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FMCG

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FMCG

Revolutionary idea which change FMCG market

My name is gauhar ali today , we will discuss about FMCG

People the FMCG market is by far one of the most competitive

markets in the world.

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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.

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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.

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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.

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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.

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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

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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

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