In the last six months, several fast moving consumer goods (FMCG) companies across categories have launched either smaller product packs, stock keeping units (SKU) in marketing parlance, or affordable versions of their premium products in a market impacted by weakening sales and low consumer confidence. For instance, FMCG giant Hindustan Unilever Ltd (HUL) has launched a R3 sachet of its premium haircare brand, Tresemm, apart from pushing a new 50g bar of its Dove soap for R22. PepsiCo India, on the other hand, is selling a powder version of its premium juice brand Tropicana in sachets for R10 in select markets including Mumbai, Chennai, Pune and Bangalore. Interestingly, Pepsi also retails smaller pack sizes of flavoured variants of Quaker Oats at Rs 10. Similarly, JK Helene Curtis Ltd, part of Raymond Group, has launched a smaller variant of its premium deodorant brand Park Avenue, 40 ml at R59. Next, Parle Products sells its premium biscuit brand Hide & Seek Bourbon (44.5 gm) for R5 and Hide & Seek (25 gm) biscuits for R5. Meanwhile, chocolate company Cadbury too is pushing its R5 pack of cookie brand Oreo. Nestle India on the other side is selling premium chocolate Alpino in a pack of two bonbons for R25.
Rajat Wahi, partner, consumer and retail, at management consulting firm KPMG in India says that the main reason behind the sudden spur in launching smaller SKUs or affordable products is a weak economy. The main idea is to reduce unit price with the launch of small SKUs/ affordable range of products. This, in turn, also helps in attracting first-time consumers as most of the time consumers hesitate to buy a new product in bulk but are ready to try them in small packs. Secondly, as getting into rural markets turns into a serious play, to make a dent in these markets, companies need to create pack sizes that a rural consumer will be more than willing to buy. For example, when I went to Chennai recently I saw kirana shops selling single packs of diaper brands such as Mamy Poko Pants and Pampers. Companies first entice a customer to buy one packet first and then get her glued to the brand, said Wahi.
Rohit Ohri, executive chairman, Dentsu India Group calls this trend mass-premiumisation of goods. Hyundai Motors' newly launched hatchback, the Grand i10, is a classic example, as the car is affordable yet comes with many features that one would usually find in a premium car. The motive is to make the product affordable yet maintain the premium factor, said Ohri.
Making a consumer buy a relatively expensive product is always difficult, and in the midst of an economic downturn when consumers curtail discretionary spending, it is all the more tough thus forcing brands to look at alternative solutions. It is here that smaller pack sizes or affordable products play a key role in enticing the consumer. For instance, a customer may not buy a one litre pack of premium juice brand Tropicana for R110 but she is sure to buy the powder version of the same brand which is sold in a sachet for R10. Similar is the case with other products such as diapers which still remain an alien concept for many Indians. A consumer living in a small town may hesitate to buy a big bag of diapers but would not mind buying a single pack of Huggies diapers for R1.
Small packs help consumers to buy on need basis rather than spending a big amount while buying in bulk. Additionally, it also helps in fulfilling pent-up demands. For example, a customer may be inclined to buy a particular product but the premium price tag may have kept her away. The small pack changes the rules of the game, driving sales. For example, in the '80s when Cavin Kare launched sachets of Chic shampoo, the move created a big dent in the market. The rest of the players soon followed, said Ankur Bisen, vice-president, retail, Technopak Advisors, a management consulting firm.
For the consumer, there is an added advantage in buying small packs. Harish Bijoor, CEO of
Harish Bijoor Consults, says that with small packs there is less chance of wastage. A customer neither under-uses nor over-uses a small pack.
Affordability plays a huge role in the entire game plan of launching smaller SKUs. Ultimately the motive is that it should not pinch the customer's pocket while buying the smaller version, therefore the smaller variants are usually priced lower than the regular size. It is not about launching cheap products, rather affordable products. These products carry the same brand ethos, it is just that companies are now giving more options to consumers, added Ohri.
Interestingly, this is a global phenomenon. In September, Apple launched an affordable variant of iPhone5Capart from launching the regular version, 5S. The 5C came for only $100 if you signed up with a telecom operator in the US, and for about $550 without a contract. At a time when Apples sales in markets such as Russia, India and China is declining with the iconic brand losing to low-cost phones made by domestic companies in these respective countries, the objective behind launching the affordable iPhone 5C is clear: Broaden the consumer base by attracting the type of overseas customers who weren't too happy with the price tags attached to the older models. Remember, the iPhone 5 was launched in India last year at R50,000 and found new takers. Apple isn't the longer ranger in this battlefield. In May this year, mobile handset maker Samsung India too launched its cheapest Galaxy series phone 'Star' priced at R5,240. Last month, luxury car maker BMW surprised the Indian consumer with the launch of its new 1-series compact hatchback at a starting price of R20.90 lakh for the base petrol variant.
