final strategist r1

2Business Standard

www.business-standard.com

1) Foodles in the Noodle Bowl 3

2) HUL`S Marketing Mantra 4M 5

3) Oiling the Chain 6

4) The Battle of the Bourses 8

5) Back to Data 11

6) The Del Monte Difference 14

7) Building Brand Infosys 16

8) Entertainment Incorporated 19

9) Nerolac nets a new Hue 21

10) Can Kwality Walls beat the heat 23

11) Spicejets flight to profit 26

12) Slower trade, Smaller packs 28

13) Turbo Turnaround 30

14) Tale of Contrast 32

15) German Design 34

16) Unity in Diversity 37

17) Change the Green Knight 40

18) Korean takeover 43

19) Indovation 46

20) Building Virtual Mall 49

21) A Fresh Coat for Dulux 52

22) Social Media altering role of Brand Managers 54

23) Seeking to score a Goal 55

24) Chevrolet all the way 57

25) Time to Zoop 59

26) Pepsodent fights on 61

27) Prickly Competition to beat the heat 63

28) Clash of the Teutons 64

29) Three screens & the cloud 66

30) Coming out of the Closet 69

31) Match on for Videocon 71

32) Reebok Straddles Mass & Class 74

33) IITS Slip in Asian University rankings 77

34) Ad Fest or War Fest 78

35) Idiots lead the pack 80

36) Amrutanjan:Pain for suitors 82

37) Fast moving food business 84

38) Stretching out in a tight space 87

39) Summer Mischief 90

40) Scaling the Chinese Wall 92

41) Volkswagens big leap 95

42) General Electric 2.0 96

43) Danone India seeks wealth in health 99

44) Overseas Call 100

45) In-Film branding goes regional 103

46) Designs on Profit 104

47) Are you game? 106

48) Kellogg`s goes snacking 108

49) Radio days are back 109

50) Money for Value 110

I N D E X

3


Business Standard

GlaxoSmithKline ConsumerHealthcare (GSK) has entered theinstant noodles market which isruled by a brand that is synony-mous with the category —

Nestlé’s Maggi. While its Rs 1,500-croremalted drink additive, Horlicks, has had along reign at the top, this time GSK is thechallenger. Instant noodles were intro-duced in the country by Nestlé underMaggi in 1984. Since then, many rivalshave come and gone but Maggi’s rule hasremained unshakable. The market forinstant noodles is worth Rs 1,137 crore,according to Nielsen, and is growing at 20per cent per annum. Out of this, MaggiMasala-flavoured maida (processedflour) noodles command around 91 percent; other Maggi products and flavours,and all other brands make the remaining 9per cent. No other food category has suchdominance of one brand.

Horlicks Foodles is GSK’s attempt toget a share of this pie. Not just Nestlé’sMaggi, it has to contend with HindustanUnilever which has entered the instantnoodles snacking segment for the secondtime with Knorr Soupy Noodles. (It hadearlier tried its hand with a tie-up withIndo-Nissin for its Smoodles in the1990s. It had also launched and laterwithdrawn a rice- and vegetable-basedpudding with a chutney mix for eveningsnacking called 4 O’Clock Tiffin earlierthis decade.) Private labels of large retail-ers like the Future group (Tasty Treat)have gained some traction with theirlower price tags — some of them claim to

have grown 15 per cent in the last oneyear. ITC, which has done well for itselfin categories like flour, salted snacks,confectionaries and biscuits, has so farshied away from instant noodles; itscooks and experts have not been able tocome out with a unique flavour to takeon Maggi. GSK has chosen HorlicksFoodles for its entry into salty foods, acategory that hinges on the very subjec-tive criterion of taste. On its target is 6 percent of the market in a year or so.

Health is wealthGSK says Foodles is nutritious instantnoodles. Will that be enough to cause abreach in Maggi’s stronghold? Thecompany claims the proof lies inthe test-marketing. GSKExecutive Vice-president(marketing) ShubhajitSen says that Foodleshas been able to gar-ner 5 per cent of salesin the South and Eastwhere it was soft-launched before goingnational. That could mean saleof around Rs 25 crore from twozones — around 2 per cent of the over-all market. It was good enough for GSKto compress the 18-month deadline for anational rollout and do it in July.

Instant noodles are no longer alienfood in India. An IMRB report says45 per cent of all householdsconsume instant noodles. ButGSK’s internal studies showed that

instant noodles were not usually consid-ered healthy. It found that mothers feltguilty serving instant noodles to chil-dren because maida is not as healthy asatta or wholegram wheat. As a result,mothers fortified the noodles with veg-etables and eggs. This was a vital clue forGSK before it got started. “The fact thatthe category is so lopsided presents a big-ger opportunity

FOODLES IN THENOODLE BOWL

GSK is pitching new Horlicks Foodles as a healthier option in instantnoodles.Can it storm Maggi’s stronghold? Sayantani Kar

4Business Standard


than usual to position oneself dif-ferently and get heard. Even thoughinstant noodles right now havetheir centre of gravity in taste, wecan afford to offer one with nutri-tion because we are good at under-standing what makes for nutrition,”says Sen.

GSK struck a partnership with Nissin,the maker of Top Ramen Smoodles, theoriginal Maggi-challenger. Nissin helpedGSK first in research and then in produc-tion. The result was a maidaproduct andanother noodle made from four differentgrains as a healthier option. Both containminerals in their tastemakers. It madesense to retain Horlicks as the motherbrand because of its strong brand equityin the health segment. The brand’s Indiasale alone contributes 70-75 per cent toits global turnover. It also reiterated theassociation with wellness. To drum in thefact that Foodles stands for nutrition,GSK is now working on a tactical insightfrom its test launch: It found the need totag the packs with the respective flavoursand ingredients more clearly. It has alsoensured that it gives out clues of the noo-dles being tasty and healthy on the packitself. “The key lies in increasing the visi-bility,” says Sen. Horlicks has ensuredfloor-standing units, hangars and basketsat stores to highlight the product.

But isn’t it too late? Maggi reposi-tioned itself as a healthier snack optionsome years ago when it introduced riceand atta noodles, and adopted thetagline, “Taste bhi, health bhi” (Taste aswell as health). But the contribution ofthese variants to its total turnoverremains small. It has in its portfolio nofewer than three products and five vari-ants in the instant noodles category.Most may not contribute much to sales,but they block out several entry pointsfor rivals. One has to try really hard tocome out with a killer product.Meanwhile, Nestlé strengthenedMaggi's position last year by launchingan interactive advertising campaign,which sought to build emotional bondswith consumers.

Price playGSK sure knows the market. To beginwith, Foodles will talk to urban con-

sumers, unlike Maggi which has gonerural and deep into urban markets withits small Rs-5 pack. “We were presentwith only single-pack sizes whichaccount for 28-29 per cent of the market.The larger family packs of eight and fourstrips are being rolled out now,” informsSen. It is also priced at a premium, inline with the mid-premium image of itsmother brand Horlicks. Its multigrainvariant costs Rs 15 for 80 gm comparedto Maggi’s Rs 10 for 80 gm.

To be sure, there exist smallerbrands than Maggi and Knorr in themarket like Capital Foods’ Ching’sSecret and Smith & Jones, andChoudhary Group’s Wai Wai. GSK maytry to gain a foothold in the market bydisplacing these brands first. For that, itcan count on its revamped distributionnetwork — it reaches 600,000 retail out-lets directly and another 1 millionthrough distributors. Of course, theretailers who stock Horlicks can alsostock instant noodles. So far as privatelabels are concerned, Sen says they arejust price warriors and that too within alimited network. “Modern tradeaccounts for only 8 per cent of the cate-gory sale. Private labels often play thelow-cost card and are not really buildingbrands.”

That may be fine, but GSK has toface a rejuvenated Hindustan Unilever.It has packaged noodles with soup inKnorr Soupy Noodles — while instantnoodles may be unhealthy, soup is seenas a healthy option in Indian house-holds. And there is sufficient differenti-ation too: The product harks on the dif-ferent way of eating noodles rather thantaste or nutrition. Taking the idea fromits Noodle Soup which was sold underKnorr soups, the company is aiming to

ride the noodle-eating habit topopularise its soups whichwere otherwise bought largely

in winter. In its aggression, iteven replaced soups with instant

noodles for the same positioningas a mid-evening meal for kids. It

has cranked its sales force forground-level activation like in-shop

demonstrations.

Spreading risksIt is crucial for Foodles to succeed. It is,after all, a part of GSK’s diversificationbeyond malted health drinks based onindigenously developed products. Thisplan got momentum after ZubairAhmed took over as the managing direc-tor in 2007. (He was running Gillette inIndia but left after it got acquired byProcter & Gamble.) At present, morethan 58 per cent of GSK’s revenue comesfrom Horlicks, that too mostly from theSouth and East. Good business senserequires GSK to spread its risks acrossmore products and more markets. Thus,while 2008 saw it launch variants ofHorlicks and a brand refresh of Boost,2009 led it into biscuits, flavoured milkand cereal bars. GSK is targeting half itsgrowth from new products every year sothat by 2012-13, 25 per cent of its busi-ness comes from its Indian innovations.Foodles could help GSK fortify Horlicksacross India. GSK tested Foodles first inthe South and East where Horlicks isstrong. Since milk is more abundant inthe North and West, flavours in the formof ‘brown’ additives are more popular,according to Shirish Pardeshi, senioranalyst of Anand Rathi Securities. So,there is room for Horlicks to grow here.Foodles could ride on its success. “WithFoodles, GSK could score better for theHorlicks brand name in these regions.”

As income levels rise and packagedfood finds more takers, experimentalusers will fragment the instant noodlesmarket. The next few months willdecide if the current crop of players cancontinue to sell or will they have to gofor a market check. As for GSK, willFoodles help it grab more sales? Theanswer will show up in the next fewfinancial results.

Firm regains volume growth viafocus on market share, marketdevelopment, margins andconsumers' mood Sitting in hiscorner office at Hindustan

Unilever's spanking new headquartersin Mumbai, Nitin Paranjpe often walksup to his sales director to ask him the fol-lowing questions : Why has the compa-ny's product movement slowed down inAsansol in the past couple of days? Or,why aren't there enough stocks in theFMCG major's Coimbatore depot?

The questions are hypothetical, butshow how the fast moving consumergoods major is using technology for mar-ket development. HUL Chairman andPresident of Unilever Asia, Africa HarishManwani says, “It's no longer enoughjust to deliver the products, it's nowmore important to compete for non-users of branded FMCG products”.

HUL has gone into strategic partner-ships with technology companies forsuch targeted market development. Forexample, the company's sales personswill have in their hand-held devices alldetails of kirana stores in the areas theyoperate in.

Initiatives like this have given vitalmarketing lessons in consumer insights.For example, the company found that theAnnapurna atta sells more in the souththan north. Surveys found that unlikethe practice in the north, people in thesouth eat rotis only occassionally andprefer atta in packaged forms.

Manwani says these little things havehelped HUL achieve a double-digit vol-ume growth in the first quarter of thisyear. That's a sharp rebound considering

that the company's performance hadslipped in fiscal 2010.

“While everyone was going intostores, we went into consumers' homesto find out what she wants. This is a partof the 4M of marketing - market develop-ment, market share, margins and moodof the consumers”, Manwani says. Theother part of course was constant inno-vation to build markets. One of the rea-sons why margins rose sharply duringthe first quarter was better product mixdue to new launches. In the last one yearalone, HUL had 30 product launches.

HUL believes there is a huge marketdevelopment opportunity in countrieslike India as consumption is still one-third that in Indonesia and one-sevenththat in China.

He gives the example of Dove sham-poo to show how market developmentinitiatives have worked for the company.From zero, the company now has over 7per cent of market share and leads inmodern trade. Soupy snacks are a differ-entiated offering, so is Brooke BondSehatmand tea, demonstrating HUL'sfundamental business model of strad-dling the pyramid.

HUL has codified how it can go aboutdoing market development and cater to alarge number of heterogeneous con-sumers. In the laundry market, for exam-ple, the company has Wheel at the massend, Rin the middle and Surf at the topend. Manwani says for a company likeHUL which has built brands and posi-tions, the challenge is how do you getpeople to use more, buy more, pay more,which is uptrade. Take the example ofPonds. It was earlier known only as a

cold cream, but now it has seen signifi-cant uptrade.

In the premium range, you havePonds age miracle and other skin careproducts.

The same game is now being playedin the hair conditioning segment, whichhas the potential to grow as big as sham-poo. HUL is confident of trebling its ruralreach in two years - an audacious planconsidering that the company wants tocreate in two years what it created in thelast 25 years. But Manwani is confidentof achieving that due to the company re-emerging as thought leaders in the mar-ket place.

It has launched initiatives like 'go tomarket' and 'Bushfire' so that the compa-ny can ensure reaching its products toseven million outlets instead of sellingthe product in just 2,000 modern tradestores. There is a different level of chal-lenge here,” he says.

Manwani says another important les-son (the fourth' M') the company haslearnt is understanding the mood of thelocal consumers. “Our formula is thinkglobal, act local, as blindly transportingproducts without local understandingmakes no sense. “If you are in India, thinkobsessively about Indian consumers, butact global. So find out the needs of yourIndian consumer and then use globalscale to provide the best solution globallyfor the Indian consumer,” he says. Knorris a perfect example of this. From justsoup, it has not only moved to soupy noo-dles (soups and snacks), which is a run-away success, but is now positioned as acomplete cooking aid (meal maker) forIndian housewives.

Business Standard


5

HUL'S MARKETINGMANTRA: 4M

Arijit Barman

Emami is bringing its supply chainup to speed as it enters new cate-gories You can't fault Emami

Director Aditya Agarwal when he says:“Our strength lies in marketing.” With 16per cent of its turnover reserved for mar-keting, the Kolkata-headquarteredEmami, maker of FMCG and over-the-counter health products, is undoubtedlya marketing-led company. It has brandslike Himani BoroPlus (Rs 250 crore insize) and Navratna (Rs 300 crore) in itsportfolio and wants to launch eight to tenproducts every year. From a little over Rs1,000 crore in 2009-10, it wants to becomeRs 2,000 crore in size within two years.

In the days to come, it is betting big onproducts like soap, talcum powder andshampoo - the bastion of multinationalcorporations like Hindustan Unilever,Procter & Gamble, Reckitt Benckiser andJohnson & Johnson and homespun streetfighters like Godrej and Dabur. Just mar-keting skills won't be good enough,Emami has realised. It has thus under-taken an exercise to make its supplychain efficient. With seven factories, fivedepartments, around 120 stock keepingunits (SKUs), many of which are season-al, 35 warehouses, 2,500 stockists and4,25,000 retailers, it was a long chain.The acquisition of Zandu added to it.

Emami went to work with Ernst &Young's business advisory arm to stemsupply chain efficiencies in late-2008.The professional services firm posi-tioned its team at the Emami headquar-ters to help the company achieve a lean-er supply chain, among other things.

Till then, Emami's products were notable to move quickly on the supply chainto meet the change in consumerdemand. Either there would be a lot ofinventory languishing along the chain orthere would be too little to take care of a

surge in demand at the retail stores. Theformer hiked operational costs (in occu-pied warehouse space, cost of buyingraw materials, dead stocks and so on),while the latter led to lost opportunitiesto sell to consumers who were lookingfor its products. “There would also be adelay of two to three months for a newproduct to reach the stores,” points outEmami CEO N Venkat.

It's not that the company did notmake demand forecasts. The problemwas the five departments entrusted withthe job - sourcing, production, planning& logistics, sales and marketing - werenot working as one team. Each worked inits own silo. Any change in customerpreference got lost in the lack of commu-nication between the various depart-ments. Says Emami Supply Chain

General Manager Samir Chaturvedi:“This led to high variations in theamount that was forecast, produced, dis-tributed and got sold.” This was at theheart of the overhaul that Ernst & Youngsuggested to the company.

Silo breakingEmami opted for unified planning, asErnst & Young had suggested. The con-solidated sales forecast that comes innow from the area sales managers, in thefirst week of the month, is first runthrough the marketing and brandingteams. Both the teams arrive at a forecastthat also takes into account any surgeexpected after new brand campaigns orlaunches. The planning team then con-verts it into a production plan, in tandemwith production and sourcing teams. On

Business Standard


6

OILING THE CHAINEmami is bringing its supply chain up to speed as it enters new categories Sayantani Kar

the next day, there is meeting of all thefive departments to freeze the sale andproduction plan for the month.

Each brand with its different SKUs isassessed on the previous month's leftoverstocks, the current month's forecast andthe next month's buffer stock forecast.Since Emami, like many other compa-nies, has a rolling system of forecastsspanning three months, minor surges indemand in the current month oftensquare off against the buffer stocks of theprevious month. However, what can setoff an inventory pile-up, and hence lockup operating capital, would be an awryforecast for the next month. One of themetrics that Emami has evolved is fore-casting fidelity which measures the accu-racy for forecast. It has gone up from 50per cent to 70 per cent of the stocks, whichshows that Emami is increasingly gettingthe forecast for the next month right.

Accurate forecasting is even more crit-ical for Emami because it has a large port-folio of seasonal products like HimaniBoroPlus prickly heat powder and sun-protection lotion for the summers andHimani BoroPlus cold cream for the win-ters. Of its 110 SKUs of FMCGs, around 22are for winter, 33 are for summer and 55are all-season. It has to take stock of thesudden spikes in demand for one set ofproducts, while the other set slackens. Abad forecast can leave Emami with oldstocks which could become redundantthe next season. Emami now forecasts forits seasonal products four to five monthsin advance, with in-built flexibility closerto the season. This is also why it wants toup its production capacity by as much as40 per cent and automate its factories bynext year. Some products like BoroplusTalc and Navratna Talc had faced a supplycrunch due to low capacity at Emami'sthird-party manufacturers.

The leaner supply chain has broughtdown Emami's own internal estimates ofloss of sale. Amidst an industry average of0.8-1.3 per cent loss of sale of stocks,Emami brought its own 4 per cent downto 1-1.5 per cent. After all, 94 per cent ofthe demand is being met by availablestocks as opposed to 80 per cent stockavailability earlier. The most tangibleresult of the tighter supply chain has beenthe cutting down the time inventory

spends in the chain, or lead time, from 37days to 31 days. It has, consequently,unlocked an estimated Rs 1 crore in work-ing capital on an average every month.

Lean logisticsCosts have been drastically cut down intransport, a vital part of logistics in sup-ply chain. While a year back (2008-2009)it was 2.59 per cent of the turnover, it isnow 2.3 per cent. Analysts estimatesome of the big multinational FMCGcompanies to have transportation costsof 4.7 per cent, even though these haveadvantages of scale over Emami. Usingexpress modes (transport in less time fora premium) for just 10 per cent of thestocks instead of 30 per cent, enabled byless last-minute surprise fluctuations indemand (better forecast and adherenceto the universal plan), has helped.

Instead of hiring two or three largetransporters for its pan-India operations,as it had done earlier, Emami has enlist-ed 16 transporters. This has reducedmonopolistic pricing and got Emamilower prices and better servicing. Thehigher number of transporters has alsogiven the company the flexibility tomove its stock according to its forecastsor when replenishment is needed. Intransport, and in sourcing, Emami con-ducts reverse auctions now, where it setsa cut-off rate and transporters and ven-dors have to bid online.

Emami has also realigned its distribu-tion chain. It has put up “mother” ware-houses where all SKUs first reach from theplants before these are redistributed tosmaller warehouses and stockists. Ernst &Young Business Advisory Services PartnerAshish Nanda says: “A mother warehous-es was required to consolidate demand.” Itallowed better visibility of movement ofstocks and more flexible transfers.“Earlier, we would have kept buffer SKUsin different warehouses according to dis-crete forecasts. So, if there was any changeelsewhere, stocks would be stuck in otherplaces.” says Chaturvedi.

Emami is trying out a more extensiveversion of immediate replenishment ofstocks in its southern markets, asopposed to the forecasting it does in theother zones. Taking advantage of the factthat it had a depot in Hyderabad, which

became its mother warehouse for thesouth, Emami now keeps just 10 days ofbuffer stock there. If those get pulled bysmaller warehouses, only then does itrefill the main warehouse. There is less ofdead inventory, yet the demand is alwaysmet. The west and east zones would benext on its replenishment model map.

However, the quest for tighter fore-casts to lower loss of sale and operatingcost would only end with making saleseasier to track. Emami's sales team hadbeen manually filling out forms for fore-casting, based on their targets and stocksleft behind at the depot. Emami is nowbringing its big distributors online withthe help of information technology, leav-ing little room for assumptions. It will beable to track sales that distributors maketo retailers. “Sale from the stockist to theretailer cannot be manipulated. Thestockist might hoard up on stocks if thereis a good trade scheme going on for hewill have space to store, but the retailerwill often buy stocks that he can sell off,”points out Chaturvedi.

With Zandu's biggest brand beingbrought under Emami's core consumerdivision and a new factory inUttaranchal, the supply chain integra-tion has become easier for the acquisi-tion as well. The Ayurveda productsunder Zandu are planned separately totake into account their 15 to 30 days ofproduction process (fermentation main-ly). Chaturvedi claims it got easier whenEmami infused rigour into planningproducts that would get made once in 4months, once in three months and onceevery month on the existing capacity.

Still, there are challenges thatremain. Emami's plants are located onlyin the tax-free zones of the north and inthe North-East; the company thereforehas to work with higher lead times for apan-India distribution. Players whohave factories more liberally distributedboast of turnaround time of 15 to 18days because of faster transport and big-ger scale of operations. That is whyEmami's move becomes significant inthe light of the opportunity at hand.Branding differentiation alone wouldnot suffice. The full-blown benefits ofthe supply chain changes should be feltthis financial year.

Business Standard


7

Before the year is over, Sensex,which comprises the 30 most-traded shares on BombayStock Exchange (BSE), will

begin to trade on Deutsche Borse,Europe's largest stock exchange. Thestated intention of the move is to drawthe attention of large investors abroadto the happening Indian stock markets.The unstated intention is to regainmarket share and mind space fromarch rival National Stock Exchange

(NSE). Nifty, the NSE index of top 50shares, is already traded in the UnitedStates and Singapore.

BSE, which traces its history to1875, has been hammered black andblue by NSE which was born as a“child of competition” in 1992. BSE'sshare of stock trading, cash as well asderivatives, has fallen from 45 per centin 2000 to 12 per cent in 2005 and just6 per cent now. NSE has a virtualmonopoly over derivatives (futures

and options) trading in the country.This is a vicious cycle. In stock mar-kets, liquidity breeds liquidity.Because of higher liquidity, the bid-askspreads (the difference between thebest buy and best sell prices of anyscrip) on NSE are lower, which bringsdown the transaction costs for brokers.So, NSE's position as the preferredstock exchange gets strengthened dayafter day, week after week.

MR Mayya, a former executive

Business Standard


8

THE BATTLE OF THE BOURSES

Bombay Stock Exchange,under new CEO Madhu Kannan,wantsto re-invent itself. Is it too late? Sayantani Kar

Business Standard


9

director of BSE, says that the securitiesscam of 2001, wherein some BSE offi-cials were accused of leaking market-sensitive information, was the finalstraw. “That was the point when BSEbegan to lose out and people moved onto NSE,” says he. More than that, BSEwas unable to read the trend correctlywhen derivatives trading started in thecountry in June 2000. NSE, with itsnationwide reach, was able to capi-talise on it better. The daily volumes inthe derivatives segment are now closeto Rs 90,000 crore - way above the Rs20,000 crore in the cash segment - andalmost the entire trade is carried out onNSE. Moreover, NSE has put in placestrong system and complianceprocesses that have ensured that theexchange never suffered on account ofany payment issue. Even when themarket went through tough times in2008, thanks to the liquidity crunch,there was never any stoppage.

Equity trading is big business.Transactions have grown at a com-pounded annual rate of 46 per cent inthe last 14 years. The future too looksgood. Analysts at IDFC SSKI estimatethat with improving penetration, vol-umes could grow at 12 per cent perannum till 2014 and will reach the sizeof $5.3 trillion (Rs 2,46,10,000 crore)per annum. Operating profit marginsof a stock exchange can be as high as 60per cent. The stakes are too big for BSEto throw in the towel. It has a gameplanready to recover lost ground.

BSE, for a long time, was seen as aclub of a select few and a largely west-ern-India-oriented exchange.“Repositioning ourselves as a nationalexchange with professionals and per-sons of eminence guiding us has beenthe first step,” says BSE ManagingDirector & CEO Madhu Kannan. Beforehe took up this assignment in June lastyear, Kannan was the managing direc-tor of Bank of America Merrill Lynch.He has also worked as a senior execu-tive with NYSE Euronext.

Revival planKannan's first step was to build aworld-class A-team. Thus, JamesShapiro has joined from NYSE as head

of market development; SayeeSrinivasan, who was with the ChicagoMercantile Exchange, has come onboard to lead the product strategyteam; Nehal Vora, who has workedwith DSP Merrill Lynch as well as theSecurities and Exchange Board ofIndia, has taken over planning and pol-icy; and Ashish Chouhan fromReliance Industries is the deputy CEO.S Ramadorai, the former CEO of TataConsultancy Services, has taken overas the BSE chairman. The messagefrom his appointment is that theexchange wants to build its technolog-ical edge. “The strong managementteam is a definite advantage for BSE,and this a huge change from the past,”says Mayya.

The next step was to induce brokersto trade on BSE. While NSE took thelead here by tying up with the regionalstock exchanges, BSE has slashed itsmembership fees from Rs 1 crore to Rs10 lakh. As a result, Kannan claims,1,600 applications have come formembership from all over the country.“This way we can establish our pan-India presence,” says he. This has also

helped him bridge the gap in activemembers with NSE, which hadreached as high as 40 per cent. With anet worth of Rs 1,890 crore as onMarch 31, 2010, this was an affordablegamble for BSE to gain volumes. Halfthe new members are also members ofNSE. As arbitrage between NSE andBSE is a large business, this could helpKannan ramp up his volumes.

With more membership, Kannanhopes to get better volumes in thederivatives segment in the days tocome. Over 50,000 derivative quotesare available on the BSE screen.Kannan has launched software forderivatives called Fast Trade. It is, heclaims, cheaper than NSE's NOW buteasier for brokers to connect. Goingforward, Kannan wants to launch spotand futures trading on the samescreen. Through its strategic stake inthe United Stock Exchange, BSE willoffer currency derivatives and interestrate derivatives. But will this beenough to outpace NSE? It sure will betough. NSE has taken the lead in futur-istic products like algorithmic tradingin which BSE's share is minimal.

According to Kannan, this is becauseNSE does not allow such trades to beexecuted on BSE by common mem-bers.

Stock exchanges, the world over,offer an ever-widening bouquet of ser-vices to their members along with cut-ting-edge technology. This is whatdetermines the success or failure of anexchange. Kannan wants to tackle thischallenge by diversifying the BSE port-folio, apart from increasing the depthin existing verticals.

Thus, BSE has taken a stake in theNational Power Exchange, which willtrade in power units along with state-owned utilities NTPC and NHPC.Kannan claims that BSE's share in themarket for initial public offers (IPOs)has improved significantly. More than75 per cent of the companies that list inIndia choose BSE as the designatedexchange. The listing of the IndianDepository Receipts of StandardChartered gave BSE's image a boost.BSE also has a dominant share in dis-tribution of mutual funds throughstock exchanges.

In addition, BSE has increased itsstake from 38 per cent to 54 per cent inCentral Depository Services Ltd, aclearing corporation, which willenable it to process transactions at alower cost and offer speedier services.(NSE, in turn, has picked up over 25per cent in National SecuritiesDepository Ltd.) Depository fees form35 to 40 per cent of the transactioncosts; a stock exchange can reducethese costs by sharing commonprocesses and assets with the deposi-tory. Also on the anvil could be a sepa-rate trading platform for small andmedium enterprises, though suchexperiments in the country have failedmiserably before.

Technology first Kannan believes that the role of a stockexchange has transformed from trans-actions to a technology provider. So,what's coming next? “Mobile phone-based trading and dealing is beinglooked at very closely, and we havemade presentations to the regulator onthis topic,” says Kannan. The potential

to grow sure is huge. While there arejust 15 million demat accounts in thecountry, there are over 600 millionmobile phones.

BSE had recently acquiredMarketplace Technology, a firm thatspecialises in equity trading relatedsoftware. It has 150 customers includ-ing big names like Reliance Money,ICICI Direct, Motilal Oswal, Karvy andAnand Rathi Securities. Its front officesolution has been purchased by morethan 100 members of BSE. The acquisi-tion has helped Kannan establishBSE's presence in the technologyspace. NSE, in turn, has an activeinformation technology IT divisionthat has built significant strengths inthis area.

A big business for stock exchangesnowadays is data. Thus, exchangeslike the London Stock Exchange andNYSE Euronext get only around halftheir revenues from transactions - theother half comes from data-related ser-vices. BSE, with a strong brand andhuge pools of historical data, will lookat earnings from its data-related ser-vices and also from training. “I tell myteam that while we settle trades, wealso do a lot of other things,” saysKannan.

There are two problems here. Oneis that NSE is playing the same game.“What we have tried to do ever sinceNSE started is to see what the marketneeds, validate it against market voic-es, and try and build that to providethe best service at the lowest possibleprice. If that results in higher marketshare, it's good for us,” NSE ManagingDirector & CEO Ravi Narain says. Two,not everybody is sure that there will bemuch demand for the historical datalying with BSE. The demand in thecountry is for live data feed and nothistorical data, unlike in the West, sayskeptics.

BSE has been valued at $1 billion(Rs 4,700 crore). It could list for trad-ing in the future, once the Bimal JalanCommittee comes out with relevantguidelines. As a precursor, it has start-ed publishing its business results.(The net profit for 2009-10 was Rs 213crore on a turnover of Rs 485 crore.)Will it cut ice with traders and brokers?One thing if for sure: Whenever thelisting guidelines are in place, NSEwon't be left far behind.

Business Standard


10

Revamp the top management

Increase membership by

slashing fees

Launch spot and futures trading

on the same screen

Get into mobile-phone trading

Get Sensex derivatives listed on

Deutsche Borse

Provide technological solutions

Diversify into power trading, cur-

rency and interest rate derivatives

Launch a new trading platform

for SMEs

KANNAN'S GAMEPLAN

11

In 2002, when Mukesh Ambanihad launched his mobile andfixed-line telecom services onthe CDMA platform, he wasdetermined to rewrite the rules

of the game. Unlike his rivals whowere out to chase revenue from voicecalls, his strategy was to go for the datatraffic. He decided to offer consumershigh-speed internet access at home aswell as on the move, which could beused for high-quality video or musicdownloads, but at a bargain price ofaround Rs 500 a month.

His targets were ambitious: At least40 per cent of the total revenue (mobileand broadband) and at least 25 per centof the mobile revenue of RelianceInfocomm should come from datawithin five years. “We are gung hoabout data. We expect this market toboom if we offer customers at homeand office applications at affordablerates,” he had said in an interview toBusiness Standard. But his dream ofputting India on the world data mapcame a cropper. The Ambani brotherssplit in 2005, and Mukesh Ambani hadto turn Reliance Infocomm over to hisyounger brother, Anil Ambani. (It isnow called RelianceCommunications.) He also promisednever to enter telecom again.

Meanwhile, large telecom serviceoperators like Bharti Airtel, Vodafoneand Tata Teleservices continued to con-centrate on voice calls. Tariffs conse-quently dropped to amongst the lowestin the world. And data took the backseat. There are over 600 million usersof mobile telephony in the country, butonly 10 per cent of the industry's rev-

Business Standard


BACK TO DATAMukesh Ambani is re-entering the telecom business and is betting big on wireless broadband.Can he put India on the world data map? Surajeet Das Gupta

enue comes from non-data streams,that too largely SMSs. The inability ofstate-owned MTNL (in Mumbai andDelhi) and BSNL (in the rest of thecountry) to offer last-mile connectivityhas led to broadband penetration ofless than 1 per cent with only 9 millionsubscribers. The market for dataremains hugely under-serviced.

In the last few weeks, the wheel hasturned a full circle. The Ambanis havesmoked the peace pipe and MukeshAmbani is free to pursue his data-dri-ven telecom dream one more time. Nosooner had the ink on the Ambaniagreement dried that he picked up 95per cent in Mahendra Nahata-promot-ed Infotel Broadband Services, theonly company which has broadbandwireless access (BWA) spectrum - atechnology which offers high speedwireless broadband to consumers -across all the 22 telecom circles in thecountry. It had paid Rs 12,847 crore forthis spectrum in an auction. MukeshAmbani will pay Rs 4,800 crore to sub-scribe to fresh equity in the company.

So what will be his second-inningsstrategy? Mukesh Ambani and histeam are not talking officially yet, butinternal presentations, discussionswith analysts and vendors who havehad detailed meetings with his A teamas well as key executives clearly givesome idea of the method in the mad-ness. To be sure, a lot has changed inthe last five years. With over nine oper-ators in each circle (compared to fouror five in 2006), voice tariffs havedropped to their lowest and the servicehas become a commodity. This hasdepressed the profit margins of the ser-vice operators. The realisation hassunk in that data alone can help themout of the logjam. This explains whythere was such a scramble for 3G spec-trum in the recent auction. Also,mobile penetration in metros has hit100 per cent; data thus becomes cru-cial for service operators to drive uprevenue. New devices like the AppleiPad will fuel growth in the market.

Data over voiceIt is clear that wireless broadband isthe way ahead. And that is what

Mukesh Ambani is banking on. In apresentation to analysts, his peoplehave said that China has over 130 mil-lion broadband customers, India canreach that number in the next three tofour year, and they want leadershipposition in that market. They could getsubscribers by offering unmatcheddata speeds. This shouldn't be a tallorder because only 5 per cent mobilesubscribers use broadband wireless atthe moment.

