29/03/2013 (Livemint) - Makers of soaps including Dove, Santoor and Dettol are aggressively offering promotions and discounts to boost volumes and shield their market share after a sharp decline in the cost of palm oil, a key raw material.

In the March quarter, market leader Hindustan Unilever Ltd (HUL) offered Rs.5 off on 75gm packs of its Dove and Pears soaps, a company spokesperson said in an email. Rival Godrej Consumer Products Ltd offered an 8% discount on its Godrej No.1 brand as well as additional discounts on bulk purchases, Religare Institutional Research said in a report. Wipro Consumer Care and Lighting Ltd, a unit of Wipro Ltd, offered freebies such as free Horlicks sachets with Santoor soaps, said Wipro Consumer senior vice-president Anil Chugh.

Till July last year, rising palm oil prices forced soap makers to increase prices, which hurt demand. After palm oil prices started declining, soap makers slowly started offering promotions late last year and discounts have intensified this year. Palm oil prices have fallen by about 20% since July.

“Most of our competitors are giving price discounts and increased volumes for the same price—this is a new phenomenon. We’ve also seen an increase in advertising spends in the market,” Chugh said.

Godrej Consumer declined to comment.

Promotional activity has significantly increased in the soaps segment, Religare analysts said in the report.

“This time, HUL has been proactive and is taking the lead (in giving promotions). I don’t think it will lead to a price war in the soap market,” said Abneesh Roy of Edelweiss Securities. “It’s important to note that most of the activity has been around price promotions, rather than price cuts. Price promotions can be removed any time, while it’s very difficult to raise prices again.”

Analysts said that companies such as HUL, Godrej Consumer and Wipro Consumer would be big gainers from the current round of promotions. Over the past two years, such large companies gained market share from regional firms like Venus Soaps that were unable to keep prices low given the rising palm oil costs.

In the December quarter, HUL’s Lux and Lifebuoy were India’s leading soaps with a market share of 14.4% each, while Santoor had 8.8% and Dettol 7.8%, according to Nielsen data. Dettol is owned by Reckitt Benckiser India.

“The promotions will safeguard the gap between the unorganized players and organized players. Usually, when oil prices drop, the unorganized players start mushrooming again. This time the organized players have been relatively quick in responding,” Wipro’s Chugh said.

Industry executives, including Chugh, forecast that palm oil prices will stay near current levels for the next two quarters, which may prompt companies to continue offering promotions.

“I think the promotions will continue for a quarter, maybe two. After that, it depends on the palm oil prices,” Edelweiss’s Roy said. He said that the promotions may boost demand for soaps by 2-3 percentage points from the current low single-digit growth.