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Case Study: Hindustan Lever Limited and marketing to the poorest of the poor Pia Sabharwal Ahmad, Michael E. Gorman, and Patricia H. Werhane*
Darden School, University of Virginia, 100 Darden Blvd., Charlottesville VA 22903, USA E-mail: werhanep@darden.virginia.edu *Corresponding author
Abstract: In the 1970s, the early marketing activities of Hindustan-Lever in India tended to focus upon the urban middle class and elite. Meanwhile, an Indian entrepreneur produced and marketed a detergent, Nirma, targeting the poor rural sector. By 1977 Nirma was the second largest volume seller in the country. The paper suggests that the common description of the bottom-of-pyramid market segment as the disorganised sector can have a psychological impact on marketing strategy formulation, over and above the real effects of absent infrastructures. The classic Nirma story helps us to re-frame and re-describe prospects for serving this market segment. For example, it can be a base-camp from which an MNC can launch a very effective attack upon all levels of the pyramid. Keywords: poverty; India; enterprise. Reference to this paper should be made as follows: Ahmad, P.S., Gorman, M.E. and Werhane, P.H. (2004) Case study: Hindustan Lever Limited and marketing to the poorest of the poor, Int. J. Entrepreneurship and Innovation Management, Vol. 4, No. 5, pp.495511. Biographical notes: Pia Sabharwal Ahmad is currently a student of the Goizueta Business School at Emory University. She has a background in Business Ethics with a focus on responsible global sourcing. During her time at the Olsson Center for Applied Ethics at the Darden Business School she worked on variety of cases ranging from healthcare and social responsible investing to sustainable development and entrepreneurship. She has traveled and worked in many countries including the USA, Russia, Belarus, India, Singapore and England. Michael E. Gorman is a Professor in the Department of Science, Technology & Society at the University of Virginia, where he teaches courses on ethics, invention, discovery and communication. His research interests include experimental simulations of science, described in his book Simulating Science (Indiana University Press, 1992) and ethics, invention and discovery, described in his book Transforming Nature (Kluwer Academic Press, 1998). With support from the National Science Foundation, he has created a graduate concentration in Systems Engineering in which students create case-studies involving ethical and policy issues; these studies are described in Gorman, M.E., M.M. Mehalik, and P.H. Werhane, Ethical and environmental challenges to engineering (2000, Englewood Cliffs, NJ: Prentice-Hall). He has also edited a volume on Scientific and Technological Thinking (Lawrence Erlbaum Associates, 2004). His current research is in the kind of interdisciplinary trading zones that will be needed to achieve true technological progress. Copyright 2004 Inderscience Enterprises Ltd.

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Patricia H. Werhane is the Wicklander Chair of Business Ethics in the Department of Philosophy and Director of the Institute for Business and Professional Ethics at DePaul University with a joint appointment as the Peter and Adeline Ruffin Professor of Business Ethics and Senior Fellow at of the Olsson Center for Applied Ethics in the Darden School at the University of Virginia. She was formerly the Wirtenberger Professor of Business Ethics at Loyola University Chicago. She has been a Rockefeller Fellow at Dartmouth, Arthur Andersen Visiting Professor at the University of Cambridge, and Erskine Visiting Fellow at the University of Canterbury (New Zealand). Professor Werhane has published numerous articles and is the author or editor of fifteen books including Ethical Issues in Business (with T. Donaldson and Margaret Cording, seventh edition), Persons, Rights and Corporations, Adam Smith and His Legacy for Modern Capitalism, and Moral Imagination and Managerial Decision-Making with Oxford University Press. Her latest book is Employment and Employee Rights (with Tara J. Radin and Norman Bowie) with Blackwells. She is the founder and former Editor-in-Chief of Business Ethics Quarterly, the journal of the Society for Business Ethics.

Introduction and overview

The global spread of Western-style free enterprise has both been lauded for creating economic value added in countries heretofore languishing, and for exploiting workers, using up valuable natural resources, and for not returning value created to the countries in which multinational operations take place. In either case, the spread of Western-style free enterprise has been beneficial to those companies engaged in these enterprises, and in some instances to the home countries where the multinational is based. Consumers have benefited as well from the availability of cheaper and better quality items made in all corners of the earth. Despite the growth of capitalism worldwide, market attention has been concentrated on producing goods and services aimed at the upper and middle-class Western or Western-style consumer. Little attention has been paid to producing or marketing goods and services for nonwestern tastes or marketing to the poor or the poorest of poor, those people who account for most of the worlds population. Even when a particular company produces goods in services in a less developed country, it is not always the case that that company will create products or services that fit the needs or particular interests of that countrys population. It is even less likely that that company will produce goods or services that appeal to the poor, either the poor in that country or elsewhere in the world. However, as Prahalad and Hammond argue in a recent paper, most of the worlds population lives under conditions of poverty. If one looks at the market for goods and services as a pyramid, the Top tier of the market consists of about 100 million people who earn more than $20,000 a year (See Figure 1). This group consists of the elite/ middle and upper-income people in our societies. Most of these people live in the developed world and a few in the developing world. The second tier consists of the rising middle classes, living mostly in developing countries and earning between $2,000 and $20,000 a year. Prahalad and Hammond estimate that approximately 2,000 million people live in Tier 2. Finally, we come to the bottom of the pyramid, Tier 3, which consists of around 4,000 million people who earn less than $2,000 a year. Most of the people in Tier 3 live in the developing world, however there are some who live in

