CASE 01: TOTAL INDUSTRIES
Abhinav Kumar was totally unprepared for the news. And what surprised the 34 year old scion of the Kumar family – which had interests in a range of industries including batteries, consumer durables, soaps and oils, and switchgears – was that if was his 36 year-old Wharton School classmate, Rakesh Bhatia, who gave him the scoop over their dinner meeting. Bhatia headed a small engineering company in Phoenix, Arizona (US), but was remarkably networked in the industry.
“I hear your competition just got bigger.” He ribbed Kumar.
“What do you mean?” Kumar asked, surprised.
“Haven’t you heard that OLT and Control Equipment are talking about a merger?” The two switchgear companies were competitors of the Rs. 1,750—core switchgear division of total Industries, Kumar’s diversified family-managed company.
Kumar almost choked on his soup when he heard that. Such a merger would mean that Total would, overnight, lose its No.1 position in the industry, its 23 per cent market share in switchgears would be eclipsed by the combined 33 per cent share of PLT and Control.
“Who told you this?” Kumar asked.
“You are not going to believe this. It was a merchant banker sitting next to me on my flight from New York. In fact, this guy was flying down to Mumbai to meet the CEOs of the companies.”
“Switchgears is our most profitable business, Rakesh. I can’t afford to let any competitors to muscle us out of the market.”
“That will happen if the merger happens. The new entity will have better bargaining power with their suppliers and customers; they may take a lead in product development, too.”
“That has been our strength so far. We not only launch better products but also deliver better service at cost-effective prices.”
Kumar excused himself to make a phone call. He called Manoj Kohli, the 42-year-old President of the switchgear division, on his mobile. “Manoj, can you postpone your Pune trip tomorrow. I need to meet you first thing in the morning.” Manoj knew something big was afoot. With the meeting fixed for 9 am. Kumar returned to the table.
“I am just curious. Abhi, but tell me, how is the strategy process managed at your company?”
“Well, there is dad, me, and the four division heads. Typically, it’s this group that does the strategizing”...
“So, I would be right in assuming that the process is more implicit than explicit.”
“We do make our periodic business forecasts and reviews, and each division is clued into what is happening in the industry.”
“How come they missed the news of the merger?” Rakesh asked Kumar. “But that’s not what I am trying to say.” Continued Bhatia. “What you are describing is functional strategy. Every company has it. But what really works in the long run is a comprehensive competitive strategy that looks at the industry structure, maps the changing contours, predicts how competition will change, and puts together a response for your company.”
“I get your point. Although we are a Rs. 6,000-crore company, our focus seems to be on marketing battles and not competitive strategy. Had we done our homework? Total may have beenmerging with PLT or Control,” conceded Kumar.
After the dinner was over, Kumar and Bhatia parted ways, promising to meet again before the latter left for Phoenix.
Kohli walked into Kumar’s office at 9 am sharp. “What’s up, boss?, he asked.
“PLT and Control are planning a merger,” Kumar said matter-of-factly.
Wow! Who told you?”
“Rakesh. We met over dinner last night. It will take another three months for the deal to come through, but it is happening.”
“Should we make a counter bid?” Kohli ventured.
“With our kind of stock price? It will cost us more than half the family’s stake in the business to bid for either PLT or Control. The best is to get a defensive strategy in place.”
“Let me get details about the merger. That will be essential before we plan our response,” said Kohli.
“In any case, we are meeting again. And I have asked Srikant, Ratika, and Gunneen to be there too,” said Kumar, referring to Total’s Presidents of consumer durables, batteries, and soaps divisions, respectively.
“Is this about the merger?” questioned Kohli.
“No, but something to do with it. I think it is high time we got an explicit strategy together.Things are changing much too fast for us to be merely reactive. We need to plan ahead for the next 5 years at least.”
Kumar’s father and Total Industries Chairman, Deepak, was not scheduled to attend the evening meeting. But on an impulse, on the way to his squash club, he decided to join the brainstorming session. That explains why he landed up in shorts and sneakers. The meeting had not started when Deepak walked in.
“Thank you for joining us, Sir”, Kumar said. He always addressed his father as ‘Sir’ in front of other executives. He then repeated the news of merger although, by then, almost everybody knows about it.”
“In a way”, Kumar said, “I am glad that the merger is happening. It has forced us to stop and examine the way we strategise. That is not to say that our strategies are ineffective or slow. We wouldn’t be this big had it been so. But the point is, having become a conglomerate we cannot afford discrete strategies. The sum of our divisional approaches will – tomorrow – stop being equal to our corporate strategy. We need to formalise the process of strategy making. Once and for all.”
“We need a framework in which to examine where our business is going, and how to grow it,” interjected Deepak.
“The basic dilemma in strategy,” Kumar continued, “is similar to what we encountered during our vision creation process. What we have to ask ourselves, is whether our long-run strategy can be based on the present position of our divisions, or whether we should factor in the emergence of new forces like e-Commerce, economics of scale, disruptive technologies, and changes in the tradition configuration of the supply—chain.”
‘I guess it has to fit in with our vision of being No. 1 in each of the industries we choose to operate in,” said Gunneen Roy.
“I agree,” quipped Deepak.
“Me too,” said Kumar. “But there doesn’t seem to be any consensus on approach I spoke to several consulting firms this afternoon, before I asked two of them – Strategic consultants Ltd. (SCL) and Transformation Consulting Group (TCG) to fax me details of what they could do for us.”
“And what do they have to say”? Asked Ratika.
“Diametrically opposing things. SCL says that our strategy must be based on data of what is, not projection of what will be. It also offers to identify all variables that impact the company’s profits. But, I think a strategy should factor in the future. Besides, SCL won’t help implement strategy.”
“What about TCG?” Manoj wanted to know.
“TCG wants to look beyond today. Its aim is not to maximise the company’s profits in today’s markets, but to fundamentally re-configure or business portfolio.”
“But do they agree on the formulation part?” Asked Ratika.
“No, the SCL approach is top driven. It does not believe in involving employees at different levels in formulating strategy. It forms a team of two of senior executives, and two of its consultants. The team lays down the strategy. The TCG approach, in contrast, is bottom up. It seeks the active involvement of employees who are asked to define the kind of organisation they want their company to be.”
A restless Deepak piped up. “Surprising, how divergent their approaches arel”
”TCG’s methodology is also different, it comprises four phases: envisioning, external analysis, internal analysis, and developing an action plan. Phase I involves asking or employees where they see Total in another 10 years. Phase 2 entails asking managers from each of our four divisions their perceptions of our customers, and the nature of competition.”
“Sounds like a good idea,” observed Roy.
“In Phase 3, internal analysis is aimed at enabling managers of individual businesses to look inwards and analyse our performance, and strategic options. The performance of the group would be measured both on financial parameters and non-financial parameters like customer satisfaction and product quality. The employees would, then, try and determine the options available to reach business looking at the past strategy. Strategic problems, organisational capabilities, and constraints.”
“How will these diverse views get synthesised?” queried Kohli.
“TCG has a framework for that Based on these findings, a summary of the strengths and weaknesses of Total will be arrived at. The final part of the phase involves defining the existing competencies and updating our vision. In the final phase, TCG would address issues like which core competencies to build, which product segments to tap, and what type of coalitions to form within the Industry.”
“Somehow, I am not convinced, said Deepak. “I fear that Total will end up being a guinea pig for testing strategy formulation. Yet, we do need an explicit strategy for tomorrow. I wonder what we should do.”
QUESTIONS:
1. Identify the problems in this case.
2. Assume any data regarding strengths and weaknesses etc. What strategic options would you recommend for total?
CASE 02: PSYCHOFRAPHIC PROFILES – KEY TO BUYERS’ MIND
Consumer buying research has turned over a new leaf in India. The era of demographics seems to be on the backbench. Now, Marketing Research people are less likely to first ask you about your age. Income, education, etc Instead, there is a distinct shift towards inquiries about attitudes, interests, lifestyles, and behaviour –in short, a shift towards a study of consumers’ minds called psychographics.
Pathfinders, the marketing research wing of Lintas, occasionally came out with its highly respected “Study on the Nation’s Attitudes and Psychographics (P:SNAP).” The first in this series was released in 1987 with an objective to develop a database of lifestyles and psychographics information on the modern Indian woman. The second was in 1993, and the third in 1998. Pathfinders chose the Indian woman as he subject for the study because of the belief that more often than not, in urban areas, it is the womanwho makes buying decisions.
The pathfinders’ study involves interviewing over 10,000 women over the entire country and segmenting them in clusters according to their beliefs, attitudes, lifestyles, and lastly their demographics profile. The idea is to identify groups of consumers with similar lifestyles who are likely to behave identically or very similarly towards products or services.
For advertisers and advertising agencies, this profile helps enormously. For example, an advertiser may want to give a westernised touch to a commercial. The profile of the target customer, as revealed by this study, tells the advertising people the perimeter within which she / he must stay. Otherwise the ad may become an exaggerated version of westernised India.
For the purpose of this study, Pathfinders divided the Indian woman into 8 distinct clusters of varying values and lifestyles. Figures from two studies are available publicly and are given below.
-------------------------------------------------------------------------------------------------------------------------- . Cluster 1987 (%) 1993 (%)
Troubled homebody 15.9 18.3
Tight-fisted traditionalist 14.8 10.0
Contented conservative 7.0 9.3
Archetypal Provider 13.0 8.8
Anxious rebel 14.1 15.8
Contemporary housewife 19.2 22.1
Gregarious hedonist 8.7 6.6
Affluent sophisticate 7.3 9.1
The studies seek to track the macro level changes and movements within these 8 clusters I a period of time.
We note from the table that in 1987, 8.7% of the women in the sample group could be classified as “gregarious hedonist” – those who consider their own pleasure to be supreme in life. In 1993, this figure fell to 6.6%. The “troubled homebody” segment – those with large families and low—income, increased from 15.9% in 1987 to 18.3% in 1993.
Information such as this is obviously useful when it comes to assess the collective mood. That’s why Pathfinders have an impressive list of clients for their P: SNAP, which includes Hindustan Lever, Cadbury, Johnson & Johnson, and Gillette.
PROFILE REPRESENTATIVE
The lady lives a ‘good ‘life – she s a devoted wife, a doting mother of two school-going sons, and a god-fearing housewife. She has been living her life by the traditional values she cherishes – getting up at the crack of dawn, getting the house cleaned up, having the breakfast of ‘Aloo Parathas’ ready in time before the children’s school-bus honks its horn, laying down the dress her ‘government servant’ husband will put on after his bath, and doing her daily one-hour Puja. She fasts every Monday for the welfare of her family, looks at the ‘freely mixing’ and ‘sexually liberal’ youngsters with deep disdain and cannot understand the modern young woman’s ‘greed for money, jewellery, and jobs.
Her one abiding interest outside the household is the Ganesh Mandir that she has visited every Wednesday, ever since she got married. She lacks higher education and hence has little appreciation for the arts, the literature, and the sciences. Her ample spare time is spent watching TV, which is her prime source of entertainment and information.
PROFILE REPRESENTATIVE
Shobha married young to the first person, she fell in love with. Prakash, four children came quickly before she was quite ready to raise a family. Now, she is unhappy. She is having trouble in making ends meet on her husband’s salary (Prakash is employed as a clerk in a private business and is often required to work late hours). She is frustrated, as her desire for an idyllic life has turned sour. She could not get education beyond high school and hence there are hardly any job opportunities for her. Her husband also keeps on complaining of the long hours of backbreaking work he has to put in. He consumes country-made liquor routinely.
Shobha finds escape in (Black and White) TV soap operas and films that transport her to the world of her dreams. She watches TV almost all through the day while her children roam around in the locally streets and cannot expect any help from their ‘ever—grumbling’ mother. Purchases are mostly limited to ‘essentials’ and any discretionary purchases are postponed till they simply must be bought.
PROFILE REPRESENTATIVE
Neeru epitomises simplicity. Her life is untangled. It runs on a set timetable with almost clockwork precision. She works as a primary school teacher in a rural government school about 50 kilometres from her district town residence. She is married to a social worker in an NGO whose income is erratic. Her three children, two teenaged sons and a 10-year old daughter are getting school education.
The day begins with the lady getting up before anybody else and finishing the household chores as fast as she can. There is no room for delay, as the State government ‘Espress’ bus, on which she travels to her school will be at the bus stop across the road precisely at 8.00 A.M. If she misses that, the next ordinary bus comes at 11.15 A.M. quite useless as it will reach her school only at 1.00 P.M. The school closes at 2.pp P.M. There are private jeeps running sporadically, but the fare is high and Neeru does not believe in wasting hard earned money. Besides, she travels on her husband’s ‘free pass’. Neeru prides herself on her monthly savings of Rs. 1000 for the last many years. The money will go towards the wedding of her daughter.
PROFILE REPRESENTATIVE.
For Vandana, saving money is ‘inborn’ discipline. When she was young and unmarried, she remembers her mother who was extremely tight-fisted and ran the household on under Rs.800per month. It was the necessity of those times as her father retired at a princely salary of Rs.1800 per month. All through her childhood, she saw deprivation and hardship. She would not join the annual class picnic in her school days as it meant ‘avoidable expenditure’.
Now she is married and a mother of two school going children. The husband works in a bank as a clerk. He has taken all the loans that he could from the bank and invested the money in real estate. As a result of monthly deductions toward repayment of loans, his take home salary is now very little. But Vandana can manage. The school dresses are sewn by her at home, the Stationary required comes from a wholesale market, and the books are second-hand from ‘friends’ cultivated for the purpose. On birthdays, Vandana prepares a sweet dish at home and they splurge on a film. There is a cow and calf at home, being kept as a source of revenue and milk. She sells half the milk to a neighbour and the family consumes the rest. Life in general is hard and frugal. There is a colour TV at home, but they disconnected the cable connection ever since the rates went up. Now they watch Doordarshan only.
PROFILE REPRESENTATIVE
Daughter of a Freedom Fighter, Aditi has always fought her values and principles. People still remember when she walked out of the exam half in a huff as a mark of protest against mass cheating ‘sanctioned’ by the centre superintendent in a tough paper. While everybody the passed with high marks. Aditi failed.
Even though she repeated the paper, Aditi never learned to swim along the flow. She always swam against the current. She joined the Communist Party in her college and gave rousing speeches against the teachers and authorities. This resulted in her getting very poor marks and left her jobless.
Later, Aditi joined an NGO and now works on social issues. She says she is a creature of the mind, not materialism. Her favourite dress is a long flowing Kurta, and slacks. She wears loosened hair and chappals. She reads voraciously. Finally, she is independent and lives with her parents. Her disdain for the institution of marriage and contempt for the modern Indian male keep her single and unattached. She will continue to be so as she prefers to this status, but may adopt a baby later in Life.
PROFILE REPRESENTATIVE
Just 19, and Reena is already divorced. Her father is a wealthy businessman. During Reema’s childhood, her father was mostly away in Dubai and Africa, trying to amass a fortune. That he did, but he lost out on his chance to be good father. Both his children started feeling like “orphans’ after their mother got involved with another man.
Reema was ever longing for her family when along came Harsh, her private high school tuition teacher. Harsh was all of 32 and very caring. He was tall, handsome, and very popular in school and many girls had a crush on him. Reema was sixteen then and a great fan of Harsh. For her, Harsh was a prize catch as he combined the loving qualities of a father with a mix of being a good teacher. She was soon dazzled and surrendered in a physical relationship.
