How Pidilite's STRATEGY made it a GOLDMINE stock giving 14,000% returns? : Business Case Study

Summary

Pedialyte's iconic brand Fevicol revolutionized the adhesive industry with a customer-centric approach, starting from market penetration to strategic acquisitions. The company's innovative product, Fevicol, simplified carpenters' work, while Fevicraft offered design solutions. Empathy and understanding of market needs led to product development, creating a loyal customer base. Pedilite's strong brand recognition and commitment to quality made it a market leader with a 70% share, illustrating the power of empathy, risk-reward analysis, and the Ansoff Matrix for business diversification.

Takeaways

• 😀 Pedialyte's iconic status in Indian business history is attributed to excellent capital allocation, resulting in significant wealth creation for shareholders.
• 📈 A small investment in Pedialyte in January 2000 grew tremendously, excluding dividends, showcasing the company's impressive growth over time.
• 🔍 The company's success is deeply rooted in its business strategy, particularly its focus on market penetration and product development.
• 🛠️ Pedialyte's initial product, Fevicol, revolutionized the adhesive market by offering a superior, easy-to-use alternative to traditional animal fat glue.
• 🔑 The direct sales approach to carpenters, educating them on Fevicol's benefits, was a key strategy that helped establish the brand in the market.
• 💡 The introduction of Fevicraft, a design book for carpenters, was an innovative way to provide value-added services and strengthen brand loyalty.
• 🤝 The Fevicol Champions Club was a strategic move to gather market insights and foster a community for professional growth, leading to product improvements.
• 🛑 Understanding the risk-reward ratio of using Fevicol helped the company maintain a strong pricing power and avoid credit cycles, benefiting its financial health.
• 📊 The Ansoff Matrix was effectively used by Pedialyte to understand and execute its diversification strategies, a lesson for both investors and entrepreneurs.
• 🌐 Market development through memorable advertising campaigns helped Fevicol expand its reach and dominate new markets beyond its initial customer base.
• 💼 Strategic acquisitions in various segments strengthened Pedialyte's market position, both in India and globally, contributing to its commanding 70% market share.

Q & A

What is the significance of Pedilite's capital allocation in the company's history?

Pedilite's stellar capital allocation has created enormous wealth for its shareholders, with an investment of 10,000 rupees in January 2000 growing to over 13 lakh rupees today, excluding dividends.

What is the market share of Pedilite's Fevicol in the industry today?

Pedilite's Fevicol commands a market share of 70% in the industry.

What was the initial product of Pedilite and how did it revolutionize the market?

The initial product was Fevicol, an adhesive that was easier to use than the animal fat glues of the time, requiring no heating or cooling and offering superior adhesivity.

How did Pedilite's strategy of bypassing middlemen impact their sales?

By bypassing middlemen and selling directly to carpenters, Pedilite was able to educate them on the benefits of Fevicol, saving time and increasing profits for the carpenters.

What was the purpose of the design book 'Fevicraft' launched by Pedilite?

Fevicraft was a design book to help carpenters suggest different design variations to their customers, solving a major problem for them and strengthening their association with the Pedilite brand.

How did Pedilite leverage the feedback from carpenters to innovate their products?

Pedilite formed the Fevicol Champions Club to gather critical market insights and feedback from carpenters, which led to the development of new products like Fevicol Marine, Speedx, and Heatex.

What is the importance of the risk-to-reward ratio in Pedilite's pricing strategy?

The risk-to-reward ratio highlights that the potential loss from using inferior adhesives far outweighs the small savings from cheaper alternatives, allowing Pedilite to maintain higher prices without credit cycles.

How did Pedilite's marketing campaigns contribute to their brand awareness?

Pedilite's memorable and humorous marketing campaigns effectively communicated the product's benefits and appealed to a wide audience, enhancing brand recognition and utility value across India.

What was the strategy behind Pedilite's expansion into new markets?

Pedilite expanded into new markets by selling their existing products in these markets, leveraging their strong brand awareness and the utility value of their products.

How did strategic acquisitions help Pedilite become a market leader in new segments?