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urban inner city areas in both the developed and the developing countries (Prahalad and Hammond, 2002).
Figure 1 The world pyramid: (Prahalad and Hammond, 2002s)

With over half the worlds population being underserved in the marketplace, one wonders why more companies are not tempted to market to these large populations. Typically, MNCs have focused on the first tier, as it allows for the highest margin of returns. In many cases the second tier of the pyramid has also been considered, however, the people at the bottom of the pyramid have usually been ignored. While those in Tier 3 have been ignored for a host of reasons, it is interesting to notice that by concentrating on the top two tiers MNCs have marketed to only 34% of the worlds population. MNCs have ignored Tier 3 because it has always been assumed that those living at this level do not have any disposable income and so cannot afford these products. Nirmas success in rural India dispelled the myth that rural consumers are poor and do not have the disposable income to buy consumer goods. The additional reason that MNCs were wary of Tier 3 markets was because these markets constituted what is called the disorganised sector where a lack of infrastructure and development hinder effective marketing and distribution of products. Finally, due to high overhead costs most MNCs are not able to price their goods in the manner that local companies can thus, refraining from entering the rural market due to their inability to be price competitive. Still if free enterprise is to continue to expand, as first and second tier markets become saturated, third tier markets will be important if not critical to the continued survival and expansion of multinational companies. The challenge is, as Prahalad and Hart state, How do we marry low cost, good quality, sustainability, and profitability at the same time in marketing to the bottom of the pyramid? (Prahalad and Stuart, 1999).

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In this paper we present a case narrative of one very large multinational corporation, Unilever, who has taken up this challenge through its Indian subsidiary, Hindustan Lever Limited (HLL). Initially HLL disregarded a huge market segment in India, a segment that, due to its sheer volume, held great promise and potential. Eventually, however, its Indian management developed innovative strategies for tier three marketing in India, a country which has an enormous number of poor, most of whom live in remote rural areas of the country. The products it markets are brand name soaps and soap powders that are qualitatively better and more environmentally friendly than the competition. The Company has also set up small entrepreneurial ventures for the distribution and sale of their products in rural areas.

Hindustan Lever Limited

2.1 Project STING

At 9:30 a.m. on a Monday morning in June 1987 the top managers of Hindustan Lever Limited (HLL), the Indian subsidiary of the giant multinational Unilever PLC were having an important meeting. Having gathered from all regional offices to the HLL headquarters in Bombay these managers were discussing the launch of Project STING the strategy to inhibit Nirma growth. For a company like HLL that had a reputation and performance history that was unbeatable, it was fairly strange that top management would waste their precious time discussing strategies to inhibit the growth of a small time entrepreneur like Nirma. However, over the past decade Nirma had risen from nowhere and had overtaken HLL in the detergent sector. So far HLL had ignored rural India, but Nirmas recent success in this disorganised sector had brought HLL back to the drawing board. Reconsidering their approach and deciding how to regain dominance in Indias detergent market HLLs executives were going to discuss three questions that morning. strategy: Should HLL enter the rural Indian market? marketing and distribution: Considering the logistical hurdles of this market how should HLL plan its entry? design: What kind of product should HLL introduce to combat Nirma?

2.2 Hindustan Lever Limited

Hindustan Lever Limited or HLL was the Indian subsidiary of Unilever PLC, one of the worlds largest multinational corporations. Founded in 1930 and based jointly in the Netherlands and the UK Unilever sold its products in approximately 150 countries. Predating the creation of Unilever, Levers products first came to India as early as the late 19th century when India was a part of the British Empire. 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 HLL would develop.

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In a truly multinational spirit Unilever was aware that success in India involved having local managers who understood both the Indian way and the Unilever way. 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. HLL was among the first foreign subsidiaries to offer local managers company Indians equity. Unilever gradually divested its stake in HLL and by 1982 it held only 52% equity in the company. By the late 1970s HLL had gained the reputation of being a role model for companies that want to succeed in India (1997) and was one of the most sought after places to work at in the country. With products ranging from food and beverages to home and personal care products HLL was considered Indias largest household Packaged Mass Consumption Goods (PMCG) Company. In the Indian detergent industry, HLL was the undisputed leader. Traditionally, Indians had used bars or tablets of soap to wash their clothes. Clothes washing had involved scrubbing a wet garment with soap and then beating it with a club (similar to a baseball bat) or against a stone. HLL changed everything by introducing the revolutionary Surf washing powder in 1959. By launching a washing powder they encouraged people to move from the club to the bucket. Part of their marketing strategy involved demonstrations of how clothes are washed in buckets with a washing powder. 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 housewifes solution to grueling hours of clothes washing, only a fraction of them could afford Surf. Bright blue in colour and packaged in a large colourful carton (like the breakfast cereals in the USA) 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 70s came a rise in the price of crude oil and a massive increase in the cost of raw materials. Surf doubled in price from 19741975 and so became even more unreachable for the rural people (Butler, 2000)