Their claims are backed of course byunmatched spectrum assets - 20 MHz inBWA compared to 5 MHz in 3G. Itmeans Infotel can offer high-speedapplications to more subscribers thanits 3G counterparts. To the consumer, it

means he can get data speeds which arefive to seven times faster than 3G. Saysa senior executive of a leading mobileservice operator which has successfullybid for 3G spectrum: “If you are lookingat data, BWA is far superior. But itspotential to offer voice is still not tested.And India has a large voice market.”Analysts and experts say that MukeshAmbani has got the timing right. KarvyStock Broking Analyst Harit Shah says:“As of now, the data market is in its for-mative stage. Voice is still the major rev-enue generator but there is potentialdemand for data, and tapping thatdemand effectively will define suc-cess.” Shah expects Mukesh Ambaniwill not go for the retail market initially;he will start with the enterprise market.

On its part, Infotel has clearly iden-tified the market: Small businesseswhich are looking to connect theiremployees, the retail market whichentails connecting millions of homesas well as offering mobile solutions,

and the vast rural markets which can-not be connected by expensive copperfor broadband. “The strategy, consid-ering the licence cost, would be tobuild a model which will be able toattract a large volume of customers,”says Protiviti Consulting CountryHead Mrityunjay Kapoor.

Most experts say that MukeshAmbani will choose the long-term evo-lution (LTE) technology route insteadof WiMax (an alternate technologywhich he might use for the intermedi-ate period). Compare the speeds: Atpresent, companies like TataTeleservices offer dongles which trans-fer data at 3 megabyte per second; 3Gservices will give speeds of 14 to 20megabyte per second; and LTE, whichis a fourth-generation or 4G technolo-gy, provides speeds of 80 to 100megabyte per second. The technologyis of course new. Its commercialdeployment was done recently by TeliaSonera in Spain, that too in a fewcities. But the good news is that over22 LTE networks will be up and run-ning by the end of this year, and 110networks in 48 countries are backingthis technology. This means there willbe enough equipment available forMukesh Ambani at reasonable prices.

Vendors say that initially high-speed access on LTE will be availableonly through dongles (like TataPhoton), which means you can bemobile with a laptop or take a fixedwireless connection at home. Butmobile devices are expected to hit themarket by next year which would becompatible with 2G, 3G as well LTEnetworks. It may take these handsetsup to two years to gain scale andbecome affordable. (The entry-levelprices are expected to be $200 to $300.)These phones will ensure seamlesstransfer from one network to another.Thus you could be on 3G network inDelhi but in congested areas likeConnaught Place the phone willswitch to an LTE network on its own.

What about voice?But won't Mukesh Ambani ever offervoice connectivity? Yes, he has said hewill offer voice over internet protocol

Business Standard


12

M&M IS AIMING TO TAP THE GLOBAL DEMAND

FOR FUEL-EFFICIENT UTILITYVEHICLES AT LOW PRICES

AS WELL AS ENVIRONMENT-FRIENDLY VEHICLES

13

or net telephony, but this service underthe current regulatory framework willbe limited to consumers within hisbroadband wireless network. That isbecause net telephony is limitedbetween personal computers; you can-not call a phone outside your networkor a fixed line. But, as analysts say, therules could always change. Technologyexperts say that LTE networks are notgeared for voice telephony, as this canlead to a fall in the utilisation of thespectrum. Though Mukesh Ambanihas said that he will not look for a 2G ora 3G network, most competitors say hehas no alternative if he wants tobecome a big player. Says the CEO of aCDMA mobile company: “I don't seeany business case based on just data inIndia. He has to buy a 2G or 3G compa-ny and offer BWA over it. Otherwise, hewill remain a small player.”

But there are alternatives. One,Mukesh Ambani could initially bundlefree net telephony minutes with dataservices to create traction amongstconsumers, especially in the small-scale sector. Two, he could go for a vir-tual network by buying capacity inbulk from incumbents and sell it underits own brand. The policy for this isexpected to be cleared soon by the gov-ernment. Three, he could sign a roam-ing agreement with a 3G operator tooffer LTE as well as 3G services.

Mukesh Ambani will look at low-cost deployment of network. SinceInfotel is the only pan-India BWAoperator, the vendors and technologyit selects will virtually determine whocontrols the Indian market. Says tele-com analyst Mahesh Uppal: “MukeshAmbani choosing LTE will determinethe way technology will evolve inIndia. The fact is that he has bought agood asset; whether he has paid toomuch, only time will tell.” MukeshAmbani doesn't have to start fromscratch because infrastructure cannow be shared. “Part of the strategy isto be asset light; so Infotel will out-source about 15,000 towers and thefibre optic network, which it requiresfor a pan-India launch. This willreduce costs substantially,” says asource close to the deal.

Mukesh Ambani is aware of thechallenges such a strategy could face.One is to build applications which willmake high-speed broadband worth-while to subscribe. It has to go beyondjust surfing the net. His team in itsinternal presentations has argued thatpersonal computers and broadbandinternet are perceived to be businessapplications. This perception needs tobe changed which requires bringing inentertainment-based broadband appli-

cations. Two, the 3G networks areunlikely to let him walk away with themarket without a fight. Vodafone,Reliance Communications and TataTeleservices might not have BWA spec-trum but are depending on 3G for theirdata services, which gives adequatespeeds for the mass market. The battlefor the data market could see a blood-bath like in the voice market.

(Katya Naidu also reported for this article)

Business Standard


FieldFresh Foods wants DelMonte to become one of thecountry's top food and bever-ages brands. Can it cut through

the clutter? It's an ambitious target.FieldFresh Foods, the 50-50 joint ven-ture between Bharti Ventures of theMittal family and Del Monte Pacific ofthe Philippines, wants to find a placeamong the top ten food and beveragescompanies in India by 2014.

The categories it has chosen to oper-ate in - sauces, juices, Italian cuisineand packaged fruit - add up to a marketof Rs 4,000 crore, which is growing at 20per cent per annum. The market may belarge but there are well-entrenched

players in the business like Nestle,Hindustan Unilever, ITC, Heinz, ParleAgro and Dabur. It won't be easy forFieldFresh to snatch market share fromthem. Still, it is dead serious. It plans topump in Rs 300 crore in a food process-ing plant at Hosur in Tamil Nadu and inresearch on fruit and vegetables. In lessthan two years, it has reached its prod-ucts to 20,000 retail outlets in 25 cities.

FieldFresh is banking on the exper-tise of Del Monte, especially in supplychain. “Del Monte is the only companythat supplies both fresh and processedfruit. It has got pineapples from thePhilippines, peaches from SouthAfrica, olives from Spain, and prunes

from California. This gives us a lot ofoptions,” says FieldFresh CEO SanjayNandrajog. Before his current assign-ment, Nandrajog held several leader-ship positions in the Airtel mobilitybusiness. FieldFresh is using the DelMonte brand. Does it have any recallwith Indian consumers? “One-third ofall customers have come back to thestores and have asked for a Del Monteproduct,” says Nandrajog. Still, thecompany needs to work on the brand.“Del Monte is definitely going to see atough time in establishing itself as oneof the top food companies in Indiaamidst fierce competition from existingplayers,” says KPMG Advisory ServicesManager Anand Ramanathan.

Fresh and differentNandrajog and his team know that themarket is cluttered, and they need agood differentiator if they want to standout. With this in mind, FieldFresh hasintroduced two sauces in the marketcalled Zingo and Twango. “Ketchup andsauces are one of the toughest categoriesto crack as there are big players, and wehave our own Indian chutneys too. Oureffort was in terms of understanding theneed of the housewife. Today's house-wife wants to experiment in the kitchen.She wants to serve the food with her sig-nature and also have something that canbe served with an idli as well as a sand-wich,” says Nandrajog. For a first, Zingoand Twango contain capsicum andpineapple which give out a unique tasteand also contain fibre.

Will that be good enough? The mar-ket for sauces is around Rs 900 crore inthe country. Nestle's Maggi leads thepack with a market share of 41 per cent,followed by Hindustan Unilever'sKissan (26 per cent). The rest of themarket is with Heinz, Cremica, Topsand others. Most of these brands have ahost of flavours developed specially forthe Indian palate. “Maggi sauces arepreferred for their superior taste, trust-ed for their high quality and acknowl-edged for their innovative offerings likeHot & Sweet, Tomato Chilli, OrientalChilli Garlic and several others,” saysNestle India General Manager (foods)Shivani Hegde. Nestle has also come

Business Standard


14

THE DEL MONTEDIFFERENCEFieldFresh Foods wants Del Monte to become one of the country’s top food and beverages brands.Can it cut through the clutter? Arunima Mishra

out with small packs, called MaggiPichkoo, which has extended the mar-ket to a whole new set of consumers.

The days to come will tell whetheror not Zingo and Twango have dentedthe other brands in the market. But theinnovation was good enough forFieldFresh to launch its inauguralbrand campaign. Scripted by VandanaKatoch of Contract Advertising (Delhi)and filmed by Shoojit Sircar of RisingSun Films, it showed a woman chasingboys across streets after they share thetwo sauces with her inside a train.

What's in the juice?If flavour is the differentiator for DelMonte sauces, packaging will differenti-ate Del Monte juices. Instead of cartons,FieldFresh is selling its juices in alumini-um cans. The fruit juice market in thecountry, estimated at Rs 2,000 crore perannum, has three distinct sub-categories:Fruit juice with pulp content of 80 percent and more (Dabur's Real, PepsiCo'sTropicana), nectar with 40 to 80 per centpulp (Godrej's Xs) and fruit drink withpulp of 40 per cent and below (ParleAgro's Frooti, Godrej's Jumpin, Coca-Cola's Maaza). With 20 to 30 per centpulp, Del Monte sells in the third catego-ry. “We operate in the segment which isrefreshing and tasty. However, for a con-sumer, a juice is just a juice, and he canhardly differentiate. The youth keepslooking for options that are different intaste, and have a refreshment need as wellas a nutritional essence,” says Nandrajog.He has in his portfolio five fruit drinksand hopes to add a sixth soon.

Of course, FieldFresh hopes to scorewith its aluminium cans. “We havebrought these packs (aluminum cans) inan Indianised version at quick-servicerestaurants and low-cost airlines. Also,we have a vending option that can beused at offices and other high-trafficlocations. It can dispense through theday, churning out 20 cups a minute, andit is more affordable. It also makes DelMonte the first international brandedplayer in the fruit drink dispenser seg-ment in India,” says Nandrajog.

FieldFresh hopes to rev up the excite-ment at the youth hangouts this summerwith its on-ground activity, the Del

Monte Legend Brigade. The activationthat started during mid-June will travelto metros and mini-metros where thewinner will receive a custom-made bikeworth Rs 200,000. Besides, an onlinebiker game is on at its microsite,www.worldfoody.com. Anyone in Indiacan participate in the online game andexperience the thrill of biking. YogeshBellani, business head (Del Monte FoodsBusiness), FieldFresh Foods, says: “Thisinitiative aims to popularise the range ofDel Monte fruit drinks in pineapple, fourseasons, pineapple-orange and the new-ly-launched green apple and orangeflavours.” But this is a game others toocan play. “We control over 52 per cent ofthe juice market in India. We continue tolook at newer variants to keep up theexcitement in the market,” says Dabur'shead of marketing for foods, KK Chutani.

Also, fruit juice is a heavily-adver-tised category and most players arespending big bucks on promoting theirbrands. If FieldFresh wants to do well, ittoo will have to put money behind DelMonte juices. PricewaterhouseCoopersExecutive Director Anand Dikshit reck-ons that most brands spend up to 18 percent of their turnover on promotion. Thenorm for the food business is 13 per centto 15 per cent.

Pasta playDel Monte has a whole family of Italianproducts after having studied the gap inthe Indian market. Most of the products- olive oil, pasta and sauces - are import-ed and sell Rs 500-600 crore in a year.Nandrajog believes that the pasta mar-ket in India is emerging as the next-pre-ferred healthy snack option. “There ishardly any brand present here that

offers authentic Italian pasta. DelMonte sells authentic pasta, importedfrom Italy, in the retail market. We willcontinue to launch pasta stock-keepingunits of the same product type, but indifferent shapes and varied measure-ments soon,” he says. Del Monte alsooffers Spanish olives, whether green orblack, pitted or stuffed or sliced. Itsextra virgin olive oil is a healthier alter-native as a cooking medium, claimsNandrajog, and comes in PET break-resistant bottles in 1 litre, 500 ml and250 ml. “Soon, we are going to launchpasta sauces in India” adds he.

Pasta is not altogether new to theIndian market as sometime back BarillaPasta, made from 100 per cent durumwheat, came to India through a strategicmarketing tie-up with RR Oomerbhoy.There are also a couple of other import-ed brands from south-east Asia whichare selling in India. Then ITC's Sunfeastportfolio was expanded in early 2005 toinclude snacking options, pasta beingone, besides Aditya Birla Retail'sFeasters. Nestle (Maggi Pazzta) and ITC(Sunfeast Pasta) have also launchedinstant pasta. Market estimates suggestthat instant pasta is around 5 per cent ofthe Rs 1,100-crore market for instantnoodles. Some feel that the real growthopportunities are in instant pasta.“Culinary pasta is for the real pastaeater, for people who know how to cookpasta, for which there is not a big mar-ket as such in India,” says ITC FoodsChief Executive Officer Chitranjan Dar.

Apart from B2C, FieldFresh alsodoes B2B sales. It sells fresh and cannedfruit, penne pasta, snack dressing, man-go pulp, tomato paste, jalapeno, fruitcocktail and whole corn kernels to2,200 hotels, restaurants, bakeries andso on in the country. Nandrajog claimsit is the only national player in the seg-ment. There is a dedicated team of 70men and women at Del Monte FoodsBusiness that services this sector. Doesit have a unique selling proposition?“Our packaged fruits have an extendedshelf-life, and are also available in easy-to-open cans to enhance consumer con-venience. For our customers, we alsooffer institutional packs,” says Bellani.Over to the market place.

Business Standard


15

BE IT SAUCES, JUICES ORPASTA, DEL MONTE IS TRYING

TO DIFFERENTIATE ITSOFFERINGS IN ONE WAY OR

THE OTHER. IT OFFERS JUICESIN CANS INSTEAD OF

CARTONS AND IS THE FIRST TOROLL OUT A JUICE DISPENSER

The brand is rarely seen in themass media, makes do withminimal advertising budgets,operates in a sector that runsthe risk of turning into a com-

modity and is still worth almost Rs 37,000crore. Infosys is a powerful brand in theworld of information technology. Itsfounders like NR Narayana Murthy andNandan Nilekani enjoy iconic status in

the country and abroad, and it gets workplace, transparency and governanceawards with unfailing regularity. Its cam-puses are world class. A large chunk of itsstock is held by employees.

That's the public face - what investors,associates, analysts and employees get tosee. Behind the scenes, there works a ded-icated team that regularly monitorsInfosys' brand health and makes sure that

it grows from strength to strength. Thetools employed are soft in nature and seekto create a halo around the brand. No bigbucks spent below the line, no mediablitzkrieg - the whole effort is to work onthe conscience of stakeholders like cus-tomers, partners, shareholders, employ-ees and the society. “Infosys 1.0 raised thestandard for delivery predictability,financial transparency and corporate gov-

Business Standard


16

BUILDING BRANDINFOSYS

A dedicated team makes sure the information technology brand growsfrom strength to strength.Here’s how Bhupesh Bhandari & Kirtika Suneja

ernance,” says Infosys Technologies' headof global branding and corporate market-ing, Aditya Nath Jha. “The next stop is tal-ent management, scalability and sustain-ability - how do I paint the enterprise oftomorrow.” Jha's choice as the brand man-ager is interesting. He studied at theIndian Institute of Technology,Kharagpur, and worked as the creativehead of Ogilvy. He wrote the script for twosoap operas - Aflatoon and Wagle KiDuniya II - and ran a start-up in the educa-tion vertical (“The model worked, thebusiness failed,” says he.) before he took

up the current assignment at Infosys.Since end-2004, the Bangalore-head-

quartered company gets a quarterlyhealth check up of its brand done.According to Jha, Infosys' unaided brandrecall in the US (the largest market forinformation technology in the world) hasimproved from zero then to 8 per cent inMarch 2010, while the aided recall hasshot up from 18 per cent to 70 per cent.The survey, carried out by Ronin, is con-ducted not amongst CTOs but amongstordinary people. Jha, of course, is pleasedwith the results. “We believe in crossing

one hump at a time. We have movedahead of other Indian brands in the busi-ness and are in the second level after thebig spenders like IBM, Accenture,Deloitte and Hewlett Packard. In 2004, wewere at the third level,” says he.

There is noticeable improvement,says Jha, in Infosys' brand perception aswell. The company measures it on sixparameters: Knows my business, hassolutions to my business problem, is atechnology leader, has a quality focus, isreliable and delivers on promise, andworks like a partner. Respondents can saydon't know, not there, getting there,always the best or the best there is. Jhasays that there are two noticeable shiftsbetween end-2004 and now: One, fewerpeople now say don't know. This meansthat more and more people now havesome perception of Infosys. And two,there is an improvement in the number ofpeople with a positive perception. Butthis is a gradual process. Jha admits thatmovement in perception is sluggish whencompared to awareness.

Brand pullOne question that needs to be answeredhere is that why does an information tech-nology company need to develop abrand? The brand comes handy in twoways. One, it shortens the journey to thebidding table. Companies that have astrong brand are more likely to be calledby prospective customers than those withlesser brands. Those companies thusneed to spend a lot of money on marketingthemselves. This game, Infosys knows, isa bottomless pit. Big names in the busi-ness like IBM, Accenture and HewlettPackard have marketing budgets that runinto hundreds of millions of dollars. Thenthere are others like Capgemini andLogica which spend tens of millions ofdollars. Infosys, which has always beensharply focused on the bottom-line of itsbusiness, cannot match these numbers.So, it has no option but to work on itsbrand. Infosys monitors all unsolicitedinvitation to deals in excess of $8 millionper annum. Jha does not share the detailsas it is sensitive information but disclosesthat the increase from 2005-06 to now hasbeen well over eight times.

Two, a brand helps get repeat business

Business Standard


17

from the same customer. The businesslogic here is that getting a new customeron board is up to six times more expen-sive than getting an order from an existingcustomer. It is important for informationtechnology companies like Infosys toleverage its customers for another reason.Most customers start by outsourcingperipheral work. Those who stay with acustomer one day graduate from low-val-ue peripheral jobs to value-added corework. “Between 92 per cent and 97 percent of our revenue in any quarter comesfrom repeat business,” Jha informs withquiet pride.

The traditional role of a brand hasbeen to fetch a premium over rivals. Doesits brand help Infosys command a betterprice than others in the market place? Jhasays it does, and this gets reflected in thecompany's superior net profit margins(27.55 per cent for 2009-10) than rivalslike TCS (23.62 per cent) and Wipro (17per cent). “Brand-building is a key part ofInfosys' strategy, and I think it is able tocommand a price premium because ofthis. The tools it has used well are publicrelations, investor relations, analyst rela-tions and, in the past few years, thoughtleadership,” says ex-Infosys hand and for-mer Wipro chief marketing officer JessiePaul who is now the managing director ofPaul Writer Strategic Services, a market-ing consultancy. Paul calls Infosys a “sur-round” brand which relies on the sur-round aspects of its business to positionitself.

Still, Jha knows that brand premiumsare down across categories includinginformation technology as the search forvalue has intensified amongst customers.Much of what information technologycompanies like Infosys do is standard-ised. In the initial years, Infosys tried tocreate a differentiator with its globaldelivery model - it promised to go to anylocation where the costs were the lowest,which invariably was India. But othershave caught up. Even foreign-ownedcompanies like IBM and Accenture havea huge presence in the country. Now,Infosys feels, the differentiator for thebrand could lay in how it behaves. Thishas, in fact, become a global trend.Companies like Microsoft, Google andeven Toyota and Samsung are bigger

brands than their individual products.Since the health of the parent brand hasoccupied centrestage, it is important forcompanies to nurture their brand imagewith care. In Infosys' case, this perhapsalso stems from the firm belief of thefounders of the company that they willchase not revenue or profit but respect.

To this end, the points of action identi-fied by Infosys are: Integrity & transparen-cy, fairness (prejudices of the past shouldnot affect business decisions), leadershipby example, customer delight and pursuitof excellence. Infosys has got severalawards for integrity and transparency.Recently, it was voted the “best managedcompany” in India by investors and ana-lysts across Asia in a poll conducted byFinance Asia , a financial magazine. IRGlobal Rankings and MZ Consult rankedit amongst the best companies in Asia-Pacific and China in the categories ofinvestor relations website, financial dis-closure procedures and corporate gover-nance practices. For ten years in a row,

The Wall Street Journal has named it themost admired Indian company. Whatabout customer delight and pursuit ofexcellence? How do Jha and his teammeasure it? “Our number of defects perkiloline of code,” says Jha “is way belowthe published benchmark of CMM Level5 companies.”

Communicate to engageThis is not to say that Infosys does notcommunicate. But it is different, saysJha, from mainline brand communica-tion. “We have moved from informationto engagement. The new media is allabout conversation.” Thus, the Infosysbrass can be found at the WorldEconomic Forum talking to businessleaders from across the world. The com-pany has also sought to engage withopinion makers on the subject of “the flat

world” - a take on the book of a similarname by Thomas Friedman who wasinspired by his long conversations withNilekani. So, what's the impact? Jha reelsoff a string of numbers: Subscribers ofInfosys blogs from the Fortune 500 com-panies have more than doubled in thelast two years, while their downloadsfrom the Infosys website have increased68 per cent. Between April 2010 andApril 2009, YouTube (it has populatedthe video-sharing website with shortfilms and interviews of its leaders) view-ership has gone up 1.6 times, slidesharedownloads 2.8 times and Twitter follow-ership 12 times. Also, says Jha, there hasbeen an increase in the ranks of evange-lists who talk positively about theInfosys brand and recommend it to oth-ers. These could be customers, publicspeakers, analysts or even journalists.

Most analysts believe Infosys hasmade all the right moves. “Infosys wantsto make its brand visible in the market.And it has improved because that is theway the company pitches itself,” saysPunish Mishra, engagement director atconsulting firm Everest Group. But somefeel there is still an unfinished agenda - itneeds to do more in terms of successionplanning. “The perception is that thesuccession line is not clearly demarcatedand the new CEO may not be of the samepublic stature as the old ones,” says ananalyst who is not willing to be named.Still others point out that branding is agame most information technology com-panies have woken up to. “Most of thesecompanies now are a brand persona inthemselves. For instance, Cognizant is adeep-rooted company with offeringsfrom consulting to maintenance, whileTCS is one that brings big deals, size,scale and pricing on the table. So, brand-ing has gone up for the industry has awhole,” notes Alok Shende, principalanalyst, Ascentius Consulting.

At the moment, the exercise seemsto have paid off for Infosys. The valua-tion of Infosys, the brand, has improvedfrom Rs 14,153 crore in 2005 to Rs36,907 crore in 2010. It was 23.2 percent of the company's market capitali-sation five years ago; it stands at 24.6per cent now. Jha and his team can takesome credit for that.

Business Standard


18

INFOSYS FEELSTHE DIFFERENTIATOR

FOR THE BRAND COULD LAY IN HOW IT BEHAVES

Multiplex chain PVR wantsto try its hand at some-thing new. It wants to setup entertainment citiesacross the country. Each

of these would have multiplex screens, abowling alley, a skating rink, a beer gar-den and food courts. The first, spread over150,000 square feet, will come up atNoida in two-and-a-half years. By 2013,PVR wants to have five more up and run-ning in Bangalore, Hyderabad,Chandigarh, Pune and the NationalCapital Region. “This is a huge step for-ward for us to realise our dream of becom-ing an integrated entertainment compa-ny. Our innovations are driven by ourcustomer's asprations,” says PVRChairman & Managing Director Ajay Bijli.All told, the company plans to invest Rs280 crore in the new venture.

To be sure, this is not the first diversifi-

cation for PVR (2009-10 sales/revenue fromoperations: Rs 338.55 crore, net profit: Rs1.35 crore). In 2005, it had forayed into filmproduction and distribution. But the planfor entertainment cities is by far its biggestgamble till date. The reason for the foray isnot hard to find. The entertainment citiesare aimed at grabbing a larger share of thewallet of all those who come to a multiplexfor entertainment. Sector experts believethe multiplex business has turned into acommodity - one is no different from theother. Such add-ons are necessary if a mul-tiplex wants to create buzz around itself.Though PVR was the pioneer of multiplex-es in the country, it has been left behind inthe numbers game. While it operates 136screens in 18 cities, Anil Ambani-ownedBig Cinemas has 516 screens in India andabroad (USA and Malyasia).

Explaining the rationale behind theventure, PVR President Pramod Arora

says that research indicates consumers inmalls and other commercial centres wantto unwind and relax in an environmentwhich is free from serious shopping.Surprisingly, less than 20 per cent of allthe visitors to a mall or a shopping centrecomprise serious shoppers. The rest gothere for entertainment or just to chill out.The immediate business viability sug-gested creating a format to cater to that 80per cent of the visitors who may spendless than a serious shopper but are fargreater in number.

Consumer likesTaking off from the insight, PVR conduct-ed extensive surveys to understand con-sumer preferences with respect to enter-tainment. Three surveys were carried outby the PVR as well as by agencies commis-sioned to work on the project specificallywith focus on the formats which the con-

Business Standard


19

ENTERTAINMENTINCORPORATED

Multiplex operator PVR is setting up entertainment cities across thecountry.Will the move pay off? Sharmistha Mukherjee

sumer believed to represent his happinessquotient. As many as 350 visitors acrossmalls in the National capital Region werequestioned in each survey regarding thefrequency of their mall visits, purpose oftheir visits, money spent on each visit,views on the proposed format, entertain-ment options they exercised and futureexpectations. The respondents were allbetween 12 and 40 years of age.

Inferences drawn from the exerciseindicated that entertainment as a conceptis largely restricted to watching movies incinemas in malls and shopping centresacross the country. The aspirational classthat throngs the malls, however, is lookingforward to forms of entertainment whichprovide an eclectic mix of 'fun, food, fash-ion and films'. It is on gauging this needgap which has surfaced amongst con-sumers that PVR has decided on setting upentertainment cities in the country.“Considering our core expertise, years ofbusiness experience and a very clear anddistinct business opportunity, we felt itmade imperative sense to set up entertain-ment cities to respond to changing con-sumer demographics and purchasing pat-terns in the country,” says Arora.

But PVR's expertise is in putting upmultiplexes and not in running bowlingalleys and food courts. How does it plan tocope with the lack of these skills? PVR haspartners in these areas, and plans to lever-age their expertise to good effect. It has analliance with Major Group of Thailand to

set up bowling alleys and skating rinks inthe country. For the food business, it hasformed a joint-venture company calledFood Union with Lite Bites of AmitBurman. That may be fine, say critics, butfood is a tricky business. Visitors can gettired of a cuisine or a format in a matter ofmonths. So, restaurants and food courtsneed to continuously reinvent them-selves. But this does not seem to botherArora. Food Union, says he, is a completeprovider of fine-dining solutions and hassomething for every palate. “So we arevery positive that our food courts will dovery well with people and continue to doso over the years since these will be a partof the complete entertainment packageand destination.”

What about bowling alleys? Ever sincethe mid-1990s, several bowling alleyshave been set up in the country. Aftersome initial traction, they begin to fall bythe wayside. Many of them have had toshut shop. It is, after all, not an Indiansport. Arora is only too aware of the disap-pointing show put up by bowling alleys inthe country. He puts it down on theirincorrect positioning as a sport. “Whenwe launched in Ambience Mall, Gurgaon,last year, it was a conscious decision toreposition bowling in India as a lifestylesport. We wanted to create an environ-ment for children, youth and families tocome and have an entertaining experi-ence,” says he. “Ours is the largest 24-lanecosmic bowling centre in India. We havebeen able to create awareness and accep-tance for bowling among the people.What has worked well is the completerepositioning of bowling as a fashion andlifestyle sport instead of it just being a reg-ular sport.” The bowling alley haslounges, multi-cuisine restaurants, tattooparlours and karaoke. It is reasonable toexpect that PVR will replicate the sameformat across its entertainment centres.

Brand-wiseInterestingly, PVR has given each of thesea new sub-brand. Thus, PVR BluO hasbeen chosen for bowling alley, PVR FoodUnion for the food courts and PVR SubZero for the skating rinks. This could alsobe a strategy to raise funds in each of thesebusinesses on a subsequent date.Interestingly, the architecture of the

entertainment cities will be kept flexible.The formats and services in demand canbe expanded quickly, and those which arenot in demand can be contracted. On anaverage, PVR is looking forward to a pay-back time of four years. The asset-turnover ratio is projected to be between1.6 and 1.8. The return on investment isexpected to be over 20 per cent.

There are still two pieces of the jigsawpuzzle that PVR needs to fix. One is realestate. Prices of commercial real estatehave begun to climb one more time. High-quality retail space is once again selling ata premium. Some retailers have got into arevenue-sharing agreement with land-lords. This protects them against anydownside in business. For the Noidaentertainment city, PVR will lease spacefor 25 years. Based on the businessprospects, it is also considering enteringinto revenue-sharing arrangements withreal estate developers.

The second will be price. PVR has onits target non-serious shoppers, thosewho aspire to a better lifestyle. But thesepeople have small budgets. Unless PVRgets the price-value equation right in itsentertainment cities, the business modelcould go haywire. This perhaps reflects inthe choice of cities for these centres. Allthe six cities have a large presence of theservices sector and there are large pocketsof affluence. So, is the business modelscalable?

Business Standard


20

Marketing experts haveoften said: You either benumber one or two ormerge with the crowd.But what do you do

when the number one leads by a clearmargin and both two and three are partof the crowd?

Ask Kansai Nerolac, the numberthree player in the decorative paintsmarket in India. It has a share of 13 percent to leader Asian Paints' 47 per cent,and number two player, Berger Paints'18 per cent.

Conventional wisdom woulddemand that Kansai should be taking onBerger rather than Asian Paints. ButKansai has its sights at the top, puttingin place a three-pronged strategy thatincludes focusing on differentiatedproducts, greater brand-building andmore retail initiatives on the ground. “Ifyou have to improve share, you have togo that extra mile,” says Anuj Jain, vicepresident, sales & marketing, KansaiNerolac.

This enthusiasm to wrest marketshare from rivals, especially AsianPaints, does not appear to be completelymisplaced, since Kansai leads the packin the Rs 4,000-crore industrial paintsmarket. It has a share of 62 per cent inthe automotive segment - a key oneunder industrial paints. Overall, it hasover 40 per cent share in industrial

paints to Asian Paints' 13 per cent. “It isthe undisputed leader in industrialpaints,” says an executive with a rivalfirm.

This leadership in industrial paintsthen is clearly goading it to take on itsarchrival on the decorative side. But itcertainly won't be easy.

That is because Asian Paints hasensured there are no chinks in itsarmour on the decorative side at least.The decorative segment accounts foralmost 70 per cent of the Rs 13,000crore overall paints market.

Rivals such as Kansai, Berger, Duluxand Nippon, have been trying hard towrest market share from Asian Paintsfor some time now. But the latter's for-midable grip over the paint distributionnetwork in the country, its ability tochurn out new products, as well as itshigh-decibel ad campaigns haveensured that it stays ahead of the curve.

Sample this: Asian Paints has over25,000 dealers to Berger's 9,500 and

Kansai's 6,500. Itsoverall marketing bud-

get for the last financial year was Rs244 crore as against Berger's over Rs 70crore and Kansai's Rs 68 crore.

“So no matter how much you shout,Asian Paints simply outshouts you,”admits Berger Paints' senior vice-presi-dent, sales & marketing, Abhijit Roy.“Tell me one gap in their marketingstrategy and I would be ready to attackthem,” he says.

In contrast, Jain of Kansai strikes apositive note. “There is no denyingAsian Paints' domination in the decora-tive market. But how do you stand out?You have to do something different. Werather benchmark ourselves to interna-tional standards.”

In the last one year, Kansai haslaunched products such as lead-freepaints and paints with a heat guardkeeping the objective of differentiationin mind. It is now in the process ofrolling a low VOC or volatile organiccompound (VOC) paint. Low VOCpaints are low-odour paints. “They aredesigned to perform like conventionalpaints without the harmful ingredi-ents,” Jain says.

Business Standard


21

NEROLAC NETS A NEW HUEThe number three brand in the decorative paints segment wants to take on the marketleader,Asian Paints.But it could be a tall orderViveat Susan Pinto

PLAYERS DECORATIVE INDUSTRIAL

Asian Paints 47% 13%

Berger 18% 18%

Kansai Nerolac 13% 40%+

Source: Industry

MARKET SHARE

But are these initiatives really thatdifferent? Not exactly, say rivals. AsianPaints has had a low VOC portfolio forabout five to six years now, says thecompany's vice-president, sales & mar-keting, Amit Syngle. “Our lead-freeportfolio has been around for the lasttwo and a half years,” he says. Berger,meanwhile, is in the process of intro-ducing its low VOC range in a month ortwo. Lead-free is also something that italready has in its portfolio, says Roy.

Syngle says “Lead-free is a standardthat the industry moved to some timeago. It is a moral obligation to take it upbecause these products are not harmfulto the human body.” But Jain of Kansaiinsists these trends were actually intro-duced by it in the industry. “We werethe first ones to introduce lead-freepaints last year. The others have fol-lowed us,” he insists.

The one-upmanship doesn't endhere. Jain says that as far as retail initia-tives go, each company has a differentmodel. “Asian Paints has a dealer-cen-tric network of stores, while we aredoing shop-in-shops.” Kansai, for the

record, is in the process of rolling outabout 100 mini-stores in 35 cities.Asian Paints, in contrast, already hassome 3,000 critical stores that act ascolour select outlets. It is also rollingout high-end concept stores calledColour Ideas in different cities. It is herethat prospective buyers/customers willget a glimpse of what the company hasto offer in terms of colour and share.Berger, meanwhile, is experimentingwith franchisee stores. It has 45 suchfranchisee outlets at the moment.

“There is nothing unusual with aretail footprint. It's an industry norm,”says Syngle.

So can Kansai really beat AsianPaints at its game?