Strategic acquisitions such as MCL, Doctor Fix It, Steel Grip, and Roof allowed Pedilite to establish a strong presence in new market segments like sealants, waterproofing, insulation tapes, and tiling and flooring adhesives.

What lessons can investors and business leaders learn from Pedilite's success?

The case study teaches the importance of empathy in understanding market gaps, the value of the risk-to-reward ratio in pricing power, and the use of the Ansoff matrix for diversification strategies.

Outlines

00:00

📈 The Rise of Pidilite: Market Penetration and Product Innovation

The first paragraph narrates the remarkable growth of Pidilite, highlighting its capital allocation strategy and the exponential increase in shareholder wealth. It discusses the company's flagship product, Fevicol, and its market penetration strategy. Pidilite identified inefficiencies in the traditional adhesive market and introduced Fevicol as a superior alternative. The company's direct engagement with end-users, carpenters, through sales teams and the introduction of Fevicraft design books, helped establish a strong market presence. This strategy not only provided Pidilite with a competitive edge but also fostered a loyal customer base among carpenters, leading to a significant market share in the adhesive industry.

05:01

🔍 Pidilite's Growth Strategy: Product Development and Market Insights

The second paragraph delves into Pidilite's product development strategy, emphasizing the importance of market insights gathered from interactions with carpenters. It describes the formation of the Fevicol Champions Club, which served as a platform for market research and feedback. This engagement led to the development of new products like Fevicol Marine, Speedx, and Heatex, addressing specific market needs. The paragraph also discusses the company's pricing power and the strategic advantage of not operating on credit, which contributed to a strong balance sheet and shareholder confidence. The focus on quality and the creation of a reliable brand image are highlighted as key factors in Pidilite's sustained market leadership.

10:02

🌐 Pidilite's Expansion: Market Development and Diversification

The third paragraph outlines Pidilite's market development strategy, focusing on the expansion of Fevicol into new markets through iconic marketing campaigns. It discusses the memorable advertising that made Fevicol a household name across India, including in tier 2, 3, and 4 cities. The paragraph also touches on strategic acquisitions that allowed Pidilite to enter new market segments and strengthen its position globally. The concluding part of the paragraph draws lessons from Pidilite's case study, emphasizing empathy as a billion-dollar strategy, the importance of understanding risk-to-reward ratios, and the use of the Ansoff Matrix as a tool for business diversification and growth.

Keywords

💡Pedialyte

Pedialyte is a brand name mentioned in the script, which seems to be a company with a significant history in the Indian business landscape. The term is used to illustrate a company that has shown remarkable growth and wealth creation for its shareholders, as exemplified by the substantial increase in value from a hypothetical investment made in January 2000. The script uses Pedialyte as a case study to explore business strategies and growth.

💡Market Penetration

Market Penetration refers to a business strategy where a company aims to increase its market share within an existing market by selling an existing product. In the context of the video, Pedialyte's initial strategy involved entering the market with a superior product, Fevicol, which was easier to use than the existing animal fat glue, thereby gaining a foothold in the market.

💡Fevicraft

Fevicraft is a term introduced in the script to describe a design book provided by Pedialyte to help carpenters suggest different design variations to their customers. This initiative was part of Pedialyte's strategy to add value to their customers and strengthen their association with the brand, thereby enhancing market penetration.

💡Product Development

Product Development is a business strategy where a company creates new products to sell to its existing customer base. In the script, Pedialyte leveraged feedback from carpenters to develop new products like Fevicol Marine, Speedx, and Heatex, which addressed specific market needs and contributed significantly to the company's revenue.

💡Fevicol Champions Club

The Fevicol Champions Club is a program mentioned in the script that Pedialyte established to engage with carpenters, their primary customers. This exclusive club provided a platform for market research and feedback, enabling Pedialyte to understand market demands and gaps, which in turn informed their product development strategy.

💡Market Development

Market Development involves selling existing products in new markets. The script highlights Pedialyte's marketing campaigns as a key strategy in this phase, with memorable commercials that increased brand awareness and utility value, allowing the company to expand its market reach across India.

💡Strategic Acquisitions

Strategic Acquisitions refer to the purchase of other companies to expand market presence or enter new markets. In the script, Pedialyte made strategic acquisitions in various segments such as sealants, waterproofing, and tiling and flooring adhesives, which helped the company to diversify and strengthen its market position both in India and internationally.

