Nihar

A Project on Nihar Coconut Oil

Subject: Rural Marketing

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INDEX

TOPIC PAGE
NO
• Introduction 1

• Key Objective 2

• Rural consumers and industry’s profile 3

• About HLL 5

• Performance of HLL in 2001 6

• Nihar’s market share 9

• Marketing mix for Nihar coconut oil 10

• Problems and strength of Nihar 14

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INTRODUCTION

The hair oil market is huge, valued at Rs 6 bn. Due to the varied consumption
habits of consumers across the country, where coconut oil and edible oil are
interchangeably used, the size of the market is likely to be higher than estimated.
More importantly, the market is growing at an impressive 6-7% in volume terms
despite the high penetration level.

Usage of hair oil is a typical Indian traditional habit. It is perceived to offer

benefits of nourishment, hair strengthening, faster and better growth, and reduce
the problem of falling hair. There are two types hair oil available in the market;
coconut oil and non-greasy perfumed oil. Coconut oil comprises 2/3 rd of the total
market and the balance comprises the non-greasy perfumed oil.

Usage of hair oil is an everyday habit with 50% of the population out of which
some perceive that massaging the head with hair oil has a cooling impact. The
penetration of hair oil is fairly high at around 87% and evenly distributed among
the urban and rural areas.

Hair care category in India consists of the following major product groups.

Hair oil is a very Indian phenomenon. It is used as a conditioner and nourisher.

Hair oils are broadly of two types viz coconut oil and non-greasy perfumed oil.

The major positioning platforms for hair oil are purity, hair nourishing and more
recently, non-greasy look. Coconut oil and perfumed oil accounts for about 65%
and 35% of market in volume terms.

Unlike shampoos or hair colors, which are products relatively new to the Indian
psyche, the usage of hair oil is a deeply ingrained habit with Indian consumers.
Therefore, this is one product where the major players do not have to fight either
monetary or psychological barriers to usage. But this does not necessarily mean
that being a branded player in the Rs 1,300-crore hair oils market is easy.

Branded players account for just over a third of the total hair oil market. Players
in the plain coconut oil segment operate in a category where there are few entry
barriers in place. Loose oils are priced on the basis of input costs and availability,
both of which are notoriously volatile. Since branded players have to grow at the
expense of the ubiquitous unorganised segment and a host of regional and local
brands, it is difficult to shield margins and selling prices from the vagaries of
loose oil prices.

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Key objective

The main objective of Nihar coconut oil is to overtake the loose oil consumers in
rural areas. It also aims at being the market leader in rural market by overcoming
other brands.

It is a quiet conquest by Hindustan Lever Ltd (HLL) in the rural coconut oil
market. HLL's Nihar coconut oil achieved a market leadership in the rural coconut
oil market in October 2000, by displacing all-time leader Parachute of Marico
Industries.

As per market research firm ORG-Marg's retail audit for the rural coconut oil
market, Nihar's market share stood at 25.4 per cent in volumes in October, while
that of Parachute was at 23.6 per cent. The total volume of the rural coconut oil
market is around 54,000 tonne, growing at 6-7 per cent annually.

Even as HLL has managed to scrape through the leadership position of the rural
coconut oil market, it is still far from being crowned the all-India leader in
coconut oils.

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RURAL CONSUMER’S AND INDUSTRY’S PROFILE

• The consumer product sector mainly consists of personal care, cosmetics and
home products segments. The sector can be further sub-divided into dental care
products, soaps, detergents, surface cleaning products, skin care, and hair care
products.

• India's rural markets have seen a lot of activity in the last few years. Since urban
markets are saturated in most categories, future growth can come only from
deeper rural penetration. FMCG majors are aggressively looking at rural India
since it accounts for 70% of the total Indian households.

• The industry is volume driven and is characterized by low margins. The products
are branded and backed by marketing, heavy advertising, slick packaging and
strong distribution networks.

• Despite the strong presence of MNC players, the unorganised sector has a
significant presence in this industry.

• Brand building and extensive distribution network is a key factor. A successful

brand is a precious asset, which could fetch a price many times the cost of assets
required to make the product. A study conducted by A&M-ORG-MARG reflects
that the share of branded goods is high for a number of daily used products.
Branded goods comprise of 65% of sales in villages and the share of non-branded
products is shrinking dramatically.

