CB if he would relook at the formulation to try and gear the costs, he was aghast: "Achcha chal raha hai... why go and tweak it? I have shown the consumer what I can give him. Now if I change that, won't he leave me? See, once you have allowed another brand to walk into your territory and take away your consumers, those consumers are not going to come back." By the way, CB is a college drop-out.

Suddenly a bell rang in my mind. A salesman who had once met him at a trade fair, said: "This man is a fanatic for product quality. He will never let his quality be altered." And I recall telling myself: "This is going to be the life script of this brand Raaga." So, CB is the kind of guy who will never tweak his quality, no matter what. If we improve our quality, you know what? He is likely to improve Raaga's quality much more!

Then it struck me about how we account and cost our products. We, at Keppler, have fancy management accounting concepts. There are so many charges that the head office allocates to us or the foreign office apportions to us. For example, we have a debit of Rs 8 lakh a month for global research benefits. Now, we may not even want those services, but we still get hit by a huge charge. And we have to work out our profitability after those hits. And these are charges not of demand but by compulsion! For example, last year the global sales director came to study Indian markets. Typically, we paid his travel bill, housed him in the Oberoi for a month, took him to see the Taj Mahal, etc. How much did it cost? Rs 23 lakh. We picked up the debit as hospitality costs! So there are so many things built into our costing structure which we have to make up and build in before we make a reasonable profit.

That puts a lot of pressure on us! So there is a global charge, a regional office charge, and so on. After we tied up with Keppler Worldwide, we got into this whole global organisation structure which involves business units, markets redefined according to synergy, etc., and then we ended up having a regional office also. CB has none of these!

Can't you see that we are victims of our sophisticated accounting practices? So we inherit fractions of the global costs, too, which we add on to our cost base. So, say, the Sweden office works on enterprise resource planning (ERP) and allows us the use of their methods and systems for which we are charged a debit. Now we have a regional office and these lifestyle costs, as I call it, perforce, make us charge premiums, else we won't make enough profits!

Essentially, the way CB reasons is: 'This money is mine, I put Rs 10 and made one cake of soap. I know at what price the consumer will buy. But if I want my consumer to buy it at that price, I can't decide to have five tubelights to one room, see?'. In our offices, we have international standards that define the optimal working area per person, 100 square feet, for example.

Within that, we also have rules that define the kind of lighting, etc. Then we want a pleasant working environment. So we put flowers here and there, potted plants, expensive paintings, tea has to be served thrice a day and it should be served in crockery of a given quality and there have to be biscuits in the afternoon, central airconditioning, stylish venetian blinds,... all lifestyle costs. If I want to sell to the consumer at Rs 8, knowing through research, that that is the optimal price he will pay, and if I want to take home Rs 2, then all this won't do. That is how CB will reason. If you say, 'We must have a water cooler', he will do a calculation on the spot and say: 'Yeh ghar mein nahin aata hai'.

The only trigger he is using is advertising. And even his advertising is not about warfare. It is directly addressing the consumer - exactly what advertising is meant to do! He will not waste airtime on beating down the rival. He is showing high-quality labs, scientists and white coats - all giving the precise sophisticated appeal that lends his product the aura of authenticity and research, which is what we do too. But, in his case, it is directly talking to the consumer.

We need see what makes CB successful. We don't have to wait till CB and his ilk have taken over half our markets! All these small operators are making subtle moves. So subtle that it is lost on our desensitised brains, brains that recognise only international achievements, progress and research. It never strikes us that the small Indian businessman is striving to make it big - even bigger than us. Nirma became a big success even as MNCs kept thinking: 'Oh no, this won't last. It's just a flash in the pan.' (Mercifully, we don't make detergents, nor do we have the clout that the big MNCs have.) Then they started making soaps and people said who will buy a soap named 'Nirma', especially when their detergent gives you an itch on the palms? Those were assumptions that MNCs make, completely ignoring that most of India is non-metro, non-affluent, and is not 'premium conscious'! If anything, most of India wants value for money and if palms itch, there is Boroline! Even now, we are in a state of denial, and that is what I find annoying. There are more Nirmas and Velvets and Cheks and Raagas which keep cropping up daily, yet we MNCs are denying their success. We keep saying: 'Oh no, they can't match the market.' Of course, they won't do so immediately! And neither do they start life with assumptions like ours or forecasts which, even while the product is on the drawing board, say: 'We will get 50% of the market'. They start small, pick up one market after another and when faith has built during our denial stage, they swoop down nationally, while we start with denial and then swing into panic. It is simpler to look at success factors in their profit management and learn from that.