What Are the Challenges Faced by Diversey?

Diversey Case – Group 5

Q1. What are the challenges faced by Diversey?

1. Unorganized Industry:   With more than 70% market share, unorganized sector eroded most of the market opportunities for organized players. Indian market being dominated by unorganized players like dhobis and direct selling agents.

1. Labor intensive industry: Technology could be fully explored only in the upper classes of society and other sections considered cleaning a basic work with more reliance on humans.

1. Predominant mindset of customers:Socio-cultural perception of customers that a cloth drenched in water can clean the dust from a table when actually, it only redistributes the dust across after crushing
2. Prise sensitive customers: Due to social mindset towards cleaning, customers adopted undifferentiated low-priced products over high quality products. Diversey had to create awareness before changing the mindset as scientific approaches were not considered for cleaning in most houses.

1. Inventory management: The company policy of providing spare parts for a period of 10 years increased the cost of inventory significantly. The two main cost factors were training costs for technicians and huge warehouse for stocking more than 10000 SKUs. There were a lot of overheads attached to them and Diversey was not able to strategise on the same.

1. One-size-fits-all mindset of customers: Diversey offered customized products to different set of customers which contradicts the smaller customer’s requirement of standard common product such as phenyl. Most customers expected a single product which met all their cleaning needs irrespective of the structural differences. Despite putting a lot of time and money into generating awareness against this approach, they had a long way to go.

Q2. Apply Michael Porter Model to gauge the attractiveness?

Porter’s Five Forces

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Buyer Power:- Low

• Too many sellers
• Too many options
• Get attracted to least price not caring about quality
• Low brand loyalty at individual level

Supplier Power: -Medium to High

• 35% of the equipment are imported from abroad with 95% of the contribution coming from Europe
• Inventory always kept equivalent to 15% of the sales
• The manufacturing plant is located in North India with 5 other plants situated in other regions

 Diversey procures raw materials for its cleaning products, so the supplier power is high and also not many vendors available in India.

Threat of Substitutes: - High

• Barred products
• Cheaper local production
• Unorganized labour-Dhobi, Maids
• Water: Major substitute
• Retail laundry

The cleaning products industry faces a substantial substitute in the form of traditional cleaning products and vice versa.

Threat of Entry: - High

• More advanced technology can be used by new player than the one used by Diversey
• Unorganized Market
• Local companies rise in this space frequently

Competitive Rivalry: - High

• Water and Phenyl
• Dhobis (Unorganized market)
• Eureka Phobes
• Kimberley Clark

Overall, the Porter’s Five Forces analysis indicates that the industrial products market is much more lucrative than the end-consumer market.