People the FMCG market is by far one of the most competitive markets in the world.
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.
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.
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.
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.
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
and then wait for the customer's reaction.
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 from my side for today guys.
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