Business Standard


22

Unilever is the undisputed worldleader in ice creams. ItsHeartbrand ice creams -

Cornetto, Magnum, Ben & Jerry's,Solero, Carte d'Or and Breyers - record-ed sales of $11.08 billion in 2008.Annually, the Anglo-Dutch companyspends around $70 million on ice cream

research. To strengthen its global posi-tion, it last year acquired Inmarko inRussia.

In India, the story is slightly differ-ent. Hindustan Unilever, which isowned 51 per cent by Unilever, has a 14per cent share of the 100-million litresand Rs 1,200-crore per annum ice

cream market, which makes it the sec-ond largest player after Amul (38 percent market share). The gap is no lessthan 24 percentage points.

But this perhaps is not the full pic-ture. Hindustan Unilever executivesclaim the company's ice cream busi-ness is growing at almost 25 per cent

Business Standard


23

CAN KWALITY WALLSBEAT THE HEAT?

Ice cream majors have aggressive plans to gain bigger market shares.Here’s how Hindustan Unilever hopes to stay ahead with Kwality Walls Sapna Agarwal

per annum. (Last quarter, sales hit Rs90 crore). Volumes have almost dou-bled in the last three years. And thecompany has taken strategic initiativesto outwit its rivals, most of them home-spun players.

Homespun they might be, but therivals are no rabbits. Market leaderAmul has a huge emotional connectionwith Indian consumers as it was thenerve centre of the White Revolution inIndia. Its ice cream is available in noless than 70,000 stores across the coun-try - a number it plans to raise to100,000 in the next one year. Its growthtarget for the year is 20 per cent. (Themarket has grown at 15 per cent perannum in the last five years.)

Vadilal, the third largest player inthe ice cream market with a share of 12per cent and a strong player in westernIndia (Maharashtra, Goa and Gujarat),has drawn up aggressive growth plans.It will raise Rs 50 crore to expand itscapacity by 40 per cent and spread outto new geographies. "New launches,better availability, accessible prices andbetter awareness as we doubled ouradvertising spends on television havehelped us grow 40 per cent this sum-mer," says Vadilal Managing DirectorRajesh Gandhi.

Mother Dairy (market share: eightper cent) has fanned out from its strong-hold of North India to the eastern andwestern parts of the country in the lastfew years. Its strength is the 4,000 push-carts out on the streets of the country atall times. As a large category of con-sumers buy ice cream on impulse, thisfleet has helped Mother Dairy grow 35per cent this summer. Mother DairyChief Executive Officer Paul Thachilmakes no bones that this is a strengthhe plans to leverage in the days tocome. "We will grow our pushcarts25 per cent and increase our distri-bution reach," says he.

Tough fightWhere does this leave HindustanUnilever? Ice cream volumes havegrown at a much faster pace than therest of its FMCG business. While over-all FMCG volumes were up a paltrytwo per cent in the quarter ended June

30, ice cream surged 24 per cent. Butthis could be because of the low base ofthe ice cream business.

IDFC SSKI Managing DirectorNikhil Vora says the ice cream categoryis underinvested and is likely to remainso for the next three or four yearsbecause the profit margins are low - lessthan ten per cent. In comparison,FMCG margins are known to be inexcess of 15 per cent. "National playersand multinational corporations haveyet not made known any sure-shot planto invest in this category," says he. It isworth noting that Nestle, another largeplayer in the global ice cream market,has not entered the category in India.

So far, there has been no evidence ofdown-trading on ice cream (consumersbuying cheaper brands or smallerscoops), unlike other FMCG categorieslike personal care, fabric care and oralcare. In spite of the economic slow-down, this is an indulgence consumersare reluctant to cut. In this scenario, thelow margins can best be explained bythe high cost of logistics.

Ice cream, according to Vora, cannotride piggyback on FMCG. The businessrequires not just a separate supplychain but also an entirely different coldstorage and dealer net-work, communica-tion and pricepoints. Sectoranalysts point

out that Hindustan Unilever has notinvested enough to grow the market.

Different approachThat it's an altogether different ballgame, Hindustan Unilever seems tohave been aware from day one. That'swhy, instead of starting from scratch, itentered the market through acquisi-tions worth, industry sources say, Rs150 crore. In 1993, it acquired Dollopsice cream from Cadbury's. Two yearslater, in 1995, it bought Kwality fromRavi Ghai and Milkfood from JagatjitIndustries to become the market leaderwith an over 75 per cent market share - aposition it has since lost to Amul whichentered the market place in 1996.

To regain the lost glory, it decided tofocus on the top six metros of the coun-try and has over the years expanded tothe top 30 cities. At play here, saysHindustan Unilever General Manager(sales and marketing) for Kwality WallsPunit Mishra, is the 30:70 principle - 30cities account for 70 per cent of the icecream consumption in the country. "Weare interested in increasing the con-sumption of ice cream in the marketsthat we are present in first," says he.

Given the cold storage infrastructurein the country, it is perhaps easier to

manage the supply chain in just 30cities. But this leaves the rest of the

market open to rivals including localbrands. Both Vadilal and Mother Dairywith its battery of pushcarts have an eyeon the non-metro markets. It could givethem the first mover's advantage in thecities and towns where Kwality Walls isnot yet present.

Mother Dairy, by the way, has devel-oped a strong portfolio of local flavourswhich could work well in the upcoun-try markets. On its part, HindustanUnilever too has come out with icecream in litchi and coconut flavours atdifferent price points.

Meanwhile, Hindustan Unileverhas segmented the market in to threecategories: Kids, teenagers and fami-lies. So, there is the Paddle Pop rangefor kids, Cornetto for teenagers andRed Tub for families. "A way to buildscale is through focus," says Mishra."The segmentation has allowed us to

Business Standard


24

create more consumption opportuni-ties focused on segments like familyweekend for the Red Tub selection,teenage hangouts for promotion ofCornetto and fun and adventure forkids with Paddle Pop."

With this segmentation, theKwality Walls range now plays at thesensitive price points of Rs 5 and Rs 10with Paddle Pop. The Cornetto rangetargeted at the youth is priced betweenRs 20 and Rs 30. The take-home cate-gory is priced between Rs 160 and Rs210. Thus, it has products at all pricepoints of the spectrum.

But rivals have caught on to the seg-mentation. Amul, for instance,launched its 2-litre takeaway homeoffer last year and has now become themarket leader in the category. "The offeraccelerated our growth pace to over 20per cent as against the compoundedannual growth rate of 10 to 12 per centfor the last five years," says RS Sodhi,chief general manager of GujaratCooperative Milk Marketing Federationwhich owns the Amul brand. To presshome the advantage, Amul has come upwith 1-litre packs of its Exotica rangethis summer that has Binge RoastedAlmond, Choco Bliss, Choco Chips andFruit Salsa Santra Mantra flavourspriced between Rs 120 and Rs 140.

New segmentsBetween kids and youth on the streetsand adults at home, a large chunk of icecream sales gets taken care of. Impulsepurchase from youth and kids accountsfor 50 per cent of the market. Familyconsumption adds another 35 per cent.Fifteen per cent of the market is in-par-lour sale - a new segment that hasshowed up in the last few years. This isdominated by niche regional playerslike Naturals in the West, Nirula's in theNorth and premium players like BaskinRobbins and the homegrown ItalianoGelato.

Hindustan Unilever wants to have aplay across the entire ice creams pyra-mid and has its Swirl parlours at theupper-end to take on competition in theartisanal ice cream segment. The Swirlchain was started in 2004-05. The par-lours do not sell the Kwality Walls range

but create mixes like Cornetto Swirlwhich tie in with the mother brand. Asingle serve of 250 ml here is priced atRs 60. "Retail is a big part of our strategy.Here the focus is experience, visibilityand the power of the brand. It is the the-atre of ice cream," says Mishra. He plansto grow the retail footprint of the Swirlparlours from 68 to 500 in high footfallareas like malls over the next three tofour years.

But competition is in no mood togive up without a fight. With the adventof modern trade, Baskin Robbins nowcovers 500 modern retail stores alongwith its retail foot print of 370 outlets."We will add 100 retail outlets duringthe year and also grow our moderntrade footprint. Modern Trade now con-tributes to 15 per cent of our overall rev-enues and we see this growing to 20 percent in the next couple of years" saysAshutosh Goyal, general manager (mar-keting), Baskin Robbins which hasestablished its leadership in the premi-um ice cream category in the moderntrade channel.

Amul too entered the segment thisyear with its Scooping parlours where itserves sundaes, thick shakes and anexclusive range of ice cream. "We willhave 1,000 franchises by the end of thefinancial year, up from the current 250,and thereon add 1,000 every year for thenext five years," says Sodhi who expectsretail to contribute to 20 per cent ofAmul's ice cream revenue in the nextthree to five years.

Across the world, consumers haveturned health-conscious. They want tocut down calorie intake because of thealarming spread of lifestyle ailments.And India is no different - it has thelargest population of diabetics any-where in the world. Consumers havebegun to look for health and goodnessin whatever they consume and icecream is no exception.

Here, the lead has been taken byAmul. It has developed a portfolio onthe health and wellness platform withits probiotic and sugar-free category lastyear. Its sugar-free probiotic FrozenFood contains 50 per cent less fat andhalf the calories than normal ice cream."We expect this category to account for

ten per cent of the ice cream market inthe next three years," says Sodhi.

Hindustan Unilever too has got in tothe act this year with the launch of itsSelection range which comes with just99 calories in 80 ml. This, in fact, is asegment where the company can drawon the expertise of its parent, Unilever.With growing health consciousness,Heartbrand is developing products thatare lower in fat, sugar-free, lactose-free,as well as low-carb options and thosewith more nutritional goodies like cal-cium and fruit. It has come out withnew pack sizes which allow lower con-sumption. About 40 per cent of theresearch budget goes to enhance prop-erties of health and wellness. Clearly,there is nothing better than a well-stocked parent.

Business Standard


25

On one of the first flights thatSanjay Aggarwal took onSpiceJet, the low-cost air-line he heads, he was givena sandwich packed in a flim-

sy box. Soon, he found that his lap wasfull of crumbs from the stale bread. "I didnot feel like eating it," he recalls.

That experience proved salutary. Itplayed a part in the airline's efforts toupgrade the food served on board, anexercise that - among several others - con-tributed to SpiceJet's turnaround in 2009-10, the only listed airline to report a profitfor the financial year.

Though the bottom-line is modest (Rs61.4 crore against a loss of Rs 353.2 crorein the previous year), the airline's num-bers are noteworthy for two reasons. One,barring one quarter, SpiceJet made a prof-it in every quarter last year (the losses inthe July-September quarter were onaccount of fare cuts in response to similar

moves by Jet Airways and Air India whichwere trying to win back customers afterthey faced strikes). And two, other listedairlines saw revenues fall (see table onpage 3) but SpiceJet, in which the politi-cally well-connected media baronKalanithi Maran recently bought a 37.7per cent stake from London-basedKansagra family and US stressed-assetspecialists Wilbur Ross, saw its top-linegrow 29 per cent.

Aviation analysts say SpiceJet's turn-around is principally on account of itslow-cost fare structure that gave it anadvantage as the aviation industrypulled out of the stall last year, growing16 per cent to 89.36 million passengersafter falling 11.2 per cent in 2008-09 (butgrowth was nowhere near the high of 23per cent in 2007-08). And it is also truethat the four low-cost carriers saw theirmarket share rise to 50 per cent from 35per cent in 2008-09 (unlisted low-cost

leader IndiGo is also reported to havemade a profit in the just-ended financialyear). But SpiceJet also managed to growits market share 20 per cent, from 10.3per cent last year to 12.4 per cent, with-out adding capacity. Its flight back toprofit was, in fact, as much a result ofhigher spending as of cutbacks. Here'swhat it did.

Sweating the assetsLast fiscal, for instance, SpiceJet was ableto grow passenger traffic 44 per cent, morethan double the industry average. At leasthalf this growth, says Aggarwal, who tookcharge in December 2008 at the height ofthe aviation slowdown, was on account of"sweating its assets more than usual" byincreasing aircraft utilisation. This metricrefers to the number of block hours thatan aircraft flies in a day and is a key wayfor airlines to maximise revenue. Byfocusing attention on ground-handling

Business Standard


26

SPICEJET'S FLIGHTTO PROFIT

How the low-cost airline pulled out of losses Kanika Datta & Mihir Mishra

and refueling times, and re-jigging airlineschedules, SpiceJet was able to raise air-craft utilisation to 12.5 hours a day from10.5 hours in 2008-09 - significantly high-er than Kingfisher's 9.5 hours, Jet's 10.5hours and Air India's 8.5 hours.

This alone helped lower SpiceJet'scost base. Today, as a result of better air-craft utilisation, SpiceJet's cost per avail-able seat km (a measure of per-seat operat-ing costs) is Rs 2.30, much lower than thatof competing airlines like Kingfisher andJet's which have around 60 per cent oftheir capacity in low-cost operations.

Focusing on costs often entails morethan just cutbacks. So although SpiceJettook such obvious steps as freezingsalaries and curtailing non-essentialexpenditure, it also focused on maximis-ing cost benefits. Globally, fuel costsaccount for roughly a fourth of an airline'sexpenses; in India, the proportion ismuch higher at about 40 per cent, mainlyon account of the high local taxes thatstate governments charge. Managing fuelconsumption, therefore, is critical to prof-itability. SpiceJet's solutions for achievingthis were not strikingly novel in terms ofindustry practice but they do highlightthe virtues of diligent cost management.

One of the ways the airline did thiswas by focusing on what Aggarwal calls"smart flying". This involves getting pilotsto adjust ascent and descent profiles toyield significant cost benefits. Forinstance, pilots were asked to ensure thataircraft travelling short distances did notclimb too high and those flying longer dis-tances climbed quickly (the broad rulebeing that the climb should be directlyproportionate to the distance the aircraftis flying). Also, fewer "hard landings" low-er the need for aircraft repair.

Meanwhile, adds Aggarwal, therewere benefits to be derived from sheerpayment discipline. Several airlinesowed the oil companies fuel dues - AirIndia owes over Rs 1,200 crore andKingfisher Rs 800 crore - but Aggarwalsays SpiceJet was able to embed a 15 percent discount in the fuel contracts it nego-tiated by "paying its bills on time".Likewise for airport and aviation charges.The cutbacks are evident in the 14 percent fall in expenditure on fuel in 2009-10.

"Cost avoidance," as Aggarwal puts it,also helped. For instance, the airlinesaved about Rs 1 crore by relocating itstraining simulators from Hong Kong andDubai, and signing a three-year mainte-nance repair and overhaul (MRO) con-tract with Malaysian Airlines instead.

Fix the productIn any service-oriented business, cre-

ating passenger preference can only beachieved through "product" and "people".Yet, one of the big challenges of runninglow-cost airlines is perception. "We had toprove that low cost does not mean lowquality," says Aggarwal.

Part of this challenge was addressedthrough SpiceJet's contrarian move ofupping its marketing budgets significant-ly, but the perception problem proved aparticular hurdle when it came to hiringand training people to meet Aggarwal'sobjective of creating a dynamic talentpool. Unsurprisingly, few people wantedto work for a low-cost carrier. "We werelooking for people with energy and pas-sion but discovered that we first needed totell our own story of why we are a betterplace to work," he says.

The exercise in selling the SpiceJet sto-ry and upgrading hiring requirementspaid off in terms of SpiceJet's efforts toupgrade the food it served on board. Onthe basis of feedback from the cabin crew,the airline introduced a tea and coffee ser-

vice when it became apparent that mostIndian passengers demanded this, espe-cially on morning flights. The airline alsointroduced kathi rolls on its snack menuand utthapams and parathas for breakfastafter talking to cabin attendants.

Negotiations with suppliers alsoensured that the quality of food wasupgraded so that Aggarwal's experienceof stale, crumbling bread was not repeat-ed. The result of this was a 200 per centincrease in food sales last year, thoughAggarwal says this was partly on accountof the higher number of passengersSpiceJet flew. Food sales do not contributesignificantly to revenues - just about 1.5per cent - but a decent on-board menu canensure a high passenger conversion rateof as much as 25 per cent.

As part of the exercise of "fixing theproduct", Aggarwal says more peoplewere hired to maintain the interior of theaircraft, carpeting on board was changedand equipment painted more frequently.Its fleet of 20 aircraft is washed everythree days against once a week before.The rule of thumb was to cut expenditurewhere it made sense, Aggarwal explains,but not where it would harm the product.

Analysts have suggested that SpiceJetfound it easier to navigate itself back toprofit because it does not have interna-tional operations like Jet Airways andKingfisher do - international passengertraffic grew only 8.8 per cent last year. Thisis true for Jet Airways, for which interna-tional operations account for 59 per cent ofits revenues, but less so for Kingfisherwhich derives just 10 per cent of its rev-enues from international operations.

SpiceJet's biggest challenge, therefore,could be looming ahead as it gets ready forinternational operations from August,starting with short-haul destinationssuch as Male, Dhaka and Colombo (it hasreapplied for regulatory permission forthe last-named route after being turneddown once). Aggarwal counters that theairline's international route choices willincrease aircraft utilisation since, forinstance, a Delhi-Chennai flight can addon passengers for an onward journey toSri Lanka. Still, given the slow-pick-up ininternational travel, globalisation will beSpiceJet's next big test.

Business Standard


27

Retailers in the North and Westhave a negative perception ofthe current business scenario.Their counterparts in theSouth and East are positive on

the existing situation. But all are upbeatabout the future, though inflation is a bigworry. Retailers have found that con-sumers have reduced their purchase bas-ket and are happy with smaller pack sizes.The clamour for discounts has risensharply. This should be an eye-opener formarketers as well as brand managers.Consumer sentiment is weak. It is certain-ly not a seller's market.

These are the results of the first retailtrade confidence survey, RetailBarometer, carried out by IMRB Retail. Itseeks to map the sentiment in the sector.Assessment of retail sentiment helpscompanies draw product distributionschedules and plan pack sizes. The mar-ket research outfit has measured senti-ment by arriving at an index of current sit-uation and an index of perceivedmomentum.

A sample of 1,240 retailers was takenby IMRB Retail across 20 centres in met-ros, large towns with a population of 1 to 4million, and small towns of 500,000 to 1million people. Retailers covered in thesurvey included kirana stores, chemiststores, stationery stores and modernstores. For the index of current situationas well the index of perceived momen-tum, retailers were asked to rank fourparameters - economic outlook, con-sumer demand, supply of goods and infla-

Business Standard


28

SLOWER TRADE,SMALLER PACKSConsumers have reduced their purchase basket and are clamouring fordiscounts. It's not a seller's market, finds out an IMRB retail tradeconfidence survey Byravee Iyer

tion - on a scale of five. Each score wasarrived at by subtracting the percentage ofpositive responses from the negativeresponses.

Negative NorthThe index of current situation is negativein the North on account of the hugely-negative economic outlook index. Theindices for consumer demand, supply ofgoods and inflation too are negative forthe region. In the West, the economic out-look, consumer demand and inflationindices are in the negative. In the East andSouth, all indices are positive exceptinflation. Overall, retailers in the Southare most bullish about the current situa-tion, followed by those in the East.Retailers in the North are at the bottom ofthe heap. The all-India index of currentsituation is also negative, perhapsbecause of the large representation fromthe North in the sample.(See table)

The index of perceived momentum ispositive for all the four regions. The Southagain is most bullish about the future andthe North the least bullish. But retailers inall regions are worried about inflation andits impact on business. Companies aswell as retailers have observed down-trading amongst consumers because ofthe rise in prices. Inflation, especially therampant rise in food prices, has workedlike a tax on the poor families becausefood comprises a large chunk of theirexpenditure. In the overall index too asimilar trend can be seen: The Southleads the pack, followed by the East, Westand North. "If we look at the Southernregion, consumers are generally moreoptimistic. Also, there are far more metrosthan smaller towns in the region, andmetros are always more optimistic; there-fore, there is likely to be greater consump-tion," says IMRB Vice-president PuneetAvasthi.

Amongst retailers, the confidenceindex of modern stores and chemist storesis the highest, followed by kirana storesand stationery stores. In other words,kirana stores - and there are over six mil-lion of these in the country - are not happywith the current situation and do not see abright future. One reason could be theadvent of modern retail, which has affect-ed them badly, especially in large cities.

And among towns, the confidence indexis positive in metros and large towns, butnegative in small towns. The survey saysthat retailers in small towns have been hithard by inflation and the lack of anupward movement in demand.

Retail despairBy mapping the retailers on the basis oftheir sentiment, Retail Barometer saysthat as many as 54 per cent retailers in thecountry are in despair (the present situa-tion has deteriorated, the future situationwill deteriorate further), 23 per cent arepositive about the present as well as thefuture (the Sunshine Group), 18 per centfeel the present situation has remainedthe same or deteriorated but are opti-mistic about the future, and 5 per cent saythe present situation has improved andthe future will remain the same - it willneither pick up nor worsen. Southernretailers are the largest inhabitants of theSunshine Group.

As for inflation, the negative effectshave been felt more by the kirana andmodern stores where the quantity of pur-chases across categories has gone down -this is more noticeable in the case ofkiranas where customers across cate-gories except for pulses & staples haveswitched to smaller pack sizes. In modernstores, people have shifted to smallerpacks for processed food. Chemists toohave witnessed purchase of smallerpacks, particularly for processed food andpersonal care products. The impact hasbeen least felt by stationery shops.

Zone-wise, yet again the Southernstates' purchases have remained the sameacross categories. The North, however,has seen consumers shift to smaller packsizes for personal care and baby careproducts. For processed food and OTC(over the counter) products, they are buy-ing less of the same packs. Still, con-sumers in the North didn't compromiseon staples & pulses. In the East, people arebuying lesser quantities of the same packsof staples & pulses and baby care, andhave switched to smaller packs for sta-tionery, personal care, OTC, home careand processed food. The West saw peoplegoing for smaller pack sizes for staples &pulses, stationery as well as baby care.

The study has also covered how con-

sumers are rationalising the increasingcost of products across categories. Theresults indicate that due to the impact ofinflation, purchases have gone downacross categories. Moreover, customersare looking for discounts in the form ofpackage deals and monetary discounts,with the personal care category leadingthe way. As many as 65 per cent buyers ofpersonal care products ask for a discount.Fifty-seven per cent demand a discounton staples & pulses, 55 per cent onprocessed food, and 52 per cent on homecare products.

Business Standard


29

For several years, ICICI PrudentialLife Executive Vice-presidentPuneet Nanda has got the dailysales report from his frontline

staff. In recent years, he gets it in the formof a text message at seven in the morning.It gives him the details of the sale done theprevious day. In a relatively new sectorlike life insurance, this ought to be thecore team's mantra. Sale matters mostwhen a business is in the growth mode.

But for the last few months, Nanda hasbeen giving equal, if not more, attention to

a dashboard that his company hasinstalled. Sitting in its Prabhadevi head-quarters in Mumbai, the ICICI Prudentialtop management keeps a close eye on thedashboard that provides the expensedetails of every major office across thecountry. "Sitting here, you can switch offelectricity in any office if you findwastage," says the head of the company'soperations and technology, MadhivananBalakrishnan.

The dashboard has helped. So muchso, the last financial year was a unique

one in the history of the company. It wasthe first year when its top-line grew,expenses came down, and the companyturned profitable.

Smart cutsA part of the reason for the cost-cut drivewas the downturn, which also made thetask simpler. Nanda, who is a key memberof the task force that meets every month tosee how costs can be lowered, says thecompany renegotiated rentals in all build-ings where it had offices. Over 350 of the

Business Standard


30

TURBO TURNAROUNDSome smart moves and course corrections have helped ICICI Prudentialturn profitable Shilpy Sinha & Sidhartha

nearly 2,000 ICICI Prudential offices wererelocated to cheaper locations, whileanother 300 were shut down. Travel,domestic as well as foreign, was curtailed,stationary was rationed and even air-con-ditioners were switched off after a certaintime.

The only thing that survived thedownturn unaffected was salaries whichwent up 12 per cent on an average lastyear and top performers got a 25 per centraise. The reason was that there were few-er people on the company's rolls. Forgetgrowing employees, even replacementswere next to impossible, resulting in theheadcount dropping from around 23,000to 20,000. "We had to do it not just to get toprofitability, but to get fitter," says ICICIPrudential Managing Director & CEO VVaidyanathan.

Controlling costs was one thing, but adisciplined approach to margins has beenthe key driver for Vaidyanathan and histeam's efforts to make India's largest pri-vate life-insurance company profitableafter nine-and-a-half-years of operations."We cut fixed expenses by Rs 380 croreand that is not going to come back," saysVaidyanathan.

The focus on profitability came whenit dawned on the promoters that ICICIPrudential had been in business for eightyears and they were still pumping in capi-tal. But the pace of turnaround surprisedeven insiders since the revised deadlinefor getting into the black was set as March2012. Vaidyanathan believes the founda-tion of the business had a big role in this."It's the work of all the team members,particularly the people who built thebusiness over so many years," he says.

ICICI Prudential, mind you, is oneamong the four profitable private lifeinsurers in the country - SBI Life, BajajAllianz and Kotak Life being the others.There are 22 private life insurers around.Arch rivals like HDFC Standard Life andMax New York Life are still in the red. Thelargest player in the market, of course, isthe state-owned Life InsuranceCorporation.

Sell right, sell longEven in sales, ICICI Prudential has done acourse-correction. For a company that haslong been seen to focus solely on selling,

the mantra now is "selling right". Also, thecharge structure has been changed. So,instead of frontloading the charges,which in some cases were as high as 20per cent in the initial year, the new prod-ucts come with upfront charges of 6-7 percent. "Instead of paying more commis-sions, we brought out new products thatwere relevant for the current marketneeds. Also, lower-charge products wereintroduced," says Vaidyanathan.

Last year, ICICI Prudential's sales fellcontinuously but, in a year of cost cuts, itsshare of the market moved from 7 per centto about 9.5 per cent now.

The focus is on selling long. Thedesign of products has been remade insuch a way that the sale is for the longterm. Its products now offer bonus tothose who keep renewing their policies."We are encouraging policyholders to staylong with a loyalty bonus. In some of ourproducts, we have said that if you cannotpay the premium in one year we will deferit by a year," adds ICICI PrudentialExecutive Vice-president (sales & distrib-ution) Tarun Chugh.

The other focus for the sales force isselling to a grid. "The moment you sell theright product, you ensure that people willpay their premium on time," says Chugh.And, to ensure that every new customer isgetting the right product, ICICI Prudentialis now calling buyers to check that thepolicy sold to them actually fits in withtheir profile.

All this has also meant that the salesforce needs to be retrained to ensure thatthe policy lasts its term instead of cus-tomers dropping out midstream. So forthe new entrants the hiring pitch is also

different. To start with, ICICI Prudential isonly looking at those with prior experi-ence in insurance. Besides, the job pre-sentation makes the needs of the job clear."You need to tell people upfront that theymay be required to visit people at homeover the weekend or on a holiday sincethat is how insurance is sold. Then it is upto them to decide.... It was earlier like get-ting to a chartered accountants' course:Simple to get in but difficult to pass. Now,we are moving towards the IIT model:Tough to get in, but you don't fail once youget in," says Judhajit Das, the head ofhuman resources. Das says that of the2,000 new employees who came on boardthis year, only 15 have quit so far insteadof the three-digit numbers that was thenorm earlier. The other focus area is pro-ductivity which has gone up due to highersales and fewer employees.

But is the model sustainable? Theindustry believes it is as everyone is tryingto control costs and turn profitable. ButNanda is candid enough in admitting thatto reduce the expense ratio further will bea tough ask. The company has lowered itsmanagement expense from 14 per cent to9.5 per cent in 2009-10, and going for-ward the idea is to ensure that the top-linegrows faster than the expenses. "Theapproach is to reduce the fixed costs andmake them variable," says Vaidyanathan.So, in a lot of cases, the company is look-ing to convert fixed costs into variablecosts such as real estate and also in thecase of certain non-core back-end activi-ties. The idea is to be ready for businesscycles and stay profitable even duringtough times.

Business Standard


31

India's second largest two-wheelercompany, which had bombardedthe market with multiple brands(remember XCD, Kristal, Platinaand a few others?) to break the

near-monopoly of market leader HeroHonda in the economy segment, haswithdrawn all but two of its brands.

The move is working. Last year, BajajAuto posted its best-ever annual sales,riding high on just two brands -Discover and Pulsar. The Discover isclearly positioned for the commutersegment and the Pulsar as the 'sporty'option. While the Pulsar has held itsown over the years in the power andperformance segment, the Discover is

the pivot in the commuting category.Bajaj Auto Managing Director Rajiv

Bajaj says "brands can be created easilyby the R&D people. We have to figureout if there is a third category of buyersout there. A Pulsar buyer is sporty,young, and wants to have some funwith the bike. The Discover buyer ismore sober and an economy- consciousperson who wants to take a safe deci-sion and higher mileage," he says.

"If we create a brand in the absenceof a target category, it could be likeputting up a restaurant which servesfood nobody wants to eat. I could put upa Lebanese restaurant in Pune and gobankrupt", adds Bajaj.

The MD says a manufacturer canmerrily create a brand and forget aboutit, but he also needs to look out whetherthere is a category for it. "Creation ofbrands is in the hands of the manufac-turer but the creation of a category is inthe hands of the consumer. So unlesswe are sure that there is a third categorythere, we would be making a mistake bycreating that third brand", he says.

The company has changed its strate-gy from a product to a brand-led compa-ny as it believes that the product gamewill not go anywhere and it is onlybrands that will make all the difference.

Presently about 70 per cent of thecompany's sales come from the

Business Standard


32

TALE OF CONTRASTSThe more, the merrier' has been the theme song of Bajaj Auto for many years.Not anymore Swaraj Baggonkar

Discover and Pulsar segment, both ofwhich share seven models betweenthem - up from just three about threeyears ago. The company reported itshighest ever monthly sales in April(276,000 units) followed by a recordnumber in May. It aims to sell one mil-lion Pulsar units every year starting thisyear.

The company, which had a 20.47 percent market share in the two-wheelercategory in May - up from 19.05 per centin the previous month - is working onadding yet another model under thePulsar category in the coming months.It also launched last month a new 150cc bike under the Discover brand. Thecompany intends to focus on just thesetwo brands till the market is matureenough for more.

However, that's something the mar-ket leader doesn't believe in. HeroHonda, which had a 45.38 per cent mar-ket share in May (48 per cent in April),is planning a brand blitz by launchingat least two more new brand launchesthis year to take its total tally to 10.

Anil Dua, vice president, sales andmarketing, Hero Honda, says, "We hadvery successful brand launches in thepast including ZMR, Hunk, Passion Proand Pleasure and want that to contin-ue."

Asked whether launching of newbrands and turning them into success-ful ones is easier for a market leader,Dua says the success came becauseHero Honda positioned its brandssharply on a clearly differentiated plat-form. "It's all a function of the home-work and ground work. If the customertrusts the company, the resistance tonew launches is less. It's indeed tougherfor a smaller company to promote a newbrand," he adds.

Splendour, which is in its 16th year,is the largest two-wheeler brand in theworld followed by Passion.

Last year, five models under thesetwo brands clocked sales of over twomillion units. The company says it ispresently struggling to increase thecapacity of the Hunk as demand is faroutstripping supply.

A section of the market believes thatthe success of the Hero Honda models ismore because of the company's brandrecall rather than the products them-selves (remember the caption 'Fill it,shut it, forget it'). But that still seems tobe only a minority opinion.

Fiscal 2010 saw Hero Honda launch-ing nine new models across segments,all of which are doing well. Sales ofPleasure, for example, have alreadycrossed the 20,000 units per monththreshold. Also, powered by its 4,200touch points, the company has alreadycrossed the landmark figure of four mil-lion cumulative sales in a single yearand posted sales of more than a millionunits for every quarter in FY'10.

Business Standard


33

Volkswagen recentlyannounced the launch of itshigh-end luxury car, thePhaeton, in India. Namedafter the son of Phoebus, the

Greek Sun God, it was unveiled at theGeneva Motor Show in 2002, and it hit themarket in 2003. But the sales fell short ofexpectations. It was positioned againsttop-end brands like Mercedes, BMW,Lexus and Volkswagen's own Audi. But itlacked the appeal of the rival brands -hence the lacklustre performance. But sokeen is Volkswagen to make the Phaetonwork in India that it has taken the car backto the drawing board. The result: LEDdaytime running lights, 18-inch wheels, a

new dashboard, 18-way adjustable seats,better upholstery and even new air-condi-tioning to suit the Indian climate.

Earlier in the month, Volkswagen,headquartered in Lower Saxony inGermany, had announced that it willlaunch an all-new sedan, the Vento, inautumn. It will be manufactured atVolkswagen's factory at Chakan in Pune,and has been completely designed to theneeds and expectations of the Indian con-sumer. Also in the works is a small car. Atpresent, there are six cars in Volkswagen'sstables: The Beetle, Polo, Passat, Jetta,Phaeton and Touareg. It could expand toeight. It fits petrol as well as diesel enginesinto its cars. Volkswagen thus straddles

the entire spectrum of the Indian market.Its factory at Chakan, put up at a cost of Rs3,200 crore, can make 110,000 cars in ayear. Those who have seen the factory saythis capacity can easily be doubledbecause of the modular nature of theplant.

Along with its other brands, Skodaand Audi, Volkswagen has a share of lessthan 1 per cent in the 1.3-million perannum Indian car market. From here,Volkswagen wants to raise it to 10 per centin five years. India is vital forVolkswagen's plan to become the world'slargest car maker by 2018. In 2009, it sold6.29 million cars. This had placed it onthe third spot after Toyota (7.23 million)

Business Standard


34

GERMAN DESIGNSCan Volkswagen become the people’s car in India? Byravee Iyer

and General Motors (6.50 million).Volkswagen is the largest player in China,Europe and South America. In China, itsold 1.4 million cars in 2009 - more thanthe entire Indian market - and its share ofthe market was an impressive 18 per cent.India, which is expected to grow to 3 mil-lion cars in five years, is the final frontier.By itself it may not catapult Volkswagenahead of Toyota and General Motors, butit is one of the few markets left with largesale volumes up for grabs.