Marriage followed. She never understood how Harsh changed overnight from a caring father figure to a demanding husband. And she could never cope with the six hours she had to spend in the kitchen every day. Why should she do the cooking, she asked Harsh, as it was something that the ‘Ayas’ did? The reality of a humdrum middle-class existence hit her hard and she soon. Her father understood her need to recover and made her allowance rather generous. He bought her a red sports car and got her an admission in a private college. College is entertainment for her. She attends college only on days when there is some function like a cultural evening or the sports meet. Now, Reema spends on alcohol, dresses, parties, and holidays. She consumers a mood elevating drug every evening and keeps sending SMS messages on her mobile to her friends all through the night. For her, life means ‘buying pleasure endlessly’.
PROFILE REPRESENTATIVE
Shriti is an urbane woman. She is well educated and genteel. She is an officer in a nationalised bank, and is active in club affairs and community activities. Socialising is an important part of her life. She is a doer, interested in watching cricket, politics, and current affairs. Her life is hectic as she has a lot to do for home and office every day. Still, she often enjoys viewing movies on TV every week.
Shruti shops for sarees, jewelry, and cosmetics for herself on a regular basis. However, family needs come before her own needs. Her home is a double income household and she has one child. She has all the modern gadgets as a housewife could possibly want and her standard of living is upper middle-class.
PROFILE REPRESENTATIVE
Momeeta was born Mamta, but elevated herself to Momeeta after marriage to a business tycoon. Momeeta is an elegant woman with style. She lives in Mumbai because that is where, she wants to be. She likes the economic and social aspects of big city living and takes advantage of her ‘contacts’. She has built up many friendships and cultivated the city bigwigs by inviting them to the numerous parties she throws in her luxurious penthouse.
Momeeta is a self-confident, on-the-go woman, and not a homebody. She is fashion conscious and clothes herself in the latest designer dresses. Even at 40, she can carry off a mini with aplomb. She is financially very secure and hence does not shop with care. She shops for quality, expensive, and goes by the brand name, not the price. She frequently travels abroad, buys expensive gifts for friends, and has an international understanding on what is “chic” at the moment.
QUESTIONS
1. A manufacturer of personal care products in the premium category wants to develop various products. Which of the above types should the manufacturer target? Explain.
2. How is the above-mentioned information likely to benefit a marketer in selecting marketing communications?
3. Which of the above-mentioned segments are likely to respond to sales promotion? Explain.
CASE 03: LOOK MA. FAIR HANDS
The glow on Rakesh Kumar sinha’s face is hard to miss----and ii’s all due to Fair Glow, the fairness soap from the Godrej stable. No Sinhas isn’t a user, but as vice president for sales and marketing at Godrej consumer Products, he has reason to be bright----again.
For the past three months. Fair Glow has been growing at close to 40 per cent; Sinha claims that the advertising support for the brand has also doubled since last year. Agency Mudra, which handles the brand, says there will be “interesting activities” around the brand in the next few weeks.
The activity is urgently needed. Fair Glow may be erupting like Etna at the moment, but untll the lase qwuarter of 2004, aht brand bore a closer resemblance to Haleakala, the world’s largest dormant volcano. Within two years of its launch in 1999, Fair Glow had become a Rs. 100-crore brand.
But now the entire fairness soaps category---Godrej Fir Glow, Hindustan Lever’s Fair & Lovely soap and Emami Naturally Fair herbal fairness soap---has shrunk to Rs. 80 crore.
In comparison, fairness creams, which were around Rs.550 crore, crossed Rs. 800 crore by end-2004. Even in the Rs.4,000 crore soaps market, the fairness segment has a minuscule 2 per cent value share ( Just 1 per cent in volume terms ).
Although Fair Glow still has the lion’s share of the fairness segment, its 60 per cent share works out to just Rs. 48 crore, which is less than half its earnings in year two.
In other words, even if Fair Glow keeps up its scorching 40 per cent growth, it will take another two years or so for it to regain its 2001 position. So, is Sinha happy because Fir Glow is getting a second opportunity to score?
When Fair Glow soap was launched in December 1999, the dice were heavily loaded in its favour. The foremost reason is that most Indians associate beauty with fair skin.
Even the competition’s research bears that out; According to a 1998 Hindustan Lever study, 78 per cent of women in India aspired to be two shades fairer because they believed it made them more attractive and confident.
‘It is a colonial hangover,” comments Ashish Mishra, head strategic planning, Mudra.
The decision to promote the fairness proposition as soap also made strategic sense; in India, creams had a penetration of only 25 to 30 per cent.
On the other hand, soaps enter over 95 per cent of Indian households. And Fair Glow was priced at Rs.11 for a 75-gram bar, compared to Rs. 26 for a 25-gram tube of Fair & Lovely cream. “We offered fairness through a soap, which was more convenient to use at no extra cost,” says Sinha.
With high expectations from the product. Godrej planned a high visibility launch. On the launch day. Fair Glow created a “surrogate road block” on television channels (the 40-second television commercial ran simultaneously on all channels within a five-to 10-minute time frame to ensure that even viewers who surf channels during commercial breaks caught a glimpse of the brand).
Then, the product was advertised on all top rated programmes such as Kaun Banega Crorepati and Kyunki Saas Bhi Kabhi Bahu Thi. “The opportunity was big because it was a true innovation,” says Mishra.
But there were huge credibility issues to be tackled: The stay-on proposition of creams—once applied, creams stay on all day—while soaps are washed off within seconds of application.
Sinha argues. The same is true with hair conditioners or a face wash, which are also washed away. But consumers still believe that they work.” True, but fairness soaps had to contend with an established category (Launched in 1975) like fairness creams. For hair conditioners and face washes there was no close alternative product.
Godrej’s solution was simple: It tailored its commercials to focus on customer testimonials. The result, within a year of launch, Fair Glow was selling between 400 and 500 tonnes a month (a volume share of 1 per cent in the toilet soaps segment)
How did HLL, whose Fair & Lovely had more or less created the market for fairness products, react? Within a couple of month of Fair Glow’s launch.HLL retrorted with aprolonged teaser campaign for LujxSunscreed soap. The new variant was launched in March 2000 – and withdrawn barely a few months later.
In the second half of 2000, battle—lines had been drawn between the soap and the cream. Fair Glow and Fair & Lovely aired similar television commercials on the marriage theme; only, Fair & Lovely launched two ads in response to Fair Glow’s single ad spot.
“We could not match their advertising muscle,” admits Sinha, Instead, Godrej resorted to offers like buy-three-get-one-free in end – 2000.
Even as Fair & Lovely and Fair Glow fought it out on TV screens, the sun was eclipsing over the toilet soaps industry.
Consumer were downgrading to the sub-popular category: In 2000, while the popular category grew by just 1 per cent, the sub-popular category was clipping along at a brisk 15 per cent. Fair Glow being an offering in the popular segment of soaps, was naturally going to be hit.
Then, in December 2000, a year after the launch of Fair Glow soap, it committed a vital strategic mistake. It extended Fair Glow into creams with the proposition, Bedaaggorapan (Spotless beauty).
But instead of being considered a natural brand extension, the move further fuelled a suspicion that consumers had harboured---fairness soaps may not be as effective as creams.
Importantly for Godrej, it lost the high ground of innovation that it had made its USP. Sinha admits that if he could change one thing about Fair Glow’s past. “We would never venture into creams”.
Even as Fair Glow’s brand extension backfired. HLL engaged in battle on another flank---it launched Fair & Lovely soap. Naturally, the already thin dividing line between cream and soap further blurred Fair & Lovely’s soap was a high profile launch with its theme, Ektukda chandka (A piece of the moon). While a barge backlit by the moon floated on the sea off Mumbai’s Marine Drive, practically every hoarding in prominent places hollered the benefits of Fair and Lovely soap. But at Rs. 15 per cake (Nearly 50 per cent more expensive than Fair Glow). HLL’s new battering ram did not find too many takers...
Analysts say that HLL used the soap as merely a flanking strategy to guard its cream user-base. “The idea was that even if consumers bought fairness soap, it would be from the same brand basket,” says one analyst. HLL executive did not meet.The Strategist for this article.
Still, HLL did not rest after its soap launch. Over the next two years, the company launched several new Fair & Lovely cream variants.
Fair Glow, on the other hand, was still fighting consumer perception that soaps may not work. It launched a “Money-back challenge” to build up credibility in 2002. Fair & Lovely reacted by offering two soaps for the price of Rs. 20 (coming down to the Fair Glow price).
The sales graphs, though, remained dim. By mid-2004. Fair Glow put the cap on its cream misadventure. It followed with an ad campaign in late-2004 that illustrates the efficacy of the soap. That’s paid off dividends, and sales are currently up. Whether they’ll be able to reach their previous highs is anyone’s guess.
QUESTIONS
1. What is the positioning of Fair glow soap? Why is this positioning likely to appeal to Indian consumers?
2. Why was the extension of fair Glow to face cream a bad decision?
CASE 04: TAJ HOTEL
Right from early 1900s, the Taj stood for class and comfort. It was a place where viceroys of the Empire arrived and departed amidst scenes of splendour, typical of Raj. From the very beginning it was one of the wonders of the Orient Singapore’s Raffles. Hong Kong’s Peninsula, and Frank Lloyd Wright’s Imperial did not come up to the level of the Taj in spite of their rich ancestry. The reason the hotel towered over the rest was because of the amazing attention to detail that was paid by its founder. Jamsetji Nusserwanji Tata himself. It was a time when Indians were not allowed to enter most of the prestigious hotels and clubs, Legend has it, that this was one of the reason why Tata went ahead with the project though he was, at that time, busy with plans to industrialise India. He made sure that the Taj would have its own laundry, an aerated water boiling plant, electroplating for its silverware, a Mora silver burnishing machine, crockery washing plant and elevators. The hotel was completed at a cost of 500,000 pounds in 1904.
The Taj International (The new wing) was built in 1971 and rapidly after that came the Lake Palace and Rambagh Palace at Udaipur and Jaipur respectively. The company pioneered the concept of conversion of century-old palaces into hotels! Today this has become an USP of the Taj group, and a new logo is being designed to incorporate the places aspect of the product. In mid 1970s, the chain expanded to Chennai (Taj Coromandel and Fisherman’s Cove) and For Aguada at Goa. Here too, Taj scored over the others with its timing. At the time, Goa was not a tourists’ paradise.
Around the same time it set up Ganges Varanasi and started International flight kitchens too. The end of the decade saw the coming up of the Taj at Delhi. This last marked the start of an ethnic style in hotels with international standards. By this time it appeared that nothing could halr the phenomenal growth of the Taj. In the 1980s, two more hotels were built in Delhi, two in Bangalore, and one each in Chennai, Ooty and Agra. Next came Jaimahal Place Hotel in Jaipur as well as the New Delhi Flight Kitchen. The new hotels were built taking the original Taj as the model hotel. The Indian Hotels Co. Ltd. is the parent Company. The chain is managed by the The Indian Hotels Co.Ltd., the Indian Resort Hotels, Ltd., the Oriental Hotels Co. Ltd., Piem Hotels Co, Ltd., and the Benares Hotels Co. Ltd.
There was hardly any direct advertising to attract consumers. In fact, this element of marketing mix was absent till about 19990. The brand being an established one, advertising was not considered to be necessary. Secondly, the company was conservative and media shy for many, many years.
But nothing can go forever without a blemish. And so it was with Taj too. Cracks became evident when recession loomed large over the Indian economy. Excess capacity made some of the ventures unprofitable, especially overseas ones.
Managing Director Krishna Kumar has it pat. “The vision for the Taj Group is for it to be a select chain, present globally. Asia, perhaps, in character, but absolutely international in terms of systems and processes and with a strong West European focus. The way forward was to make sure that the entire Taj team is imbued with the missionary zeal to sell the brand.” International travellers form the bulk of the market for the Taj, particularly in the metros. Even the profile of Indian consumers is changing. In smaller cities, such as Hyderabad, though, the foreign element is a little lower but overall, the Taj has a higher dollar rate of revenue—approximately 70 per cent comes from international guests.
As far back as 1990s, it was realised that formal market research was must to help understand the consumer better. Though it always had access to research done by independent research agencies, such as the airline and travel industry, it was about seven toeight years since, the group had carried out extensive research to understand current lifestyles. The research attempted to discover whether the future customer would be more egalitarian, more democratic or would she/he wish to be pampered: The findings revealed that the customer would like exclusively, more than anything else. On the other hand, research also indicated that the company’s existing consumer base of traditionalists---those who liked the Taj because it was understated, yet classy---was shrinking.
By the end 1990s the renovation was in full swing. Units across the country were refurbished. It meant overhauling entire floors. Rooms were revamped, business centres rebuilt. More than a handful million dollars were reportedly spent on renovation—just in the lifestyle) Luxury segment) it was anticipated that the business was likely to become big (and those using it were likely to be non-traditionalists) and the Taj went ostentatious with its new business floors. It meant putting in optic fibre cabling, remote control systems and giving the business guy a lounge where he could relax and even have breakfast. It included a mind-business centre too.
Initially, fax machines were installed in the rooms and later Internet and laptops. Not only mobiles were provided on hire, the Taj dropped communication charges by 33 per cent.
It was only when the product was ready, was a major advertising campaign developed. Earlier the advertising had been restricted to the major feeder markets; the US, UK, Germany, Singapore, and Hong Kong and the advertising emphasised hardware aspects of the hotel. The new campaign developed a specific brand identity for the hotel. Iy also marked out three separate entitles that the Taj Group comprises---Business, Leisure, and Luxury.
Though the concept of these sub-brands had come into existence five years ago, today, they are operationally different. This means that though the heads of these three divisions sit at head office, their ‘territory’ is scattered geographically.
There are other changes. Unprofitable ventures were hived off. The sales and marketing functions were separated. The HRD department modernised, with emphasis on performance and career succession planning. The organisation was made flatter and more compact. Moreover, a continual benchmarking against international standards was made part and parcel of the culture of the Taj.
More emphasis was placed on business segment, as the profits are higher here (It being less price-sensitive comparing to luxury segment). In the business segment, 17 new cities, and towns will soon have the Taj Presidency hotels, also, new properties will come up in Goa, and Jodhpur and one is stated to come up near Sahara airport in Mumbai. The group has also acquired Hotel Blue Diamond in Pune.
Though, the Taj has a high un-aided recall, it has launched a corporate campaign to reinforce its new identity. The ad (made by Rediffusion) shows the Taj symbolised by an enigmatic woman who stands for both hospitality and efficiency. This identify was developed after extensive research on the consumer’s attitude towards the Taj. Over 60 in-depth interviews were conducted in the metros by client agency. The parameters were based not on quantity but quality. The focus of research was on things that go into creating images of wonderful hospitality, such as the quality of check-in, the smile, the greeting, or the welcome drink etc. The insights gathered were analysed extensively and a cleat slot, which the Taj could occupy when Global competition arrived, emerged. The slot was an emotional one. This was translated into creating a distinct personality of the Taj as caring, efficient, and enigmatic. The line went. “She is the Taj.” The base line was. “Nobody cares as much.” Today, after a century since it was established, the Taj is all set to conquer. Economic Times of December 15, 2004 reported I it’s ‘Brand Equity ‘that among hotels. Taj is ranked as “number one brand followed by Oberoi Hotels, ITC Hotels and Hayatt, respectively.
