Fast Company

Strategic Innovation: Hindustan Lever Ltd.

"Everybody wants brands. And there are a lot more poor people in the world than rich people. To be a global business . . . you have to participate in all segments." --Keki Dadiseth, Unilever

At the intersection of two nameless dirt paths in a small town outside of Bangalore, India, the sharp smell of dung hangs in the air. Uniformed schoolchildren race about, and women from neighboring villages flood the pathways carrying jute sacks bulging with weekly groceries. The makeshift market place, or haat, is a flood of color -- blue tarp, coal-black machetes, green vegetables, pastel underwear -- and a loud cacophony of voices and competing claims.

"More washes!" "More suds!" So declares a "hawker," or a sometime sales rep from Hindustan Lever Ltd., the local subsidiary of Dutch giant Unilever, the world's largest consumer-products manufacturer. The rep makes his case with a microphone and a truck well stocked with detergents, soaps, and toothpastes. His rival, standing a few feet away and armed with a megaphone, pitches Lever knockoffs. "Costs less!" "Cleaner wash!" The spirited volley of pitches in Kannada, the local language, attracts a jostling crowd.

Welcome to the new frontier of global capitalism, the spot where state-of-the-art marketing meets the dirt road. The typical family in this town earns 4,800 rupees (about $103) a year from raising crops and from working occasional jobs in the city. Most wash their clothes and their bodies in nearby ponds or at community water taps. If soap is used at all, it's usually whichever brand is cheapest -- and people tend to use that soap for everything: their bodies, their hair, and their garments. In this country, the notion of brand and brand loyalty is fleeting, to say the least.

But Hindustan Lever, in ways at once ingenious, dogged, and culturally sensitive, is changing all of that. Over the past two decades, the company has built a remarkable distribution system that moves its soaps and detergents to every corner of India. Now it has started to leverage that valuable infrastructure to expand its reach to a huge and overlooked group of consumers: the rural poor. "Everybody wants brands," argues Keki Dadiseth, 55, who is in charge of home- and personal-care products worldwide and who is also a director of Hindustan Lever. "And there are a lot more poor people in the world than rich people. To be a global business and to have a global market share, you have to participate in all segments."

M. (Venky) Venkatesh, 42, is one of Hindustan Lever's field generals in this campaign. He is regional sales manager for a chunk of India (total population: more than one billion) that is home to more than 200 million people -- as many as reside in Russia and the Ukraine combined -- comprising some 150,000 villages. His mission: to sell Lever products to rich and poor alike.

Venkatesh takes that mission seriously. A 20-year Lever veteran, he still spends two days a week visiting stores and markets across his region. When he spots Lever products hidden behind another brand in a storefront, he walks in and rearranges the display. He smells soaps to make sure that the scent is fresh. Thanks to the spreadsheet on his IBM Thinkpad, he can recite the demographics for every village on his itinerary -- from the number of bank deposits above a certain amount to literacy rates. In two years, his team has driven Lever products into 47% of the state of Karnataka, up from 30%. "Rural consumers want value, not just volume," Venkatesh says.

Venkatesh strikes up a conversation with Mahaboobjan, an open-shirted man selling incense from a weathered wooden cart at the haat. Mahaboobjan has been peddling his wares in the region for 20 years. His long-standing relationships with customers position him as a reliable expert and adviser to local villagers. Venkatesh asks him what he thinks of the pitch being delivered by the Lever hawkers on the truck.

Mahaboobjan grabs the microphone. In classic salesman's patter, he begins talking about Lux, the soap that film stars use, and about the power of Wheel detergent. He keeps up a barrage of conversation to drown out an amplified tape recording used by the rival selling knockoffs. The market is transformed as villagers flock to the Lever truck. In less than an hour, Mahaboobjan sells soap to 15 customers, nearly half of that morning's sales. Venkatesh offers him a hawker's position on the spot.

