30 words summary
It takes radical innovators to make giants catch colds. And C K Ranganathan
who started CavinKare in 1983 with a seed capital of just Rs15,000 has a record
of giving colds to transnational FMCG giants.
100 words summary
Beginning with a capital of Rs15,000, CK Ranganathan has grown his business
to Rs5bn - all from internal accruals. In 2004, The Economic Times (ET) of India
voted Ranganathan "Entrepreneur of the Year". Stating the reason he was
chosen, ET said, "C K Ranganathan emerged the winner due to the fact that it
(CavinKare) is a small company, has built a solid brand, has rewritten the rules of
the game in the FMCG market, has touched the pulse of the small consumer with
affordable good quality products and forced the biggest industry players to follow
suit and make products affordable to reach the smallest consumer."
Keywords: CK Ranganathan, CavinKare, FMCG, quality product, consumer,
rural marketing, pricing, formulation, shampoo, marketing
Author summary: Porus Munshi, consultant
cavinkare: touching the pulse of the small consumer
by Porus Munshi
It takes radical innovators to make giants catch colds. And C K Ranganathan
who started CavinKare in 1983 with a seed capital of just Rs15,000 has a record
of giving colds to transnational FMCG giants.
Beginning with a capital of Rs15,000, CK Ranganathan has grown his business
to Rs5bn - all from internal accruals. In 2004, The Economic Times (ET) of India
voted Ranganathan "Entrepreneur of the Year". Stating the reason he was
chosen, ET said, "C K Ranganathan emerged the winner due to the fact that it
(CavinKare) is a small company, has built a solid brand, has rewritten the rules of
the game in the FMCG market, has touched the pulse of the small consumer with
affordable good quality products and forced the biggest industry players to follow
suit and make products affordable to reach the smallest consumer."
rewriting the rules
It all started in 1983, when Ranganathan left his family business, Velvette, and
branched off on his own. Velvette had pioneered the sachet revolution in India.
Ranganathan branched off setting up CavinKare and introduced Chik shampoo
sachets. By 1990, Chik became the largest selling shampoo in Tamil Nadu. By
1993, he was ready to go national. And within a few years after that Chik became
the largest selling shampoo in the country. It's now a close number two to the
leader - Clinic Plus. Chik's explosive growth came when Ranganathan began
honing his skill to look for insights.
With 72% of India's population living in rural areas and only 8% penetration of
shampoos there, shampoos were an urban phenomenon in India. There was
nearly a 70% awareness of shampoos in the rural market, but low usage. The
total penetration of shampoos in India was only 18%. So what did the balance
82% use? Ranganathan decided to find out.
focusing on the barriers
The major shifts happened when Ranganathan met some consumers around
Chennai and asked them one-on-one what they used for their hair. They said,
soap. He tried to find out why they used soap. Did they not know that it was bad
for the hair? In one such conversation a man told Ranganathan, "You are biased
against soap since you want to sell shampoos. How can soap be bad? My father
and grandfather have used soap all their life and nothing has happened to them.
My grandfather still has a thick mop of hair and he is in his 70s."
Ranganathan realized that without demonstrating through a microscope he
couldn't explain how soap harmed hair. He also realized that there was a strong
belief that soap wasn't harmful. He had an insight here that if a consumer
believes strongly in something, don't attack it. He won't believe you. Instead find
out the barriers to using your product.
His rural market strategy, like that of other companies, was currently based on
his sales teams going to rural areas, gathering people and educating them about
the disadvantages of soap and the advantages of shampoos. He realized that for
so many years they may have been wasting their collective breaths. While
nobody spoke up in groups, one-on-one it emerged that they didn't believe that
soap was harmful. People did acknowledge the fact that shampoos have no side
effects, but telling them that soap harms did not go down well with them.
Instead of trying to change the mindset, Ranganathan asked another question:
What makes it difficult for you to use shampoo? Price was the most important
barrier. Shampoo bottles were prohibitively expensive, but even sachets then
cost about Re1 or Rs2. Rural families have typically five to six members. For a
family of six people to wash their hair once a week at Rs2 a wash, it would cost
Rs12 a week. That worked out to nearly Rs50 per month - far too high for a rural
family.
So the next question was: What price would excite the consumer? A product
price at 25 paise would really excite the consumer, but even 50 paise was good
enough. At 50 paise, the same family's hair washing costs would drop to Rs12 a
month.
banking on insight
Ranganathan went back to his team and began discussing the possibility of
selling shampoos at a 50 paise price point. Chik already existed at Re1. The
brand, sales and finance teams thought that selling at 50 paise would mean
'cutting their own feet' as the Re1 sachet would stop selling.
Ranganathan and his team were in a dilemma whether to go ahead or not. At a
gut level he felt that once people have bought at Re1, they won't go down to 50
paise. So he decided to go ahead with selling at 50 paise. CavinKare wanted to
grow sales.
They could wait for the economy to pick up and then sell more Re1 shampoos, or
take a risk and expand the market, making the product available at a mass price.
They decided on the latter. Now that they had decided to launch at 50 paise, they
had to figure out how to do it. It was a huge challenge to drop price by 50%. R&D
(research and development) threw up their hands saying it was not possible to
reduce costs without compromising on quality. According to Ranganathan, "The
biggest block to growth is the term 'not possible'. Once you say something is not
possible it stops you from thinking further." CavinKare's R&D team stopped
thinking further. They began shaking their heads every time the 50 paise price
was mentioned. Ranganathan, who has a background in chemistry actually had
to roll up his sleeves and get involved in the reformulation. They worked out
various innovative methods of formulation, focusing on cost and quality at the
same time. Without that sustained growth wouldn't happen. Finally they managed
it and the 50 paise shampoo was born.
Ranganathan also went a step further. A 40ml bottle of shampoo typically costs
twice as much as a sachet of the same volume. So for example, if five sachets of
8ml each cost Rs5, a bottle of 40ml would typically cost Rs10-15. This was
because of government levies that pushed costs of bottles up. Rather than
accept the situation, Ranganathan decided to do something about it. As he says,
sachets get over fast and if a family forgets to buy sachets, they'll forgo them and
use soap instead, thus reducing consumption. He needed to make shampoo
available at homes at all times. Therefore, he brought out a 40ml bottle at Rs6!
And this bottle captured an additional 5% market share.
With the innovations of the 50 paise sachet and the Rs6 bottle, Ranganathan's
prediction of market expansion came true. Chik moved from a 5% market share
to 22.6% market share within two years. Today it is the second largest selling
shampoo in the country and according to Ranganathan it is just 1.5 percentage
points behind the leader Clinic Plus, and is catching up. In rural areas it is the
clear leader.
Insight has been the key contributor to Ranganathan's success
as an entrepreneur and it has enabled him to take on competitors