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Ivory tower theories are rethinking their business
basics-thanks to Karsanbhai K.Patel. Taking on the might of a
multinational, his-priced detergent Nirma captured a majority market
share arresting the sales and growth of a consumer giant’s
upmarket brand. Patel now has to chalk out a strategy that’ll
help him keep the competitive edge.
Among the greatest
success stories in the annals of marketing management in India is
that of a low-priced detergent of reasonably good quality which, in
the course of a mere decade, put the skids on a product that was
considered the pride of a powerful multi-national.
The story of Nirma, has
become a classic as a marketing case-study. And the story of its
progenitor is as genuine and romantic a tale of rags-to-riches as one
could hope to find anywhere.
One of the basic axioms
of management is to avoid a head-on confrontation with a giant
multi-national, especially one which is the undisputed leader in its
field. Karsanbhai Khodidas Patel, a one-time government servant,
chose to buck these grandiose theories, and took on the might of
Hindustan Lever with his puny homespun outfit. In this one respect,
his case can be compared to those of Henry Ford and Apple in the USA,
and Sony and Honda and Honda in Japan, all maverick entrepreneurs who
built their empire on gut feeling rather than following the classical
pattern taught in business schools.
To look at the
48-year-old Karsanbhai, one would hardly believe that he is the head
of, and the sole brain behind, an industrial empire that is today
within a heartbeat of crossing the magical Rs.1,000 crore mark. The
round, bespectacled face, the great shining pate with a crescent-moon
of hair on its fringe, and the simple white cotton shirt are typical
of thousands of middle-class people who commute daily between their
modest homes in the suburbs and their modest homes in the suburbs and
their places or work in the city.
But this is not your
ordinary, run-of-the-mill blue collar worker. A closer look at his
steely eyes and the determined set of his jaw will assure you that
this is s self-made man whose ambition is far from having run its
course. I want to be the biggest among Indian businessmen, he has
repeatedly told the few journalists whom he has consented to give
interviews to.
For Karsanbhai is
reclusive to the point of being unapproachable to the media. A faxed
request for an interview is replied to on his behalf by one of the
minions with a standard expression of regret; and signed Nirma not
Patel. To more persistent newsmen who mange to pass through his
filters, he pleads the rigors of a 12-hour working day that starts
when he leaves home at seven in the morning, and is punctuated by
visits to all his plants in Ahmedabad. But, to a scribe finally
admitted into his presence, he proves as friendly as he is with
workers on his shop floor with whom he must have daily chats.
For all his wealth today,
there is nothing at all of the nouveau-riche about him. His office,
too is reminiscent of that belonging to a typical small Gujarati
businessman. Photographers of Hindu gods and goddesses seem to be all
over, though he insists he is not overtly religious. Nor is he a
socialite. Parties bore me, and I find it hard to stay out late at
night, he explains. My main source of relaxation after a hard day’s
work is to watch a Hindi movie on the video.
It is a long, hard road
that Karsanbhai has trudged to get where he has. It was partly
economic adversity that first turned his thoughts to a part-time
entrepreneurship in 1968. I was a chemist with the Gujarat Minerals
Development Corporation, and had to work in a dingly, ill-equipped
laboratory in Ahmedabad, he reminisces. The work was dull and my
salary of Rs.400/- was grossly insufficient to take care of all my
expenses. I decided I had to do something on the side to bring some
additional money.
It was during experiments
in his kitchen that his knowledge of chemicals enabled him to concoct
an effective detergent which was inexpensive enough to allow him to
sell it to his neighbour’s for a small profit. He called the
turmeric yellow powder Nirma after his then one-year-old daughter,
Niranjana, who was affectionately known to everyone as Nirma (she was
to tragically die at the age of 20 in October, 1987 in a car
accident).
For harried housewives,
struggling to balance their monthly budgets, the product came as a
boom. It was much cheaper than Surf, which had already gone well out
of their reach; and it washed clothes nearly as well. Its cleansing
power was far superior to that of the slabs of cheap washing soaps
that had been their sole alternative until then. As word-of-mouth
spread, Karsanbhai got more and more customers to whom he effected
his deliveries on foot.
That one-man cottage
industry, which used neither motive power nor sophisticated
machinery, was to metamorphose over the years into an empire that is
today estimated to have a sales turnover of nearly Rs.1000 crore. The
main who used to heft his product on his own shoulders and make
deliveries on foot today employs more than 14,000 people in his
empire.
I found a massive market
segment that was hungry for a good-quality product at an affordable
price, he recalls. So I decided to keep my margins very low, and was
happy if I could net between three and fiver percent. His profits
really came from the huge volumes he generated.
