A lot has been written about the rise of Patanjali Ayurveda in the media. If reports are to be believed then this will soon be a company which is generating 10,000 Crores of topline in FY17. This is an amazing story which people are attributing to the Ramdev's appeal and the sudden urge for Ayurvedic products. While it may be true that followers of Baba Ramdev would have influenced the initial uptake of products and ensured its initial success , I believe the products are being accepted by the mass for a different reason altogether. I will explain it in detail with all the relevant information.
Understanding the Changes in FMCG Cycle
To understand the reason for the changing preferences among users one needs to understand how FMCG companies have been traditionally working. A rather beautiful explanation of the same in given in the article with regard to DollarShave Club being acquired by Unilever. To summarise the same in different words , FMCG behemoths like HUL , ITC and Dabur were built on the following 3 pillars.
Research & Development - These companies invest massive amounts in creating differentiated products which help them to stand out against every competition.
Branding & Advertising : They spend massive amount to create brands which aid in reducing the mental friction when it comes to choosing a product.
Distribution & Reach: The last area where FMCG companies are spending massively is reach and store space in modern retail. By ensuring that their products are widely distributed and have shelf space FMCG is able to ensure that they are able to maintain their market share vs local brands.
R&D is No longer the edge in most categories
R&D capabilities of FMCG have usually meant that their products were superior to the local companies. But with many FMCGs resorting to contract manufacturing in China & other countries it has meant that their technology and R&D is now available with a wider set of manufacturers . New brand owners can now contract manufacturer the same products with small variants from these contract manufacturers.In addition as beautifully explained in the above article on Gillette , there is only so much innovation that you can do in shaving blades or for that matter any FMCG product. Thus MNC FMCG companies have hit a glass ceiling in terms of innovation in most product categories. People have come to realise that there is not much differentiation which you can do in certain categories. E.g Take toothpaste from P&G versus the same from Patanjali (Danta Kanti) , similar features in terms but Patalanjali can claim that this is Ayurvedic hence it is better. What is the best response that P&G can do to such a campaign ? Launch a Pepsodent Ayurvedic ? Won't that be ironic because all along they have been pitching their superior R&D!. Given that Patanjali can now claim to have a superior product and be cheaper than Pepsodent the user will surely want to make a switch.
Brand as Value - Patanjali Does Decently
The second area where FMCG majors like P&G , Unilever have added a lot of value is by creating a brand which the user is aware of. Branding not only helps to assure that the product is good but it helps in reducing friction in the mind of users as he does not have to spend enough time to choose between the 10 types of detergent powders (often at the same price point) trying to garner attention. This is an edge which many local & smaller FMCG players are not able to overcome. Patanjali being backed by Baba Ramdev who is promoting yoga and Ayurveda in India. This brings instant credibility when making product decisions for users. Imagine a user having to make a choice between Jasmine Hair oil from Parachute brand (Marico) and Patalanjali Kesh Kanti .With supposedly better( not proven) quality and perception in mind due to Ayurveda, the consumer would not mind choosing Patanjali Kesh Kanti over ParaChute. To add to this am sure the Kesh Kanti would be priced competitively. The brand of Patanjali which is known for its yoga and good health thus will nullify any hesitancy in the mind of the user when choosing it. Unlike local FMCG players Patanjali has credibility because it is not seen as a company but as rather a Pseudo NGO which is out there to do good. This helps it cross the walls of brand recall which local FMCG companies are unable to cross. To help further accentuate the message Patanjali is also advertising aggressively on local TV channels with very simple ads which are there just to aid brand recall. It is a shrewd tactic as they are not spending large sums in creating new ads and are using TV only to amplify their sub-brand names like KeshKanti etc.
Distribution & Reach - Edge for FMCG players ?
By making the products available in a wide variety of stores across different retail formats the FMCG MNCs are able to ensure that their presence is felt inside the store and this would mean more sales. Patanjali was lacking in this aspect initially as the products were initially distributed by followers of Ram Dev and other stores which normally don't deal with such goods which meant that they had to pull factor. But in the last 6 months Patanjali is also playing the same game as the FMCG MNCs thus is slowly but surely catching up. It sure has a long way to go before it can catch up with the biggies in terms of reach.
Patanjali is here to stay- MNC FMCGs need a different approach.
Thus the story of Patanjali is not that of an overnight success due to people's sudden love for Ayurveda, but is a manifestation of changes which is happening in FMCG world and Patanjali is riding on this trend by leveraging its strengths of Ayurveda and Yoga. A similar effect can be seen in the biscuits industry where we have 20-30 new regional players challenging Britania with similar products like GoodDay, Bourbon etc. Thus going forward the MNC FMCG companies will be facing tougher competition at the games whose rules were written by them. This not only an Indian phenomenon but that of a global one.