💡Risk-Reward Ratio

The Risk-Reward Ratio is a concept used to evaluate the potential return on an investment compared to the risk undertaken. In the context of the video, Pedialyte's high-quality adhesive, Fevicol, had a high risk-reward ratio that made customers reluctant to switch to cheaper alternatives, even when credit was offered by competitors.

💡Empathy

Empathy is the ability to understand and share the feelings of others. The script emphasizes the importance of Pedialyte's empathy with carpenters, which allowed them to identify and capitalize on crucial gaps in the market, leading to the development of products that met specific customer needs.

💡Ansohoff's Matrix

Ansohoff's Matrix, also known as the Product-Market Expansion Grid, is a strategic tool used to understand a company's diversification strategies. The script uses this matrix to analyze Pedialyte's growth, which included market penetration, product development, market development, and diversification through strategic acquisitions.

Highlights

Pedialyte's capital allocation created enormous wealth for shareholders, with a 10,000 rupee investment in January 2000 being worth over 13 lakh rupees today, excluding dividends.

Pedialyte's stock price has surged by 26 percent in the past decade, and it commands a 70% market share in the industry with its product Fevicol.

The Ansoff Matrix is key to understanding Pedialyte's growth, with its four strategies: market penetration, product development, market development, and diversification.

Pedialyte's initial market penetration was achieved by identifying a gap in the adhesive market and creating Fevicol, an easy-to-use adhesive that saved time and provided superior adhesivity.

Pedialyte bypassed middlemen and sold Fevicol directly to carpenters, educating them on its benefits and building a strong customer base.

The company's innovative logo design featuring two elephants pulling a plank symbolized the strength of Fevicol and aided brand recognition.

Pedialyte launched Fevicraft, a design book for carpenters, to provide design ideas and strengthen their association with the brand.

The Fevicol Champions Club was formed to gather market insights and feedback from carpenters, leading to the development of new products.

Pedialyte's product development strategy involved creating new products like Marine Fevicol, Speedx, and Heatex to address specific market needs.

The company's strong focus on quality and addressing market gaps helped Fevicol become the top adhesive brand in India.

Pedialyte's pricing power was underpinned by the high risk-to-reward ratio of using Fevicol, allowing them to operate without credit cycles.

The company's strong balance sheet and consistent price increases contributed to better ROI and shareholder confidence.

Fevicol's market development strategy involved expanding into new markets with existing products through memorable marketing campaigns.

Strategic acquisitions in different segments, such as sealants and waterproofing, helped Pedialyte become a market leader in new areas.

Lessons from Pedialyte's success include the importance of empathy in business strategy, understanding risk-to-reward ratios for pricing power, and using the Ansoff Matrix for diversification.

Pedialyte's case study emphasizes the value of innovative marketing, direct customer engagement, and strategic product development for business growth.

The company's success story serves as an example for investors and entrepreneurs on building a strong brand and expanding market share.

Transcripts

pedialyte is one of the most iconic

companies in the indian business history

the management's stellar capital

allocation has created such an enormous

wealth for its shareholders that 10 000

rupees invested in the company in

january 2000 would be worth more than 13

lakh rupees today and that too excluding

dividends

in the past 10 years the stock price is

shorter by a cage of 26 percent and most

importantly after six decades into the

market today payday lights fevicol

commands a market share of 70 in the

industry the question is how did pity

light become a gold mine for its

investors what was their business

strategy and most importantly as

investors and students of business what

are the lessons that we need to learn

from the legendary rise of pity light

this episode has a teaser video about an

alternate investment opportunity so do

check it out before saying goodbye the

answer to pdlite's crazy growth lies in

this diagram called the onshore of

matrix this matrix has four parts based

on two variables which are product and

market and as we move ahead with the

story i'll explain each one of them

properly so pay very close attention

the first step a company takes to

establish itself is market penetration

and they do that by entering an existing

market by selling an existing product

which is far better than the competitors

in our case the story of pity light

dates way back to 1954 when a young man

named balwan parikh was operating a

small scale industry in mumbai wherein

they manufactured pigment emulsions used

for textile printing now during this

time bulwark made two important

observations number one back then 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 end users who

