HOLY INTERVENTION

Sai Prasanth had always worked hard. His life stands proof for it. After securing admission in one of
the premier institutes of the country, IIM Bangalore, he went on to grab an internship with the FMCG
major, Hindustan Unilever Limited (HUL).

However, the times were bad for HUL. For years, India had been polarized regarding the competition
between foreign multinationals (Unilever, Nestle and Procter & Gamble) and indigenous firms (ITC
and Emami). While HUL had managed to stay ahead of the curve, the emergence of the new third
frontier, Patanjali Ayurved, promoted by Baba Ramdev, poses significant new challenges for the firm.

The emergence of Patanjali had adverse implications on HUL. The firm’s revenue expanded at the
weakest pace in the past 6+ years. Not just HUL, the other major players were also facing the heat.
Colgate-Palmolive India has reported its worst sales growth in 44 quarters. And, in a recent interview,
Nestle India’s new CEO was questioned about their firm’s strategy to deal with competition from Baba
Ramdev. Such was the dent Patanjali had carved in the FMCG market. Exhibit 1 shows the revenues
for major FMCG companies.

Sai, when going through IIFL Institutional Equities’ report, found that Patanjali Ayurved was targeting
a sales increase of INR 20,000 crore by FY20.

With no doubt that Patanjali was creating some ripples in the industry, Sai’s task was to provide fitting
proposals to compete against the Ayurvedic brand. A good work would get him a pre-placement offer
with the coveted firm – an illustrious beginning to a carrier, he always wanted. With an achievable
dream in attainable distance, Sai started working.

The Oldest Medicinal Science

When all went well, India’s consumer goods market was in for some divine intervention: a
sophisticated group of god men began cashing in on the country’s oldest medicinal science –
Ayurveda. The foremost being Patanjali Ayurveda, founded by yoga guru Ramdev. In 2015, it was
ranked among India’s top 10 FMCG firms (by revenue). Exhibit 2 depicts Patanjali Ayurved’s financial
performance since 2011.

Ayurveda is an ancient Indian medicinal system that mostly uses herbal and mineral-based medicines
to treat a range of ailments. The current Indian Ayurvedic market is estimated to be around INR 5000
crore with many significant opportunities present. The market size of Ayurvedic products in Asia’s
third largest economy is expected to grow at 16% between 2016 and 2021, according to Nomura, the
Japanese broking firm. In the last five years, the market had grown at a compounded annual growth
rate of 10.7%.

Patanjali – The Beginnings

Patanjali Ayurved was formed by Baba Ramdev, along with his trusted confidante, Acharya Balkrishna,
a scholar of Ayurveda, Sanskrit and Vedas, in 1997. Their collaboration dated back to the 1990s, when
they manufactured Ayurvedic medicines. Then, Ramdev focused on Yoga while Balkrishna assumed
the responsibility of spreading Ayurveda medicine.

Since then, there has been no stopping Patanjali Ayurveda. The firm had mostly kept its focus on three
sectors: healthcare, packaged food, and beauty & personal care. These segments have a combined
worth of INR 3.4 lakh crore and are among the fastest growing in the Indian consumer market,
according to Euromonitor. Over the past decade, it has built an empire.

Sai, when going through Patanjali Ayurveda’s profile, found that the firm’s success can be attributed
to its four core competencies: Ayurveda factor, Pricing differentiation, Advertising strategy and
Distribution model – in short, they have played – not just played, but played really really well – with
their 4Ps. The integration of all the four elements into its overall branding efforts has served the brand
fine with creating new brand imagery that supports the previously created associations as well. For
example, the low price differentiation goes well with the naturally available association of the product.

Indigenous and Healthy Alternative

As Sai began his secondary research on Patanjali, he found a speech by a Patanjali’s spokesperson.
The speech read, “Patanjali Ayurveda’s USP is that its products are free of unhealthy chemicals such
as Monosodium Glutamate, which is prominently found in other brands”. Almost every official address
from the firm, not just boasted of their natural and healthy positioning, but also the lack of such a
homegrown feature in its competitors. Besides the value orientation, the Indian cultural factors also
create an environment conducive for Patanjali’s sales.

