The Bottom of the Pyramid theory may have found many takers in corporate board rooms across the world, but clearly there are some that are still to be converted, as can be seen from FMCG major ITC Ltd’s recent foray into the premium personal care and food segment Already sitting on a heavy pile of cash on the back of impressive growth figures over the past decade, the Kolkata headquartered firm has chosen to stick to its tested strategy of doing things differently-as with its earlier launches, ITC believes in starting off by catering to the highly aspirational middle class that forms the bulk of India’s consuming demographic, instead of looking for opportunities at the lower end of the market. While many may find fault with the wisdom of going in for what can only be described as the inverted pyramid approach, it certainly does merit closer attention, and one could argue, even make a lot of sense in its own way.
As we all know, Indians are a notoriously aspirational people-nothing wrong with that, though it does tend to go overboard at times. There are few people more in awe of foreign brands as the average Indian middle class family and it would appear it is precisely this star struck segment that ITC is hoping to target with its latest range of products. With a history of successfully lunching products at the top end of the market, ITC is well aware of our penchant for stuff that appears to have an exotic, preferably foreign and somewhat snooty element to it- even if it’s just the name (read ‘Essenza Di Wills’, ‘Fiama Di Wills’, ‘Vivel Di Wills, and ‘Bruce Di Willis’- should be worth a short). Instead of the bottom of the pyramid route, it would rather create space for itself at the top end with prices that are high enough to avoid the mass market tag while being low enough to attract the middle/lower middle consumer, whose ranks can only be expected to swell as India moves into the 9% plus growth trajectory.
So just what are the reasons behind ITC’s growing interest in a hitherto non-core segment?…With plans to invest over Rs. 8,000 crore in its non-cigarette FMCG business in the coming 7-8 years, it does seem dead serious about becoming a major player over the coming decade. Already, its personal care category has made significant progress- around 6% market share in soaps and 3% in shampoo- not too bad, given that it’s a relatively late entrant in the category. It has also done well to enter segments with high latent demand; the Kitchens of India range certainly helped to address a pressing need in the ready to cook segment, given the highly stressful and hectic lifestyle for most of India’s urban denizens. With ITC’s non-cigarette FMCG business growing at almost 25% during April-December 2010, to a figure of 3,168 crore, it would appear that going down the non-tobacco road is the way forward in the long term. And that’s precisely where the premium segment tag should prove to be a big advantage. Having already acquired significant brand equity as a relatively high end brand, it’s all set to cash in on that status with offerings targeting the rapidly expanding middle/upper middle classes.
The latest move also makes sense based on your judgment of where the next big opportunity lies. For many years, with the Indian economy wedded to the socialist ideal, the market for high end aspirational products was restricted to a select few, in a world where looking forward to that luxury brand of Scotch was a symptom of crass materialism, something to be hidden deep inside the recesses of your imagination along with a fair share of guilt for having dared to think beyond the local Govt wine and liquor store. The reforms of the early nineties paved the way for an entirely different way of life, introducing a paradigm shift in our mode of thinking where greed was suddenly good. Against this background, ITC has chosen to position itself at the top end of the table, expecting as it does that with increasing growth over the next decade, the market is bound to get bigger at the top end of the pyramid as more and more people graduate from bare subsistence to relative affluence.
In such a scenario, having already positioned yourself as a premium category player would certainly help in capturing market share and the latest gambit from the ITC stable should work precisely for this very reason- after all, if your primary USP lies in selling the cheapest version of soap available, getting people to take you seriously as a high-end player can prove to be a rather difficult task.