Differentiation Strategy

Question Number Four What do you understand by ‘differentiation strategy’? Discuss by formulating a differentiation strategy for a company, which is into FMCG sector

Introduction As the market becomes more complex and the FMCG sector, a very fast growing market, has more and more players, companies turn to strategies to maintain/dig deep into others market share.One such strategy used is “differentiation”. In this paper I would be examining “differentiation strategy” which I trust is the key to successful Market hold and be submitting the grounds on which this inference is based. Furthermore I would be analyzing the Case of the Indian wonder “Nirma” and would formulate a viable strategy for its foray into the FMCG sector

Differentiation Strategy Definition “Differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm's products and services” -CharlesW.L.Hill,Gareth R.Jones

Why Differentiate? The concept of being unique or different is far more important today than it was ten years ago. The key to successful marketing and competing is differentiation.

What does Differentiation Strategy do?

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It is a strategy whereby a marketer offers a product as unique in industry by proving that it provides a distinct advantage over other products by setting it apart from other competitors’ brands in some way or the other, besides price. Products sold by two different firms may be exactly the same, but if customers believe the first is more valuable than the second, then the first product has a differentiation advantage. The existence of product differentiation, in the end, is always a matter of customer perception but firms can take a variety of actions to influence these perceptions.Differentiated strategies include targeting, positioning and segmentation. Most of the FMCG products

carry this differentiation through

advertisements to reach the customer in an effective way .In Non price competition the price is kept constant and differentiation can be created through various novel promotional ways like ‘buy one get one/two, 25% extra for the same price, free samples etc Thus Differentiation is the art of designing a set of meaningful differences to distinguish the company’s offering from competitors’ offering. The following differentiation types are commonly found

Differentiation based on ingredients:  TTK group launched its Prestige range of non-stick frying pans.  Balsara’s Promise toothpaste with clove oil which acts as n herbal remedy for tooth and gum pains.

Differentiation through additional features:  Godrej with its 300 ltrs and 390 ltrs refrigerators targeting high lifestyle people.

Differentiation by packaging:  Brylcreem in handy tube. 2|Page

 Hit for cockroaches with sleek nozzle for hidden areas.

Differentiation by design:  Kinetic Honda with electronic ignition, to avoid kick-start.

Differentiation by positioning:  Dominos Pizza with their ‘30 minutes home delivery or free’ concept.  Maggi with their ‘2 minutes noodles’

Differentiation based on Opportunities in the External Environment Trends or Fads: Firms can provide a differentiated product to satisfy the needs of customers who are responding to trends or fads eg Integreated mp3 players in Sunglasses Government Policy: Changes in government policy provide many opportunities for firms to develop differentiated products.Tax incentives by the Indian government helped Eg:Introduction of the new electric car Reva Social Causes: Social causes can create demand for differentiated products that help people further their cause of choice.For eg credit cards issued n partnership with World Wild Life Fund ,retail stores become a point of differentiation in the credit card business Economic Conditions:

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Eeconomic condition creates opportunities for product differentiation .It can either cater to the premium or the low end market depending on the state of economy.

Uses of differentiation strategy: A successful differentiation strategy creates a lines of defense against Porter s five forces: rival competitors, buyers, suppliers, potential entrants, substitutes. Threats of potential entrants Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming current firms' product differentiation advantages Threat of rivalry Each firm in an industry attempts to carve out its own unique product niche. Rivalry is not reduced to zero, for these products still compete with one another for a common set of customers, but it is somewhat attenuated, because the customers each firm seeks are different. Threat of substitutes Firms reduce the threat of substitutes by making a firm's current products appear more attractive than substitute products Threat of suppliers Powerful suppliers can raise the prices of the products or services they provide. These increased supply costs must be passed on to a firm's customers in the form of higher prices.A firm without a highly differentiated product may find it difficult to pass its increased costs on to customers, since these customers will have numerous other ways to purchase similar products or services from a firm's competitors. Threat of buyers When a firm sells a highly differentiated product, it enjoys a near monopoly in that segment of the market. Buyers interested in purchasing this particular product must buy it from a particular firm. Eg. Ipod.Any potential buyer power is reduced by the ability of a firm to withhold highly valued products or services from a buyer.