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Value-added hair oils

Given the limited differentiation possibilities in the coconut oil segment, major players in
the branded hair oils market have been training their sights on value-added hair oils. This
has spawned a range of product innovations -- hair oils with herbal ingredients, non-
sticky oils, light hair oils, and lately, dandruff solution hair oil.

An entry into the value-added hair oils segment appears to offer quite a few benefits to
the branded players. One, with easier differentiation from the regional and local brands,
establishing a brand identity is easier. Two, this makes value-added hair oils less
vulnerable to price competition from cheaper alternatives. Third, value addition helps
players command a price premium over the no-frills coconut oil brands.

Both herbal oils and non-sticky hair oils have been quite successful as product concepts.
Dabur India's Vatika hair oil, one of the first players to milk the herbal category through
aggressive advertising, registered a growth rate of 74 per cent in 1998-99. Dabur's hair
oils business continued to grow at around 18 per cent in 1999-2000. HLL's Clinic Plus
non-sticky hair oil (which combines coconut oil and mineral oil) has also been an
unqualified success.

While Parachute continued to remain the lynchpin of Marico's hair care business, it was
the value-added hair oils, such as Hair and Care, which clocked higher growth rates of
late. While Parachute's growth rate fell from 14 to 6 percent in the first half of 2000-01,
Hair and Care's growth rates improved from around 7 per cent to 23 per cent in the same
period. HLL's Clinic All Clear hair oil and Parachute Dandruff Solution have also entered
the fray.

Importantly, while the plain coconut oils have revised their product prices downward, in
line with the meltdown in loose oil prices, value-added hair oils have been able to
maintain their price line.

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About HLL

HLL has over 36,000 employees, and has created 2 lakhs indirect jobs. Its operations are
spread across 70 locations in India. There are over 50 factories, of which 28 are in
backward areas. The operations involve 2000 suppliers and associates and 7000 stockists
and agents. HLL has emerged as a major Exporter.

Corporate Profile

HLL, a 51.6% subsidiary of Unilever Plc, is the largest FMCG Company in the country,
with a turnover of Rs. 118 bn. The company’s business sprawls from personal and
household care products to foods, beverages and specialty chemicals. The company has a
dominating market share in most categories that it operates in such as toilet soaps,
detergents, skincare, hair care, color cosmetics, etc. It is also the leading player in food
products such as packaged tea, coffee, ice cream and other culinary products.

Market Share

HLL grew at a fast pace in the mid 90’s driven by its aggressive acquisition spree. From
Rs. 38 bn turnover (contributed 70% by soaps, detergents and personal products), HLL’s
turnover has now grown to Rs. 118 bn, with soaps and personal products contributing
57% to turnover and beverages and food products contributing to 29% of turnover.
Growth during the last few years has largely been driven by the personal products
business. However the pace of growth has slackened significantly in the last two years
with several key segments registering a degrowth in 2001.

M arket Capitalisation - HLL

60%

HLL
Other Brands

40%

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Even as Hindustan Lever is armed with two brands -- Nihar and Cococare -- positioned to
take on Parachute, the clear strategy adopted by HLL is to attack Parachute indirectly by
targeting the loose oil consumer.

HLL's overall share in the Rs 500-crore coconut hair oil market is about 24 %. Marico
leads with a 53 % share. HLL's Nihar has appreciated its market share to 17.2 % in May
2000, from 12 % in end-1999, as per ORG-Marg All-India retail audit. The brand's share
in the beginning of 1999 stood at 9.5 %.

Performance of HLL in 2001

Turnover for the year increased by 3.42 % gross and 3.47 % net.

Product Categories:

Soap and Detergent

The overall market growth for Soap & Detergent was sluggish during the year with a
sharp decline in the Popular & Premium segment of the market. In particular, rural
market where the business had a traditionally strong presence performed poorly
following decline in the agricultural growth. The discount segment continued to face
severe price led competition. Against this background, the business registered a relatively
better performance in term of growth. Major investment were made behind quality
enhancement of key brand like Lux, Surf and Wheel during the year with clear consumer
benefit. These were backed by some strong consumer promotion during the year
including multi pack. Lifebuoy Active was launched during the year and in short time,
the brand grew handsomely with a 3.7 % share of the segment. This helped offset the
decline of Lifebuoy Carbolic. Major investment had been planned to retain and grow the
Lifebuoy franchise in 2002.