Amongst its products, cow’s ghee (expected to touch INR 301400 crore in 2021) was its largest selling
product. And, Sai was quick to notice that this one product drove the firm’s growth, majorly. Dant
Kanti and Kesh Kanti were the other star products of the firm.

One of Sai’s friends from IIM Bangalore, sent Sai a YouTube link of a recent speech of Baba Ramdev.
The Yoga guru was optimistic about Patanjali’s future, and he revealed a robust pipeline of new
products. Besides Patanjali Noodles, the new launches include Dant Kanti Advance, Sugar-free
Chyawanprash, PowerVita, Seabuck thorn dietary supplement and powdered hair dye.

The Pricing Strategy

A quick comparison analysis of the prices of Patanjali’s and other FMCG major players’ products led
Sai to another of the firm’s key strength - pricing. The company's products are priced at around 15% -
30% discount to competition, which makes it an attractive proposition for consumers. Exhibit 3
compares the prices of various Patanjali products against its rivals.

According to reports, the firm was able to take such low prices because of their costing novelties, the
most of which is the almost negligible Advertising & Promotion spend. And, the top management, all
of Ramdev’s associates, draw no salary.

Also, Patanjali benefits from efficient raw material procurement. Leakages and commissions, which
according to Sai’s mentor amount to 5% of the costs, were entirely cut down.

Zero Advertising
Consumer companies typically spend 12-20% of revenue on advertising and promotions. When a new
company gets into the business, this spending is significantly higher. However, Patanjali saved the
spend entirely. A rough estimate of the monstrous amount of HUL’s advertising spend, thrust further
Sai’s curiosity to get to the bottom of Patanjali’s unique word-of-mouth marketing model.

On probing Patanjali customers (psychographic analysis), Sai found about the direct marketing by the
yoga guru’s disciples and instructors. Much of the promotions happen during the yoga sessions
conducted by Baba Ramdev, making an emotional appeal to use Patanjali’s healthier products. The
yoga guru also depends heavily on his followers, who are famous celebrities such as wrestling
champion, Sushil Kumar, to endorse products during these yoga programs. Such targeted in-class
campaign and careful selling of the healthy-proposition concept played a big role in the success of the
brand. Sai estimated the potential captive market that Baba Ramdev can address to be 20 crore (i.e.
approximately a sixth of Indian population), based on the 5 lakh trained professionals associated with
the yoga institute.

Sai understood that the brand equity of Patanjali products were entirely built around yoga and the
Baba who practices and preaches the discipline, which serves as a stimulus to classically condition the
customers to trigger thoughts of Patanjali products. He appeals to customers of both the aspirational
groups (who adore and try to emulate the yoga guru’s fitness) and associative reference groups (such
as professional yoga groups).

In the YouTube video, sent by Sai’s IIM Bangalore mate, Baba Ramdev explained his expansion plans
for 2017. The yoga guru mentioned that Patanjali has firmed up plans to spend almost INR 300 crore
on advertisements across television, radio, print and digital media. Overall, Patanjali was to invest INR
1,000 crore to set up exclusive stores and ramp up online distribution.

Yet another of Patanjali’s moves that could only make HUL’s position worse, was Patanjali roping in
advertising agencies, McCann and Mudra, to run brand campaigns. Popular Bollywood star, Hema
Malini was to endorse the firm’s maida-free biscuit – differentiation done at benefit level, rather than
at the level of lifestyle associations, Sai noted.

The Distribution Model

The company, so far, had used a direct distribution approach with an exclusive store network. It sold
its products mostly through franchisees. Its products were available in over 177,000 retail stores and
through online retail. This exclusive store network was one of the chief reasons for the firm’s success.

Recently, Patanjali, in a foray into modern retail, had entered into a partnership with retail major,
Future Group. Newspaper clippings of the various versions of the story decorated Sai’s pin board.
Amongst them, Sai had highlighted a quote from Kishore Biyani, the founder of Future Group. “Future
Group will have approximately INR 80 crore of business from Patanjali products. At the current growth
rate, Patanjali could easily surpass HUL’s sales of INR 1,300 – 1,400 crore from Future Group’s stores.”