Karsanbhai believed
strongly in the time-honoured Coco Cola maxim that his product should
be available within an arm’s length of desire. So he
concentrated on widening his distribution network; and Nirma began
surfacing all over Gujarat, in scruffy little shops in even the
remotest villages. As the product’s fame spread, agents from
all over the country began writing in, and expressing their
willingness to operate on the tiny margins that the businessman gave.
As televisions reach
spread in India during the late 1970s so too did Nirma’s. the
little girl on the pack became a symbol that was almost generic with
a good quality, low-priced detergent. A catchy jungle hammered home
the message to millions of housewives. It was as if a down market
consumer revolution had taken off.
By the early 1980s the
burgeoning sales of Nirma reached a rate of growth that was twice or
thrice that of the industry in general. Moreover, Nirma operated in
the small-scale sector and, therefore saved an enormous amount of
excise duty that multinationals had to pay on every kilo of detergent
produced. The latter simply could not hope to bring the price down
to a level that was attractive enough for the middle and lower-middle
classes, which were the bulks segments for Nirma sales.
Nirma’s inexorable
march has been arrested to some extent in the course of the last one
year, though its growth rate remains higher than that of the rest of
the washing soaps industry. In detergent powder and cake, my market
share would be around 65 percent claims Karsanbhai, who is very fond
of comparing and contracting his own sales figures with those of his
major rival.
The industry has been
growing at the rate of 15 per cent annually while Nirma’s growth
has been at least 30-35 per cent a year for the last few years. In
any case, I am not after anyone else’s market share. My products
have always succeeded in expanding the very size of the market
segment in which they are slotted.
Even today, after Nirma
price has gone up with inflation and rising production costs, the
yellow detergent still retails at around Rs.12.50 per kilo in Bombay.
Even the second product
that Karsanbhai introduced-a low-priced toilet soap, which he
thoroughly test marketed in Gujarat before going national with it in
1990-hs been faring well. Nirma toilet soap retails at a mere Rs.2/-
with the shopkeeper allowed to retain 25 paisa behind each cake sold.
The Nirma name itself was a guarantee of quality for the consumer
smiles the businessman. It found ready acceptance.
As he had done with Nirma
detergent, Karsanbhai did not start up a media assault until his
entire distribution network had the product in place. We advertise
only after we have launched a product in place.
We advertise only after
we have launched a product, he says wisely. Nothing can be more
irritating for a customer than to see a product advertised, and then
find it has not reached his grocer. Advertising just tells people
that a product is available. After that, the product has to stand on
its own feet on quality and price.
A toothpaste, which
Karsanbhai claims has been developed with indigenous technology, is
next in the pipeline, but has already taken nearly four years on the
drawing board.
Of late, Karsanbhai had
encountered several other problems that promise to try his managerial
skills to the utmost. One is the fact that his size has expanded so
much that he is deemed to be a public limited company. That status
will deprive his products of their edge in price, because they will
be gathered into the excise net.
The intrepid entrepreneur
also faces intense competition from the small sectors, which was his
initial launch-pad. Inspired by the success of Nirma, there are
literally hundreds of soap-makers, who have made Ahmedabad the
detergent capital of the country. Since transportation costs are a
very crucial part of the costings in a low-priced detergent, many
manufacturers are locating their factories as close as possible to
their eventual sales points so as to save on transport costs. Nirma
could well lose out soon on its best Unique Selling
Proposition-price.
Another problem is that
the sheer size of his operations makes it difficult for Karsanbhai to
maintain the highly centeralized style of running that has always
been characteristic of Nirma. For an enterprise that is today
competing with Godrej for the accolade of the largest privately-owned
business in India, Nirma has an exceedingly toplight management
structure, with barely 200 managers handling the huge 14,000 strong
work force. Decision-making is restricted to a handful of top people.
Karsanbhai pooh-poohs the
suggestion that this centralized and paternalistic manner of running
such a huge operation could damage his organization. If prefer to
keep in touch with things directly, he maintains. I have always
disliked having to rely on reports to know what is happening in the
field and on the shop floor. By being in contact with the people on
the spot you can also take decisions on the spot. Of course, as a
company grows and expands outside its base, it needs more managers.
But we have a pretty competent team already.
It is some achievement
that, despite the size of Nirma Chemical works, Karsanbhai has
managed to keep it a private limited company. He has been talking for
the last five years of going public but has been postponing doing it,
one pretext or another. If I can generate the funds from internal
accruals and private borrowings, why should I hurry about going
public? he demands.
And there the matter
stands. But if he does proceed with what remains only a nebulous idea
at the back of his mind, this could be one issue that the public will
rush for, and which could well set up a new record for
oversubscription. For Karsanbhai Khodidas Patel has become something
of a cult figure in the Gujarati community, next only to Dhirubhai
Ambani, as a sort of benchmark for every aspiring entrepreneur to aim
at.
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