Overall, Power Brand grew significantly ahead of the market and are poised well for a
strong performance once the market turn around with the impending economic revival.
Innovation will continue to drive growth in the following year, with several projects in
the pipeline.

Major initiative to improve distribution reach, particularly in the rural market, were
undertaken during the year to build upon the competitive advantage that the business
currently hold in sales and distribution. Significant investment were also made in
networking and Information Technology IT to manage supply chain more efficiently and
make a quantum improvement in the customer service level. Project LEAP which bring
together the combined strength of IT, Sales and Commercial to deliver better customer
service and make the entire supply chain including the back end system connected with
supplier of material respond faster to the short term change in the market place, had been

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implemented toward the end of the year in the Soap Business and the initial result were
encouraging. The focus in 2002 will be to stabilise the system and prepare for rolling it
out to other businesses.

A few highlight of the 2001 brand performance are:

• With Wheel and Rin, the business not only recorded brand leadership again after a
decade but also captured No 2 in Laundry.
• Lux recorded it highest ever share in the last 24 month.
• Wheel Green Powder share are at their highest in 24 month.
• Surf Excel had recorded it highest value share ever.
• The business also created new benchmark in capacity creation with 4 new plants 2
for NSD Bar, 1 for Soap for NSD Powder being commissioned in record time.
These factories had stabilised very quickly giving significant supply chain and tax
benefit to the business.
• Superior Technology in the business repertoire will be leveraged to deliver
improved quality at lower cost to achieve profitable growth. The Business sees a
big opportunity in market growth in the medium to long term, particularly in the
rural area, and had initiated programme to drive consumption of soap in the
context of the increased awareness of health and hygiene. For the year 2002,
market growth, which is linked to the turnaround of the economy, remains the
major risk factor.

Personal Product:

Personal Product had led a good year in 2001, with double-digit growth. This was
achieved by focusing on the core brand and investing in building their equity. In spite of
slow market growth, your Company increased it investment in innovation, research and
advertising on it big brand resulting in growth ahead of the market.

The Hair Category had another year of growth, with high quality relaunches of Clinic
Plus, Clinic All Clear bottle were changed in line with international development, while a
new stand up pack was launched in the mid price segment. Your Company entered the
nascent category of hair colourant, with the launch of Sunsilk hair colour in the metro. In
order to address the opportunity at the low price end of sachet, Lux sachet were launched
at price of Re1 and Re0.50, and these had met expectation.

The Skincare Category had a very good year, with Fair & Lovely as star performer in
2001. In Fair & Lovely, the launches in 2001 included a fairness soap, a dark circle under
eye cream, and sachet with a recloseable cap. The main Fair & Lovely cream brand was
also relaunched with improved packaging and communication. All these initiative, along
with investment in advertising and rural penetration, led to high growth for the franchise
through the year.

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The Pond brand returned to double-digit growth after a slowdown for 2 year, with
comprehensive relaunches to it talc as well as skincare range. The growth was achieved
by improvement in the functionally of product, packaging and impactful market activity.
A new talc variant, pond Light n Fresh, and a new mini Clod Cream jar priced at Rs5
were successfully launched in 2001. The skin range of Lakme was renovated and
strengthened and a premium new product, Lakme Fair Perfect, was introduced toward the
end of 2001.

In the Oral Category, Pepsodent was relaunched and emerged much stronger in 2001 as a
result of innovation, advertising and marketplace activation. The introduction of value
pack as well as new advertising helped increase market share of Pepsodent. Your
Company decided to deprioritize the toothpaste brand Aim, in order to focus all effort on
Pepsodent and Close Up this strategy had been successful as demonstrated by the growth
and brand building that had been achieved in the second half of 2001.

In the Deodorant business, Axe continued on a high growth plan, with many imaginative
market activities and new introduction in 2001. Rexona was relaunched with international
packaging and had achieved salience on the 24 hours delivery of deo benefit.

