1. 5 Samurai, Samanvay 2013
Shyam’s Conundrum
Shyam Malhotra, General Manager (Operations) and the de facto CEO of New India Cosmetics (NIC),
a subsidiary of the Rs.1000 crores Binjosoft group of companies was waiting for the elevator to take
him from his office to the conference room on the 10th floor of Binjosoft House, the group’s
headquarters in central Mumbai. He was a troubled man, unsure of where his company stood in the
matrix of the group’s business priorities. There had been many moments during his three years at
NIC when he had wondered whether the company was moving forward or backward. As he joined
the members of his core team for the strategy session, Shyam was thinking furiously.
Binjosoft had several business interests, chief among them being liquor (Exhibit 1). But while the
liquor business generated cash, it also ran several risks. For starters, prohibition was a constant
threat: the ban on liquor sales in Andhra Pradesh was expected to make a 10 percent dent in
revenues. If more states followed suit as Haryana had, this key business would dry up. Secondly, the
post-liberalisation attack from transnationals - some of whom had joined hands with local partners
while others, like Seagram, had set up fully-owned subsidiaries wouldn’t be easy to beat back. In
fact, Binjosoft was actually getting feelers from some of these competitors exploring possibilities for
a relationship, including a proposal for a takeover. So, though liquor was brewing cash for Binjosoft,
diversification seemed logical. Therefore, despite the liquor division remaining a priority business,
the group had chosen to invest in other money-spinning business as a hedge against the risks faced
by its core business.
That was why Binjosoft had taken over NIC- an old and established cosmetics company with
manufacturing facilities at Aurangabad (Maharashtra) - in April 1992. Its product range consisted of
Bharat, an ethnic ayurvedic, medium-priced soap with a small but viable niche in the market; Herb, a
herbal toothpaste; Wash, a detergent powder; and two other brands of toilet soap named Sparkle
and Bonjour. Despite an image of quality among sections of the trade, few of the brands had a
significant market presence. The only exceptions were Bharat and Herb, which had managed to
acquire some equity after the takeover by Binjosoft (Exhibit 2).
Worse, Shyam and his teams were handicapped on several fronts. Advertising and promotional
support from the parent group was erratic, while competitors like Youngistan Lever and Droctor &
Samble were splurging money on advertising and dealer promotions to keep their brands exciting
and alive. NIC’s products had no top-of-the mind awareness among consumers. Moreover, the
Aurangabad works were plagued by frequent strikes and go-slows. But the real worry was that
Nishant Patel, Binjosoft’s chairman to whom Shyam reported directly was blowing hot and cold on
the issue of NIC. On the one hand, Patel considered NIC an opportunity to get into mainstream
businesses. On the other, he could hardly relegate his cash cow to the sidelines. In fact, Patel’s
intentions vis-a-vis NIC were a big question mark to most of his managers including NIC’s top
management.
The others present at the meeting were Pradip Ram, deputy general manager (marketing); Sunder
Sameer, manager (marketing research); Avinash Bhattacharya, manager (sales); and Rajan Anil, a
2. 5 Samurai, Samanvay 2013
friend of Shyam’s who worked for NIC’s advertising agency. Shyam set the ball rolling by announcing
that NIC should not only launch new products, but also enter new product categories. “How do we
go about it? Where do we get the cash from? I have a solution,” he said. “Let’s purge the weaklingsWash, Bonjour and Sparkle from our portfolio, leaving just Bharat and Herb. Let’s sell the excess
capacity. That will give us the cash. And let’s use the voluntary retirement scheme route to become
leaner and cut costs. Simultaneously, let’s focus on improving our turnover and margins from Bharat
and Herb. We can then use the surplus cash for new products and product categories. How does
that sound?”
