ASIAN CASE RESEARCH JOURNAL, VOL.

12, ISSUE 1, 1–28 (2008)

ACRJ
Cavinkare Private Limited: Serving
This case was prepared by
Professor Anand Kumar
Low Income Consumers
Jaiswal of the Indian Insti-
tute of Management, Ahmed-
abad and Professor Pingali “Having successfully played David to the Goliaths
Venugopal of Xavier Labour of the FMCG world, C. K. Ranganathan has now
Relations Institute (XLRI),
Jamshedpur, as a basis for set his sight on transforming his Chennai-based
classroom discussion rather Rs.2,640 million company into a billion-dollar
than to illustrate either effec-
tive or ineffective handling of entity (Rs.52,000 million to be precise) within the
an administrative situation.
next decade. Ranganathan, the moving force
Please address all corre- behind the “sachet revolution” in the country,
spondence to Anand Kumar
Jaiswal, Visiting Assistant
is the man who took shampoos and perfumes
Professor of Marketing, In- from urban store shelves to rural homes, thereby
dian Institute of Management,
Vastrapur, Ahmedabad — changing the dynamics of consumer product
380 015, India. E-mail: marketing forever. The experimentation and in-
akjaiswal@iimahd.ernet.in.
novation that CavinKare brought to the market
redefined FMCG marketing in India.”

The Economic Times, 18 October 2004

The Economic Times Awards for Corporate Excellence for

2004 had just been announced. The Entrepreneur of the Year
award winner was C. K. Ranganathan, Managing Director of
CavinKare Private Limited.
Receiving the award had been a moment of pride
for C. K. Ranganathan. His joy soared later when C. K.
Prahalad,a who himself had been trying to “educate”
corporations on how to tap the bottom of the pyramid
aC. K. Prahalad is regarded as one of the influential business strategy thinkers.
Prahalad’s recent work The Fortune at the Bottom of the Pyramid: Eradicating Poverty
Through Profits has become one of the dominant ideas of discussion among practising
managers, academicians and policy makers. Prahalad posits that MNCs can do
profitable business with 4 billion customers at the bottom of the economic pyramid
and this will help in lifting the poor out of poverty.

© 2008 by World Scientific Publishing Co.

00104.indd 1 8/22/2008 1:39:05 PM

 2 ACRJ

markets, wished him saying, “It makes me proud to see

somebody from my country and hometown preaching
through practice.”1 Starting his business with a modest
capital of Rs.15000, Ranganathan had come a long way to
receive the Entrepreneur of the Year award. His company
CavinKare had not only survived cut-throat competition
from established multi-national corporations (MNCs), but
also had grown impressively over the years. It had suc-
ceeded in carving out a share of the Indian fast moving
consumer goods (FMCG) market through innovation, value
pricing, product differentiation and understanding of con-
sumer mindsets. It evolved a new business model to serve
low income markets profitably.

HISTORICAL BACKGROUND OF CAVINKARE

CavinKare Private Limited was born out of the entre-

preneurial zest of C. K. Ranganathan. He had a family
business of small-scale pharma packaging and cosmetics
manufacturing in Cuddalore, a small coastal town in the
state of Tamil Nadu in the southern part of India. After
completing his graduation, Ranganathan joined his family
business. In 1983 he started his own company in a small
boarding room. His entrepreneurial zeal and single-minded
commitment to business helped him in his pursuit. Twenty
years hence, his company emerged as a strong player in the
Indian fast moving consumer product market, offering a
range of hair care, skin care and personal care products. The
company had several known brands in its portfolio such
as Chik (shampoo, talc), Meera (herbal powder, liquid hair
wash, shampoo, hair oil), Nyle (herbal shampoo), Fairever
(fairness cream), Spinz (perfumes, deodorants and talc),
Indica (hair dye), Raaga Cool (cooling hair oil) and Karthika
(hair wash powder). Most of its brands held number one
or number two position in terms of market share. It was
credited as a consumer product company that had the best
new brand success ratio in the industry.2
The company was originally started as Chik India
in 1983. It changed its identity twice since then. It became

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 CAVINKARE PRIVATE LIMITED 3

Beauty Cosmetics Private Limited in 1990. In 1998 it became

CavinKareb Private Limited with the aim of going beyond
cosmetics and offering a wide range of consumer products.
Key milestones in the journey of CavinKare are given in
Exhibit 1. The company had a turnover of Rs.850 million
in 1998–99 which rose to over Rs.2640 million in 2003
(Exhibit 2). Since 1994 onwards, it had been growing at a
compounded annual growth rate (CAGR) of about 31%.2