Automobile analysts expectVolkswagen to use its learnings in Chinahere. These could be aggressive price tagsand high-decibel advertisements. ButChina and India are different markets.Large cars rule the roost in China. Smallcars form more than two-thirds of theIndian market. On the positive side,Volkswagen's strength lies in the massmarket. Its name, after all, means people'scar in German. Its presence in India canno longer be dismissed, admit somerivals. But quite a few insist that it will bea tough challenge for Volkswagen to get10 per cent of the market in five years flat.They point to the example of GeneralMotors which had in mind a similar mar-ket share by the end of this year but is nowunsure if it will be able to meet the target.

Building the brandWhen Volkswagen started out last year,research suggested that many people didnot know what the brand stood for, whileseveral others had not even heard of it.That's when the company's brand man-agers and marketers sat down with its cre-ative agency, DDB Mudra, and thrashedout a plan. "Low brand awareness was oneof our key concerns," says Mudra GroupChief Creative Officer Bobby Pawar. Withthat in mind, the brief given to Mudra wasto raise brand awareness and get con-sumers engaged with the cars. "We want-ed people to sit up and take notice," addsPawar.

Thus, last November, Volkswagencame out with 13 advertisements in aleading English newspaper. It told readersall they ever wanted to know aboutVolkswagen - how the name came about,its product line and so on. The mandatoryTV commercial followed. By the time thecampaign ended, Volkswagen had used

18,000 television spots, 144 insertions inbroadsheet dailies, 50 insertions in maga-zines, 280 out-of-home sites and 23 digi-tal portals.

This was the biggest inaugural cam-paign launched by a car maker in India.

To improve brand recall, the next cam-paign showed all Volkswagen cars: TheBeetle, Passat, Jetta and Touareg. "Thisdenoted that we had integrated all ourbrands with our products," MarketingManager Lutz Kothe explains. "Besidesthat we had to keep the global style andtone of warmth that Volkswagen cam-paigns have while highlighting its posi-tioning." A boy is given a round of theVolkswagen showroom in the advertise-ment. The salesman slots the various carsinto different stages of the consumer's life:The Beetle for the young, the high-perfor-mance Jetta for the mid-level executive,the comfortable Passat for the chief execu-

tive and the Touareg for the lifestyle-con-scious buyer. Has it paid off?

DDB Mudra claims that the brandrecall is now in double digits. There is stilla long way to go.

Some analysts feel Volkswagen hasmade the right moves. "The feedbackaround Volkswagen is that it's a muchawaited brand. It is truly the people's car.Along with Hyundai, Volkswagen is topof the mind for people," says SynovateIndia Director and Head of qualitativeresearch Shravani Sen. "The fact that peo-ple are only looking for fuel efficiency is amyth; performance has become increas-ingly important and that's really what'shelping Volkswagen."

German classAre Indian car buyers willing to experi-ment with a new brand? The evidence onthe ground is mixed. Maruti Suzuki still

Business Standard


35

owns almost 55 per cent of the market. Inspite of the rising competition, its marketdominance continues. On the other hand,rivals have gained some traction from val-ue additions and aggressive prices. Somehave focused in areas like the easternstates where Maruti Suzuki does not havea stranglehold over the market. The key isto have a differentiator.

Volkswagen cars are positioned asproducts of German engineering. In themind of the Indian consumer, Germanyproduces the best-engineered products inthe world. Volkswagen has been quick tolatch on to it. But the car that is made inIndia - the Polo - has up to 50 per cent localcomponents. This number will improvefurther to 75-80 per cent in the days tocome. This is essential if it wants to priceits cars competitively. "Volkswagen'sdependence on imports has to reduce.That will take some time. It can't happenovernight as it has to scout for quality localmachines, alternate sources and so on,"says PricewaterhouseCoopers' leader ofthe automobile practice, Abdul Majeed.

So, is it really German engineering?"The components are made toVolkswagen's specifications and designs.In that sense, the cars are German-engi-neered," says an industry observer."German engineering stands for innova-tive technology, safety, stability and stur-diness. Sourcing local components whichcan finally achieve this are chosen underthese high quality factors to achieve'German Engineering," adds VolkswagenIndia Director (cars) Neeraj Garg.

That apart, Volkswagen visits Indianhomes to understand how people live,use their car, what they needed from theircar and so on. These insights have beenused in the design of its cars for the coun-try. "In the beginning we thought highquality is shown by dark interiors; butafter talking to people we realised thatthey want bright interiors. And so weadded that change within two months,"says Kothe. Volkswagen also discoveredthat suspensions need to be conditionedaccording to the roads in India, while air-conditioners, horns and headlights oughtto be more powerful.

But how has it done so far? FromJanuary to April 2010, Volkswagen sold3,280 cars, compared to the 3,039 cars it

sold all of 2009. That may not be even ablip, but there are indications that buyershave begun to warm up to the brand. TheBeetle, for instance, has sold 284 sinceJanuary, the steep price of Rs 20.45 lakh(ex-showroom, New Delhi) notwith-standing. Throw in a little more and youcould buy an entry-level Mercedes! TheBeetle is imported from the Volkswagenfacility in Mexico and buyers have to waitup to three months for delivery.

The small-car warThe big one, of course, has been the Polohatchback. Since its launch in February,Volkswagen has sold 1,599 Polos so far.The queue of buyers runs into thousands,

the company claims, and delivery cantake up to three months. The car is pricedat Rs 4.46 lakh. Though more expensivethan the Maruti Suzuki Swift (Rs 4.2lakh), the Fiat Grande Punto (Rs 4.33 lakh)and the Ford Figo (Rs 3.54 lakh), it ispriced below the Hyundai i20 (Rs 4.46lakh). The price tag, some analystsbelieve, could work against Volkswagenbecause buyers are not willing to pay apremium for a small car. The going couldget tougher when Toyota launches theEtios. The car was shown at the NewDelhi Auto Expo earlier this year. Criticsfelt it was a little under-designed, like theMahindra Logan, but Toyota can count onits tremendous brand equity.

Volkswagen also knows that two ver-sions of the same car - hatchback andsedan - can work well in India. MarutiSuzuki has reaped a rich harvest with theSwift hatchback and Dzire sedan. The

Vento, thus, builds on the Polo platform. Itwill compete against bestsellers like theHonda City, Ford Fiesta and MarutiSuzuki SX4. But the game-changer couldbe the small car. It is not clear what shapeit could take. But Volkswagen has suchcars in its global portfolio - the Fox inBrazil and Ebisa in Spain. But India couldbe different. Also, the market place iscrowded. To complicate matters further,Hyundai and Honda are working onbrand new small cars. Honda, in theJapanese style of perfection, has evenshipped some saris to its developmentcentre in Japan to make sure that Indianwomen can get in and out of its new smallcar with ease.

Where Volkswagen might trip, sayrivals as well as analysts, is distribution.India is a large country and hundreds ofdealers are required to cover its length andbreadth. With about 300 dealers, industrynorms suggest, a car maker can cover up to80 per cent of the market. How doesVolkswagen measure against this bench-mark? At the moment, Volkswagen has 43dealers in 32 cities - woefully short ofrivals like Maruti Suzuki, Hyundai, TataMotors and Mahindra & Mahindra. Butthe network could expand in the days tocome. "We will be spread all over, and arekeen on increasing our penetration in linewith volumes. Hence we will open onedealership every three weeks," says Garg."People's concern with Volkswagen is itsdealership and after-sale service. Thecompany needs to build that up fast. Theconsumer is not going to wait," says Sen.

But Volkswagen could have an ace upits sleeve. Last year, it had bought 19.6 percent in Suzuki Motor Corporation for $2.5billion. The crown jewel of Suzuki, ofcourse, is its Indian subsidiary, MarutiSuzuki. Ever since the acquisition, therehas been speculation that Volkswagenand Maruti Suzuki will soon explore syn-ergies in various fields. There have beenreports that top executives from the twocompanies have met to kickstart such dis-cussions. But sector experts doubt if theco-operation will extend to distributionbecause their car models clash. ButMaruti Suzuki's expertise in cost-effectiveand high-volume production is some-thing Volkswagen could leverage to goodeffect.

Business Standard


36

WHERE VOLKSWAGEN MIGHTTRIP IS DISTRIBUTION. AT

THE MOMENT, VOLKSWAGENHAS 43 DEALERS IN 32

CITIES — WOEFULLY SHORTOF RIVALS LIKE MARUTI

SUZUKI, HYUNDAIOR TATA MOTORS

His decade-long career atPrudential Plc was thestuff every St Stephensand Indian Institute ofManagement Ahmedabad

alumnus like him would aspire for. Aschief executive of the UK financial ser-vice power house's Asian operations,Ajay Srinivasan, then based in HongKong, was managing assets worth $60billion. And just when speculationstarted that he was headed for Londonto become one of Prudential's globalbosses, Srinivasan quit.

The destination he chose, however,surprised many, though Srinivasansays he didn't take much time to say yesto Kumar Mangalam Birla's offer to tur-bo-charge the Aditya Birla group'sfinancial services business. But itcouldn't have been an easy decision.The Indian conglomerate's six-year-oldlife insurance firm and the 13-year-oldmutual fund were languishing at thatpoint and the group had just quit retailbroking apart from going slow on otherservices.

The structure also was a big prob-lem. Though the Aditya Birla group hada strong brand equity, the financial ser-vices business was (it still is) under aloosely-formed Aditya Birla Nuvo,which is a holding company for diversebusinesses such as insurance, textiles,telecommunication and even carbon

Business Standard


37

UNITY IN DIVERSITYHow Ajay Srinivasan isdriving integration among the seven financial services businesses of theAditya Birla group

Shyamal Majumdar

black. On top of that, quite a few veter-ans who had held the financial servicesbusiness together for long had alreadyheaded out.

But three years after taking charge,Srinivasan sounds credible when hetalks about the “turnaround story”.Consider the numbers. The growthshown by the financial services armhelped Nuvo return to profitability inthe quarter ended March 31, 2010. Thecompany reported a net profit of Rs 180crore, compared to a loss of Rs 146 crorein the corresponding period of the pre-vious year. For the full year, net profitwas Rs 155 crore compared to a loss ofRs 436 crore in the year-ago period. TheEBIDTA (income from operations) forthe full year at Rs 1,686 crore was thehighest-ever.

The journey that the Aditya BirlaFinancial Services Group - Srinivasancalls it a conglomerate within a con-glomerate - has travelled in the threeyears since the new team took chargehas been spectacular. Since 2007-08,consolidated revenues have grown over40 per cent to Rs 6,139 crore in 2009-10,without including income from policyholder investment, other income and soon. Assets under management haveincreased by 40 per cent to around Rs80,000 crore. The number of customersin the same period has increased to 5.6million from 3.4 million, while thenumber of employees has gone up toaround 16,000 from 10,000.

The numbers are still modest evenby Indian standards - the life insuranceand mutual funds businesses are thefifth largest in India - but Srinivasansays they should be seen from the per-spective of where they were three yearsback. And the platform has been set forfulfilling the group's ambition to makethese two businesses among the topthree in India in the not-too-distantfuture.

He could well be right. Because evenin a tumultuous 2009, Birla Sun LifeInsurance clocked robust volumegrowth and gained market share even asothers struggled. The company's marketshare in new premium incomeincreased from 7.8 per cent in March2008 to 10.4 per cent by the end of 2009-

10. In such a challenging environment,Birla Sun's new business premiumgrew by 44 per cent against a 3 per centdecline in growth for the industry. If thelife insurance business has been a suc-cess story, so has been the asset man-agement business which saw assetsgrow at an average 31 per cent, com-pared with the industry growth of 7 percent in that period.

However, there are still many greyareas. Analysts say even as the grouprevs up its financial services business,it would need to pump in funds, andthat's a huge concern. Also, Nuvo has amarket cap of just around Rs 7,300crore, which is less than half the m-capof Reliance Capital (over Rs 15,500crore), a pure financial services compa-ny. But nobody can deny that the topteam at ABFSG has covered a huge dis-tance in the last three years. Here's how.

Driving synergiesThe first task, Srinivasan says, was toset the structure right by driving inte-gration in the conglomerate of sevenlegal entities - from life insurance tomutual funds, private equity, wealthmanagement, non-banking financialcompany, retail broking and a generalinsurance broking business. The ideawas to see it as one virtual companywith many real businesses. Earlier, theywere all operating as islands with sepa-rate management structures and with-out a common vision. That has been setright, partly by giving a common identi-ty to some of the firms. For example, thebroking, wealth management and dis-tribution businesses are now posi-tioned under one brand, Aditya Birla

Money. Attaching the Aditya Birlabrand name to each of the businesseswas important as investors in India stillprefer safety over returns and arealways looking for reassurance.Therefore, who offers the service isoften much more important than theoffering in the market.

Integration, the group believes, iscritical because of the competitiveadvantages that can emanate frombeing able to drive synergies across theplatform. “Whether we integrate thebackend in terms of the way technologyworks or the front-end in terms of theway the customer sees us, what isimportant is that we must offer a com-mon platform. Our view is that givenour target customer with whom we arelooking to build long and sustainablerelationships, having a broad-basedoffering of products and services is crit-ical,” Srinivasan says.

That explains the group's initiativeto make its top teams at all the sevenarms sit together. It has taken up fivefloors at the One India Bulls Centre atLower Parel with a seating capacity of950. Earlier they were scattered all overMumbai. Even the back office opera-tions for its diverse financial servicesbusinesses have been brought underone roof at Thane, a Mumbai suburb.Earlier this month, the group set up itsoperations hub at a 95,000 sq ft state-of-the-art office with 1,350 seats.

But the bigger game plan has been toallow the separate management struc-tures to continue with each companyhaving its own CEO (except for lifeinsurance where a global search is on)under a super-structure that Srinivasanheads. A crack team has been formedconsisting of people who head func-tions such as marketing, informationtechnology and so on across the group.For example, the group has replicatedthe IT platform across the seven busi-nesses, whether it is facilities manage-ment, or common infrastructure interms of network. Similar initiativeshave been introduced in a number ofother platforms like human resourcesand marketing. Apart from saving costthrough less duplication of work, ithelps operate as an integrated entity.

Business Standard


38

THE FIRST TASK WAS TO SETTHE STRUCTURE RIGHT BY

DRIVING INTEGRATION IN THECONGLOMERATE OF SEVENLEGAL ENTITIES. THE IDEA

WAS TO SEE IT AS ONEVIRTUAL COMPANY WITH MANY REAL BUSINESSES

The group has now sought approvalsto formalise this process through theformation of a holding company for itsfinancial services businesses.

Distribution muscleAlmost 55 per cent of household sav-ings lie in bank deposits, the penetra-tion of products like mutual funds isless than 5 per cent of household sav-ings and life insurance penetration isless than 15 per cent. This is the oppor-tunity that the Aditya Birla FinancialServices is planning to target.

For the group, therefore, buildingdistribution infrastructure was the sec-ond critical element. Helped by theacquisition of Apollo Sindhoori, a retailbroking firm from the Chennai-basedReddy family to take advantage of cross-selling opportunities with the existinginsurance and mutual fund business,the financial services business hasmore than doubled its points of pres-ence to over 1,600 (from 735 in 2007).

Another 200,000 channel partnersensure that the group's presence isspread across more than 500 cities.Aditya Birla Money, for example, has adistribution network of over 850through its own and sub-broker branch-es, a large customer base in excess of400,000 and a strong technology back-bone.

Srinivasan says life insurance hasgot 600 branches, and the asset manage-ment company has 110 offices. It's agood enough base and going forward,there will be some amount of incremen-tal expansions, but the focus now willbe on driving efficiency and productivi-ty across the channels. That's a keychallenge.

Srinivasan says turbo-chargingessentially involves building the pipesto push the products through. Anotherfocus area has been customer experi-ence because although this businesscan tend to be fairly hardnosed and verymuch about numbers, at the end of theday, “the way the customer experiencesus, and the way the customer can actu-ally deal with us at different points willdifferentiate one provider from anoth-er.”

For example, Birla Sun Life

Insurance set up a centralised claim set-tlement cell much ahead of its competi-tors. Last year, for example, it processed99.49 per cent of all individual deathclaims received, processed 100 per centof all death claims received for groupbusiness and achieved individual deathclaims outstanding ratio of 0.51 percent and 0.00 per cent for group deathclaims.

New businesses While the acquisition of Apollo

Sindhoori marked the re-entry of the

group into retail broking, Srinivasan'stop team has been active on other frontsas well to make it a diversified, one-stopfinancial powerhouse. Take privateequity. Aditya Birla Capital Advisors,the private equity firm led by BharatBanka, closed its maiden fund in Marchwith a size of Rs 881 crore, much aheadof similar ambitions of the Tatas and theReliance ADAG group. The target is toraise at least a billion dollars (Rs 4,700crore) in three years.

Among the other initiatives, thereare a few that stand out. One of them isan alliance with Korea's WooriInvestment. Aditya Birla FinancialServices Group will now be able to raiseabout $500 million funds overseas forits mutual fund, private equity and realestate funds. Besides, the alliance willstrengthen Aditya Birla Money's posi-tion in the broking space by introducingan institutional overseas broking plat-form that can be used for institutional,high net worth individuals and non-res-ident Indian investment from Korea toIndia and vice versa. Then there was therecent partnership with SBI Cards tooffer co-branded credit cards to all cus-tomers of the Aditya Birla group. Theco-branded credit cards will be avail-able to over 28 million customers of thegroup companies - Aditya Birla Retail,Aditya Birla Financial Services, IdeaCellular and Madura Garments.

“The eco-system of the group's hugecustomer base and small companiesassociated with the group is a hugecatchment area for us, something othersin the field haven't got. The good newsis we have barely scratched the surfaceof this eco-system, so the potential isenormous,” Srinivasan says.

Also on the roadmap is an aggressiveentry into the rural space andSrinivasan wants to replicate the“sachet story in the FMCG industry” inthe financial services space also. Thatmeans volume play with low-ticketproducts. He is, however, mum on thespecifics and would only say that whathis seven companies have done so far isjust the first phase of a long success sto-ry.

His boss, Kumar Mangalam Birla,would be pleased with that.

Business Standard


39

KUMAR MANGALAM BIRLA,CHAIRMAN OF THE ADITYA

BIRLA GROUP, IS HOPING TOEXTEND THE GROUP’S

STRONG BRAND EQUITYTO THE FINANCIALSERVICES SPACE

At 7, Race Course Road, the resi-dence of Prime MinisterManmohan Singh, you can find

a glittering array of cars. They are all fit-ted with post-modern gizmos and secu-rity gadgets, and their armour is thick as

a tank's. There is also a small electric carwhich is used to carry passengers, oneat a time, from the high-security gates tothe house. It rubs in a subtle message tovisitors from abroad: The PrimeMinister's office is environment-friend-

ly, and India can make an electric car onits own. The Reva has a place of pride inthe fleet.

Cut to the Australian outback 20years ago. Chetan Maini, a student atthe University of Michigan, races thesolar-powered car he has built fromscratch, against venerated names likeHonda. At the end of the long drive,Maini comes third. More than that, itmakes Maini, 19, think seriously aboutelectric vehicles. He first takes aMaster's in mechanical engineeringfrom Stanford University, with a focuson hybrid electric vehicles, and then in1994 sets up Reva Electric CarCompany in Bangalore, India's hi-techcapital, in collaboration withCalifornia-based AEV LLC. He namesthe company after his mother. Over thenext seven years, Maini and his menresearch electric cars, register five

Business Standard


40

CHARGE OF THE GREEN KNIGHTCan Reva Electric Car Company leverage itsfirst-mover advantage in the soon-to-be-crowded electric car space? Byravee Iyer

patents and try to develop insights intothe consumer's mind. In 2001, Mainilaunches his first car - a two-seater thatcan touch speeds of up to 60 km perhour and run 80 km on a single charge -under the brand Reva in India and G-Wiz in London.

Since then, Maini has put the carthrough two upgrades: The Reva-i withlead acid battery in January 2008 andthe Reva L-ion with high-performancelithium ion battery exactly a year later.He has sold 3,400 Revas so far - 1,700 inIndia, including the one to the PrimeMinister's office, and an equal numberabroad. These cars have together logged70 million kilometers, Maini, the vice-chairman and chief technology officerof Reva Electric Car Company, says withquiet pride. The company has theworld's largest deployed fleet of electriccars, with customers in 24 countries.

Electric cars, given the new-foundenvironmental consciousness of gov-ernments and consumers across theworld, are the flavour of the season.Countries like the UK and even Chinahave offered subsidies for electric carsto cut down carbon emissions andreduce dependence on fossil fuels.Automakers are falling over each otherto have hybrids, which run on fossilfuels as well as battery, and electric carsin their portfolio. Thus, automakerswill introduce 42 electric models by2012, says a recent study byPricewaterhouseCoopers. Electric carswill be 2 per cent of the global market by2020, Volkswagen has predicted, whileNissan's Carlos Ghosn has put the fig-ure at 10 per cent. Clearly, Maini has thefirst mover's advantage in a market thatwill only go north in the days to come.

But the ride so far hasn't beensmooth. In the days before the launch,Maini had counted on a subsidy of Rs100,000 by the government on each car.This was supposed to bring down theownership cost. However, when the careventually launched, the governmentyanked the subsidy off. This threwMaini's plans off gear, and as a result,the two-seat car's cost came to as muchas a Maruti 800. On top of it, thereweren't enough recharge booths in thecountry. The looks were not worth writ-

ing home about, and there wasn't anythrill in the speed. The lack of an air-conditioner was a huge negative in theNorth. Little surprise then, RevaElectric Car Company hasn't managedto break even yet. But Maini is confi-dent things could change for the betterin the days to come. He has his strategyready.

New looksMaini is all set to launch the Reva

NXR, short for Next Reva, in the secondquarter of this year before theCommonwealth Games open in NewDelhi in October. It will, he hopes, solvesome of the problems of the Reva -looks, range, air conditioning andspeed. The Reva NXR, a four-seat three-door hatchback, will have a range ofalmost 160 km on a single charge andcan hit top speed of 104 km per hour.Standard charging will require eighthours, but there is a quick charge optionof 90 minutes as well.

Up next is the Reva NXG (Reva NextGeneration), which will hit the marketin 2011. This two-door two-seat car hasbeen styled by Dilip Chhabria, willhave a range of 200 km and a top speedof 130 km per hour. "There was no real

consumer insight we could use for theNXG because it's a new category, so wecouldn't create a hypothetical user,"says Chhabria, adding: "That said, weknew that Reva is a niche player andtherefore we have to give it a bold andradical look. That's not an approachother manufacturers can take." Mainihad showcased both the cars at the lastFrankfurt Auto Show. The Reva NXRwill carry a price tag of almost �15,000in Europe, up from the �9,430 (£8,495)for the G-wiz. The price for the NXR inIndia hasn't yet been determined.

The Reva NXR and Reva NXG comewith REVive, a remote emergencycharge. If a customer runs out of charge,he can SMS the customer support cen-tre which, in turn, will access the car'sbattery remotely and activate reserveenergy. "This should last until the per-son gets home or to a charging destina-tion," claims Maini.

Maini is withdrawing the G-Wizfrom the US and UK. It will be replacedby the new models. In India, he's stillreviewing whether or not to replace theold models.

All told, Maini hopes to sell 8,000cars this year, more than double of whathe has sold in the last eight years. Tocater to the demand, Maini is investingRs 30 crore to raise his productioncapacity in Bangalore from 6,000 perannum to 30,000 per annum. The low-carbon plant is being built to LEED(Leadership in Energy andEnvironmental Design) guidelines.Among other things, the plant will har-vest rainwater, use natural light andventilation, and employ solar energy forelectricity and heating. "The combina-tion of vehicle and plant designs, and aprovision for battery recycling meanthat the Reva NXR will have one of thelowest dust-to-dirt carbon footprints ofany car in mass production," saysMaini.

Interestingly, Maini wants to pitchboth the Reva NXR and Reva NXG asthe second car of the family. There's akeen reason behind this. Five years ago,only 20 per cent of cars sold in the coun-try were second cars; today, that seg-ment is as big as 40 per cent. Close to500,000 cars every year, in other words,

Business Standard


41

MAINI IS LOBBYING HARDWITH THE GOVERNMENT TOBRING DOWN THE EXCISEDUTY ON COMPONENTS

FROM 8 PER CENT TO NIL

are bought by people who already owna car. Maini feels that in the second carpeople look for something that is city-centric. That along with rising fuelprices, he hopes, will drive customersstraight to him.

The profile of Maini's customers issuch that only 40 per cent buy oninstallments, way below the industryaverage of 75 per cent. Still, to bringdown the cost of buying the car, Mainihas unbundled the car and the battery -the buyer needs to buy only the car andcan take the battery on lease from thecompany. The buyer thus cuts his costby Rs 60,000, while Reva Electric CarCompany books the depreciation.

Maini is also lobbying hard with thecentral government to bring down theexcise duty on components from 8 percent to nil. This could bring the price ofthe car down by 6 per cent.

Of course, electric cars are totallyexempt from excise. The Delhi govern-ment has given a subsidy of 15 per centon electric vehicles, and exemptionfrom road tax and value-added tax of12.5 per cent. As a result, Reva pricesare 18 per cent lower in Delhi than else-where in the country. The companywants other states to grant similar bene-fits.

Technology for allAt the Delhi Auto Show, GeneralMotors displayed a battery-poweredChevrolet Spark, called e-Spark. It willbe launched by the end of the year, andthe company is hopeful of selling atleast 5,000 of these cars in the first year.The technology for the car has been pro-vided by Reva Electric Car Company.This gives General Motors a new buzzin its portfolio. And for Maini, it opens anew revenue stream, though it is notclear if his company has been paid alumpsum for the technology or it willget a cut on sale.

More important, it gives Mainiaccess to over 200 General Motor salesand service outlets in the country. Atpresent, he has just two company-owned dealerships in Bangalore andDelhi. With the tie-up, he should beable to sell through the Chevrolet deal-erships. Won't this create issues with

retailing his own car? Not really, saysMaini. "The two products offer differentbenefits and will only provide the cus-tomer with more options."

The tie-up with General Motors doesnot preclude Maini to sell his technolo-gy to others. He knows that there is ascramble amongst automakers to comeout with electric cars - under attackfrom investors and the general publicfor their wasteful ways, these compa-nies are desperate to show that they areresponsible corporate citizens and carefor the environment. Obviously, therewill be companies willing to pay Mainiwhat he wants. In an earlier interactionwith Business Standard, Maini hadindicated that he could do a similar dealwith others. "Alliances such as this aregoing to be the order of the day. No onecarmaker has such deep pockets as toget into everything," saysPricewaterhouseCoopers Leader (autopractice) Abdul Majeed.

Maini knows that it will take a whilefor environmental awareness to settlein among Indians. The western marketshave matured faster. He thus plans tohave manufacturing plants abroad - theUnited States, Europe, Southeast Asiaand South America - with local part-ners. "Exporting cars is the old way ofdoing business, and manufacturingthem locally will involve millions ofdollars, not to mention several man-hours," he explains. The technologyand the brand will be owned by RevaElectric Car Company, while the localpartner will chip in with insights intothe local market.

Maini has already struck a deal withNew York-based Bannon Automotive.The plant will come up near Syracuse,New York. Typically, an assembly plantin the US can cost $100 million. InMaini's scheme of things, a plant thatcan assemble 30,000 vehicles a yearshould not cost more than $30 million."It's like a factory in a box," he says. Thecompany will use local componentsand manpower to keep costs low.Breakeven could happen once the ven-ture hits volumes of about 5,000 cars.

Going forward, the company is keenon using its technology on three-wheel-ers and buses as well. "We're in positive

discussions with a lot of people andeverything seems to be coming togeth-er," says Maini. But two-wheelers do notinterest him. He finds that segment ofthe business low-tech, high-investmentand low-margin.

Good enough?But just how efficient is this greenmachine? Not too much, says SharadVerma of The Boston Consulting Group.The environment-friendly argument,according to him, doesn't work becauseit runs on power, and the bulk of powerin India is generated from coal. "Electriccars are more feasible in markets likethe United Kingdom where 40 per centof the power source is non-thermal,"says Verma.

What could make matters worse isthat the best brains in the car industrytoo are working on solutions similar toMaini's. Global automakers likeDaimler, Nissan and Toyota are testingelectric versions of their cars. Mass-market companies like Maruti Suzuki,Hyundai, Tata Motors and Mahindra &Mahindra too want to roll out their elec-tric cars.

Maini, on his part, feels that aware-ness is a huge challenge for his busi-ness. "When people walk into a regularcar showroom, they know exactlywhich car they want to buy. But whenthey come into our showroom, theyhave no idea of its benefits," he admits.Financial constraints have limited thefirm's mass-marketing initiatives. (In2006, two US-based investors, GlobalEnvironment Fund and Draper FisherJurvetson, put in $10 million each forminority stakes in the company.) As aresult, it is forced to rely on motorshows, word-of-mouth and direct mar-keting at events and conferences.

The clincher, of course, is the lowcost of running the car. The Reva's oper-ational cost is as low as 4 paisa per km.This is way below the most fuel-effi-cient car on the road, the Tata Nano,which costs Rs 2 to run the same dis-tance. The fight's on.

Business Standard


42

Some time in the middle of1994, the Dhoots of Videoconput their brightest man,Ravinder Zutshi, on a specialproject. They had been

approached by Samsung which was keento sell its consumer electronics in India.The Korean company had proposed ajoint venture which could source prod-ucts from Videocon's factories atAurangabad in Maharashtra. Zutshi wasasked to study the possibilities.

Quantitative research threw up nosurprises. Unaided awareness aboutSamsung was close to zero, aided aware-ness was slightly better at 7 per cent.People thought the Japanese were themasters of all technology, and the Koreanswere at best imitators. But when he dugdeeper, Zutshi found deep dissatisfactionamongst consumers from multinational(Sony, Sanyo, National, Philips and oth-ers) as well as Indian (Videocon, Onida,BPL et al) brands. The consumers' aspira-tion and awareness were high, but thetechnology made available to them waslow. And there was no indication that any

of them would invest in the latest technol-ogy. After-sale service existed only onpaper.

Zutshi's report said there was a biggap that could be exploited. With bettertechnology, contemporary products and acustomer-friendly disposition, Samsungstood a fair chance in the market. TheDhoots trusted Zutshi. If Samsung didwell, they argued, their factories atAurangabad would run at full capacity,and whenever the foreign investmentrules were further liberalised, they couldsell their stake to the Korean chaebol andmake a neat pile of money. Quickly, theyformed a 49:51 company with Samsung.It was 1995.

Around the same time, LG (it was atthat time known as Lucky Goldstar) sent alarge and high-powered team to India.The odds were stacked against the com-pany - low awareness of its brand, poorperception of Korean technology and soon. But the team saw that the Japanesewere not too interested in India; Europeand the US were their primary focus. Thishad made Indian brands complacent, and

they lacked the financial wherewithal tocome out with cutting-edge technology.

LG also found out that education wasvery high on the agenda of Indians. Theteam members knew that it was educa-tion that had transformed South Koreafrom a poor agrarian country into a devel-oped industrial powerhouse in a matter ofdecades. The same would happen inIndia, the team reported to its bosses backhome. The LG brass was convinced andmade up its mind to enter India. As rulesdid not allow a fully-owned subsidiary, itfirst tried its luck with Bestavision andthen with Chandra Kant Birla. Finally, in1997, when the foreign ownership ruleswere relaxed, it came on its own.

Cut to the present. In most productcategories of the consumer electronicsmarket, LG and Samsung lord it over amarket share of over 40 per cent - televi-sion, refrigerators, air-conditioners,washing machines and microwave ovens.Outside South Korea, this has not hap-pened in any other large market. In cer-tain categories, their products sell atprices similar to Japanese rivals - a clear

Business Standard


43

KOREAN TAKEOVERHow Korean consumer durable majors LG and Samsung knocked outrivals in the fight for market share and brand recall Bhupesh Bhandari

indication that the perception of theKoreans being poor cousins of theJapanese is history. Their brand recall isuniversal. Indian brands, with the excep-tion of Videocon, which has now hiredex-LG honcho Kwang Ro Kim as chiefexecutive, are on oxygen. LG did businessof $2.8 billion in 2009. India accounts forabout 6 per cent of LG's worldwideturnover. "We want to raise it to at least 10per cent by 2012," says LG IndiaManaging Director Moon Bum Shin. "By2015, India will become the secondlargest contributor to LG's revenue afterthe US and ahead of (South) Korea," he

adds. Samsung crossed the $2-billionmark in 2009 - India is around 2 per centof its global turnover. How did theKoreans get the better of rivals in India?

Strong foundationBoth LG and Samsung knew that halfmeasures wouldn't work in India. Thus,LG has invested $300 million andSamsung $200 million in two productionfacilities each. "It wasn't a global factorythat also supplied to India. We didn't wantto make the customers wait," says RajeevKarwal, who drove sales and marketing atLG from 1997 to 2003, then headed

Philips and Electrolux in India, and nowruns a consultancy for small-scale enter-prises called Milagrow. Apart fromVideocon, no rival of the Koreans has putup large production facilities. "In terms ofinvestments and technology, no otherIndian company apart from Videocon hadthe might to rival them," says VideoconChairman Venugopal Dhoot.

LG and Samsung brought the latestproducts, customised them to Indian con-ditions (Samsung, for instance, reducedthe size of the freezer in its fridges becauseIndians didn't want it; LG cut out all frillsthat were not required in India) and beganto give quick after-sale service. Samsung,says Zutshi, now deputy managing direc-tor, Samsung India (the Dhoots exited theventure in tranches by 2002; it had bro-ken even by 1998), was the first in theindustry to give uniform training to alltechnicians. "When pagers came in July1995, we gave one to all techniciansacross metros," says he. Also crucial werethe Korean price tags. LG as well asSamsung prices were up to 20 per centbelow Sony, but around 10 per cent high-er than Indian rivals. The brands werepositioned as value for money.

