Around a decade ago, sachets established beyond doubt that good things come in small packages.
It was a time of unprecedented growth, when shampoos became a truly mass-market phenomenon, aided by the lowering of excise duties and packs priced at an unimaginably cheap 50 paisa. Sachetisation promptly attained the status of the next big buzzword and a variety of companies pushed more products through sachets with varying degrees of success. Shampoos remain the biggest gainer and industry estimates indicate that 70% of the shampoo market is driven by low price units (LPUs).
Even today, an increasing number of categories continue to reap the benefits of thinking small. LPUs continue to register impressive year-on-year growth (See table, Small Wonders). The starting price point for Cadbury Gems for instance is Rs 1 for a pack of just four units, that's added impressively to the volume s. The LPUs at the company are growing at a healthy 30%. Cadbury is pushing Bournvita at Rs 3.50, gunning for consumers who can afford larger packs, but would like to experiment and sample before they take a decision. Dabur believes Hajmola captures different segments; its sachets are for a younger audience, while the bottles are primarily a medicinal offering bought by older people. And CavinKare is attempting to replicate its success with shampoos in pickles. Says chairman, CK Ranganathan, “For the first time, the pickle sachets are attractively packaged and it's not just the product in a clear plastic bag. Chini's pickle sachets have been a runaway success, growing at double the rate of larger packs.”
Along the way, though, many company's expectations of the role played by LPUs have been revised. The most radical change is LPUs have emerged as an independent segment and by and large, they've moved beyond their original role of trying to upgrade users to bottles or bigger pack sizes. S Raghunandan, vice-president, sales, Dabur India, explains, “Consumers who used one sachet have started using two or three and not really upgraded.” Sachets also grow due to the Indian tendency of top-up shopping, as opposed to buying large quantities at the end of the month. It's widely accepted that larger packs in India offer far less value - a complete inversion of generally accepted marketing wisdom. Says Shripad Nadkarni, director, Market Gate, “smaller packs are usually more expensive on a per gram basis. But sachets overturn the conventional logic. The price of a 200 ml sachet v/s 200 ml in a bottle will be less.” Even in urban areas, an increasing number of consumers are eschewing bottles for LPUs according to Raghunandan, largely because there's no incentive to upgrade or a reward for spending more.
Besides, sachets give consumers more of a chance to experiment with a larger range of brands. That even works with categories in which flavours and excitement are key - consumers are more likely to test out a new variant in a smaller pack.
Some are using the sachet route for cross-promotion and convenience too. Sanjiy Kakkar, vice-president, oral and haircare, HLL, says that the company markets combi-sachets of shampoo and hair oil in North India: “It ties in with the hair care habit, which is either pre-oil or post-oil, and offers a full hair-care solution at Rs 1. Innovations like these will further increase category penetration.” The third reason to adopt these packs is convenience - they're easy to carry around and dispose of, which extends their appeal beyond just the lower end of the market.
However, according to Kakkar, the market is polarised between the LPU consumers and those who prefer bottles. He believes the two are mutually exclusive and that the relative growth of sachets to bottles has slowed down. Says Kakkar, “The categories have remained fairly watertight. Bottle consumers wouldn't be caught dead with sachets. But I'm not really disappointed about being unable to convert sachet consumers. What matters is how many people I bring in, and how frequently.” With shampoo penetration lower than international standards, a lot of potential exists particularly in the rural markets. “We have to play at both ends,” says Kakkar. Also, he points out, sachets work better with single-use categories with a low frequency of purchase, which is why toothpaste sachets never did take off. “Once you convert to being a toothpaste consumer, you tend to brush regularly, and single shots won't work,” he adds.
Marketers have traditionally relied on higher margins and lower distribution costs of bottles, but a lot of the innovation these days is focused around lower price points. If HLL offers a complete hair-care solution, bundling both oil and shampoo for Rs 1, in packs that are currently being sold in North India, several other marketers are experimenting with price points between Rs 1 and Rs 10. Manu Anand, managing director, Frito Lays considers it, “The Rs 5 and sub-Rs 5 segment.” Offerings between Rs 5 and Rs 2 for namkeens, and Rs 3 for Kurkure, co-exist with larger packs. The number of transactions according to Anand is almost 50-50. But he says, “If you go for the value-wise division, it's a break up of 2:1 in favour of larger bags.”
CavinKare takes price points at the lower end of the spectrum very seriously indeed, starting its offering at 50 paise and moving along to Rs 1, Rs 2, Rs 5 and Rs 10. Ranganathan believes each of these addresses a different target group. He explains, “50 paise and Rs 1 are entry level. As the per capita income goes up, people who can afford to, go straight to Rs 2 or Rs 5.” One manufacturer absolutely confident in its ability to get consumers to buy bigger packs once they've sampled the offering is Cadbury. Says Vidyut Arte, director, mass markets, Cadbury, “There's no one straightforward way of upgrading. If the consumer is satisfied with the product experience at one price point, he moves to the next - from Rs 1 to Rs 5 in the case of Gems.”
A more serious issue is one that not many manufacturers are willing to acknowledge. Brands that have grown extensively on the back of a low-price strategy are apparently losing their premium halo. At the retail level, these brands are often passed up in favour of those who've not had as much of a presence on the sachet side of things. Nadkarni acknowledges that the threat is very real: “It becomes more important to communicate the right brand values or run the risk of looking like a sub-economy player. The big manufacturers have only themselves to blame since they focus entirely on price.” Cadbury believes a way around is to have separate distribution channels and make sure a premium customer is not weaned away by a lower-price offering. Even CavinKare ensures that the different SKUs appear at stores patronised by disparate target groups.
Premium brands like Lever's Perfect Radiance range and Cadbury's Temptations are unlikely to make it to the sachet segment any time soon. Arte elaborates, “We are mindful of the ability of a product to travel retail channels. Gems at Rs 1 is more amenable to be taken down the distribution chain than say CDM.” The only way smaller packs of Temptations can make it to the market is in gift packs or through the Heroes multi-packs, which are more about sampling the entire range. Ranganathan agrees that the danger of a brand falling out of favour does exist, but says it makes more sense “to come down instead of going up”, especially relevant in a market where premium offerings account for only 1%. The focus at CavinKare is currently to replicate the convenience of large packs in LPUs, enabling greater reusability and more convenient storage. All this, while ensuring that packaging costs of smaller packs remain lower than those of larger ones. The new wave of bottles priced at Rs 5 and Rs 10 also stand a chance at bridging the gap, according to Kakkar.
Besides it's not necessary that smaller units be saddled with lower prices. Nadkarni says, “In categories like perfumes for instance, sampling can also be done for consumers who crave variety in the form of expensive small size bottles and not a cheap sachets. It's a great way of experimenting from the customer point of view.”