RURAL MARKETS: UNTAPPED OPPORTUNITY

The rural population in India represented a vast untapped

market. In terms of size alone, the rural markets were too
big to be ignored. These markets accounted for over 620
million or 74.27% of the population of India. Rural markets
contributed almost 60% to India’s gross domestic product
(GDP). The size of the middle-class consumers in rural areas
was the same as in urban areas.3
The composition of rural markets for different product
categories based on prices is given in Exhibit 3. The rural
market for products priced below Rs.1000 comprised over
70 million households. Exhibit 4 provides the market size
of rural markets in terms of the number of households
based on income categories. About 102 million (86%)
households in rural India and about 131 million (about 80%)
of all households in India had an annual income less than
Rs.45000.
Penetration (the percentage of households consuming
a particular product at least once a year) of different
consumer product categories in rural and urban areas is
given in Exhibit 5. For categories such as toothpaste, hair
wash (which mainly consisted of shampoos) and dish wash
products, penetration level in rural areas was substantially
lower than in urban areas. In 2002, rural penetration level
for hair wash products was about 16% against urban
penetration of 40%. The overall consumption of consumer

bCavinis a literary word in Tamil language, symbolizing beauty and grace, while Kare
comes from the English word care.

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 4 ACRJ

product categories in India was in general significantly lower

than in other developing countries in Asia. For example in
2004, per capita consumption of shampoos (in Rs.) was just
26 as against 48 and 52 in China and Indonesia respectively.
Comparison of per capita consumption of selected consumer
product categories in India, China and Indonesia is provided
in Exhibit 6. Of late, categories such as shampoos and
skin cream had recorded high growth. Exhibit 7 provides
penetration versus growth rate figures for selected product
categories.

CHIK SHAMPOO: PRODUCT FOR THE LOW

INCOME CONSUMERS

Chikc shampoo is the best example of CavinKare’s success

in tapping low income markets in India. The company had
launched it in 1983. It was targeted at the lower middle class
and semi-rural population with monthly income of Rs.1500–
3000.4 At that time more than 100 brands of shampoo were
available. However, they had very low awareness among
consumers. There was a need for a superior quality shampoo
with appealing perfume and available at affordable price.
Chik shampoo started differentiating itself on the basis of
quality and superior fragrance. It used a French perfume in
its formulation. National brands such as Sunsilk and Clinic
Plus from Hindustan Lever Limited (HLL)d were mainly
targeted at urban consumers and had virtually ignored
rural markets. CavinKare saw profitable opportunities in
selling products to rural consumers and also consumers in
small towns.

EDUCATING CONSUMERS

Rural consumers had been using ordinary soaps to bathe

and wash their hair. They had not seen any visible damage

c“Chik” was coined from the name of Ranganathan’s father “Chinni Krishnan”.
dHindustan Lever Limited is a subsidiary of Unilever in India.

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 CAVINKARE PRIVATE LIMITED 5

of their hair by using ordinary soaps. The company realized

that they could be convinced to try out a shampoo through
proper consumer education. It developed a communication
plan to connect with the consumers and create brand
awareness. In the initial years it relied heavily on radio
for mass media advertising. Radio advertisements made
use of popular movie dialogues supporting the brand.
Popular movie stars from South India like Amla, Khusboo
and Manorama endorsed the brand. Movie stars were very
popular among the majority of the population in South
India. Understanding this consumer insight and leveraging
movie stars’ mass appeal helped in making Chik’s marketing
communication effective.
The company also realized that most of the rural
consumers had no idea how to use shampoo. Company
officials traveled in vans to rural areas for live demonstration
of shampoo usage and product benefit. It started aggressive
road shows to educate villagers how to lather, wash and
comb hair. Wall paintings and ‘video-on-wheels’ formed a
major chunk of the advertising campaign. It used video on
wheels to screen popular movies for the public. Along with
free screenings of movies, it distributed free samples aimed
at creating brand awareness among users. In addition, it
went for large scale door-to-door sampling. The strategy
worked quite well in increasing the awareness about the
shampoo usage and weaning the rural population away
from soap and traditional items used for washing hair.
These road shows and promotion helped to increase sales
from Rs.0.5 million in 1984 to Rs.3.8 million in the next
year.6
In the early days, the company had launched a novel
consumer promotion scheme to create the consumer pull
and induce trials. Under this scheme, anyone who returned
four empty shampoo sachets of Chik to the retailer got one
sachet free. It got good response from users, making hordes
of consumers asking for Chik shampoo at nearby retail
outlets. The scheme ran for one year and was successful in
increasing Chik’s awareness.