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The challenge It is to find ways to differentiate •

that create value for buyers and that are

•

not easily copied or matched by rivals

Anything a company can do to create value for buyers represents a potential basis for differentiation.

Techniques for studying the bases of product differentiation : •

Multidimensional Scaling : it is a technique for analyzing the perceived similarity of a set of products or services. It is a pure inductive method for describing the bases of product differentiation in an industry.

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Regression Analysis of the determinants of product price is a more deductive approach to the empirical analysis of bases of product differentiation approach, the analyst proposes a wide range of characteristics that may have an impact on a product's price.

IMPLEMENTING A PRODUCT DIFFERENTIATION STRATEGY A successful differentiation strategy depends on creating customer preferences for the products of the firm. Customer preferences are heavily influenced by customers’ experiences in interacting with the company. It must be able to respond quickly and accurately to customer needs. Customers need to ‘feel’ that the company is catering to their needs. Organizational structure, management control systems are very important in implementing a differentiation strategy. Management Controls Managers and employees have the freedom to be flexible, they should also be encouraged to be creative and adaptable. Decision making should be

more

decentralized in a product differentiation strategy which allows managers to make decisions and take actions that allow the focal firm to differentiate its products and/or services through a high degree of responsiveness to customers.Managers and 5|Page

employees should unequivocally be given the freedom and encouragement to experiment with new ideas.

PITFALLS OF A DIFFERENTIATION STRATEGY •

Trying to differentiate on a feature buyers do not perceive as lowering their cost or enhancing their well-being

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Over-differentiating such that product features exceed buyers’ needs

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Charging a price premium that buyers perceive is too high

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Ignoring the need to point “value”

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Not identifying what consumers consider “ value”

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A low-cost producer strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not see extra attributes as worth paying additional money.

Differentiation strategy for Nirma Nirma is one of the few names - which is instantly recognized as a true Indian brand, which took on mighty multinationals and rewrote the marketing rules to win the heart of the consumer. India being one of the largest consumer economy, with up-andcoming middle class, a widespread, diverse marketplace, Nirma aptly concentrated all its efforts towards creating and building a strong consumer preference towards its ‘value-for-money’ products.Nirma’s vision was to make consumer products available to masses at an affordable price. Distinct market vision, infrastructure, good distribution network, umbrella branding and low profile media promotions allowed it to offer quality products, at affordable prices. Nirma has been a huge success story. It has a good hold into the FMCG market but has been recently crowded out by HLL and other major players.In this following part,I would be formulating a strategy for Nirma to stay afloat in the Fmcg market Products • 6|Page

Nirma Bath Soap

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Nirma Beauty Soap

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Nirma Lime Fresh Soap

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Nima Rose

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Nima Sandal

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Nirma Washing Powder

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Nirma Detergent Cake

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Super Nirma Washing Powder

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Super Nirma Detergent Cake

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Nirma Popular Detergent Powder

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Nirma Popular Detergent Cake

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Nirma Shudh Iodized Salt

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Nirma Clean Dish Wash Bar

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Nima Bartan Bar

NIRMA - SWOT ANALYSIS Strengths: Strong Brand equity: Nirma is a Rs. 17 billion-umbrella brand offering consumers a broad portfolio of products at multiple price points in the Detergents, Soaps & Personal Care market. Produces a range of industrial chemical products. Market leadership in detergents and fabric wash and second largest player in toilet soaps. Wide distribution network. Consumers have stayed loyal to the brand Weakness: Less presence in premium segment. Lacks global tie-ups and thus finding it hard to tap export markets. Perceived Brand weakness by premium consumers Negative campaigning by competitors as a cheap “yellow powder” Strong and well differentiated brands like HLL occupying the market Low technological prowess when compared with the major market players 7|Page

Opportunities: There’s a great awareness and attractiveness towards herbal products. Nirma can tap this potentially vast market. Exports Acquisitions for strengthening its distribution tie-ups. Entry into other categories like shampoos, toothpastes and fabric whiteners.