2.3 The rise of Nirma

In 1969 Karsanbhai Patels life typified that of millions of other Indians. He worked as a chemist in a factory in Ahmedabad in the western state of Gujerat. Earning a meager salary on which he was desperately struggling to make ends meet. At the same time Patel recognised that there was a vacuum in the rural Indian market for an affordable detergent. There were low quality soap bars that did not wash very well and were very time-intensive, or there were up-market detergent brands that washed very well but were too expensive. Patel recognised the need for an affordable detergent and concluded that a good product would create its own market. On the basis of this rather simplistic but accurate belief, Patel started conducting experiments in his kitchen. His efforts finally yielded a pale whitish yellow powder that he named Nirma, after his then one-year-old daughter Niranjana. In no time he began producing small quantities of washing powder and selling them to his neighbours. He packaged 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 Patels doorstep to buy and redistribute Nirma. Patel took on no responsibility for delivery or

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distribution; but his product was soon available at every corner of India. Once Nirma arrived on the rural market things changed for Indias poor they had an option. By 1977 Nirma was the second largest volume seller in the country. 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, HLL completely ignored Nirma and believed that it was no threat at all. HLL 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, HLL did not consider them a threat. The general belief was that rural Indians were poor and the rural sector was too disorganised to bother with.

2.4 Understanding the rural market

Looking at India it is easy to understand what working in rural markets entails. In the early 1980s the total population of India was around 750 million of which 70% lived in rural areas.1 Thus Indias rural population, which was comprised of 525 million people, was equal to almost twice the population of the USA. Indias rural market comprised 12% of the worlds population. With an estimated annual growth rate of 1.7%, India was the second most populous country in the world. By the year 2010 its population was expected to reach 1.15 billion.2 The sheer size of the rural Indian market was the greatest attraction for entering it. Despite the sheer size and potential volume of business in rural areas, HLL stayed away from the rural Indian market for a number of reasons. First, rural India was physically very difficult to penetrate. The nature of rural markets has always been very complex and rural India presented a number of unusual challenges for HLL. Rural Indias 535 million people were spread across a country the size of continental Western Europe. In India the rural client group lived in approximately 570,000 villages spread across the Indian countryside. Approximately 90% of Indias rural population lived in small way-out villages with populations of less than 2000. Most villages neither had electricity nor running water. Access to telephones and the internet was unheard of. Due to a lack of infrastructure, only 45% of the villages could be reached by road, and few of these were all-weather roads. HLLs decision to stay away from the rural markets was not limited to the physical challenges of the land, but also by the so-called social and cultural challenges of the people. In trying to sell their product in rural areas HLL would be dealing with a client group that had never before been focused on by multinationals. Banners and leaflets alone would not be effective since only 43% of rural Indians could read. Moreover, India was a country where 15 recognised languages were spoken along with over a few hundred dialects so any media campaign would have to be effectively translated. HLL would have to tackle the challenge of marketing a product in the absence of conventional marketing and advertising tools. Since only 57% of the rural population was reachable by mass media, HLL could not depend only on television or radio to get their message across; they would have to be innovative.

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2.5 Nirma overtakes Surf: the war of the bubbles

While it may seem that Nirma was of inferior quality, housewives of rural India were not objecting. Patels 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 HLL from the top spot. At the same time, until 1989, Surf remained between 2.5 to 3.6 times as expensive as Nirma. HLL was astounded by the growth of Nirma. HLL 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 HLL, Nirma was a low quality product. HLL commented that Nirma did not contain any whitening ingredient, had insufficient active detergent, had no perfume and was rough on the skin. The rumor was that Nirma contained lower levels of active detergents and more fillers and soda ash. Despite all these factors Nirma had outperformed Surf in the market. Looking at the following figures in Table 1 the rate of growth of Nirma is astounding.
Table 1 Year 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Surf and Nirma market shares: a comparison (Butler, 2000) Surf: Nirma market share Market share volume Surf Nirma 40.8 38.2 30.6 11.9 26.3 11.7 24.7 21.3 21.8 31.00 19.4 33.2 15.2 43.2 11.5 51.5 9.4 57.3 8.4 58.1 8.4 7.4 6.7 6.7 59.1 61.6 59.5 54.6 Surf: Nirma price ratio Price per kg (Rs) Price ratio Surf Nirma 10.65 10.15 12.80 4.35 2.94 12.25 4.75 2.58 11.95 4.45 2.69 18.50 6.00 3.08 20.20 6.25 3.23 21.05 6.00 3.51 20.90 6.25 3.34 22.20 6.80 3.26 23.15 7.20 3.22 23.70 27.10 28.70 30.00 8.00 8.50 9.00 9.25 2.96 3.19 3.19 3.24