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 6 ACRJ

SINGLE-SERVE SACHETS

Ranganathan’s father Chinni Krishnan had pioneered the

concept of sachets when he introduced Velvette shampooe
in sachets in 1976. Through Chik, Ranganathan popularized
the sachet concept. Ranganathan was often referred as “the
moving force behind the sachet revolution” in India.2 Sachets,
a form of low unit packs (LUPs), played an important role in
capturing the market initially for Velvette and later for Chik.f
Single serve sachets gave boost to shampoo consumption in
India and were especially suitable for rural markets. They
got high acceptance among rural and low income urban
consumers who could not afford the “comfort of inventory”.
Because of limited cash, these consumers preferred not to
stock up and thus block money for shampoo, a product
perceived to be less essential. Besides low cost, sachets
offered the convenience of buying the product only when it
was needed. Sachets also helped in minimizing the risk of
trial. Sometimes consumers did not want to be tied down to
a particular brand. Low price came in handy for consumers
to try out different brands.
In recent years shampoo sachets showed faster
growth than bottles. For instance, during 1997–2002, sachets
sales grew at a rate of 15% whereas shampoo bottles sales
grew at about 3% growth rate.6 The share of single serve
sachets as a proportion of total shampoo market had also
increased gradually over the years (Exhibit 8). In 2002, single
serve sachets accounted for approximately 64% of the total
shampoo consumption in terms of volume and 60% in terms
of value.7

eAfter Ranganathan’s father demise in 1979, Velvette shampoo brand was owned
by Velvette International. Ranganathan’s brother C. K. Rajkumar was the promoter
of Velvette International. Velvette was a popular brand in the 1980s. It became the
largest selling shampoo brand in 1991 with a market share of 29.32%. However,
in the late 1990s it could not survive the competition and the company started
accumulating losses. The main problem was that the company could never set up its
own nationwide strong distribution network.
fCavinKare sourced packaging materials from its associate company, Packaging

India Private Limited. This helped it to get packaging materials at lower costs than
its competitors.

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 CAVINKARE PRIVATE LIMITED 7

EXTENDING DISTRIBUTION REACH

CavinKare launched Chik shampoo at the national level in

1993. The company faced hurdles in its drive for expansion
at the national level. The foremost challenge was to establish
a nationwide distribution network. Chik brand was targeted
at rural consumers primarily, although price conscious
consumers from small towns also became regular buyers.
For targeting rural consumers, the biggest impediment
was distribution access. Rural markets being harder to
reach present a different kind of challenge for any marketer.
Rural markets had spread over 600,000 villages. Over
103,952 villages (18%) had a population less than 200 while
141,143 (24%) villages had population between 200 and
500 (Exhibit 9). About 82% of the rural population lived
in villages with a population of less than 5,000. Retail
density (number of retail outlets per thousand population)
was extremely low in rural areas. Rural markets were
characterized by poor physical infrastructure. Large parts of
the markets were not connected by roads. The thin dispersal
of rural markets posed serious challenges to companies in
logistics, product shipment, delivery of stocks and reaching
out to retailers.
To gain distribution access, CavinKare approached
rural consumers in an innovative manner. It started tapping
periodic markets like haats and melas. Haats and melas had
been performing the periodic marketing function in rural
area for years. A periodic market was a public gathering
of buyers and sellers meeting at a customary location at
regular intervals. Haats were periodical markets held once
a week. For CavinKare haats acted as a very useful means
of reaching out to rural consumers. They played a critical
role in accessing consumers in remote and less prosperous
villages. Most of the haats were attracting consumers living
within a radius of 12–15 km. Haats could serve about 4000
rural consumers dispersed over 10–15 villages. For rural
consumers, the importance of a particular haat was often
based on the number of stalls selling “urban” products
such as cosmetics. The intensity of transactions varied,
based upon the season. Transactions generally went up

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 8 ACRJ

considerably soon after the harvest season. Most melas (fairs)

were generally held after the harvest season, so villagers
had enough cash in hand. Melas attracted a large number of
buyers from distant places also.
A rural marketing study on haats found that even
when the same products were available in the village retail
outlet, 58% of rural consumers visiting haats preferred to
purchase those from the haat. The key reasons were better
prices, quality and product assortment available in haats.8
Approximately 47,000 haats and 25,000 melas were held
in rural areas every year (Exhibit 10). These places were
characterized by high per capita spending, sometimes
greater than in urban areas. On average, haats had Rs.0.2
million of business transaction in a single day, while average
sales per mela was Rs.1.43 million.9 CavinKare was successful
in increasing its penetration of rural markets by focusing on
these periodic markets.
Over the years CavinKare had built a strong
distribution network that could move its products to every
corner of India. For CavinKare, extending distribution
access was the key to marketing Chik shampoo to rural
consumers. Its reach of rural markets was better than most
other consumer goods companies. There were a total of
3.6 million retail outlets in rural areas and about 2 million
rural retail outlets sold consumer goods.8 Overall India had
more than 5.5 million retail outlets for consumer products.10
CavinKare’s distribution system reached out to 0.75 million
outlets.11 Its rival Hindustan Lever had a direct coverage of
about 1 million outlets.12