The moral of the story? Even the poorest of the poor, when given a choice, can be choosy about brands. In a nation where more than one-third of rural consumers watch TV (everything from Ally McBeal to religious soap operas), and even more visit commercial centers, people aren't naturally inclined to settle for throwaway versions of the real deal -- if the companies that make the real deal bother to explain the difference. If you only have two rupees (about four cents) to spare, you want value for your money -- and quality products for your children. Casting a glance at the Wheel knockoffs in the market, a silk sari-clad woman named Maryamma sneers, "Only village people buy duplicates. I want the real thing."

Rich Company, Poor Customers

How far should a giant company go to understand poor customers in faraway markets? How does such a company manage to sell its product profitably to hundreds of millions of people, dispersed and isolated, with hardly any disposable income to spend? How does it develop brand loyalty in markets where, for generations, people have chosen to buy the product that was cheapest or the items that a store actually had in stock -- if they bought anything at all?

These are not questions that occupy the minds of high-level strategists and marketers at most powerful global companies. They are too busy trying to sell high-priced, high-profit products to middle-class customers in the richest countries. Hindustan Lever, the largest consumer-goods company in India, has embraced a different strategy. It sells everything from soups to soaps by going wherever its customers are, whether it's the weekly cattle market or the well where village women wash their clothes. Why bother? Because it is the smart (and the right) thing to do. Poor people, the company's executives believe, can become just as discerning about brands as rich consumers. And if brands exist as a store of value -- a promise about a product's distinctive qualities and features -- then offering poor consumers a real choice of brands means offering them a slightly better quality of life. Marketing well-made products to the poor isn't just a business opportunity; it is a sign of commercial respect for people whose needs are usually overlooked.

To be sure, plenty of companies peddle low-quality products at cheap prices to maximize their profits. But that's not the Unilever model. Poor countries, it believes, may hold the key to the company's long-term prosperity. Unilever (annual revenues: $43 billion) anticipates that by 2010, half of its sales will come from the developing world, up 32% from its current sales. Hindustan Lever is the model and the engine for that shift. India's rural people, who comprise 12% of the world's population, present a huge untapped market. What the company is developing now are the strategies and tactics to reach that market, even as its competitors waver in their commitment.

It is a crucial growth opportunity for Hindustan Lever, perhaps the most effective way for it to retain its number-one position in consumer goods. The company reported continuous sales growth in India for three decades. Then, late last year, sales were nearly flat and actually declined in some categories. "Given the large scale of the company," says M.S. Banga, 46, chairman of Hindustan Lever, "our biggest challenge is to keep growth rates where they are."

That's why every Lever management trainee begins his or her career by spending six to eight weeks in a rural village, eating, sleeping, and talking with the locals. Marketing executives make frequent two-day visits to low-income areas. Why all of this trouble? "It's important to ensure that our sales guys are connecting with our consumers," says Banga, whose tenure with the company began in a village. "Once you spend time with consumers, you realize that they want the same things you want. They want a good quality of life."

Indeed, Lever recognizes that meeting the demand of poor consumers isn't just about lowering prices. It's about creativity: developing products and processes that do more with less. Hindustan Lever creates markets where most companies see only problems. Somehow, this company of 36,000 employees -- a notorious bureaucracy -- nurtures a willingness to constantly redefine markets, marketing, and brands. Its growth in rural India is a case study in strategic reinvention.

Reinvention I: Change Who Does the Selling

On November 28, 2000, in a meeting hall in Nalgonda in the southern state of Andhra Pradesh, Hindustan Lever assembled a group of about 150 women. The women had come by bus or by train, some at the company's expense, from 50 villages with fewer than 2,000 residents. Many were illiterate, agrarian workers who were hard-pressed even to say which products Hindustan Lever makes. They wanted to start a business, and the program's name -- Shakti, or strength -- validated their bold decision.

The women belonged to self-help groups that ran microcredit operations. Each of them had saved money from their daily wages or crop sales and were committed to finding ways to make their collective savings grow. So Lever pitched to them what seemed like an exciting proposition: If they used some of their savings to buy the company's products at cost, they would learn how to sell them to their friends and to other community groups and how to sell them at a profit. Amway and Avon had already pioneered a similar strategy for the middle class in urban India. But for Hindustan Lever, the direct-sales model was a huge departure from stratified distribution channels and highly trained sales reps.