By 1984, Nirma occupied the position of No. 1 brand in Asia leaving Surf far behind. (One Man Show Rivals Multi Nationals, 2000) Everybody was shocked, most of all HLL. The key question is: how was Patel able to achieve such tremendous success in an arena that had been dominated by HLL for so many years? Patels 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 priceso 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. (Karsanbhai, 2002)

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Patel was a genius to have recognised 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.

2.6 A new business model: the Nirma way (Butler, 2000)

One of the starkest differences between Surf and Nirma was the price. While the contents of the product may differ, Patel was able to produce such a low cost detergent. There are many areas where he controlled expenditure. Aware that soda ash, the main raw material for his product, was abundant in Gujarat, Patel set up shop in the vicinity. To keep a lean organisation he outsourced all the administrative functions. He contracted tasks like selling, accounting, technical production capabilities and distribution. All this gave him the flexibility to negotiate price during slow periods. Till 1985 the Nirma ingredients were simply mixed by hand thus requiring neither machinery nor capital investment. Due to the scale of his product and the simple non-mechanised production process, Nirma gained a number of tax and excise benefits for not using electricity. Since Nirma was a small-scale local venture, Patel did not have to pay excise duties that were levied on multinationals. Another area where Nirma saved millions was in labour costs. Being a cottage industry Nirma was not compelled to abide by minimum wage rules. To maintain low costs Patel used contract workers who were paid Rs. 85 per ton (In 1985 US$ 1 = Indian Rupee 12.368)3 for mixing raw materials and then bagging them into 1000 bags of 1 kg each. Payment was made according to work done and since labour was not permanent no additional overhead for benefits etc. needed to be paid. It was not until the mid 80s that Nirma started to mechanise their production process, however by then they were an already well-established name. In 1989 Nirmas labour costs for 8000 workers was estimated to be between Rs. 1520 per person day in comparison to HLL who paid their semi-skilled workers approximately Rs. 3040 per person day. (In 1989 US$ 1 = Indian Rupee 16.225).3 When setting up a distribution system Patel was acutely aware of the importance of keeping costs down. Once demand for Nirma had outgrown his ability to deliver on bicycle he moved on to vans and then later to trucks. Nirma had neither a field sales force nor owned a distribution network. Patel negotiated prices with truck and van suppliers on a daily basis. As sales grew Patel eventually hired stockists (those who stocked additional quantities of the goods) as commission agents. This helped him avoid central sales tax and the stockists were responsible for all transportation, octroi,4 handling and delivery costs. There was also a strict system of protocol and distribution depended on prepayment for stocks so as to minimise risk for Patel. While advertising did not appear as a cost in Patels initial budgets, by the late 70s as televisions slowly started to spread into rural India, so did the Nirma ad campaign, with its simple message and catchy jingle. By the early 80s Nirma became synonymous with good quality and low-price. The stockists were also responsible for promotions and they funded 50% of promotional expenditure for their goods. Nirmas sales reached a rate of growth that was two to three times that of the industry in general. As a result of all the above measures Nirma survived and flourished on what looked like a miniscule margin per unit.

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2.7 HLL reconsiders its strategy and markets

In 1986 Nirma started testing a new detergent bar that would be directly marketed as a challenge to Rin, HLLs leading and most profitable detergent bar at the time. At this point HLL recognised that it was not just a question of Surf, Nirma was systematically undermining HLLs dominance in the industry and for the first time HLL got a glimpse of what could be the beginning of the end of their detergent business. It was time for HLL to react. In 1987 Project STING was formed for top HLL 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, HLL would have to evaluate its performance and rethink the HLL strategy in order to effectively compete with Nirma and also to overtake them. Unlike Patels kitchen, HLL had its own R&D facilities, as well as those of Unilevers subsidiaries in other countries. If HLL could understand the everyday needs of this new client group they would be in a great position to develop a product for the poor. In addition, if their product became a success they would not only profit in India, but also had the choice of exporting this product and related technologies to other Unilever markets. Entering rural India would be a costly experiment for HLL 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 liberalisation around the corner HLL was well aware that they would soon be faced with even more competition. The positive side of these deregulation policies was that HLL would now face far fewer constraints on output volume and taxes and could be more competitive in terms of price. The main challenge for HLL was to determine whether they could compete with the low-cost Nirma detergent. Nirmas low-cost business model was so efficient and lean in comparison to HLLs that the company needed to consider whether they could ever produce a product that was competitive to Nirma in price. Should they just re-package surf in polybags and sell them for a cheaper price? Additionally, unless HLL could ensure the availability of its products at all centers and to all vendors on a continuous basis it was not worthwhile for them to bother entering rural India. Over the years HLL had developed a highly sophisticated distribution system in the urban areas5 to ensure that wherever there was a demand for goods there was never a shortage of them. HLL could not replicate this system in rural India for the simple reason that rural areas did not have the infrastructure that existed in urban India that allowed HLL to be so efficient. Whatever system HLL would invent for distribution in rural areas would also have to be extremely cost efficient so as to allow HLL to keep the unit cost of its products competitive. In addition, HLL needed to determine how they would get their message across to consumers in an area with minimal media infrastructure and low levels of literacy. How would they position their product? In 1985 HLL successfully launched a new advertising campaign in urban India. In this campaign Surf was portrayed as being good value for money. The protagonist Lalitaji was a responsible and discerning housewife who compared buying cheap tomatoes that were not healthy for her family to more expensive tomatoes that would make her children strong. The advertisement clearly stated that while Surf was three times more expensive than any ordinary washing powder, on a

