Thursday, December 31, 2009

The 5 Reasons for HUL’s Decline in Profit in the Year 2009.

Year 2009 has passed with many ups and downs for FMCG industry. Many products introduced and many re launched by different major companies of India. As the result, there was a mixed reaction of profit and loss of many major companies. HUL, the biggest FMCG company of India has doe good job in the last year but in spite of all of it’s activities, It was unable to prevent the decline in the net profit. It faces a decline of 2.7% in the net profit as compare to the earlier year. HUL’s business grows up in the personal care segment but soaps and detergents registers only a growth level of 1% this a negative side for the company. The food and beverages department able to register a profit level of 13% which is a steady growth for the company.

The main question arise that what is the basic reason for the decline of the profit of the company? Now for that, there are several reasons which can be describe in the following points :-

1. EXTRA EXPENSES ON ADVERTISEMENT :- Advertisement is a major part of the marketing promotion. Every company uses it as a major tool for the success of the product. But there is some limitations and principles of advertisement, which says that the cost of advertisement must e affordable and not higher than normal profit limit. Secondly, it is also said that advertisement should be long time effectible. As compare to the case of HUL, it is lacking in the both the major basic principles of the advertisements. It’s expenses on the adds of some soap , oral care brands like Lifeboy, close up was too much and it adds for the same products more times in a months. Ex. For lifeboy, there are more than five or six different kinds of adds of different models has been introduced. As the result, the present time demand for the product has been little bit increased but it caused the long term loss for the product and company.

2. COUNTER FIGHT BETWEEN OWN PRODUCTS ;- HUL’s Lux brand of soap was earlier known as the luxury and fairness soap and lifeboy was known as the economical soap. But the company promote Lifeboy soap as a luxury soap and makes more expenses on it’s attractive packaging and promotion. This was not happens only with soaps but also it was same story with shampoos and tea. These all caused for poor opportunity cost and less profit of the company in the long time.

3. PERSONAL ETHICS :- Personal ethics is a core for the long term profit of a company. Personal ethics stands for speaking truth, keeping the promise, fulfilling the commitments etc. HUL founds breaching the personal ethics many points in the last year. The major story is related with a promotion champagne of Lifeboy soap. Where the company promotes the brand as a best soap to take protection from swine flue. But in the reality, there was no any major contents include I the Lifeboy soap whch can save a person from Swine Flue. So, such kind of promotion effects the brand image of the company.

4. EXPANSION – Expansion is a need to grow, but at the position where the company is doing as good as captureing the total market of 50% or more, then there is no any need for expansion. The company has adopts a policy of expansion from last number of years. As the result it entered into many new business. Among them, many were loss making, e.g- entering in the coffee business by introducing Bru. Which caused some initial profit , but now, It is effecting the profit of the company.

5.COMPETITION ;- Competition increased in Indian FMCG sector from the last decade. Many MNCs has been already entered in the Indian market and many are waiting for make an entry. These effects the business and going to end the monopoly of only one company in the market. Colgate –Palmolive was the one of the major rival of HUL I the oral care segment . HUL never touches their position from last 20 years. Now other competitors in many different segments like Tata tops in the tea, P&G is giving a great competition in Shampoos and detergents, GCPL in soaps, Emami in fairness cream etc are giving a tough competition to HUL . Also some other FMCG major giants like ITC, Dabur are giving good competition and force it to expand more on promotional activities.

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