Is Sachet(small packing) Marketing Revolutionary?

BOP proponents mention sachets (small packets) as an innovation that has delivered many products to BOP customers. Prahalad suggests that if BOP customers “don't have lump sums to buy 20 ounces of shampoo at one time,” a company should “do what Unilever did in India: Sell single servings of shampoo so the cost structure matches what they can afford” (Fast Company, 2005, p.25). In fact, sachets were introduced in 1976, not by HUL but by CavinKare, a local South-India based company, with its ‘Velvet’ brand (Ranganathan, 2003).

In 1999, CavinKare came up with another pricing innovation: it launched a 4-ml sachet of Chik shampoo priced at 50 paise (1.25 cents). The launch was a great success: Chik’s market share jumped from 5.61 percent in 1999 to over 23 percent in 2003. It became the largest selling brand in rural markets. As Chik’s volume and market share grew rapidly, HUL saw the potential of the market it had always ignored—as well as its own vulnerability. It responded by launching 50-paise and one-rupee sachets of its Lux, Clinic Plus and Sunsilk brands. HUL had always viewed rural consumers as a low-margin, inaccessible segment. It entered the BOP market for shampoo primarily because of its potential vulnerability, not as part of a planned strategy to serve poor customers. Considering all these cases, then, it is simply incorrect to give HUL the status of a pioneer in tapping BOP markets, as the literature on BOP does.

Small Isn’t Always Beautiful

BOP proponents view sachets and other small packages as an ideal way to tap low-income markets. Prahalad (2005, p.16) argues that because small packages are more affordable, they encourage consumption and provide a choice for the poor. But the empirical evidence does not support his contention. An ACNielsen study on rural markets in India revealed that, for several products, the best-selling package size is the same across rural and urban areas (Dobhal and Das Munshi, 2005).4 For products including biscuits, jam, washing powder, sanitary napkins, and milk powder, the smallest available packages are not the largest contributors to the total volumes of products sold in rural areas. The two exceptions are shampoo and razor blades; for these two products the smallest packages do account for the largest share of the total volumes sold. In the cases of jam and milk powder, larger packages (e.g. 500 g) are better sellers even though smaller packages are available (e.g., 12 g in jam and 3 g in milk powder).
If Prahalad and Hart (2002, p. 10) are correct in their argument that the poor “look for single-serve packaging,” then we would expect small-size packages to be the most popular for most products in rural markets, not just for shampoo and razor blades. The smaller packages of shampoo and razor blades also perform better in urban markets as well as rural ones. For shampoo this is probably true because shampoo sachets offer better value than larger packages. With sachets, consumers pay lower prices per unit volume. For example, Sunsilk Black shampoo in sachets costs approximately 25 paise (.6 cents) per ml. On the other hand, shampoo in a bottle costs approximately 5 paise (1.25cents) per ml (a 200-ml bottle costs about Rs99, or $2.50). This is true for almost all the major shampoo brands in India (Krishnan, 2001). The artificial price differential actually contributes greatly to the popularity of shampoo sachets. Another study in India, by LG Healthcare, questions whether sachets are valuable for marketers: although they have helped increase penetration, they have also led to a decrease in overall consumption (Economic Times, 2004).

For most products, the logic of serving the poor by simply offering smaller packages may not be as workable as Prahalad argues. To make small packs more affordable, companies must keep their unit cost lower compared to larger packs. This does not make economic sense: it is by selling larger packages that companies can reduce their processing and transaction costs, not the other way around. Companies usually reward consumers who buy larger, or economy-size packages, through low-unit pricing, because of their associated cost savings. Low-price shampoo sachets are an atypical case or an unusual distortion of the market. In fact, companies are trying to persuade consumers to move up from sachets to bottles; though sales volume has risen because of sachets, the profits and revenues have dropped (Soaps, Detergents & Toiletries Review, 2003).