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cost per wash basis it was only one and a half times more expensive. Could HLL use this preexisting urban advertising campaign in rural India or should they develop a new one? The costs of developing a new campaign targeting the specific needs of the rural market would be more effective but much more costly. In a market where the margins per unit were so low, could HLL afford such high advertising costs? How would they get their message across in such an environment and could they do it cheaply enough? Project STINGs final decision of whether HLL should enter the rural market would depend greatly on what kind of a product they could develop to compete with Nirma. What kind of product should HLL sell in rural India? Should they re-package Surf for rural consumption? Should they give the uneducated rural consumer a cheaper version of the urban counterpart, or should they design a new product for the rural market? What would be the research and development costs involved in this process? In designing a washing powder for rural consumption, the company would have to keep in mind that in most cases housewives would be washing their clothes in river water, the same river they bathed in. If the company was looking to create brand equity and to develop long term relationships with rural consumers they would have to be focused in defining the benefits of their product to rural consumers. What should be their pricing strategy? The company had to understand that the rural Indian had little money to spare. Finally, HLL needed to keep in mind that while Surf was a far superior product than Nirma, consumers had started to perceive Nirma as a cheaper substitute for Surf. The perception of a new product would not be based solely on product performance and quality but on a combination of factors. It was this combination of factors that the managers of HLL needed to articulate when designing their new product. For the top managers at HLL the product design dilemma was not limited to experimenting in the laboratory. This time, project design meant coming up with a product that would fulfill a number of requirements. The new product would have to meet the following criteria: be of high quality, superior to Nirma provide high value for money have a low unit price and high functionality have low costing raw materials, labour, machinery and capital investment be non toxic and have minimal pollution levels be durable for rough transporting conditions be able to withstand heat/ dust and long shelf life conditions encourage self-visibility and display be easily disposable and dispensable be available in small packages be backed by a strong but cost efficient marketing campaign, be available at every corner of rural India through an effective distribution system.

This was a long and unusual list of demands for product design and marketing, and the top managers on the Project STING team needed to evaluate whether HLL could fulfill these demands and thereby determine how HLL should move forward.

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Hindustan Lever Limited enters rural India

In the spirit of their corporate purpose,6 which aims to

meet everyday needs of people everywhere to anticipate the aspirations of our consumers and customers and to respond creatively and competitively with branded products and services which raise the quality of life.

Hindustan Lever Limited (HLL) decided to enter the Indian rural market. Fraught with difficulties, rural India was both a challenging and attractive market that HLL decided they could not ignore any longer. This was a big step for HLL and everyone was watching, Unilever, the parent company, Nirma, the competition and all the critics. HLL was under tremendous pressure to succeed. As part of their background work, HLL conducted research on rural income levels. Contrary to the popular belief that rural people were poor, the companys research showed that a typical rural family earned approximately 4,800 rupees ($103) a year from crops and odd jobs in the city. (Rekha, 2001) In most cases, unlike city dwellers, rural Indians did not pay for either food or housing. While they had less total income, rural Indians had a higher percentage of disposable income than their urban counterparts who paid for both food and rent. HLLs innovation started with their definition of the market. HLL did not define this market traditionally in terms of the number of times people use detergent. Instead, HLL defined this market as the number of times rural Indians washed their clothes. The important distinction here is rural clients did not use detergent every time they washed their clothes. Unlike their urban counterparts, detergent was a luxury for rural Indians and so they would only use detergent for x% of the time that they washed their clothes. The goal was not to get 50% of the existent detergent market but to increase the number of washes per year and then to ensure that 50% of all washes were done with the HLL product. HLLs strategy was to increase this percentage thereby increasing total demand for detergents. While HLL seemed to be on the right track, the problem was how to increase the number of washes per year in rural areas where most villagers did not even have running water. If people often washed their clothes and bathed in the same river water, would increasing the number of times they washed their clothes result in a more polluted river? If pollution levels increased this would not serve HLL in the long run as people would both stop buying their products and decrease the number of washes. In addition, how would HLL convince rural consumers to buy more detergent when they had a limited amount of disposable income? Stimulating demand by launching a convincing and appealing ad campaign would be part of the process.

