By Ishan Arora:
Patanjali Ayurveda was founded by Baba Ramdev and Acharya Balkrishna in the year 2006. The latter owns 94% of Patanjali Ayurveda. Patanjali is the fastest growing FMCG company in India. It has grown more than 10 times in revenue in last five years, an unprecedented feat in India’s FMCG (fast-moving consumer goods) industry. In 2015, Patanjali’s sales grew by 150 percent to Rs. 5000 crore and now the company is targeting for Rs. 10,000 crore revenue in 2016-17. They have 4000 distributors, 10,000 stores and 100 mega-marts. They have also tied up with retail chains like Future Group and Reliance Retail. The company is in talks to raise around Rs. 1000 crore in project loans so as to set up four new manufacturing plants.
Patanjali follows a ‘Branded House’ strategy whereas other companies in the consumer goods sector like P&G and HUL follow a ‘House of Brands’ strategy. That is the biggest difference why Patanjali was able to capture a huge market share in such a short span whereas it took decades for P&G or HUL to reach to this point.
Now, what are these strategies? Let’s have a closer look.
The Branded House: In this strategy, the company is the brand. All the products produced will be promoted under one brand. For example, Apple! Apple has various products like Mac, iPod, iPhone etc. Though all of them are different and perform different functions but they are all branded as ‘Apple products’. Users go crazy for their products because they want to own a product of that brand. Similarly, Patanjali is following the branded house strategy and is launching various products under one brand, i.e., ‘Patanjali Ayurveda’. Even if you look at their advertisements, they don’t promote individual products (say a toothpaste). Instead, they promote the entire brand which helps them save marketing and advertising costs as well.
The House of Brands: In this strategy, the focus is on development of sub-brands rather than one parent brand. This is primarily done to remove the dependency of the company on one single brand. So, in case if one brand doesn’t do well, the company can still earn revenues from other brands and the failure won’t hurt the company badly. For example, P&G. Under P&G, there are dozens of brands, including Pampers, Duracell, Gillette, and Tide to name a few. However, the name P&G gets very little prominence, and adds no real credibility to any of its products. You will never see P&G promoting its company in an advertisement. It rather focuses on the individual products.
1. Increasing number of health-conscious people: In recent times, people have become more health conscious which is evident from the fact that many companies are investing money in organic and Ayurvedic products. According to Nielsen, the health and wellness segment is worth a sizeable Rs. 33,000 crore. It grew 6% over 2014. Patanjali, with its Ayurvedic product line, is able to somehow capitalise on this changing consumer behaviour and hence capture more market share.
2. Less price: Patanjali products are available at an attractive discount as compared to their competition. The company sources products directly from farmers and cuts on middlemen to boost profits. Hence, they are able to reduce their raw material procurement cost and are able to produce goods at a much cheaper price. Currently, Patanjali is making 20% operating profit which is higher than the industry average.
3. Strong distribution channels: Patanjali products are sold through three types of medical centres. These include Patanjali Chikitsalayas which are basically clinics. Then there are Patanjali Arogya Kendras which are health and wellness centres. They also have non-medicine outlets called Swadeshi Kendras. The group has 15,000 exclusive outlets across India. They also distribute through general retail stores. As mentioned above, they have also tied up with well-known retail chains also. They plan to grow to 1,00,000 outlets in the next few years.
4. Strong brand association with health: Patanjali is able to create a brand perception of health and wellness among the Indian masses, primarily because of Baba Ramdev’s association with the brand who is considered to be a veteran of yoga. Hence, more people are getting attracted to Patanjali’s products and are re-buying products more frequently.
5. Simple packaging, that gives it a ‘natural’ look: If you notice, Patanjali sells its products with a very simple packaging. Now, many would feel that it is not a good strategy but the truth is it is working for Patanjali. With a product like Patanjali, where the message is to promote ‘Ayurveda’ and ‘Health’, simple packaging can be a very effective way of promotion and that is why the company is able to do miracles with its simple yet effective packaging. With a ‘natural’ look (especially with leaves and herbs), consumers get a feeling of health and wellness and they are attracted to buy the product.
6. Media promotions: Baba Ramdev is considered to be a veteran guru of yoga across the globe. He has been very co-operative with press and media and has maintained good relationships with them. Also, he is known to have good connections with many politicians. So he used both the facts to publicise his company free of cost. Take for instance when Baba Ramdev approached Lalu Prasad Yadav and gave his face a massage with a Patanjali face cream and it was covered by media. Or the Maggi scandal when Baba Ramdev came forward and gave a statement that he would launch safer and better-quality noodles.
7. Word-of-mouth promotion: Advertising and promotions typically account for 12-20% of revenue expenditure by consumer goods companies. When a new company gets into the business, this spending is significantly higher. During the introduction stage, Patanjali followed a unique word-of-mouth publicity model and the entire revenue was without any advertising. It was because of the brand loyalty of its customers that the word-of-mouth promotion proved so successful for the company.
1. Strengthen their distribution channels: The key to success in the FMCG industry is the distribution channel. Patanjali should ensure its products are available everywhere and at any time. Like Future Group, it should tie up with other key retail chains/stores and make its presence felt. If the company is able to widen its distribution channel, there is no way it can’t be on the top of the FMCG list.
2. Avoid falling into the ‘Icarus Paradox’: For those who don’t know Icarus Paradox, “It refers to the phenomenon of businesses failing abruptly after a period of apparent success, where this failure is brought about by the very elements that led to their initial success”. Patanjali should ensure that it innovates its products with time. It shouldn’t just stick to the traditional way of marketing and promotional strategies. It should be aware of the fact that time changes consumer behaviour and the company should also evolve with its customers to fulfil their needs and demands.
3. Focus on quality: Quality is of prime importance when it comes to FMCG products. In an interview, Baba Ramdev promised that they maintain the utmost level of quality in their manufacturing plants. So, in order to succeed, Patanjali should ensure to maintain (if not improve) the same level of quality in future as well. Patanjali products are known for their quality and there shouldn’t be a tradeoff between sales and quality whatsoever the reason may be.
Patanjali has given a headache to many marketers with its unconventional ways of marketing. It has disrupted the whole FMCG sector and bought a revolution in the industry in a very short span of time. A point to note is that many people are buying Patanjali products due to the hedonic value attached to the products. Hence, Patanjali (unlike its competitors) is attracting brand-loyal customers and not price-sensitive customers.
Will Patanjali continue to grow at the same pace and prove to be a dark horse in the race? Or will it prove to be a water bubble, with this being a temporary phase for Patanjali and strong players eventually coming up with strategies to recapture the lost market share? Only time will tell.