Why Nirma failed & the rise and fall of Nirma / business case study

Introduction

The company Nirma was started by a farmer’s 24-year-old son and shake the foundation of a 40-year-old company.

The founder of Nirma was a chemist and he used to experiment with the different chemicals in his backyard. The founder of Nirma made a chemical substance that can be used as a detergent while experimenting in his backyard.

In India, at that time there was the dominance of Hindustan Unilever in the FMCG market.

How Nirma was started?

Hindustan Unilever Limited (HUL) started way back in 1933 and till 1969 they had the stronghold in the market with the majority of market share. But a 24-year boy, by selling detergent on his cycle made it possible to defeat HUL in their own game.

In 1969, a 24-year-old boy named Karsanbhai Patel made a compound that can be used as a detergent while experimenting. And he then named this compound NIRMA. He named this product in the name of his daughter Nirupama who he lost too early.

Nirma Founder karsanbhai patel
Nirma founder Karsanbhai Patel

Initial Journey Of Nirma

After he made his product he approached many retailers to sell his products. But he got a rejection from every retailer he has gone to. Because at that time there was the dominance of Surf excel by Hindustan Unilever. This made Karsanbhai sell NIRMA door to door on his bicycle. He used to sell Nirma to homes that were on the way to his office and repeat while returning from office.

In 1988, Nirma created havoc in the market. Now Nirma became the household name in a short period. Nirma defeated HUL and acquired 60 % of the total market share. And became India’s leading detergent brand.

Now let’s understand despite having so much dominance how Nirma failed. And what are the most important business lessons we can learn from this case study?

The Power of Stock Market & Investing.

In 1994 Nirma company got listed in the stock market. And if you only have invested 1000 rupees in Nirma’s share at that time then till 2009 it would have turned to 1cr.

This is at that time FMCG stocks were doing very well. If you had invested in any FMCG stock that had turned into crores today.

Before 1969 the detergent products were considered luxury products. These products were not used in every household 90% of Indian Indians used other products to wash their clothes. The reason behind this was the HALO effect.

In simple words, if you take any decision by judging the quality of products by knowing only one or two features about them, this is called the Halo effect.

Nirma Business Strategies

Before Nirma’s entry, people were considered detergents to the things owned by rich people. Because the leading brand at that time was very much costly for normal people. Karsanbhai Patel observed this gap in the market and decided to launch Nirma as a low-cost product with good quality to this made HUL lose their market share Nirma very fastly.

And Karsanbhai knows that HUL can reduce their price suddenly because HUL marketed Surf Excel as a premium product. And if any company drops their price of premium products suddenly then there will be rising doubt among consumers and this results in them stopping buying that product.

Nirma Grand Business Success.

That’s why many premium brands destroy their unsold or old stock rather than sell their products at low prices. By low price strategy Nirma became very popular and became a household name. Now from rich to middle-class everyone in the country uses Nirma. Due to growing demand, Karsanbhai Patel expands his team and started making his market base large. But suddenly the company saw a problem come into the market and if not taken action then Nirma could be bankrupt. And the problem was Credit overload. Retailers, we’re selling products but they were delaying in payments.

Nirma salesman whenever goes to the retailers for payments they used to delay the payments by giving some reasons. And after 3-4 months Nirma was unable to make retailers give their pending cheques. That time Nirma’s credit overload was that much if in the next 2 months they didn’t get payments then Nirma would get bankrupt.

Karsanbhai plan to save Nirma

And to save Nirma from this situation, karsanbhai made a strategy called as Supply Scare Strategy. So let’s understand what it is, according to the basic economic principle, when a product’s demand rises and its supply is limited then the price of the product begins to rise. But here karsanbhai did something different. So when retailers were not clearing payments, he decided to bring all the stock from the market. And within 4 days, Nirma brought back all its stock. And then he launched their Tv advertisement.

Famous Nirma Advertisement

This advertisement changed all the perceptions about detergents. This campaign became so popular that everybody only liked and wanted Nirma.

As Nirma was not there in the market. People started demanding Nirma from retailers but they had no stock to give and this caused losses to retailers. Then Karsanbhai played his masterstroke and convinced retailers to give them stocks in his conditions. And these made retailers give money who didn’t pay them for 3 -4 months, and now they used to pay in full cash.

And this made Nirma avoid the bad financial condition and made them so popular again and this further affected the Surf Excel market. Till 2000, Nirma was selling around 1.72 tons of detergent powder. And till 2009, karsanbhai Patel became the 92nd Richest man of India.

Nirma failure story

When we see now the market share of Nirma is about 6 % from 60 %. This is because of the reason Market Dynamic Environment. When Nirma was started at that time the per capita income was very low but after 2010 we saw a good performance of private sector companies and per capita income started to rise and grow speedily.

The purchasing power of people in India increased and India was a status-driven society. And as their purchasing power increased they started to avoid cheap products. As Nirma was very low in price, this made people question the quality. And this results in fewer sales of Nirma.
And Nirma also didn’t make any innovations in their products. And leads to the company which was used to lead the market is now asked by no one.

Till 2005, the Nirma group was entered into many unrelated markets. This affected their core business.

Business lessons from Nirma Business Casestudy

1.Fill the Gap: If we observe closely there is a gap in every industry. And karsanbhai noticed this gap and filled it and made his fortune.

2. R-C-I: Ritualistic Continuous Improvement. When companies don’t innovate with time don’t change their products accordingly then this results in the fall of the business.

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