Optimise your LUP strategy

Topics Amul

KK Nair of Ahmedabad Management Association had a strong word of praise for Amul. He was pointing to the Rs 10 pack of pouch milk that Amul has launched in Gujarat. He said that he saw a woman, a labourer working in a construction project near his house, buy a Rs 10 pouch milk for her child while she was sipping the frugal Rs 5 cup of tea in the morning, accompanied by the Rs 5 pack of Parle G. 

It may come as a surprise to readers that of all the packaged products sold in the country an astonishing 35 per cent are sold in Rs 5 packs and yet another 25 per cent are sold in Rs 10 packs. 

Small sized packs are not new to India or for that matter any developing country. While Indian shampoos have made the sachet packs famous around the world, HLL used to market Red Label tea in what was then a five paise pack. But due to steep cost increase (of packaging) they discontinued the practice. It was then left to Velvette and its “brother” Chik to sell shampoos in sachets. And this got global recognition as Prof C K Prahlad wrote about the “Fortune at the Bottom of the Pyramid”. The concept has had its detractors who say that multinationals are just exploiting the gullibility of uninformed Indian buyers by offering unnecessary brands in pouch packs. While those arguments may have their merits, it is true that sachet packs have democratised consumption of products including those little luxuries that are unaffordable to a bottom of the pyramid consumer. 

These smaller sized packs now have a nice acronym: LUP. Or low unit packs. 

If it started with tea and shampoo, today you can find almost anything in a pouch pack, often priced at Rs 5 or Rs 10. Let me try and present a few products. The first to go down the path were biscuits, chips, snacks, pickles, jams. Then came spice mixes, dairy whiteners, milk food drinks, fruit mixes, fairness creams, sanitary pads, diapers and chocolates. 

Interestingly, while toilet soaps sell in smaller sized packs, their sales from LUPs are not to the extent of shampoos (80 per cent of volume sales of shampoos come from sachet packs). Hair oils and tooth pastes have not had a great run in sachet packs. And there could be a reason. Sachet packs seem to be more popular when the usage is a bit of a luxury. In the case of biscuits it is a simple case of use and throw. So I suspect a cappuccino may have takers in a sachet form, but not the regular tea. 

Marketers have a challenge in managing the cost of an LUP. There is the cost of packaging, which is often a significant share of the total cost in an LUP. Then there is the issue of distribution margin, transportation and damages. Some marketers have even tried tinkering around with the formulation of the product being sold in an LUP. What you get in a 200 ml bottle may actually be a superior version of the product being peddled to the bottom of the pyramid consumer buying a Rs 5 LUP. 

A few years ago, there was a move to bring LUPs under some control through legislation. Apparently this was triggered by a house help complaining to her employer who was a political heavyweight that there was some hanky-panky in the Rs 5 packs. So the government got ready to issue a whip about standard package sizes. Marketers had managed to keep the prices of LUPs at Rs 5 and Rs 10 by simply adding or reducing the grammage they were packing into LUPs. If the government mandated that the smallest pack of biscuit must contain 25 gram of biscuit then the whole Rs 5 and Rs 10 LUP strategy will go out of the window. Fortunately better sense dawned and the government decided to overlook the grammage of packs that sported an MRP of Rs 1, Rs 2, Rs 5 or Rs 10. 

While many sectors are facing headwinds in 2019, I suspect one of the reasons the FMCG sector is a little better off is that it has been able to open up markets for a variety of products, some that could be termed luxury, by adopting the LUP strategy. 

But a new threat looms ahead for LUPs. 

As the consumption of these LUPs keep growing we are going to see more and more multilayer laminate packaging choking up our drainage systems, our rivers and more. India’s record of recycling plastics is pretty impressive, we recycle almost 60 per cent of all the plastics we use. Multilayer laminates pose a newer challenge. They are difficult to recycle unlike PET or LDPE. As the sales of LUPs increase, companies will need to figure out better ways of packaging, better ways of collection and recycling etc. Then LUP strategy would have been fully optimised. 
The author is an independent brand strategist and founder of Brand-Building.com. Email: ambimgp@brand-building.com


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