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The case describes the building of a new brand of detergent, Nirma, by an Indian entrepreneur. His product, marketed in a revolutionary way, overtakes the long-time market leader, Hindustan Lever (HUL), the Indian subsidiary of Unilever now HUL, which had utterly failed to recognize the threat posed by Nirma. The realization forces HUL to alter its strategy and mindset in order to regain its market position. HUL ‘Surf’ a high class branded detergent had the monopoly till the year 1987, unless a huge setback came to the company when from nowhere a ‘LOW COST’ detergent NIRMA came into existence.
It mainly focused the lower income group which made it a regional brand and soon the popularity of surf started coming down. Later HUL filed a case against Nirma for infringement and ‘passing off’ of registered trademark and copyright of Surf on its own detergent brand. The case went on for 16 years with its final judgment made in June, 2013. The case provides an excellent vehicle through which to examine the key components of a ‘marketing strategy’.
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It also allows discussion on entrepreneurship, and how a new competitor can enter and dominate a market by taking advantage of complacency in multinational companies who rely on global brands that do not necessarily suit all markets. It is considered to be a classic case as it covers the strategy and main idea by which the two detergent companies competed with each other. After all it’s the idea which is sold in the market.
Hindustan Unilever Ltd. (HUL), a subsidiary of Great Britain’s Unilever PLC and widely considered the best managed company in India, has been a pioneer among MNCs exploring markets at the bottom of the pyramid. Founded in 1930 and based jointly in the Netherlands and the UK Unilever sold its products in approximately 150 countries. The first Lever product to be introduced in India was sunlight soap. This ‘foreign’ product was affordable and available to the British citizens in India but only to a small section of the Indian well-off urban population, thus setting a trend for the profile of clients that HUL would develop.
After a series of exclusively foreign managers, Prakash Tandon became the first Indian Director in 1951. By 1955 Unilever had a well-trained local taskforce with about 65% of all managers being Indian. HUL was among the first foreign subsidiaries to offer local managers company Indians equity. By the late 1970’s HUL had gained the reputation of being “a role model for companies that want to succeed in India” and was one of the most sought after places to work at in the country. Traditionally, Indians had used bars or tablets of soap to wash their clothes. HUL changed everything by introducing the revolutionary Surf washing powder in 1959. Surf was an immediate success and occupied the top spot in the national detergent market. Still, while the concept of a detergent was every Indian housewife’s solution to grueling hours of clothes washing, only a fraction of them could afford Surf. Bright blue in color and packaged in a large colorful carton Surf was too expensive for rural India. The rural poor could not afford Surf and so continued to use bars and clubs. Surf was expensive to begin with, and with the early 70’s came a rise in the price of crude oil and a massive increase in the cost of raw materials. Surf doubled in price from 1974–1975 and so became even more unreachable for the rural people.
Until about twenty years ago, the rural market of India was considered a homogenous mass. The decade of 1970s was a significant one for Hindustan Lever Ltd. (Now HUL), when the giant and undisputed market leader in detergents (Surf) in India suffered significant losses at the hands of a new and small firm, Nirma Chemicals. In 1969, Karsanbhai Patel, a chemist at the Gujarat Government's Department of Mining and Geology manufactured phosphate free Synthetic Detergent Powder, and started selling it locally. The new yellow powder was priced at Rs. 3. 50 per kg, at a time when HUL’s Surf was priced at Rs 15. Soon, there was a huge demand for Nirma in Ruppur (Gujarat), Patel’s hometown. He started packing the formulation in a 10x10ft room in his house. He packed his product in small pouches with neither colourful decorations nor designs. Every morning Patel got onto his bicycle and went from door-to-door selling his washing powder. Soon wholesalers and distributors from different neighbourhoods, towns, cities and states of India started arriving at Patel’s doorstep to buy and redistribute the powder. Patel named the powder as Nirma, after his daughter Nirupama. Patel took on no responsibility for delivery or distribution; but his product was soon available at every corner of India. Once Nirma arrived on the rural market things changed for India’s poor – they had an option. By 1977 Nirma was the second largest volume seller in the country. Nirma was the lowest- priced branded washing powder available in grocery stores. The middle-class housewife was happy as she could now choose a lower-priced washing powder against Surf, which was beyond her budget. Nirma also had an impact on upper-middle-class and higher income families, who chose Nirma for washing their inexpensive clothes. Despite this, no other company took Nirma seriously. The marketing gurus of the world believed that Nirma was a regional product that was seeing temporary success and that its bubble would soon burst. They predicted that at such a low sale price, the margins Patel was making per unit would not sustain his business for long.
Moreover, HUL completely ignored Nirma and believed that it was no threat at all. HUL considered themselves a superior company with a superior brand, and there was a strong belief that the only clients worthwhile pursuing were the Indian middle class and elite. Since Nirma was not in their market segment, HUL did not consider them a threat. The general belief was that rural Indians were poor and the rural sector was too disorganized to bother with.
The war of bubblesWhile it may seem that Nirma was of inferior quality, housewives of rural India were not objecting. Patel’s product was in high demand. At one-third the price, as long as Nirma washed almost as well as Surf, the consumers did not mind. Going from 0% of the market share in 1976 to 61. 6% of market share in 1987 Nirma had pushed HUL from the top spot. At the same time, until 1989, Surf remained between 2. 5 to 3. 6 times as expensive as Nirma.