Marked important, in bright red, was The Economic Times’ note that many retailers were now
following the example of Reliance Retail, which a year ago had begun grouping all of Patanjali brands,
from ghee to shampoo, in their own in-store space. The same article also had the opinion of Mr. Aditya
Pittie, chief executive of Pittie Group, exclusive distributor for Patanjali Ayurved across organized
trade – "This is the first time in grocery retail that standalone areas are being given to one entire
umbrella brand clubbed together.”

In the center of the web of newspaper clippings was Sai’s sticky note that read, “In Indian FMCG
industry, the local stores hold the lion’s share of sales. Setting up a national distribution network,
managing a complex supply chain and moving from a word-of-mouth approach to a conventional
advertising-led approach should be the firm’s next steps to fulfil their ambition. However, for this to
occur, a shift in Patanjali's cost structure and investments become necessary - which may not be that
easy to pull off.”

The Retaliation Moves

The more important question that no one had an answer was, 'how did HUL, with all its deep pockets
and intelligence, miss the all-natural buzz?' HUL's portfolio does include a repertoire of Ayurvedic
products under the Ayush brand. And, recently, the Indian FMCG major bought Indulekha Hair Oil
brand to strengthen the Ayurvedic portfolio. Sai did know that Ayush and Indulekha would take a
considerable spotlight in his final recommendations, and he began googling how competitors were
reacting to the HUL move.

Others such as Dabur and Godrej Consumer Products were launching new products, too. GCPL, for
instance, launched a neem mosquito coil, creme hair coloring containing coconut oil and new variants
in natural soaps. Dabur, to start with, is all set to beef up its women's healthcare range and follow it
up with product launches in health and baby care segments.

"As a first step, we are introducing our traditional Ayurvedic post-natal health tonic Dashmularishta
and the menstrual pain relief tonic Ashokarishta in fruit flavors," said Ramarao Dhamija, Dabur India
category head of mother and child care, in an interview. "This will bridge the gap between health and
taste. We will launch these in modern formats," he said. Sai believed that this was a part of Dabur's
plans to make Ayurvedic remedies relevant to the modern-day consumer.

While that was from the established, the industry saw sudden sprouting of spiritual entrepreneurs:
• In February this year, Gurmeet Ram Rahim Singh – the flamboyant leader of Dera Sacha Sauda, a
sect in northern India – launched about 150 products, marketed as swadeshi (indigenous) and
organic. These products, including rice, pickle, and bottled water, among others, will be sold by
MSG All Trading International, a firm owned by the sect.
• Another firm, Sri Sri Ayurveda, owned by Sri Sri Ravi Shankar’s Art of Living Foundation, has
recently increased marketing and promotion of its products. Launched in 2003, it now plans to
expand its reach. SSA wants to increase the number of its franchise stores from the current 600
to 2,700 by 2017, a March 2015 report by broking firm Edelweiss said.

While there was no doubt in Sai’s mind about the changing consumption patterns, Sai was sure that
HUL had to ride high on the prevailing Ayurveda sentiment. His recommendations, while tackling that,
should also address the impending threat presented by Patanjali Ayurveda. At the same time, he
should take care in not cannibalizing the existing product line. What should Sai do?

Once a fad driven industry in which consumers preferred only foreign products, the transformation
to homegrown cheap products was sudden yet effective.

Design an Integrated marketing campaign for HUL to respond to this threat. How can technology
innovations (specifically mobile and app based channels of communication) be integrated into this
campaign?
Exhibit 1
Revenue (In Rs. Crores, 2016)
Colgate Palmolive 4162
GlaxoSmithKline 4309
Godrej 4812
Marico 4947
Patanjali 5000
Dabur 5750
Nestle India 7961
Britannia 7948
HUL 31987
ITC 36837

0 5000 10000 15000 20000 25000 30000 35000 40000

Exhibit 2
Patanjali Financial Performance
12000 1200

10000 1000

8000 800

6000 600

4000 400

2000 200

0 0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Revenue (In Rs. Crores) Profits (In Rs. Crores)

Exhibit 3
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