They spent large sums of money onbrand promotion. Both LG and Samsungnow earmark 4 to 5 per cent of theirturnover for brand development, above-as well as below-the-line. This translatesto ad spends of at least Rs 400-500 crorefrom each. In the initial days, when theywere yet to build scale, help poured infrom their Korean parents in liberal mea-sures. The Koreans knew little aboutcricket but were quick to join the band-wagon in India.

But how did they address the qualityperception? For the first three months,Samsung campaigns focused on its tech-nological achievements. It was, after all,the world leader in colour picture tubesand semiconductors. "If you don't wantthe best, go to Sony, National and Philips,we said in our advertisements," saysZutshi. Karwal says he was able to con-vince the LG brass that it should build onits Korean heritage and not hide it. "Thecompany wanted to play on the Goldstarbrand because it had some recall. But Iargued that it had failed in India so whyharp on it? We went ahead with LG. I said

Business Standard


44

let's not pretend to be what we are not.""Where they have scored," says the top

functionary of a rival, "is that they treatedIndia differently than other Asian mar-kets." And they ambushed rivals whenev-er they could. Karwal says when he cameto know that Sony was ready to launch itsflat-screen television, he rushed to Seouland managed a consignment of 500 flat-screen televisions to launch first.

"I also got to know that Sony hadbooked the centrespread of a publication.So, I bought the wrap-around which saidours was the flattest thing on earth."

The Japan factorStill, LG and Samsung owe a debt to theirneighbours across the sea - they werequick to adopt the best manufacturingpractices of Japanese companies.Samsung, for instance, uses the just-in-time supply principal with its vendors -they need supply only when the factorydemands. Its vendor development exer-cises could be straight out of the Japanesemanagement textbook. "They (theKoreans) combine American marketingwith Japanese manufacturing," saysKarwal.

So, where did the Japanese go wrong?An industry veteran, who for long workedwith the Japanese, says they tested thewaters in India for too long, and therebylost the first-mover's advantage to theKoreans. Panasonic India CEO Daizo Itoadmits that the company has ratcheted upits focus only in the last one year."Panasonic has been in the Indian marketfor long but, as a part of strategy, the focushas been increased exponentially sincelast year or so." The Japanese also wentafter the premium slots in the market, andthereby missed the volumes. "LCD televi-sion is the only segment where we com-pete (with the Koreans) but here too ourand their key target segments are differ-ent. We are focused on households withan annual income above Rs 5 lakh, unlikethe Koreans," says Sony India ManagingDirector Masaru Tamagawa.

The question is, have the Koreans tak-en an unassailable lead over theJapanese? The Japanese take heart fromtheir large market share in automobiles,cameras, cordless phones, small appli-ances and LCD televisions. Panasonic, for

one, is aiming for growth of over 100 percent in each of the next two years, anddouble-digit market share in LCD televi-sion. "Coming from the Japanese domain,the quality and reliability of products isour strength. The challenge is to makethis strength reach the consumer," saysIto. "The retail experience is also the key.Therefore, we have continuously expand-ed our brand shops and presence at otherretail counters." But this is the game theKoreans seem to have perfected.

Trade relationsWhen the Koreans first came to India, theconsumer electronics trade was archaicand in disarray. All producers hadappointed distributors who then sold tothe dealers. There was thus little directcontact between the dealer and the com-pany. No company had a full portfolio ofproducts, so the dealer had to deal withseveral producers and their distributors.Companies that did have more than oneproduct had separate divisions for eachline, which often didn't talk to each other.This only compounded the dealer'sheadache. Companies encouraged multi-ple dealers in every location - the rivalrykept the trade margins low.

"The first thing we did," says Zutshi,

"was that we cut out the distributor." This,at one stroke, improved the profit marginsof the dealers. More important, itimproved their bankability. And dealers,who were reluctant to invest at the behestof the distributors, began to jazz up theirshowrooms. Of course, they began topush the Samsung brand with gusto,though its price tags were higher thanthose of Indian brands.

LG too took a new approach. Instead ofgoing to all, it identified the best dealer inevery locality, the one with maximumfootfalls. It made sure that the dealer didnot face competition from others in thevicinity. As a result, the dealer, who earli-er got no more than 5 to 6 per cent com-mission on sale, now began to get as muchas 12 per cent. This was unprecedented inthe history of Indian consumer electron-ics. The goodwill helped LG andSamsung expand quickly to the heart-land. And that was the key to its success.Ever since, dealership for a Korean brandhas been more profitable than others.

This is a point even rivals do not dis-pute. Onida Vice-president (sales, serviceand marketing) Sriram K says that theKoreans invested upfront and got therewards later. "At one point, LG was evenknown as a credit brand because of howflexible it had become in trade circles,"says he. "It realised that doing business inIndia needed flexibility and thereforeextended credit to dealers unlike a lot ofother multinationals. Now that it hasstrong relations with the trade, it hastightened the terms. But the initial flexi-bility helped it garner volumes." That'sthe learning.

Additional contribution with Amit Ranjan Rai & Sayantani Kar

Business Standard


45

When Renault India'shead of marketing,Gerald Porcario, com-pleted his three-yearstint in India a couple

of weeks ago, he did not get the usualposting back to Paris or some Euro-zonemarket. Instead, he's headed for anothernon-European developing country onthe specific understanding that heleverages the learnings from the "super-complexities" of the Indian market inhis new bailiwick.

Over 2004 and 2005, Pune-basedBharat Forge, one of the India's largestproducers and exporters of automobilecomponents, acquired companies insuch bastions of sophisticated engi-neering as Germany, Sweden, and theUnited States. It might have beenexpected that the Indian unit woulddraw on manufacturing knowhow fromthe overseas companies it acquired andnot vice versa. In Bharat Forge's case,however, it was a maintenance manage-ment practice developed in India thatwas implemented in its overseas units.

Till recently, the flow of manage-

ment and strategy knowhow was one-way; it was India that absorbed busi-ness models, technology and manage-ment systems from foreign corporationsand institutions. As India Inc raced toglobalise and global companies soughtto exploit the country's low-cost talentpool, such industrialised-economyconcepts as Kaizen, The Toyota Way,Six Sigma and so on gained currency.

Today, India is no longer just a desti-nation for manufacturing, services andresearch in which corporations leverlower cost into a competitive advantage- it is also gaining traction as a source ofbest practices in management and strat-egy.

Ironically, this strength flows fromthe complexities of doing business inIndia, both in terms of the regulatoryenvironment and scarce resources."The market in India is very fast-movingand not particularly stable; so you needa fast and flexible approach to manage-ment, and Indians are used to dealingwith ambiguities," says ArindamBhattacharya, managing director, TheBoston Consulting Group (BCG), and

co-author of the book Globality:Competing with Everyone fromEverywhere for Everything.

Dealing with ambiguity A case in point is the problems with theLogan, developed and produced by a51:49 per cent joint venture betweenMahindra & Mahindra (M&M) andRenault. When it was launched in 2007,the Logan was positioned as a low-costmid-sized car that was expected to sellabout 2,500 units a month. By October2009, it was selling less than 500 amonth. As executives in Renault, whichexited the joint venture earlier this year,admitted, the principal problem waspricing.

One, the Logan's price was scarcelylower than competing products like theTata Indigo, Maruti Swift Dzire or FordIkon because of the relatively highimport content. Two, the Logan sufferedwhen the government introduced adual excise duty structure soon after thecar was launched. Cars up to 4 metreslong attracted a 12 per cent duty; thosethat were longer attracted 24 per cent(the rates have since changed to 10 and22 per cent).

The obvious solution was to reducethe wheel base to below 4 metres to takeadvantage of the lower duty, but asSylvain Bilaine, then country head andmanaging director of Renault India,admits, the French car-maker "was notcapable of fast decision-making". Incontrast, Tata Motors was able to dis-play the kind of rapid and adaptableapproach that most Indian corporationstake for granted and reduced the lengthof the Indigo to benefit from the dutydifferential.

Bilaine, who spent about a quarter-century in the automobile business, hasbeen struck by Indian management'sflexible response to dynamic marketconditions. So much so that he is par-laying the lessons he learnt in his fiveyears of association with India via SyBConsulting, which provides consultan-cy to companies interested in investingin India. "M&M taught us to be veryquick in our responses," he says.

He points out that western compa-nies typically follow strict manufactur-

Business Standard


46

INDOVATION!India is emerging as a source of best practicesin management and strategy Kanika Datta

ing practices in order to achieve SixSigma standards. Therefore, the pro-duction and launch schedules tend tobe followed with as much exactitude aspossible. Indian companies, on the oth-er hand, tend to be less rigid in theirapproach, which enables them to reactto developments more quickly.

M&M, for instance, rescheduled thelaunch of the Xylo utility vehicle toaccommodate the installation of a dualair-conditioner once it discovered thatthis would have been a critical elementof customer demand.

Likewise, Bilaine says, the speedwith which automobile companieswere able to respond to the creditcrunch after the Lehman Brothers bank-ruptcy is another key takeaway for glob-al conglomerates. "The credit market inMumbai completely dried up betweenOctober 2008 and March 2009 andspreads were out of whack," he recalls,"But companies like M&M and BajajAuto moved really fast to reduce stocksand align working capital management- so much so that M&M actually had thecash to buy Satyam some months later!"

The jugaad advantage The most noticeable impact of suchflexibility, however, lies in frugal engi-neering, an approach that is makingIndia globally unique because it yieldsadvantages for businesses that tran-scend just labour costs. Bilaine refers toit as "Indovation" but prefers the com-mon Hindi term jugaad which he says isa striking feature of the Indian businesslandscape.

Indian businesses have a way ofmaking things differently, he says,maybe because as a poor country Indiahas had to cope with minimalresources. For instance, mudguardsmade in India can be 75 per cent cheap-er than anywhere else in the world sim-ply by using recycled rubber. It is thesame approach that encouraged Indiancar manufacturers like Tata Motors andM&M to source second-hand assemblylines from the West and re-configurethem in India for their car projects, amove that lowered costs by as much as30 per cent.

Indeed, multinationals are increas-

ingly looking at India as a means ofdrawing lessons on resource maximisa-tion. For instance, Renault-Nissan's firstgreen-field plant in Chennai spreadover 760 acres and with an eventualannual capacity of 400,000 cars wascompleted in 21 months against anaverage time of 36 months for plants ofcomparable capacity.

The experience has encouraged thealliance to examine the kind of "safeshortcuts" that can deliver a huge leapforward in terms of time and cost forfuture projects, says Ashish Sinha,Renault India's spokesman. "It's a ques-tion of solving the cost issue but keep-ing quality constant," he adds.

Renault-Nissan, a relative latecomerto India, is trying to derive businesslearnings with its multiple alliances:With Bajaj Auto, to develop a low-costcar, and Ashok Leyland for light com-mercial vehicles. This "cross pollina-tion" of ideas is being extended to thealliance's design studio in Mumbaiwhere talent is being hired locally.

The broad idea is to train them in theRenault philosophy and then give thema free hand to develop India-driven con-tent. Together with Renault's Rumanianunit, the India design studio has beenmandated to develop a concept car thatwill be unveiled at a major carshow next year. The specificbrief is for interior colourand styling. One ideathat has already attract-ed attention, forinstance, is usingwoven fabrics as carupholstery.

Integrating bestpractice Some of these learningsmay appear basic or low-tech, but Indian firms arefinding that their uniqueapproach to lean manufac-turing may well haveglobal applicabili-

ty in higher technology as well. BharatForge's maintenance management sys-tem is a case in point.

Developed over 15 to 18 years inBharat Forge's Indian factories, it is anextremely mechanised process thatfocuses on minimising downtime, orthe time scheduled for machine mainte-nance. Obviously, lower downtimemeans higher plant profitability.Equally, scheduled downtime is prefer-able to unscheduled downtime causedby machine failure. The system thatBharat Forge developed in India andthat was implemented by its best prac-tices group in plants it acquired over-seas entailed creating a robust informa-tion system that anticipates problemsbefore they occur. "We feed into thecomputer, everyday and every hour,every piece of data that tells you whatyou have to do during the manufactur-ing process, instead of making you dealwith the problem during the down-time," says Baba N Kalyani, chairmanand managing director, Bharat Forge.

As a result, Bharat Forge plantsworldwide have an average down timeof less than 10 per cent, the norm forefficient plants worldwide.

The critical point about the Bharat

Business Standard


47

Forge experience, again, is the flexibility.Asked about implementing indigenous-ly developed technology in overseasunits it has acquired, Kalyani said,"There's nothing hard and fast about ourapproach." He said the company hasestablished a "best practices group" thatcomprises two or three people from eachof its plants worldwide to focus onimproving all-round performance andimplementing the maintenance manage-ment system was part of that exercise.

'Soft integration' Like Bharat Forge, other Indian compa-nies acquiring corporations overseashave opted for distinctive organisation-al structures that enable them to max-imise global competitiveness. BCG'sBhattacharya describes it as "soft inte-gration".

For example, Tata Chemicalsacquired UK-based Brunner MondGroup and its Kenyan subsidiary,Magadi Soda Company, in 2006 andUS-based soda ash producer GeneralChemical and Industrial Products(GCIP) in 2008 to expand its chemicalsbusiness which accounts for roughlyhalf its sales. Instead of opting for the"hard integration" process that typicallyfollows mergers and acquisitions, TataChemicals allowed each entity to retainits local identity but created a structureto leverage global strengths.

To coordinate operations across itsfour geographies, it put in place a globaladvisory council that comprises theheads of the Indian business, BrunnerMond, GCIP and Magadi plus the vice-president, marketing and strategy,based in India.

Meanwhile, reporting structureshave also been kept flexible. Forinstance, the human resource chief ofeach organisation reports to an overallhead in India but also to the chief ofeach geography. As with Bharat Forge,this flexibility enables the group tocherry-pick the best practices fromwithin the global organisation, explainsR Mukundan, managing director, TataChemicals.

The benefits have accrued in termsof talent retention and operationalexcellence, he adds. For instance, the

acquisitions did not result in the usualtop-level exodus that follows mostM&As. "On the contrary, we ended upretaining people," says Mukundan.

Importantly, the soft integrationallowed the company to move talentaround to exploit its acquired globalskill base. For instance, the operationalhead of the Kenya plant had movedfrom a unit in Wyoming, US, and theCFO of the US operations had previous-ly headed the same function in the UKbusiness. Regional managers are nowalso responsible for key group customeraccounts, an example of how TataChemicals has been able to leverage itsglobal network to deepen relationshipswith customers.

To be sure, many of the best prac-tices that have evolved from the exigen-cies of doing business are scarcely big-ticket in nature - India Inc is yet todeliver a concept equivalent to, say, aSix Sigma or Toyota's seminal logisticssystem. But as globalisation raises thestakes in staying competitive, the coun-try may just emerge as the source of use-ful next practice.

Business Standard


48

It accounts for 4.5 per cent of alldigital cameras sold in the coun-try, and is the largest seller ofstainless steel dinner sets. Noretailer sells more Reebok mer-

chandise than it. Whirlpool has comeout with a new range of refrigeratorsespecially for it. TV 18 Home ShoppingNetwork, a joint venture of Network 18(51 per cent), South Asia InfrastructureFund (34 per cent) and GS

Homeshopping of South Korea (15 percent), has covered some distance in thetwo years that it has been around.

It closed 2009-10 with sales of Rs330 crore. TV 18 Home ShoppingNetwork CEO Sundeep Malhotra hopesto double the number during the cur-rent year. But is it profitable? Not at themoment, admits Malhotra. "To make abusiness profitable in just two yearswould be a mistake. The priority for us

was to put the infrastructure in place.Second was to build a team that knowshow to do it the right way and third wasto de-risk the concept by getting someconsumer traction. Hopefully, this yearin the third or fourth quarter we willbreak even operationally." But there isvalue in the company. GSHomeshopping recently paid $18.5 mil-lion for 15 per cent in the company,which values TV 18 Home Shopping

Business Standard


49

BUILDING A VIRTUAL MALLBuoyed by demand from small towns,Home Shop 18,the 24-hourshopping channel from Network 18,is eyeing rapid growth.But thejourney so far has been far from smooth Bhupesh Bhandari & Sayantani Kar

Network at around $123 million (Rs 578crore).

It was a bold gamble for Network 18.The broadcaster had a pie in news, gen-eral entertainment and films. But homeshopping was a different ballgame.Indians have always wanted to touch,feel and compare the things they wantto buy. Would they order somethingthey saw on television? The only argu-ment in favour was the reach of televi-sion: Malls are there only in about 35cities of the country, and the internetpopulation is just 40 million. In con-trast, there are about 100 million cable& satellite homes in the country andanother 20 million direct-to-home tele-vision connections. (The assumptionsweren't wrong: Almost 70 per cent ofbuyers on Home Shop 18 are from smalltowns where there are no malls andinternet penetration is low.)

Some broadcasters had tried theirhand at something similar throughteleshopping. But it was a low-intensityoperation. The products were restrictedto health, wellness and spirituality. Itwas more of a trading operation. Therewere no brands, no ownership of con-sumer fulfillment; the company thatsupplied the product would also give aninfo-mercial which could be dubbed inthe local language.

What TV 18 Home ShoppingNetwork has attempted is quite differ-ent. "It is a virtual mall. It is more aboutbrands, not magic," says Malhotra. Insimpler terms, it is an alternative distri-bution platform. The only expertise ofNetwork 18 that could be leveraged wasprogramming for the channel and itsdistribution. It requires a call centre tointeract with the buyers, a full-fledgedmerchandise team, and a well-oiledlogistics network to reach the productintact and in time to the buyers. Theproblem was that this had not beenattempted before in India.Consequently, there was no businessmodel to replicate. Malhotra and histeam had to learn on the job.

Early lessonsHome Shop 18 started with Ferns &Petals. The flower retailer was told thatit will be on national television for free;

all it had to do was help deliver its prod-ucts on time. A 15-second commercialwas made, and a toll-free number wasgiven to viewers. A call centre with 18seats was taken on rent in Okhla. Thecommercial was aired on the Network18 channels. The very first day, therewere 250 calls. Within a week, it hadreached 500. But the call centre opera-tions went haywire. The flowersreached late, often to the wrongaddress. There was total chaos.Malhotra had learnt his first lesson: Ifthe business has to run smoothly, hewill need his own call centre.

TV 18 Home Shopping Networkthus set up its own call centre in Noida,which is 450-strong now. It handles upto 20,000 calls in a day; Malhotraexpects the traffic to double by Diwali.In the beginning, not more than 5 percent of the calls got converted into pur-chases; the ratio is now as high as 30 to35 per cent. The average talk time twoyears ago was 14 minutes; it is nowdown to 7 minutes and 30 seconds.This, says Malhotra, means that buyersrequire less convincing now. This hasimproved the efficiency of the team andpulled down his costs. In the last twoyears, the average size of purchase hasimproved from Rs 650 to Rs 2,650. "Theaverage ticket on the internet for e-com-merce is Rs 400. Our numbers are muchhigher. It's about confidence and trust,"says Malhotra.

Still, 22 to 23 per cent of the ordersget returned (most buyers prefer to payon delivery because they either don'tpossess a credit card or are wary of giv-ing its details to a call centre); whenHome Shop 18 started, it was as high as60 per cent. Therefore, for bulkier prod-ucts which are difficult to ferry, thecompany takes the money in advancefrom the buyers.

Rich customer databaseOf course, the call centre has given thecompany a rich database on 2 millioncustomers: Where they stay, who theyare, what do they buy, at what time dothey watch television and so on. Thisopens up huge possibilities forupselling. Malhotra says that already 7per cent of his turnover comes from

upselling - the call centre calls up con-sumers and recommends products onthe basis of their past purchases. Andthe upside could be huge. In the worksis a loyalty programme for buyers,which will be driven through coupons,redemption points and so on. Sixteenper cent of the customers make repeatpurchases.

The next step was to get the rightbrands on board. The proposition tobrands was strong: Home Shop 18could help a lesser-known, foreign orlocal, brand go on national televisionfor free. It could also help the brandreach 3,000 cities and towns in thecountry at one go. And this was the onlymedium which allows the product to bedemonstrated. All of this can otherwisesuck a lot of money and time. Malhotraand his team told these brands thatwhat can otherwise take up to five yearswill happen in a jiffy if they sign upwith Home Shop 18. Good logic butnobody was convinced.

"When we started going from brandto brand, everybody was sceptical thatthe image of his brand will get eroded.Such was the legacy of teleshopping.They told us that we will undercut theirdealers who will be upset," saysMalhotra. "The first brand we got wasCeasefire because nobody else wasready to stock it and it had lost its distri-bution footprint; but it had recall andwas a good product. Second wasVespro, a camera brand based out ofMumbai. It sold only through internetand catalogues and used to do sales ofRs 4.5 crore per annum. It now does Rs40 crore through Home Shop 18."

Today, Home Shop 18 sells 480brands and 23,000 products. Before abrand joins the bandwagon, there is noway to tell whether it will sell or not - itis a risk the company has to take. "Weare going to do lingerie very soon; wedon't know if it will succeed," saysMalhotra. Still, 45 per cent of the saleon Home Shop 18 is jewelry, appliancesand kitchenware.

This is buying without touch andfeel. There are only two triggers thatwill compel an impulse purchase: One,the product is unique and the viewerdoesn't know where to find it (because

Business Standard


50

it may not be widely distributed), andtwo, the value proposition is verystrong. Does it mean lower prices? "Notnecessarily," says Malhotra, "it couldalso mean offers. Not every product canbe discounted, not every brand wants tobe discounted." This suits brands finebecause they are able to cut out whole-saler and retailer margins. The sellingexpenses are lower, and that money canbe ploughed back into combo offers.

To ensure delivery on time, TV 18Home Shopping Network has integrat-ed its information technology systemwith those of all its vendors. Everyorder moves electronically to the ven-dor as well as the designated couriercompany. It collects the merchandise,delivers it to the buyer and transmitsthe money to TV 18 Home ShoppingNetwork.

Inefficient systemOf course, this system of money collec-tion is inefficient. It can take up to aweek for the money to reach TV 18Home Shopping Network which thenneeds to pay the vendor. To cut thiscycle short, it has piloted a project withICICI Bank and DHL where the couriergoes to the buyer with a swipe machinefor credit cards. But it is not certain howquickly and to what extent this can beupscaled - each of these machines costsRs 14,000. Meanwhile, the company istoying with the idea of setting up itsown warehouses across the country. Itwill help shorten delivery time in cate-gories like jewelry (it sells jewelryworth Rs 5 crore every month). Thesewarehouses will also come in handyonce TV 18 Home Shopping Networkdecides to sell private labels in thefuture.

Are buyers happy? Malhotra says hehas hired an agency to measure con-sumer satisfaction and fulfillment.What about the brands? "We did onepilot a few months back withHomeShop18 and were pleasantly sur-prised by the response in both large andsmall markets. This medium is increas-ingly getting used by customers whocan't come to our stores for geographicalreasons or who want to buy productsthat can be bought with just a demo

rather than touch and feel," says FutureGroup Director (food strategy) DamodarMall.

But not all TV 18 Home ShoppingNetwork products are on television.Those which are not on television canfeel shortchanged. There is limitedbandwidth, and each product has to besold for half an hour, argues Malhotra.Of the 23,000 products, maybe about1,000 to 1,500 have been on television,the rest are on catalogue or net. (Theinternet could be a route for the productto come on television.) "Products needto be researched, and each feature hasto be converted into a benefit. We haveto marry that with consumer need.Also, we need to get the call centretrained," says Malhotra. On average,Home Shop 18 puts 15 to 20 productson air. How are these products selected?"What matters is sale per minute andmargin per minute. That is what thecore team monitors - what to show onair. The scheduling has to be workedaround it," says Malhotra.

All that is fine, but how doesMalhotra get viewers to his channel?Home-shopping, after all is not appoint-ment viewership; it is snacking inbetween channels. If it is an interestingproduct, the viewer will hang around."It is difficult," says Malhotra. "So far,our priority has not been to force peopleto watch." Home Shop 18 is in 30 mil-lion cable & satellite homes in the coun-try. It is not yet present on the direct-to-home network.

If a new business model has run suc-cessfully, can rivals be far behind? StarCJ, a joint venture between the StarGroup and CJ O'Shopping of SouthKorea, has started with six hours on StarUtsav for now. It awaits the nod for a 24-hour channel. "Television viewing is farfrom saturated. In India, we say there is130 to140 minutes of viewing per capitaper day, while in the US it is 300 percapita per day. So, consumers have toget used to the idea of doing more withthe television," says Star CJ NetworkCEO Paritosh Joshi. "The basic trigger(for home-shopping) is the growth indiscretionary income. About 20 percent of India's population has sizeablediscretionary income (twice the per

capita income). This would be 50 mil-lion households." Joshi, in fact, wants tosoon sell cars on television. It has, afterall, been done successfully in China.

At least three other groups areknown to be toying with the idea ofhome shopping. "We want to see how tosell on the three screens: The mobilephone, computer and television.Consumers spend a lot of time there,"says Mall of Future Group. Malhotralearnt from trial and error. Mall and oth-ers will know what pitfalls to avoid.

Business Standard


51

Acouple is busy trying out vari-ous contraptions to cool theirhouse down, while a neigh-bour looks on. When asked

what he does to keep his house cool, hementions that his paint does it all. Itmakes the couple look silly, sweating itout with myriad ways when just paint-ing the exterior of their house wouldhave done.

AkzoNobel India, the advertiser,claims that the latest variant of itsDulux WeatherShield, calledSunProtect, brings down the tempera-ture of walls by 5 degrees by reflectingthe infra-red rays of the sun. This, ofcourse, does not mean that you coulddo away with your air-conditioners orcoolers since there are other factorswhich go on to determine the tempera-ture of the rooms. But this is a new USPthat AkzoNobel wants to create for itsbrand. The timing, of course, is perfect.The summer is at its peak; large parts ofthe country have reported all-time hightemperatures.

The more the temperature outside,the more marked the temperature con-trol of the walls painted with DuluxWeatherShield SunProtect. But what

will happen in winter? Will it bringdown the mercury by 5 degrees whenthe nights are cold? The company saysthis property won't be at work duringwinter, though the paint will retain oth-er qualities such as waterproofing.

Directed by filmmaker Rajiv Menon,the TVC was developed by BBDO. AjaiJhala, the CEO of BBDO, says, "We had atangible benefit to work on - that of thetechnological breakthrough. So the aduses simple observational insight ofhow people go to great lengths to maketheir homes cooler. We wanted to tellthem how this functional paint couldwell be a modern way of doing so, elimi-nating all the other methods." Apartfrom television, a campaign on radiohas also been launched. To drive themessage home, Dulux plans to carry outactivation campaigns where consumerscan compare the difference in tempera-tures of surfaces with and without thepaint.

The product is a result of the tech-nology brought in by AkzoNobel. TheDutch paints giant had bought over ICIDulux in 2008. AkzoNobel's head ofmarketing, Hemant Somani, says, "Theproduct, which was a result of our

research, will now be rolled out intoother South-East Asian markets as well.It was developed especially for tropicalcountries such as India." Technologyand positioning are not the onlyenabling results of the AkzoNobeltakeover. Somani points out that effi-ciency in global sourcing (raw materialprices are always a bone of contentionin the low-margin, high-volume decora-tive paint market) has been brought intoo. Tough market

The decorative paints market in thecountry, estimated at Rs 10,000-11,000crore crore per annum, is tough. AsianPaints, which leads the pack with over50 per cent share of this market, is wide-ly distributed and enjoys great brandequity. It has an amazing variety of packsizes and was the first to launch tinting

Business Standard


52

A FRESH COATFOR DULUXPaints giantAkzoNobel hopes to strengthen itsDulux brand in India through innovations andby expanding reach and capacity.A new paintvariant which brings down thetemperature by 5 degrees is a case in pointSayantani Kar

machines that cut down the needto stock different shades ofpaints. A dominating mar-ket share helps in manyways. An industry observersays that Asian Paints has acompetitive ratio of two (its mar-ket share, in other words, is morethan twice its nearest rival), whichgives it a huge advantage over others inpurchase of raw material as well as dis-tribution. "It can afford to participate insegments where the profit margins arenot so good," the analyst points out. "Italso uses it to leverage its position withthe dealers."

Asian Paints is followed by KansaiNerolac and Berger Paints which havemarket shares of 17 per cent each.AkzoNobel, the world's largest paintand coating company, is fourth in thepecking order with 10 per cent. But themarket is growing fast once again. Thehousing sector has picked up after a lullof two to three years and consequentlythe demand for paints is strong.Analysts say the gap between repaint-ing (the biggest sales generator for deco-rative paints in India) too has droppedfrom the earlier five to seven years.Paint makers like AkzoNobel need toinnovate to catch the market in itsupswing.

AkzoNobel has begun by consolidat-ing the various brands in its portfoliounder ICI Dulux. It would look to gener-ate 80 per cent of the business from twobrands, one of which is Dulux and theother is yet to be identified. AkzoNobelIndia will also expand capacity to dou-ble the current 70 million litres that itproduces every year (the industrychurns out 940 million litres). This willrequire investments of up to Rs 100crore, which will enable the companyto source products from India to sell inneighbouring markets. Expansionplans

Distribution too would see a boost ofabout 10 per cent every year. Currently,AkzoNobel products are present inabout 8,000 outlets. But it will need togrow its network in smaller cities andtowns. Asian Paints, after all, hadweathered the last slowdown in realestate because of its large presence in

small-town India. While demand fromlarge cities had been affected, there wasno let up in demand from smallertowns. And this kept the companygoing.

AkzoNobel also plans to focus onprofessionals who influence the buyer,such as interior decorators andpainters. "Earlier, we spoke only to thehome-owners. But now, we haveengagement programmes for long-termpartnerships with professionals aswell," says Somani. While Asian Paintshas led retail innovation with itsColourWorlds and studios, AkzoNobelis looking to open more than 100 DuluxDecorative centres or paint studios bythe next quarter to create a similarambience.

ICI Dulux had led the premiumemulsion paint segment with its VelvetTouch. It was eventually usurped byAsian Paints' Royale because of what

analysts call a lackof focus. Even now, as

AkzoNobel ups the ante,other players have lined up

expansion plans. The market toois changing with an increasing needto cater to smaller towns whichhave been upgrading to paint.Distribution and product mixes fornot only large cities but smaller onestoo have to be figured out. AkzoNobelhas to get its act together in a marketthat it wants to make its hub for SouthAsia.

Business Standard


53

Dan Okpara had an urgent questionfor Coca Cola. He had consumedsome Coca Cola but was keen to

know the sugar content level in the bever-age. He requested the company for anhonest answer. Less than 45 minutes lat-er, Coca Cola responded with the specificmeasurements of sugar in the drink.Okpara was relieved.

His is simply a case in point. Socialnetworking sites like Twitter, Facebookand Orkut are being increasingly used forpromotional activities that engage audi-ences for a certain activity in an effort tocreate a buzz and get feedback from thecommunity. However, it is also beingused by disgruntled customers to air theirgreviances, drastically altering the tradi-tional role of brand managers.

"Today's brand manager's job is likethat of an air controller. He has to handleabove the line, below the line as well associal media activities to navigate abrand. As a result, today a brand manageris far more important in an organisation,"explains Hareesh Tibrewala, Joint CEO ofSocial Wavelength - a social media man-agement firm. "Now a customer serviceissue is a branding issue," he adds.

Some companies have understoodthis trend well. Titan's Fastrack, forinstance, now has a separate two-memberdigital brand team. "Two years back, wehired one person purely for digital mar-keting. We knew this would require dif-ferent skill sets since communication andinstinct are a very important part of thisbrand manager's role," says SimeranBhasin, Marketing head, Fastrack andnew brands.

Moreover, Bhasin says Fastrack's fanpage has grown from just 30,000 inJanuary to about 2,10,000 members atpresent. "It's not a job that needs one hour

a day, we need them to track online trendsand we need people who are on the ball."

FMCG major Marico, too, uses socialmedia sites to its advantage, particularlyfor its Safola brand. "The point is to inter-act with the consumer and make him apart of the brand and that's tricky busi-ness," says Sameer Satpathy, head ofMarketing for Marico.

More importantly, though, has beenthe learnings the company has got fromthis. "We've picked up little cues particu-larly when it comes to communication.For instance, one particular ad featuredthis lady who was much-talked about onTwitter, and we realised people reactedpositively to that particular protagonist.Similarly for Arise, there was a gap incommunication that we picked up fromthere and we later plugged the informa-tion in," he adds.

But not all companies understandsocial media well. According toTibrewala, companies in the Cola andentertainment sectors are doing a com-mendable job in this space, while manu-facturing firms are lagging. "Perhaps it'sbecause these companies see this is abusiness opportunity and monetise thesocial media platform, this eventuallyconvert into profits," he points out.

Experts feel brand managers in Indiaare not adept at handling negative com-ments and feedback. Many of them arenot sure how to handle negative feedback.

Bhasin of Titan concurs: "It's impor-tant to have a quick response no matterwhat." Still, there are exceptions the teammakes. For example, if a customer is mere-ly making a passive comment on thebrand's communication, brand managersare likely to overlook it, on the other handif it is a product or service complaint, theresponse is immediate.

Others like Cadbury India, mean-while, have yet to make their presence feltonline.

According to a company executive,the confectioner is more selective aboutwhat it does online. At present, it usessocial media for its premium productslike Bournville and Cadbury Dairy MilkSilk where it has about 12,000 and 10,000members respectively, and for the rest itstill largely uses traditional media liketelevision and radio. Interestinglythough, its digital media happens to be itsfastest growing in terms of expenditure.

Likewise for telecommunication ser-vice provider Idea Cellular. Says ChiefMarketing Officer Pradeep Shrivastava,"As a marketer our model is to reach out toas many people as we can in a cost effec-tive way. That happens through TV, radio,on-ground, and it is not feasible for us toturn that model upside down." Havingsaid that, he adds that he and his brandteam use social media for their largertheme campaigns, "Does it deliver a goodand strong message - yes. Will it replacemass media? No."