There was pin drop silence. Don’t be polite,” said Shyam. “Go ahead and punch holes into this
strategy by all means.” Ram was the first to react. “What makes you think that the excess capacity
can be sold off easily and that manpower can be reduced? We might simply end up with a
protracted labour problem with on our hands, particularly if the work force comes to know of our
long term strategy.” “I’m convinced it will work,” replied Shyam. “And so is Agarwal in personnel,
with whom I have informally discussed the issue. He assures me that he can handle it. Look, nearly
half the labour force is contractual. It’s perfectly within the law to send them home after giving die
notice. All that’s needed, as a prerequisite, is a proper work study to enable us to decide what the
strength of our workforce should actually be. So why don’t we look at the marketing issues?”
“Fine. Let’s talk products first and come back to people later,” said Ram, “Bharat is considered a
medium-priced, ayurvedic, and ethnic soap. It has a direct competitor in Kandrika, whose markets
are pockets of south India, and in Fedimix, which hasn’t really taken away our sales. Ooty candal and
Mantoor are the other competitors, but neither is an ayurvedic product. But the fact is that even
after 10 years, Bharat is struck in a groove with a flat market share (Exhibit 3). So, how do you expect
Bharat to suddenly start generating surplus cash, Shyam?”
“But we haven’t promoted Bharat aggressively,” countered Shyam. “If we increase the advertising
and promotion budgets.” “But where’s the money?” broke in Bhattacharya. “The chairman keeps
vacillating where promoting NIC products is concerned. We have to generate revenues internally
before splurging on advertising and promotion.” “That’s where the proposed surgery comes in,” said
Ram. “Sell off unviable brands and capacities, control the labour front and you have cash.
Destruction precedes construction, or so it seems.”
“I don’t know if it’s that dramatic, but substantially you’re quite right,” Shyam remarked. “Why don’t
you do the restructuring first and plan the expansion later?” asked Anil, with a tinge of mockery.
“Implement your surgery strategy, and check the results. If they’re gratifying enough, we can meet
again to discuss all those great soaps and toothpastes that you want to launch.” Shyam smiled and
said: “Anil, don’t forget we’re old hands. We know when something will work and when it won’t. I
know I can make this work.” Asked Anil, “So what are the new products you are looking at?” “Hang
on,” the normally reticent Sameer intervened. “Don’t you think we should consider the feasibility of
strengthening the existing brands?” “The point is well-taken,” said Shyam. “Ram, will you give us a
rundown on the current status of each brand?”
“Let’s start with soaps,” said Ram. “We tried some very novel positioning with Bharat, Sparkle, and
Bonjour. It didn’t work. I honestly have no clue why. It could be because of erratic supplies from the
3. 5 Samurai, Samanvay 2013
factory. It could be because of the lack of adequate promotion. Anyway, Bharat is our bread and
butter. Sparkle is a high-priced soap which is languishing. As for detergents, we never gave Wash
enough attention. There simply wasn’t enough money to spend on so many brands. Herbs have gone
down well with consumers because of its associations, and it continues to occupy a niche in the
highly competitive toothpaste market. Bonjour is half-dead. I see no signs of revival here. That about
sums it up.”
“Can’t we strengthen Sparkle?” asked Sameer. “We could,” said Shyam. “Perhaps by trying
something new in the communication. Any suggestions, Anil?” ”One way to get a high-priced
product like Sparkle to click,” said Anil, “is to pitch it on elitism. There are two ways. Get an
endorsement from a celebrity who is identified with élan. Or highlight the association of the
product, or even some of its ingredients, with class”. “That’s easier said than done,” said Ram. “All
these niches have been occupied. The beauty platform has soaps like Tux. And not all celebrity
endorsements work. Remember Crowing Glory? I think the more important point is: what’s new in
the product offer?” “Well, that shouldn’t be difficult,” said Shyam. “Why don’t we say that Sparkle is
probably the only soap which retains freshness all day long. That’s a fact in any case. Sparkle is now
on a refreshing soap platform. Why don’t we sell it on the all-day freshness platform?” “You could
have a problem there,” Anil cut in quickly. “Freshness is very broad platform and all soaps-starting
with good old Bifeluoy- are offering just that. All day freshness doesn’t sound terribly different.”
