A strategic game between Unilever and Procter and Gamble in India

Competition in the detergent market in India is interesting for a number of reasons at both the macro and micro levels. At the macroeconomic level, one sixth of the world’s population is in India. Additionally, GDP per capita measurements indicate a steady rise in income levels in this newly industrialized nation. From a microeconomic perspective, this article addresses a strategic game involving price wars between two detergent market leaders, Unilever and Procter & Gamble (P&G). Finally, ethical considerations will be discussed in relation to the importance of considering exogenous ‘losers’ as a result of players engaged in these strategic games; namely, mom-and-pop Indian stores selling detergent products.

Unilever has had a strong and unrivaled foothold in India since 1888, when it sold its first bar of soap in the country. As an Anglo-Dutch company, Unilever has worked hard over a period of nearly 150 years to build its dominant position in emerging markets such as India. Organizational success in successfully executing this objective is evident through the nearly 70-80% market share that Unilever enjoys in the Indian detergent market.

P&G is a direct competitor of Unilever and has been using price wars, as well as aggressive advertising campaigns, to reduce Unilever’s market share. The cost of this strategy in the short term has been the pressures supported both by the company’s operating margins and by the final financial results; however, P&G has traditionally viewed this as a viable long-term strategy. For the company to succeed, P&G must be diligent and willing to accept losses today in order to benefit from potential future gains.

The uphill battle facing P&G is clear as Unilever is an early adopter of this market, while P&G only entered the Indian market in 1993. To date, P&G has yet to establish the full value of its value. brand made in other foreign markets. Strategically, the Indian market was essentially flooded by P&G with its products in an attempt to drive prices below Unilever’s marginal costs. P&G has been modestly successful in gaining control of additional market share in India over time, as Unilever has relinquished its 90% market share it held since 2004.

The game that Unilever and P&G are playing will now be explored in greater detail. Neither player is aware of the other’s actions, as both are moving simultaneously. Also, each company has a strategy of competitive pricing (ie high prices) or engaging in a price war (ie low prices). This game is similar, in some ways, to the strategic game “Battle of the Sexes,” in that the Pareto optimal move is for one player to set prices high while the other sets prices low, but both players really want to set prices. low. . The Nash equilibrium in this game is one in which the Pareto optimal move involves asymmetric payoffs: P&G continues to price its products at low prices while Unilever sets competitive prices. Unilever would rather collude with P&G; that way, both players would charge a high price.

However, the cost to Unilever of this market benefit is offset by the fact that it has a strong leadership position in the Indian market, especially in the areas of brand recognition and customer loyalty. In the short term, however, P&G’s strategies are minimally effective in scaling additional market share at the cost of Unilever’s losses. Both companies lose in this game by waging a price war because it would negatively affect the results of both companies, at least in the short term.

In fact, both companies act somewhat surprisingly following the strategy of a rigorous price cut. MS Banga, CEO of Hindustan Lever Ltd., a Unilever subsidiary responsible for the Indian business, justifies such a scenario with a statement that reiterates Unilever’s already very strong position built over the years, as well as the determination of the company to not only defend it, but to strengthen its market share. AG Lafley, CEO of P&G, highlights the fact that Unilever has been in India for many decades and that India is a region worth aggressively pursuing long-term market entry.

Two important factors have been omitted from this game: (1) smaller competing companies; and (2) India’s competition policy. The obvious losers in this game would be the small family businesses in India. These small players in this market have no viable alternative means to compete for an extended period of time in a scenario where the major players are engaged in a price war due to their limited capital to leverage.

This raises the question of whether it is ethical (or even legal) for Unilever and P&G, as oligopolies in the Indian market, to engage in price wars. Unfortunately, there is a less clear or direct answer to this question. One way to consider a possible response is to look at India’s competition policies, which Unilever and P&G appear to be flouting, giving rise to the idea that both companies may be behaving unethically. According to India’s New Competition Policy, SOEs are charged with preventing monopolistic, restrictive and unfair practices. Included are practices that are exclusionary to other players by creating a barrier to new entrants or forcing existing competitors out of the market.

The defenders of the price wars, in the short term, would be the Indian consumers because they are receiving products of the same quality at a very low price. Another ethical consideration may highlight the fact that many consumers in the Indian market would not have access to quality detergent products, which are a necessary commodity in the quest for an acceptable standard of living. One fact remains: this story is unfolding in real time and many answers to these and related questions will require continued observation of the market dynamics between Unilever, P&G and other players in the Indian detergent market.