5 Samurai, Samanvay 2013

Shyam’s Conundrum

Shyam Malhotra, General Manager (Operations) and the de facto CEO of New India Cosmetics (NIC),

a subsidiary of the Rs.1000 crores Binjosoft group of companies was waiting for the elevator to take

him from his office to the conference room on the 10th floor of Binjosoft House, the group’s

headquarters in central Mumbai. He was a troubled man, unsure of where his company stood in the

matrix of the group’s business priorities. There had been many moments during his three years at

NIC when he had wondered whether the company was moving forward or backward. As he joined

the members of his core team for the strategy session, Shyam was thinking furiously.

Binjosoft had several business interests, chief among them being liquor (Exhibit 1). But while the

liquor business generated cash, it also ran several risks. For starters, prohibition was a constant

threat: the ban on liquor sales in Andhra Pradesh was expected to make a 10 percent dent in

revenues. If more states followed suit as Haryana had, this key business would dry up. Secondly, the

post-liberalisation attack from transnationals - some of whom had joined hands with local partners

while others, like Seagram, had set up fully-owned subsidiaries wouldn’t be easy to beat back. In

fact, Binjosoft was actually getting feelers from some of these competitors exploring possibilities for

a relationship, including a proposal for a takeover. So, though liquor was brewing cash for Binjosoft,

diversification seemed logical. Therefore, despite the liquor division remaining a priority business,

the group had chosen to invest in other money-spinning business as a hedge against the risks faced

by its core business.

That was why Binjosoft had taken over NIC- an old and established cosmetics company with

manufacturing facilities at Aurangabad (Maharashtra) - in April 1992. Its product range consisted of

Bharat, an ethnic ayurvedic, medium-priced soap with a small but viable niche in the market; Herb, a

herbal toothpaste; Wash, a detergent powder; and two other brands of toilet soap named Sparkle

and Bonjour. Despite an image of quality among sections of the trade, few of the brands had a

significant market presence. The only exceptions were Bharat and Herb, which had managed to

acquire some equity after the takeover by Binjosoft (Exhibit 2).

Worse, Shyam and his teams were handicapped on several fronts. Advertising and promotional

support from the parent group was erratic, while competitors like Youngistan Lever and Droctor &

Samble were splurging money on advertising and dealer promotions to keep their brands exciting

and alive. NIC’s products had no top-of-the mind awareness among consumers. Moreover, the

Aurangabad works were plagued by frequent strikes and go-slows. But the real worry was that

Nishant Patel, Binjosoft’s chairman to whom Shyam reported directly was blowing hot and cold on

the issue of NIC. On the one hand, Patel considered NIC an opportunity to get into mainstream

businesses. On the other, he could hardly relegate his cash cow to the sidelines. In fact, Patel’s

intentions vis-a-vis NIC were a big question mark to most of his managers including NIC’s top

management.

The others present at the meeting were Pradip Ram, deputy general manager (marketing); Sunder

Sameer, manager (marketing research); Avinash Bhattacharya, manager (sales); and Rajan Anil, a

5 Samurai, Samanvay 2013

friend of Shyam’s who worked for NIC’s advertising agency. Shyam set the ball rolling by announcing

that NIC should not only launch new products, but also enter new product categories. “How do we

go about it? Where do we get the cash from? I have a solution,” he said. “Let’s purge the weaklings-

Wash, Bonjour and Sparkle from our portfolio, leaving just Bharat and Herb. Let’s sell the excess

capacity. That will give us the cash. And let’s use the voluntary retirement scheme route to become

leaner and cut costs. Simultaneously, let’s focus on improving our turnover and margins from Bharat

and Herb. We can then use the surplus cash for new products and product categories. How does

that sound?”

There was pin drop silence. Don’t be polite,” said Shyam. “Go ahead and punch holes into this

strategy by all means.” Ram was the first to react. “What makes you think that the excess capacity

can be sold off easily and that manpower can be reduced? We might simply end up with a

protracted labour problem with on our hands, particularly if the work force comes to know of our

long term strategy.” “I’m convinced it will work,” replied Shyam. “And so is Agarwal in personnel,

with whom I have informally discussed the issue. He assures me that he can handle it. Look, nearly

half the labour force is contractual. It’s perfectly within the law to send them home after giving die

notice. All that’s needed, as a prerequisite, is a proper work study to enable us to decide what the

strength of our workforce should actually be. So why don’t we look at the marketing issues?”