"It's not enough to give people access to money," says Pratik Pota, 32, a marketing manager on the new-ventures team (or New Adventures, as it's dubbed). "We have to give them opportunities and train them in what to do with their savings. Our growth prospects are inextricably linked to these women's income generation."

Shakti represents a huge cultural challenge in India. And in many places, Pota faces tough going. In the village of Pochampally, he visits the home of Anjamma, a promising participant. Anjamma is the local leader of the Telugu Desam political party, and she runs one of the larger women's microcredits. She's blunt: It's hard to sell products to local villagers, she says, pointing to the boxes of soap bars and shampoo sachets stacked in the corner of her living room. Though accustomed to charging interest on her group's loans, she's struggling with how to sell the products at a margin.

But in the next village, Ravenpalli, Pota finds evidence of progress. In their spare time, a group of women weavers have taken to selling soaps and detergents to their neighbors. "I thought that we could sell the products for less than at the store and still make a profit," says Maheshwari, the leader. Though she's never sold before and has just a second-grade education, her billing book is perfectly organized. Sitting cross-legged on her dirt floor, Pota looks pleased.

"We're not doing this out of charity," Pota says. "But if you can contribute to a social cause while being profitable, then why not?"

Reinvention II: Change How You Market

As twilight sets on a weekly cattle-and-trade market in a village in Bihar, buyers collect their wares and gather in front of a stage. A performer lights a small fire on a plate to purify the stage. A mythological tale of romance begins. Then the performers -- magicians, singers, dancers -- offer a bit of local news and call out to surrounding villages.

In the next scene, performers are acting again, this time in the role of rural laborers. One man is worried that he's not strong enough to do his work. The other tells him, "Your body can't breathe if it's covered with mud." What he means is, if you're not clean, you're not strong, and you can't support your family. Variations of this message are sung to a catchy tune. The backdrop: a banner advertising Lifebuoy, Unilever's 106-year-old mass-market brand of soap in India.

Is rural folklore the best way to explain useful hygiene practices? Or does it co-opt a centuries-old tradition in the interest of crass consumerism? Cultivating poor consumers is often a series of long-term gambles that test the line between what's creative and what's exploitative. After producing 7,000 such live shows across rural India to promote Lifebuoy and five other brands, Hindustan Lever itself is unsure of the best method for connecting with consumers. But complicated circumstances call for a willingness to experiment.

In Bihar and in other villages of the more rural states of northeastern India, the landscape is different from that of the south. Television ownership is less widespread. Men, rather than women, go to the weekly haats. Here, swaying consumers doesn't involve switching from counterfeit brands to Lever brands. Instead, it involves switching people from infrequent to everyday washes using soap without making them feel profligate or inauthentic. The marketing challenge is to integrate the product into consumers' lives.

One strategy relied on science. Soap executives realized that people who didn't see dirt on their hands thought that their hands were clean. This attitude partly explained why people didn't wash their hands after washing clothes in the river or feeding the cows, a key cause of disease transmission. Although the connection was clear in the executives' mind, they had to create a similar urgency and emotional connection to soap for the consumer.

And what better place to educate people about the importance of frequent soap use than where 70 million people come to clean themselves? Hindustan Lever joined the pilgrims visiting Allahabad for Kumbh Mela, the religious festival held every 12 years. Executives wanted to show that dirt is always present, though often invisible. Marketers waved an ultraviolet-light wand over attendees' hands to show where germs and dirt resided. While the pilgrims came to bathe at the confluence of India's sacred rivers to cleanse their souls, they also learned to keep their hands free of pathogens.

The village street theaters represented a more emotional play. Lever and Ogilvy Outreach, the unconventional marketing arm of Ogilvy & Mather, recruited local magicians, dancers, and actors who knew each market and village that the company wanted to target. In total, 50 teams of 13 performers were recruited to serve as connections between the brands and the residents. Scripts were changed for different dialects, education levels, and religions. In all, Ogilvy coordinated two-hour performances at 2,005 haats over six months.

