Case study of amul

case study of amul

1. CASE STUDY-14 MARKETING OF MILK -AMUL
The twin cities of Ahmedabad and Gandhinagar, with a population of four million, make up an
enormous milk market: 10 lakh liters per day (LPD) worth Rs 288 crore per annum. Since one of
the objectives of Operation Flood is to capture a commanding share of the liquid milk market in
the metros, the Gujarat Cooperative Milk Marketing Federation (GCMMF) decided to set up a
Mother Dairy on Ahmedabad's outskirts. With a capacity of 10 lakh LPD – 40 per cent
consisting of milk in pouches; the rest for milk-based products-it was expected to be the largest
and the most modern unit in Asia. The investment: Rs 100 crores.
It was calculated that to break even on that kind of investment, would require milk sales of 2.3
lakh LPD in Ahmedabad - Gandhinagar (hence forth referred to as only Ahmedabad). However,
in January 1993, with just a year to go for the unit to be commissioned, GCMMF's sale of Amul
Milk' in this market was woefully inadequate at 1.3 lakh LPD. A new marketing team was set up
with the objective of filling that gap: in other words, to raise volume sales by 76 per cent within
one year in a market growing at the rate of barely 7 to 8 per cent.
AN ATTRACTIVE BUSINESS
Ever since Operation Flood was initiated in 1970, the National Dairy Development Board
(NDDB) has been continuously making investments in the dairy sector of Gujarat, its home base.
Since milk was abundantly available, businessmen found the prospect of tapping the Ahmedabad
market tempting. Little wonder, apart from two dairies (Uttam and Abad) in the cooperative
sector, there are nine private units and some 20 brands in all.
This scenario is to be repeated in other metros as rural milk supply and urban consumption
grows. After all, not every business offers low barriers to entry, modest investments, simple
technology, coupled with high and almost immediate returns.
According to estimates, a private packer nets of 10,000 LPD that translates into earnings in hand
of Rs 2,500 per day or Rs 7.5 lakhs in a month.
TEETHING TROUBLES
In 1986, when GCMMF introduced Amul Milk to the city, it was in a colourſul pack to
distinguish it from other brands. However, in a market where brand preference was weak, Amul
was just another brand. As long as milk was available, consumers could not care less about
aspects such as fat content - attributes with regard to which Amul was far superior to the rest.

2. Highlighting these brand strengths effectively was harder still since a large segment of the
consumers were illiterate.
At the retailing end, Amul offered margins of only 15 paise per litre compared to 40 paise by
private packers. Competition was so intense that all 20 brands sold at exactly the same price — if
the market leader changed it, all others followed suit swiftly. So, while volume growth did take
place, Amul continued to be vulnerable as is natural for any brand in an essentially commodity
market. In March 1993, the brand market share was 27.9 per cent.
An earlier GCMMF attempt at creating brand distinctiveness had come to grief after starting off
well enough. The pouch bore an expensive four-colour film design which was also used on the
40-odd insulated milk vans. Instead of making the pouch design copy heavy, colours and images
were used, keeping in mind the state of market evolution: these were easy for consumer to
remember. Hence, different early morning symbols – birds, flowers, the sun and buffalo - were
printed. 'Bright colours were used' to indicate the variety - for instance, blue indicated toned
milk. It began to seem that the brand was acquiring an identity, for itself.
However, since consumer awareness about varieties like toned and standardised milk was quite
low, they tended to ask for it by either symbol or colour. So, Amul's standardised milk pouches,
which were green and bore the picture of a buffalo, were known as either bhainswala or
harawala. Rival brands took advantage of this and soon appeared with pouches in similar colour
and bearing identical symbols. When a consumer asked for bhainswala or harawala, the retailer
could hand out another brand of standardised milk – and pocket a higher margin. The consumer
didn't know the difference. Amul was back to square one: vulnerable again to both price
competition and to retailer whims.
The fact that only effective branding could permit Amul to stand apart from the pack and help it
reach its sales target was re-emphasized by this experience.
What GCMMF found particularly galling was: it knew that milk sold by private distributors was
far inferior in quality to Amul. Inspection by GCMMF's quality control department revealed that
pouches of almost all other brands contained at most 490 ml milk instead of 500 ml. The SNF -
Solids Not Fat or solids other than fat- content in toned milk – was only 8 per cent instead of the
statutory 8.5 per cent (thus saving the marketer an additional 50-60 paise per litre). In summer,
the percentage fell even further since adding water to milk during scarcity conditions is common.
In standardised milk, brands had just 4.2 per cent fat instead of the requisite 4.5 per cent. All this