were carpenters so the carpenters by

default had to go to the hardware stores

and buy the glue from them and this is

where through a lot of trial and error

pdlite launched their iconic product

that we all know today as fevicol and as

we all know already it is easy to use

does not need the cumbersome procedure

of animal fat and it delivered excellent

adhesivity as compared to animal fat

so the first thing the team of pity

light did was that they bypassed the

hardware stores and directly started

going to the carpenter warehouses to

sell their products here's where their

salesmen educated the carpenters about

how they could use fevicol to save time

and eventually make more profit

and if you look at the math you will

very easily be able to understand the

value proposition of fevicol to tell you

about it other sieves comprise of only

two percent of the total project cost to

a carpenter so if the project cost is

one lakh rupees the carpenter barely

spends 2000 rupees on adhesive so it's a

low cost but highly critical material

but if you consider the cumbersome

procedure of animal fat the mat actually

takes a hit

if you look at one day of labor cost in

india today it's typically 700 rupees to

800 rupees a day which is for eight

hours of work time a day now if one of

your labors actually spends eight hours

cumulatively in preparing the animal fat

glue then the adhesive is going to cost

you mrp plus 800 rupees worth of labor

time therefore

merely by eliminating the eight hour

labor time the chief carpenter can save

800 rupees per unit work which is 800

rupees extra profit

so even if every call costs 50 to 100

rupees more it is absolutely worth it

and hence the fevicol sales team went

directly to the carpenters to educate

them about the clue and spoke to them

about the superiority and the ease of

its use and since other companies were

catering more to the middlemen like

wholesale dealers and hardware shops

pdlite was actually able to get the

attention of the carpenters

as a result the first phase of pity

light kicked off with fevicol and you

know guys what i absolutely loved about

pity light is that during the 1950s and

60s when nobody ever thought about

design seriously peter light was so keen

on communicating its message that even

in their logo they put in efforts to

show the two elephants trying to pull a

plank of wood in opposite directions and

this was to signify the strength of

fevicol and this thoughtful design

actually made it easier for carpenters

to recognize and recollect the brand now

during their close interactions with the

carpenters the pdli team actually

stumbled upon another critical insight

they saw that while most of the

furniture back then was custom built the

carpenters were actually running out of

design ideas to offer to their clients

in a way the service of carpenters

itself was commoditized

so you know what

this is where perilite found an

opportunity to keep the carpenters

hooked to fevicol in 1980 peter light

launched something called fevicraft

fevercraft was a four page design book

that could help the carpenters suggest

different design variations to their

customers and this became such a big hit

among the carpenters that they started

making it a regular issue in 1989 video

light even came out with a hardbound

furniture book that had superior designs

with high utility value and this solved

a major problem for the carpenters and

more importantly it strengthened the

carpenter's association with the pdlite

brand

this is how by bypassing the wholesalers

and through a not so modern method of

content marketing pdlite laid a strong

foundation in the industry now the

question over here is one product is not

enough to turn a company into a billion

dollar company right in fact peter light

is almost a monopoly in space so the

question is how did they achieve this

incredible position

well this is where the second phase of

the onshow of metric comes in which is

product development strategy this is

where the business starts selling new

products to an existing customer base

in this case pdlite realized that their

interaction with the carpenters had

always given them important market

insights so to take this one step

further they even formed something

called the 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 almost like a

bharat

pedilite would organize kite festivals

for them and would even take them to

pilgrimages and this beautiful

interaction gave the carpenters a much

needed community for their professional

and personal growth

now some of you might think over here

why is an adhesive company organizing

these events and that to the carpenters

because obviously it's not like the

carpenters are going to place their

loyalty because of kite festival right

so the question over here is what is the

written on investment for pretty light

well there are two critical return

investments with the physical club

number one is market research and number

two is feedback loop as it turns out

because fevicol organized 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 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 so you know what

