Joint ventures/Consumer markets

Hutchison Telecom formed a 49:51 joint venture
Disinvestment has
proved very
profitable for some
local partners
Corporate divorces
no longer create the
controversy they
once did
have been trying to buy out Piaggio’s 23% stake
with Max (regulations limit foreign investment to
49%) and in 1995 won a licence to provide cellu-
lar services in Mumbai. Three years down the line,
after the subscriber base had crossed 100,000, Max
India sold a 39% stake to a special purpose vehi-
cle for Rs5.5bn (US$130.9m).
● Conflicts between partners. Carmaker Auto-
mobiles Peugeot decided to pull out of its joint
venture after its partner, Premier Automobiles,
made overtures to Fiat of Italy. Peugeot insisted
that PAL had violated the non-competition clause
of the joint venture agreement signed in October
1994 which said that neither partner would devel-
op any activity in the car industry with a third
party without proposing the project to the other
partner or seeking the other partner’s consent.
Peugeot called it a divorce as PAL had not sought
its consent to enter into a joint venture with Fiat
Auto. It held that the new venture would further
damage Pal Peugeot’s viability. PAL had also
refused since January 1997 to inject further capi-
tal into the joint venture.
Differences between the two partners on
expansion plans led to the dissolution of the
much-touted joint venture between Goodyear Tire
& Rubber and Ceat of the RPG group. Ceat agreed
to sell its entire 50% stake to Goodyear.
Piaggio of Italy and the Singhania business
group are engaged in a raging dispute which has
spilled over into the courts. The Indian partners
in LML, Indian’s second largest scooter maker, and
have petitioned the High Court in Kanpur for per-
mission to exercise this option. Piaggio has vehe-
mently opposed the move but its appeal to refer
the dispute to the International Chamber of Com-
merce has been rejected by the court.
Conflict in the marketplace has taken a toll on
the joint venture between Caltex and the state-
owned Indo Burma Petroleum. In 1993, when the
government deregulated the marketing of lubri-
cants, Caltex moved swiftly to tie up with Indo
Burma Petroleum in order to gain access to IBP’s
retail outlets. However, Caltex brands and IBP’s
own lubricants ended up competing with each
other in a market that quickly became crowded
with 31 players. IBP also lost interest as the joint
venture ran up losses of Rs300m against a paid-up
capital of Rs400m. In June 1998, Caltex decided
to buy out the entire 49% stake of IBP for Rs198m.
No big deal
Just two short years ago the break-up of several
high-profile joint ventures created a storm of con-
troversy, with nationalists claiming that multi-
nationals were taking over the country. Today
corporate divorces cause barely a ripple. This is a
good thing since further deregulation and easing
of foreign investment rules will put more and
more alliances under pressure.
■

Sanitary napkins

Old habits die hard

It is rare that multinational brands aim for the low-end of a developing market. The Indian
market for branded sanitary napkins is one such example

When competition began in the market for sani-
tary napkins in the mid-1990s, initial results
looked promising (see IBI, August
1996). But fulfilling that promise is
Volume growth proving more difficult than previous-
Estimated size of the market for
sanitary napkins
ly thought. Volumes are growing, but
growth in market value is barely above
m0 100 200 300 400 500 600 single digits.
pieces
1989
Indian women have simply not
172
shown the enthusiasm that they have
1995 330
for new cosmetics and shampoos. For-
eign brand marketers Johnson & John-
1996 405 son, Procter & Gamble and Kimberley
Clark have conducted study after study
1997 450 to understand what discourages
women from adopting a more com-
1998* 536 fortable mode of protection and giving
Sources: Press reports; *A&M * projected
up home-made cloth pads.
One of the largest studies was done
by Johnson & Johnson prior to the launch of its
Stayfree Secure line in the last quarter of 1997. The
study covered 2,500 women in ten cities and
brought some interesting conclusions. It suggest-
ed that the typical user of branded sanitary nap-
kins is the urban working woman. Indian women
who do not work outside the home view expen-
diture on personal discomfort as dispensable. The
price of sanitary napkins, which results in a
monthly recurrent expenditure of Rs30-45, was
identified as a major barrier.
Belatedly, foreign marketers have realised that
the gender of the consumer and her status—work-
ing or non-working—matters in India, where dis-
posable incomes are limited and there are many
other purchases which could receive higher pri-
ority. However, the survey also suggested that
lower prices could entice women to buy sanitary
napkins regularly.

6 India Business Intelligence December 1998 © The Economist Intelligence Unit Limited 1998

Copyright ©2001. All Rights Reserved.

