Page 312 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Nirma targeted this segment, producing cheap detergent powder that was easier to use
compared to the laundry soap.

By 1977, Nirma had dented the detergent powder market with a market share of 12 percent
compared to Surf's 31 percent. It continued to grow aggressively and between 1977 and
1984 Nirma's sales grew at a compound rate of 49 percent. By 1984, Nirma was selling
20,000 tonnes of detergent powder in comparison to HLL's 2000 tonnes. Within 15 years, it
had become the one of the largest detergent powder brands in the world and was seriously
challenging HLL's brand 'Surf'. Nirma was able to manufacture and distribute its product
around 1/3rd the price of 'Surf'.
HLL's traditional approach was, 'think globally, act locally'. They had applied this
philosophy to the detergent market. Initially, HLL management was of the view that “We
can't make this detergent product. The Nirma powder is so different in quality, unit cost
etc.” They froze; in their minds there was no viable way to act except to wait for it all to
blow over.
However, that did not happen. In 1986, Nirma introduced the Nirma bar, challenging
HLL's other product 'Rin'. The quality difference between the two, Nirma bar and Rin, was
limited but Nirma bar was sold at 1.50 for a 150 gm. cake which was 1/3rd the price of
Rin. By 1989, the Nirma bar had a market share of 40 per cent. By 1992, Nirma had sales of
333,000 tonnes and had captured 55% market share.
The brand leader was finding pressure on its premium product, 'Surf.' Consumers were
moving to lower price brands. To counter Nirma, HLL was unable to increase price of
'Surf' and had to put a lot of support below the line—its profit had eroded. It was losing its
market of 'Rin'. The Soap & Detergent Division of Hindustan Levers was depending for its
sustenance on 'Rin', as the margins of 'Surf' had shrunk. Nirma had hit the company at its
soft spot and it was left with no option but to fight. It was forced to jettison its value
creation logic and adopt an entirely new way of operating. It had to enter the low cost
detergent market to stop the growth of Nirma.
They set up third party production in the states of Gujarat, Rajasthan, Uttar Pradesh,
Punjab, Pondicherry, etc. These were called AFACON manufacturing units. HLL created
'Wheel'—a detergent powder that competed successfully with Nirma detergent powder.
The Units were given conversion contracts. Raw Materials were supplied by HLL.
Initially, HLL tried to use its own distribution system to market the products. HLL had
one of the strongest distribution networks in the country, but it did not deliver. Though
HLL strengthened the network and the distribution system was highly motivated, yet it
was very expensive. They still found this was not giving them enough margins to compete
successfully.
The rest is history. HLL created Stefan Chemicals, a fully owned subsidiary. The
responsibility of the AFACON manufacturing units was passed on to Stefan Chemicals.
This finally was able to arrest the decline of HLL in this market. Initially, the manufacturing
costs were 15 percent higher than Nirma's, but with a cost effectiveness program, HLL was
able to help the AFCON units reach Nirma's costs. By 1991, Stefan Chemicals had 15
manufacturing units as compared to only 3 in the early 1980's. Ultimately Stefan Chemicals
took over the marketing and distribution for Wheel. Stefan Chemicals successfully copied
the structure used by Nirma. In 2004, Wheel' became the first Indian brand to exceed sales
of 1,000 crores.
Questions
1. Compare Nirma's strategy vis-à-vis HLL's strategy.

2. Determine the role of SCM in success of HLL's detergents in India.

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