The results seem compelling. Awareness of Breeze, a low-cost soap with more of a beauty pitch, increased from 22% to 30% over the six months that the performances were running. Awareness of Rin Shakti, a moderately priced detergent bar and powder brand, increased from 28% to 36%, a company spokesman says. And in all five states, sales of Surf Excel, a premium washing detergent, shot up in the first half of 2000 compared with 1999, while sales of Rin shot up in four states.

More than that, Hindustan Lever may actually be improving health conditions. "It's not enough for the company to look at market-share increase," says Anand Kripalu, 42, the company's head of detergents and a creative thinker behind many of the company's rural-outreach strategies. "We want to spread the message of hygiene and really use the Lifebuoy brand to deliver that benefit to consumers. This isn't just good for us as a brand; it's good for the country."

Reinvention III: Change How You Develop Products

Most big companies assume that developing products for poor consumers requires less strategic flexibility, less marketing inspiration, and less expensive R&D than developing products for rich consumers. Hindustan Lever has learned that, in fact, the opposite is true. It takes a genuinely creative company that is filled with highly imaginative product developers to reach the poorest of the poor.

Consider Indian women and their hair. India is home to 16% of the world's population but also home to 28% of the world's hair, thanks to the long tresses that Indian women maintain throughout their life. In a culture in which many poor women still avoid any appearance of self-indulgence, hair grooming is often their one luxury. Even women with faded saris and little jewelry rarely leave home with a hair out of place.

Which means that women look for unexpected opportunities to care for their hair. This insight led to two product-development strategies. One reinforced a prevailing consumer habit, that of using soap for hair and body wash. Just over half of consumers, especially low-income consumers, use soap to wash both their hair and their body every day, Lever's research shows. Rather than fight it, marketers decided to create an opportunity. Two years ago, Hindustan Lever marketers thought of testing a prototype hair soap. But that development still didn't acknowledge the fact that consumers use one soap because it's more convenient and because it costs less.

And so came the idea for a low-cost soap that cleans the body and the hair. Product developers spent a year in the lab before finding the right formula. Marketers had already built a strong beauty brand in Breeze, a discount soap. Now marketers could build the Breeze brand even further. The new soap is called Breeze 2-in-1, and distribution is targeted at smaller towns and rural areas. "It's an example of product marketers piecing together insights from the field and stretching their imaginations," says Mukul Deoras, 38, head of the personal-wash business.

It's also an example of how Lever gets consumers to buy higher-quality products, or how it gets them to buy "up the value chain," as company executives say. Deoras acknowledges that this brand may cannibalize users of Lever's other discount soaps and shampoos. But, he says, "even if there's cannibalization, it's okay. Consumers are buying a value-added product, which is likely to increase loyalty."

The other strategy targeted women who weren't even willing to try shampoo, because they thought that it was too harsh. Marketers decided to tackle the harshness issue head on. An ad campaign showed a straw broom (what happens to hair with soap) alongside soft tresses (the benefits of shampoo). Coupled with this campaign, the company developed a sachet of Lux shampoo. It capitalized on the Lux-soap brand, and it cost less than any other sachet: just 50 paise compared with two rupees. The visual cues and sachet size were so powerful that in the test state of Andhra Pradesh, volume sales of shampoo jumped by 50% in just three months.

It promises to pay off with more premium products too. A woman named K.M. Bhagilakshmi used to use soap-nut powder, a local crop near her town of Dabospet in the state of Karnataka. "But the dandruff would still be there," she says. After seeing advertisements for Clinic All Clear, Lever's premium antidandruff shampoo, on the vernacular cable channel, she bought a sachet for 2.50 rupees. Now she and her husband buy a sachet (7 milliliters) once a week.

This combination of consumer insight, advertising, and product development is part of Hindustan Lever's recipe for success in habit building. One-third of India's 60.6 million pounds of shampoo sales in 2000 came from sachets in rural India. Lever claims 70% of those rural sales. And already half of its $1.02 billion sales in soaps and detergents come from rural markets. The potential to build an even larger market with more regular consumers is mind-boggling -- if companies are prepared to do the hard R&D work that is required to deliver on that potential.