3.1 Designing a product to fit the needs of a market

Entering a market filled with obstacles, it was essential that HLL had a well thought out and targeted strategy, however, most important of all was that HLL have a good product. Should HLL just re-price and re-package a mediocre version of the urban variant of the product and sell it in rural India? This would not build brand loyalty but it would keep costs down for HLL and the poor might not even know the difference. While there were different opinions about whether the rural consumer was savvy enough to tell the difference between a low-end detergent and a high quality one, HLL decided it to go with the latter.

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HLLs logic was that if rural consumers were to buy their product in preference to Nirma it would have to be a superior product. In addition, to create brand loyalty their product would have to be both high quality and good value for money. Peddling low quality products at cheap prices would not motivate clients to buy their products in the future. HLL decided that building brand loyalty was essential since the hope was that some day the residents of each rural village would join Indias ever-growing middle class and trade up to more expensive HLL products. In a market where people gravitated towards the cheapest product, building brand loyalty was a challenge and product quality was the first step in the right direction. Understanding the consumer was essential in designing a product. Rural Indian consumers were very different from any client they had had before. Low toxicity and pollution levels were of primary concern for HLL in product design. Additionally, since consumers lived in far out places that were difficult to access by traditional means of transport the product would have to be durable. Poor storage facilities in rural areas necessitated the creation of a product that would withstand exposure to dust and heat. Unlike their urban counterparts who shopped at the Sams Clubs and Coscos of India so as to buy in bulk, the rural consumer would never have the spare income to buy in bulk. For this reason, HLL would have to repackage the product into smaller packets so that per unit costs could be kept low. HLL was hoping to make a profit not on margin per unit but on total volume.

3.2 Wheel
The HLL Research and Development teams mandate was
to produce a low-cost product that gives a better performance in terms of whiteness, but with out the side effects of wear and tear an itching caused by Nirmas high soda ash content. (Butler, 2000)

Since 1984 HLL had been working on a new NSD (non-soap detergent)7 powder and in the next few years they conducted sample consumer research on it. By 1986 (a year before Project STING had begun) the new NSD detergent mix was ready. Looking for a good brand name for the detergent HLL decided to use the name of a detergent bar that had been partially launched a decade earlier Wheel. (Butler, 2000) The detergents were packaged in smaller, 30 gram plastic sachets instead of 1 kg bags for urban consumption. The sachets were hardy and able to bear most of the adverse conditions of rural India.

3.3 The advertising campaign: Ogilvy outreach8

HLL usually worked with the advertising agency, Ogilvy and Mather (O&M) and it was necessary to assess whether they were capable of executing a campaign that would involve diverging from the norm of corporate advertising. They would be dealing with a client group that had never before been focused on by this company. They would have to tackle the challenge of marketing a product in the absence of conventional marketing and advertising tools. The ad campaign would have to go to the villages. In the absence of conventional forms of communication they would have to utilise events such as markets, cattle fairs, and festivals as forums for communication. How would HLL and O and M get their message across in such an environment?

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O and M belongs to O and M Worldwide, which is owned by WPP, one of the largest communications groups in the world. While O and M has a number of operations and divisions in India, the one of special interest for the Wheel campaign is Ogilvy Outreach, the non-profit arm of Ogilvy and Mather. It was set up in 1994 with the objective of reaching the unreachable. The unreachable lived in those media dark corners of rural India where HLL was trying to sell Wheel. Outreach specialised in advertising to low-income consumers and specifically to those in the rural areas. By recognising and addressing the limitations that this unusual client group presented, HLL and Outreach created a campaign that addressed the needs of the rural consumer. Challenges in rural India included understanding the new client. How does a villager think? What is his mindset? What are his needs? How does he evaluate brands? How different is the rural environment? What forms of folk advertising will succeed here? There are just a few of the questions that needed to be answered.