In fact, in the smartphone category, Samsung's strategy to launch affordable handsets has paid off so well that the company is the market leader in the category with 31.9% market share in the second quarter of 2013 as per Cyber Media Research. Hot on the heels are domestic handset manufacturers Micromax with 22.7% market share and Karbonn with 10.6% market share. According to Warsi of Samsung India, the idea is to provide a rich user experience through affordable smartphones. If the user experience is very enriching then there is a high chance that the consumer will stay with the brand.
However, when it comes to electronic items such as mobile handsets or even in the case of four-wheelers, the rules of the game change. Even as these products are launched at an affordable price, the cost still remains high. Therefore, a customer weighs various options available to her before investing in one particular brand. According to Wahi, economic sentiments do play a significant role in driving consumption in categories such as cars, mobile handsets, consumer goods, etc. Companies, therefore, launch various schemes such as buy backs, cash back offers, easy equated monthly installment schemes, etc., to lure consumers.
These offers play a significant role in luring consumers, especially in markets such as India where unlike that in the West, mobile service providers are not actively involved in selling mobile handsets.
This kind of strategy helps in maneuvering the buying decision as consumers also advance their purchase decisions depending on the offer, said Asim Warsi, vice president, sales, mobile business, Samsung India.
Widening the customer base
With the introduction of small packs or affordable range of products, brands have been able to widen the customer base through newer markets, as this strategy attracts many one-time buyers. This strategy helps in transforming the situation from no shopper to a small number of shoppers who with time can actually turn into serious shoppers, especially in case of categories such as deodorants and diapers, said Wahi of KPMG in India.
When JK Helene Curtis decided to launch a smaller pack size of its premium deodorant brand Park Avenue, the objective was to move beyond the urban markets.
The new SKUs have been launched in tier three and tier four towns. Park Avenue has always been a premium brand. So with the launch of new pack sizes we wanted to widen the base of our consumers, said Anil Kulkarni, business director, JK Helene Curtis.
Pravin Kulkarni, general manager, marketing, Parle Products says that the companys decision to launch smaller SKUs for its premium biscuit range Hide & Seek has helped in creating new markets in states such as Uttar Pradesh and Bihar. Typically the consumer base for Hide & Seek range of biscuits was SEC A and B. We wanted consumers belonging to SEC B-plus to also try out the biscuit range and hence we introduced the small packs for R 5, explained Kulkarni.
In an email response, PepsiCo Indias spokesperson said, At PepsiCo, it is our constant endeavour to innovate and diversify our portfolio, not just through new products and variants but also through introduction of new SKUs according to the evolving consumer needs. In line with this strategy, we offer choices at different price points, to expand our consumer base, drive penetration and in-home consumption.
While in urban cities, modern retail is the most preferred way to sell products, in case of small towns and cities, the smaller SKUs are mainly distributed through kirana shops or mom-and-pop stores and even small roadside hole-in-the-wall outlets selling paan and cigarettes. Wahi says that this move helps in increasing sales, especially in case of low penetration products such as deodorants and diapers. Kulkarni of JK Helene Curtis calls deodorants a relatively young category with low penetration. While Park Avenue deodorants is present across the country, in order to drive sales of these small packs it is essential to be present in smaller outlets which a customer might visit at least once a day to buy knick-knacks, said Kulkarni.
Kishore Biyani, managing director, Future Retail Ltd, too says that modern retail is not the right route for distributing small packs. Modern retail mainly deals with bulk products, he said.
With a new set of consumers and new markets, the stage could be set for brands to write a new growth story. In case of FMCG categories such as biscuits which has witnessed sales growth rates falling from 15% to 5% in the last one and a half year or deodorants which also has seen a decline from 30% to 18% in the past year, the smaller SKUs play a crucial role in boosting the sales figures.
In the last few years, much of the growth that has come in the FMCG sector is value driven, through price increases. However with new variants coming up, the scenario could be different now. In fact, for a few players, the situation has already altered.
Interestingly, the new consumer base now accounts for 10-15% of overall sales of Hide & Seek range of biscuits. The other thing about the small packs is that as they are easy to carry, the youth prefer buying these packs and then snacking on them, added Kulkarni of Parle Products.
Even as companies introduce cheaper versions of their premium products in the form of smaller SKUs, are they not compromising on the experience of owning a premium brand No, says Bijoor. When premium brands try to reach out to a consumer in an affordable manner, they do it in such a manner that it does not appear to be cheap. The consumer always aspires to own a premium brand and when she is able to actually buy one, it becomes a style statement. The smaller pack allows her to flaunt the brand, he added.
Warsi of Samsung India goes on to say that it ultimately is all about the experience. A great experience will always bring a customer back to the brand, he added.
If initially the idea was to test the waters before taking a plunge, introducing smaller pack sizes/affordable range of products has now become a serious part of the marketing strategy. This is no longer a short-term strategy but a well-thought out one and is here to stay. If it helps in addressing the losses of companies, it also helps consumers to plan their expenditure in uncertain times. It is a win-win situa-tion for both the parties, said Bisen of Technopak Advisors.