Why Nirma Failed ? | The Rise & Fall of Nirma | Business Case Study


Had you ever thought that a farmer's 24-year old son will shake the foundations of 40 year old company. 1969 This story is about the chemist who used to experiment with chemicals in his backyard. 

More than that this story is about a father who lost his daughter very soon. One day while experimenting, he made a thing which can be used in every home. That was Detergent Powder. At that time Hindustan Unilever used to dominate in India. Every home had their products. HUL started in 1933 and till 1969, they strengthened their position so much that it was impossible to defeat them. But who had thought that a 24 year boy, by selling detergent on his cycle will defeat Hindustan Unilever in their game. 

1969, 24-year old Karsanbhai Patel was a chemist. And once he was experimenting with some chemicals in his backyard. And while experimenting he made a compound which can be used as detergent. Karsanbhai named this detergent - NIRMA. And this name came from Nirupama. Nirupama Patel was Karsanbhai's daughter whom he lost too early. Now product was ready but how to sell it ? Karsanbhai approached retailers to keep his product and sell. Then all retailers refused him. Because at that time only one detergent was popular. That was Hindustan Unilever's Surf Excel. Due to this, Karsanbhai started selling Nirma door-to-door on his cycle. When he used to go to his office in morning, he used to sell Nirma to homes which were on the way. And when he used to come back from office, he did the same thing again. In 1988, Nirma created havoc in the market. In every home, every person had only one name -NIRMA. With 60% market share, Nirma was leading Indian detergent market. Now the question arises, How Nirma did so much in less time? And if we see today, maybe someone uses Nirma. 

What's the reason behind this downfall? And most importantly what are those business lessons we can learn and implement in our business.

 In 1994, if you only had invested 1000 rupees in Nirma's share then till 2009 it it would have turned to 1 Cr. In fact other than Nirma, if you had invested in any FMCG stock than it had turned into Crores today. In 1969, Detergent Powder was a Luxury in India. Detergent powder was not used in every home. In fact, 90% of Indian houses used soaps to wash clothes. Now the question arises,

 Why was that? So the reason is THE HALO EFFECT. In simple words, If you take any decision by judging the quality of product by knowing only one or two features about it. For example, if there is a guy who want to invest in stock market but he doesn't have enough knowledge of stock market. And suddenly says him that Smallcase is a company which can help him.

 So small case provides baskets of stocks to people. Like FMCG Tracker, which contains best performing FMCG stocks collection. Also House Of Tata which has Tata's best performing companies stock. Similarly before the entry of Nirma, the perception about detergent was A THING OF RICH. What we call BOUNTY OF RICH. Surf Excel was of 15 Rs at that time. Now you will say Bro this is not costly. 

I know. But in 1969, according to a Indian middle class family it was costly. Karsanbhai observed this gap in market and turned this perception after launching Nirma. Surf Excel was of 15 Rs but Nirma was just available at 3 Rs. Interestingly, now HUL can't drop Surf Excel's price around 3 Rs. Why? Because Surf Excel was a premium product. And if any company drops this much price of their premium product then people starts to doubt and stop buying it. That's why Adidas burns it's old stock but never sell their shoes at 200 Rs. And then Nirma became popular in every house. Now from rich to middle class, everyone had detergent powder. Then Karsanbahi Patel hired some salesman and started making his market base large. But suddenly a problem came in the market and if not taken action then Nirma could be bankrupted. The problem was CREDIT OVERLOAD. 

Retailers were keeping Nirma in thier shops but were showing tantrums in payments. Whenever Nirma's salesman went to retailers to take payment, then retailers used to give some reason. After 3-4 months also, Nirma couldn't get its payment. Nirma's credit overload was too much that if in next 2 months they didn't got payments then Nirma would become bankrupt. And to get rid of this Karsanbhai made SUPPLY SCARCE STRATEGY. So let's see how it works. So according to basic economic principle, When a product's demand rises and its supply is limited then the price of product begins to rise. But Karsanbhai did something different. So when retailers were not giving payments, then Karsanbhai decided to bring back all the stock from market. And within 5 days, Nirma brought back its stock. And then an explosion happened  Nirma launched their TV Advertisement. This one ad changed all the perceptions about detergents. This campaign became so popular that everybody only liked and wanted Nirma. But SURPRISE!!! Nirma was not there in the market. People started demanding Nirma to retailers, but they had no stock to give. This caused extreme stress for retailers. 

Nirma is demanded but if there is no Nirma then how will we give? Then Karsanbhai talked to retailers and gave them stock after some conditions only. Now those retailers who didn't gave money till 3-4 months now used to give full cash. Slowly Slowly Nirma was so popular in every home that people stopped asking about Surf Excel. Till 2000, Nirma was selling 1.72 tons detergent powder. And till 2009, Karsanbhai Patel became 92nd richest man of India. So what happened that at one time whose market share was 60% is now just 6%. So the reason is MARKET DYNAMIC ENVIRONMENT. Before 2010, India's per capita income was 1000 Rs but after 2010 due to good performance of private sector companies it started growing speedily. Purchasing power of people increased. And as I previously said India is a status driven society. Here people don't run after wealth but to show status. People stopped using things which made them feel cheap. Nirma was cheap but most importantly its vibe was cheap, its packaging quality was cheap. So people started to use Nirma less. And Nirma also didn't made any innovation in their product nor in their ads. So people started forgetting Nirma. A company which used to lead the market is now asked by no one. And Nirma also entered in many un related businesses. Till 2005, Nirma was in Education, Chemical , Cement. Nothing is wrong in it. 

But Diversification Requires Specialization. HUL is also diverse but they manage every business segment separately. So their brand can perform better individually. And most importantly what are those business lessons we can learn and implement in our business. NO 1 - NO WORK IS SMALL Karsanbhai Patel sold Nirma door-to-door on his cycle without even thinking this work is small. Work is not small or big. Work is Work. Never consider any work small or big. Every work has its own value. NO 2 FILL THE GAP In every industry there is a gap. And the one who fills this gap takes the lead. Karsanbhai Patel identified a big gap in detergent market. And when he filled this gap, he built his huge empire. NO 3 R C I What does this mean? Ritualistic Continous Improvement When you think "It's done now no need to work hard." This is the start of your end. It is important for any business to improve continously. Make improvements in process, in processes, in fact even in their team. 


Previous Post Next Post