“Fine. Let’s talk products first and come back to people later,” said Ram, “Bharat is considered a

medium-priced, ayurvedic, and ethnic soap. It has a direct competitor in Kandrika, whose markets

are pockets of south India, and in Fedimix, which hasn’t really taken away our sales. Ooty candal and

Mantoor are the other competitors, but neither is an ayurvedic product. But the fact is that even

after 10 years, Bharat is struck in a groove with a flat market share (Exhibit 3). So, how do you expect

Bharat to suddenly start generating surplus cash, Shyam?”

“But we haven’t promoted Bharat aggressively,” countered Shyam. “If we increase the advertising

and promotion budgets.” “But where’s the money?” broke in Bhattacharya. “The chairman keeps

vacillating where promoting NIC products is concerned. We have to generate revenues internally

before splurging on advertising and promotion.” “That’s where the proposed surgery comes in,” said

Ram. “Sell off unviable brands and capacities, control the labour front and you have cash.

Destruction precedes construction, or so it seems.”

“I don’t know if it’s that dramatic, but substantially you’re quite right,” Shyam remarked. “Why don’t

you do the restructuring first and plan the expansion later?” asked Anil, with a tinge of mockery.

“Implement your surgery strategy, and check the results. If they’re gratifying enough, we can meet

again to discuss all those great soaps and toothpastes that you want to launch.” Shyam smiled and

said: “Anil, don’t forget we’re old hands. We know when something will work and when it won’t. I

know I can make this work.” Asked Anil, “So what are the new products you are looking at?” “Hang

on,” the normally reticent Sameer intervened. “Don’t you think we should consider the feasibility of

strengthening the existing brands?” “The point is well-taken,” said Shyam. “Ram, will you give us a

rundown on the current status of each brand?”

“Let’s start with soaps,” said Ram. “We tried some very novel positioning with Bharat, Sparkle, and

Bonjour. It didn’t work. I honestly have no clue why. It could be because of erratic supplies from the

5 Samurai, Samanvay 2013

factory. It could be because of the lack of adequate promotion. Anyway, Bharat is our bread and

butter. Sparkle is a high-priced soap which is languishing. As for detergents, we never gave Wash

enough attention. There simply wasn’t enough money to spend on so many brands. Herbs have gone

down well with consumers because of its associations, and it continues to occupy a niche in the

highly competitive toothpaste market. Bonjour is half-dead. I see no signs of revival here. That about

sums it up.”

“Can’t we strengthen Sparkle?” asked Sameer. “We could,” said Shyam. “Perhaps by trying

something new in the communication. Any suggestions, Anil?” ”One way to get a high-priced

product like Sparkle to click,” said Anil, “is to pitch it on elitism. There are two ways. Get an

endorsement from a celebrity who is identified with élan. Or highlight the association of the

product, or even some of its ingredients, with class”. “That’s easier said than done,” said Ram. “All

these niches have been occupied. The beauty platform has soaps like Tux. And not all celebrity

endorsements work. Remember Crowing Glory? I think the more important point is: what’s new in

the product offer?” “Well, that shouldn’t be difficult,” said Shyam. “Why don’t we say that Sparkle is

probably the only soap which retains freshness all day long. That’s a fact in any case. Sparkle is now

on a refreshing soap platform. Why don’t we sell it on the all-day freshness platform?” “You could

have a problem there,” Anil cut in quickly. “Freshness is very broad platform and all soaps-starting

with good old Bifeluoy- are offering just that. All day freshness doesn’t sound terribly different.”

“In other words, we must think beyond premium soaps,” said Shyam slowly. “Let’s look at

detergents. Sameer, what does the market research say?” “Price is more important than quality to

the housewife. That’s been proved time and again by Mirna and Sheel” answered Sameer. “And

there’s no money to be made at the top end. Sariel and Turf Pexcel just didn’t make money, forcing

low-priced extensions like Sariel Super and Tin White. The simple question is: can we sell a detergent

powder cheaper than Mirna or better than Sariel Super? Don’t forget, the flanks have already been

covered by brands like Bhudh and Chenko,” (Exhibit 4).