Threats: MNCs coming, to India particularly in Toilet and Soap industry. Emergence of small but strong regional players lie Cavin Care. The rural market is getting empowered and has more disposable income.They like to be associated with more Internationally known brands.This can severely cripple Nirma in the near future Heavy onslaught of competition in the core categories from Hll,ITC will result in higher advertising expenditure. Counterfeit products in rural areas and small towns. Reduction in real income of consumers due to high inflation

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players like

TOWS MATRIX

STRENGTH(S)

WEAKNESS(W)

OPPORTUNITY(O) SO STRATEGIES

WO STRATEGIES

THREAT(T)

WT STRATEGIES

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ST STRATEGIES

SO STRATEGIES Nirma’s customers have stayed loyal to the brand.Nirma has to set up a technologically superior plant which manufactures premium brand products and cater to the premium segement/growing middle class market.Introduce new products with the Herbal touch as in the lines of Dabur.It’s a huge market that Nirma is missing out.Export its products wherein the vast diaspora of Indians presents a huge market. Have tieups with FMCG majors and introduce new products.The tieup can certainly boost Nirmas brand image WO STRATEGIES Nirma has to boost its presence in the premium FMCG segment like shampoos,toothpaste etc by introducing premium products.Thiss can either with a tieup with MNC or introduce its own premium,high priced products.In this way it can challenge HLL & ITC.The perceived brand weakness due to the negative smearing by competitiors can be tackled by introducing premium brand products and by roping in Brand ambassadors who appeal across all segments of the society.Positive Advertisements in order to tackle the perceived cheap brand weakness

ST STRATEGIES Nirma is the market leader in detergents and the second largest player in toilet soap market.It can effectively cut off the MNC trying to enter the market by offering premium beauty soaps,introduce new products like toothpastes,shampoo.Using its wide distribution network it can make sure that the products are always “consumer ready”.Capitalize on the fast growing FMCG market and introduce more products to the middle class consumer who are moving into an upward trend towards more branded products

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WT STRATEGIES A tieup with a Internationally known brand would definitely boost its image and augur well to remove its low brand image amond the premium market.Introduce new line of packaging and designing which would appeal to the mass market.Tieups to export its products will definitely create new oppurtinities to expand while allowing it to apply the learnt lesson to the Indian market.Introduce latest state of art technology along with new product lines to take the majors like HLL,ITc at their own turf

STRATEGY: Nirma’s strength has always been value for money. It has successfully managed to defeat many MNC with this policy and at this turf.But the other companies have quickly learnt from their mistakes and have differentiated their products to compete with Nirma.Unfortunately Nirma has not been able to move upstream with their products to the premium segments.To sum up,to stay competitive and stay as a major player in the Fmcg market ,Nirma has to do the following as evident from the Tows and Swot matrix. Improve Brand image i.

By offering premium products

ii. Using Mass media to counter smearing campaigns by competitors iii. Tieup with foreign Majors

Update production technology Manufacture premium brand products and cater to the premium segment/growing middle class market. Introduce new products with the Herbal Ingredients Export products wherein the vast diaspora of Indians presents a huge market.

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Introduce new products like shampoos,toothpaste ,deodorants etc New style of Packaging and presenting of products

Conclusion: Nirma as a brand has been able to etch a niche for itself in the face of intense MNC competition. It has not only emerged victorious in its core competency, detergents, but has also successfully moved on into newer products. Nirma has two options to go ahead first to concentrate only on bottom of pyramid and develop a huge distribution network to reach to every corner of the country and other is to cater to needs of growing middle class, which is a primary target customer of all the companies. I believe if the above strategy is followed Nirma will be a strong player in the Fmcg market for years to come.

References: 1. Strategic management from theory to Implementation-David Hussey 4th ed 2. Concepts

in

Strategic

management

and

business

policy(Thomas

L.Wheelan,J.David ( 9ed) 3. Strategic

management

R.Jones 6 ed) 4. www.nirma.com

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an

Integrated

approach(CharlesW.L.Hill,Gareth