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Frugal brands that revolutionized the market

Frugal brands that revolutionized the market
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First Published: Mon, Mar 23 2009. 01 15 AM IST

New horizon: G.R. Gopinath’s Air Deccan ushered in an era of low-cost air travel in India, increasing the number of passengers in the country. Sondeep Shankar / Bloomberg
New horizon: G.R. Gopinath’s Air Deccan ushered in an era of low-cost air travel in India, increasing the number of passengers in the country. Sondeep Shankar / Bloomberg
Updated: Mon, Mar 23 2009. 11 44 AM IST
New Delhi: The Nano, the ultra-low-cost car from Tata Motors Ltd, is not the first Indian product testing the limits of frugality. Even benchmarked against its high standards of capital efficiency, the country has had its share of game-changing products and services that have not just altered the industry they are part of but also spawned an entire business ecosystem around them.
New horizon: G.R. Gopinath’s Air Deccan ushered in an era of low-cost air travel in India, increasing the number of passengers in the country. Sondeep Shankar / Bloomberg
There are several examples—ranging from the Rs500 cataract surgery at Aravind Eye Hospital in Madurai to the Rs20 McDonald’s burger—illustrating the power of products in ushering in price revolutions. But it is not often that such products have brought in epochal changes beyond the industry they operate in. Here are three examples of such game-changing products:
The sachet
When schoolteacher Chinni Krishnan made a career change to run a pharma company in the early 1970s, he had a simple business plan in mind: making medicines affordable to the common man. His factory in Cuddalore, Tamil Nadu, made medicines and healing salts packaged in 5g packets that were otherwise available in the markets in 100g packets.
Krishnan may not have known it then, but he laid the groundwork for the sachet concept, India’s biggest marketing revolution. Years later, in the late 1970s, his son C.K. Rajkumarextended the concept by introducing Velvette-branded shampoos in sachets at affordable price points (as low as Rs2) and creating an addressable market running into millions not touched by sales of the product in bottles. Rajkumar’s brother C.K. Ranganathan(present chairman and managing director of consumer products firm CavinKarePvt. Ltd) came up with a product, branded Chikshampoo, stretching the market size even further.
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“It was an immediate success of course, because it suddenly opened up the entire rural market for this one company,” said Ranganathan of his brother’s Vale Pharmaceutical Industries. “Today, everything that rural India consumes is available in sachets, from shampoo and detergent powder to gutka.”
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Such small-packaged products helped boost the presence of so-called fast moving consumer goods, or FMCG, in the hinterlands, increasing the distribution reach of makers of such goods. “Small packs have actually revolutionized the Indian FMCG market,” says Pradeep Lokhande, founder of Rural Relations Pvt. Ltd, a Pune-based marketing agency. “It does not only provide an advantage to the consumer, who finds it easy to carry and affordable, but also a small retailer who does not need too much space to keep them in the shop.”
Inexpensive cellphones
The number of phones in India, as late as 2000, was 28.5 million, mostly fixed-line phones (less than 1.88 million mobile phones). By the time 2008 ended, it had risen to 385 million, with fixed-line phones making for a shade less than 38 million units or 10%—making India the second-ranked market by phone users in the world, expanding at a pace that was the fastest.
Analysts say there were three main reasons for this: a regulatory decision that made incoming calls free, entry of more operators and the affordable combine of inexpensive mobile phone handsets and low-priced phone calls.
Phones costing less than Rs1,000, especially used and refurbished handsets, and effective perminute tariffs of less than Re1 were tailor-made for India. “The high prices of handsets was one of the main barriers for the evolution of...the telecom market in the country,” says Varadrajan Sridhar, professor of information management at Management Development Institute, a business school in Gurgaon, on New Delhi’s outskirts. Indeed, mobile phone calls in India, at an average 65 paise a minute, are today the lowest in the world.