Business Standard


54

SOCIAL MEDIA ALTERINGROLE OF BRAND MANAGERSBYRAVEE TYER

As the world gears up forkicks and head buttsbetween players of 32nations in South Africa,television (TV) channels

too are working to increase their eyeballsand brand image by piggybacking on thebuzz surrounding the FIFA World Cupwhich begins on June 11.

Cricket may command the highestnumber of viewers but the upcomingFIFA World Cup, too, is expected to haveover 110 million viewers in India —almost double from 2006 when the FIFAWorld Cup generated a cumulative reachof 55-60 million viewers.

While advertisers in India are expect-ed to spend around Rs 180 crore duringthe telecast of the 55 matches on ESPNStar Sports, some other channels — inthe music, news and animation genres— are working on programming content

around football. Channels like CartoonNetwork, music channel 9XM and newsnetwork BBC have planned to cash-in onthe soccer fever by on-air, on-ground andonline activities.

Cartoon Network, for instance, hasstarted a new digital initiative, ToonFootball, where users can make theirown teams and play virtual soccer. “Westarted this initiative in March this yearas sports was a new genre for us. We feelthat it was an opportune time for toon-football.com as we are targeting a userbase of half a million,” says BenjaminGrubbs, regional director, TurnerInteractive.

The channel has monetised theonline venture as consumers can buycoins for upgrading to the next level ofthe game. A fee is levied on the coinswhich consumers can pay for throughtheir credit cards. “The number of our

loyal consumers has already crossed2,50,000,” says Grubbs.

Music channel 9XM will have on-aircontent and is slated to do on-groundactivities to create further awareness andbrand building. “We will have on-ground activities in multiple cities likeMumbai, Delhi and Kolkata where 9XMgoodies will be given to soccer fans. Weare going to spend a substantial amountof money on these activities,” says AmarTidke, head of programming, 9XM.

“In our on-air strategy, the channelwill wear a FIFA look where the 9XMdudes — Chhote, Bade, Betel Nuts andBheegi Billi — will wear soccer T-shirts.We are also exploring the possibility ofdeveloping a soccer game online,” addsTidke.

Leading news broadcaster BBC hasalso lined up content surrounding thesoccer mania. Over the course of the

Business Standard


55

SEEKING TO SCORE A GOALCartoon Network,9XM,BBC and AXN are among those channelsgearing up to cash-in on the FIFA soccer mania SWARUP CHAKRABORTY

tournament, BBC WorldService will have a special

daily multimedia showwhich will let fans air their

views. BBC.com/worldcup willbe offering video and interactive

content online.In the IT space, Satyam Computer

Services Limited (rebranded asMahindra Satyam) expects to garner closeto $20 million (little over Rs 90 crore)from the game. The Hyderabad-head-quartered IT outsourcing provider is thefirst Indian company to sign with FIFA, asa sponsor and official IT provider for the2010 and 2014 editions of the game. Aspart of the deal, the company has devel-oped an event management solutions sys-tem which will enrich the experience ofall fans arriving in the stadia to watch the

matches. The company will be managing250,000 accreditations and 130,000 vol-unteers, besides distributing over 3 mil-lion tickets online.

Soccer viewership has been on therise in India. The 2002 FIFA World Cup inIndia garnered ratings as high as 9.1 tele-vision ratings (TVRs) — among males,15+, Sec A, B & C, Cable and Satellitehouseholds — which is comparable totop performing soaps and cricket one-daymatches (ODIs). The Euro 2004 contin-ued the growth and had a cumulativeaudience reach of 32.3 million viewers.

As channels employ these strategies

to increase the number of eyeballs, ESPNStar Sports, the official broadcaster ofFIFA World Cup has already sold 95 percent of its advertisement inventory toadvertisers such as Vodafone, AirtelDTH, Nokia, Samsung and Hero Honda.According to industry estimates, thesports broadcast genre is expected tofetch around Rs 2,500 crore this yearfrom the Indian Premier League, T20World Cup, Asia Cup and the upcomingFIFA World Cup, among other sportingevents.

Business Standard


56

9XM: The music channel hopes its on-air ‘9XM dudes’ will be soaked in FIFA fer-vour which might find resonance with audiences thereby strengthening thebrand

BBC: The news network will not only have content on FIFA but also showcasehighlights online. It will also have a programme where fans will air their viewsabout the tournament in a bid to develop better brand association

CARTOON NETWORK:Online game ‘toon football’ is expected to attract neweraudiences even as it increases visibility and brand recognition among gamerswho might not be animation watchers

AXN: It’s the exclusive broadcasting partner of the FIFA World Cup Kick-offCelebration Concert in India.

The concert will feature musical performances by international artistes likeAlicia Keys, Black Eyed Peas and Shakira.

KICKING HARD

Over 110 million Indians are

expected to watch the soccer games

Advertisers in India are expected

to spend around Rs 180 crore during

the telecast of the matches

FIFA World Cup ratings stand at

9.1 — comparable to top-ranking

soaps and cricket one-day matches

95% advt inventory has been sold

to players like Vodafone, Airtel DTH,

Nokia, Samsung and Hero Honda

Sometime towards the end of2011 or the early part of 2012,General Motors will launchtrucks in India. These will besmall machines meant to ply

inside cities, and will take on Tata Motors'Ace and Mahindra & Mahindra's Gio. Thearchitecture of the trucks will be sourcedfrom SAIC of China, which now holds 50per cent in General Motors India, butthese will be customised for India insidethe General Motors Technology Centre inBangalore. It has been decided that thetrucks will sport the Chevrolet badge onthe grill, that famous bowtie.

Launched in India in 2003, GeneralMotors seems to think Chevrolet has hitcritical mass in cars and is ready for exten-sion to trucks. In the first quarter of thisyear, research conducted by TNS showedthat Chevrolet's brand recall and percep-tion have improved in the last sevenyears; the recall has done better than thetargets, though the positive opinion hasfallen short of the target (see ChevroletHealth Check). Some of the shortfall canbe explained by the bankruptcy of its par-ent in the United States about a year ago.

But Chevrolet in India is not big. It is afiercely competitive market, the finalfrontier for the car makers of the world.For the first four months of 2010,Chevrolet's market share was 4.6 per cent- small, though double of the 2.2 per centin January-April 2009. The target for 2010was 10 per cent. General Motors IndiaPresident & Managing Director Karl Slymwas confident till a year ago that the targetwill be met; not any longer. "That targetwas set before the bankruptcy in theUnited States," says he.

On the positive side, India has becomethe fourth-largest Chevrolet market in theworld after the United States, China andBrazil. (There is one Chevrolet boughtevery eight seconds in the world.) Slym ishopeful of closing this year with sales of

over 135,000 and next year with over200,000. General Motors, mind you, hadstarted out in India in 1996 with Opel. Ithad launched three models, the Astra,Corsa and Vectra. In 2003, it switched toChevrolet. Apart from these two, GeneralMotors had other brands like Buick, GMCand Cadillac also in its stables. But theway the Indian market was shaping up -buyers preferring small cars because oftheir low cost, fuel efficiency and ease ofparking - the company decided to goahead with Chevrolet. There was somerecall for the brand in India; many peopleremembered the Chevrolet Impala in oldfilms. (If General Motors decides to enterthe luxury segment in the future, brandslike Buick and Cadillac will be brought in.That segment is out of Chevrolet's reach,though the brand covers 95 per cent of theprice points in the country.)

Chevy or nothingThe problem with the switch to

Chevrolet was that there was confusion inthe mind of the consumers. Was itGeneral Motors? Or was it Opel? Somethought it was Chevrolet, and a fewthought it was Daewoo because GeneralMotors had acquired the passenger carbusiness of the bankrupt Korean chaebol.Slym says some even confused it withGeneral Electric (then led by "Neutron"Jack Welch)! The first step was to removeeverything from all communicationexcept Chevrolet. The General Motorslogo was taken off all advertisements; itwas Chevrolet all the way. Business cardsof the sales team sticks to Chevrolet, andso does the official website.

In 2003, an audit carried out by TNSshowed that people thought GeneralMotors was a great international compa-ny with high-quality products andChevrolet was a great brand. On the flipside, there was concern that these carswould be fuel guzzlers and expensive to

own. The task for the General Motorsteam was cut out. The first priority was tooffer high fuel efficiency in all its cars.General Motors India Vice-president(sale, after-sale and marketing) AnkushArora claims that three Chevrolet carshave best-in-class mileage: The Spark(18.9 km per litre), Beat (18.2 km per litre)and Tavera (16.4 km per litre). All the oth-er Chevrolets - the U-VA, Optra, Aveo,Cruze and Captiva - are in the top 25 percent in their respective categories. Similarclaims of fuel efficiency, of course, aremade by rivals including Maruti Suzukiand Hyundai. There is no end to theseclaims and counterclaims.

The second task was to keep the priceslow. This required the company to have asmall car in its portfolio. Chevrolet wentmass in 2007 with the Spark. The job wasnot easy. The car had had a bad firstinnings when it was launched manyyears ago as the Matiz by Daewoo, goodreviews notwithstanding. From 2003 to2005, General Motors debated whether ornot to acquire the Daewoo factory atSurajpur near Delhi. It finally decidedagainst the acquisition. That delayed theSpark's launch to 2007. It is priced at Rs2.83 lakh (ex-showroom, New Delhi),which is higher than the Maruti SuzukiAlto (STD BSIV; Rs 2.29 lakh), but belowthe Hyundai Santro GL (Rs 3.4 lakh). TheChevrolet small car portfolio got strength-ened last year when it launched the Beatfor Rs 3.42 lakh.

A car industry veteran says that allChevrolet cars for India are designed inSouth Korea and not Europe or the UnitedStates, and that's why it's able to keep a lidon the prices and offer better fuel efficien-cy. This has also helped it gain a footholdin the small car segment. Are the lowprices strategic pricing to gain marketshare? General Motors has in the last oneyear or so invested close to $500 million(Rs 2,350 crore) in two facilities (one at

Business Standard


57

CHEVROLET ALL THE WAYHow General Motors has tried to build the Chevrolet brand in IndiaBhupesh Bhandari

Talegaon in Maharashtra and another atHalol in Gujarat); how does it still manageto write such aggressive price tags? "Nocar at the moment," says Slym, "is sold at aloss."

Last year, when General Motors hadfiled for bankruptcy in the United States,Chevrolet ran the risk of becoming a dis-counted brand. Left to themselves, thedealers could have dumped the stock inthe market, just like they sold Daewoocars at throwaway prices when the com-pany went belly up. That would have fin-ished the brand. But Slym held on to hisprices, deployed his own people at 35 keydealerships that accounted for 70 per centof Chevrolet volumes in the country to tellbuyers that all is well and launched twonew cars: The Beat and Cruze. (There arenow eight Chevrolet cars on the road,which is second only to Maruti Suzuki'sfleet of 13.) Slym also replaced film starSaif Ali Khan with himself in the com-mercials - such was the need to convincebuyers. The trick worked. "It is definitelynot a discounted brand," says SynovateIndia Director and Head (qualitativeresearch) Shravani Sen. "That the compa-ny continued to invest mattered a lot tothe buyers." Arora gives another interest-ing piece of information: For every car,almost 80 per cent of the sales arebunched at the top end. In other words,price is not the only consideration for pur-chase.

There is another way that the compa-ny has protected the brand image ofChevrolet: It has not encouraged its use inthe taxi segment. The Tata Indica andMahindra Logan know what it means ifthe brand gets associated with taxis: Theconsumer begins to look down at it. Slymsays there is no cap on sale to fleet owners,but the company is cautious while sellingto fleet owners. In the works is the CNGAveo which will be sold to this segment ofthe market. Focus has also been given tothe brand in areas that have been under-serviced by the large players, like the East."Our share there is twice or thrice of ournational share," says Slym. "People thereare more ready to experiment with a newbrand."

Brand promiseThe company also realised that apart

from the price of the car, buyers alsospend a lot on service and maintenance.Slym has thus devised a scheme wherethe company gives free service for threeyears or 45,000 km, whichever comes ear-ly, for the Spark. This includes spares, ser-vice, maintenance and labour. It alsoguarantees a maximum expenditure onservice for three years on any car (Aveo:Rs 15,999, Optra (petrol): Rs 17,999, forexample) - anything in excess will bereimbursed by the company. The amountwas fixed keeping in mind the maximummoney that a consumer can spend.Naturally, no claim for reimbursementhas so far come to the company.

Coupled with the low acquisition andmaintenance costs, General Motors hastried to build the brand promise forChevrolet as "more" - a Chevrolet givesmore than rivals. The Cruze thus comesfitted with cruise control and push-but-ton start. The Beat, though prices underRs 4 lakh, features automatic climate con-trol, integrated stereo with USB port andstylised wheels.

One rival says that though there areeight Chevrolets in the market, four carshave been discontinued by GeneralMotors in the last few years: The threeOpels and the Chevrolet Forrester. "Thisputs a fear in the mind of somebody whohad bought these cars. It crashes theresale value of the car. You have lost thatcustomer forever," says he. One wayGeneral Motors has devised to deal withthe problem is to set up exchange coun-ters at its dealerships, where these carscan be sold. At the moment, 41 of its deal-ers have this facility; the company wantsto raise that number to 100 by the end ofthe year.

How much of this has helped thebrand? The perception on the cost of own-ership of Chevrolet has improved fromnegative to neutral in 2010, says Arora.The task now is to push it to positive terri-tory. Latest research, again by TNS, showsthat consumers continue to see GeneralMotors as a great international companywith high-quality products and Chevroletas a great brand; but their concern now isthe reach of its service network. Toaddress this perception, General Motorshas ramped up its network of dealers.From 85 in end 2007, the number went up

to 210 in end 2009. Slym plans to end theyear with 300. "Eighty per cent of them are(financially) healthy," says Arora. "Theother 20 per cent are new. The gestationfor breakeven is 18 to 24 months." In addi-tion, the company wants to deploy on theroads mobile service vans, and set uppick-up points for cars ready for service.

Rivals have taken note of it. "Chevroletis the fifth best-distributed car brand inthe country after Suzuki, Hyundai, Tataand Mahindra & Mahindra," says a HondaIndia executive. Slym is not too unhappywith the results: "I wanted people to test-drive our cars before they buy. We are nowin the consideration set for most car buy-ers. That's the job of the brand."

Business Standard


58

What's pink or purple, hassummer flowers on it,and can be worn onyour wrist? It is Titan'snew range of children

watches called Zoop. Titan has re-enteredthe children's watch segment which, thecompany feels, is 14-million strong.Eleven years ago, Titan had tested thewaters with a brand called Dash. It wastargeted at children between six and 14years, and was priced at Rs 250 to Rs 395.But children didn't warm up to it, andDash was withdrawn quietly in 2003.Titan says the failure had less to do withthe time of the launch than with the price."We were unable to get it at the price wewanted, but it had nothing to do withdemand problems," says Suparna Mitra,Titan's head of global marketing.

This is a market not many watch mak-ers have focused on. Branded players arenot aggressive in this space. Timex puts itdown to low margins. "We do have a chil-dren's range in our portfolio. There's hugepotential in this segment; however, it's abig challenge for any branded watch com-pany to venture into it and become a vol-ume player, while providing a good mix ofquality and relevant pricing," says TimexManaging Director VD Wadhwa.

Titan had this gap in its portfolio forseven long years. Swatch does have a chil-dren's range in its portfolio, but its watch-es are priced very high. Watch making forSwiss brands like Swatch is an intrinsicaffair that cannot be outsourced to low-cost producers in India or China. Themarket is dominated by imported stuffwhich comes with no guarantees, no

brands. Any watchthat fails has to bedumped becausethere is no way it canbe repaired.

Given the hugepresence of unbrandedwatches in this catego-ry, why is Titan, theTata-owned company,keen to get in? The move isan offshoot of a project thecompany did to assess theimpact of phones on watch sales.Watch makers, especially those atthe lower end of the market, havefor over a decade tried to grapplewith the problem. The lifestyle cat-egory, of course, is immune from it.The results Titan saw were interesting:While it did not affect demand from thoseover the age of 25, those younger than thattended to bypass watches and go straightto mobile phones. At the same time, everytwelfth enquiry at a store was for a child'swatch.

Plug the gap"That's when we realised that as a bigwatch maker, and to sustain our marketshare, we have to get into this category,"Mitra points out. Shyamala Ramanan,Titan's marketing manager, adds: "Westrongly believe that the launch of Zoophas been a significant move for Titan.Brand Titan has already made its place inthe heart of all adults, and Zoop will helpus create recall of our brand amongst chil-dren below the age of 12 years."

That was nearly two years ago.

Following that, Titan researched over 200children across various cities. Accordingto the study, children consider watches aunique product and amongst the top tenitems they want to own. Some of the otheritems that have made it to the list includetrinkets, bags, caps and so on. Further, itwas clear that today's children wantsomething that reflects their personality,and at the same time gets them attentionand makes them stand out.

Mitra and her team have tried to usethese lessons for features and designs intheir watches. As a result, the girl's watch-es come in candy colours and floraldesigns, whereas for boys the watch mak-er has decided to go with the sailingtheme using nautical signs and sail ele-ments. Will it work?

Brand consutants are bullish about

Business Standard


59

TIME TO ZOOPTitan has re-entered the children'swatch segment. It is the only bigbranded player in the largelyunorganised marketBYRAVEE IYER

Zoop. Anand Halve, the co-founder ofChlorophyll Brand andCommunications, feels that while Dashwas slightly ahead of its time, Zoop mightjust get it right. Says he, "Today it's unbe-lievable how much money parents arewilling to spend on their children, whileearlier they'd merely buy somethingunbranded and inexpensive. So maybeit's time for Titan to give it a shot." Further,he's convinced mobile phones won'treplace watches. "Watches are increasing-ly morphing into accessories; besides, noschool would allow children in this agebracket to carry cell phones to class, whilea watch is allowed," Halve adds. Anotherbrand expert was more cautious sayingthat Zoop's success really depends on thekind of volumes it can get.

Zoop was piloted in six cities back in2008 and has since rolled out across theentire nation that culminated in therecent national launch. With Zoop, Titanis hoping to sell its wares to a youngeraudience aged between 5 and10, and atprice points of Rs 350 to Rs 900. However,given that unbranded watches can cost aslow as Rs 40, how does Titan intend tocompete with them?

Play it coolTo tackle that, the company wants to cre-ate brand pull. It has come out with a tele-vision campaign which shows a youngboy who wants to be cool; and for that heneeds a cool watch. He makes up a storyand manages to take his brother's watch.The ad will air for six weeks on all chil-dren's' channels, as well as Discovery,Animal Planet and some general enter-tainment channels when children'sshows are on air. On the positioning of 'Becool… be more', "Every Zoop watch isdesigned keeping in mind the playful-ness, vivid imagination and the cool atti-tude that today's children exhibit," claimsRamanan.

In addition to that, there will be a printcampaign and a host of contests for chil-dren. Titan is also working on a digital ini-tiative to promote Zoop. It is chalking outa school contact programme, thoughTitan executives stop short of divulgingthe details. All this hasn't come cheap forTitan which has spent as much as Rs 2crore so far on marketing the brand. More

could come in the future. "We intend toaggressively push this brand," saysRamanan.

An equally important point for thecompany was the name. Titan has alwaysbeen known for catchy, quirky names likeNebula, Raga, Regalia, Octane and Xylys.This time too, it was keen to have a namethat stands out. For that it hired Ormax, aresearch outfit, which has a companycalled Cognito that generates andresearches names for brands. Accordingto Titan executives, getting the name rightincluded three things: Understand thebrand idea, shortlist from a long queue ofnames, and research children. "We had tosee how badly a name could be misspelt,whether or not it had a meaning in otherlanguages, and children were even askedto mispronounce deliberately," explainsMitra. Consequently, Zoop, a phoneticsound, emerged the winner.

Titan is India' largest watch brand - ithas 60 per cent of the organised market forwatches. It has segmented the marketfinely: Sonata for the masses, Fastrack forthe youth, Raga for women, Nebula(made in 18-carat gold) for the affluent,

Swiss-made Xylys for the connoisseurand Titan Edge (touted as the world'sslimmest watch) for the trendy. Zoop, tar-geted at children, plugs the one gap thatremained in its portfolio. It also sells in itsstores foreign brands like Hugo Boss andTommy Hilfiger under licence agree-ments.

Today, Titan has its finger in every pie.Started more than two decades ago, itsells watches, jewelry (under Tanishqbrand), eyewear (Fastrack) and eye careproducts (Titan Eye+). It initially soldthrough dealers. A few years on, itrealised that it needed to be in regulartouch with customers and thus decided toopen its own stores and franchise. Zoopwill be sold in 1,200 multi-brand outletsand about 298 World of Titan stores across140 cities and towns in India.

Business Standard


60

Set inside a bathroom, the adopens when a young boy askshis father, played by super-star Shah Rukh Khan, why hehas to brush his teeth every-

day. The father slips into a character,puts on a gruff voice and explains to hisson that if he doesn’t brush his teeth,germs will attack it and his white teethwill turn black.

Making gestures with his hands, thefather says that using Pepsodent just fortwo minutes will kill germs, which iswhy germs are scared of the toothpaste.Simultaneous, he tries to scare his sonwith a devious laugh. But when his wifeenters the bathroom with her hair onher face, the plot falls flat and it is thefather who ends up getting a fright. Wehear SRK’s voiceover: 95 per cent germ-free in two minutes — PepsodentGermicheck+.

That’s a lengthy explanation for a35-second ad, but for Pepsodent this isvital. The message and the brand posi-tioning are very clear: Pepsodent helpsfight germs, and children should knowwhich toothpaste to use. The dash ofhumour makes the serious messagelighthearted. Pepsodent, after all, holdsthe key in Hindustan Unilever’s fightfor a larger share of the Rs 3,000-croreper annum toothpaste market. WhileColgate-Palmolive leads the pack withits brand, Colgate, with a 52.5 per centshare, Hindustan Unilever (Pepsodentand Close Up) is a distant second with22 per cent.

A tooth and nail fightHindustan Unilever had launched

Pepsodent in 1993 in an attempt to chal-lenge Colgate. Hindustan Unilever, thecountry’s largest personal care compa-ny, had first come out with Close Up totake on Colgate. Experts say it was a lit-

tle ahead of its time because it was posi-tioned as a mouth freshener. “WithClose Up on a weak wicket, the compa-ny needed a brand like Pepsodentwhich targeted children,” says onebrand expert.

The pester power of children is well-acknowledged by marketers.Companies across categories likehealthcare, personal care, newspapersand even computers have realised thatthe best way to enter homes is throughchildren. Also, it is the best way to hooka customer early in his life.

Talking to children was fine, butPepsodent needed a differentiator. Thetask was far from easy. Colgate is almosta generic brand. People in India still sayColgate when they want to say tooth-paste. The company had cleverly posi-tioned itself as the toothpaste whichhelps fight tooth decay.

So, Hindustan Unilever positionedPepsodent as long-lasting protection

from germs; it could fight germs forhours after brushing. By 2000,Hindustan Unilever had changed thebrand communication. It no longer cen-tred around the fight with germs;instead, it described the benefits ofusing Pepsodent. The move didn’t workand soon the original communicationwas brought back. By then, Pepsodenthad tried every trick in the book. Somuch so, Hindustan Unilever aggres-sively marketed it in the rural market atRs 10 for a 40-gram pack, though it wasoriginally positioned as a premiumbrand. (Traditionally, Pepsodent hasoccupied premium price points of Rs 30and Rs 54.)

Pepsodent had to do something real-ly big to make its mark. Research sug-gested that mothers worry about whattheir kids eat, especially when they areaway from them, and its impact on theirdental health. Using that insight,Pepsodent launched the ‘Dishoom

Business Standard


61

PEPSODENT FIGHTS ONHindustan Unilever has rolled out a new campaign for its flagshiptoothpaste, this time with Shah Rukh Khan,as it takes on the marketleader,Colgate BYRAVEE IYER

Dishoom’ ad that said: Let Pepsodentfight germs for you. Thus, the new cam-paign showed a young boy looking atsweets in a store, wondering whichones to pick. His mother sees him on theclosed-circuit television and, instead ofgetting worked up, calmly picks upPepsodent.

Finally, Hindustan Unilever had hitbull’s eye. Pepsodent’s market sharewent up from 10.96 per cent to 13.81per cent in a matter of eight months.“Dishoom Dishoom was a very power-ful idea with which Pepsodent reallymanaged to take on Colgate whichdoubtless straddles the entire category,”says a brand consultant. Next,Hindustan Unilever came out with adslike Bachche jhoot nahin bolte (kidsdon’t tell lies) where a non-Pepsodentuser is forced to lie to his mother abouthis eating habits. The ad didn’t strikethe same chord with people. As a result,Hindustan Unilever’s market share hasslipped 25 percentage points in the lastone year. Aware of that, the companyknew that something needed to bedone.

Fresh takeHaving spoken to customers exten-

sively, the company backtracked on itsprevious stand of using the mother andbrought in the father. “Everyone usuallyassociates the mother with dental care,but we wanted to show the role of thefather in grooming his kid,” saysSrinandan Sundaram, HindustanUnilever’s head for oral care.

Asked why the brand promise hasbeen changed so frequently, Sundaramsays: “We are not changing our position-ing, we have always maintained that weare a germ-fighting brand; we’re onlyexecuting it differently.”

Considering that, the brief given tocreative agency Lowe Lintas was toexplore the father’s role while drivinghome the key message. Lintas’ workwas made easier as the ad is a replica ofUnilever’s global campaign forPepsodent. The task was to find theright person to play the father’s role; thead would otherwise fail to register anyimpact on viewers.

The choice was SRK, the most pow-erful communicator in India today.

Sundaram feels he has a winner on hishands. “SRK was the obvious choice.We have always seen him take out timefor his kids; besides, he’s got a lot ofcredibility. That makes him a natural fitand consumers believe in him.” Butbrand consultants aren’t so sure.“Whether SRK is the right choice, Idon’t know, frankly I liked the position-ing of the mother,” says one. Of course,SRK has endorsed other HindustanUnilever brands like Lux in the past. Forthe first time, a man was shown usingthe soap which had always taken top-notch Bollywood heroines as its brandambassador.

The ad broke on May 19 and will airacross all channels. For now it is just aTVC, but Hindustan Unilever is work-ing on other activities around the cam-paign as well.

Business Standard


62

It ranks a close second to heritagebrand Nycil in the prickly heatpowder market but Ahmedabad-based Paras Pharmaceuticalsbelieves its 'stay cool, think cool'

campaign for 'Dermicool' will give it thedesired edge.

“We have allocated 15 per cent of oursales for advertising and brand promo-tion. While our advertising budget hasbeen similar to last year, our sales areexpected to increase 40 per cent over lastyear due to the increased heat this sum-mer. We know that in summers, peoplelose their cool easily. Through this cam-paign, we want to tell people they can becool mentally when they are physicallycool," says S Raghunandan. managingdirector and chief executive officer,Paras Pharma.

The company has also launchedthree new variants - 'cucumber slice', 'cit-rus blast' and 'watermelon'. “Dermicoolis both, a prickly heat powder and cool-ing talc. We do not look at Ponds or thelike as competition as we combine prick-ly heat and cooling under Dermicool. Forus, brands like Boroplus, Navratna andNycil are the competitors. In fact, we aresecond yet very close to Nycil in theprickly heat powder market segment.And I can say confidently that we aregrowing faster than competition as justfive years ago, we were half of Nycil andtoday we are 75 per cent of Nycil," saysRaghunandan.

Dermicool enjoys a 30 per cent mar-ket share in the Rs 200 crore prickly heatand skin care segment. Nycil, fromHeinz India has a 37 per cent share whileEmami's Boroplus Ice accounts for 20-25per cent of the market.

Paras Pharmaceuticals, which was a

sponsor in the recently-concluded ICCWorld Cup Twenty20, has also launchedDermicool in 50 gm packs available at Rs20 for rural markets. The strategyappears to have worked with the brandcontributing almost 15 per cent to itssales this year. The original 'thanda-thanda, cool-cool' Dermicool brand isexpecting a sales target of Rs 75 crore thisyear.

Nycil, however, is not sitting tight.Says Sundip Shah, Vice President -Marketing & Business Development,Heinz India Private Limited: “Nycil,with more than 40 years of legacy, is amarket leader with a 37 per cent marketshare." The company recently launchedNycil De-o Fresh Skin Care Talc, extend-ing the brand equity of Nycil. “Ourresearch indicated the need for a skincare talc that ensures sweat absorption,protection from body odour and a de-odorizing fragrance which keeps skinfresh and healthy. Hence, Nycil De-oFresh which is undergoing consumertests in Andhra Pradesh & Kerala."

Kolkata-based Emami, on its part, istargeting kids as its prime consumers toincrease its market share for BoroplusIce prickly heat powder, which currentlyenjoys a market share of 20-25 per cent.The brand is currently promoted by theglamorous Kareena Kapoor along withsome kids enacting the 'All izz well' songfrom the movie '3 Idiots'.

“We are at number three after Nyciland Boroplus and plan to handle compe-tition through the ad campaign. In fact,the theme is a popular one among kidsand that takes care of our aim. We have abudget of Rs 10 crore for advertising andpromotion of Boroplus Ice and Rs 8-10crore as advertising budget of Navratna

Cool, which is an increase of 25 per centover last year," says Harsh Agarwal,director, Emami Ltd. The company isexpecting a growth of 20-25 per cent forBoroplus Ice and at least 50 per cent forNavratna Cool Talc, which has a marketshare of 10-15 per cent, according toAgarwal.

A new entrant into the market, theSundeo Summer Powder is also vyingfor attention through its TV ads. “Welaunched the product in April, by when60-70 per cent of the peak season for theproduct had already passed. For the sunto shine on us, it will take another seasonto guage the consumer reaction to ourproposition. The new-born baby hasbeen given Rs 6-8 crore for advertisingand promotion," says Darshan Patel,managing director of Vini Group and for-mer co-promoter of Paras Pharma.

Business Standard


63

PRICKLY COMPETITIONTO BEAT THE HEAT

Chitra Unnithan

The prickly heat powder is a Rs 200crore market

Nycil from Heinz India is the mar-ket leader with 37 per cent market-share

Dermicool from Paras enjoys a 30per cent market share

Emami's Boroplus Ice accounts for20-25 per cent of the market

Nycil recently launched Nycil De-oFresh Skin Care Talc

Emami is targeting kids

THE MARKET ISHOTTING UP

By attaining the leadershipposition in a country in just itsthird year of operations, BMWIndia created history withinthe group worldwide. In 2009,

BMW sold 3,619 units, while Mercedes-Benz India managed 3,247 units. BMWovertook Mercedes for the first time whenthe January 2009 sales were revealed andhasn't looked back since.

It was a rude shock for Mercedes-Benz- after all they had a 12-year presence in

the country and whatever they had put upfor sale was getting sold. Suddenly, theywere not number one in the luxury carsegment anymore. It was time to act, andact fast.

The action began at the Auto Expo inJanuary, where a collective intake ofbreath accompanied the rise of the gull-wing doors of the SLS AMG supercar -easily, the star of the show. Internally,Mercedes-Benz called it the 12x12 strate-gy. It would be an unprecedented

onslaught of 12 new cars and/or variantsin the first twelve weeks of the year, rang-ing from the huge GL-Class SUV to thearmoured S-Guard limousine and every-thing in between.

Certainly, its Munich-based competi-tor was in no mood to stay quiet. BMWintroduced the limited edition GranTurismo, the extremely powerful X6 MSUV, a host of other variants and just lastmonth, the all-new 5 Series. Over andabove this, to garner more volumes, both

Business Standard


64

CLASH OF THETEUTONS

The battle between automotive luxury brands Mercedes-Benz and BMW is being played out in India on three fronts – products,distribution and events Srinivas Krishnan

players have introduced stripped-downversions of their big sellers - as seen withthe Mercedes-Benz C-Class ExecutiveEdition and the BMW 3 Series CorporateEdition - to bring in not just newer cus-tomers into their fold but big-ticket fleetoperators as well. It's not even the middleof the year yet and both manufacturerspromise a host of more new cars.

“We assure you that the rest of 2010will also be highly engaging and we dohave a few more surprises in store for ourcustomers," says Wilfried Aulbur, the MD& CEO of Mercedes-Benz India. His “fewmore surprises” could be the category-busting R-Class, the cabriolet version ofthe stylish E Coupe and new productspowered by the recently introduced CGItechnology.

BMW too promises not to relax. “In2010, we will resolutely expand our prod-uct range and thus cover all the opportu-nities in the luxury segment which arerelevant for us," promises Dr AndreasSchaaf, the new president of BMW India.That would mean, among others, therevamped X5 in the third quarter of theyear, new variants of the 5 and the much-anticipated X1 compact SUV to be assem-bled at their Chennai plant - thus makingit within reach of many Indians.

Car manufacturers always use newproduct launches to drum up excitementand keep the tempo up in the market-place. When it comes to luxury cars, newengine technologies plus safety and com-fort features also play a big role. But in thiscase, both the luxury car makers realisethey need to do more than mere productlaunches - after all, they are selling alifestyle and not just automobiles.

Both manufacturers have inevitablyassociated themselves with golf, highfashion and varied touch-and-feel experi-ences with the brand for customers.Beyond the association of the brands inhigh profile activities, both the Germanmanufacturers realise the game is going tobe played out at the retail level.

“With an investment of over Rs 200crore in network, Mercedes-Benz is nowpresent in 26 cities with 55 touch points,the largest for any luxury player in India,"says Aulbur. In fact, the manufacturer hasweeded out underperforming dealers,leading to a 30 per cent churn in their

2009 line-up.BMW, being the newer player and

with only 17 dealer facilities, is racingagainst time to establish its presence inmore cities. “An aggressive plan wasimplemented for completion of phase 1(12 dealers in the major metros) muchahead of schedule. Owing to an exuberantgrowth potential, we will expand opera-tions in 10 additional cities in phase 2 ofour dealer network strategy," says Schaaf.