QUESTIONS
1. Analyse the case and determine the positioning of Taj. Do you think the advertising theme that is appropriate to reflect what a aims to communicate?
2. Why Taj did spent large sums of money to renovate its hotels?
3. Suggest an appropriate theme for an alternative campaign than the present one.
CASE 05: BYPASING PRACTICE
Arvind School, like most entrepreneurs, dreamt a lot. He dreamt customers would eagerly
Phone Woodstock Acoustic Systems in India. To order the latest, custom made stereo speakers. He saw demand rising and rising, cash flowing, and his technician producing superior quality products that were delightful and appreciated by the Woodstock customers, and favourable word-of-mouth spreading.
Arving had a degree in mechanical engineering from Delhi School of Engineering but his hobby was always acoustics. Like most entrepreneurs he had taken a long time in developing his dream. It was during the course of completing his studies in engineering that he became interestedin audio science and devoted time to his hobby. Just after completion of his studies, Arvind started working on creating stereo speakers in his garage. He named his enterprise Woodstock Acoustic Systems. He would design a pair of speakers and invite a couple of his friends to listen and give their opinions. Occasionally, on the recommendations of his friends, one or two customers would come and after demonstration would buy a pair. After a year, his parents told him that he had spent enough time working on creating his ideal stereo speakers, and now he should look for a job to start his career.
It was a Friday, and Arvind had spent nearly Rs. 50,000 taken from his parents and was down to his last Rs/ 10. He was seriously contemplating to take up some job because so far nothing fruitful had come out of his dreams. He looked fondly at the two pairs of speakers he had finished designing only a week back, when his landline phone rang. The voice said, he was Ajay Suri and had heard about his speakers from some friends. He asked for an appointment on Monday, the 15th June 2001 to discusfo things regarding his stereo speakers. The meeting was fixed for 4 pm on Monday at Arvind’s place.
All through, Arvind had focused on creating something delightful for “audio addicts,” -- the people who love to listen to music and appreciate high-quality stereo equipment at a reasonable price. These people were fastidious about sound quality but were unable to afford very expensive brands of well-known companies such as Bose or others. They were young, well educated, upwardly mobile in their careers, and would be affluent in about 6 – 10 years, and would prefer to buy a set of speakers now rather than wait.
As scheduled, Ajay Suri arrived at the appointed time. He said he had heard about Woodstock Acoustic Systems from a friend of a friend. He wanted to have a first-hand experience of his stereo speakers. Arvind took him to his garage office and played couple of Indian classical music tapes. Ajay Suri afterwards asked Arvind if he was interested in selling these two pairs of speakers, and how much is the price for each pair. Arvind said, “These are the latest that I have designed and are of very high-quality. I have not decided about the price yet but might sell, but it depends on how much you are prepared to pay for a pair.” Arvind put his hand in his trouser pocket and touched a 10-Rupee note. He was thinking if Suri says he would buy a pair for Rs.1500, he would sell. He thought, “I need some money.” Suri was silent and thinking. Arvind was feeling nervous and stared at something that was not there on the floor.
Suri spoke, “I will buy both the sets for Rs.8000 each, cash. But there is a condition.” “And what is that condition?” asked Arvind reflexively, not really believing his ears. His heart seemed to be racing at 100 km per hour.
“Well, every month you will sell me five such pairs at this price for six months. You will not sing contract with anyone else during this period in Delhi market. I might ask for more number of pairs, but that we will see later,” “Further, I will give an advance for the next two pairs that I will pick up in about two weeks, or may be earlier. So, keep them ready by the end of the next week.” He paused for a moment then said, “If it suits you,” “In fact, I will call you after about ten days to learn when I should really come to collect the pieces. “ That was the evening, three years ago.
For the first year, he sold his speakers only to Suri, who had a music equipment showroom in South Extension. After the first two months, Arvind employed two qualified workers and his supply of speakers to Suri’s showroom had climbed to 120 pairs per month in six months time. He learnt that Suri was also attracting customers to his showroom from adjoining areas of Delhi.
In two years Arvind had established his manufacturing unit in Okhla Industrial Area and had 30 full time workers. He personally tested each pair of speakers produced and was stickler to quality. Now Woodstock Acoustic Systems was supplying to six music showrooms in Delhi and sold to trade customers approaching directly from other states. So far he had not established system of distribution in any market, except for six regular showrooms of Delhi.
Arving had been for some time, thinking about establishing some streamlined distribution system. He knew that most manufacturers distribute their equipment primarily through stereo dealers. Whatever little experience he had gained. Arvind did not think much of this, he felt that the dealers too often played hardball with producers, and forced them to accept thin margins. In general, the dealers concentrated on a handful of well-known manufacturers who provided mass general, the dealers concentrated on a handful of well-known manufacturers who provided mass produced models. This kept those firms that offered high quality customised products from gaining access to the market. Perhaps most disturbing.Arvind felt that the established dealers often sold not what was best for customers, but whatever they had in inventory in a given period.
Arvind’s dream was to provide high-end stereo speakers directly to audio—obsessed, and device a method of bypassing the established dealer network. It was clear that he wanted to go directly to end customers, thereby avoiding dealer mark-ups and offer top quality products and service at reasonable price.
Arvind was now 28 years of age and set out to turn his dream into reality. Some customers who know about Arvind’s work and Woodstock Acoustic Systems had become enthusiastic supporters and invested Rs. 4.5 million in Woodstock.
Approximately 370 stereo-speaker makers compete for Rs.5000 crore market in the country for audio equipment. Nearly 230 of these manufacturers sell to the low-and-mid-range segments of the market. This accounts for 90 per cent of the market’s unit volume and about 50 per cent of its value. In addition to competing with each other, Indian manufacturers also compete with Japanese and American firms that offer products at affordable prices. The remaining 140 or so producers compete for the remaining 10 per cent of the market’s volume and 50 per cent of the value—the high end—where Arvind hopes to find his customers.
To serve the audio-addicts segment, Arvind offers only the highest-quality speakers. Woodstock has two models: the Elite and Percy. The Elite stands 18 inches high, weighs 8kg and designed for stand mounting. The floor standing Percy is 46 inches high and weighs 38 kg. Both models feature custom-made cabinets that come in natural or black oak, and walnut. Arvind can build and ship two pairs of Elite speakers or one pair of Percy speakers all by himself in a single day. In order to have adequate parts inventory. Arvind has to spend Rs.1.5 million of his capital on the expensive components.
Arvind set the price of Elite and Percy at Rs.35,000 and 73,000 per pair respectively. He selected these prices to provide a 50 per cent gross margin. Arvind believes that traditional dealers would sell equivalent speakers at retail at nearly twice those prices. Customers can call Woodstock on a toll-free number to order speakers or get advice directly from Arvind. Woodstock pays for shipping or any return freight via First Flight. Round trip freight for a pair of Percy costs Rs. 9,500.
Arvind offers to pay for the return freight because a key of this promotional strategy is a 30-day, in-home, no obligation trial. This trial period allows customers to listen to the speakers in their actual listening environment. In a dealer’s showroom, the customer must listen in the environment that is at best artificial and often feels pressure to make a quick decision.
Arvind believes that typical high-end customers may buy speakers more for “non-rational” reasons. They want a quality product and good reproduction of sound, and also to convey an image. For these reasons, Arvind has tried to create a unique image through the appearance of Woodstock speakers and to reflect the image in all of company’s marketing. He has spent money on distinctive stationery, business cards, a brochure, and a single display ad. He also designed a laminated label he places just above the gold-plated input jack on each speaker. The label reads. “This speaker was handcrafted by (the technician’s name who assembled the speaker goes here in her/his own handwriting). Made in India by Woodstock Acoustic Systems, Delhi
To spread the word, Arvind concentrates on producer reviews in trade magazines and on-trade shows organised for high-end HI-FI systems (Including foreign brands). Those who attend the show case ballots to select the. “Best Sound at the Show”. In the balloting, among 160 brands, Percy finished twelfth. Among the top ten brands, the least expensive was priced at Rs.94,900, and four of the systems were priced from Rs.340,000 to Rs. 735,000. A reviewer of HI-FI systems in an issue of industry magazine Stereo line evaluated Woodstock’s speakers and noted. The overall sound was robust and dynamic, with a particularly potent low end. Parts and construction quality of speakers appeared to be first rate. Definitely a company to watch.”
Arvind made plans to invest in a slick, four-colour display ad in Stereo Review magazine with highest circulation. He also expected another favourable review in Stereo line magazine.
Reflecting on his first year of operations and the difficulties Arvind faced, he realised that he has learned a lot. He faced typical challenges an entrepreneur encounters. There were quality problems with the first cabinet supplier. Then, he ran short of a key component after a mix up with a second supplier. He tried hard to avoid debt, but had to borrow Rs.2.5 million from a bank. Prices for his cabinets and some components had risen, and product returns had been higher than expected. The price and cost increases put pressure on his margins, forcing Arvind to raise his prices ( to those mentioned above.) Despite the price increases, his margins were less than the targeted 50%.
All things considered, Arvind felt good about his progress. The price increase does not seem to have affected demand. The few ads and particularly work-of-mouth seem to be working Arvind receives an average of five calls per day, with one in six calls leading to a sale. Arvind also feels the stress of log hours and the low pay. He is not able to pay himself a high salary. His total salary for the year was Rs.480,000.
ASrvind reaches over his table and picks up his most recent projections. It seems this year will earn a profit of about Rs.9 lakhs. Perhaps he is going to make it. As he puts back the projections on the table. Arvind’s mind drifts tohis plans of introducing two new models Minnow (Rs. 168,000 per pair) and the Rostuk (Rs. 340,000 per pair ). He knows that there is a considerable potential in the foreign market for his speakers. Should he use the samedirect marketing strategy for foreign markets, or should he consider distributors. The dreamer is visualising.
QUESTIONS:
1. Why did Arvind establish a direct marketing channel?
2. What objectives and constraints have shaped his channel decision? If you were a consultant, what distribution channel strategy would you recommend Arvind for domestic and foreign markets?
CASE 06: THE BIG ADVANTAGE
Ten-year old Praveen is hooked on to Candico’s big Bubble Gum after his cousin introduced him to it a few months ago. Now he asks retailers only for the big Bubble Gum. The reason: “It is the only bubble gum with which I can blow large bubbles. Ask my friends,” he says. Loyalty from numerous such children has enabled Candico to become India’s number one bubble gum company. Candico (i) Ltd., part of the Sancrop Group, ran full page advertisements in November, 1999, with claims of selling 60 lakh bubble gum pieces a month, Competitiors such as Perfetti and Jayco have not responded to these claims. It is this silence, which Candico sees as a vindication of its stand. The vehicle behind its stupendous success has been big Bubble Gum, the 50 paise gum. Launched in June 1999, the market for big Bubble Gum exploded in a span of five months.
What is the winning formula behind this magic?
Shivkumar, chairman and managing director Candico, goes back into history to find the answer. “The company ws conceived in 1976, the confectionery division being launched in 1986. The company split u into Candico (I) Ltd., (confectionery) and Bakeman’s (bakery products) in 1996, as we realised that liberalisation had unleashed great potential in both these sectors and we needed to focus on each.”
Candido was chosen as the company name as it was ‘easy, pronounceable and promisedtop-of the-mind recall.’ Candico has a world-class plant in Nagpur spread over an area of 250,000 sq ft. This plant can manufacture four of the five categories of confectioneries that Candico is into, namely sweets, candies, mouth fresheners and gums. The company is not intochocolates though it is a growing market – because of logistical problems.
The plant with a capacity of 40,000 tonnes per year is, according to Kumar, “the largest in this part of the country. West Asia and South Asian countries.” The plant is totally imported. Interstingly, Candico even has a manufacturing arrangement with Nestle and Nutrine, its competitors. This speaks volumes of Candico’s trustworthiness as a quality manufacturer, Kumar adds in a lighter vein. “In the market. I ask mu employees to kill their products but we give them complete quality during manufacturing.”
To get its message across, Candico launched a Young Consultants Programme (YCP) in 1997. The company invited responses for recruiting 12 children as product consultants. These children were supposed to sample, taste and design new products, and were to receive of Rs. 24,000 per annum for their services. Full-page advertisements were tun. The campaign reached a readership of eight lakh. Though the target audience was children it appealed to elders who, in turn, passed on the message to their children. The company derived a two-pronged benefit followingthis strategy. It got publicity, and collected a database of three lakh. Kumar admits candidly, “if we had said, we are going to make bubble gums, no one would have noticed. “This database helps the company in market research. Every product, which goes on the floor, is tested against this target audience group. The company makes it a point to update this databank constantly and it receives 30-35 letters daily from children. Candico responds to every letter and birthday cards are sent out signed personally by Kumar. Candico had two options before it embarked on its strategy. First, take on Perfettl and Jayco head-on, which would have meant spending huge sums on promotional campaigns. The other option was correspondence with 18,000 children. 10,000 questionnaires were sent out enquiring about the price, look, colour and flavour they preferred.
The answers showed that children were comfortable in the 50-paise slot. If the company could give a bubble gum, it was givng its customers value for money. Based on this feedback, Candico launched big Bubble Gum. The lower price enabled Candico to take on the unorganised sector and, more importantly, it captured a large part of the market as ‘it was giving the quality and size of a rupee at 50 paise’. Candico, with its lower pricing strategy has targeted the 2,100 tonnes a month market for bubble gums in one rupee segment. Extra costs on marketing and sales were cut. Company’s margins were cut. Which were advanced to the consumer? “MNCs would not be able to afford this cost so we will be able to maintain maintain market share, “is Kumars’s judgement on the matter.
Has the company compromised on quality due to low prices? Kumar counters the claim by saying, “We have a technical collaboration with Eurobase, a Belgium company, which provides us with the base of bubble gum,” A wholesale pack of big Bubble Gum displays this prominently , as an assurance of quality. Candico’s main competitors are Perfetti and Jayco. Perfetti has Centre Fresh and Bib Babool. Jayco has Boomer. All these are priced at Rs. 1 a piece.
Candico’s logic is simple. If children can be satisfied at half the price, the rupee segment Would be wiped out. According to Kumar, “Perfetti sells 910 tonnes per month, Candico 525 tonnes per month, while the rest of the 2,100 tonnes a month (organised market) is held by Jayco, Chicklets, and Wrigley’s. The unorganised market is difficult to compute. Candico’s share has increased multifold since big Bubble Gum’s launch in June 1999. Inane sounding names such as Loco Poco ( Means ‘mad’ in Spanish), Jumbo Gumbo, Americano, Freedom, and big Bubble Gum for its products have been chosen with a purpose. Kumar says, “Bubble gum is not a serious buy, it is leisure buy, so simple names such as Freedom, which is an expression of an attitude have been used. We want to be in the mind before we are on the shelf.”
Advertising and promotions are an important part of Candico’s market strategy. Six per cent of the company’s outlay is spent on advertising and promotions. Candico’s advertising account is being handled by Ambience. The brief is to project Candico as ‘a sweet company’. This would carry Candico beyond being a mere bubble gum company. The target market is composed of children in the age group of 4 to 17 years. Candico has gone for promotions in a big way. For instance, customers can exchange six wrappers for a postcard of their favourite star) (Cricketers and film stars). For retailers, the company offers over 250 kg of silver in the shape of 51,000 silver coins and other prizes to be won. A prize coupon inside every dispenser enables retailers to win prizes.