HUL was astounded by the growth of Nirma. HUL had a very clearly defined idea of what the specific ingredients of a detergent should be and what ratio they should be mixed in. According to HUL, Nirma was a low quality product. HUL commented that Nirma did not contain any whitening ingredient, had insufficient active detergent, had no perfume and was rough on the skin. The rate of growth of Nirma is astounding. By 1984, Nirma occupied the position of No. 1 brand in Asia leaving Surf far behind. Everybody was shocked, most of all HUL. The key question is: how was Patel able to achieve such tremendous success in an arena that had been dominated by HUL for so many years? Patel’s response to this was that he saw an opportunity where others had not bothered to look. He said, “I found a massive market segment that was hungry for a good-quality product at an affordable price…so I decided to keep my margins very low, and was happy if I could net between three and 5%… profits really came from the huge volumes we generated. ” Patel was a genius to have recognized the opportunity provided by this rural market and he was able to successfully give them the product that they wanted at the price that they wanted.
In 1986 Nirma started testing a new detergent bar that would be directly marketed as a challenge to Rin, HUL’s leading and most profitable detergent bar at the time. At this point HUL recognized that it was not just a question of Surf, Nirma was systematically undermining HUL’s dominance in the industry and for the first time HUL got a glimpse of what could be the ‘beginning of the end’ of their detergent business. It was time for HUL to react. HUL introduces Wheel in 1986. In 1987 Project STING (Strategy To Inhibit Nirma’s Growth) was formed for top HUL managers to develop a strategy to inhibit the growth of Nirma and regain the leadership of the detergent industry. The first goal of Project STING was to understand the Nirma business model and determine how Nirma had become so successful. Following this, HUL would have to evaluate its performance and rethink the HUL strategy in order to effectively compete with Nirma and also to overtake them. Entering rural India would be a costly experiment for HUL if the new product failed; however, if it were a success, Unilever would be the MNC that led the way into the Tier 3 market. This would give it an additional advantage in the other developing markets where it did business. At the same time the Indian government was opening up its doors and with liberalization around the corner HUL was well aware that they would soon be faced with even more competition. The positive side of these deregulation policies was that HUL would now face far fewer constraints on output volume and taxes and could be more competitive in terms of price.
In 1991 HUL, filed a case against Nirma for infringement and "passing off" of the registered trademark and copyright of Surf on its own detergent brand. An industry analyst explained that the close resemblance to Surf's packaging caused many consumers, especially rural and illiterate customers, to confuse the two brands. As Nirma products are priced lower than HUL's fast-selling detergent Surf, sources said the similarity in trademarks caused Nirma to eat into Surf's sales.
The Bombay High Court had granted an injunction restraining Nirma from using the Super Nirma label with the "star device/flash of star" in 1991. Subsequently, this order was stayed because both parties filed appeals.
In 2006, both parties withdrew their appeals mainly on the basis of Nirma informing the court that it was not using the impugned label/carton. Since then, Nirma has used a sea wave logo on its Super Nirma detergent powder packets and a girl with a blue circle in the background on its packets. In June 2013, the court allowed HUL to withdraw the suit with leave to file a fresh one if Nirma uses the impugned label in future for its goods. An e-mail questionnaire to the Nirma spokesperson did not elicit a response.
On 9 September, 1991 the Bombay High Court benched by D Dhanuka passed the first judgment of the case filed by HUL. The judgment consisted of 34 points. Then, there were hearings in 2006 and 2013 as well. Finally, after a bitter battle for 16 years, India's largest fast-moving consumer goods (FMCG) company, Hindustan Unilever (HUL), and its arch rival Nirma have reached an out-of-court settlement over the latter using a trademark similar to HUL's power brand, Surf. In a settlement ratified by the court last week, Nirma had undertaken not to use a packaging device " known as a starburst " similar to HUL's Surf, sources close to the development said.
While Surf has moved on to higher price points, Nirma has maintained lower prices. However, the resulting price war for greater market share between the two companies has continued. HUL today claims a market share of 36. 4 per cent in the fabric wash segment. Both companies are facing tough competition from local and regional brands, which have gained significant market share in the last few years.
First of all, that HUL is a private company and their relationships with the Indian government are as minimal as is possible. It is their philosophy that the Indian bloated bureaucracy will only hinder their progress in developing tier three markets. More interestingly, HUL has not partnered with the government in micro lending projects in rural India. Thus while HUL shuns public-private partnerships, their commitment to India and to the Indian poor is obvious. One of the fears when any multinational develops enterprises in a country is that it will have too much power. HUL is a large company, one of the largest in India, so its political clout could be a problem. On the other hand, there is much to be learned from this narrative about localising rather than exploiting new market opportunities. Unlike some divisions of MNCs, HUL develops products for the Indian market, it is Indian managed and partly Indian owned. Yes, HUL is a profitable company. It is profitable with low-margin products because of volume, stream-lined production, and careful handling of distribution costs. But if it was not profitable, this market would be underserved, so profitability is not a negative.
HUL has carried out a commitment to making indigenous products for the third tier Indian market, and producing these products in India. In doing so, HUL has created a replicable model. During the Asian economic crisis, Unilever moved to making smaller-quantity products to encourage people to continue purchasing. Unilever claims they came out the other side of the crisis stronger as a result. It is in HUL’s long-term interest and the long-term interests of India to continue this model. Other companies would do well to follow suit.
Analysis Of Case Study: Hindustan Lever Ltd. Vs. NIRMA Pvt. Ltd.. (2024, Feb 18). Retrieved from https://studymoose.com/analysis-of-case-study-hindustan-lever-ltd-vs-nirma-pvt-ltd-essay
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