Patanjali Case study – The Rise and challenges of Indian Herbal FMCG Brand

Patanjali. Baba Ramdev and Acharya Balkrishna founded Divya Pharmacy in Haridwar in 1995. Initially, the drugs were distributed for free. The duo used to handle everything themselves, from acquiring raw ingredients to preparing treatments. They didn’t even have the money to register Divya Pharmacy. And the most interesting aspect is that, despite their poor origins, this partnership went on to build one of India’s most recognised FMCG firms, with a revenue of around 10,000 crore rupees in 2016-17.

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History and Beginning of Baba Ramdev and Patanjali

Baba Ramdev’s popularity was gradually increasing in the early 2000s, but everything changed when he was given the opportunity to launch a yoga programme with the well-known television network Aastha. And very quickly, everyone started to know of Baba Ramdev, and his fame skyrocketed. And in 2006, Baba Ramdev and Acharya Balkrishna founded Patanjali Ayurved. But how did Patanjali Ayurved succeed despite the existence of certain well-known, century-old ayurveda and unani brands like Baidyanath & Hamdard. Additionally, Patanjali generated a staggering 10,000 crore rupees in income in less than ten years after its start.

Despite the presence of brands like Baidyanath and Hamdard, Patanjali Ayurved has been a huge success. Patanjali’s creative positioning and value advancement deserves a lot of credit. Baidyanath and Hamdard are ayurveda and unani pharmaceutical firms that produce medicines. Though Divya Pharmacy is an ayurvedic pharma company, Patanjali Ayurved is an FMCG company that uses the goodness of ayurveda to manufacture day to day FMCG products like toothpaste, shampoo, soaps, etc., so they’re completely different from Baidyanath or Hamdard, but it also needs to be acknowledged that FMCG is one of the largest sectors in the country with the existence of powerhouses like HUL, Nestle, ITC, Dabur, etc. Definitely, they are not easy not compete with.

Value Innovation is one of Patanjali’s arrows that strikes two targets at once. Value refers to the advantage that customers receive in exchange for their money, whereas innovation refers to the novelty and originality of that benefit. T he formula for brand or business growth in a highly competitive market. It is known as value innovation because, rather than concentrating on outperforming the competition, one can instead concentrate on rendering the competition irrelevant by generating a significant increase in value for customers and their business, thereby creating an entirely new and unchallenged market space. Patanjali carried out this action.

Instead of engaging in fierce competition with the existing ayurvedic pharmaceutical brand, Patanjali modified the concept and combined ayurveda with FMCG, which not only enabled them to avoid that brand’s competition but also unlocked a completely new and larger market. And at that time, the FMCG brands already in existence were essentially producing the same kinds of goods, but Patanjali’s creative fusion of Ayurveda & technology had the potential to provide additional value. Additionally, Patanjali’s products were significantly less expensive than those of other FMCG powerhouses. So, in terms of products, Patanjali was prepared to shake up the market.

Marketing – Brand of Baba Ramdev

Indeed, marketing was crucial, especially for a new company like Patanjali. Consumers need to understand the value that brands are offering. And the majority of the time, operating a business without marketing and advertising is like winking at a girl in the dark; you know what you’re doing, but nobody else does. So, brand managers, reach Baba Ramdev. By then, Yoga and healthy living had come to be associated with Baba Ramdev. And he was appointed Patanjali’s brand ambassador. His supporters had great faith in him.

Patanjali’s connection with Baba Ramdev created a perception of swadeshi, organic, healthful, and pure items from the company. No Bollywood celebrity or cricketer has ever had the impact that Baba Ramdev has. As a result of all of this, Patanjali grew at an almost 100% CAGR for four years in a row, and their revenue in FY17 reached nearly Rs.10,000 crores, making Patanjali the second largest FMCG brand in India behind HUL.

Patanjali Sudden Fall

Patanjali’s growth became fairly flat after FY17 and began to decline in the following years. Failure To Scale is a primary factor for this. Scaling a firm is every entrepreneur’s goal, but it can also be a nightmare. Hypergrowth is frightening, and it is typically triumph that kills a wonderful organisation. The same thing happened to Patanjali. This may seem ironic, but Patanjali’s hypergrowth was the cause of his failure. Patanjali’s backend technology and strategic decisions were unable to keep up with their brand’s rapid expansion. To scale up any new firm, four things must be done correctly: the ideal people, the ideal strategy, the ideal execution, and the ideal finances. Patanjali failed miserably in the majority of them.

The Brand Architecture of Patanjali has been turned out to be Real Culprit for Patanjali. The True reason for sudden fall for Patanjali. In Patanjali Model of Brand house, under the name of Patanjali there are no independent brands. Every product was marketed under the name of Patanjali. The Brand House architecture that Patanjali adopts has both benefits and drawbacks. Since all of the items are promoted under the same brand, this branding strategy reduces the cost of marketing. However, a significant drawback is that if one of the items is unsatisfactory, it will damage the brand’s reputation as a whole. Because of this, businesses using branded housing strategies need to be extremely careful.

But regrettably, Patanjali committed the blunder once more here. Some of its goods, like Dant Kanti, Kesh Kanti, herbal soaps, etc., were all in high demand following its tremendous success. In order to scale up and meet the rising demand, Patanjali outsourced its manufacturing, which led to quality problems that ultimately hurt the reputation of the company as a whole.

Strategic Choices of Patanjali that Costs them

The bad strategic choices cost Patanjali a lot of money. Another strategic error made by Patanjali was that it continued to enter additional businesses rather than keeping an eye on its rivals. In this market, HUL introduced Lever Ayush, Colgate introduced Vedshakti, and many more competitors emerged. Rather than responding to these, Patanjali introduced Paridhan, its apparel division, where there was already fierce rivalry.

Even funnier was when Patanjali introduced Kimbho, a messaging app meant to combat WhatsApp, with clearly destructive effects. The breaking point came when Patanjali established its own IT company with the name Bharuwa Solutions in 2020. These were most likely Patanjali’s worst choices for commercial growth. Meanwhile, Patanjali made mistakes in the decision making end as well. GST and demonetization have significant effects. The foundation and supply chain around the GST-related inventories and invoicing management were not developed by Patanjali in time, and their technology backend was not at all prepared for it.

Additionally, the supply chain was harmed by all of this confusion. Due to a discrepancy between the products supplied and the products requested, certain items were sent in excess while others were shorthanded, and by the time the products reach the dealers, they are already past their expiration dates. Additionally, Patanjali used to pay all of its distributors in cash, and the impact of demonetization meant that payments were delayed.

All of these instability and harm to the distribution network also resulted from Patanjali’s need to go through funds to fund its ludicrous expansions; also, being a Swadeshi company, Patanjali refused foreign investments. As a consequence, the company experienced financial difficulties and had to cut their advertising budget, which had an effect on their brand as a whole. Everything feels more like a series of events. One after the other happens naturally. The real question, though, is if Patanjali will make a comeback. Now that we know more information, it appears that Patanjali has likely acknowledged its errors before it is too late.

Now, instead of concentrating on new launches, it is strengthening and restructuring the supply chain and strengthening its brand portfolio. Additionally, it is attempting to transition to a hybrid model design. Currently, Patanjali Ayurved does not include segments like biscuits or noodles; instead, these products are categorised under other corporate groupings. After all of this, Patanjali appears to be in good health, but maintaining the top spot for the next five years still seems unlikely.

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