3.4 Wheel is launched

Together, HLL and Outreach took the advertising campaign all through rural India. Wherever there were consumers their messages were presented through colourful flyers, posters on shop fronts and at local gathering places, through entertaining jingles via street performances and through traveling cinema vans. They undertook activities including the creation of short ad videos that were shown across the rural countryside via cinema vans with videos in the back. While an HLL TV ad for the urban consumer lasted no longer than 30 seconds these video van ads run anywhere from two to seventeen minutes. HLL was not just advertising it was providing entertainment. HLL organised performances with magicians, singers, dancers, and the local news update at cattle and trade fares which large groups of people visited. HLL and Ogilvy Outreach recruited local magicians, dancers, and actors who knew each market and village that the company wanted to target. In total, 50 teams of 30 performers were recruited to serve as connections between the brands and the residents. Scripts were changed for different dialects, education levels and religions. In all, Ogilvy coordinated two-hour performances at 2,005 haats (bazaars) over six months. As Dalveer Singh, the VP of Ogilvy Outreach explains,
For both washing and for taking a bath one requires water. Now for rural markets there are three sources of water-wells, handpumps and ponds. For the first time in the history of advertising these were branded. Special stickers were put on handpumps, the walls of the wells were lined with advertising tiles and tinplates were put on all the trees surrounding the ponds. The idea was to advertise not only at the point of purchase but also at the time of consumption.9

The aim was to ensure that whenever the consumer purchased and then used the product, they were reminded of it and its popularity. By seeing Wheel advertised during washing their clothes they would get a sense of satisfaction that would further help to create brand loyalty. At the same time it would make those who were not using the advertised brand wonder if they were missing out on something better.

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3.5 Creating a rural distribution network

In trying to set up a rural distribution system HLL faced two major hurdles. They had to develop a distribution system that would allow them to overcome the infrastructural hurdles of rural India and transport their products to remote villages. They also needed to identify local populations who could represent their products and be their distributors. Modeled somewhat on their experience in urban areas, HLL set up a rural distribution system based on population size and accessibility. As a first step they set up HLL outlets in villages that had both a population of more than 2000 people and all-weather roads. In the early 1990s 60,000 of Indias total of 570,000 villages qualified under these criteria. By 1994 HLL had outlets in 34,000 of them. At a later point HLL set up regional distribution warehouses in these villages. For the villages with less than 2000 people HLL developed a new approach called project streamline. The aim of project streamline was to gain further control of the rural supply chain by developing a network of rural sub-stockists10 based in the way-out villages. A rural distributor in the area would supply about 1520 rural sub-stockists. The sub-stockists were responsible for transporting the goods deeper into the countryside for resale. This often involved using whatever means necessary from a bullock cart to a tractor. In 1998 HLL rolled out project streamline in select states where a lack of good roads or poor stage of market development made ordinary distribution systems unviable. From 25% in 1995, project streamline extended direct HLL reach to 37% by 1998. By 2003 they aim to expand coverage to 50% of the rural population.6 In time the system became fine tuned so that goods were distributed from carrying and forwarding agents to redistributors who then pass the goods on to distributors identified as star sellers. The benefit of having the star sellers was that they eventually took on a cross functional role and sold everything from detergents to personal products thereby bringing all HLL products closer to the consumer.11

3.6 Creating new consumers

Rather than viewing the lack of infrastructure in rural India as a reason for not exploring the market HLL viewed it as a challenge. By the early 1990s HLLs database of knowledge on the geography of rural India allowed then to locate every village, dots reflecting the presence of HLL product distributors and blank spaces indicating potential areas of growth. By the mid 1990s HLL gained the reputation of being better informed about the geography of rural India than the Indian government. As S.M. Datta (Chairman of HLL in 1990) said,
We have government officials tell us that there is no road here, or this village is there, but from our maps we know there is a road, and that village is not where they think it is. (Hamish, 1994)

By 2000 HLL started thinking about expanding further into the smaller villages. Since disposable income levels were lower in the smaller villages they also decided to link distribution with income generation. In November 2000 HLL organised a meeting of 150 women residents of villages with fewer than 2000 people in the state of Andhra Pradesh. Many were illiterate, agrarian workers wanting to start a business. They belonged to self-help groups that ran micro-credit operations. The women had saved money from their daily wages and wanted to find ways of making those savings grow. Through Project Shakti (Strength) HLL offered to sell them company products at cost and teach

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them how to re-sell these products at a profit. Amway and Avon had pioneered a similar strategy in urban areas, the Grameen Bank had initiated this strategy in rural Bangladesh, but HLL was the first to use the direct-sales model in rural areas of India. (Rekha, 2001)

3.7 HLLs success

After a successful test market in 1987, Wheel was launched in 1988. Initially Wheel sold at Rs. 5.50 only 0.25 paise higher than Nirma. One year later Wheel occupied the place of the second largest brand in India and by 1990 it had gained leadership in value, though not in volume. At this time Wheel was larger than any other Unilever brand in the world. (Butler, 2000) HLL, stimulated by its emergent rival and its changed business model, registered a 20% growth in revenues per year and a 25% growth in profits between 1995 and 2000. Over the same period HLLs market capitalisation grew to $12 billion a growth rate of 40% per year. Today, in 2002, Nirma and HLL are close competitors in the detergent market with approximately 38% market share each. In addition to their financial success with Wheel, HLL has used this network of advertising and distribution for all their products in rural India. It is fair to say that HLL has regained its much-respected position as a trendsetter.