Though both carmakers may say theyare not in the volumes game, numbersalways provide a huge morale boosterand, well, who doesn't want to be a leader.In January-April 2010, BMW sold 1,621units while Mercedes-Benz's revival hastranslated into 1,603 units. “Our salesnumbers reflect our traction in the mar-ket," says Dr Aulbur, while Schaaf says,“One thing is certain: this is the momentof transition."

The race is pretty close and there arestill eight long excruciating months to go,during which the action can get quiteintense. Better strap up.

Business Standard


65

In 2009, BMW India sold 3,619

units; Mercedes-Benz India sold

3,247 units

Both players have associated

themselves with golf, high fashion

and varied touch-and-feel experi-

ences with the brand for customers

They are selling a lifestyle and not

just automobiles

The game will also

be played out at the retail level

Jan-April ‘10 sales are neck-and-

neck: BMW sold 1,621 units, while

M-B did 1,603 units

0ver the next few months, people inIndia will get to use the next gener-ation of Microsoft's mobile phoneoperating system, the Bing search

engine, Windows Live Messenger, an allnew Hotmail and probably also a newtelevision game that does not require con-trols. This is the first marketing blitzkriegfrom the Redmond-based company.Microsoft wants to regain the territory itlost over the years to rivals like Google,Yahoo!, Symbian, Apple, Nintendo and

Sony. And Microsoft is dead serious aboutit. In 2009, when most companies cutback their research budgets, it spent asmuch as $9.5 billion on new products, upfrom $8.1 billion the year before.(Microsoft too faced a tough year: Its totalearnings fell 3 per cent to $58.3 billionand operating income fell 9 per cent to$20.3 billion in 2009.)

There are three screens, Microsoftknows, which hold great potential: Themobile phone, personal computer and

internet. Television, the fourth, couldcome into the picture once Microsoftlaunches its game some time in the future.Codenamed Project Natal, it will requireno controls to play and will track the play-er's full body movement, and recognisehis face and body. It will work on everyXbox 360 console.

The market in India sure is huge.There are over 600 million mobile phonesin use in the country, 36 million personalcomputers and 50 million internet con-

Business Standard


66

THREE SCREENSAND THE CLOUD

Microsoft is promising a whole new user experience with its retooled and re-engineered offerings.Can it regain ground lost to rivals? Bhupesh Bhandari

Business Standard


67

nections. While the mobile phone spaceis undoubtedly huge, are the other tworeally big in a country of 1.1 billion peo-ple? Ranjiv Singh, the chief marketingofficer for Microsoft India's consumer andonline business, has a different take on it.Internet, says he, is largely an urban play.As 50 million connections would mean atotal internet population of 250 million, itcovers a large section of the country'surban population of around 350 million.“By 2013, we will be at 95 million, thatwill make us the third-largest internetpopulation in the world," says he.

The personal computer numbers aresmall, and smaller still if you look at thoseinstalled at homes (the consumer seg-ment that Microsoft is targeting) - just 11million. The market for personal comput-ers, feels Singh, is all set to take off. “Salesgrew 30 per cent last quarter. Growth fore-casts are between 20 per cent and 30 percent. Prices have come down, so afford-ability is no longer an issue. Social net-working has increased the relevance ofthe personal computer," says he. Growthin fixed-line broadband (50 per cent in thelast one year) as well as wireless broad-band (200 per cent) and the improvementin the retail environment augur well forthe personal computer market. Of course,laptops and netbooks have outpaceddesktops in sales.

Between the three screens - the mobilephone, personal computer and internet -Singh reckons the opportunity for a com-pany like Microsoft could be as high as$10 billion (Rs 45,000 crore).

What seems to have fuelledMicrosoft's appetite is the success ofWindows 7. In India, it has increased theWindows run rate by six times. Ninety percent of the shipments are currently onWindows 7. Much of this success, accord-ing to Singh, has come from MicrosoftSecurity Essentials bundled withWindows 7, which detects, blocks andremoves viruses, spyware, trojans, botsand other malware. As many as 44 mil-lion Indians use email and 25 millionbrowse the internet everyday. Thisecosystem is fraught with malware.Between January and June 2009, 3,286Indian websites were hacked; over 4,000Indian portals were defaced in 2008; andbetween April and December 2008,

phishing reported losses of Rs 46.6 crore.This has made Indians alive to securitysolutions.

Microsoft does not disclose its Indianumbers. Analysts reckon it did businessof around $500 million (Rs 2,250 crore) inthe country in 2009, of which about afourth came from the consumer segment.Globally, Microsoft gets a larger chunk ofits revenue from this segment. One reasonfor its lower contribution in India couldbe the extent of software piracy in thecountry. According to the 6th annual BSAand IDC Global Software Piracy study,illegal shipments accounted for 65 percent of the software sold in India in 2009 -though 3 percentage points below what itwas in 2008, this is way above the globalaverage of 43 per cent.

Experts believe that in the consumermarket Microsoft lost its momentumbecause many a time its products did nottalk to one another and it needed to plugthat gap. This allowed rivals to steal amarch over it. Little surprise, a lot ofMicrosoft's research money has gone intothe new offerings. “We have relooked,retooled and re-engineered what we weredoing. The consumer is not satisfied withwhat is there in the market; he is lookingfor innovations," says Singh. “The mainidea is to make it simple for the consumer,and delight him. We first looked at theMicrosoft silos to see what does the con-sumer want, and then integrate that intoour offerings. We are for the first timebeing open about what we are integrating.The brand lives with its consumers. So,there is integration of not just Microsoftproperties but whatever the consumerwants." Simplify matters and offer thecustomer whatever he wants isMicrosoft's new mantra.

Smart phone warsMicrosoft CEO Steve Ballmer unveiledthe Windows Phone 7 Series, an operat-ing system for smart phones, at theMobile World Congress 2010 at Barcelonaon February 15. “In a crowded marketfilled with phones that look the same anddo the same things, I challenged the teamto deliver a different kind of mobile expe-rience. Windows Phone 7 Series is aphone that truly reflects the speed of peo-ple's lives and their need to connect to

other people," Ballmer had said.According to IDC, there are about 2.5

million smart phones in India - a smallmarket. But the numbers could rise expo-nentially with the launch of 3G (third gen-eration) service by telecommunicationcompanies some time later this year.Almost 70 per cent of the market is withSymbian. It is followed by Research inMotion (the maker of Blackberry phones),Microsoft's Windows Phone, Apple'siPhone and Google's Android. Analystsexpect Android to gain market share inthe days to come because of its opennature which allows handset makers tocustomise the applications. Google is alsoknown to be working on a new operatingsystem. This market will therefore not bea cakewalk for Microsoft. “It is a real chal-lenge for Microsoft because there are avariety of other platforms there.Microsoft's Windows Phone doesn't workon Linux. So, there is a huge gap," saysAscentius Consulting Principal AnalystAlok Shende.

Singh, on his part, is confident aboutWindows Phone 7 series which will beavailable towards the end of the year.“Competition in the market will be arounddifferentiation. Microsoft has a very seri-ous proposition here," says he. Thus, “livetiles” on the screen will show real timecontent and not static icons. There will bea dedicated Bing button on the handset forinternet search. Friends will be taggedwith feed from all social networking sites -Facebook, LinkedIn and so on. Videos andpictures across social sites can be viewedand shared in one step. It will come fittedwith Xbox Live games and will havemusic from Zune.

The challenge for Microsoft will be tosell the operating system to handset mak-ers. Singh says that Microsoft will beselective here. “One of the things we aredoing differently is that we will tie upwith manufacturers absolutely commit-ted to delivering the promise. We don'twant people to change the way we visu-alise things, our consumer insights," sayshe. “There has to be strict control on howwe land the promise to the consumer."Microsoft is learnt to have tied up withsome large handset makers, though theirnames are under wraps. Singh also indi-cates that in the future Microsoft could

launch something similar for lower-endphones as well. “We can look at the entiremarket rather than just at the top end. It'sno more about voice and SMS alone. Youcan anticipate what will be the next wave,and then you can come in and play. Thatis where Microsoft will have some reallyserious stuff to offer."

Web wisdomGartner Principal Research AnalystDiptarup Chakraborti has an interestingtake on Microsoft's internet strategy:“This is the first time Microsoft has faceda real threat. Earlier it easily beat Apple,Netscape, AOL and Linux. This time it'snot been able to overcome competitionfrom Google as fast as it would have likedto. At the end of the day, Microsoft is adesktop software company; but with per-sonal computer growth less than antici-pated it knows that it has to reinvent tobecome an internet player."

On the web, Microsoft has kicked offits new innings with Bing, its new searchengine. Google had, over the years, deci-mated all competition. Microsoft figuredout that there has been an online infor-mation explosion in the last few years.The number of websites has increasedfrom 100,000 in 1997 to 200 million in2009, the number of links has increasedfrom 25 million to one trillion and thecontent has shot up from 15 terabytes to5 million terabytes.

Yet, showed research carried out byMicrosoft, users are dissatisfied. Searchresults for 50 per cent of the queries failedto meet the consumer's needs (they areeither abandoned or refined), and 35 percent of people expressed dissatisfactionwith search today - and this percentageincreased when they moved into task-focused activities like finding a product orgetting local information. Twenty-five percent of the queries resulted in a personclicking through to a site from the resultsthat didn't meet his needs. Users wanthelp in their search. Seventy-two per centof the people surveyed said currentsearch results are too disorganised. Butsearch is important. Users are focused ontasks and decisions. Sixty-six per centpeople reported using search engines tomake decisions. Long sessions are becom-ing more common, with over 46 per cent

of searchers' time being spent on sessionsover 30 minutes in length.

This has shaped Microsoft's vision forBing. “There is a huge amount of dissatis-faction between what is you intent andwhat the search engine throws up. Bing isa decision-making engine. We said let usfirst understand the intent of the user andthen complete the query to help himdecide," says Singh. Apart from that, Bingloads all image and video results on onepage. If you take the cursor to the video, asmall preview is played, which lets youknow if this indeed is the video you arelooking for. A feature of Bing in the US isthat it gives you a virtual tour of a city,down to the prices inside a store. This fea-ture is yet to launch in India.

In six months, Singh says Bing hasmoved Microsoft's market share in theUS from almost 2-3 per cent (it had Livesearch earlier) to 11.7 per cent. In India,the share stands at 1.2 per cent. (It is still abeta site.) The task at hand is not easy.Google has become one of the biggestbrands in the world. How will Bing take iton? “People will go for what works forthem. Advertising will get you only thismuch; product usage, loyalty and experi-ence which will get consumers come toBing again and again," says Singh.“Search has remained static for ten years.When did you last hear of innovationhere? The best form of flattery is imita-tion. The competition is tracking whatwe have done." Microsoft, it is thus safe toassume, will depend on word-of-mouthpublicity for Bing.

Meanwhile, rivals will not sit idle andtwiddle their thumbs. “We are going tofocus on emerging markets becauseYahoo! has a mindshare there. It is a com-petitive market and we will attract andretain users by keeping them engagedwith the web. Yahoo! talks about you andcaters to individual needs. We will offeran attractive set of products and servicesto our users that are better than are com-petitors," says Yahoo! India R&D CEO andVice-president Shouvick Mukherjee.

Live and kickingMeanwhile, Windows Live Messenger,which was announced on April 30, isaimed at the 38 million active online con-sumers and the fast-growing tribe of

social networkers and users of instantmessaging. Bing is integrated into it, sothat users can attach links, images andvideos without leaving the conversationwindow. It has a “social dashboard” withupdates from across networks. It is alsointegrated with mobile phones usingWindows Phone, iPhone and Blackberry.Users can also play around with availabil-ity. After office, for instance, they canblock the device for messages from office.

But the biggest innovation has been inHotmail. Research showed that 80 percent users want email to be more efficient.Many of them said it takes too long to getthrough their inboxes. Half of them evensaid they were missing important mes-sages because of all the clutter in theirinbox. In the new Hotmail, Microsoft hasattempted three things to make emailmore efficient: Help users manage theclutter in the inbox, save time on every-day tasks, and integrate social networkswithin the inbox.

Thus, the sweep function will helpusers block email from a sender forever.Other email (Gmail, Yahoo! and others)will also get displayed on the Hotmailhome page. Bing, of course, has been inte-grated into Hotmail. Special capacity hasbeen created for sharing images. “Thereare 1.5 billion photos that are uploaded inthe Hotmail environment every month.Through the integration of Skydrive, theuser can at one go send up to 200 photosof over 10 gigabytes," says Singh. “Theimages you get now are links and notimages, which is not a cool experience. Inthe new Hotmail you will get the picturesas well as the video on your screen. Youwon't get distracted from what you aredoing. This improves efficiency withoutlosing the environment."

The all important question is will itwork? Will Microsoft get advertisers onboard for the internet-based initiatives?India, mind you, is a very traditional mediamarket, and digital advertising is not morethan 3 per cent of the pie of Rs 18,000 crore.Experts say it is not easy for companies tobuild brands online. Microsoft has a largeteam in place to get advertisers. Can theyget the money? Much will depend on whatusers have to say.

With contributions from Kirtika Suneja & Byravee Iyer

Business Standard


68

69

It is still a fairly small segment -just Rs 186 crore out of the totalRs 2,200 crore-plus fairnesscream market, according toNielsen - but one that is growing

at a fast clip of 31 per cent. Clearly,men in India wouldn't mind being thefairer sex, if marketers' pitches formen's fairness creams are anything togo by.

To secure early leads, marketers areexpanding their portfolio beyondcreams and straddling different price-points with various ranges.Differentiation, for now, seems to havebeen relegated in favour of endorse-ments by filmdom's and cricket's A-lis-ters for their communication.

Hindustan Unilever (HUL) is thelatest to make a splash with its range ofVaseline Men Anti-Spots Whitening

facewash and cream. In what is seen byobservers as retaliation to Garnier'scampaign with star endorser JohnAbraham, HUL has roped in ShahidKapur. Garnier, Loreal's natural ingre-dient-based brand, launched itsGarnier Men PowerLight range ofmoisturisers and facewash last year.

But won't the star endorsements byevery brand erode differentiation?Garnier Marketing Manager RichaSingh says, “John Abraham's positiveenergy and the will to be active helpedus portray him in a way that was real toboth him and our brand. It appearedgenuine." HUL Skin Care GeneralManager Govind Rajan feels, “It isalways better to start with the youngwho are more amenable to change.Hence, Shahid Kapur". On its part,Nivea has associated with India cricket

captain Mahendra Singh Dhoni. Thefirst mover, Emami's Fair andHandsome has Shahrukh Khan as itsendorser.

Kolkata-based Emami first saw theneed for a men's fairness product, beat-ing bigger players. Research hadshowed that the country's leadingwomen's fairness cream, Fair andLovely, had then owed over 30 per centof its sale to men users. Emami's Fairand Handsome, launched in 2005, wasfollowed by HUL, the makers of Fairand Lovely, which launched Fair andLovely Menz Active in 2006.Beiersdorf AG, the German parent ofNivea, entered next with its Nivea forMen products. Smaller players includeElder Healthcare's FairOne Man, aShahnaz Hussain franchise. (See chartfor market shares)

Business Standard


Men in India seem to be in a rush to be the fairer sex.So HindustanLever is the latest to make a splash with its range of Vaseline whiteningfacewash and cream Sayantani Kar

COMINGOUT OF THE

CLOSET

Heavy advertisers such as HUL andGarnier are now looking to expand theskincare category beyond vanilla fair-ness creams with face washes and sun-screens, though experts question theefficacy of these products. “How canbrands have facewashes which lendfairness?" asks one. Emami GroupDirector Mohan Goenka believes that“product extensions will be only tosupport the mother brand of the fair-ness cream."

Marketers admit that fairness is theforemost concern of users but insiststhat it only points to the underlyingneed for a healthy skin. Nivea For MenGroup Brand Manager SudarshanSingh says, “Whitening emerges as theprime need. Since Indian men spend alot of time outdoors, they desire toreverse the effect of the aggressive fac-tors and hence use whitening creams.The other big need is also of oil con-trol." Adds Garnier Marketing ManagerRicha Singh, “Our products addressthe need for a clear and glowing skin,albeit without a tan and dark spots."

The brands are banking on the haloeffect of the names under which theylaunch their men's fairness products,apart from the star pull. Singh says,“Our differentiator is what Garnierstands for overall - fusing nature withtechnology." HUL's Rajan says,“Vaseline has always been viewed asan expert brand on skincare thanks toits heritage. So it has the credibility tocreate a habit of skincare regime."

Brands are also straddling differentprice points, either through differentproduct ranges or through packaging.Garnier launched satchets of its creamearly this year. Its parent, L'oreal alsohas a range for men's whitening creampriced much higher. HUL covers themass market with its Fair and LovelyMenz Active. With Vaseline Men, itwill focus on modern retail, whichRajan admits will yield a higherthroughput as it is targeted at theurban man. “Men are wary of walkinginto a fancy and cosmetic store andtend to pick up products fromchemists and hypermarkets," he adds.

Emami, still lording it over the mar-ket with its Rs 125 crore brand, is far

from embattled. Goenka points out, ""Itis one thing to have a brand and quiteanother to focus on it. What will be thewar chest that larger players will setaside for their men's brands? We have20 per cent of revenues going intoadvertising and Fair and Handsomeremains a focus brand, he asks. HUL,for example, does not intend to extendits Fair and Lovely Menz Active, butwants to concentrate on Vaseline Men.

On the whole, most players say theywant to grow the market, so the morethe merrier.

Business Standard


70

Videocon Industries ChairmanVenugopal Dhoot has a clear tar-get. In three years flat, he wants100 million subscribers for his

mobile telephony service. That it tookBharti Airtel, the market leader, 14 years,Vodafone 15 years and RelianceCommunications 7 years to hit the markdoes not bother him. He is ready to investRs 14,000 crore to get there. VideoconMobile Services, an arm of VideoconIndustries, is the 13th player in the mar-ket.

India may be the world's fastest-grow-ing market (over 600 million users; num-ber projected to rise to 800 million inthree years), but it is also the most com-

petitive. Cut-throat rivalry has broughtdown profit margins of incumbents at analarming rate. The average revenue peruser for GSM has fallen 35 per cent to Rs144 per month in the last one year, whilethat for CDMA has shrunk 26 per cent toRs 82 per month.

Clearly, this is no place for the weak ofheart. So why does Videocon want to tryits hand at telecom? It is a large player inconsumer electronics, though Koreanchaebols LG and Samsung lead in themarket by a fair margin. It has interests inoil & gas. (Videocon has 25 per cent in theRavva field off the Gujarat coast, andowns assets in Brazil, Mozambique,Australia and Turkey. While Ravva went

into production some years back, otherblocks are under exploration.)

It recently ventured into direct-to-home television. Profit margins in con-sumer electronics are under pressure,though they are still healthy in oil & gas.Videocon's gross profit margin in con-sumer electronics fell from 13 per cent to10 per cent, and in oil & gas from 32 percent to 29 per cent. DTH is still in invest-ment mode, and Videocon is at the bot-tom of the heap - the industry is known tocarry losses in excess of Rs 5,000 crore onits books.

Dhoot gives a text-book answer. “Tele-density in the country is just 46 per cent.We are in it for the long term. Often, we

Business Standard


71

MATCH ON FORVIDEOCON

The consumer electronics major has entered the cutthroat mobiletelephony market and is confident of acquiring 100 million subscribersin three years.Can it break the clutter? Sayantani Kar

have entered sectors even when theywere yielding low margins in the shortterm and when people were shying away.In 1994, oil had seen low margins but wewent ahead." Sector analysts sayVideocon can build great value for itsshareholders in telecom. Along with afew others, Videocon got spectrum for asong - just Rs 1,651 crore. Unitech, one ofthem, then sold 67.25 per cent to Telenorof Norway for Rs 6,120 crore without asingle subscriber on board. Similarly,Swan Telecom sold 45 per cent to Etisalatof Abu Dhabi for around Rs 4,000 crore.Imagine Videocon's valuation if it has 100million subscribers on board! BhartiAirtel, which has 138 million subscribers,is capitalised in the stocks markets at Rs111,780 crore. However, Videocon hasspectrum only for 19 of the 22 circles inthe country, unlike Uninor, Tata DoCoMoand others who have a pan-India licence.So it may be valued slightly below theserivals.

In fact, Dhoot does not rule out selling26 per cent in the near future to a foreignpartner. He may need the money to fundhis expansion plans. State Bank of India,the country's largest lender, has commit-ted Rs 7,000 crore; which means he stillneeds to arrange Rs 7,000 crore. This iswhere the stake sale fits in. There havebeen talks of Vivendi of France buyinginto Videocon but those have now fadedout.

Some analysts believe Videocon's cap-ital expenditure could be higher than pro-jected because it has only 4.4 MHz ofspectrum, which could constrain itsgrowth. So, it will either have to acquireanother service operator or buy spectrumafresh. This could be costly. Each MHz of2G or 3G spectrum could cost as much asRs 2,500 to 3,000 crore.

Brand advantageTo be fair, Videocon does come to the mar-ket with some advantages: It has a widedistribution network and a brand that iswell recognised. “Our brand has becomewell established over the last 25 years,and we have reached India's remotestcorners with our after-sales service,"says Dhoot. “Our strength in servicingand reach is what makes us confident ofacquiring 100 million subscribers by the

end of three years." Some observers agree.“Videocon can bank on its brand presenceunlike other newcomers such as Uninor,"says Romal Shetty, who heads the tele-com practice at KPMG.

McCann and Interbrand ran a researchbefore the launch of Videocon's mobileservices, which concluded that it wouldbe best to go with Videocon as the brand.It would also have a halo effect on otherbusinesses. The group had done a brandoverhaul in 2009, engineered by McCann,which many felt at that time was done topave the way for savvier telecom advertis-ing. Operators have been known to spend13 to 15 per cent of their turnover onadvertising which has seen no dearth inmedia innovations and creative content.Some observers feel telecom will there-fore be a tough challenge for Videocon.“The incumbents already have a goodbrand recall, having built emotional con-nect over the years. So, there is no roomfor error for Videocon," says MilagrowBusiness Knowledge Solution FounderRajeev Karwal who has in the past workedwith LG, Electrolux and Philips.

The other advantage Dhoot can counton is his distribution network. Apart from50,000 dealers of Videocon consumerelectronics, Videocon owns the Next andPlanet M retail networks, which togetherare over 1,000-store strong. In addition,

the company plans to enlist over 20,000independent dealers right away andanother 25,000 in three months' time. Butit will have to do more. Bharti Airtel, forinstance, hopes to have a distribution net-work of 2 million by the end of the year.

Dhoot looks unfazed. "(Bharti) Airtelclaims over 110 million subscribers.Videocon as a brand already reaches asmany as 160 million consumers," says he.While most of these consumers mayalready be with other network operators,Videocon expects 30 per cent of them toconvert to its network. Industry data sug-gests that as many as 50 per cent sub-scribers change their service operator in ayear. This is the opportunity Videoconhas in sight. The operator is reaching outto existing consumers in Mumbai's sub-urbs with a pilot loyalty programme. Itcalls on such consumers and offers thema tentative enrollment plan to switch toVideocon Mobile Services.

Also, a new player in the market neednot set up its own infrastructure of tow-ers; it can take on rent those of rivals. Thiscompresses the capital investments

Business Standard


72

“OUR STRENGTH IN SERVICINGAND REACH IS WHAT MAKESUSCONFIDENT OFACQUIRING 100 MILLIONSUBSCRIBERS BY THEEND OF THREE YEARS”

required in the rollout as well as the go-to-market time. In fact, Videocon plans totake on rent 80 per cent of the towers itneeds. It will fix its own towers where thenetwork is weak. That is why, in its firsttelevision campaign, it has played heavilyon the “signal” of the network as the dif-ferentiator. Most subscribers in India referto the strength of the network as signal.Through its tagline, Pakdo life ka har sig-nal (catch every signal of life), it hopes toown the word in recall among sub-scribers, rather than give prosaic explana-tions about network coverage.

The tagline can also be localised as thebrand rolls out in different areas. Itinfused a local flavour when advertisingits launch in Tamil Nadu - its first circle -by placing ads in Tamil during the recentIndian Premier League matches.“Advertising in the regional language onnational channels struck an emotionalchord with consumers," says VideoconMobile Services' head of marketing, SunilTandon. As the group has consolidatedmedia buying, the telecom service hopesto save 5 to 10 per cent on advertisingcosts.

Bundled plansBut the clincher could be something else -bundling. There is talk in the marketplace that Videocon could offer consumerelectronics like an LCD television if a sub-scriber guarantees a certain annual usageof airtime. Analysts say Videocon couldsell its connections along with handsetswhich will be either subsidised or com-pletely free. The condition could be thatthe user has to remain on the network fora minimum of two years and use the ser-vice for a minimum specified period oftime. “Rather than cut tariffs, players cansubsidise the handsets. By tying handsetsto the network, operators can offer differ-entiation over a longer period of time thantemporary tariff plans," says Ernst &Young Partner (technology, communica-tion and media) Amit Sachdeva.

In markets such as the US and Europe,this is common business practice. Itwould allow Videocon to rise above theprice-play among GSM players. In India,CDMA operators have locked third partydevices with their networks. But con-sumers resented that because there was

forever a limited choice of handsets.Videocon, on its part, has alreadylaunched as many as 24 handsets and isready with 20 more. This, experts believe,will help Videocon acquire low-revenuesubscribers.

Dhoot admits such a strategy indeed ison the drawing board. “The handset busi-ness would allow us to bundle our net-work with it. It will allow us to introduceyouth-focused applications and flexibili-ty in pricing." This is somewhat similar towhat Videocon did in DTH - it bundledthe set-top box with the DVD player andtelevision. (Its d2h service has got nearly amillion customers since launch inSeptember 2009, which is 5 per cent ofthe market.) Dhoot also plans to build asuite of value-added services for theyouth. But the space is crowded, and hisapplication developers will have to thinkreally out of the box.

Has Videocon got it right? What do theinitial numbers suggest? In less than twomonths, it has covered six of the 19 circlesit has spectrum for, with six more likely tobe covered before 100 days. Tandonclaims that 100,000 subscribers came onboard within four days and it has alreadycrossed the 1-million mark. (In contrast,Uninor, which started its rollout inDecember 2009, has got 2.5 million sub-scribers) Dhoot's job is to find another 99million subscribers in a little less thanthree years.

Business Standard


73

Reebok had some time backhired an internationalagency to help it identifylocations for its stores on thebasis of income pockets.

The agency devised a plan that lookedgood on paper: Divide each city accord-ing to the postal codes.

The assumption was that peoplecovered by one post office would havesomewhat similar incomes. Within no

time it was proved that the formula willnot work. The Greater Kailash postoffice in New Delhi, for instance, is ahigh-income neighbourhood but alsoincludes the mid-income locality ofZamroodpur. Should Reebok then putup a store there or not? What productsshould it stock?

For Reebok, the country's largestseller of sportswear and apparel, this isa challenge it has to wrestle with every

day. It wants to become a mass-marketbrand, and the location of stores holdsthe key to that. This, mind you, is notthe first time that its market researchand assumptions have gone awry.

When it first entered India in the ear-ly-1990s, it had assumed that every carowner could be a potential buyer forexpensive Reebok sneakers. It proved tobe a gross overestimation of the mar-ket's potential. Little did it realise that

Business Standard


74

REEBOK STRADDLESMASS AND CLASS

The sportswear giant is targeting a bigger share of both the lower andupper ends of the market.Has it got the balance right? Surajeet Das Gupta

cars were bought on installments here,and a large number of drivers didn'town the cars - these were provided bythe office!

But it has got over the initial hic-cups. Though fourth in the globalsweepstakes after Adidas, Nike andPuma, it leads the pack in India with a53 per cent share of the branded sportsfootwear market (estimated size: Rs3,500 crore per annum).

In fact, India is the only market inthe world where Reebok has such domi-nance in the market place. So much so,two of its Indian honchos - MukteshPant and Sidharth Verma - were givenprestigious assignments abroad.Though the brand is owned by Adidas,it was decided to let it run as an inde-pendent entity in India, lest themomentum be lost.

No guts, no gloryReebok enjoys almost total brand recallin the country. And its lowest pricepoint is below Rs 1,000 - Rs 990 for apair of jogging shoes, to be precise. Thetwo basic requirements for going mass-market have thus been fulfilled. Thetask in hand is to reach its shoes to con-sumers all over India.

The choices are clearly defined: Youcan tread slowly, open a few stores inthe top metros and grow cautiously,which is what most of Reebok's rivalshave done; or you can go by your gutfeel and move fast to touch the con-sumer. The second option is riskier, butthe rewards, if it succeeds, are highertoo. And this is what Reebok has done.

It has over 1,000 stores in over 325cities and towns across the country,which is more than double of any of itsrivals, and the numbers continue to addevery day. About one-third of its stores(over 300 outlets) cater to the lower endof the market. And it offers over 80stock-keeping units (SKUs) under Rs2,590, which form the bulk of its sales.

About 70 per cent of its sale volumescome from low-end products, though interms of value they constitute 50 percent of the revenue. And to keep costsdown, over 80 per cent of the footwearis manufactured in the country.

“This business is less about strategy,

more about intent and marketingcourage," says Reebok India ManagingDirector Subhinder Singh Prem. “Indiais changing every three years. Today, wehave 300 million consumers. Our aim isto cater to at least one billion Indiansand become both a prestigious and amass brand."

Prem admits that it is difficult toidentify where to locate a Reebok store,as demographic and psychographicdata available in the country is scanty.He says the division of cities, towns andrural locations based on socio-econom-ic data is imperfect because in realityyou can never know when a city hasended and rural area has started. The

census data of 2001 is too old, andeveryone has to add in some multiple toget to the real numbers of a town or city.

“You cannot wait for the data tocome; it will be too late and you willmiss the market opportunity. So youmust go to the consumers," says Prem.In other words, use your instincts.

That's not to say there is no methodin the madness. The company hasdeveloped its own yardstick: It believesany location which has a population of10,000 to 15,000 can sustain a Reebokstore, especially if it is a service hub. Sothe whole idea is to go ahead, put in astore and see if it works. The option topull out is always there. Says Prem:“The good thing is that 95 per cent ofthe time we are successful, which couldbe because we are not taking enoughrisks."

Of course, Reebok has to ensure thatthe franchisee doesn't lose too muchmoney if the store does not work. SoPrem says the exit costs have been keptlow and even the lock-in for the fran-

chisee is short.Rivals in the business say that the

cost of opening a Reebok store in a semi-urban market is not more than Rs 2lakh. “There are basic fixtures in thesestores. The person who runs the storealso owns the place; so there is no rentalto give. Even if he sells three or fourpairs a day, he will make a profit of Rs30,000 to Rs 40,000 a month which isgood," says a rival.

“The other advantage is that thecompany gives the shoes on a consign-ment basis, so you pay the companyonly when you sell." The flip side is thatReebok's cash flow can get stuck if astore does badly. The company's rev-enue would always be lower than thenumber of shoes dispatched from itsfactories.

Price barriersSome others say that Reebok's pricesaren't low enough for the bottom of thepyramid. “We sell well as compared toReebok. With similar specifications,our shoes would be priced at a third ofReebok's. There are always people whodo not have that kind of disposableincome, and they come to us," saysLiberty Retail Managing DirectorAnupam Bansal.

Can Reebok produce quality prod-ucts at even lower prices and break theexisting price barrier? This is necessaryif Prem wants to hit his target of one bil-lion customers. There is hope. Thecompany has, after all, brought downits entry level price from around Rs1,390 a few years ago to Rs 990 now.And, of course, Reebok's research anddevelopment centres abroad are work-ing to break new price barriers.

Says Prem: “On one hand we expectto offer more lower-priced shoes toexpand the market, on the other weexpect more people will see a rise intheir incomes (so that they can affordthe shoes). And we will reach some-where midway."

Does Reebok run the danger of ignor-ing the well-heeled urban buyers in itsquest to reach the masses? For that,Prem is also experimenting with newmediums which will supplement hisalready large advertising budgets. The

Business Standard


75

REEBOK BELIEVES ANYLOCATION WHICH HAS A

POPULATION OF 10,000 TO15,000 CAN SUSTAIN A

STORE, ESPECIALLYIF IT IS A SERVICE HUB

focus now is to leverage social websitesand offer consumers knowledge aboutits products.

“What makes this medium powerfulis that it is a two-way dialogue and thereis credibility of information," saysPrem. One idea which has been floatedis to set up Reebok Clubs across web-sites were people can exchange noteson fitness and Reebok products, andgive their independent opinion. Thecompany feels it can extract more valuethis way than from an advertising cam-paign.

But different markets and segmentshave different requirements and aspira-tions from a sportswear or lifestylebrand. So how does Reebok cater to thevarying choices? Data shows that con-sumers are changing their old pair ofshoes much faster than before. Middle-class buyers now change their footwearevery three months, down from eight to12 months earlier. And at the lower endof the market, consumers are changingonce in every 15 months compared tothree years earlier. This, Prem says,offers an amazing opportunity forReebok.

“The customer who buys entry-levelRs-990 shoe upgrades to the next leveljust like you upgrade your car. And ashe is already hooked on to Reebok; so,his next shoe will also be the samebrand, provided of course we offer himwide variety and a new offering at everylevel and price point," says he. SoReebok launches over 42 SKUs everymonth and at least a new footwear tech-nology every two months.

Mass vs classDetractors and competitors, however,say that the company's strategy maytake the sheen off the brand. “You can'tbe a prestigious brand and at the sametime sell it for under Rs 1,000. Also youwill compromise on quality and theseshoes are known for their performance.You can't be both a mass as well as aclass brand," says a rival.

Indeed, apart from airlines likeVirgin and Kingfisher, there aren't toomany brands that straddle all ends ofthe market. Remember, Toyota had tocome out with Lexus to tap the top-end

of the car market.Reebok, of course, is aware of the

challenge. One way to overcome it is tosegment the market, and have sub-brands for each segment. For instance,Reebok has created a segment forhealth- and figure-conscious women. Ithas launched Easytone footwear whichpromises to help tone the legs and butt.These are, of course, global productslaunched recently and available at astiff price starting from Rs 4,999. SaysPrem: “It's a challenge to segment themarket, but we need to do that to growand address the specific needs of cus-tomers."