"We need to apply top-class science and technology in order to solve simple problems for a reduced cost to the consumer," says Dr. V.M. Naik, 53, deputy head of Hindustan Lever's Research Laboratory in Bangalore. Naik, who spends about 70% of his time in the lab, is not just refining high-end shampoos. He is the primary scientist behind recent mass-market products such as low-cost ice creams and low-cost soaps. "Technology that liberated consumers before can be a constraint for new innovation," says Naik. "New products require new principles."

"Who Says Rural Is Not Rich?"

More than one-third of India's rural residents live below the poverty line, but that's down from more than half two decades ago. The look and feel of rural India is quickly changing. Thavarekere, a village in Karnataka, has a bike-repair shop and one retail store. But it also has a red-and-yellow sign that is painted on a stone ledge along the road: "Samsung, Onida, Sharp televisions. On sale." The ad mentions a store in a nearby village.

Venky Venkatesh, Hindustan Lever's intrepid southern-sales manager, is smug: "Who says rural is not rich?" It's vindication for him to find such a brand-conscious village. And he knows that if the residents can afford a bike, let alone a TV, then they can afford Lever products. "You build brands by offering choices and benefits. It lets consumers know that you're investing in them."

The fact that TV sets exist in a village where women collect water from a borewell, a deeply drilled well, may seem a contradiction. But it's how rural India has developed. Near the village borewell, the weedy ground is littered with consumer decisions that Venkatesh considers to be crucial. There are blue and green wrappers of brands and not-so-brands that women use to do their housework.

Shakuntala Lakshminarsimhamurthy squats outside her house with two buckets of bright purples in suds. She takes a sari out of a bucket and beats it against a stone slab to push out the dirt. Venkatesh's local rep visits her and can tell that she's fairly well-off. She's able to soak her clothes, which means that she bought a detergent powder, a more premium product than the detergent bars poorer families typically use. And there's a television antenna rising up from her house.

She uses Rin Shakti, a moderately priced Lever brand. Before she saw ads for Lever products, it didn't matter to her what brands her husband, who commutes to the Railway Police Force office near Bangalore, bought at the market. "Now," she says after noticing the difference on her hands and her clothes, "it matters."

Rekha Balu is a Fast Company senior writer. She grew up using soaps made by Hindustan Lever. Learn more about Hindustan Lever on the Web (www.hll.com).

Sidebar: The Strategy and Marketing Agenda

Who: Keki Dadiseth
What: Selling to rural consumers
Why: To tap into high-growth markets that rivals aren't prepared to enter

Keki Dadiseth, 55, rose quickly through the ranks of Hindustan Lever and then went on to Unilever headquarters, where he is in charge of home- and personal-care products worldwide. Here is his agenda for how strategists can address rural consumers.

Do the math -- and then make the commitment. "Even though developing markets use small quantities per capita, their huge population means a huge amount of fabric-washing products, shampoo, and so on. And even if you make modest profit levels on that, the gross profit can be much more than in the traditional markets."

Define markets broadly. "Is your goal to get 50% of the shampoo market, or to increase consumption so that 50% of all 'hair washes' are done with your shampoo? In India, Lever has a 70% share of the shampoo market. But we look at total hair washes as our market."

Look at assets, not income. "It may seem as if rural residents have little money to spare on your products. But a farmer's food is largely free, which means that he has more money to spare than an urban resident who might spend 50% of his income on food."

Affordable products aren't always inexpensive to develop. "Most companies tend to take an existing technology and apply it in a diluted fashion as they go down the income groups. We turn that logic on its head. For instance, when we worked with salt, we used atomic-measuring technology to calibrate how iodine passes through the body so that we can offer the highest level of iodine delivery in the market. About 75% of the iodine in salt is wasted. You can either put back that 75% and double the cost of salt, or you can find a technology that allows consumers to get the required iodine in their salt without the costly process of adding it back."

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