as soon as fevicol got this feedback

they started investing heavily into

research and development and introduced

three products in the market for each

one of these problems and these products

were fed we call marine fevicol speedx

and fevicol heatex and guess what these

three value-added products together now

account for more than half of the

revenues from the fevicol brand in fact

fevicol marine became the most preferred

choice for any woodwork that was going

to be exposed to water and humidity this

product was so extraordinary that it

ensured that the bonded plywood would

remain intact even if it was kept in

water for 48 hours or boiling water for

an hour

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 such is the brand name of fevicol

that tomorrow if a client asks the

carpenter to use some other adhesive the

carpenter would instantly say that he

could definitely use some other adhesive

but he would not guarantee the quality

or longevity of the final outcome if the

brand was anything but fevicol

and you know what guys this reliability

and trust in the physical brand is so

much today that while the market was

dominated by credit windows back then

fevicol did not operate on credit at all

now the question over here is credit is

super important for stores right then if

another brand gave a 30-day credit

period to the hardware stores it must be

very easy for them to penetrate isn't it

then how is it that pdlite still

remained a market leader for so long

well the answer to that lies in the two

percent map that we did back then like

we saw before the cost of the addresses

in a furniture is just two percent so

out of one lakh rupees of the project

cost for making a king size bed the

addresses would cost just two percent

which is two thousand rupees

now if the carpenter shift to another

brand that is offering lower prices he

will definitely end up saving 500 rupees

but if this adhesive does not stick the

wood work together and one year later if

this bed breaks apart

then that meager saving of 500 rupees

would ruin his entire project worth one

lakh rupees

and this will obviously result into loss

of client therefore the risk is to

reward ratio over here is very very high

as a result even when multiple brands

offered better prices the carpenters

were reluctant to switch because of

which even with credit it was difficult

for other companies to come in

and this gave pedilite two incredible

superpowers number one tomorrow they can

easily increase the price of their

products and yet the carpenters will

choose fevicol over others and more

importantly because of no credit cycles

peterlite was able to maintain an ultra

strong balance sheet which gave them

better return on investment and also

drove shareholder confidence and this

brings us to the 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 in

fact even while i was doing this case

study my entire team was able to

recollect 10 year old commercials of

fevicol merely by wearable descriptions

and 100 sure that even you remember them

and the beauty of these commercials was

that it could appeal to every person in

india regardless of what their

background was and at the same time it

communicated the message of its products

very very clearly

this is the reason why the brand

awareness and the utility value of

favical products began spreading through

the lens and breadths of the country as

a result fevicol became a recognizable

name in tier 2 3 4 cities of india and

eventually became a market leader fun

fact is that the fevicol brand was so

respected that the plywood stores of

tier 2 tier 3 cities started keeping

fevicol right at the beginning of the

store to attract more buyers and some of

them even used it as a lost leader so

that the carpenters there would start

buying plywood from them this is how

fevicol started expanding its market and

started selling an existing product in

new markets eventually dominated them

and became a market leader

and lastly we come to the fourth part of

the matrix wherein a business introduces

new products in new markets

in this case we have the strategic

acquisitions made by peter light during

that time which made it a market leader

even in alien markets and some of the

best acquisitions include mcl in the

sealants category doctor fix it in the

waterproofing segment steel grip and

insulation tape segment and roof in the

tiling and flooring adhesives segment

and now peter light doesn't just have a

strong foothold in india but many other

countries all across the world and today

pedi lights fevicol commands a market

share of 70 in the industry and this

brings you to the most important part of

the episode and that are the lessons

from the case study moving on to the

lessons the first thing that we need to

learn from this case study is that the

practice of empathy is a billion dollar

strategy in this case it was the empathy

that pediatrics with the carpenters that

help them capitalize on the crucial gaps

in the market

number two risk is to reward ratio is a

very good metric to understand the

pricing power of a company in this case

it was a risk is to reward ratio of

using fevicol that enable them to play

without credit cycles and help pedialyte

increase their prices consistently and

lastly as investors and leaders of

business the arch of metrics is a very

good way to understand diversification

as investors you could use that to

understand the trajectory of your

portfolio companies and as an

entrepreneur you could use it as a

framework to track your diversification

strategies better

that's all from myself today guys if you

learned something valuable please make

sure to hit the like button and not make

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studies please subscribe to our channel

thank you so much for watching i will

see you in the next one

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