REINVENTING PRICE-PERFORMANCE
RELATIONSHIPS

In the mid 1990s the company realized that other than

distribution access there were obstacles coming on the
way of large scale adoption of shampoo by consumers
especially from the rural areas. Shampoo as a product was
perceived to contain harsh chemicals. It was viewed more
as a glamour and lifestyle product than a necessity. Many

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 CAVINKARE PRIVATE LIMITED 9

consumers used shampoo only on special occasions such as

weddings, parties, etc. Shampoo companies were finding it
tough to convince consumers to switch over from ordinary
toilet soaps and other traditional alternatives to shampoos.
Usage of natural conditioning agents such as henna was
quite prevalent. Even Hindustan Lever’s former chairman
M. S. Banga had admitted that though Hindustan Lever
had 70% share of the shampoo market, it had just 10%
of the hair wash occasions in the country.13 Compared to
other consumer product categories, shampoo had a very
low penetration level (Exhibits 4 and 5). Hence the market
had great potential for volume expansion by recruiting
new users and driving volume growth. The biggest barrier
in attracting non-users was the high price of commonly
available shampoos. Despite the availability of low unit
packs, a major portion of potential user population was
finding them unaffordable.
In 1999 CavinKare came up with a pricing innovation
that had a big impact on shampoo consumption in rural
India. An important customer insight led to this innovation.
While interacting with rural consumers, company officials
noticed that usage of ordinary soap for washing hair was
still very high. When they tried to convince that soap could
damage hair, they got a very straightforward answer.
Customers said that they had been using soap on hair for
generations and nothing had happened to their hair. Though
soap application could result in rough texture, there was no
visible damage. This led to the realization that persuading
consumers to switch over to shampoos would not be easy.
Though mass media advertisements and celebrity
endorsements had created an aspiration value for shampoo,
price was proving to be an inhibitor. CavinKare did some
simple calculations. At Rs.2 a sachet of shampoo and four
washes a month, per person spending on washing hair
worked out to Rs.8 per month. On average, the number of
adults per household in villages was five. So a family had to
invest a total of Rs.40 for hair wash alone. This was clearly
unaffordable for rural consumers. Consumers would be
averse to incur a high expenditure just to keep their hair
clean. Soap was, thus, preferred over shampoo. The average

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 10 ACRJ

cost of soap was around Rs.8. Besides, it could be used for a

longer duration by the entire family and for bathing as well.
CavinKare conducted a survey in rural areas and got the
feedback that if the total cost of hair wash per person could
be cut down to Rs.2 per month, the rural consumer would
be willing to try out shampoos.14 Armed with this insight,
CavinKare worked backwards. Its research and development
(R&D) division took the task of altering existing formulation
and finding cost-effective substitutes. The division developed
a new formulation at reduced cost without sacrificing quality
and efficacy. The new formulation enabled the company to
launch a 4-ml sachet of Chik shampoo priced at 50 paise in
September 1999. The launch was a great success. The market
share of Chik after the launch jumped from 5.61% in 1999 to
over 23% in 2003 (Exhibits 11, 12 and 13). Chik sachet made
shampoo as a category more accessible to rural consumers.
Priced at 50 paise, Chik became the ‘recruitment brand’ for
the industry. This led to shampoo usage growing in rural
markets at a rate almost twice that of the urban market. In
the late 1980s, the contribution of the rural market was in
the region of 15%. It had grown to 35% in 2002.6
In 2000, CavinKare extended the price reduction to
shampoo bottles also. This move was aimed at making bulk
buying more affordable for consumers. In the case of Chik,
the cost per ml shampoo is the same for both bottles and
sachets unlike other brands (Exhibit 14).g By keeping costs
equal CavinKare attempted to upgrade users from sachets
to bottles. Chik shampoo bottles got a favourable response
in the market. To a certain extent, it was successful in
breaking the common notion that only the rich can afford
the shampoo bottles, and the poor have to be satisfied with
sachets.

gTraditionally in the Indian market the consumers had to pay different prices per
unit volume based on whether they were buying sachets or bottles. For example, the
cost of sachets of Sunsilk Black is approximately Re. 0.25 per ml (an 8 ml sachet of a
good quality shampoo costs Rs.2). On the other hand, the cost of shampoo in a bottle
is approximately Re. 0.50 per ml (a 200 ml bottle costs about Rs.99). This is shown
in Exhibit 14. This price differential also has contributed to the popularity of single
serve sachet. By creating this price differential, companies such as Hindustan Lever
and P&G actually promote downgrading of consumers from bottles to sachets.