Colour cosmetics saw many innovation on both Lakme and Elle 18 including a new range
of colour based on the Lakme India Fashion Week.

HLL acquired the asset and liabilities of it colour cosmetics, fragrances and personal care
business from Lakme Lever Ltd at net book value, with effect from 31/3/2001. Post
merger, Aviance business continued to focus on direct marketing of personal care product
to gain better understanding of this channel .

Supply chain and souring efficiencies led to significant cost reduction, whilst quality
improvement came through technologies and innovation. Your Company continues to
focus on low unit price pack, which provide the consumer with quality product at low put
down price. A new Personal Product factory was commissioned in Doom Dooma in
Assam, to cater to the growing market demand.

Nihar Perfumed Coconut Oil continued to grow well, while Clinic All Clear Dandruff
Oil registered substantial growth of more than 50 %. Nihar Amla Oil was also launched
around the end of the year, to exploit opportunities in this segment of hair oil.

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Nihar’s market share

For Nihar coconut oil, the company has already established rural leadership. According to
ORG-Marg figures for market share in rural areas for 0ct 2000, Nihar is at 25 per cent as
compared to Parachute at 24 per cent.

In December 99, Parachute was at 28 per cent as against Nihar at 15 per cent. To increase
urban penetration, the company is changing the imagery of the product by changing the
product packaging. The 200 ml bottle is much sleeker and contemporary.

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Marketing Mix for Nihar Coconut Oil

Product: Packaging innovations

Nihar, India's only double filtered coconut oil has made a change in packaging and logo,
which is innovative, convenient and vibrant. The logo lettering is now in a fresh green
colour and sports a leaf over the brand name. Nihar has consistently been bringing
innovations to its consumers, it was the first to introduce the wide mouth jar and pouches
packaging.

In keeping with Nihar heritage, the new packaging is part of Nihar’s constant endeavors
on improvising and providing quality to our consumers. The tamper proof jar has been
introduced with grooves on the side for a firmer grip giving the jar a more feminine
aspect. The flip top tin has been designed for convinience in pouring out the oil, the wide
mouth jar can be used in different climatic conditions. The essence of the new packaging
is to bring about practicality in daily usage of the Nihar coconut oil.

The range of double filtered Nihar coconut oil includes:

· Flip top tin, available in 200 ml and 500 ml

· Tamper proof cap, available in 100ml, 200ml, & 500 ml with grooves on the side for an
easy hold when oily.

· Wide mouth jar available in 200 ml and 500 ml

· Pouches available in 50 ml, 100ml and 200 ml

Process of preparing the Double filtered Nihar coconut oil

The double Filtration process involves the production of filtered coconut oil from copra.
This is done by downsizing the copra, which is then passed through a cooker and steam
heated for facilitating oil release. The copra is then crushed at a higher pressure. The final
step in this stage involves sieving the oil and parts of the crushed copra through a screen.
This still murky oil is allowed to partially settle in flat-bottomed collection tanks. In the
second stage the filtered coconut oil is mixed with special quality silica and recirculated,
this continues until the required clarity is achieved. This filtered oil with adequate purity
finally goes to the packaging line.
Nihar has also migrated to low unit packs to rope in new users. HLL has launched 100 ml
pouches of Nihar priced at less than Rs 10.

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Apart from making the product more affordable to mass market consumers, the 100
ml pouches are cheaper on a per ml basis than the larger bottles and flip top packs. This is
likely to bring in new users from the loose oil segment.

Pricing

So as to tackle the pricing issue, HLL has launched Nihar and Cococare in various price
points in pouches, such as Rs 5.50 for 50 ml, Rs 10 for 100 ml and Rs 20 for 200 ml.

HLL believes that the low-unit price packs will result in upgradation of the loose oil
consumer to this brand, and enable the company to gain a higher share of the market.

For example, Nihar's small packs in AP has led to the brand's market share gain in this
state from a marginal 2% in April to 35 %.This example is being replicated by the
company in each of the states where Nihar and Cococare draw large consumption. The
company feels there is enough room for brands to gain share by upgrading loose oils
users.