The company’s marketing team keeps a track of the happening trends and preferences of children. As bubble gums are casual purchase, customers are not bound by brand loyalty. Grabbing their attention is a challenge. And grabbing he attention of kids is not child’s play. Freebies such as tattoos, stickers, cricketers’ and field start’s posters fulfil their role as magnets quite admirably. The company’s database from the YCP also helps it keep a tab on changing customer preferences. Kumar says, “The marketing team has to constantly think about innovation. We fail sometimes, but most of the time we succeed.” Kumar is not boasting when he says that.
Candico has 1,000 distributors and a reach of around 2.2 lakh retail outlets. It is trying to increase this by 25 per cent in the next three to six months. The company has a marketing field force and distribution team of 250 each. Its marketing infrastructure covers all the major states for all its products. Moreover, the company is zeroing in on the SEC B a d SEC c categories which we are targeting. “What about the rural areas then? As of now, Candico’s products are easily available in towns with a population of 25,000. In towns with a lesser population, Kumar says. “We are there but these areas are not very well covered. But we can double or triple our coverage in these places.”
Candico is also looking at export markets earnestly. At present, the company is going for the countries in South and West Asia. Explaining the rationale, Kumar says. “The buying pattern in these countries is more or less the same as in India. Moreover, these are growing markets. We are getting requests to manufacture for the American markets, but presently we do not have the line and energy to go to these markets as a private label.” Candico is presently exporting to Nepal, Srilanka, Bangladesh, and the Maldives. AchalKhaneja, deputy general manager Candico says. “We export 90 tonnes a month to Nepal (ten trucks). In the rest of the markets we are close to 90 tonnes.”
Over the years, high levies on bubble gum have been a major grouse for manufacturers of this product. Though taxation on bubble gums is 16 per cent compared to eight per cent on other confectionerie. Candico is not perturbed. “It is still a virgin market and as we have not covered enough, I have no reason to complain. Only when the market reaches saturation can I ask for the Government help.” Is what Kumar feels.
Candico presently has a turnover of around Rs.84 crore. Since it is also into private labelling.Candico’s share would come to around Rs. 75-76 crore. In 1996-97 and 1997-98. Candico’s turnover was Rs. 65 crore and Rs. 74 crore respectively. Though Candico is into gums, sweets, candies and mints, it is concentrating on bubble gums. Kumar admits candidly. “As it is not possible to devote equal attention to all the categories simultaneously, our primary focus is on gums. Once we have carved a niche in the gums arena, we will concentrate on other categories.”
And what are the plans for future? Candico plans to include seven to ten products every year to ensure a growth rate of 40 per cent per annum. Its plan of achieving a target of over 200 crore by the turn of the century now seemfar fetched. Pontificating on the future, Kumar says, “We have not touched even the tip of the iceberg. We have capacities for growth for the next three years. Our Nagpur plant manufactures 825 tonnes per month, and with minor equipment balancing this can go up to 1,000 tonnes.”
According to the projections made in a recent report by consultancy firm McKinsey, the Indian confectionery market will grow to Rs. 6,4000crore (present estimates peg the market at Rs. 1,500 crore) by 2005. “As long as Americans teach us the American way of life, bubble gum sales are here to stay and boom.” Jokes Kumar, “More seriously,” he adds, “chewing has always beena part of Indian tradition, we are only converting it into a pocket holding opportunity.” Candico’s big Bubble Gum, illustrates the point beng made by market analysts for years. In a country like India, the road to success involves, targeting volumes with low-priced goods. In that case, Candico has the right ideas.
QUESTIONS
1. What are the significant issues in the case?
2. Evaluate Candico’s strategy. What external factors have been kept in mind while developing the strategy?
3. Is the competitive advantage of Candico sustainable in the long-run? Explain.
CASE 07: SERVICE DIFFERENTIATION AT BRITISH AIRWAYS
Since, 1990s, international airlines saw increasing competition and providing services became a major factor to differentiate and a key to success. Carriers lost billions of dollars and needed to raise the Airfares. Some airline executives believed that improved service package would make increased fares more acceptable to the customers. Adopting this approach, companies started focusing on services rather than competing on price dimension. No one did it better than British Airways and in an annual poll conducted by a magazine, business travellers rated British Airways as providing the best service.
British Airways has come a long way since 1982 when it lost $ 1 billion, an industry record. When Colin Marshall took over as CEO in 1983, everyone in the industry made fun and laughed at the carrier. Comedians referred to it by its initials BA, as “Bloody Awful”. Employees’ morale had hit rock bottom, thousands of employees were laid off, and those remaining were embarrassed to work for the world’s worst airline. Marshall’s first challenge was to restore price. To send a clear message to the employees and potential customers, he ordered newly designed uniforms for all personnel. The planes were repainted with bright stripes with the motto “To fly to serve.”
Marshall ensured that the airline lived up to its new motto. He launched a major campaign to change the employee’s attitude towards the service. He guessed that many passengers, especially business travellers, wanted better service. He therefore, required all employees to participate in a two-day seminar, “Putting People First,” which put the airline employees in the role of the customers. In the seminar, employees discussed their own experiences with poor service.
Immediately, British Airways worked to overcome more obvious problems, such as uninteresting food, poor cabin service, and insufficient legroom. But Marshal also examined the less obvious. For example, the research revealed that passengers like to be called by names. BA employees spent several months observing passengers on flight from London to Glasgow and Manchester. The customers’ satisfaction score went up about 60 per cent when ticket agents addressed customers by their name. This was the beginning and BA ticket agents were expected to call customers by name whenever the opportunity arose. Multilingual employees were placed at the London’s Heathrow Airport to help passengers. British Airways set up booths at JFK Airport in New York City so that they could videotape the passengers’ comments about British Airways service. Finally, at present, the airline changes flight schedules according to the customers’ convenience.
British Airways also revamped its Concorde flights. Marshall decided to use British Airways’ seven Concorde aircrafts, which were losing money. This was to symbolise, the revitalised image of the airline. The company redecorated the planes and hiked fares by 30 per cent more than the first class fares that conventional jets, British Airways concentrated its advertising on the importance of time to business travellers. As an outcome. BA’s Concorde achieved over 60 per cent occupancy, which was the break-even point on transatlantic routes.
British Airways also invested $ 40 million to improve first-class service. The airline redesigned cabin interiors and put a video terminal at each seat. The new wine cellar offered an improved selection; menu allowed first-class passengers to eat when they wished.
In discussing service, the British Airways’ CEO recalled the famous Twentieth Century Limited, the train that ran from New York to Chicago. Conductors would pay to the passengers $ 1 for every minute the train was fate, no matter who or what was to be blamed. Air traffic delays and weather problems would make it next to impossible for airlines to make the same offer. Marshal said. “We could promise to make the delays completely painless with concentrated service attention. Think how many customers you could acquire for life, if and when the guarantee is cheerfully. Quickly, and easily paid.” The improvements at British Airways drew the attention of managers from other airlines and other service industries. The changes also turned the company around. In 1991, profits for British Airways were at an industry high of $ 496 million. Its average revenue per passenger. $396, was among the best in the industry. In terms of passengers carried and miles flown. British Airways became the largest international airline in the world:
British Airways would like to provide its much lauded service to the passengers across the world. In July 1992, it finalised an agreement with US Air to form a transatlantic alliance. But it withdrew its $ 750 million bid for 44 per cent of US Air, as it became clear that the U.S. government would not approve the deal. The proposed deal resulted in protests from major U>S> airlines, which claimed that the British would have a substantial head start in becoming the first global airline. British Airways second bid of $ 300 million for 19.9 per cent of US Air was approved in March 1993. Together, the two carriers were to serve 339 cities in 71 countries.
QUESTIONS:
1. Analyse the case and identify reasons that made the British Airways a laughingstock in the industry? Why was it necessary to change the employees’ attitude toward service?
2. What effect the new alliance would have on the services offered by other airlines?
3. Why would a passenger pay30 per cent more to fly the same destination?
CASE 08: OFF COLOUR
Despite Periodic makeovers colour cosmetics brand Tips and Toes is losing its sheen. Reinventing a brand is always a challenge in a market where product life cycles are as short as four or five months, driven by fickle trends and seasons.
A strong case in point is Tips and Toes, launched by Paramount Cosmetics in 1979, which started as a nail colour brand and then grew to include lipsticks and other cosmetic and toiletry products.
After a series of brand extensions and re-launches, the brand is looking for some “divine” inspiration to make its mark in an increasingly competitive business. The latest avatars of Tips and Toes are the Goddess and the Eve Divine ranges, which hit the market early this year.
However, neither of the products has acquired many converts. Brands like Lakme, Revlon and Lissome ( a new entrant in the economy segment ) are still far more visible on a cosmetic retailer’s shelves.
A visit to any marketplace in Mumbai shows that at least four out of 10 retailers think that the brand has been phased out. And the remaining don’t want to stock the brand anymore.
This marks a stark colour contrast to the 1980s when the brand enjoyed tremendous equity as the only other organised player apart from the Tata-owned Lakme in the cosmetics business. It rose to dominate about 30 per cent of the nail colour market.
But over the years, it has been chipped out of the reckoning. Lakme continues to dominate the cosmetics market with a 50 per cent share, followed by Revlon at 12 per cent and Maybelline at 8 per cent.
Tips and Toes is a small player selling at only 2,000 outlets. A competitor asserts. “The brand has fallen out of our consideration over the past five or six years.”
So why did the colour start fading from Tips and Toes’ performance? This was partly a result of excise anomalies. Back in the 1980s, to encourage smaller-scale industry, manufacturing units with turnovers of more than Rs. 15 lakh were subject to excise duty of 120 per cent.
As a solution, Paramount Cosmetics divided its own manufacturing outfit into 27-odd units to meet the small-scale criterion. But in 1997, excise duty was standardised to cover all manufacturing units irrespective of their turnover.
Obviously, it no longer made sense to stick to the model of manufacturing at so many small units of its own.
“Paramount was late to realise that it would be better to outsource its manufacturing and concentrate on marketing, given the increased levels of competition in the cosmetic market.” Says a market watcher.
On the other hand, Lakme was quick to outsource its production in 1995. Pre3viously, the company manufactured at its Deonar plant, a Mumbai suburb. Paramount followed suit only in the year, 2000 when it outsourced to three manufacturers.
The problems of manufacturing consolidation impinged on marketing strategies too. During the 90s, as competition started making its mark, Paramount was consistently late to market...
This is a major issue in a business like colour cosmetics where fashions change every few months. Players like Lakme, Revlon and Maybelline launch at least two new ranges in a year
For example, the mid-1990s saw the launch of an imported matte formal lipstick brand called Personi, which set off a fashion for matte lipsticks in India.
Distributors recall that Lakme and Gala were the first to launch their matte ranges almost immediately.
Distributors recall that Lakme and Gala were the first to launch their matte ranges almost immediately. But Tips and Toes launched its matte collection only in 1998.
Again, while the colour trend shifted to lighter and glossy colours in 2001, Tips and toes largely stuckto the dark shades like red and maroon—and this continues even in its Goddess collection.
“We also create colours in line with the market but or study shows that regular shades ( red and browns ) are still the faster moving shades,” explains Hitesh Topiwala, director, marketing, Paramount
Also, when others were pushing their economy ranges, Tips and Toes lost the opportunity although it was in a position to do so after cutting costs by outsourcing its new nail colours.
It was only in 2002 that the company launched its range of “mini” nail colours priced at Rs. 18. This was much after the launch of Elle 18---Lakme’s economy brand launched in 1995. And where Lakme targetedthe faster growing market for teenagers through Elle 18, Tips and toes sharpened its focus on women aged between 20 and 35 years.
“Our understanding and experience of the changing needs of the Indian women made us move from teenagers to a young woman,” says Topiwala.
Also, brand extensions have been slow in coming. For example, in the early 1980s, Tips and Toes was restricted to nail colours while Lakme had forayed into lipsticks and basic skincare and make up products like compact powder and winter-care lotion. When Paramount finally started expanding its range, it made too many mistakes.
For instance, the company launched its lipstick brand under the name Kiss in Tell because research showed that Tips and Toes brand name suggested only nail colours. That turned out to be a bad decision because customers felt shy about asking for it by name at shops.
The company then tried to correct its mistake by calling its lipsticks “Whisper’. But Proctor & Gamble had already got that brand name registered for its sanitary products. Thus, Paramount eventually had to bring in its lipsticks under the fold of Tips and Toes name.
In the event, this was actually a good thing because Paramount could not summon up enough resources to market its subsequent extensions under different brand names----a skincare brand Enriche and a men’s toiletries brand called Instinct among them—adequately.
Compare this with Lakme, which launched all its ranges under the umbrella brand. Former company officials recall that there were bottlenecks in the distribution network too. This was partly because of the over-abundance in shades that the company supplied in the market.
Till recently, the company focused on pushing quantity rather than learning from the competition and launching seasonal ranges.
For example, in the 1980s, Tips and Toes had an exhaustive shade card running into 80-odd shades compared to Lakme’s modest 48 shades.
Pushing a large number of shades in the market was difficult when only a few moved fast according to season and trend. Inevitably, this led to overstocking at retail stores.
“To add to it, neither did the company take back the returned stock nor did it increase visits to replenish stock,” recalls a former Mumbai-based distributor, who distributed the brand till the late 1990s.
Even as Tips and Toes finally trimmed its colour portfolio down to 21 lip colour shades and 37 nail colours, Its emphasis on darkish colours like maroons and browns has stayed in spite of the trend moving towards floral shades, say retailers.
The company says that it has corrected the problem of the backlog of slower moving shades piling at stores now. Says Topiwala. “With the Goddess range, we have learnt which shades move faster. Accordingly, the shades are taken off the shelves in about three-four months’ times and replenished with the faster moving stock.”
Pricing was another big issue. Back in the early 1990s, the company had launched another range of premium colour cosmetics called Cloud Nine targeted at teenagers. But the premium pricing didn’t help simply because teenagers couldn’t afford it.
Later, Lakme launched Elle 18 --- its colour cosmetics targeted at teenagers, which was priced economically. For instance, while Lakme lipsticks and nail colours cost Rs.58 and Rs.39 in the mid-1990s, an Elle 18 lipstick costs about Rs.35 and Rs.25. Paramount cut Cloud Nine prices to take on Elle 18 but eventually had to discontinue it.
Then, when Tips and toes made a comeback with the Goddess range, it cold have done better by focusing on the B and C class cities, say market watchers. This is because Tips and Toes is 20 per cent cheaper than brands like Lakme.
Currently, Tips and Toes is present in only two or three key cities in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Delhi.
“We target metros and a class cities only because Tips and Toes is essentially an urban brand. Also, women in smaller towns are influenced by urbane imagery, so it’s essential to maintain this positioning,” says Topiwala.
But for that, Paramount will have to fight for its share of consumer mine-space. Despite spurts of advertising in women’s magazines, the brand has stayed in the shadows through most of the 1990s. Though Paramount claims it spends about 15 per cent of its turnover on ads and below-the-line activities, lack of consistent mass-media advertising has pushed the brand onto the side lines. Tips and Toes distributors and retailers in Mumbai vouch for that.
“The more visible the brand is, the more customers ask for it. Demand is directly proportionate to advertising in the mass media,” says one of them. Will tips and Toes listen to its past to add colour to its dull present?
QUESTION:
1. Study the case and identify the stage of Tips and Toes life cycle. What mistakes Paramount Cosmetics committed for its brand Tips and Toes.
