India could pioneer a new Business Model for FMCG

Introduction
The apparent slide in the fortunes of many FMCG companies during the last couple of years seems to be the sign of times to come. I believe that it is a sign of the paradigmatic shift from Industrial Economy to Information Economy.

The major FMCG companies have to now move on to a new business model. This paper outlines a way to move towards such a model.

It is time large firms in India came up with bold new initiatives. For FMCG companies in India they have to craft a strategy that adequately takes into account the singularly unique characteristics of India and also move towards meeting triple bottom line results.

The rest of this paper is divided into the following sections

A. Typical current business model of FMCG companies
B. Ground Reality Created by the Existing Business Model
C. What can be done now? Towards new business principles
D. The New Business Model
E. Advantages of the new model
F. Important Questions that will need to be answered.


A.. FMCG - Current Dominant Business Model

At present the dominant business model followed by major FMCG companies is “Make quality FMCG and market them most efficiently.” This has resulted in

- Mass production at factories/ or a highly efficient sourcing based on standardisation and mass production by the upstream entity.
- High standardisation of goods
- International (and in some cases national) product brands
- Pursuit of efficiency in logistics

B.. Ground Reality Created by the Existing Business Model

This strategy, taken straight out of Philip Kotler, served us all until recently. This strategy has created

- Huge movement of goods (tonnes-km moved) – There are huge costs associated with this that could be avoided, as this paper would show.
- Tremendous push strategy by the Marketing folks with promotional campaigns that are yielding little marginal returns on investments. Consumers do not any more trust the language of advertisements. Some experts even say that the traditional idea of the brand is dying!
- The current push strategy translates to action by the Sales force that is often unpleasant to channel members. Here the marginal returns on efforts may even be resulting in negative values. Traditional channel members in established industries are unhappy and this is causing considerable disenchantment with “the big brother”. Marketers are forgetting that “the more you push, the more the system recoils back.”
- Irrational claims by FMCG marketers that is not any more believed by the customer. This is often seen by many as a dangerous movement of FMCG marketers towards misrepresentation and obscurantism.
- Demise (or stunted growth) of several local brands that may have great potential value (from customer point to view) – For instance some local tooth pastes and powders that are indeed very effective. All those who lived in India know this. These are given a go by because we are influenced by glitzy advertisement or, when we move to a new place within India, we are unable to source in the new locale those indigenous items we were familiar within the places we moved from. For instance, one cannot get Kottakkal (a place in Kerala) Ayurvaidya Sala’s Dashamoolarishtam in, say, Rajasthan. Neither does one know about a local equivalent that actually exists. It takes years of residence for most new residents to figure out an equivalent or near equivalent.

C.. What can be done by an FMCG Company? Towards new Business Principles

1) Reduce the cost of transportation
2) Reduce the cost of product push
3) Enable a more harmonious relationship with downstream partners so that they continue to work with FMCG marketer with more passion
4) Enlist a large number of upstream (and many more downstream partners) to help the company to grow by orders of magnitude through the new Business model
5) Continue to provide a very high return on investment to the shareholders by the above means of cost reduction and channel members working in unison with FMCG marketer.
6) Recognise the enormous wisdom available in Indigenous Knowledge (coded within local products). We will call these products Indigenous Knowledge Products and Services (IKPS)
8) Redefine what innovation means. Instead of the current emphasis on predominantly new products, the new innovation would relook at traditional products, reengineer them without sacrificing their authenticity and create new packaging and marketing strategies. The new innovation will be also be one of networking and information-passing between a diverse set of stakeholders.
7) Allow true marketing principles to work through a process whereby the consumer has substantive information (not promotional information alone) which allows him or her to make the best choices. Unilaterally move away from the current “push” practices of FMCG marketers.
8) Be an enabler of sales of IKPS through co-branding. Allow for alternative IKPS goods to compete with each other. Let those products with better inherent user value succeed in the market place.
9) Be responsible in terms of triple bottom line performance indicators

D.. The New Business Model

The revenue will come from sales of IKPS products (there are ways to capitalise on existing brands of the companies and also capitalise on a huge opportunity of IKPS products. How to co-capture value for existing brands and IKPS product manufacturers could be worked out. Essentially there will be co-branding and co-ownership of brands. Since there will be several brands within the same product range there will be minimum risk for FMCG marketer that they loose successful brands. In any case brands will be co-owned.

