Patanjali’s Story: Lessons for Companies in the Indian Market

Posted by Reading Time: 6 minutes
By Siddhartha Thyagarajan

Patanjali, a relatively young player in the Indian FMCG (Fast Moving Consumer Goods) sector, has taken the Indian market by storm. Patanjali is a company that produces and sells Ayurveda (Indian alternative herbal medicine) inspired goods. These include essential household items such as shampoos, soaps, toothpastes, and several similar items. Latest data indicates that the company grew by 150 percent from 2015 to 2016. The annual turnover currently is around US$ 745 million. The company targets to hit a turnover of US$ 1.4 billion in 2016-2017. The unprecedented growth begs us to question the reasons behind the company’s success.

Patanjali grew because of three distinct reasons. Firstly, the identity of Patanjali products resonated with the cultural identity of a large proportion of the Indian population. Secondly, Patanjali promised high-quality products at a reasonable price. Finally, the aggressive distribution pattern that the company undertook for its products helped its growth immensely. The following sections assess the finer details of the three-pronged strategy that is at the heart of Patanjali’s growth. Next, the article analyzes a few of the roadblocks that the company has faced in recent months. The final section will assess the key take-away for companies that plan to enter or are currently operating in India. 

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Cultural Mass Appeal

The products that Patanjali produces are marketed as historically and culturally indigenous products. Patanjali has captured the imagination of the Indian consumer by posturing itself as a brand that is extremely Indian. The difference in the branding has become more apparent as other FMCG companies have tried to sell their products as modern and sophisticated, created through innovative technology.

One notices that the Indian market still has a penchant for culturally rooted products. In addition, Patanjali also advertises its products as being all-natural, meaning they do not have any synthetic ingredients. The lesson for players entering the Indian market is simple. Though Indian consumers have become more in-sync with the latest trends and preferences that are gripping global markets, at the same time, they reflect strong preference for traditional goods. Companies entering the Indian market should note that Indian consumers often behave in an extremely idiosyncratic manner, which sets the Indian market apart. Companies should ideally perform their due diligence in India through tools such as market-entry and market-expansion studies. These will create a sound foundation to their own strategies to becoming successful in India.

Pricing Appeal

Indian consumers are earning more, with their purchasing power rising exponentially each year. However, a large proportion of the Indian population is still extremely price sensitive. While most consumers have money to burn, there is still a tendency for trying to find a bargain. India’s consumers are also responsible for nearly 59 percent of the consumer spending component of the GDP, which is illustrative of their economic power.  Patanjali has understood and developed a strategy to take advantage of the mindset that a large proportion of the Indian population has.

Patanjali priced its products at almost half the rate of comparable products of other FMCG brands. For instance, a popular shampoo from Proctor and Gamble India costs US$ 2.02, while a Patanjali shampoo costs around US$ 1.2. Both products contain the same quantity. Thus, Patanjali has managed to undercut the prices of its products, capturing a share of the market from an established player. The fact that it did so for a sustained period reflects that Patanjali has incorporated its pricing strategy into its product make/ quality. The ability to market a low-price and high-quality strategy in India is a sure shot disruptor because in a market as price-sensitive and large as India, the returns of such a strategy multiply manifold. In this regard, to understand the Indian market and create and execute the ideal operating strategy, companies can make use of tools such as consumer mapping.

Product Placement and Distribution

A number of companies in the Indian market fall at the final hurdle, namely product placement and distribution. The final success of a company depends on its final good or service. In Patanjali’s case, the company developed its model as a unique cultural and affordable brand that shaped its end-to-end business strategy.

Patanjali sells at nearly 177,000 retail units. It now has plans to establish independent stores in major cities. In addition, the company wants to open several stores in transport hubs such as bus terminals and railway stations, particularly in smaller cities. Patanjali has also been able to develop a trustworthy system of vendors and distributors to ensure that their product was available on shopping shelves. The company’s ability to gauge the reliability of its distributing and vending partners ensure that Patanjali does not fall at the final hurdle. The lesson for all companies planning to enter or currently operating in the Indian market is clear. Due diligence on potential partners is vital in determining if a business will be successful in India.

Patanjali’s Pitfalls

The company’s growth has come at a price. The ability to grow and produce various products has helped the company to increase revenue exponentially. However, a number of products produced by the company have recently come under regulatory scanners.

The Food Safety and Standards Authority of India (FSSAI) issued a notice to the company for misleading advertisements. In addition, Patanjali faces legal risks from competitors. The Solvent Extractors’ Association of India (SEA), a body of edible oil producers, claims that Patanjali’s product advertising is faulty and derogatory. The competitors also approached the Advertising Standards Council of India (ASCI) for relief when Patanjali created the misleading advertisement and subsequently refused to withdraw the advert.

In addition, there have been allegations against the company of selling a few products without proper licenses. They have also frequently been in the limelight in recent months for hiring casual labor for testing their products. This hiring had not been supported by proper paperwork. The pitfalls highlight the issues that a company might face, when they experience unfettered growth in a market such as India. The growth often casts a veil over the flaws in the operating procedures of the company. Companies planning to operate in India need to recognize the importance of regulatory compliance. The regulatory agencies have become stricter and often impose fines and curtail business operations in the event of violations by companies. In such scenarios, companies should always tread very cautiously in the regulatory landscape that India offers.

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Observations

A number of market observers consider Patanjali’s growth miraculous and inexplicable. On the contrary, the company’s success has been the result of a straightforward, yet, meticulous planning. The key takeaway for businesses is simple. Companies that do not ensure regulatory compliance or conduct their due diligence and market analysis, often face legal and reputational risks, thereby hurting the business. Companies that understand the nuances of the Indian market and operate in full cognizance with said nuances are the companies that are most likely to succeed in India.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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