.
Abhinav Kumar was totally unprepared for the news. And what surprised the 34 year old scion of the Kumar family – which had interests in a range of industries including batteries, consumer durables, soaps and oils, and switchgears – was that if was his 36 year-old Wharton School classmate, Rakesh Bhatia, who gave him the scoop over their dinner meeting. Bhatia headed a small engineering company in Phoenix, Arizona (US), but was remarkably networked in the industry.
“I hear your competition just got bigger.” He ribbed Kumar.
“What do you mean?” Kumar asked, surprised.
“Haven’t you heard that OLT and Control Equipment are talking about a merger?” The two switchgear companies were competitors of the Rs. 1,750—core switchgear division of total Industries, Kumar’s diversified family-managed company.
Kumar almost choked on his soup when he heard that. Such a merger would mean that Total would, overnight, lose its No.1 position in the industry, its 23 per cent market share in switchgears would be eclipsed by the combined 33 per cent share of PLT and Control.
“Who told you this?” Kumar asked.
“You are not going to believe this. It was a merchant banker sitting next to me on my flight from New York. In fact, this guy was flying down to Mumbai to meet the CEOs of the companies.”
“Switchgears is our most profitable business, Rakesh. I can’t afford to let any competitors to muscle us out of the market.”
“That will happen if the merger happens. The new entity will have better bargaining power with their suppliers and customers; they may take a lead in product development, too.”
“That has been our strength so far. We not only launch better products but also deliver better service at cost-effective prices.”
Kumar excused himself to make a phone call. He called Manoj Kohli, the 42-year-old President of the switchgear division, on his mobile. “Manoj, can you postpone your Pune trip tomorrow. I need to meet you first thing in the morning.” Manoj knew something big was afoot. With the meeting fixed for 9 am. Kumar returned to the table.
“I am just curious. Abhi, but tell me, how is the strategy process managed at your company?”
“Well, there is dad, me, and the four division heads. Typically, it’s this group that does the strategizing”...
“So, I would be right in assuming that the process is more implicit than explicit.”
“We do make our periodic business forecasts and reviews, and each division is clued into what is happening in the industry.”
“How come they missed the news of the merger?” Rakesh asked Kumar. “But that’s not what I am trying to say.” Continued Bhatia. “What you are describing is functional strategy. Every company has it. But what really works in the long run is a comprehensive competitive strategy that looks at the industry structure, maps the changing contours, predicts how competition will change, and puts together a response for your company.”
“I get your point. Although we are a Rs. 6,000-crore company, our focus seems to be on marketing battles and not competitive strategy. Had we done our homework? Total may have beenmerging with PLT or Control,” conceded Kumar.
After the dinner was over, Kumar and Bhatia parted ways, promising to meet again before the latter left for Phoenix.
Kohli walked into Kumar’s office at 9 am sharp. “What’s up, boss?, he asked.
“PLT and Control are planning a merger,” Kumar said matter-of-factly.
Wow! Who told you?”
“Rakesh. We met over dinner last night. It will take another three months for the deal to come through, but it is happening.”
“Should we make a counter bid?” Kohli ventured.
“With our kind of stock price? It will cost us more than half the family’s stake in the business to bid for either PLT or Control. The best is to get a defensive strategy in place.”
“Let me get details about the merger. That will be essential before we plan our response,” said Kohli.
“In any case, we are meeting again. And I have asked Srikant, Ratika, and Gunneen to be there too,” said Kumar, referring to Total’s Presidents of consumer durables, batteries, and soaps divisions, respectively.
“Is this about the merger?” questioned Kohli.
“No, but something to do with it. I think it is high time we got an explicit strategy together.Things are changing much too fast for us to be merely reactive. We need to plan ahead for the next 5 years at least.”
Kumar’s father and Total Industries Chairman, Deepak, was not scheduled to attend the evening meeting. But on an impulse, on the way to his squash club, he decided to join the brainstorming session. That explains why he landed up in shorts and sneakers. The meeting had not started when Deepak walked in.
“Thank you for joining us, Sir”, Kumar said. He always addressed his father as ‘Sir’ in front of other executives. He then repeated the news of merger although, by then, almost everybody knows about it.”
“In a way”, Kumar said, “I am glad that the merger is happening. It has forced us to stop and examine the way we strategise. That is not to say that our strategies are ineffective or slow. We wouldn’t be this big had it been so. But the point is, having become a conglomerate we cannot afford discrete strategies. The sum of our divisional approaches will – tomorrow – stop being equal to our corporate strategy. We need to formalise the process of strategy making. Once and for all.”
“We need a framework in which to examine where our business is going, and how to grow it,” interjected Deepak.
“The basic dilemma in strategy,” Kumar continued, “is similar to what we encountered during our vision creation process. What we have to ask ourselves, is whether our long-run strategy can be based on the present position of our divisions, or whether we should factor in the emergence of new forces like e-Commerce, economics of scale, disruptive technologies, and changes in the tradition configuration of the supply—chain.”
‘I guess it has to fit in with our vision of being No. 1 in each of the industries we choose to operate in,” said Gunneen Roy.
“I agree,” quipped Deepak.
“Me too,” said Kumar. “But there doesn’t seem to be any consensus on approach I spoke to several consulting firms this afternoon, before I asked two of them – Strategic consultants Ltd. (SCL) and Transformation Consulting Group (TCG) to fax me details of what they could do for us.”
“And what do they have to say”? Asked Ratika.
“Diametrically opposing things. SCL says that our strategy must be based on data of what is, not projection of what will be. It also offers to identify all variables that impact the company’s profits. But, I think a strategy should factor in the future. Besides, SCL won’t help implement strategy.”
“What about TCG?” Manoj wanted to know.
“TCG wants to look beyond today. Its aim is not to maximise the company’s profits in today’s markets, but to fundamentally re-configure or business portfolio.”
“But do they agree on the formulation part?” Asked Ratika.
“No, the SCL approach is top driven. It does not believe in involving employees at different levels in formulating strategy. It forms a team of two of senior executives, and two of its consultants. The team lays down the strategy. The TCG approach, in contrast, is bottom up. It seeks the active involvement of employees who are asked to define the kind of organisation they want their company to be.”
A restless Deepak piped up. “Surprising, how divergent their approaches arel”
”TCG’s methodology is also different, it comprises four phases: envisioning, external analysis, internal analysis, and developing an action plan. Phase I involves asking or employees where they see Total in another 10 years. Phase 2 entails asking managers from each of our four divisions their perceptions of our customers, and the nature of competition.”
“Sounds like a good idea,” observed Roy.
“In Phase 3, internal analysis is aimed at enabling managers of individual businesses to look inwards and analyse our performance, and strategic options. The performance of the group would be measured both on financial parameters and non-financial parameters like customer satisfaction and product quality. The employees would, then, try and determine the options available to reach business looking at the past strategy. Strategic problems, organisational capabilities, and constraints.”
“How will these diverse views get synthesised?” queried Kohli.
“TCG has a framework for that Based on these findings, a summary of the strengths and weaknesses of Total will be arrived at. The final part of the phase involves defining the existing competencies and updating our vision. In the final phase, TCG would address issues like which core competencies to build, which product segments to tap, and what type of coalitions to form within the Industry.”
“Somehow, I am not convinced, said Deepak. “I fear that Total will end up being a guinea pig for testing strategy formulation. Yet, we do need an explicit strategy for tomorrow. I wonder what we should do.”
QUESTIONS:
1. Identify the problems in this case.
2. Assume any data regarding strengths and weaknesses etc. What strategic options would you recommend for total?
CASE 02: PSYCHOFRAPHIC PROFILES – KEY TO BUYERS’ MIND
Consumer buying research has turned over a new leaf in India. The era of demographics seems to be on the backbench. Now, Marketing Research people are less likely to first ask you about your age. Income, education, etc Instead, there is a distinct shift towards inquiries about attitudes, interests, lifestyles, and behaviour –in short, a shift towards a study of consumers’ minds called psychographics.
Pathfinders, the marketing research wing of Lintas, occasionally came out with its highly respected “Study on the Nation’s Attitudes and Psychographics (P:SNAP).” The first in this series was released in 1987 with an objective to develop a database of lifestyles and psychographics information on the modern Indian woman. The second was in 1993, and the third in 1998. Pathfinders chose the Indian woman as he subject for the study because of the belief that more often than not, in urban areas, it is the womanwho makes buying decisions.
The pathfinders’ study involves interviewing over 10,000 women over the entire country and segmenting them in clusters according to their beliefs, attitudes, lifestyles, and lastly their demographics profile. The idea is to identify groups of consumers with similar lifestyles who are likely to behave identically or very similarly towards products or services.
For advertisers and advertising agencies, this profile helps enormously. For example, an advertiser may want to give a westernised touch to a commercial. The profile of the target customer, as revealed by this study, tells the advertising people the perimeter within which she / he must stay. Otherwise the ad may become an exaggerated version of westernised India.
For the purpose of this study, Pathfinders divided the Indian woman into 8 distinct clusters of varying values and lifestyles. Figures from two studies are available publicly and are given below.
-------------------------------------------------------------------------------------------------------------------------- . Cluster 1987 (%) 1993 (%)
Troubled homebody 15.9 18.3
Tight-fisted traditionalist 14.8 10.0
Contented conservative 7.0 9.3
Archetypal Provider 13.0 8.8
Anxious rebel 14.1 15.8
Contemporary housewife 19.2 22.1
Gregarious hedonist 8.7 6.6
Affluent sophisticate 7.3 9.1
The studies seek to track the macro level changes and movements within these 8 clusters I a period of time.
We note from the table that in 1987, 8.7% of the women in the sample group could be classified as “gregarious hedonist” – those who consider their own pleasure to be supreme in life. In 1993, this figure fell to 6.6%. The “troubled homebody” segment – those with large families and low—income, increased from 15.9% in 1987 to 18.3% in 1993.
Information such as this is obviously useful when it comes to assess the collective mood. That’s why Pathfinders have an impressive list of clients for their P: SNAP, which includes Hindustan Lever, Cadbury, Johnson & Johnson, and Gillette.
PROFILE REPRESENTATIVE
The lady lives a ‘good ‘life – she s a devoted wife, a doting mother of two school-going sons, and a god-fearing housewife. She has been living her life by the traditional values she cherishes – getting up at the crack of dawn, getting the house cleaned up, having the breakfast of ‘Aloo Parathas’ ready in time before the children’s school-bus honks its horn, laying down the dress her ‘government servant’ husband will put on after his bath, and doing her daily one-hour Puja. She fasts every Monday for the welfare of her family, looks at the ‘freely mixing’ and ‘sexually liberal’ youngsters with deep disdain and cannot understand the modern young woman’s ‘greed for money, jewellery, and jobs.
Her one abiding interest outside the household is the Ganesh Mandir that she has visited every Wednesday, ever since she got married. She lacks higher education and hence has little appreciation for the arts, the literature, and the sciences. Her ample spare time is spent watching TV, which is her prime source of entertainment and information.
PROFILE REPRESENTATIVE
Shobha married young to the first person, she fell in love with. Prakash, four children came quickly before she was quite ready to raise a family. Now, she is unhappy. She is having trouble in making ends meet on her husband’s salary (Prakash is employed as a clerk in a private business and is often required to work late hours). She is frustrated, as her desire for an idyllic life has turned sour. She could not get education beyond high school and hence there are hardly any job opportunities for her. Her husband also keeps on complaining of the long hours of backbreaking work he has to put in. He consumes country-made liquor routinely.
Shobha finds escape in (Black and White) TV soap operas and films that transport her to the world of her dreams. She watches TV almost all through the day while her children roam around in the locally streets and cannot expect any help from their ‘ever—grumbling’ mother. Purchases are mostly limited to ‘essentials’ and any discretionary purchases are postponed till they simply must be bought.
PROFILE REPRESENTATIVE
Neeru epitomises simplicity. Her life is untangled. It runs on a set timetable with almost clockwork precision. She works as a primary school teacher in a rural government school about 50 kilometres from her district town residence. She is married to a social worker in an NGO whose income is erratic. Her three children, two teenaged sons and a 10-year old daughter are getting school education.
The day begins with the lady getting up before anybody else and finishing the household chores as fast as she can. There is no room for delay, as the State government ‘Espress’ bus, on which she travels to her school will be at the bus stop across the road precisely at 8.00 A.M. If she misses that, the next ordinary bus comes at 11.15 A.M. quite useless as it will reach her school only at 1.00 P.M. The school closes at 2.pp P.M. There are private jeeps running sporadically, but the fare is high and Neeru does not believe in wasting hard earned money. Besides, she travels on her husband’s ‘free pass’. Neeru prides herself on her monthly savings of Rs. 1000 for the last many years. The money will go towards the wedding of her daughter.
PROFILE REPRESENTATIVE.
For Vandana, saving money is ‘inborn’ discipline. When she was young and unmarried, she remembers her mother who was extremely tight-fisted and ran the household on under Rs.800per month. It was the necessity of those times as her father retired at a princely salary of Rs.1800 per month. All through her childhood, she saw deprivation and hardship. She would not join the annual class picnic in her school days as it meant ‘avoidable expenditure’.
Now she is married and a mother of two school going children. The husband works in a bank as a clerk. He has taken all the loans that he could from the bank and invested the money in real estate. As a result of monthly deductions toward repayment of loans, his take home salary is now very little. But Vandana can manage. The school dresses are sewn by her at home, the Stationary required comes from a wholesale market, and the books are second-hand from ‘friends’ cultivated for the purpose. On birthdays, Vandana prepares a sweet dish at home and they splurge on a film. There is a cow and calf at home, being kept as a source of revenue and milk. She sells half the milk to a neighbour and the family consumes the rest. Life in general is hard and frugal. There is a colour TV at home, but they disconnected the cable connection ever since the rates went up. Now they watch Doordarshan only.
PROFILE REPRESENTATIVE
Daughter of a Freedom Fighter, Aditi has always fought her values and principles. People still remember when she walked out of the exam half in a huff as a mark of protest against mass cheating ‘sanctioned’ by the centre superintendent in a tough paper. While everybody the passed with high marks. Aditi failed.
Even though she repeated the paper, Aditi never learned to swim along the flow. She always swam against the current. She joined the Communist Party in her college and gave rousing speeches against the teachers and authorities. This resulted in her getting very poor marks and left her jobless.
Later, Aditi joined an NGO and now works on social issues. She says she is a creature of the mind, not materialism. Her favourite dress is a long flowing Kurta, and slacks. She wears loosened hair and chappals. She reads voraciously. Finally, she is independent and lives with her parents. Her disdain for the institution of marriage and contempt for the modern Indian male keep her single and unattached. She will continue to be so as she prefers to this status, but may adopt a baby later in Life.
PROFILE REPRESENTATIVE
Just 19, and Reena is already divorced. Her father is a wealthy businessman. During Reema’s childhood, her father was mostly away in Dubai and Africa, trying to amass a fortune. That he did, but he lost out on his chance to be good father. Both his children started feeling like “orphans’ after their mother got involved with another man.
Reema was ever longing for her family when along came Harsh, her private high school tuition teacher. Harsh was all of 32 and very caring. He was tall, handsome, and very popular in school and many girls had a crush on him. Reema was sixteen then and a great fan of Harsh. For her, Harsh was a prize catch as he combined the loving qualities of a father with a mix of being a good teacher. She was soon dazzled and surrendered in a physical relationship.