The FMCG marketer would invite business partners whose products will be distributed through its existing sales network within the local area (say 300-400 Km wide area).

The FMCG marketer would co-name and co-own the brands with local IKPS providers.

The FMCG marketer would certify on Safety, Health and Environmental parameters.
There will be several thousand local brands under the FMCG umbrella competing with each other. The best shall win based on true market principles, not based on ad push.

The backbone of the new model would be an Information System backbone which would connect up large number of IKPS manufacturers into a huge family of suppliers and downstream partners. The FMCG marketer will be managing a veritable information juggernaut which will allow for e-shopping, direction to the nearest store, information on thousands and tens of thousands of products

The customer will be able to log in and get details of FMCG marketer co-owned brands in any place. The customer’s knowledge will become the driver for demand rather than product push by the marketer.

E.. Advantages to the FMCG Marketer

The FMCG data base system would become a huge repository of knowledge (of local products, their manufacturers, specifications etc.) that will make it a true information giant for the 21st century. The spin-offs would be enormous. Imagine a database on thousands of regions with each region’s showing up all small manufacturers with their brands endorsed by FMCG marketer.
Enormous growth in size (total material and cash flow through the FMCG Marketer system) would grow exponentially. This will overshadow the most optimistic growth scenarios with the existing business model.
Diversification into new products and new-product launches will be extremely easy. There will be thousands of new products in the pipeline at any time.
This business model would create such an enormous social capital that the FMCG marketer will be considered a model Social Entrepreneur. This, while nurturing and furthering the financial health of the company.
Diversification into other products will be such an easy matter. The investments required for launching a product will be very small.
The existing brand strengths will be further nurtured through an innovative branding/ co-branding scheme
The FMCG marketer would have an opportunity to pioneer an inter-organisational system (through partnership with associates who are small brand owners with Indigenous knowledge) suited for post-shareholder capitalism. This will be a true form of stakeholder capitalism.
This kind of a model will be departure from predominantly monolithic management that all FMCG companies practice to a decentralised “fuzzy” management system with the sub-units having considerable autonomy. Intrapreneurship can be pushed deeply onto the lower levels of the organisation. It is not difficult to envisage that at a regional (even district level) level a sub-unit can be created that will have profit-centre responsibilities.
The FMCG marketer will be able to also harness the entrepreneurial spirit that resides in small businesspersons all over the country.
The FMCG marketer will be loved by thousands and tens of thousands of small brand owners and eager customers who want to patronise Indian brands. Imagine the co-operative model that the FMCG marketer will be able to pioneer. All this without sacrificing economic returns!
Imagine the overall learnings and the new opportunities this will throw up. The benefits are unimaginable.

F.. Many Questions will need to be Answered. Some are...

1) How will the FMCG marketer capitalise on its existing strengths so that, indeed, the first mover advantages can be reaped of such a new strategy?
2) What will be the details of this new co-branding strategy? Where will the existing brands of the FMCG marketer be?
3) What kind of a comprehensive management framework is required to implement this without losing control?
4) How to educate existing staff on the new model? Marketing and Sales people will have to take on the role of “Sourcers” while at the same time maintaining their marketing and sales skills.
5) On the production side there is going to be an upheaval. This will have to be managed
6) Setting up of the electronic information backbone
7) Setting up new systems for product testing
8) Reorientation of the Market Intelligence and Market research to incorporate local brand support
9) What is the time line? How should the pilot test look like? Where? When? Phased introduction or all at once quick introduction (it is too early to talk about this anyway)
10) What will the revenue model be like?
11) What are the external threats from government, others established players in FMCG? How to counter these threats?
12) How to enlist the support of government departments, NGO and consumer forums. What kind of education will be needed?
13) What will be the internal resistance points? How to counter these and give superior performance on all stake-holder fronts?

With IT systems there is a huge opportunity here to harness the fantastic diversity that has been preserved in India. Let not globalisation wipe of Indigenous knowledge systems and the sacred view of life supported by these systems.