3. despite the Prevention of Food Adulteration Act 1954, which lays down guidelines about
minimum fat and SNF content.
The advantage of segmentation in a competitive and mature market also came to GCMMF.
While the Act permits four types of milk - double toned, toned; standardised and whole — no
dairy in India sells more than two types. So, it was decided that not only would Amul establish a
presence in all existing segments but would also create fresh ones. (This later helped during price
hikes because consumers could drop from the variety, they had favoured to a less expensive one
and yet stay within the Amul fold).
In the milk market, consumers show little preference for any brand or even any milk type. They
easily shift between, say, toned and standerdised for reasons of price and also because they are
unfamiliar with the ingredients that make up milk. GCMMF believed that it was possible to
create brand preference and even give each milk type a distinguishable name.
However, Amul first had to be available to the consumer. Milk being a primary need, the
housewife would settle for another brand (or type) if her preferred brand was unavailable when
she needed it the most — early morning, to serve milk to the children and pack them off to
school; for the morning tea; even along with her husband's breakfast. Easy accessibility seemed
to be the key – in other words, perfect and synchronised distribution channels within the vicinity
of the consumer's home.
LEARNING TO SURVIVE
GCMMF began early 1994 by removing restrictions of crate deposit and geographical limit and
giving incentives to the field staff to appoint new retailers. Within eight months, the retailer
strength doubled to 1,200. The company plans to increase the number to 2,000 or one retailer per
300 households. (This really is as much as it seems considering that Vadilal has 1,500 outlets to
sell ice-cream, a far less basic product, in the city).
GCMMF decided to capitalise on the fact that Thaltej, Gurukul and Vastrapur upcoming
settlements on the city outskirts – were yet to have adequate milk supplies. Poor roads plus the
fact that these areas are spread out, among other factors, contributed to very high distribution
costs. Starting with one retailer, GCMMF had 170 retail outlets in these areas in a year's time.
The result: sales of 10,000 LPD in these areas. Being the pioneer helped Amul make this
virtually its home ground Conventionally, government dairies use their own vans and manpower
to distribute milk. The results: High overheads and out staffing and-sooner or later- union

4. trouble. In keeping with GCMMF's policy of low overheads and outsourcing, it was decided to
have distributors who in turn would supply milk to retailers. This was similar to the way in
which the distribution for GCMMF's consumer products was organised. An invoice would be
raised on distributors who would lift milk against an advance pay order in addition to a two days'
bank guarantee. In other words, the distribution system for milk was comparable to that of
marketers of fast-moving consumer goods. The main difference was that the milk retailers were
in direct contact with GCMMF through a formal agreement and a crate deposit. This minimised
the distributors' hold on Amul's distribution system.
Between February 1993 and the middle of 1995, the number of distributors had grown from 5 to
20. Among these were distributors who had earlier serviced Amul's rivals. Apart from helping
Amul capitalise on their experience, this directly hurt rival brands. The aim now is to have 30
distributors so that, at 4 lakh LPD, each distributor has a substantial 10-15,000 LPD to handle.
LAUNCH BY LAUNCH
In August 1994, Amul introduced its first premium branded product, Amul Gold full cream milk,
for Rs 11 a litre. Full cream milk has a high fat and SNF content, and is favoured by parents for
children. This variant was so successful that within three months of launch, it had scaled 32,000
LPD, overtaking 20-year-old market leader, Shresth (14,000 LPD). The new offering expanded
the market as is evident from the fact that though Amul was outselling the former leader more
than 2:1, Shresth's sales showed only a marginal decline.
The next variant to be introduced - in June this year - was the double-toned and lower-priced
Amul Saathi. Double toned milk is low on fat and high on SNF, and is preferred by diabetics,
blood pressure patients, and the elderly. The principal objective was to get consumers to switch
to pouches from loose milk, which makes the other half of the Ahmedabad milk market. So, the
price was kept the same as loose milk, at Rs 7.50 a litre. Sales reached 12,000 LPD, and quickly
led to the arrival of several me-too brands such as Best and Sardar double-toned. A new segment
had opened to terrific marketing activity, that too within a period of just three weeks.
Next, Amul standardised milk, around since August 1986, was branded as Amul Shakti and
priced at Rs 10 per litre. Similarly, Amul toned milk, which had first entered the market in
August 1986, got itself a new name, Amul Taaza (Rs 9 a litre).

