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Fevicol Share Return is Incredible!
Pidilite is one of the most iconic companies in the Indian business history. The management stellar capital allocation has created such an enormous wealth for its shareholders that Rs 10k invested in the company in January 2000 would be worth more than Rs 13 lakh today and that too excluding dividends. In the last 10 years, the share price of Pidilite Industries is shoot up by a CAGR of 25% and most importantly after six decades into the market, Pidilite’s Fevicol commands a market share of 70% in the industry. Now the question is how Pidilite become a gold mine for its investors? Let’s see in detail.
The History of Fevicol is Amazing!
The answer of Fevicol’s insane growth lies in the Ansoff’s matrix. This matrix has four parts based on two variables which are product and market. The first step a company takes to establish itself is market penetration and they do that by entering an existing market by selling and existing product which is far better than its competitors.
In our case, the story of Pidilite dates way back to 1954 when a young man named Balwant Parikh was operating a small scale Industry in Mumbai wherein they were manufacturing pigment emulsions used for textile printing. During those times, Balwant made two important observations, one was, animal fat glue was used as an adhesive and the problem with it was that it needed to be heated then it needed to be cooled before it could be used for furnitures. This took a lot of time and was too tedious of a procedure.
And secondly the companies in this space predominantly sold adhesives through middlemen and not to its users who were carpenters. This is where through a lot of trial and error Pidilite launched their iconic product “Fevicol”.
The Fevicol sales team approach of selling was little different from other companies at that time. They directly went to carpenters to educate them about Fevicol like its superiority and the ease of its use. And since other companies were catering more to the middlemen like wholesale dealers or hardware shops, Pidilite was actually able to get the attention of its customers that were the carpenters.
Now the second step of Ansoff’s Matrix is product development strategy. This is where the business starts selling new products to existing customer base. In this case, pidilite realised that their interactions with carpenters had given them important market insights. So to take this one step further they even formed something called Fevicol Champions Club in 2002.
In this exclusive club, they brought carpenters to their office, showed them demonstrations of all their products and the club members from all over the country were received at the relay station with bands. Pidilite would organise kite festivals for them and would even take them to pilgrimages and the beautiful interactions gave the carpenters a much needed community for their professional and personal growth. But why is an adhesive company organising these events and that too for the carpenters and what is the return on investment for Pidilite?
Well there are two critical return on investments with the Fevicol club. One is market research and two is feedback loop. Because they Pidilite organised these events and engaged with the carpenters, they started giving critical feedback and started pointing out the important market demands and gaps that were on the rise.
Pidilite's Great Feedback Ecosystem Led Them to Great Fevicol Products
For example, one set of carpenters said that in the balcony and in the kitchen, the furniture often gets exposed to water so those furnitures do not seem to last as long as the normal ones. Another group said that when they handle giant projects the classic Fevicol takes a lot of time for curing because of which their high value projects often get delayed and some even said that the lamination that have exposure to heat need a better adhesive. Do you what Pidilite did after getting these feedbacks?
They started investing heavily in R&D and introduced three products in the market for each one of these problems and these products were Fevicol Marine, Fevicol Heatx and Fevicol Speedx. Guess what these three value-added products now account for more than half of the revenues from the Fevicol brand. This is how by identifying the gaps in the market through carpenters and with a strong focus on its quality Fevicol soon became the number one adhesive brand in India.
How Pidilite's Fevicol Remains the Market Leader For So Long?
This brings us to third part of the matrix which is market development strategy wherein a business sells existing products in new markets. This is where Fevicol’s iconic marketing campaigns come in and needless to say their commercials were the funniest and the most remarkable campaigns of all time.
The beauty of these commercials was that it could appeal to every person in India regardless of their background and at the same time it communicated the message of its products very very clearly. This is the reason why the brand awareness and utility value of Fevicol products began spreading through the lengths and breadths of the country. As a result, Fevicol became a recognisable name in tier 2,3,4,5 cities of India and eventually became a market leader.
Lastly we come to the fourth part of the matrix called Diversification wherein a business introduces new products in new markets. In this case, we have the strategic acquisitions made by Pidilite during that time which made it a market leader even in alien markets and some of the best acquisitions include ‘M-seal’ in the sealant category, ‘Dr. FIXIT’ in the water proofing segment, steel grip in insulation tape segment and ‘Roff’ in tiling and flooring adhesives segment and now Pidilite not only has strong foothold in India but many other countries all across the world. Today, Fevicol commands a market share of 70% in the adhesive industry.
Learnings From this Case Study of Fevicol
- The practice of empathy is a billion dollar strategy. In this case, Pidilite practised empathy with the carpenters that helped them to capitalize on crucial gaps in the market.
- Risk is to Reward ratio is a very good metric to understand the pricing power of the company. In this case, it was the risk is to reward ratio of using Fevicol that enable them to play without credit cycles and hence helped Pidilite to increase price consistently.
- As investors and leaders of business, the Ansoff’s matrix is a very good way to understand diversification. As investors, you could use that to understand the trajectory of your portfolio companies and as entrepreneur you could use it as a framework to track your diversification strategies better.
