Liquid soaps - a frothier business than bar soaps
How liquid handwash and toothpastes squeezed more out of an already saturated market
Say you are hosting your birthday party and have invited a few guests. However, more people show up than you anticipated. Suddenly, your cake appears inadequate for so many people. If you try to accommodate everyone by cutting smaller portions, each guest will receive a disappointingly thin slice. So, how do you address the shortage in cake? The solution would be to order a bigger cake from the start.
Companies that make fast-moving consumer goods often face such dilemmas.
Take soap, for example. Almost everybody uses soap. In India, the adoption rate is 90 to 95%, or about 90% of Indians already use soap, suggesting that the soap market is saturated. There isn’t any more room to grow. If the market is already saturated, how do you grow the market? In other words, it's somewhat similar to the cake shortage problem. Here, there is a shortage of the addressable market.
One way to address this is to snatch market share from other soap brands. You can’t bring new soap users. But you may be able to convince the existing soap users to switch to your brand. But then, some other brand might also be working to snatch soap users from you.
It seems like a zero-sum game. You gain only as much market share as your rivals lose. And they can always snatch back their market share. There had to be a way to grow the market.
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The Eureka! of Soaps
One US-based company, Minnetonka Corporation, found a way out. In the 1980s, it launched Softsoap, the first mass-market liquid handwash in the US.
The liquid handwash became a big hit on the narrative that you did not have to touch the apparent germs you would find on a soap bar, that it was much more convenient to use, that it would not create a mess at the washbasin, and that it was easy to fill and replace.
The pump bottle and hygiene factors ended up creating a new consumer habit. Very quickly, most Americans moved to using liquid handwash. Colgate-Palmolive, Unilever, and P&G soon followed suit and launched their own line of liquid handwash. Colgate eventually acquired Softsoap in 1987.
What did Softsoap do effectively? It created a new habit. Suddenly, the soap market became big. Even if only 10% of Americans were using liquid handwash in the first year of its launch, the market still had the potential to attract 90% more Americans.
The liquid handwash was rapidly replacing the soap bars in American households. In India, Reckitt Benckiser was the first one to launch liquid handwash with Dettol in the early 2000s. Since then many other home grown brands, international brands, and private labels of liquid handwash have flooded the Indian markets.
But is liquid handwash really growing the market? Isn’t it just snatching away the market from regular soap bars? It is, but it might still be a better situation for soapmakers. That situation is called cannibalization.
Cannibalization of soap bars
Let’s say a household had a Dettol soap bar at its wash basin; now it has a Dettol handwash. One Dettol product was replaced by another. When a customer starts using one product of a company instead of another one from the same company that she had been using, it is called cannibalization.
Cannibalization may be good or bad.
Bad cannibalization occurs when a customer who would usually buy a high-priced product from you now buys your low-priced product. Good cannibalization occurs when the customer switches from your low-priced products to your high-priced products.
How does the cannibalization of Dettol soap bar by Dettol liquid handwash impact Reckitt Benckiser, the parent company that makes both?
There might be a few ways:
Instead of competing on price in a commoditized bar soap market, Dettol can command premium pricing for the convenience of a liquid soap.
It can create ongoing revenue through refills.
Most importantly, Dettol makes more money per handwash bottle than per soap bar. It makes about ₹20-30 per soap bar but about ₹100 per liquid soap bottle. The handwash may be 5X pricier, but it does not last 5X days longer than the bar soap.
It is good cannibalization for soap makers because they make more money every time a customer buys their liquid handwash.
In hindsight, it seems like a simple idea. But it augmented revenues by creating a whole new market. Implementing such an idea is called the Blue Ocean strategy.
What Is The Blue Ocean Strategy?
It is when a business introduces a new habit, develops a new category of products, or creates a new market for the same product.
The Blue Ocean Strategy, as mentioned on its website, “is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.”
Many businesses have used the Blue Ocean Strategy to renew their target market.
In fact, some say Colgate was the one to cultivate brushing twice a day as a good habit through its marketing. By pushing for a health-driven behavior change, Colgate simply doubled the size of its target market.
While both Colgate and handwash are Blue Ocean Strategies, can you spot the difference between the two?
The handwash replaced the bar soap. It grew the market by promoting a preference where the customer spends more.
Colgate, on the other hand, enlarged the market by getting customers to use the toothpaste twice daily instead of just once. It created a new use of the product by inducing a new habit.
The handwash brought more revenues through premiumization as a consumer moved from bar soap to liquid handwash.
Colgate boosted its revenues by increasing its volumes. When customers use more toothpaste every day, they will buy toothpaste more frequently, thereby boosting volumes for Colgate.
Interestingly, whether the Minnetonka Corporation’s Softsoap in the US or Colgate’s brush twice daily campaign in India and other emerging markets, both did a favor to their respective industries.
Creating a new category or habit led to their competitors following suit. Now you have hundreds of handwash and toothpaste brands in the market. They grew the market not just for themselves but for the whole industry.
Do you know what the latest addition to the soap industry is? The liquid body wash.
In fact, the narrative behind promoting body washes is just an extension of hand wash - no sharing of soap bar, clean and untouched liquid soap to use, premium feeling, and the like.
And it benefits the business in the same way. Instead of buying a ₹40-50 Dettol soap bar, you buy a ₹150-200 Dettol shower gel. The business makes more money from you on every purchase you make.
This is also why analysts and investors cheer a company's introduction of premium products or when its revenue share from premium products goes up. It suggests improving profit margins.
This newsletter is written by Vineet Rajani.
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