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 CAVINKARE PRIVATE LIMITED 11

FOUCS ON INNOVATION

Focus on innovation was the key element of CavinKare’s

business strategy of targeting low income markets. In
addition to channel innovation of using periodic markets
like haats and melas for distribution of Chik shampoo, pricing
Chik shampoo at 50 paise, introducing floral fragrances in
shampoo for the first time, the company can be credited
with several other low income market innovations in other
product categories. It launched Spinz perfume in a small
pack called “Dab-on” which was typically for a one-week
usage. It also introduced a single use perfume “Singlez.”
Continuous and close engagement with customers
helped CavinKare in understanding the tastes and
preferences of Indian customers. Company representatives
traveled extensively and spent substantial time in rural and
far off areas. This gave them first-hand experience of ground
realities and the heterogeneity of Indian markets. It enabled
the company in identifying consumer needs and gaps earlier
than the competitors.
CavinKare followed a four-fold strategy for promoting
the culture of innovation within the organization:

• Constant engagement with customers to gain special

insights.
• Screening customer insights for their potential and
translating them into meaningful products.
• Challenging all conventional ways while translating
insights into products.
• In the case of problems, going back to the customer again
to refine products and re-launching improved ones.

The working culture in the organization was designed

to support innovation. To promote newer ideas and develop
an entrepreneurial spirit among employees, the company
had a special system in place. Any employee who came
up with a new idea would get a budget to pursue it and
to develop a commercially viable product. Even though
the success rate was 20–30%, it helped the company in the
innovation of products and practices regularly.

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 12 ACRJ

OUTSOURCING MANUFACTURING OPERATIONS

Reduced cost structure was another factor which enabled

CavinKare to sell quality products to low income customers.
In product manufacturing, it was the first among Indian
companies to derive the advantage of business process
outsourcing.2 Since 1983, the company had been outsourcing
its manufacturing operations when it realized that shampoo
manufacturing did not have technological entry barriers.
Outsourcing reduced CavinKare’s overheads considerably.
Apart from cost saving in product manufacturing, out-
sourcing helped CavinKare to become a nimble and agile
organization. It gave high flexibility in the selection of
product mix and reduced its working capital requirements.
Furthermore, the company had been able to maintain a clear
focus on marketing and distribution. While outsourcing
manufacturing, it developed a system and processes for
ensuring quality of its products. It followed the model of
exclusive outsourcing. Under this the manufacturing firm
would have to supply its products solely to CavinKare.
This ensured all the advantages of in-house manufacturing
operations. It associated with people enjoying high
credibility for making quality products. It set up strict
standards for manufacturing, which all the suppliers had to
adhere to and a strict system for monitoring the quality of
outsourced products.h

COMPETITION

The market for shampoo was characterized by the presence

of multinational companies and local players.
Hindustan Lever Limited (HLL): Hindustan Lever
was a 51% Indian subsidiary of Unilever, an Anglo-Dutch
consumer goods company. Hindustan Lever was one of the
most dominant consumer products companies in India. It
was present in virtually every category of the fast moving

hMost third party manufacturers supplying products to CavinKare were situated in

Podicherry, a South Indian city that gave many tax benefits to local manufacturing
units.

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 CAVINKARE PRIVATE LIMITED 13

consumer products market. Hindustan Lever had two main

shampoo brands — Clinic Plus and Sunsilk. Clinic Plus,
launched in 1971, was positioned as the “shampoo that
makes your family’s hair healthy and glowing.” It appealed
largely to urban middle-class consumers. It was targeted at
mothers, educated yet assessing their self-esteem through
their children’s achievements. Hindustan Lever launched
Clinic All Clear in 1987 as therapeutic-anti dandruff
shampoo. Sunsilk beauty shampoo, available since 1964, was
positioned as the “hair expert”.
Procter & Gamble (P&G): P&G was present in
categories like detergents, cosmetics, shampoos and sanitary
towels. The parent company was America’s biggest maker
of household products. It had a strong hold in the detergent
segment in India. It had Pantene and Head & Shoulders
in its portfolio of shampoo brands. Pantene, launched
much later in 1995, differentiated itself as an overall health
shampoo with protein. P&G launched Head & Shoulders as
an anti-dandruff shampoo in 1997.
Dabur: Dabur was a leading Indian company in
consumer products. It was originally associated with
ayurvedic and medicinal products. Over the years its
presence in categories such as hair oil, hair colorant, oral
care and shampoo had grown. It had Vatika herbal shampoo
in the value-added shampoo segment. Vatika was in direct
competition with Nyle, the herbal shampoo brand of
CavinKare.
Other Players: RDM Traders Private Limited (Ayur
herbal shampoo), Godrej (Godrej Colourgloss shampoo — a
niche brand for users with coloured hair) and Johnson &
Johnson (medicated anti-dandruff shampoos) were other
players with low presence in the market.
Most of the shampoo brands were positioned around
the health platform, highlighting benefits like lesser or no
hair loss, lesser or no dandruff, no split hair, curing and
avoiding damage to the hair, etc. Till 1999, Chik was known
mainly for its value for money (VFM) preposition. But later
it was positioned around the soft and manageable hair
platform.

