Why a new FMCG brand is going to need marketing muscle

Wednesday 24th, February 2016

All of India is agog watching and speculating over the next moves of a home-grown FMCG / CPG company called Patanjali Ayurved. The company manufactures a range of packaged foods, soaps, fragrances and numerous other products aimed squarely at home usage.

It is a battle that promises to be long and hard-fought. At stake is a huge market estimated at $35 billion in 2015. There are players who have been around for decades, several of them the Indian subsidiaries of multi-national giants such as Unilever, P&G, Nestle, ITC, Colgate and others. And then, there are the home-grown companies such as Emami, Dabur and others.

Food and household budgets

For most families, food is typically the second or third-largest item of household expenditure. Home rentals and transport are the other two big categories. It is estimated that an average household will spend anywhere between 15-25% of its income on groceries and food-related expenditure.

Inflation affects the food budget perhaps more than it does any other component of household expenditure. There is little or no scope for cutting down on food expendture without affecting the quality of life of the household.

The challenges for a new FMCG major

There are three broad challenges for any new company that wishes to enter this space.

1) Building scale and width/depth of product offerings

2) Positioning the brands or family of brands and creating adequate differentiation

3) Making the necessary marketing investments and being able to sustain them

Most entrants typically start with one or two product categories and then gradually expand their offering. The last major player to enter this category was ITC about fifteen years ago. The company was trying to diversify and reduce its dependence upon its core business of cigarettes. While ITC may be dismissed as an exception because of its parentage, distribution reach and its deep pockets, it is worth noting that success hasn’t come easy to the company. It has had to make significant marketing investments and leverage opportunities.

Defying conventional marketing thinking

The issue that has gripped the imagination of marketers everywhere is this. How can a company ostensibly based on the twin concepts of a healthy, Ayurveda-based lifestyle and attractive pricing become so successful? To be sure, other majors such as Dabur, Emami and others have also used the Ayurveda/natural wellness platform when necessary.

Aren’t marketers’ favourite buzzwords such as positioning, differentiation, brand proposition, effective communication no longer relevant?

Riding piggyback

So far, it would seem that the Patanjali brand has been able to generate trial and repeat purchase purely based on its endoresement by Baba Ramdev, the spiritual/yoga guru who is behind the venture. The Baba’s clout is immense; he has millions of followers who have been following his yoga and wellness programmes on TV for over a decade now.

In that sense, the Patanjali brand is a classic case of influencer-led marketing. it is not – and does not seem to aspire to be – a traditional FMCG company with glitzy packaging, film stars as models and imagery-oriented communication.

Its appeal is rather more honest and direct. It banks upon the timeless appeal of Ayurveda and how it resonates with the vast majority of Indians. And by delivering its products at an affordable price, it delights its consumers who are able to immediately perceive the savings on their budgets.

Can pricing continue to do the trick?

Patanjali is not the first time a company has gone to market solely on the basis of lower pricing compared to competition. In the mid-eighties, a challenger brand called Nirma took square aim at Unilever in the detergents category and enjoyed a run of success. Unilever fought back by reinforcing its brand, Surf’s value proposition with some of the most iconic advertising ever created in India.

As the competition hots up, it is quite likely that the various players may begin to review and adopt different segmentation approaches. One possible troublesome area for Patanjali could be that it is competing with numerous players across categories – this could make life difficult for the brand unless it finds a distinct value proposition.

The second question is whether the brand can ride on the Baba’s halo alone. It would seem that his loyal followers are early adopters of the brand and will continue to generate business for some time. However, the Baba’s appeal is mostly restricted to North India and the brand will have to do some serious thinking to enlarge his appeal across the country.

The final concern is what keeps every marketing head of a price challenger brand up at night. What if this perception of low price begins to translate into a perception of poor quality? Whether this will be a fact or not, it is easy for a competitor brand to plant such doubts with effective communication. And as the saying goes, perception is more effective than the real truth.

It wasn’t until about ten years ago that Patanjali began making its first forays into the manufacture of packaged food items. Growth was slow to begin with, but has picked up momentum particularly in the last couple of years. Most media reports say that the company will touch close to a billion dollars in turnover in 2016. That places it squarely alongside mid-market companies such as Emami.

The question is whether the company can sustain the breakneck momentum that it has begun to generate. So far, the company has largely relied on a direct distribution network that leverages its chain of Ayurveda centres, exclusive dealers and the like. It has also recently entered into a tie-up with a large retail chain which promises to extend its reach significantly.

As a growing brand, Patanjali’s moment of reckoning will come when it can figure out a way to keep its band of loyal customers within the fold. It is also going to have to work extra hard to prove the doomsayers wrong, that it is not a mere flash in the pan and that it has indeed magically figured out the pulse of what Indian consumers truly want.


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