That seems to settle the matter. “And toothpastes are no different,” Sameer continued

remorselessly. “The only way to succeed here is by making a lot of noise in the media. Remember

Open-Up and the money Lever spent on selling the concept of gel toothpaste? The high end seems

to have converted to gel toothpastes. Goalgate is a medium-priced toothpaste. So you cannot price

your toothpaste too high unless there’s something distinct about the product. Tabool covers the

lower end, but interest in it seems to have waned. What seems to matter there is a completely new

idea-like Cromise’s clove oil. If you think of an earthshaking product concept, then launch it.

Otherwise, the money will be better managed by our treasury department.” (Exhibit 5).

“So why don’t you give us an earthshaking idea for a toothpaste, Sameer?” asked Shyam. “I can’t

possibly do that off the top of my head, “laughed Sameer. “But there are parallels in other markets.

Take sachets in shampoos-they offer both penetration and profits. Or take the idea of a herbal

shampoo, a new concept which enabled a flanking attack to be launched on regular shampoos.

Something like that has to be worked out for toothpastes. I’m afraid ideas don’t come cheap or easy.

We have to organize focus groups, consumer panels, what have you.”

5 Samurai, Samanvay 2013

“Can we look at new product categories now?” asked Shyam. He suggested talcum powder and

shampoo, and asked Anil for his comments. “Forgive me for calling a spade a spade, but talcum

powder is a non starter as a new category,” said Anil. “Demand is stagnant-it hasn’t crossed the

15000-tonne mark for the past few years. And Donds is sitting pretty with an over 60 per cent

market share. Challenger brands like Ciril and Minthol have barely five per cent each. Unless we aim

for a 10 per cent share of the market, it isn’t worth getting into. And there’s little reason to believe

that NIC will do well when established brands like Ciril and Minthol are struggling.”(Exhibit 6)

There was a silence for a while. “And the same holds good for shampoos,” continued Ram.

“Innovation holds the key. Consider the idea of mixing conditioner and shampoo and selling them

together. Consider the idea of an ayurvedic shampoo. So what’s the innovation we are offering?”

Shyam said, “Gentlemen, what we’re all saying is that unless there are some really novel ideas or

concepts, neither our old products nor new ones will sell.” Asked Sameer, “Can’t we think of some

unconventional products, outsource them instead of manufacturing them ourselves, and market

them? We should look at the possibility of launching products that have synergies with our

distribution. And why concentrate on consumer products alone? Why not consider raw materials

like fatty acids and integrate backwards?” On that note, the meeting was adjourned for a week,

leaving Shyam wondering how to strategise his way out.

5 Samurai, Samanvay 2013

Exhibits

Exhibit 1: Binjosoft (figures indicate share of turnover)

Exhibit 2: NIC Brands (Annual Sales in Rs. Crore)

68%

10%

10%

8%

4%

Binjosoft

Liquor

Real Estate

Finance

Consumer products

Others

30

12

8

5

5

0 5 10 15 20 25 30 35

Bharat

Herb

Wash

Sparkle

Bonjour

Annual Sales in crores

NIC

Bra

nd

s

NIC Brands

5 Samurai, Samanvay 2013

Exhibit 3: Soaps (Figures indicate Market Share)

Exhibit 4: Detergents (Figures indicate Market Share)

42%

15%

11%

4%

3%

2%

23%

Soaps

Bifeluoy

Tux

Shamam

Siril

Minthol

Ooty candal

Others

34%

24%

10%

8%

8%

2% 14%

Detergents

Mirna

Sheel

Turf Pexcel

Sariel Super

Tin White

Sariel

Others

5 Samurai, Samanvay 2013

Exhibit 5: Tooth Paste (Figures indicate Market Share)

Exhibit 6: Talcum Powder (Figures indicate Market Share)

52%

22%

12%

5%

3% 1%

5%

Toothpaste

Goalgate

Open-up

Goalgate gel

Repsodent

Cromise

Tabool

Others

65% 4%

4%

3%

3% 1%

20%

Talcum Powder

Donds

Minthol

Ciril

Pakme

Jokul

Reaven's Tardens

Others

5 Samurai, Samanvay 2013

Questions

1. Should NIC bring in new products and phase out its existing consumer products, as Mr.

Shyam proposes?

2. Should it retain its current range of products and strengthen them all?

3. Before it’s too late, should it cut losses by selling off its assets? Or should it go for

backward/forward integration to strengthen its consumer goods business?

4. Do you see a future for NIC?

(Note: Please stick to the data given in the case. Don’t get influenced by real life external data.)