Pidilite is one of the most iconic companies in the Furniture business history. The management’s stellar capital allocation has created 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 Pidilite’s Fevicol commands a market share of 70 in the industry. The question is: how did Pidilite 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 Pidilite?
1. History of Pidilite
The answer to Pidilite’s crazy growth lies in this diagram called the onshore 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 Pidilite dates way back to 1954, when a young man named Balwan Parikh was operating a small-scale industry in Mumbai, wherein the manufactured pigment emulsions were 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 furniture.
This took a lot of time and was too tedious of a procedure, 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, Pidilite 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 Pidilite 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 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 takes a hit.
2. Pidilite started with Fevicol
If you look at one day of labor cost in Furniture 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 laborers spends eight hours cumulatively 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 of work, which is 800 rupees extra profit. So, even if every call costs 50 to 100 rupees more, it is 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, Pidilite was able to get the attention of the carpenters. As a result, the first phase of Pidilite kicked off with Fevicol, and you know guys. What I loved about Pidilite is that during the 1950s and 60s, when nobody ever thought about design seriously, Pidilite 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 made it easier for carpenters to recognize and recollect the brand. Now, during their close interactions with the carpenters, the Pidilite team stumbled upon another critical insight. They saw that, while most of the furniture back then was custom built, the carpenters were 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 Pidilite found an opportunity to keep the carpenters hooked to Fevicol in 1980, Pidilite launched something called Fevicraft. Fevicraft 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, Pidilite 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 Pidilite brand. This is how, by bypassing the wholesalers and through a not-so-modern method of content, marketing Pidilite laid a strong foundation in the industry. Now the question over here is whether one product is not enough to turn a company into a billion-dollar company right.
3. Pidilite Conducted Events to Get Feedback from Distributors
Pidilite 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 show of metrics comes in, which is product development strategy. This is where the business starts. Selling new products to an existing customer base in this case Pidilite 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 Pidilite 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 it’s not like the carpenters are going to place their loyalty because of the kite festival right.
So the question over here is what is the written-on investment for pretty light? Well, there is two critical return: investments with the physical club number one are market research and number two is a 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 the kitchen, the furniture often gets exposed to water, so those furniture does not seem to last as long as the normal ones.
4. Pidilite increased its Revenues by introducing New Product
Another group said that when they handle giant projects, the classic Fevicol takes a lot of time for a cure because of which their high-value projects often get delayed, and some even said that the lamination that has exposure to heat needs 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.
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 Furniture. 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 use some other adhesive, but he would not guarantee the quality or longevity of the outcome. If the brand was anything but Fevicol – and you know what guys this reliability and trust in the physical brand are 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 whether the 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 Pidilite 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 furniture, is just two percent.
5. Pidilite Marketing and Commercials
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 end up saving 500 rupees. But if this adhesive does not stick the woodwork 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 result in loss of the 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 Pidilite 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, Pidilite 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 a 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. 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 they could appeal to every person In Furniture, 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 Fevicol 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 Furniture and eventually became a market leader. A 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 loss leader so that the carpenters there would start buying plywood from them.
6. Pidilite kept on Introducing Innovative Products
This is how Fevicol started expanding its market and started selling an existing product in new markets, eventually dominating them and becoming 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 Pidilite 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. The doctor-fix-it in the waterproofing segment. Steel grip and insulation tape. Segment and roof in the tiling and flooring, adhesives segment, and now Pidilite don’t just have a strong foothold in Furniture, but many other countries all across the world.
And today, Pidilite Fevicol commands a market share of 70% in the industry, and this brings you to the most important part of the episode, and that is 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, which is a very good metric to understand the pricing power of a company. In this case, it was a risk, is to reward the ratio of using Fevicol that enables them to play without credit cycles and help Pidilite 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, and companies, and as an entrepreneur, you could use it as a framework to track your diversification strategies better.