Friday, January 15, 2010

Sachet Marketing

Lakshmi Ramasubramanium, MICA, Ahmedabad

Off late, Sachet Marketing has been utilized as a prominent strategy to tap the bottom of the pyramid by many companies; mostly FMCGs. But, is it actually a sustainable strategy for targeting BOP customers or just another way of expanding the customer base?

The concept of sachets is no innovation introduced by the FMCG majors. It is actually a decades-old tactic whose genesis can be traced back to our good-old paan-masala walas. The paan masala which used to come in small cylindrical containers was a hassle for many reasons—it was not user-friendly, the users had to dirty their hands while having it, etc. The introduction of paan-masala in small packets (what are now called sachets) found a quick acceptance among users. It was more about convenience rather than price or size that got it such a huge following and made it an instant success.

This convenience factor was recognized & later on translated as a mechanism to target price-sensitive segments—small-sized packets being lower-priced. Affordability became the mantra of these sachets which were later on adapted by FMCG sectors in particular.

Growth here is driven by the relatively poorer sections which comprise a major percentage of total population & growth strategies of many companies are focussed on how to tap this potential to increase product penetration at the bottom of the pyramid. With maturing urban markets, the need to expand the rural base was very critical for companies to improve top- and bottom-lines. What would be effectively counted as the Sachet Revolution, following HUL & CavinKare, companies started resorting to Low Unit Pricing (LUP) strategy to expand sales in the lower income group— low end consumers in urban and rural markets. Affordability has always been a matter of concern for these consumers & the companies rightly played the volume game here.

Findings of ORG Rural consumer panel study showed that the share of branded goods was considerably high in rural areas (as high as 65% as of year 2000) & sales of non-branded goods was shrinking dramatically. It’s not just rural consumers who find an attractive proposition in LUP packets, but also lower income groups in urban segment, who were restrained due to price factor till some time ago. For travellers as well as for those who want to “try out” things, it is still the convenience that matters.

Sachet Strategy completely revolutionized the personal care products category. CavinKare launched sachets of their Chic shampoo which were priced as low as 50p & Rs1. It then slowly crossed over to other products with Marico introducing their coconut oil Parachute in mini-packs. With Pepsodent tooth-paste available in sachets for Rs 4 & 5g Rexona deo-sticks priced Rs 5.5, HUL was trying to induce the rural population to take to such products.

While Sachet sales were still the highest for shampoos, it found takers for beverages too with HUL, Tata Tea & Duncan’s setting a starting point to it. The ‘sachet’ tea industry in India started with 5p/10p sachets and gradually went up stage-wise to 25p, 50p and Re 1. Branded sachet market is estimated at about 10-12 per cent of the annual packed tea market.

Even premium products are taking to this strategy now with L’Oreal India leading the way. As per Dinesh Dayal, COO, Garnier, its flagship brand now has products in sachets, which includes shampoos & conditioners (Rs 3 & Rs 4 respectively).

Sachets can actually be considered to take a big leap towards transcending the boundaries of demographic customer segmentation. The products, which were once confined to the SEC A & A+ segments, due to pricing constraints till date, have percolated to the poorer consumers too. The concept of psychographic profiling based on life-style & aspiration is very well demonstrated in this concept. The likes of Lakme, Garnier products can today be used even by SEC D section as a once-in-a-while treat for special occasions—thanks to sachets. In this way, it has helped cater to the aspirations of many & has thus become a means for expanding the customer base.

This strategy has another hidden agenda—to induce trials by the otherwise reluctant customers. People who are sceptical to experimenting new products & brands may choose to try it if it is in the form of sachets. It becomes pertinent to categories like personal care products, cosmetics & even food-items where the consumption pattern is more of habitual nature and people are generally averse to trying out for fear of compromising on quality. Sachet packets give the consumers this opportunity without any hassle of wastage or cost considerations.

Sachets are moving beyond just personal care products, tea-bags or the low income group. It is
just customization for certain companies. Among cell-phone operators, Vodafone Essar Ltd was the first to sell ultra low-cost products when it launched micro top-up cards of Rs10 each for its prepaid customers. Even Reliance Communications Ltd (RCom), country’s second largest mobile phone services operator, is overhauling its pricing model to offer value-added services (VAS) such as caller tunes and internet surfing for as low as Re1 a day, rather than for a monthly subscription. They hope to reach a wider audience by offering customers more price flexibility through Sachet Pricing. The biggest beneficiaries of the sachet pricing plan would be the prepaid subscribers, estimated to be about 85% of RCom’s wireless subscriber base.

Filipino Telco Smart, through its Smart Buddy System allows cell phone customers to resell their unused credits turning customers into salespeople. For each 1,000 pesos sold, the 'merchant' receives a 150 pesos commission. Grameen Phone, Bangladesh's leading cell phone operator, has offered a special low-priced package to so-called 'phone ladies' in small villages, where fixed telephone lines are non-existent. The phone ladies share their cell phones with other villagers at a few takas a call.

Micro financing institutions (MFI) which are making huge profits by creating markets for the poor by providing loans for micro-venture enterprises are also a Sachet Strategy in a sense. Micro-lending & micro-credits are the usual loan mechanisms by financial institutions at an interest, but it is tailored in such a way that there are not many hassles for them in getting loans & starting ventures. Interest-free microfinance is another way when you actually play a VC (in a sachet strategy—yes) to a budding entrepreneur in rural areas.

Sachet Marketing or Sachet Strategy is a way of tailoring the product or service so that even the lower income groups (other than the desired TG) can avail these benefits, which otherwise isn’t possible for them. Soon, every company will have a sachet offering along with their regular ones which might eventually make the concept of segmentation & targeting redundant

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