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 14 ACRJ

COMPETITORS’ RESPONSE TO CHIK

Big companies led by Hindustan Lever had always viewed

rural consumers as low margin, hard to tap market.i
Traditionally Hindustan Lever focused more on gross
margins and less on volumes.j As Chik’s volume and market
share grew rapidly, Hindustan Lever realized the potential
of the market it had always overlooked. It responded by
launching Lux shampoo, an extension of its Lux soap brand,
in sachets priced at 50 paise and one rupee. With its value
for money proposition, Lux shampoo tried to lure Chik
buyers. It also introduced its flagship brand Clinic Plus and
Sunsilk in sachets in 2002. Even after Hindustan Lever’s
competitive reaction, Chik continued to grow impressively
and became the second largest selling brand in the shampoo
category in 2002.

CONCLUSION

Over the years Chik emerged as one of the most popular

and admired hair care brands in India. It won the
Advertising Agencies Association of India’s best brand
performance award in 2003. According to A C Nielsen, Chik
brand cornered revenue of Rs.1.11 million in 2004. It also
entered the list of top 100 consumer brands in India in the
same year.15

iHindustan Lever had also overlooked rural markets and Nirma, an Indian
company, that emerged as market leader in detergents. Nirma started selling a
low cost detergent among rural customers and low income urban customers in the
mid 1980s. Nirma fast captured the market which Hindustan Lever had ignored.
It became the largest selling detergent brand and a household name in India. After
five years, realizing its vulnerability, Hindustan Lever decided to respond to Nirma
by launching its own brand Wheel. For more details see “Hindustan Lever Limited
(HLL) and Project Sting” Darden School of Business case by P. S. Ahmad and J. Mead
(case no UVA-E-0266).
jIn urban markets, Hindustan Lever’s market dominance enabled it to increase the

prices of most of its products, including shampoo, gradually over the years. This
happened when in many cases the cost of raw material went down significantly. This
vacated considerable space at the bottom end of the market, helping companies like
CavinKare to sneak in (for more information, see The Economist 2004, Slow moving;
Consumer goods in India).

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 CAVINKARE PRIVATE LIMITED 15

Chik’s success had demonstrated that rural consumers

could become just as discerning about brands as urban rich
consumers, if a brand offers a value proposition acceptable
to them. In the case of Chik, instead of gross margin
CavinKare focused on volume growth. Though the low
income market paid a lesser price or used smaller quantities
on a per capita basis, their large size translated into a huge
market for products like shampoos. Even if a company made
low to modest profit per customer, the gross profit could be
significant, sometimes even higher than the urban markets.
CavinKare was one of the few companies which
saw the economic potential of the dormant buying power
of the low-income population. It identified opportunities
which were ignored by other big companies. Its business
model involved converting consumer insights into superior
products, developing products suitable for target markets,
altering the traditional cost structure, launching products
at new price points and establishing a distribution network
with high reach. The company exemplified that serving rural
and poor consumers is not just about reducing prices. It
involves creativity, flexibility and vision. It’s about orienting
the research and development for creating products for the
poor.
CavinKare as a company established its presence in
the Indian consumer products market. Its innovation led
strategy helped it in broadening its product portfolio and
achieving fast growth over the years. Apart from Chik, its
other products such as Nyle herbal shampoo and Meera
hair wash powder were market leaders in their respective
categories. Fairever fairness cream and Spinz deodorant and
talc also cornered sizable market share amidst tough market
competition. Overall, serving low-income consumers helped
CavinKare to emerge as a dominant and respected player in
the Indian FMCG market.