The price of copra, the key input in coconut based hair oils, has been a key factor
determining the fortunes of the major players in this segment. The continuation of the
present price trends in copra would probably determine the near term financial
performance of the large players in the plain hair oils business. On this count, there
appears to be no near term cause for worry. A large part of the decline in copra prices is
due to the substitution of copra by cheaper imported palmolein.

Even after three successive import duty hikes on palmolein, it continues to the remain the
cheaper option for industrial users. Prospects of a near-term up trend in coconut oil prices
therefore appear remote. With an aggressive price war breaking out between the players
in the coconut oil segment, value growth in this segment is likely to remain subdued.
Strategies in this segment will clearly hinge on price. The value-added segment appears
likely to sustain the present growth rates of 20-30 per cent.

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Place ( Distribution)

Hindustan Lever Limited has a very good distribution network. Hindustan Lever has
leveraged the micro-credit model to expand its rural market from its present 40 per cent
penetration.

Hindustan Lever Ltd is picking up where the Grameen Bank of Bangladesh left off.
Leveraging the micro-credit model to expand its rural market, it is piloting `Project
Shakti' -- its five-month-old marketing initiative involving women belonging to micro-
credit self-help groups (SHGs) in the Nalgonda district of Andhra Pradesh.

The project, with an obvious `win-win' partnership potential, involves women from SHGs
turning into direct-to-home distributors for HLL in their area, thus helping the company
expand its rural market from its existing 40 per cent penetration in villages with
population of over 2000.

For the women, it means income generation without the headache of starting their own
venture and becoming vegetable vendors, fish vendors, pan shop owners, etc., which has
generally been the micro-credit model to date.

Andhra Pradesh was obviously chosen for the pilot project as 20 per cent of its rural
population is covered by the micro-credit model. The micro-credit concept, that impacts
45 lakhs women belonging to 3.33 SHGs in the State, creates wealth for the members of
the groups and helps them better their lives and alleviate poverty. The micro-finance
collected in the State, through savings as well as institutional loans, is around a whopping
Rs 800 crore.

For the project, 50 SHGs closest to the highway in Nalgonda district were identified.
These are covered by three Mutually-Aided Credit Thrift Societies (MACTS), which act
as semi-distributors in the project. MACTS, which generally consist of 14 to 15 SHGs,
are federated into a co-operative and work in close tandem with the SHGs.

In fact, the project has had several interesting spin-offs. One of the MACTs distributing
HLL products has started its own supermarket, while another is shortly purchasing a
vehicle for its distribution network.

The investment opportunity is relatively risk-free and high on return. HLL is committed
to providing the necessary training inputs to these groups on the basics of enterprise
management which the groups can then use to enlarge their initiatives.

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Promotion

Nihar attracts a large consumer preference in Bihar, Uttar Pradesh, Madhya Pradesh,
Rajasthan, Andhra Pradesh and Bengal. Promotional activities are region-specific and
locally flavoured to suit the brand's requirement in its area of strength.

The customers in the rural area are very price sensitive. Great emphasis is laid on the
price factor and so they advertise keeping in mind the price. A lot of emphasis is given on
the price and they also compare the product with the local brands and how it is superior
in quality from the other available local brands.

Nihar does advertise in the rural area but they don’t use much of newspaper as there is a
very high level of illiteracy in the rural area. They do use advertising through T.V.
Nihar's "kudrat ki shakti" ad clicked in the market place as it was distinctly different to
the usual hair oil ads, HLL feels. But that is also not on a large scale as the T.V hasn’t
yet reached the interiors of rural areas.

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PROBLEMS AND STRENGTHS OF NIHAR

Problems faced by Nihar

• Strong competition from other players in the market, especially Parachute of

Marico industries.

• Pricing is a critical issue in the branded coconut hair oil market where the
consumption of low-priced loose oils is huge.

Strength of Nihar

• Nihar can gain market share from conversion of loose oil consumers. The strategy
is to upgrade the loose oil use to Cococare/Nihar by offering small pack forms,
which are affordable.

• Nihar has a very strong distribution network, so it can reach more rural areas with
its help and cover the market.

To conclude, in a very short period of time Nihar has been successful in gaining
control over the urban market as well as the rural market. With the help of its
strong distribution and its continuous innovations to match the consumers’
choice it can continue to maintain its leadership in rural market.

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