Marriage followed. She never understood how Harsh changed overnight from a caring father figure to a demanding husband. And she could never cope with the six hours she had to spend in the kitchen every day. Why should she do the cooking, she asked Harsh, as it was something that the ‘Ayas’ did? The reality of a humdrum middle-class existence hit her hard and she soon. Her father understood her need to recover and made her allowance rather generous. He bought her a red sports car and got her an admission in a private college. College is entertainment for her. She attends college only on days when there is some function like a cultural evening or the sports meet. Now, Reema spends on alcohol, dresses, parties, and holidays. She consumers a mood elevating drug every evening and keeps sending SMS messages on her mobile to her friends all through the night. For her, life means ‘buying pleasure endlessly’.
PROFILE REPRESENTATIVE
Shriti is an urbane woman. She is well educated and genteel. She is an officer in a nationalised bank, and is active in club affairs and community activities. Socialising is an important part of her life. She is a doer, interested in watching cricket, politics, and current affairs. Her life is hectic as she has a lot to do for home and office every day. Still, she often enjoys viewing movies on TV every week.
Shruti shops for sarees, jewelry, and cosmetics for herself on a regular basis. However, family needs come before her own needs. Her home is a double income household and she has one child. She has all the modern gadgets as a housewife could possibly want and her standard of living is upper middle-class.
PROFILE REPRESENTATIVE
Momeeta was born Mamta, but elevated herself to Momeeta after marriage to a business tycoon. Momeeta is an elegant woman with style. She lives in Mumbai because that is where, she wants to be. She likes the economic and social aspects of big city living and takes advantage of her ‘contacts’. She has built up many friendships and cultivated the city bigwigs by inviting them to the numerous parties she throws in her luxurious penthouse.
Momeeta is a self-confident, on-the-go woman, and not a homebody. She is fashion conscious and clothes herself in the latest designer dresses. Even at 40, she can carry off a mini with aplomb. She is financially very secure and hence does not shop with care. She shops for quality, expensive, and goes by the brand name, not the price. She frequently travels abroad, buys expensive gifts for friends, and has an international understanding on what is “chic” at the moment.
QUESTIONS
1. A manufacturer of personal care products in the premium category wants to develop various products. Which of the above types should the manufacturer target? Explain.
2. How is the above-mentioned information likely to benefit a marketer in selecting marketing communications?
3. Which of the above-mentioned segments are likely to respond to sales promotion? Explain.
CASE 03: LOOK MA. FAIR HANDS
The glow on Rakesh Kumar sinha’s face is hard to miss----and ii’s all due to Fair Glow, the fairness soap from the Godrej stable. No Sinhas isn’t a user, but as vice president for sales and marketing at Godrej consumer Products, he has reason to be bright----again.
For the past three months. Fair Glow has been growing at close to 40 per cent; Sinha claims that the advertising support for the brand has also doubled since last year. Agency Mudra, which handles the brand, says there will be “interesting activities” around the brand in the next few weeks.
The activity is urgently needed. Fair Glow may be erupting like Etna at the moment, but untll the lase qwuarter of 2004, aht brand bore a closer resemblance to Haleakala, the world’s largest dormant volcano. Within two years of its launch in 1999, Fair Glow had become a Rs. 100-crore brand.
But now the entire fairness soaps category---Godrej Fir Glow, Hindustan Lever’s Fair & Lovely soap and Emami Naturally Fair herbal fairness soap---has shrunk to Rs. 80 crore.
In comparison, fairness creams, which were around Rs.550 crore, crossed Rs. 800 crore by end-2004. Even in the Rs.4,000 crore soaps market, the fairness segment has a minuscule 2 per cent value share ( Just 1 per cent in volume terms ).
Although Fair Glow still has the lion’s share of the fairness segment, its 60 per cent share works out to just Rs. 48 crore, which is less than half its earnings in year two.
In other words, even if Fair Glow keeps up its scorching 40 per cent growth, it will take another two years or so for it to regain its 2001 position. So, is Sinha happy because Fir Glow is getting a second opportunity to score?
When Fair Glow soap was launched in December 1999, the dice were heavily loaded in its favour. The foremost reason is that most Indians associate beauty with fair skin.
Even the competition’s research bears that out; According to a 1998 Hindustan Lever study, 78 per cent of women in India aspired to be two shades fairer because they believed it made them more attractive and confident.
‘It is a colonial hangover,” comments Ashish Mishra, head strategic planning, Mudra.
The decision to promote the fairness proposition as soap also made strategic sense; in India, creams had a penetration of only 25 to 30 per cent.
On the other hand, soaps enter over 95 per cent of Indian households. And Fair Glow was priced at Rs.11 for a 75-gram bar, compared to Rs. 26 for a 25-gram tube of Fair & Lovely cream. “We offered fairness through a soap, which was more convenient to use at no extra cost,” says Sinha.
With high expectations from the product. Godrej planned a high visibility launch. On the launch day. Fair Glow created a “surrogate road block” on television channels (the 40-second television commercial ran simultaneously on all channels within a five-to 10-minute time frame to ensure that even viewers who surf channels during commercial breaks caught a glimpse of the brand).
Then, the product was advertised on all top rated programmes such as Kaun Banega Crorepati and Kyunki Saas Bhi Kabhi Bahu Thi. “The opportunity was big because it was a true innovation,” says Mishra.
But there were huge credibility issues to be tackled: The stay-on proposition of creams—once applied, creams stay on all day—while soaps are washed off within seconds of application.
Sinha argues. The same is true with hair conditioners or a face wash, which are also washed away. But consumers still believe that they work.” True, but fairness soaps had to contend with an established category (Launched in 1975) like fairness creams. For hair conditioners and face washes there was no close alternative product.
Godrej’s solution was simple: It tailored its commercials to focus on customer testimonials. The result, within a year of launch, Fair Glow was selling between 400 and 500 tonnes a month (a volume share of 1 per cent in the toilet soaps segment)
How did HLL, whose Fair & Lovely had more or less created the market for fairness products, react? Within a couple of month of Fair Glow’s launch.HLL retrorted with aprolonged teaser campaign for LujxSunscreed soap. The new variant was launched in March 2000 – and withdrawn barely a few months later.
In the second half of 2000, battle—lines had been drawn between the soap and the cream. Fair Glow and Fair & Lovely aired similar television commercials on the marriage theme; only, Fair & Lovely launched two ads in response to Fair Glow’s single ad spot.
“We could not match their advertising muscle,” admits Sinha, Instead, Godrej resorted to offers like buy-three-get-one-free in end – 2000.
Even as Fair & Lovely and Fair Glow fought it out on TV screens, the sun was eclipsing over the toilet soaps industry.
Consumer were downgrading to the sub-popular category: In 2000, while the popular category grew by just 1 per cent, the sub-popular category was clipping along at a brisk 15 per cent. Fair Glow being an offering in the popular segment of soaps, was naturally going to be hit.
Then, in December 2000, a year after the launch of Fair Glow soap, it committed a vital strategic mistake. It extended Fair Glow into creams with the proposition, Bedaaggorapan (Spotless beauty).
But instead of being considered a natural brand extension, the move further fuelled a suspicion that consumers had harboured---fairness soaps may not be as effective as creams.
Importantly for Godrej, it lost the high ground of innovation that it had made its USP. Sinha admits that if he could change one thing about Fair Glow’s past. “We would never venture into creams”.
Even as Fair Glow’s brand extension backfired. HLL engaged in battle on another flank---it launched Fair & Lovely soap. Naturally, the already thin dividing line between cream and soap further blurred Fair & Lovely’s soap was a high profile launch with its theme, Ektukda chandka (A piece of the moon). While a barge backlit by the moon floated on the sea off Mumbai’s Marine Drive, practically every hoarding in prominent places hollered the benefits of Fair and Lovely soap. But at Rs. 15 per cake (Nearly 50 per cent more expensive than Fair Glow). HLL’s new battering ram did not find too many takers...
Analysts say that HLL used the soap as merely a flanking strategy to guard its cream user-base. “The idea was that even if consumers bought fairness soap, it would be from the same brand basket,” says one analyst. HLL executive did not meet.The Strategist for this article.
Still, HLL did not rest after its soap launch. Over the next two years, the company launched several new Fair & Lovely cream variants.
Fair Glow, on the other hand, was still fighting consumer perception that soaps may not work. It launched a “Money-back challenge” to build up credibility in 2002. Fair & Lovely reacted by offering two soaps for the price of Rs. 20 (coming down to the Fair Glow price).
The sales graphs, though, remained dim. By mid-2004. Fair Glow put the cap on its cream misadventure. It followed with an ad campaign in late-2004 that illustrates the efficacy of the soap. That’s paid off dividends, and sales are currently up. Whether they’ll be able to reach their previous highs is anyone’s guess.
QUESTIONS
1. What is the positioning of Fair glow soap? Why is this positioning likely to appeal to Indian consumers?
2. Why was the extension of fair Glow to face cream a bad decision?
CASE 04: TAJ HOTEL
Right from early 1900s, the Taj stood for class and comfort. It was a place where viceroys of the Empire arrived and departed amidst scenes of splendour, typical of Raj. From the very beginning it was one of the wonders of the Orient Singapore’s Raffles. Hong Kong’s Peninsula, and Frank Lloyd Wright’s Imperial did not come up to the level of the Taj in spite of their rich ancestry. The reason the hotel towered over the rest was because of the amazing attention to detail that was paid by its founder. Jamsetji Nusserwanji Tata himself. It was a time when Indians were not allowed to enter most of the prestigious hotels and clubs, Legend has it, that this was one of the reason why Tata went ahead with the project though he was, at that time, busy with plans to industrialise India. He made sure that the Taj would have its own laundry, an aerated water boiling plant, electroplating for its silverware, a Mora silver burnishing machine, crockery washing plant and elevators. The hotel was completed at a cost of 500,000 pounds in 1904.
The Taj International (The new wing) was built in 1971 and rapidly after that came the Lake Palace and Rambagh Palace at Udaipur and Jaipur respectively. The company pioneered the concept of conversion of century-old palaces into hotels! Today this has become an USP of the Taj group, and a new logo is being designed to incorporate the places aspect of the product. In mid 1970s, the chain expanded to Chennai (Taj Coromandel and Fisherman’s Cove) and For Aguada at Goa. Here too, Taj scored over the others with its timing. At the time, Goa was not a tourists’ paradise.
Around the same time it set up Ganges Varanasi and started International flight kitchens too. The end of the decade saw the coming up of the Taj at Delhi. This last marked the start of an ethnic style in hotels with international standards. By this time it appeared that nothing could halr the phenomenal growth of the Taj. In the 1980s, two more hotels were built in Delhi, two in Bangalore, and one each in Chennai, Ooty and Agra. Next came Jaimahal Place Hotel in Jaipur as well as the New Delhi Flight Kitchen. The new hotels were built taking the original Taj as the model hotel. The Indian Hotels Co. Ltd. is the parent Company. The chain is managed by the The Indian Hotels Co.Ltd., the Indian Resort Hotels, Ltd., the Oriental Hotels Co. Ltd., Piem Hotels Co, Ltd., and the Benares Hotels Co. Ltd.
There was hardly any direct advertising to attract consumers. In fact, this element of marketing mix was absent till about 19990. The brand being an established one, advertising was not considered to be necessary. Secondly, the company was conservative and media shy for many, many years.
But nothing can go forever without a blemish. And so it was with Taj too. Cracks became evident when recession loomed large over the Indian economy. Excess capacity made some of the ventures unprofitable, especially overseas ones.
Managing Director Krishna Kumar has it pat. “The vision for the Taj Group is for it to be a select chain, present globally. Asia, perhaps, in character, but absolutely international in terms of systems and processes and with a strong West European focus. The way forward was to make sure that the entire Taj team is imbued with the missionary zeal to sell the brand.” International travellers form the bulk of the market for the Taj, particularly in the metros. Even the profile of Indian consumers is changing. In smaller cities, such as Hyderabad, though, the foreign element is a little lower but overall, the Taj has a higher dollar rate of revenue—approximately 70 per cent comes from international guests.
As far back as 1990s, it was realised that formal market research was must to help understand the consumer better. Though it always had access to research done by independent research agencies, such as the airline and travel industry, it was about seven toeight years since, the group had carried out extensive research to understand current lifestyles. The research attempted to discover whether the future customer would be more egalitarian, more democratic or would she/he wish to be pampered: The findings revealed that the customer would like exclusively, more than anything else. On the other hand, research also indicated that the company’s existing consumer base of traditionalists---those who liked the Taj because it was understated, yet classy---was shrinking.
By the end 1990s the renovation was in full swing. Units across the country were refurbished. It meant overhauling entire floors. Rooms were revamped, business centres rebuilt. More than a handful million dollars were reportedly spent on renovation—just in the lifestyle) Luxury segment) it was anticipated that the business was likely to become big (and those using it were likely to be non-traditionalists) and the Taj went ostentatious with its new business floors. It meant putting in optic fibre cabling, remote control systems and giving the business guy a lounge where he could relax and even have breakfast. It included a mind-business centre too.
Initially, fax machines were installed in the rooms and later Internet and laptops. Not only mobiles were provided on hire, the Taj dropped communication charges by 33 per cent.
It was only when the product was ready, was a major advertising campaign developed. Earlier the advertising had been restricted to the major feeder markets; the US, UK, Germany, Singapore, and Hong Kong and the advertising emphasised hardware aspects of the hotel. The new campaign developed a specific brand identity for the hotel. Iy also marked out three separate entitles that the Taj Group comprises---Business, Leisure, and Luxury.
Though the concept of these sub-brands had come into existence five years ago, today, they are operationally different. This means that though the heads of these three divisions sit at head office, their ‘territory’ is scattered geographically.
There are other changes. Unprofitable ventures were hived off. The sales and marketing functions were separated. The HRD department modernised, with emphasis on performance and career succession planning. The organisation was made flatter and more compact. Moreover, a continual benchmarking against international standards was made part and parcel of the culture of the Taj.
More emphasis was placed on business segment, as the profits are higher here (It being less price-sensitive comparing to luxury segment). In the business segment, 17 new cities, and towns will soon have the Taj Presidency hotels, also, new properties will come up in Goa, and Jodhpur and one is stated to come up near Sahara airport in Mumbai. The group has also acquired Hotel Blue Diamond in Pune.
Though, the Taj has a high un-aided recall, it has launched a corporate campaign to reinforce its new identity. The ad (made by Rediffusion) shows the Taj symbolised by an enigmatic woman who stands for both hospitality and efficiency. This identify was developed after extensive research on the consumer’s attitude towards the Taj. Over 60 in-depth interviews were conducted in the metros by client agency. The parameters were based not on quantity but quality. The focus of research was on things that go into creating images of wonderful hospitality, such as the quality of check-in, the smile, the greeting, or the welcome drink etc. The insights gathered were analysed extensively and a cleat slot, which the Taj could occupy when Global competition arrived, emerged. The slot was an emotional one. This was translated into creating a distinct personality of the Taj as caring, efficient, and enigmatic. The line went. “She is the Taj.” The base line was. “Nobody cares as much.” Today, after a century since it was established, the Taj is all set to conquer. Economic Times of December 15, 2004 reported I it’s ‘Brand Equity ‘that among hotels. Taj is ranked as “number one brand followed by Oberoi Hotels, ITC Hotels and Hayatt, respectively.