ACKNOWLEDGEMENTS

The authors are thankful to Mr. C. K. Ranganathan,

Managing Director and Mr. K. S. Ramesh, former Chief

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 16 ACRJ

Executive Officer, for providing valuable suggestions

in the preparation of this case. The authors also wish
to thank senior managers of CavinKare — Mr. Tushar
Sadanand Murdeshwar, Mr. Saumitra Prasad, Mr. Soumik
Chakraborthi, Mr. Varun Chopra and Mr. Arun Kumar for
providing necessary help in the preparation of this case.

REFERENCES

1. Economic Times, 2004. When speed’s the lever, giants will fall.
December 1.
2. Economic Times, 2004. Show-stopper: Sacheting down the rural
ramp. October 18.
3. C. K. Prahalad and Allen Hammond, 2002. Serving the world’s
poor profitably. Harvard Business Review, 80(9): 48–57.
4. Praxis, 2003. The making of Chik. Business Line Publication.
July 2003: 22–27.
5. Business Standard, 2002. Strategist. Chik-mate. June 3: 4.
6. Economic Times, 2002. Brand Equity, Sachet up the ramp, March
13.
7. C. K. Prahalad, 2005. The Fortune at the Bottom of the Pyramid:
Eradicating Poverty through Profits, Wharton School Publishing:
18–19.
8. Venugopal, Pingali, 2002. Accessing rural markets, unpublished
paper, XLRI Jamshedpur: 1–43.
9. Business Week Marketing Whitebook, 2003. Haats, Mandies and
Melas: 91.
10. ICRA, 2001. Industry Watch Series. The Indian FMCG sector:
144.
11. CavinKare web site. http://cavinkare.com/practices.asp.
Accessed on January 1, 2005.
12. Presentation by HLL executives, 2004. Morgan Stanley Asia
Pacific Summit, Singapore, November 4. http://www.hll.com/
HLL/findinformation/Presentations/MorganStanleyAsia
PacificSummit.pdf. Accessed on January 20, 2005.
13. Hindustan Lever Limited Chairman, Mr. M. S. Banga’s briefing
to analysts on 15 February 2001. http://www.hll.com/HLL/
findinformation/speech_excerpts.html. Accessed on November
1, 2004.

00104.indd 16 8/13/2008 5:24:32 PM

 CAVINKARE PRIVATE LIMITED 17

14. Business Standard, 2004. Strategist. Does market research help

increase sales? February 17: 4.
15. Economic Times, 2004. Brand Equity. India’s top 100 Fast Mov-
ing Consumer Brands. April 4: 1.

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 18 ACRJ

Exhibit 1

CavinKare: Milestones

1983 — Set out as Chik India, a firm that marketed Chik Shampoo
1990 — Set up Beauty Cosmetics Private Limited with the aim of producing world class
products
1991 — Saw the launch of Meera, a herbal hair wash powder
1991 — Floated Packaging India Private Limited for supplying packaging laminates
1993 — Nyle Herbal Shampoo was launched for consumers beyond the South
1997 — Introduced Spinz perfumes to the masses
1997 — Crossed a turnover of Rs.500 million
1998 — Deodorants were added to the Spinz Range
1998 — BCL renamed as CavinKare Private Limited to revamp its corporate image
1998 — Saw the launch of Fairever, a revolutionary Fairness Cream with saffron
1998 — Witnessed the launch of Indica Hair Dye with herbal extracts
1999 — Enters Talcum Powder segment in the South
2000 — Set up a division for exclusively focusing on its export initiatives
2000 — Made its presence online with SAP 4.0B
2000 — Changed corporate logo to reflect true personality of the company
2000 — Forayed into the Soaps category
2000 — Marked an entry into the Cold Cream category
2001 — Created an In-house media buying outfit, CavinKare Advertising Private Limited
2002 — CavinKare reached Rs.2430 million
2002 — Trends In Vogue Private Limited started
2003 — Acquired leading pickle brand Ruchi
Source: Provided by the company.

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 CAVINKARE PRIVATE LIMITED 19
EXHIBIT 2

Exhibit 2

CavinKare’s Turnover from 1999–2003 (in Rs. million)

Source: Business India (2003).

18

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 20 ACRJ
EXHIBIT 3
Exhibit 3

Composition of Rural Markets: Households (in millions)

Group I = Products priced below Rs.1,000

Group II = Products priced between Rs.1,000 and Rs.10,000
Group III = Products priced above Rs.10,000
Source: National Council of Applied Economic Research (NCAER).

