Posted in Marketing & Strategy Articles, Total Reads: 3568
, Published on 02 October 2012
In this article we will analyse Jyothy Laboratories Ltd. (JLL) strategy using diamond framework. JLL is an Indian FMCG company which offers products in household segment. JLL was founded in year 1983 by M P Ramachandran. He started JLL by selling a single product UJALA, a liquid fabric whitener. Later company launched fabric care products under brand Ujala and household insecticides under brand 'Maxo'. JLL Laboratories had since grown from a corpus of INR 40,000 to a company with a turnover of over INR 400 crores.
Company has seen many developments in a short span of time. In March 2011 JLL bought a stake of 50.9% in Henkel India a subsidiary of Henkel AG in a cash deal of Rs 60.73 Crores. With this acquisition JLL Laboratories has now access to a diversified product portfolio of Henkel which includes detergents and hair care products. JLL now stands in the league of big FMCG firms like HUL, ITC, Godrej Consumers and Emami. JLL has also started a new venture to provide laundry services to diversify the risk from products to services.
We will now see how JLL’s strategy fits in five elements of diamond framework.
Management of the company should know where they want to see their company in future, in which segments/arena the company should be in after some years. JLL started from fabric whitener but today it manufactures and distributes brands across product categories as diverse as Fabric Care, Household Insecticide, Utensil Cleaners, Fragrances, Personal Care. Its strategy is to constantly innovate brands, tap high growth categories, reach untapped markets and explore untapped segments. The company has also made its presence in other markets like Bangladesh and Sri Lanka with local partners.
JLLis diversifying into services by starting the business of laundry care. Laundry business model consists of two categories. One is the retail model under brand ‘Fabric Spa' which provides premium services and other category under the brand ‘Snoways’ which provides the economy services.
The arenas we discussed above can be seen in company’s vision statement “Develop innovative brands, tap high growth categories, reach untapped markets and explore untapped segments to meet the day-to-day requirements of every Indian household”.
After deciding the arenas the company should decide how they can reach there. JLL engages in organic and inorganic expansion.
Its sales grew at a CAGR of 18% while its profit grew at a CAGR of 13% over the past three years. It has formed a joint venture with Kallol Bangladesh Limited to manufacture and market Ujala and Maxo in line with the strategy of tapping new markets.
It has acquired a stake of 50.9% in loss making Henkel India a subsidiary of Henkel AG in a cash deal of Rs 60.73 Crores. With this acquisition JLL has now access to a diversified product portfolio which includes detergents and hair care. JLL now stands in the league of big FMCG firms like ITC, Godrej Consumers and Emami.
This acquisition will help JLL to reduce its dependence on one or two products. Also company will be able to access the premium category market with the help of Henkel’s premium brands like Fa, Mr. White.
JLL would like to create reciprocal synergies by working closely and customizing the resources of Henkel India. JLL has one of the most extensive distribution networks in rural and semi urban markets whereas Henkel has strong presence in urban markets.JLL has 2.7 million outlets with approximately 3500 distributors. Henkel India on other hand has 740 distributors with a total reach of 0.7 million outlets in urban markets. Thus both of them are perfect complement to each other.
Turnaround Plan for Henkel India
Reduced the employees to 271 from 421 as on September 2011
Henkel’s outsourcing was shifted to JLL
Started a new marketing campaign for Henkel’s product
Synergize distribution network of JLL and Henkel
Jan-Dec’10 (12 months)
Jan-Mar’11 ( 3 months)
Apr-Jun’11 ( 3 months)
Jul – Sept’11 (3 months)
Company beats its competitors by providing important differentiators.JLL has launched its Ayurvedic soap Jeeva which talks about 27 ingredients; it was able to make its presence despite the presence of other brands like Medimix which was positioned as a curative soap. In Mosquito repellent segment they differentiated by launching Red Giant, the largest-sized distributed coil in India, to carve out a niche in the market. Moreover, they have developed new packaging with distinct brand identity to promote mosquito coils. Also they acquired multi-insect repellent technology from DRDO known as DEPA technology utilized by the defence personnel. Company differentiate itself from competitors through these strengths:
Well-known brand identity
Local presence and wide distribution reach
Focus on the rural markets
Product Development Capabilities and Ability to Launch New Products
Leveraging established brands
Increase focus on supermarket and hypermarket sales
Pursue selective acquisitions
Grow laundry and fabric care services
It can be defined as the speed and sequence with which the company is taking decision in order to implement the strategy successfully. JLL started from one product Ujala from one state (Kerala) and after that it launched it in other state (Tamil Nadu) and later launched the product in whole country. When the Ujala brand became an established brand in whole India JLL diversified into other segments. It launched new products Maxo and Exo in Household and utensil care segments. The management realized that in order to survive it has to diversify into other segments especially into premium segments as disposable income of average Indian will increase in coming years. Secondly, 95% of revenue was coming from three products. In order to combat these threats company followed these strategies:
JLL decide to buy Henkel India which has innovative products, good distribution network in urban market which complements JLL’s distribution network.
JLL expanded in other market like Srilanka and Bangladesh through Joint ventures with local firms.
JLL decided to move into services by starting a new venture in laundry care services.
Now we can analyze JLL’s growth since its beginning. In the above diagram we can see various stages of JLL’s growth.
Stage A: It started from single product in 1983 and became a well established brand in few years.
Stage B: It launched Maxo and Exo in Household and utensil care segments
Stage C: It acquired Henkel India to diversify its portfolio and leverage the distribution network of Henkel in urban markets.
JLL’s changed strategy can be confirmed by its new target. JLL founder and chairman M.P. Ramachandran, has set a target of more than tripling the revenue of the combined entity to Rs. 5,000 crore in four years from the Rs. 1,100 crore in the year ended March 2011, which could give it a place among the top four consumer goods companies in Asia’s third-largest economy.
Extensive distribution network in rural network especially in south India gives JLL an edge over competitors. JLL was able to hike the price of products whenever there was rise in input material costs. Company has always paid attention towards achieving economies of scale. It started from acquiring its supplier, it acquired Tata chemical’s plant which used to provide it raw material.It always launched a product in a phased manner for example it first launch in Kerala, then Tamil Nadu and then in whole nation. This strategy saves a lot of money for them and they have become experts in doing that.
We can see that diamond framework helps a company to form and implement its strategy. Management of the company can find what are their arenas, vehicles, differentiators and staging. After finding these elements they can find whether they have enough resources like managerial talent, time, and funds to implement the strategy. Then they should analyse whether the organization is able to go through the required change or not.
Earlier JLL was able to implement their strategy successfully but we need to see whether this new change in their strategy will bear fruits in future or not. Only time can tell that though we can see some positive results have started coming on the surface like turnaround of the acquired firm Henkel India.
This article has been authored by Nitin Kumar from IIM Indore.