QUESTIONS
1. Analyse the case and determine the positioning of Taj. Do you think the advertising theme that is appropriate to reflect what a aims to communicate?
2. Why Taj did spent large sums of money to renovate its hotels?
3. Suggest an appropriate theme for an alternative campaign than the present one.
CASE 05: BYPASING PRACTICE
Arvind School, like most entrepreneurs, dreamt a lot. He dreamt customers would eagerly
Phone Woodstock Acoustic Systems in India. To order the latest, custom made stereo speakers. He saw demand rising and rising, cash flowing, and his technician producing superior quality products that were delightful and appreciated by the Woodstock customers, and favourable word-of-mouth spreading.
Arving had a degree in mechanical engineering from Delhi School of Engineering but his hobby was always acoustics. Like most entrepreneurs he had taken a long time in developing his dream. It was during the course of completing his studies in engineering that he became interestedin audio science and devoted time to his hobby. Just after completion of his studies, Arvind started working on creating stereo speakers in his garage. He named his enterprise Woodstock Acoustic Systems. He would design a pair of speakers and invite a couple of his friends to listen and give their opinions. Occasionally, on the recommendations of his friends, one or two customers would come and after demonstration would buy a pair. After a year, his parents told him that he had spent enough time working on creating his ideal stereo speakers, and now he should look for a job to start his career.
It was a Friday, and Arvind had spent nearly Rs. 50,000 taken from his parents and was down to his last Rs/ 10. He was seriously contemplating to take up some job because so far nothing fruitful had come out of his dreams. He looked fondly at the two pairs of speakers he had finished designing only a week back, when his landline phone rang. The voice said, he was Ajay Suri and had heard about his speakers from some friends. He asked for an appointment on Monday, the 15th June 2001 to discusfo things regarding his stereo speakers. The meeting was fixed for 4 pm on Monday at Arvind’s place.
All through, Arvind had focused on creating something delightful for “audio addicts,” -- the people who love to listen to music and appreciate high-quality stereo equipment at a reasonable price. These people were fastidious about sound quality but were unable to afford very expensive brands of well-known companies such as Bose or others. They were young, well educated, upwardly mobile in their careers, and would be affluent in about 6 – 10 years, and would prefer to buy a set of speakers now rather than wait.
As scheduled, Ajay Suri arrived at the appointed time. He said he had heard about Woodstock Acoustic Systems from a friend of a friend. He wanted to have a first-hand experience of his stereo speakers. Arvind took him to his garage office and played couple of Indian classical music tapes. Ajay Suri afterwards asked Arvind if he was interested in selling these two pairs of speakers, and how much is the price for each pair. Arvind said, “These are the latest that I have designed and are of very high-quality. I have not decided about the price yet but might sell, but it depends on how much you are prepared to pay for a pair.” Arvind put his hand in his trouser pocket and touched a 10-Rupee note. He was thinking if Suri says he would buy a pair for Rs.1500, he would sell. He thought, “I need some money.” Suri was silent and thinking. Arvind was feeling nervous and stared at something that was not there on the floor.
Suri spoke, “I will buy both the sets for Rs.8000 each, cash. But there is a condition.” “And what is that condition?” asked Arvind reflexively, not really believing his ears. His heart seemed to be racing at 100 km per hour.
“Well, every month you will sell me five such pairs at this price for six months. You will not sing contract with anyone else during this period in Delhi market. I might ask for more number of pairs, but that we will see later,” “Further, I will give an advance for the next two pairs that I will pick up in about two weeks, or may be earlier. So, keep them ready by the end of the next week.” He paused for a moment then said, “If it suits you,” “In fact, I will call you after about ten days to learn when I should really come to collect the pieces. “ That was the evening, three years ago.
For the first year, he sold his speakers only to Suri, who had a music equipment showroom in South Extension. After the first two months, Arvind employed two qualified workers and his supply of speakers to Suri’s showroom had climbed to 120 pairs per month in six months time. He learnt that Suri was also attracting customers to his showroom from adjoining areas of Delhi.
In two years Arvind had established his manufacturing unit in Okhla Industrial Area and had 30 full time workers. He personally tested each pair of speakers produced and was stickler to quality. Now Woodstock Acoustic Systems was supplying to six music showrooms in Delhi and sold to trade customers approaching directly from other states. So far he had not established system of distribution in any market, except for six regular showrooms of Delhi.
Arving had been for some time, thinking about establishing some streamlined distribution system. He knew that most manufacturers distribute their equipment primarily through stereo dealers. Whatever little experience he had gained. Arvind did not think much of this, he felt that the dealers too often played hardball with producers, and forced them to accept thin margins. In general, the dealers concentrated on a handful of well-known manufacturers who provided mass general, the dealers concentrated on a handful of well-known manufacturers who provided mass produced models. This kept those firms that offered high quality customised products from gaining access to the market. Perhaps most disturbing.Arvind felt that the established dealers often sold not what was best for customers, but whatever they had in inventory in a given period.
Arvind’s dream was to provide high-end stereo speakers directly to audio—obsessed, and device a method of bypassing the established dealer network. It was clear that he wanted to go directly to end customers, thereby avoiding dealer mark-ups and offer top quality products and service at reasonable price.
Arvind was now 28 years of age and set out to turn his dream into reality. Some customers who know about Arvind’s work and Woodstock Acoustic Systems had become enthusiastic supporters and invested Rs. 4.5 million in Woodstock.
Approximately 370 stereo-speaker makers compete for Rs.5000 crore market in the country for audio equipment. Nearly 230 of these manufacturers sell to the low-and-mid-range segments of the market. This accounts for 90 per cent of the market’s unit volume and about 50 per cent of its value. In addition to competing with each other, Indian manufacturers also compete with Japanese and American firms that offer products at affordable prices. The remaining 140 or so producers compete for the remaining 10 per cent of the market’s volume and 50 per cent of the value—the high end—where Arvind hopes to find his customers.
To serve the audio-addicts segment, Arvind offers only the highest-quality speakers. Woodstock has two models: the Elite and Percy. The Elite stands 18 inches high, weighs 8kg and designed for stand mounting. The floor standing Percy is 46 inches high and weighs 38 kg. Both models feature custom-made cabinets that come in natural or black oak, and walnut. Arvind can build and ship two pairs of Elite speakers or one pair of Percy speakers all by himself in a single day. In order to have adequate parts inventory. Arvind has to spend Rs.1.5 million of his capital on the expensive components.
Arvind set the price of Elite and Percy at Rs.35,000 and 73,000 per pair respectively. He selected these prices to provide a 50 per cent gross margin. Arvind believes that traditional dealers would sell equivalent speakers at retail at nearly twice those prices. Customers can call Woodstock on a toll-free number to order speakers or get advice directly from Arvind. Woodstock pays for shipping or any return freight via First Flight. Round trip freight for a pair of Percy costs Rs. 9,500.
Arvind offers to pay for the return freight because a key of this promotional strategy is a 30-day, in-home, no obligation trial. This trial period allows customers to listen to the speakers in their actual listening environment. In a dealer’s showroom, the customer must listen in the environment that is at best artificial and often feels pressure to make a quick decision.
Arvind believes that typical high-end customers may buy speakers more for “non-rational” reasons. They want a quality product and good reproduction of sound, and also to convey an image. For these reasons, Arvind has tried to create a unique image through the appearance of Woodstock speakers and to reflect the image in all of company’s marketing. He has spent money on distinctive stationery, business cards, a brochure, and a single display ad. He also designed a laminated label he places just above the gold-plated input jack on each speaker. The label reads. “This speaker was handcrafted by (the technician’s name who assembled the speaker goes here in her/his own handwriting). Made in India by Woodstock Acoustic Systems, Delhi
To spread the word, Arvind concentrates on producer reviews in trade magazines and on-trade shows organised for high-end HI-FI systems (Including foreign brands). Those who attend the show case ballots to select the. “Best Sound at the Show”. In the balloting, among 160 brands, Percy finished twelfth. Among the top ten brands, the least expensive was priced at Rs.94,900, and four of the systems were priced from Rs.340,000 to Rs. 735,000. A reviewer of HI-FI systems in an issue of industry magazine Stereo line evaluated Woodstock’s speakers and noted. The overall sound was robust and dynamic, with a particularly potent low end. Parts and construction quality of speakers appeared to be first rate. Definitely a company to watch.”
Arvind made plans to invest in a slick, four-colour display ad in Stereo Review magazine with highest circulation. He also expected another favourable review in Stereo line magazine.
Reflecting on his first year of operations and the difficulties Arvind faced, he realised that he has learned a lot. He faced typical challenges an entrepreneur encounters. There were quality problems with the first cabinet supplier. Then, he ran short of a key component after a mix up with a second supplier. He tried hard to avoid debt, but had to borrow Rs.2.5 million from a bank. Prices for his cabinets and some components had risen, and product returns had been higher than expected. The price and cost increases put pressure on his margins, forcing Arvind to raise his prices ( to those mentioned above.) Despite the price increases, his margins were less than the targeted 50%.
All things considered, Arvind felt good about his progress. The price increase does not seem to have affected demand. The few ads and particularly work-of-mouth seem to be working Arvind receives an average of five calls per day, with one in six calls leading to a sale. Arvind also feels the stress of log hours and the low pay. He is not able to pay himself a high salary. His total salary for the year was Rs.480,000.
ASrvind reaches over his table and picks up his most recent projections. It seems this year will earn a profit of about Rs.9 lakhs. Perhaps he is going to make it. As he puts back the projections on the table. Arvind’s mind drifts tohis plans of introducing two new models Minnow (Rs. 168,000 per pair) and the Rostuk (Rs. 340,000 per pair ). He knows that there is a considerable potential in the foreign market for his speakers. Should he use the samedirect marketing strategy for foreign markets, or should he consider distributors. The dreamer is visualising.
QUESTIONS:
1. Why did Arvind establish a direct marketing channel?
2. What objectives and constraints have shaped his channel decision? If you were a consultant, what distribution channel strategy would you recommend Arvind for domestic and foreign markets?
CASE 06: THE BIG ADVANTAGE
Ten-year old Praveen is hooked on to Candico’s big Bubble Gum after his cousin introduced him to it a few months ago. Now he asks retailers only for the big Bubble Gum. The reason: “It is the only bubble gum with which I can blow large bubbles. Ask my friends,” he says. Loyalty from numerous such children has enabled Candico to become India’s number one bubble gum company. Candico (i) Ltd., part of the Sancrop Group, ran full page advertisements in November, 1999, with claims of selling 60 lakh bubble gum pieces a month, Competitiors such as Perfetti and Jayco have not responded to these claims. It is this silence, which Candico sees as a vindication of its stand. The vehicle behind its stupendous success has been big Bubble Gum, the 50 paise gum. Launched in June 1999, the market for big Bubble Gum exploded in a span of five months.
What is the winning formula behind this magic?
Shivkumar, chairman and managing director Candico, goes back into history to find the answer. “The company ws conceived in 1976, the confectionery division being launched in 1986. The company split u into Candico (I) Ltd., (confectionery) and Bakeman’s (bakery products) in 1996, as we realised that liberalisation had unleashed great potential in both these sectors and we needed to focus on each.”
Candido was chosen as the company name as it was ‘easy, pronounceable and promisedtop-of the-mind recall.’ Candico has a world-class plant in Nagpur spread over an area of 250,000 sq ft. This plant can manufacture four of the five categories of confectioneries that Candico is into, namely sweets, candies, mouth fresheners and gums. The company is not intochocolates though it is a growing market – because of logistical problems.
The plant with a capacity of 40,000 tonnes per year is, according to Kumar, “the largest in this part of the country. West Asia and South Asian countries.” The plant is totally imported. Interstingly, Candico even has a manufacturing arrangement with Nestle and Nutrine, its competitors. This speaks volumes of Candico’s trustworthiness as a quality manufacturer, Kumar adds in a lighter vein. “In the market. I ask mu employees to kill their products but we give them complete quality during manufacturing.”
To get its message across, Candico launched a Young Consultants Programme (YCP) in 1997. The company invited responses for recruiting 12 children as product consultants. These children were supposed to sample, taste and design new products, and were to receive of Rs. 24,000 per annum for their services. Full-page advertisements were tun. The campaign reached a readership of eight lakh. Though the target audience was children it appealed to elders who, in turn, passed on the message to their children. The company derived a two-pronged benefit followingthis strategy. It got publicity, and collected a database of three lakh. Kumar admits candidly, “if we had said, we are going to make bubble gums, no one would have noticed. “This database helps the company in market research. Every product, which goes on the floor, is tested against this target audience group. The company makes it a point to update this databank constantly and it receives 30-35 letters daily from children. Candico responds to every letter and birthday cards are sent out signed personally by Kumar. Candico had two options before it embarked on its strategy. First, take on Perfettl and Jayco head-on, which would have meant spending huge sums on promotional campaigns. The other option was correspondence with 18,000 children. 10,000 questionnaires were sent out enquiring about the price, look, colour and flavour they preferred.
The answers showed that children were comfortable in the 50-paise slot. If the company could give a bubble gum, it was givng its customers value for money. Based on this feedback, Candico launched big Bubble Gum. The lower price enabled Candico to take on the unorganised sector and, more importantly, it captured a large part of the market as ‘it was giving the quality and size of a rupee at 50 paise’. Candico, with its lower pricing strategy has targeted the 2,100 tonnes a month market for bubble gums in one rupee segment. Extra costs on marketing and sales were cut. Company’s margins were cut. Which were advanced to the consumer? “MNCs would not be able to afford this cost so we will be able to maintain maintain market share, “is Kumars’s judgement on the matter.
Has the company compromised on quality due to low prices? Kumar counters the claim by saying, “We have a technical collaboration with Eurobase, a Belgium company, which provides us with the base of bubble gum,” A wholesale pack of big Bubble Gum displays this prominently , as an assurance of quality. Candico’s main competitors are Perfetti and Jayco. Perfetti has Centre Fresh and Bib Babool. Jayco has Boomer. All these are priced at Rs. 1 a piece.
Candico’s logic is simple. If children can be satisfied at half the price, the rupee segment Would be wiped out. According to Kumar, “Perfetti sells 910 tonnes per month, Candico 525 tonnes per month, while the rest of the 2,100 tonnes a month (organised market) is held by Jayco, Chicklets, and Wrigley’s. The unorganised market is difficult to compute. Candico’s share has increased multifold since big Bubble Gum’s launch in June 1999. Inane sounding names such as Loco Poco ( Means ‘mad’ in Spanish), Jumbo Gumbo, Americano, Freedom, and big Bubble Gum for its products have been chosen with a purpose. Kumar says, “Bubble gum is not a serious buy, it is leisure buy, so simple names such as Freedom, which is an expression of an attitude have been used. We want to be in the mind before we are on the shelf.”
Advertising and promotions are an important part of Candico’s market strategy. Six per cent of the company’s outlay is spent on advertising and promotions. Candico’s advertising account is being handled by Ambience. The brief is to project Candico as ‘a sweet company’. This would carry Candico beyond being a mere bubble gum company. The target market is composed of children in the age group of 4 to 17 years. Candico has gone for promotions in a big way. For instance, customers can exchange six wrappers for a postcard of their favourite star) (Cricketers and film stars). For retailers, the company offers over 250 kg of silver in the shape of 51,000 silver coins and other prizes to be won. A prize coupon inside every dispenser enables retailers to win prizes.