19

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 CAVINKARE PRIVATE LIMITED 21

Exhibit 4

Number of Households (in millions) by Annual Income (1995–96)

Annual Income Number of Households

Classification
(in Rupees) at 1994–95 prices Urban Rural Total
<16,000 Destitutes 5.3 27.7 33.0
16,001–22,000 Aspirants 7.1 36.9 44.0
22,001–45,000 Climbers 16.8 37.3 54.1
45,001–215,000 Consumers 16.6 15.9 32.5
>215,000 The rich 0.8 0.4 1.2
Total Number of Households 46.6 118.2 164.8
Source: National Council of Applied Economic Research (NCAER).

Exhibit 5

Rural and Urban Penetration of Consumer Products

(in percent, 2002)

Source: Indian Readership Survey, 2002.

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 22 ACRJ

Exhibit 6

Per Capita Consumption of Some FMCG Categories (in Rs., 2004)

Source: Presentation by S. P. Mustafa, Vice President, Treasury, M&A & Investor Relations at the Morgan Stanley Asia
Pacific Summit 2004, November 4, 2004 in Singapore. http://www.hll.com/HLL/findinformation/Presentations/
MorganStanleyAsiaPacificSummit.pdf.

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 CAVINKARE PRIVATE LIMITED 23

Exhibit 7

Penetration vs Growth Rate of Some Consumer Products (in 2002)

Penetration %

Toilet
90

Tea

70 Laundry - NSD

50 Toothpast

Shampoo

Dish Wash
30 Ice-Creams Skin Creams

Colour Cosmetics Staple

Tomato Deodorant

5 10 15 Growth %
Source: http://www.hll.com/Hll_Flash/finance/hindustan_final.ppt.

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 24 ACRJ

Exhibit 8

Sachet as a Percentage of Total Shampoo Category

Source: Prahalad, C. K., The Fortune at the Bottom of the Pyramid, 2005.

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 CAVINKARE PRIVATE LIMITED 25

Exhibit 9

Distribution of Villages in India

Village Class No. of Villages Percentage Population Percentage

(in millions)
Less than 200 103952 17.9 10.532 1.69
201–499 141143 24.3 48.462 7.78
500–999 144998 24.97 104.357 16.76
1000–1999 114395 19.70 160.294 25.74
2000–4999 62915 10.83 185.573 29.8
5000–9999 10597 1.82 69.839 11.21
10000 & above 2779 0.48 43.757 7.03
Total 580779 100 622.812 100
Source: RK Swamy/BBDO, Guide to Market Planning, 1999.

Exhibit 10

Haats (Village Fairs) and Melas in Rural India

Haats
Total number of Haats 47000
Average sale per day Rs.0.225 million
Number of sales outlets/Haats 300+
Number of visitors per Haat 4500+
Average sale per outlet Rs 900
Village covered by a Haat 20-50

Melas
Total number of Melas 25000
Average sale per Mela Rs.1.43 million
Number of sales outlets/Mela 850
Source: Business Week Marketing Whitebook, 2003.

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 26 ACRJ

Exhibit 11

Rural Market Share of Shampoo Brands, All India (in Volumes)

Brand Nov. 2002 Dec. 2003 Jan. 2003 Feb. 2003 Mar. 2003 Apr. 2003
Chik 39.02 39.38 41.19 39.93 39.68 39.11
Clinic Plus 27.89 27.33 26.69 29.12 29.83 31.44
Lux 9.56 8.81 8.14 8.06 7.84 8.41
Source: Provided by the company.

Exhibit 12

Chik Shampoo’s Position in Rural Market (2002)

Market Share
States No. of Villages Position
(Volume, in Percent)
Uttar Pradesh 1,07,440 66.86 1
Madhya Pradesh 55,392 21.96 2
Bihar 45,113 31.82 1
Andhra Pradesh 28,123 39.01 1
Tamil Nadu 16,870 45.77 1
Orissa 55,352 18.42 2
Source: Provided by the company.

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 CAVINKARE PRIVATE LIMITED 27

Exhibit 13

Chik Market Share (Volume in Percent)

Source: Provided by the company.

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 28 ACRJ

Exhibit 14

Retail Prices of Sachets and Bottles

Bottle Sachet
Shampoo Brand Quantity Cost Quantity Cost
MRP(Rs) MRP(Rs)
(ml) per ml (ml) per ml
Clinic All Clear 160 81.4 0.51 8 2.5 0.31
Clinic Plus 160 71.2 0.45 8 2 0.25
Head & Shoulders 200 122 0.61 5 3 0.60
Head & Shoulders
180 122 0.68 10 5 0.50
Menthol
Pantene Normal Hair 200 112 0.56 5 2 0.40
Sunsilk Fruitamins 200 95 0.48 8 2 0.25
Sunsilk Black 200 99 0.50 8 2 0.25
Chik 50 6 0.12 6 1 0.17
Source: Based on information provided by the company.

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