Implications and conclusion

What are the implications of HLLs product development and marketing strategies? Notice, first of all, that HLL 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. Particularly with consumer products, government enterprises, as we learned with the Soviet experiment, are not good at delivering consumer goods. More interestingly, HLL has not partnered with the government in micro lending projects in rural India. Instead, HLL has encouraged and supported small entrepreneurships usually women who set up small sales enterprises for HLL products in rural villages. Thus while HLL 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. HLL 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, HLL develops products for the Indian market, it is Indian managed and partly Indian owned, and the company has no intention of moving to a lower cost-of-production country, although it is likely to develop new production facilities in some of the more remote lower labour cost regions of India. Yes, HLL 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. HLL has carried out a commitment to making indigenous products for the third tier Indian market, and producing these products in India. In doing so, HLL has created a replicable model. Indeed, Unilever has greatly benefited from HLLs experiment and has replicated what it learned in rural India in many of its other international markets.

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Unilever has exported the model (but not the company) to its operations in Latin America where it is developing soap powders for third tier Latin markets. 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. They have also used many of these lessons in other emerging markets including Brazil, Indonesia, the Philippines and the Congo. Most importantly, Unilever has adopted the bottom of the pyramid as a strategic priority at the corporate level. Finally, why would any company that markets successfully to first and second tier markets engage in an enterprise such as HLLs? It is obvious, but seldom recognised: these are markets, huge markets. People everywhere want decent brand-name products, even it they can afford only a few of them. HLL serves those desires without exploiting its customers. It is in HLLs long-term interest and the long-term interests of India to continue this model. Other companies would do well to follow suit.

References
Butler, C. (2000) Hindustan Lever Limited: Levers For Change, Case registered at London Business School, pp.40, 41, 4349, 54, 55, 57. Hindustan Lever: role model for multinationals (1997) Financial Times, August 1. Hamish M. (1994) Cleaning up, Far Eastern Economic Review, Vol. 157, No. 1, December 30, 1993 January 6, 1994. Karsanbhai Patel A Clean Sweep, June 27 (2002) Seen at. http://www.indiaprofile.com/ people/Patelpatel.htm. One Man Show Rivals Multi Nationals (2000) Responsive Database Services, Inc., Business and Industry, Rodman Publishing Corp., Happi-Household & Personal Products Industry, Vol. 37, No. 2, pp.26. Prahalad, C.K. and Hammond, A. (2002) Serving the worlds poor, profitably, Harvard Business Review, September, pp.4857. Prahalad, C.K. and Stuart, H. (1999) Strategies for the Bottom of the Pyramid, Seen at http://www.wri.org/meb/wrisummit/pdfs/hart.pdf. Rekha, B. (2001) Strategic Innovation: Hindustan Level Ltd, Fast Company, Vol. 47, June 2001, pp.120, 123.

Notes
1 2

See Appendix 1 for Map of India. Population statistics taken from the following sites http://www.undp.org.in/report/IDF97/idftab.htm, http://mohfw.nic.in/popindi.htm, http://www.library.uu.nl/wesp/populstat/Asia/indiac.htm, http://www.eia.doe.gov/emeu/cabs/india/indiach1.htm, http://www.cs.colostate.edu/~malaiya/india.html#Populations%20in%20the%20Subcontinent. 3 Seen at http://pacific.commerce.ubc.ca/xr/CADpages.pdf. 4 Octroi is a tax levied on the entry of goods into a municipality or any other specified jurisdiction for use, consumption or sale. Octroi is levied at the time when the goods enter the municipal limits where the goods are to be ultimately sold, used or consumed. Definition taken from http://www.ahmedabad.com/business/taxation/indirecttax.htm#octr.

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This system involved the setting up of redistribution stockists (those who stock HLL goods and then re-distribute them) who were responsible for warehousing, distribution as well as demand stimulation activities on behalf of the company. The redistribution stockist dealt directly with wholesalers and large retailers. In time this system was further modified to ensure that the stockist was continuously re-stocked. This led to the establishment of the company depot system that helped transshipment (movement from one wholesale buyer to the next), bulk breaking, and minimised stock-outs at the redistribution stockist level. The system was constantly being improved upon to maximise efficiency and reach. 6 Seen at www.hll.com. 7 In the past edible oil was used in the manufacture of soap that made them less effective. With the introduction of NSD the oil ratio in detergent decreased, making it more effective. 8 Background information about O&M in this section are taken from Venkatesh Raghavan, O&M: The Big Surge, Seen at http://www.business-leaders.com/2002april/feat02.htm. 9 Interview with Dalveer Singh VP, Ogilvy Outreach. Seen at http://www.indiainfoline.com/ bisc/mdms01.html. 10 Sub-stockists may be explained as smaller warehouses that supply to the outlying rural regions where transportation is problematic. 11 Seen at www.hll.com/hll/knowus/ourheritage.html.

Appendix 1
Taken from http://www.countrywatch.com/cw_country.asp?vCOUNTRY=78.