The company’s marketing team keeps a track of the happening trends and preferences of children. As bubble gums are casual purchase, customers are not bound by brand loyalty. Grabbing their attention is a challenge. And grabbing he attention of kids is not child’s play. Freebies such as tattoos, stickers, cricketers’ and field start’s posters fulfil their role as magnets quite admirably. The company’s database from the YCP also helps it keep a tab on changing customer preferences. Kumar says, “The marketing team has to constantly think about innovation. We fail sometimes, but most of the time we succeed.” Kumar is not boasting when he says that.
Candico has 1,000 distributors and a reach of around 2.2 lakh retail outlets. It is trying to increase this by 25 per cent in the next three to six months. The company has a marketing field force and distribution team of 250 each. Its marketing infrastructure covers all the major states for all its products. Moreover, the company is zeroing in on the SEC B a d SEC c categories which we are targeting. “What about the rural areas then? As of now, Candico’s products are easily available in towns with a population of 25,000. In towns with a lesser population, Kumar says. “We are there but these areas are not very well covered. But we can double or triple our coverage in these places.”
Candico is also looking at export markets earnestly. At present, the company is going for the countries in South and West Asia. Explaining the rationale, Kumar says. “The buying pattern in these countries is more or less the same as in India. Moreover, these are growing markets. We are getting requests to manufacture for the American markets, but presently we do not have the line and energy to go to these markets as a private label.” Candico is presently exporting to Nepal, Srilanka, Bangladesh, and the Maldives. AchalKhaneja, deputy general manager Candico says. “We export 90 tonnes a month to Nepal (ten trucks). In the rest of the markets we are close to 90 tonnes.”
Over the years, high levies on bubble gum have been a major grouse for manufacturers of this product. Though taxation on bubble gums is 16 per cent compared to eight per cent on other confectionerie. Candico is not perturbed. “It is still a virgin market and as we have not covered enough, I have no reason to complain. Only when the market reaches saturation can I ask for the Government help.” Is what Kumar feels.
Candico presently has a turnover of around Rs.84 crore. Since it is also into private labelling.Candico’s share would come to around Rs. 75-76 crore. In 1996-97 and 1997-98. Candico’s turnover was Rs. 65 crore and Rs. 74 crore respectively. Though Candico is into gums, sweets, candies and mints, it is concentrating on bubble gums. Kumar admits candidly. “As it is not possible to devote equal attention to all the categories simultaneously, our primary focus is on gums. Once we have carved a niche in the gums arena, we will concentrate on other categories.”
And what are the plans for future? Candico plans to include seven to ten products every year to ensure a growth rate of 40 per cent per annum. Its plan of achieving a target of over 200 crore by the turn of the century now seemfar fetched. Pontificating on the future, Kumar says, “We have not touched even the tip of the iceberg. We have capacities for growth for the next three years. Our Nagpur plant manufactures 825 tonnes per month, and with minor equipment balancing this can go up to 1,000 tonnes.”
According to the projections made in a recent report by consultancy firm McKinsey, the Indian confectionery market will grow to Rs. 6,4000crore (present estimates peg the market at Rs. 1,500 crore) by 2005. “As long as Americans teach us the American way of life, bubble gum sales are here to stay and boom.” Jokes Kumar, “More seriously,” he adds, “chewing has always beena part of Indian tradition, we are only converting it into a pocket holding opportunity.” Candico’s big Bubble Gum, illustrates the point beng made by market analysts for years. In a country like India, the road to success involves, targeting volumes with low-priced goods. In that case, Candico has the right ideas.
QUESTIONS
1. What are the significant issues in the case?
2. Evaluate Candico’s strategy. What external factors have been kept in mind while developing the strategy?
3. Is the competitive advantage of Candico sustainable in the long-run? Explain.
CASE 07: SERVICE DIFFERENTIATION AT BRITISH AIRWAYS
Since, 1990s, international airlines saw increasing competition and providing services became a major factor to differentiate and a key to success. Carriers lost billions of dollars and needed to raise the Airfares. Some airline executives believed that improved service package would make increased fares more acceptable to the customers. Adopting this approach, companies started focusing on services rather than competing on price dimension. No one did it better than British Airways and in an annual poll conducted by a magazine, business travellers rated British Airways as providing the best service.
British Airways has come a long way since 1982 when it lost $ 1 billion, an industry record. When Colin Marshall took over as CEO in 1983, everyone in the industry made fun and laughed at the carrier. Comedians referred to it by its initials BA, as “Bloody Awful”. Employees’ morale had hit rock bottom, thousands of employees were laid off, and those remaining were embarrassed to work for the world’s worst airline. Marshall’s first challenge was to restore price. To send a clear message to the employees and potential customers, he ordered newly designed uniforms for all personnel. The planes were repainted with bright stripes with the motto “To fly to serve.”
Marshall ensured that the airline lived up to its new motto. He launched a major campaign to change the employee’s attitude towards the service. He guessed that many passengers, especially business travellers, wanted better service. He therefore, required all employees to participate in a two-day seminar, “Putting People First,” which put the airline employees in the role of the customers. In the seminar, employees discussed their own experiences with poor service.
Immediately, British Airways worked to overcome more obvious problems, such as uninteresting food, poor cabin service, and insufficient legroom. But Marshal also examined the less obvious. For example, the research revealed that passengers like to be called by names. BA employees spent several months observing passengers on flight from London to Glasgow and Manchester. The customers’ satisfaction score went up about 60 per cent when ticket agents addressed customers by their name. This was the beginning and BA ticket agents were expected to call customers by name whenever the opportunity arose. Multilingual employees were placed at the London’s Heathrow Airport to help passengers. British Airways set up booths at JFK Airport in New York City so that they could videotape the passengers’ comments about British Airways service. Finally, at present, the airline changes flight schedules according to the customers’ convenience.
British Airways also revamped its Concorde flights. Marshall decided to use British Airways’ seven Concorde aircrafts, which were losing money. This was to symbolise, the revitalised image of the airline. The company redecorated the planes and hiked fares by 30 per cent more than the first class fares that conventional jets, British Airways concentrated its advertising on the importance of time to business travellers. As an outcome. BA’s Concorde achieved over 60 per cent occupancy, which was the break-even point on transatlantic routes.
British Airways also invested $ 40 million to improve first-class service. The airline redesigned cabin interiors and put a video terminal at each seat. The new wine cellar offered an improved selection; menu allowed first-class passengers to eat when they wished.
In discussing service, the British Airways’ CEO recalled the famous Twentieth Century Limited, the train that ran from New York to Chicago. Conductors would pay to the passengers $ 1 for every minute the train was fate, no matter who or what was to be blamed. Air traffic delays and weather problems would make it next to impossible for airlines to make the same offer. Marshal said. “We could promise to make the delays completely painless with concentrated service attention. Think how many customers you could acquire for life, if and when the guarantee is cheerfully. Quickly, and easily paid.” The improvements at British Airways drew the attention of managers from other airlines and other service industries. The changes also turned the company around. In 1991, profits for British Airways were at an industry high of $ 496 million. Its average revenue per passenger. $396, was among the best in the industry. In terms of passengers carried and miles flown. British Airways became the largest international airline in the world:
British Airways would like to provide its much lauded service to the passengers across the world. In July 1992, it finalised an agreement with US Air to form a transatlantic alliance. But it withdrew its $ 750 million bid for 44 per cent of US Air, as it became clear that the U.S. government would not approve the deal. The proposed deal resulted in protests from major U>S> airlines, which claimed that the British would have a substantial head start in becoming the first global airline. British Airways second bid of $ 300 million for 19.9 per cent of US Air was approved in March 1993. Together, the two carriers were to serve 339 cities in 71 countries.
QUESTIONS:
1. Analyse the case and identify reasons that made the British Airways a laughingstock in the industry? Why was it necessary to change the employees’ attitude toward service?
2. What effect the new alliance would have on the services offered by other airlines?
3. Why would a passenger pay30 per cent more to fly the same destination?
CASE 08: OFF COLOUR
Despite Periodic makeovers colour cosmetics brand Tips and Toes is losing its sheen. Reinventing a brand is always a challenge in a market where product life cycles are as short as four or five months, driven by fickle trends and seasons.
A strong case in point is Tips and Toes, launched by Paramount Cosmetics in 1979, which started as a nail colour brand and then grew to include lipsticks and other cosmetic and toiletry products.
After a series of brand extensions and re-launches, the brand is looking for some “divine” inspiration to make its mark in an increasingly competitive business. The latest avatars of Tips and Toes are the Goddess and the Eve Divine ranges, which hit the market early this year.
However, neither of the products has acquired many converts. Brands like Lakme, Revlon and Lissome ( a new entrant in the economy segment ) are still far more visible on a cosmetic retailer’s shelves.
A visit to any marketplace in Mumbai shows that at least four out of 10 retailers think that the brand has been phased out. And the remaining don’t want to stock the brand anymore.
This marks a stark colour contrast to the 1980s when the brand enjoyed tremendous equity as the only other organised player apart from the Tata-owned Lakme in the cosmetics business. It rose to dominate about 30 per cent of the nail colour market.
But over the years, it has been chipped out of the reckoning. Lakme continues to dominate the cosmetics market with a 50 per cent share, followed by Revlon at 12 per cent and Maybelline at 8 per cent.
Tips and Toes is a small player selling at only 2,000 outlets. A competitor asserts. “The brand has fallen out of our consideration over the past five or six years.”
So why did the colour start fading from Tips and Toes’ performance? This was partly a result of excise anomalies. Back in the 1980s, to encourage smaller-scale industry, manufacturing units with turnovers of more than Rs. 15 lakh were subject to excise duty of 120 per cent.
As a solution, Paramount Cosmetics divided its own manufacturing outfit into 27-odd units to meet the small-scale criterion. But in 1997, excise duty was standardised to cover all manufacturing units irrespective of their turnover.
Obviously, it no longer made sense to stick to the model of manufacturing at so many small units of its own.
“Paramount was late to realise that it would be better to outsource its manufacturing and concentrate on marketing, given the increased levels of competition in the cosmetic market.” Says a market watcher.
On the other hand, Lakme was quick to outsource its production in 1995. Pre3viously, the company manufactured at its Deonar plant, a Mumbai suburb. Paramount followed suit only in the year, 2000 when it outsourced to three manufacturers.
The problems of manufacturing consolidation impinged on marketing strategies too. During the 90s, as competition started making its mark, Paramount was consistently late to market...
This is a major issue in a business like colour cosmetics where fashions change every few months. Players like Lakme, Revlon and Maybelline launch at least two new ranges in a year
For example, the mid-1990s saw the launch of an imported matte formal lipstick brand called Personi, which set off a fashion for matte lipsticks in India.
Distributors recall that Lakme and Gala were the first to launch their matte ranges almost immediately.
Distributors recall that Lakme and Gala were the first to launch their matte ranges almost immediately. But Tips and Toes launched its matte collection only in 1998.
Again, while the colour trend shifted to lighter and glossy colours in 2001, Tips and toes largely stuckto the dark shades like red and maroon—and this continues even in its Goddess collection.
“We also create colours in line with the market but or study shows that regular shades ( red and browns ) are still the faster moving shades,” explains Hitesh Topiwala, director, marketing, Paramount
Also, when others were pushing their economy ranges, Tips and Toes lost the opportunity although it was in a position to do so after cutting costs by outsourcing its new nail colours.
It was only in 2002 that the company launched its range of “mini” nail colours priced at Rs. 18. This was much after the launch of Elle 18---Lakme’s economy brand launched in 1995. And where Lakme targetedthe faster growing market for teenagers through Elle 18, Tips and toes sharpened its focus on women aged between 20 and 35 years.
“Our understanding and experience of the changing needs of the Indian women made us move from teenagers to a young woman,” says Topiwala.
Also, brand extensions have been slow in coming. For example, in the early 1980s, Tips and Toes was restricted to nail colours while Lakme had forayed into lipsticks and basic skincare and make up products like compact powder and winter-care lotion. When Paramount finally started expanding its range, it made too many mistakes.
For instance, the company launched its lipstick brand under the name Kiss in Tell because research showed that Tips and Toes brand name suggested only nail colours. That turned out to be a bad decision because customers felt shy about asking for it by name at shops.
The company then tried to correct its mistake by calling its lipsticks “Whisper’. But Proctor & Gamble had already got that brand name registered for its sanitary products. Thus, Paramount eventually had to bring in its lipsticks under the fold of Tips and Toes name.
In the event, this was actually a good thing because Paramount could not summon up enough resources to market its subsequent extensions under different brand names----a skincare brand Enriche and a men’s toiletries brand called Instinct among them—adequately.
Compare this with Lakme, which launched all its ranges under the umbrella brand. Former company officials recall that there were bottlenecks in the distribution network too. This was partly because of the over-abundance in shades that the company supplied in the market.
Till recently, the company focused on pushing quantity rather than learning from the competition and launching seasonal ranges.
For example, in the 1980s, Tips and Toes had an exhaustive shade card running into 80-odd shades compared to Lakme’s modest 48 shades.
Pushing a large number of shades in the market was difficult when only a few moved fast according to season and trend. Inevitably, this led to overstocking at retail stores.
“To add to it, neither did the company take back the returned stock nor did it increase visits to replenish stock,” recalls a former Mumbai-based distributor, who distributed the brand till the late 1990s.
Even as Tips and Toes finally trimmed its colour portfolio down to 21 lip colour shades and 37 nail colours, Its emphasis on darkish colours like maroons and browns has stayed in spite of the trend moving towards floral shades, say retailers.
The company says that it has corrected the problem of the backlog of slower moving shades piling at stores now. Says Topiwala. “With the Goddess range, we have learnt which shades move faster. Accordingly, the shades are taken off the shelves in about three-four months’ times and replenished with the faster moving stock.”
Pricing was another big issue. Back in the early 1990s, the company had launched another range of premium colour cosmetics called Cloud Nine targeted at teenagers. But the premium pricing didn’t help simply because teenagers couldn’t afford it.
Later, Lakme launched Elle 18 --- its colour cosmetics targeted at teenagers, which was priced economically. For instance, while Lakme lipsticks and nail colours cost Rs.58 and Rs.39 in the mid-1990s, an Elle 18 lipstick costs about Rs.35 and Rs.25. Paramount cut Cloud Nine prices to take on Elle 18 but eventually had to discontinue it.
Then, when Tips and toes made a comeback with the Goddess range, it cold have done better by focusing on the B and C class cities, say market watchers. This is because Tips and Toes is 20 per cent cheaper than brands like Lakme.
Currently, Tips and Toes is present in only two or three key cities in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Delhi.
“We target metros and a class cities only because Tips and Toes is essentially an urban brand. Also, women in smaller towns are influenced by urbane imagery, so it’s essential to maintain this positioning,” says Topiwala.
But for that, Paramount will have to fight for its share of consumer mine-space. Despite spurts of advertising in women’s magazines, the brand has stayed in the shadows through most of the 1990s. Though Paramount claims it spends about 15 per cent of its turnover on ads and below-the-line activities, lack of consistent mass-media advertising has pushed the brand onto the side lines. Tips and Toes distributors and retailers in Mumbai vouch for that.
“The more visible the brand is, the more customers ask for it. Demand is directly proportionate to advertising in the mass media,” says one of them. Will tips and Toes listen to its past to add colour to its dull present?
QUESTION:
1. Study the case and identify the stage of Tips and Toes life cycle. What mistakes Paramount Cosmetics committed for its brand Tips and Toes.
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