By Peter Evans
BANGALORE, India--A. Ragini earns around $130 a month as a nanny
in this city of nearly 10 million, just about the average wage in
India. After paying for food and shelter, she has little cash to
spare.
Ms. Ragini recently noticed the price of her favorite soap,
Unilever PLC's Hamam, had gone up to 24 rupees, or about 39 cents,
from 16 rupees. It also had new packaging, and some variations
offered different ingredients.
Even though it stretches her budget, Ms. Ragini, 49, has
continued to buy the soap. "I'm so used to it, I don't want to
change it now," she says.
Marketers are counting on many more reactions like hers
throughout the developing world. For decades, consumer-goods
companies expanded in emerging economies through rock-bottom prices
and small, affordable pack sizes. At Unilever, the world's
second-largest consumer-goods maker by revenue after Procter &
Gamble Co., that meant one-use sachets of Sunsilk shampoo and 3 1/2
-ounce bars of Lifebuoy soap.
But now, with the global economy sluggish and emerging-market
sales growth waning for the first time in years, companies are
employing a developed-world strategy with their poorest customers:
Pack more features into basic products and raise their prices.
That is why Unilever recently launched a concentrated liquid
version of its OMO laundry detergent in Brazil, one of its biggest
markets. Packs cost around 30% more than the powder, although
Unilever says the price per wash actually goes down. The powder
itself replaced the soap bars that many poorer Brazilians used for
washing clothes 10 years ago.
The company has also shown Brazilian consumers online ads for
higher-price TRESemmé shampoo, resulting in millions of Facebook
likes. And in India, Unilever has developed a hand-wash version of
its Lifebuoy soap that changes color after 10 seconds to signify
that hands are clean.
Unilever's big global rivals are employing similar tactics.
Procter & Gamble is trying to persuade Indian men to upgrade
from unguarded razors to Gillette products with added safety
features. Colgate-Palmolive Co. is selling tea-flavored mouthwash
in China. Germany's Henkel AG is focusing on making premium-price,
locally inspired products across the Middle East, such as shampoo
for hair covered by veils or washing detergent designed for black
clothes.
"Something like toothpaste or soap bars, you would think,
where's the premiumization there?" says Samir Singh, vice president
of personal care at Hindustan Unilever Ltd., Unilever's Indian
unit. "But there is a lot of scope in the future to develop these
categories."
Two years ago, Nisha Kawa, a mother of two living in Mumbai,
started using Unilever's Sunsilk conditioner. She had never used
conditioner before--only shampoo--but was convinced by television
commercials that promised it would make her hair shinier.
It adds the equivalent of a couple of dollars a month to her
expenses, a lot in a country where average income is a little over
$4 a day. But even though she has noticed higher prices on a
variety of products in the past year, Ms. Kawa, 33, says she won't
give up her conditioner.
"Everybody here uses it now," she says.
Beyond increasing prices on basic products, Unilever has brought
in a series of twists on its Sunsilk range and many other beauty
products, allowing it to charge even more. In the Big Bazaar, a
supermarket in Bangalore, Sunsilk with added keratin
proteins--designed to strengthen hair--costs around 150 rupees,
compared with 120 rupees for regular Sunsilk.
But playing with price is a dangerous game. Consumers in many
developing countries are ultrasensitive to changes in prices,
especially those that push through a particular coinage
denomination. In India, "so much is about value," said Hindustan
Unilever's Mr. Singh.
Launching new products, or tweaking the designs of older ones,
is helping Unilever gain market share in 60% of the categories in
which it operates, the company says. It is also helping to justify
higher prices even as per capita incomes in many of the biggest
emerging markets have stagnated or fallen.
Those price increases are increasingly crucial. Sales growth of
consumer goods in emerging markets slowed to 7.5% in the year ended
in June, from 8.8% a year earlier, according to research by Kantar
Worldpanel. The fall cost the products' manufacturers $8.3 billion
in lost revenue, the research shows.