“In other words, we must think beyond premium soaps,” said Shyam slowly. “Let’s look at
detergents. Sameer, what does the market research say?” “Price is more important than quality to
the housewife. That’s been proved time and again by Mirna and Sheel” answered Sameer. “And
there’s no money to be made at the top end. Sariel and Turf Pexcel just didn’t make money, forcing
low-priced extensions like Sariel Super and Tin White. The simple question is: can we sell a detergent
powder cheaper than Mirna or better than Sariel Super? Don’t forget, the flanks have already been
covered by brands like Bhudh and Chenko,” (Exhibit 4).
That seems to settle the matter. “And toothpastes are no different,” Sameer continued
remorselessly. “The only way to succeed here is by making a lot of noise in the media. Remember
Open-Up and the money Lever spent on selling the concept of gel toothpaste? The high end seems
to have converted to gel toothpastes. Goalgate is a medium-priced toothpaste. So you cannot price
your toothpaste too high unless there’s something distinct about the product. Tabool covers the
lower end, but interest in it seems to have waned. What seems to matter there is a completely new
idea-like Cromise’s clove oil. If you think of an earthshaking product concept, then launch it.
Otherwise, the money will be better managed by our treasury department.” (Exhibit 5).
“So why don’t you give us an earthshaking idea for a toothpaste, Sameer?” asked Shyam. “I can’t
possibly do that off the top of my head, “laughed Sameer. “But there are parallels in other markets.
Take sachets in shampoos-they offer both penetration and profits. Or take the idea of a herbal
shampoo, a new concept which enabled a flanking attack to be launched on regular shampoos.
Something like that has to be worked out for toothpastes. I’m afraid ideas don’t come cheap or easy.
We have to organize focus groups, consumer panels, what have you.”
4. 5 Samurai, Samanvay 2013
“Can we look at new product categories now?” asked Shyam. He suggested talcum powder and
shampoo, and asked Anil for his comments. “Forgive me for calling a spade a spade, but talcum
powder is a non starter as a new category,” said Anil. “Demand is stagnant-it hasn’t crossed the
15000-tonne mark for the past few years. And Donds is sitting pretty with an over 60 per cent
market share. Challenger brands like Ciril and Minthol have barely five per cent each. Unless we aim
for a 10 per cent share of the market, it isn’t worth getting into. And there’s little reason to believe
that NIC will do well when established brands like Ciril and Minthol are struggling.”(Exhibit 6)
There was a silence for a while. “And the same holds good for shampoos,” continued Ram.
“Innovation holds the key. Consider the idea of mixing conditioner and shampoo and selling them
together. Consider the idea of an ayurvedic shampoo. So what’s the innovation we are offering?”
Shyam said, “Gentlemen, what we’re all saying is that unless there are some really novel ideas or
concepts, neither our old products nor new ones will sell.” Asked Sameer, “Can’t we think of some
unconventional products, outsource them instead of manufacturing them ourselves, and market
them? We should look at the possibility of launching products that have synergies with our
distribution. And why concentrate on consumer products alone? Why not consider raw materials
like fatty acids and integrate backwards?” On that note, the meeting was adjourned for a week,
leaving Shyam wondering how to strategise his way out.
5. 5 Samurai, Samanvay 2013
Exhibits
Exhibit 1: Binjosoft (figures indicate share of turnover)
Binjosoft
4%
8%
Liquor
10%
Real Estate
Finance
10%
Consumer products
68%
Others
Exhibit 2: NIC Brands (Annual Sales in Rs. Crore)
NIC Brands
NIC Brands
Bonjour
5
Sparkle
5
Wash
8
Herb
12
Bharat
30
0
5
10
15
20
Annual Sales in crores
25
30
35
8. 5 Samurai, Samanvay 2013
Questions
1. Should NIC bring in new products and phase out its existing consumer products, as Mr.
Shyam proposes?
2. Should it retain its current range of products and strengthen them all?
3. Before it’s too late, should it cut losses by selling off its assets? Or should it go for
backward/forward integration to strengthen its consumer goods business?
4. Do you see a future for NIC?
(Note: Please stick to the data given in the case. Don’t get influenced by real life external data.)