 Consumer markets
As a result of the study, Johnson & Johnson may be on the cards. The company is
decided to target the lower end of the market, also considering the use of direct mar- Market shares
introducing Stayfree Secure at Rs20 for ten pieces. keting to reach teenagers. Projected market shares by brand,
1998 (%)
Kimberley Clark Lever, (KCCL), a 50:50 joint ven- To keep prices low, Johnson &
ture between US paper products major Kimber- Johnson has had to keep costs to a Comfit 2.0 Angela 1.0

ley Clark and Hindustan Lever, used the same
strategy when it re-entered the market in January
1998 after an aborted try in 1996 (the company
refers to the effort as a “test launch”, but there
were widespread reports of quality problems). Its
Kotex brand was priced at Rs20 for eight pads.
On a value basis, the market has been growing
at a sluggish rate compared with other products
aimed at women, such as cosmetics. Sales were
worth Rs1.9bn (US$45.2m) in 1997, up 11% after
a sober annual rate growth of 6-7% in the previ-
ous five years. The cosmetics market, by contrast,
has grown by about 20% and the shampoo mar-
ket by more than 30%. Moreover, penetration lev-
els for sanitary napkins have remained low at 2%
at the national level and 10% in urban areas.
Ever optimistic, multinationals view this as an
index of untapped potential. Through television-
led advertising they are trying to overcome the
key problem of social embarrassment associated
with the product and establish its relevance to a
woman’s needs (in rural areas, however, women
still consider the topic of menstruation and prod-
ucts associated with it taboo). Some of the ad cam-
paigns have brought controversy. Johnson &
Johnson complained to the Monopolies and
Restrictive Trade Practices Commission (MRTPC)
about a Procter & Gamble (P&G) ad campaign
which lampooned the cheaper brands. The
MRTPC ordered P&G to stop broadcasting its
Whisper ads until the issue was resolved.
Johnson & Johnson has decided to spend about
30-35% of its ad budget on Stayfree Secure alone,
a product which it says has been exhaustively
researched for its suitability to the needs of
women and their willingness to pay. The focus of
the ad has moved from working women to college
students, housewives and newlyweds. Advertising
has been accompanied by sample marketing.
Not surprisingly, competition is getting
tougher between Johnson & Johnson and Kim-
berley Clark Lever. Though Stayfree Secure had a
head start of three months, Kotex managed to
carve out a share of 10% in Mumbai within three
months of its launch. The two are neck and neck
in Bangalore and Kimberley Clark Lever has a
share of 5% against 0.5% for Secure in Hyderabad.
Johnson & Johnson is trying to improve its dis-
tribution to ensure product availability even at
grocers and convenience shops and in rural areas.
It also plans to relaunch Carefree, a belted napkin
(30% of sanitary napkin users use belted prod-
ucts). Stayfree Silky Dry is to be upgraded and a
winged version, like the Whisper line from P&G,
minimum at every stage of the value Others 5.4
chain. On the shop floor the company
has installed special machines to con-
trol alignment which have pared
wastage from 10% to 3%. Dealer mar-
gins on Stayfree Secure have been P&G 43.0 Johnson &
Johnson 48.6
thinned from 15% to 12%.
Source: A&M, June 1998
Johnson & Johnson has obviously
lost the complacency typical of a near-
monopolist with a market share of 75%, which
characterised the company in 1990. Then the
company was a seemingly easy target for P&G,
which stormed the market with its Whisper brand.
It not only demolished Johnson & Johnson’s near-
monopoly but grabbed the market leadership. It
has taken a few years for Johnson & Johnson to
recover.
P&G, which had perched itself comfortably at
the top end of the market and was showing no P&G may yet be
signs of entering the mass market, seems to have tempted to join its
changed its mind. It seemed that Johnson & John- competitors in the
son’s real competition would be Kimberley Clark, low-end of the
which is aiming at all market segments and market
widening its reach through the legendary distri-
bution network of Hindustan Lever (subsidiary of
the Anglo-Dutch conglomerate Unilever, which
is India’s oldest multinational). But marketers
report that sales have surged since January this
year in response to the availability of the new low-
priced products. P&G has since decided to test this
with an “anniversary offer” of Rs20 for a package
of six napkins and Rs99 for a package of 30.
Have the companies finally found the right
product-price mix to expand the market? Sales
over the coming months will provide the answer.
Regardless of the near-term results, it will take
years and millions more dollars worth of adver-
tising and consumer education before companies
come anywhere near full exploitation of the 90%
of the potential market that remains untapped.
■
Looking for bargains
The market by price
Top end (Rs46-60) Mid end (Rs39-45) Low end (Rs20-30)
Johnson & Johnson Stay Free,Silky Dry Stayfree, Spirit Carefree, Stayfree
Secure
Procter & Gamble Whisper with wings Whisper —
Kimberley Clark — — Kotex
Others — — Comfit, Angela,
Breeze etc
Market share by price 6% 49% 45%
Source: Field survey; Business India, February 1998

© The Economist Intelligence Unit Limited 1998 India Business Intelligence December 1998 7

Copyright ©2001. All Rights Reserved.