5. In each of the four variants, the Amul name is prominent. The milk has obviously benefitted
greatly from the name since Amul butter, cheese and ghee are all milk-based products and Amul
milk is in consonance with that.
It was GCMMF's resolve to enter all segments that led it to launch small 200 ml pouches (as
opposed to the normal 500 ml pouches), which were popular with the labour class. Though small
pouches spell higher unit cost, and wastage of packing material, milk and so on; the marketing
team asked itself: why permit the opposition a free run here? In May last year, it introduced 200
ml pouches priced at Rs 1.70. Today, this pouch sells more than 11,000 LPD.
THE BRAND WINS
If there is one more thing that the Amul milk case study illustrates, it is that distinctiveness can
be created even in a commodity market, even when me-toos are waiting to copy the leader in
every regard.
To begin with, GCMMF decided to give more fat and SNF in Amul than required by law. Next,
the fat and SNF contents of Amul milk began to appear on pouches in an attempt to educate the
consumers and to be sure, the competitors began doing this too.
GCMMF took the battle one step further into the enemy camp by printing the date of
manufacture and code number on its pouches (though food products need to bear by law, milk is
exempt). This facility isn't cheap: each code marketing machine costs Rs 16,000. GCMMF
proceeded to educate buyers on how to read the code and avoid buying old stock.
Another instance of using opportunity to both stand apart from the crowd and generate
consumers goodwill: in Ahmedabad, retailers commonly price milk higher in the afternoon,
arguing that they are recovering the cost of refrigeration throughout the day. Understandably,
this upsets consumers. So, GCMMF set up "8 to 8 counters" at 20 major outlets which would sell
milk throughout the day at a steady price. The price for earning this goodwill was small:
GCMMF only had to reimburse to the retailer the refrigeration charges.
Advertising for Amul milk – probably a first for this category - began in 1990, with a tiny
budget. At that time, Ahmedabad Doordarshan was an excellent option since spot rates were low.
Everything changed last year as Doordharshan's ratings dropped and those for Zee TV rose.
The marketers then turned to using a combination of leaflets generating awareness about milk
and its contents, press ads, radio spots, hoardings and cable TV, a highly underrated (and

6. therefore cost-effective) medium. For just Rs 400 per month, an operator reaching a thousand
households would slot a 60 second commercial before the cable TV film, twice a day.
Monitoring ad telecasts was left to the field staff, and after the contracts of a couple of cable
operators had been terminated, the rest lost all interest in violating the agreement.
To keep local involvement high, 25 per cent of the ad budget has been set aside for promotions.
GCMMF began printing the Amul milk logo on home-delivery bags, T-shirts, caps and
umbrellas, among others. Gifts such as wall clocks were given to 20 retailers who had done the
maximum business. Awards for the best driver, highest seller of Amul Gold, and best distributor
were also distributed as incentives on occasions such as milk van rallies where all vans endorsed
with the Amul milk brand name participated actively.
Since children are primary milk drinkers, school contact programmes, milk drinking
competitions, Amul merit scholarships – one glass of Amul milk a day offer free to meritorious
and deserving students for a year — have been incorporated as part of the marketing strategy.
Colourful stickers informing students about the ingredients of milk – each piece costing as much
as Rs 7 have been distributed free to the children in schools.
It is a measure of the marketing campaign's effectiveness and lastability that sales of Amul in
Ahmedabad today stand at 2.5 lakh LPD and the market share is up now from 27.9 per cent in
early 1993 to a commanding 52 per cent.
Questions for Discussion:
1. Describe consumer behaviour in the context of a commodity like milk?
2. What are the market segments that Amul have penetrate? Are there any other segmentation
alternatives available to Amuí?
3. If you were the marketing chief of Amul, what other innovations would you make in your
marketing strategy?
4. Discuss the problem faced by Amul in the initial period. How did it overcome that?
5. How GCMMF differentiated brand Amul from its competitors?