At Unilever, sales growth in emerging markets fell to 6.2% in
its most recent quarter from 8.8% a year earlier. Analysts expect
2015 to be even tougher. Prior to 2013, Unilever reported years of
unbroken double-digit growth in emerging markets.
Helping to counter the trend, Unilever says it was able to raise
prices world-wide by 1.8% in the three months ended September, with
an "increasingly positive contribution from emerging markets." In
Brazil, prices rose 3% in the quarter, despite the country being in
recession, and prices were up 5% in Indonesia. The company declined
to break out price data for India.
New and revamped products not only sell for more, but also show
through on the bottom line. Unilever says 75% of its innovations
add to its overall gross profit margin.
"Our innovations are carrying the company," Chief Executive Paul
Polman said earlier this year.
Unilever is under even more pressure than its rivals to succeed
in the developing world. Nearly 60% of the company's $67 billion in
annual revenue comes in emerging markets, compared with around 40%
at P&G. Mr. Polman in 2009 set an open-ended goal of doubling
annual sales to about $100 billion, with as much as 75% coming from
emerging markets.
In many developing countries, Unilever has an advantage because
it got there first. Founded in 1930 after the merger of a Dutch
margarine producer and a British soap maker, the company has had
businesses in India and other former British colonies since 1888.
Consumers in India often assume brands like Axe deodorant and
Lifebuoy soap are in fact Indian.
Now, Mr. Polman--a P&G veteran of 26 years before joining
Unilever in 2009--is attempting to remodel Unilever for success
over the next century.
As part of his plan, Unilever has scrapped its former goal of
becoming the world's largest packaged-food maker, now hoping
instead to overtake L'Oréal SA and P&G in beauty and personal
care.
Food, which in 2008 accounted for 35% of Unilever's business,
now makes up 25% after the sale of big-name brands such as Skippy
peanut butter and Ragú pasta sauce. In December, Unilever said it
would separate its struggling spreads division, which includes
brands such as Flora margarine, a move seen by many analysts as a
first step toward an exit from the business. Meanwhile,
personal-care products like Axe and the TRESemmé hair-care line
have seen their budgets--and sales--boosted.
The reason: Shampoos and deodorants sell better in emerging
markets than culturally tied foods such as peanut butter and pasta
sauce. Personal-care products also carry higher margins and are
more receptive to innovations, such as new ingredients or larger
pack sizes.
A Unilever spokeswoman said all the company's innovations are
designed to benefit the consumer first.
For some customers, the new pitches aren't playing so well.
In 2012, R. Krishnappa, a hotel worker in Bangalore, switched to
Unilever's Axe deodorant from the talcum powder he had used since
he was a child. He liked the promotions linking Axe with cricket,
his favorite sport.
But soon after making the switch, Mr. Krishnappa noticed the
price of the deodorant had gone up. There were also bigger bottles
and several new Axe variations in his local store. Sometimes he
couldn't even find his favorite style, branded Axe Googly after a
particular play in cricket. "I couldn't choose which one I wanted,"
he says, and eventually reverted to using powder.
Unilever spends around $1.25 billion a year on research and
development. The company exports some of its innovations, such as
the skin-care treatments used in Dove products, around the world.
Others, like adding sunscreen to the skin-lightening cream Fair
& Lovely and developing water purifiers that run without
batteries or running water, are created directly for emerging
markets.
The result has been an explosion of new products on offer.
In India, that has brought with it an opportunity for some.
Haresh Bhai has owned Welcome Stores in Mumbai's western suburbs
for 20 years. He used to sell basic foodstuffs and bars of soap.
Now he has moisturizing shampoos, invigorating face creams and
pump-action hand washes stacked from floor to ceiling.
Mr. Bhai says spending on personal-care brands like Unilever's
Dove range and P&G's Pantene shampoo has increased tenfold over
the past five years as the companies have introduced new,
higher-price variants of their basic products. "The customers come
running," he says.
Dhanya Ann Thoppil contributed to this article.
Write to Peter Evans at peter.evans@wsj.com
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