New Delhi-based think tank Indian Council for Research on International Economic Relations, or Icrier, in a January report said the impact of mobile phones on economic growth is amplified by “network effects” beyond a penetration of 25%. Every 10% increase in the mobile phone penetration rate resulted in an increase in growth rate by 1.2 percentage points, wrote authors Rajat Kathuria, an Icrier professor, Mahesh Uppal, director of Com First (India) Pvt. Ltd, and Icrier researcher Mamta, who uses only one name. “If Bihar were to enjoy the same mobile penetration rate as Punjab then, according to our results, it would enjoy a growth rate that is about 4% higher.”
As mobile phone networks expand into rural areas and competitive pressures mount (there are at least three phone firms waiting to expand nationwide), say experts, this virtuous effect is only likely to expand in scale and depth.
Re1 air ticket
Until 2003, a dozen years after India initiated economic reforms that triggered record income expansion, a plane trip from New Delhi to Kochi cost at least Rs20,000, which was more expensive than an air ticket to Singapore. The trip to the coastal Indian city was under four hours away, less than half the time taken to reach Singapore.
That changed with the passing of the summer of 2003. A former army captain, who tried his hand at farming, silkworm rearing and helicopter charters before, had the previous year flown Ryan Air, a so-called low-cost carrier, in Europe and wanted to replicate the model in India.
G.R. Gopinath launched Air Deccan in August 2003 with a flight between Bangalore and Hubli. “The Indian middle class was increasing but they were still not taking vacations. (For them) vacation was going to parents’ house,” Gopinath told Mint last week, adding that the only way people could have shifted to a new product was if he flew them safely, on time, and in clean aircraft with the assurance that they will not lose their baggage in transit.
His trick to make that happen was the Re1 ticket. “People who were not looking at air travel at all said—oh, let’s see it. That’s how you change a habit. That’s what the Re1 fare did—shift passengers,” he said.
Air Deccan’s cheap tickets, and those of rivals such as SpiceJet Ltd or GoAirlines India Pvt. Ltd, helped the number of air passengers surge. The volume nearly trebled to 43.3 million in 2007 from 14.5 million in 2003. (Passenger numbers fell in 2008 to 40.7 million as high fuel prices and mounting losses took their toll.)
Rajnish Kumar Verma was one of those converts to aviation. The first time the software engineer at a travel firm took a flight was in April 2007 when he flew on an Air Deccan turboprop plane between New Delhi and Ranchi. The flight, under two hours, was chosen over a 12-13 hour train journey. The price difference—Rs1,650 for a ticket in an air-conditioned train coach versus Air Deccan’s Rs3,500 ticket—helped him spend more time with his family on what was a short vacation.
At least 180 aircraft have been added to India’s fleet since Air Deccan’s launch. Flights to smaller airports in predominantly rural regions became possible on short-haul aircraft. By 2007, flights were available from 82 airports in the country, compared with just 50 in 2000.
To be sure, Verma, faced with an economic slowdown, is flying less often these days and Air Deccan does not even exist today—it’s been bought by full-service carrier Kingfisher AirlinesLtd. Airlines are slowly shedding ultra-low fares and some destinations have gone off the aviation map as carriers curtail operations to cope with costs. But the Re1 fare and low-cost airlines have made a lasting impact on the Indian economy and consumer psyche.
And, the Nano?
At a starting price of Rs1 lakh, the Nano has the makings of a game changer. Even if the diesel model—only the petrol variant is likely being unveiled on Monday—costs about Rs1.5 lakh, it will be a tempting option for a consumer who until now has not been able to afford a vehicle more expensive than a two-wheeler.
With volumes, Nano’s frugal engineering-driven design and parts sourcing could have a bootstrapping effect on the domestic automobile industry at a time when global consumers are looking for fuel-efficient and inexpensive vehicles, says Xavier Gunner, head of research at Arbuthnot Securities Ltd.
Graphics by Ahmed Raza Khan / Mint
Vijaya Rathore and Samar Srivastava also contributed to this story.
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First Published: Mon, Mar 23 2009. 01 15 AM IST