Similarly, to cater to the fashion-conscious, Reebok has tied up withdesigner Manish Arora for the Fish Fryrange. It's a small market but if offers astyle statement and that gives the brandan extra dimension.

Reebok recently found that peopleabove the age of 60 prefer to use sandalsin their morning walk with friends.Prem caught on to the potential whenhe saw his father and his friends notusing sports shoes while walking in themorning.

“The challenge here was to encour-age them to sample our Rs 990 shoe sothey could understand the superiorityof the product," says Prem. So, it hastaken steps to reach such prospectivecustomers. For instance, it has done apromotion with Mail Today underwhich it offers free Reebok shoes withan annual subscription. “The wholeidea is that when the above-60 con-sumer uses the shoe, the next shoe hewill buy also will be Reebok” says Prem.

For the mass market, Reebok hasbonded well with cricket. It has set upexclusive cricket stores which stockpads, wickets and other cricketing gear.It has extended its sponsorship withKolkata Knight Riders by opening anexclusive store in Kolkata which sellsKKR merchandise. As many as nineplayers in the Indian cricket team use aReebok bat. It has benefitted from tyingup with cricketers much before theybecome stars.

For instance, Yuvraj Singh was takenon board nearly nine years ago. WillPrem's gamble pay off? Coca-Cola, for

instance, some years ago decided to go mass with packs priced at Rs 5. Itdid get volumes but its profit & losssheet began to bleed. Prem needs toavoid that trap.

Business Standard


76

Amajority of premier IndianInstitutes of Technology (IITs)have not performed well in the

2010 QS Asian University Rankingsreleased today.

IIT Bombay's rank, for instance, fellsix places to 36 this year. It was ranked30 last year. IIT Kanpur, too, slippedthree notches to be ranked at 37 against34 last year, while IIT Delhi fell from 36to 39 this year.

“The rankings are OK. We are notobsessed with it. Our endeavour is tocontinue our efforts to excel in teachingand research and we are constantly try-ing to improve," countered DevangKhakkar, director, IIT Bombay.

IIT Kharagpur, on the other hand,climbed 84 positions up to figure at 57against 141 last year. The University ofHyderabad, which did not figure on thelist at all last year, was ranked the 81stbest Asian university this year.

IIT Guwahati, too, stands at 66 thisyear against 171 last year. “Though weare not aware of the process of the rank-ings, we are happy that we haveclimbed 105 notches. We are constantlyattempting to get better and we hope tofigure in the list of at least the top 50best institutions next year," saidGautam Barua, director, IIT Guwahati.

The rankings listed Asia's top 200universities, where 12 Indian institu-tions figure, including seven IITs andfive universities. “Strength in academicpeer recognition helped seven IndianInstitutes of Technology and 15 SouthKorean universities appear in the Asiantop 100," a note from the QS press officesaid.

Meanwhile, among the 200 bestAsian universities, the University ofHong Kong retains the top slot this yeartoo, The Hong Kong University ofScience and Technology is ranked 2ndagainst 4th position last year andNational University of Singapore isranked 3rd against 10 th last year.

“The rise of National University ofSingapore to third place overall isunderpinned by a strong performancein the international faculty, internation-al students and academic peer reviewmeasures, amidst a drive to internation-alize Singapore's universities," the QSpress office said.

In total, 11 countries are representedin the top 200, with Japanese universi-ties occupying 57 of the top 200 and fiveof the top 10 places in this year's table.“Government-led investment, mostrecently through the 'Global 30' pro-gramme, has helped drive up standardsby attracting high-quality internationalstudents and staff, areas of the rankingsin which Japanese universities excel,"the release added.

Highlights of the research includethe continued dominance of Japan'suniversities and the success of HongKong's increasingly internationalisedinstitutions, which take three out of thetop four places. Measuring factorsincluding the quality of researchthrough citations, and the proportion ofinternational students and staff, therankings indicate that an internationaloutlook adds considerably to the repu-tation and status of universities in theregion.

In 2009, the rankings revealed the

strength of Hong Kong and Japan,which together accounted for all of thetop five positions. The Asian UniversityRankings have been compiled by usingparameters that are considered to bemore appropriate to institutions in thisregion. These parameters includeassessing a combination of regional andinternational factors, such as peer andrecruiter reviews, the internationalresearch capabilities of the institution,teaching quality, and internationalisa-tion of the staff and students, amongothers.

Business Standard


77

IITS SLIP IN ASIANUNIVERSITY RANKINGS

BS Reporter

Advertising awards in Indiahave never been free ofcontroversies. Allegationsof 'scam ads' winningawards or of a particular

agency winning most of the trophies -thereby hinting at a possible rigging ofthe awards - have surfaced off and on.

But self-voting - the issue currentlyraging like a ball of fire in the Rs 32,000-crore Indian advertising industry - isunprecedented.

Self-voting means that a juror is vot-ing for a piece of work produced by hisor her agency. The Creative Abbys,which was held during the annualGoafest in April, was marred this yearby episodes of self-voting by certainjurors. Almost 29 such instances werefound by the Advertising Club ofBombay during investigations last weekfollowing a controversy over the judg-

ing of the creative awards at the Goafestthis year.

If the shock of this wasn't enough, arather aghast industry is now having todeal with finger-pointing and the highdrama that goes with it.

“You will hear from us," says ArvindSharma, chairman, Leo Burnett, SouthAsia, in response to his agency andNational Creative Director K V Sridharhaving reportedly been served a legalnotice by the Mudra group followingcomments made by Sridhar in the wakeof the self-voting controversy. “I cannotspeak on the matter,"' he says. ButSridhar does confirm that the legalnotice to him and his agency has beenreceived. “Our legal department is look-ing into the matter," he says. “But wehave asked the organisers of Goafest togive us access to the video-recording ofthe judging that happened, so that

everybody is clear who did what. It setsthe record straight," he says.

Clearly, the last hasn't been said onthis, with more skeletons likely to tum-ble out of the cupboard in the forthcom-ing weeks.

Madhukar Kamath, managing direc-tor and chief executive officer, Mudragroup, could not be immediatelyreached for his comments.

The Ad Club, on its part is taking nochances, writing to agencies and itsmembers involved in self-voting,politely requesting them to return theirtrophies to the body. “We are hopefulthey will accede to our request andreturn their trophies," says AjayChandwani, chairperson of the CreativeAbbys this year.

Industry sources say that agenciesinvolved in self-voting will have nochoice but to return their metals in

Business Standard


78

AD FEST OR WAR FEST?The schism in the ad industry has come to the fore with the controversyover the Goafest awards Viveat Susan Pinto

order to avoid being discredited by theAdvertising Agencies Association ofIndia (AAAI), which is one of the mainorganisers of the Goafest. “I don't thinkthe agencies involved would want torisk being discredited by the AAAI,"says Rohit Ohri, managing partner, JWTDelhi. “Their reputation is at stake here.Besides, it makes sense for them to takemoral responsibility and own up. Theindustry has to be rid of this mess. Youhave to make a start somewhere," hesays.

But the creative head of a reputed adagency, which has opted to stay out ofGoafest this year, says he doesn't see theagencies under the scanner returningtheir metals at any cost. “Why wouldthey want to own up?," he says. “I don'tthink they would do it. That will be abigger credibility issue for thembecause clients then will cease torespect them. No agency would wantthat."

If the Ad Club does manage to get theagencies to toe its line, it will be anotherunprecedented step in the history ofIndian advertising. Though controver-sies have plagued the industry for long,there has never been an instance whenagencies were asked to return their tro-phies. Says the creative head, “The factthat the Ad Club is writing to agenciestoday indicates just how deep themalaise is."

His reference here is to the hungerfor awards, which most in the industrysay, is at the heart of the matter. “Thefact that your next increment dependson it and that it will get you peerapproval is what is driving this phe-nomenon," says Kiran Khalap, co-founder of brand consultancy chloro-phyll. Agrees Elsie Nanji, who startedad agency Ambience (now PublicisAmbience) alongwith advertising veter-an Ashok Kurien in 1987, and who isnow managing partner of Publicis'sdesign shop Red Lion. “I feel sorry forthe youngsters today who are in the gripof this. There seems to be no escapingthis with certain agencies setting asidetime and money for this," she says.

A call to clean up the system ragesfuriously as the mess gets deeper by theday.

Adman David Ogilvy, who foundedadvertising agency Ogilvy & Mather,once famously said, “Never write anadvertisement which you wouldn'twant your family to read. You wouldn'ttell lies to your own wife. Don't tellthem to mine." What Ogilvy was basi-cally advocating was the need to havesome ethics in advertising. But ad men and women over the yearsseem to have opted to give this messagea clear pass.

Business Standard


79

Afilm that released at the fagend of the year and spokeout against blinkered educa-tion raced ahead of rivals inhighly-promoted categories

like automobile, telecommunication andfood to win the 2009 Brand Derby. 3Idiots - produced by Vidhu VinodChopra, directed by Raju Hirani and withAamir Khan in the lead - was the most

power-packed launch of last year. Asmany as 78 per cent of the respondents,all top marketers of the country, called itvery successful (see The CompleteStory). They also ranked it first amongstthe very successful launches of 2009(Ranking Among VerySuccessful Brands). TheDerby ranks brands thatwere born in 2009.

The film, which had stellar perfor-mances by Khan, Boman Irani and others,good music, smart dialogues and slickvisuals, was produced for Rs 35 crore, andhas done business of over Rs 400 crore.This makes it the biggest grosser of alltimes in India. More than four months

after it was released in threatres, there isstill no sign of 3 Idiots on DVD or pay-

per-view television.What was the reason for

its success? 3 Idiots

Business Standard


80

IDIOTS LEAD THE PACK

3 Idiots wins the 2009 Brand Derby, the research for which was done by Ipsos.Heavily-advertised categories do well; clutter-breakingwork gets rewarded Bhupesh Bhandari

struck a chord with the young as well asthe old - anybody who has had to learn,more often than not under duress, unin-telligible stuff by rote. Experts say it wasalso the involvement of Hirani and Khan,men with the Midas touch, which tiltedthe scales in favour of the film. Hirani hasdirected iconic films like MunnabhaiMBBS and its sequel, Lage RahoMunnabhai (it had won the 2006 Derby),and Khan has acted in super-hits likeGhajini (eighth in the 2008 Derby), RangDe Basanti and Tare Zameen Par. “If youtake these two men away, the film fallsflat," says Dentsu India Executive Vice-chairman & Chief Creative Officer GulluSen. “They picked up a sensitive subjectand cleverly wove a story around it.Formulas have been well taken care of."

3 Idiots, mind you, does not lend itselfto either serialisation or extension intoproduct categories like gaming and mer-chandise. Film pundits say the story has aconventional end which cannot bereopened, and Khan is unlikely to repeat acharacter - such is his fear of failure. Andyou don't find 3 Idiots merchandisebecause the main characters were ordi-nary boys, not superheroes. That's per-haps also the reason why gamers have notdeveloped applications around thesecharacters. Yet, 3 Idiots beat brands likeTata DoCoMo, Samsung Corby, PepsiCo'sAliva and Chevrolet Cruze in the Derby.

Like 3 Idiots, Tata DoCoMo has bene-fitted from the freshness of its idea. Fifty-three per cent of the respondents thoughtit was very successful. The telecom spacehad become overcrowded by 2009, to saythe least. To break the clutter, it came outwith a whole new plan - why pay for a 60-second pulse when you can pay by thesecond? The idea appealed to customers.Those who switched to its plan began toreport up to 20 per cent drop in theirmonthly bill. The message spreadthrough word of mouth. Indians live theirlives outside their homes, and anythinggood or bad about a product gets dis-cussed threadbare online as well asoffline. A bad product will find it difficultto hide, just like a good product can per-haps make do with fewer advertisingrupees.

Amongst the very successful brands,Tata DoCoMo shares the second slot with

General Motors' Chevrolet Cruze. Lastyear was one of unprecedented crisis forthe car maker - its parent in the US filedfor bankruptcy, and potential customersin India panicked whether Chevrolet carswill get serviced and resold. GeneralMotors, at that time, had announced thatit will launch two new cars within theyear, the Cruze and the Beat, and stuck tothe promise. That gave a boost to the con-fidence amongst customers. Result?Though there was a blip in sales after thecrisis broke out, numbers in the last oneyear have more than doubled. Buyers ofthe Cruze, in fact, have to wait for wellover a month for delivery. “We knew atthat time any price cut would be hara-kiri;our brand equity would get diluted. So,we decided to go steady with our newproduct offers," says General Motors IndiaVice-president (sale, after-sale and mar-keting) Ankush Arora.

For the Derby, Ipsos, the marketresearch specialist, surveyed 102 market-ing professionals in Mumbai, Delhi,Kolkata, Chennai, Hyderabad and

Bangalore in February and March 2010.Of the 32 entries in the Derby, there areeight telecom brands, seven food brands,six auto brands, five media & entertain-ment brands, three FMCG brands, two ITbrands and one footwear brand - sectorswith heavy ad spends.

The top five brands - 3 Idiots, TataDoCoMo, Bajaj Pulsar 135LS, Nokia E72and Samsung Corby - were launched incategories that saw hectic activity in2009. This shows that adversity oftenbrings out the best in brand managers. Italso helped that budgets in 2009 weretight and agencies were under pressure todeliver more bang for the buck. The mes-sage in the Derby for the marketer is that itis possible to break the clutter with a goodproduct and some kickass marketing.“Differentiated differentiation is the keynow," says Ipsos President (loyalty, mediaand public affairs) B Narayanswamy. Inthe 2008 Derby, the Nano and the IndianPremier League had come on top, whichraised the bar for brand builders and mar-keters. Innovation was valued highly inthis Derby too.

There are no entries from consumerelectronics and apparel this year. As inthe past, real estate and financial ser-vices are absent in the Derby. While realestate has the handicap of building verylocalised brands, financial servicesbuild formless brands. Still, it's time thesector woke up to the advantage of strongbrand equity. In the financial crisisinduced by the fall of Lehman Brothersin September 2008, state-owned banksand insurance companies got a lot ofbusiness. People thought their moneywas safe with them. Clearly, brand pow-er is important in the sector.

Business Standard


81

The Chennai-based Amrutanjanhas been in the news as atakeover target over the past cou-ple of years. And the buzz just

refuses to die down even though the pro-moters have told the stock exchangestime and again (the latest denial wasissued last month) that they have nointention to sell out.

The scrip has gone up over 150 percent in the last one year because of thetakeover reports. What added fuel to thefire was Emami Chairman R S Agarwal'sreported statement last month that he wasinterested in buying Amrutanjan. Hiscompany, however, was quick to clarifythat the chairman had only expressed hisdesire to acquire any fast moving con-sumer goods or pharma business or com-pany, including Amrutanjan, within itsfinancial and operational resources.Meanwhile, names of various other suit-ors including Dabur have been doing therounds.

So what makes the 115-year-oldAmutanjan brand an attractive takeovertarget? “It's difficult to dislodgeAmrutanjan," says the executive of a firmwho has been trying hard to steal somemarket share from the brand in the hopeof improving his company's prospects inthe Rs 1,500 crore pain management mar-ket. But Amrutanjan, as the executivepoints out, sits firm in the marketplacewith a share of 29 per cent - second only torival Zandu, which has a share of 45 per

cent, and was acquired by Emami in2008.

Emami's other pain relieving product -Mentho Plus - has a market share of 15 percent only. Elder Healthcare's Tiger balm,on the other hand, has an even smaller

share at 5 per cent, and this, despite itbeing a strong brand overseas.

Tiger, for the record, has a strong fran-chise on its home turf of Singapore. It wasout licensed to India via an agreementwith Elder a few years ago. The latter

Business Standard


82

AMRUTANJAN: PAINFOR SUITORSThe heritage brand,which has retained its number two position through an aggressive rural push, seems to be a permanent takeover target.But the bidders havehad zero luck so far Viveat Susan Pinto & P B Jayakumar

hoped to make a dent in the marketplacewith Tiger, but to no avail. The marketshare continues to be in single digitsthough Managing Director Anuj Saxenasays the brand is doing well. He says, “Wespent the first few years fighting legal bat-tles with copy cat versions of the brand.We lost some time there."

Even then, Tiger's inability to makemuch headway in the balm marketspeaks for itself - Zandu and Amrutanjanare just too strong.

For Amrutanjan, in particular, retain-ing its number two slot over all theseyears has been far from easy in a marketthat has seen competition growing at thesame time. As an FMCG analyst pointsout, “When competition increases, thefirst to be attacked are the number twoand three brands. They are the ones chal-lengers go after typically. The number oneis secure in that sense because chal-lengers are not baying for its blood at thefirst instance. The number two alwayshas a greater threat of seeing market shareeroding as challengers increase."

So how has Amrutanjan managed tohold its own in a market that has seenEmami and Elder get active over the lastfew years, not to mention the growingthreat of duplicates as well.

By staying relevant, say analysts.Amrutanjan has transformed itself into ayouthful product with new packagingand variants. There are three key variantsas of now - a pain balm, a strong balm anda maha strong balm. Plus, the brand hasextended into segments such as roll-onliquids, cold gel packs, reusable gels, jointache creams and sprays in quest for neousers.

Amrutanjan's pricing of its balm isalso on a par with leader Zandu - Rs 20 forthe standard 8-gm-pack. Tiger is slightlyexpensive at Rs 22, say observers. “So thatgives consumers a choice of two productsat the same price point," says a source.

That's not all. To increase brand recall,Amrutanjan has also changed its advertis-ing strategy - moving away from regional-level campaigns to a national-level exer-cise replete with a new tagline - Be readywith Amrutanjan.

As the brand makes the transforma-tion from regional to national, it hasretained one attribute though - its grip

over rural and semi-urban markets. Thathas been the heart of Amrutanjan's distri-bution strategy - keeping its key consumerprofile intact even as it seeks new users.

Amrutanjan, as rivals point out, isstrong in non-metro markets. “By andlarge, pain balms are strong in tier twoand three cities. It's not an urban phenom-enon unlike pain rubs and creams whichare. That is because consumers in smalltowns and cities are comfortable usingpain balms as opposed to pain rubs orcreams," says an executive from ElderHealthcare.

In these small towns and cities, thefight then is a square one betweenAmrutanjan and Zandu, say analysts.Both have their strongholds - Zandu inthe north, and Amrutanjan, in the south.Both over the years have moved to alliedareas - taking the battle to each other'sdoor steps in the process. So Amrutanjanhas been fighting hard for share in thenorth, while Zandu has been seeking con-sumers in the south. Have they succeed-ed? For now, Zandu seems to be having anupper hand with greater market share, sayanalysts, though Amrutanjan is not givingup yet in its quest for market sharebeyond the south.

What it is banking on are its trademarkproperties, say sources, its distinctive yel-low balm with a strong aroma. It is thesemedicinal properties that have ensuredthat consumers in the south haveremained loyal to it despite the onslaughtof Zandu. As an executive with a rivalhealthcare firm says, “People love apply-ing a balm before retiring for the night inthe south. And if that is an Amrutanjannothing like it."

Business Standard


83

In August 2001, ITC made a mod-est entry into the food businesswith its Kitchens of India ready-to-eat preparations. The companyran popular restaurants, Bukhara

and Dum Pukht, in its hotels. Theserestaurants, the company felt, were suc-cessful because it understood theIndian palate well. Hence, the new lineof business. A more serious effort wasmade a year later when ITC launchedits flour under the Aashirvaad brand.This was followed by candies, biscuits,snacks, salt, pasta and spices. The sizeof the food market was just too tempt-ing. Within fast-moving consumergoods, food has always been the largestcategory. A large part of that is still soldloose; so the upside for packaged foodsremains sizeable.

The news is that ITC has crossed thefirst hump in terms of volume, marketshare and profits. Its food business isover Rs 2,500 crore in size. If beveragesare excluded, investment analysts reck-on, this should put ITC amongst the topthree food companies in the countryafter Nestlé and Hindustan Unilever.ITC Foods Chief Executive ChitranjanDar runs 40 food factories across thecountry and a product development

Business Standard


84

FAST-MOVINGFOOD BUSINESSITC Foods hasachieved scale,builtbrands and turnedprofitable.Whatdrives its growth?Bhupesh Bhandari

centre in Bangalore. It is the marketleader in one category - flour -, and issecond in confectionery, salt and pack-aged snack, and third in biscuits. It hasin its portfolio six brands (Aashirvaad,Sunfeast, Bingo, Kitchens of India,Minto and Candyman).

And it has turned profitable. Tillrecently, profitability of this divisionwas a huge concern for ITC. Not anylonger. Investment analysts say theprofit margins are below 5 per cent, andthe company's next task should be toraise it to the industry norm of 5 to 10per cent.

ITC's competitive advantage fromday one has been procurement of com-modities. The agri-business division ofITC connects with 5 million farmers in170 districts of 16 states. The companyleverages this to good advantage for allthe commodities it requires for the foodbusiness: Wheat, sugar, edible oil, pota-toes et al. Such commodities accountfor almost 60 per cent of the costs of thebusiness. This is the reason why Dar isnot too bothered about the private foodlabels of large retailers. Most of thembuy commodities from the spot market.So, when prices rise, like wheat fromSeptember to December, they findthemselves in a jam. “The sharbati vari-ety of wheat this year is not available.It's fully sold out. That's where ourstrength lies," says Dar. ITC uses shar-bati wheat for its premium flour calledAashirvaad Select. The other advantagehas been ITC's retail network for ciga-rettes. About a third of the company'sfood products apart from flour (snacks,biscuits and candies) are retailedthrough these shops.

Local preferencesThe company was also quick to realisethat the foods business in India requiressound knowledge of local tastes andpreferences. Food habits in the countrychange after every hundred miles. So,this is a business in which local compa-nies stand a better chance of success. Itis an entry barrier for multinational cor-porations, though the two largest foodcompanies in the country are foreign-owned. “Food is a very personalised cat-egory. It's not like soap. You can get

some space if you can create differentia-tion," says Dar, a veteran of 25 years atITC. “Brands will need to be fragmentedto cater to local tastes and preferences.So there can be no omnibus productwhich can be a national hit."

ITC's biggest brand is Sunfeast - bis-cuits and now pasta. In biscuits, ITC isranked third after Britannia and Parle.(See table.) The journey so far may havebeen easy because ITC has grown at thecost of local brands. The days aheadcould be tough. “In biscuits," says Dar,“you can take on formidable rivals withformidable products. The most success-ful products are 30 to 40 years old.Cookies or glucose biscuits belong tothe 1980s and before." In the mid to pre-mium category, Dar feels there are sev-eral taste buckets and categories avail-able on the health & nutrition,indulgence and convenience platforms.“In these three platforms there is still alot to be exploited. It is possible to inno-vate around that. One who does it thebest will walk away with the market."

Some time back, ITC came out withSunfeast pasta. This remains a smallcategory. Market estimates suggest thatit was till six months ago just 2.5 percent of the Rs 1,100-crore market forinstant noodles, which may have dou-bled with Nestlé's entry into the seg-

ment. This has fuelled the buzz that thenext stop for Sunfeast will be instantnoodles. Dar denies there's any plan forinstant noodles, “at least not in the nextquarter". The problem here will be tocreate a product that stands out fromNestlé's Maggi. Over the years, Nestléhas come out with so many variants ofthe product that there isn't much left toadd. Dar admits that ITC's productdevelopment team has worked oninstant noodles but could not come outwith a killer recipe. There has also beenspeculation that ITC will take Sunfeastto newer categories like packaged water,tea and bread. Dar denies all such talk.

Flourishing with flourAashirvaad is ITC's brand for staples.Branded flour sales in the country arearound Rs 4,000 crore, which is just 4per cent of the market - rest is all soldloose. (Conversion to packaged flour ishappening at about 8 per cent perannum.) Out of this, national brandslike Aashirvaad, Shaktibhog,Annapurna and Pilsbury sell around Rs1,700 crore. Aashirvaad's share of themarket is above 50 per cent, market ana-lysts say. This perhaps is the reasonwhy the brand is not heavily advertisedin mass media. “Somebody has to payfor it. In the South we do advertise,

Business Standard


85

because it a nascent concept there. Inthe North, we work at the points of pur-chase," says Dar. Aashirvaad is avail-able in outlets that sell 80 per cent of thepackaged flour in the country. Theproduct is tweaked, claims Dar, for dif-ferent markets. The one sold in Delhi,for instance, is a blend of four flours.The mix is changed right through theyear to give the same quality to con-sumers, says he.

ITC first extended the brand to salt.Its market share is 10 per cent, next onlyto Tata Chemicals' Tata Salt (over 30 percent). Here, ITC's focus is on the ruralmarkets. Unlike flour, rural householdshave converted swiftly to packaged salt.So, its retail network is not the same aspackaged flour. ITC, says Dar, has there-fore appointed a whole army of tradi-tional wholesalers to reach theseremote markets. Since this market is notscientifically tracked, Dar says he does-n't know how deep he has penetrated.

Next was the turn of Aashirvaadspices. This industry has a handful ofnational bands like Ashok, MDH andEverest which are personally driven bytheir promoters. This makes them for-midable opponents. ITC's strategy herehas been to go for blends, so that thebrand can charge a premium over oth-ers. The problem is that all rivals havecome out with various blends. To createa differentiation, ITC will have to comeout with something really new and dif-ferent. That's the challenge that thecompany's researchers in Bangaloreface. To begin with, ITC has decided tosell in the South where consumers are alittle particular about the spices theybuy. The northern markets will comelater.

Would ITC like to come out with oth-er staples under the brand, like rice andsugar? Dar rules out the possibility. Forrice, he says that ITC does not have aprocurement infrastructure in place.Basmati rice, that is what Aashrivaadcould look at, is grown in Punjab,Haryana, Jammu and parts ofUttarakhand - not ITC's stronghold. “Asand when our agri-business divisionbegins to export basmati rice, we willalso start to sell in the local market,"says he. Sugar too doesn't excite him

because there is no opportunity to cre-ate differentiation.

Bang on with BingoITC's most audacious move in foods sofar has been Bingo, its ready-to-eatsnack, which took on the might of FritoLays (market share: 60 per cent; brands:Lays, Kurkure, Aliva and UncleChipps.) Bingo has grown throughsome innovative products and kickasspromotion. Its share of the Rs 3,000-crore market is 10 to 12 per cent. FritoLays has hit back with its new range ofIndian snacks. Parle too has entered themarket with aggression. Sector expertspoint out another challenge: Bingo'spositioning is such that it needs to comeout with new flavours and advertise-ments all the time. “It's a dangerousgame," says a Mumbai-based analyst.“Customers can lose interest if we donot innovate continuously," Dar admits,“So you need to look at new textures,flavours and shapes regularly. In termsof flavours, our target is one or twolaunches a year. In texture and shape,there should be one new product in twoyears. There are eight to ten flavoursalways in the pipeline in various stagesof development."

In confectionery, ITC lags behindPerfetti because it doesn't have a chew-ing gum in its portfolio, though it hascandies, éclairs, toffees, chews, lactoand so on. “There is a lot of proprietorywork in gums that needs to be done. Youneed to develop the gum base, forinstance. We don't want to outstretchour limited means," says Dar. Thatleaves in Dar's portfolio Kitchens ofIndia, which is small. That categorymay not be more than Rs 30 crore. Infact, export of the brand could be fivetimes more than domestic sale. But theNorth American markets, which ITChas in its crosshairs, could be toughbecause of the inability to export meatsthere. Dar says the company could lookat local production to get over the prob-lem. But that can wait: Dar's hands arefull with other brands now.

Business Standard


86

When the Bajaj brothers,Rahul and Shishir,split their business in2008, the sugar busi-ness, under Bajaj

Hindusthan, went to Shishir Bajaj. It isthe country's largest sugar producer -more than double in size of its nearestrival. The business is driven by ShishirBajaj's elder son, Kushagra. Those whoknow him well will tell you that hisappetite for growth is far from satiated.Some big ticket acquisitions could hap-pen in the days to come.

In addition, father and son own andrun Bajaj Corp. The closely-held hair oilcompany is a hidden gem. In 2008-09, itdid a business of Rs 244 crore with agross profit margin of 62 per cent andnet profit margin of almost 20 per cent!The return on capital employed, at lastcount, was 188 per cent. Its AlmondDrops is the largest brand in the fragranthair oil market with a share of 51 percent. It is the third-largest hair oil brandin the country after Marico's Parachuteand Dabur Amla.

This seems to have fuelled KushagraBajaj's ambitions for the fast-movingconsumer goods business. Sectorexperts expect Bajaj Corp to get intosoaps, skincare, shampoos and otherhair oils in the near future. Bajaj Corp istightlipped about the new productlines. But it has filed a draft red herringprospectus with the Securities andExchange Board of India for a publicissue. This is where growth capital willcome from. “The IPO will take the com-

pany to the next orbit. The personalcare space in FMCG is far from satura-tion. We hope to tap that," saysKushagra Bajaj.

Bajaj Corp's strength is that it runs atight ship. The company claims it hasone of the lowest cost ratios in theindustry. It is an asset-light businesswith low overheads. People costs are

kept at a minimum with a lean team.Higher numbers of distributors' sales-men in the sales team cut costs up to athird for the company. The challenge isto rein in raw material costs. Bajaj CorpVice-president RF Hinger says:“Forward buying in liquid paraffin andbulk deals for packaging material andvegetable oils for every quarter help

Business Standard


87

STRETCHING OUT IN A TIGHT SPACEBajaj Corp plans to extend the hair-oil company into other personalcare categories.Can it take on well-entrenched rivals? Sayantani Kar

keep our costs in check."Also, unlike pure oils, Bajaj can

price Almond Drops, which is scentedand comes with added ingredients, atRs 38 per 100ml, much higher thancoconut oil which sells at Rs 21 per 100ml. Only cooling oil (Himani Navratnaand others) retails for more at around Rs44 for 100 ml. The company operatesthree factories in Uttarakhand andHimachal Pradesh and hence gets sub-stantial tax breaks. It reaches 1.5 mil-lion retail outlets in the country.

Challenges aheadIs this good enough for Bajaj Corp to

get into new categories? The challengesare huge. One, expansion into soaps,shampoos and skincare will bring BajajCorp face to face with the might ofmultinational corporations likeUnilever and Procter & Gamble. Hairoil, as it happens, is a uniquely SouthAsian product. As a result, it does not fitinto the global product developmentplan of most multinationals. That's whythe Indian market is ruled by homespuncompanies like Marico (coconut oil),Dabur (amla oil), Bajaj Corp (fragrantoil) and Emami (cooling oil).

Two, Kushagra Bajaj has so farproved his mettle in sugar which is acommodity business; brands are a dif-ferent ball game. Bajaj Corp, forinstance, spent only Rs 18 crore in2008-09 on advertising. On a turnoverof Rs 244 crore, this works out to a littleover 7 per cent of turnover. This is waybelow the 13-15 per cent norm in theFMCG business. Also, Bajaj Corp islargely a single brand company. Thoughit also has amla and jasmine hair oil aswell as a tooth powder, almost 90 percent of its business is Almond Drops.

But this could change in the days tocome. The draft red herring prospectus,which lists the products for launch as 1,2, 3 and 4, puts down the marketingbudget for 2011 at a total of Rs 60.7crore for the four products. That wouldbe almost 20 per cent of its earning,should it continue with a 22 per centgrowth rate. “For marketing, the top tensoap brands spend around Rs 600 crorein advertising every year. If we have tomake noise, we need to have a similar

budget. We will need at least 10 per centshare of the voice," says Bajaj CorpDirector (sales & marketing) SumitMalhotra. This is where the IPO moneywill come in handy. Some develop-ments suggest that the company isready to step on the gas. It has signed onLara Dutta for a new campaign. For itssouthern market, it has Ramya, theKannada actor, advocating the oil'snutrition and protection quotients.

A brand strategy is also in place. “Wehave identified categories in personalcare in which we could extend AlmondDrops. Segments in which we can't, wewill look to acquire brands or launchnew ones," says Malhotra. Bajaj Corpclaims it has zeroed in on companies toacquire. For now, these would be brandsthat Bajaj Corp can retail through itsexisting system for better profitabilitythrough synergies. “We would be savingup to 5-7 per cent distribution costs thatway," says Malhotra. Its attempts atacquiring brands over the last two yearsdid not meet with success. Naturally, itis reticent to delve into its currentprospects. Bajaj Corp plans to dividethe market into four zones for launch ofits four products. “We looked at the kindof distribution we had. We were strongamong grocers, so we could flop inlaunching a chemist-led product," saysMalhotra. Both extensions and newproducts would need to start in the mar-

kets the company is strong in - North,West and East. In the South, the compa-ny will work towards increasing thebrand recall of Almond Drops.

Within hair oils, it is important forBajaj Corp to get into new categories.Nielsen puts the branded hair oil mar-ket at Rs 4,943 crore and growing at 13per cent. Of this, coconut oil is 52 percent, amla 15 per cent, light or fragranthair oil 14 per cent and cooling hair oil12 per cent. If it wants to expand, BajajCorp cannot ignore the other categories.While the company is tightlipped aboutits plans, market observers say thatcooling oil could be next on the compa-ny's radar. “It is strong in the Hindi-speaking belt where cooling oil has astrong hold. Cooling oil is also pricedhigher than regular hair oils, in thesame range as Bajaj Almond Drops,"says Technopak Advisors AssociateVice-president Purnendu Kumar. Thissegment has been growing at over 20per cent per annum.

Crowded spaceEmami Director Harsh Agarwal does

not seem too bothered: “Our brand isstrongly entrenched in the market,which makes it difficult for newcomersto carve a niche for themselves." Headds that Marico and Dabur have bothbacked off from the segment. The brandis fortified with Shah Rukh Khan and

Business Standard


88

Amitabh Bachchan as brand ambas-sadors.

Malhotra, on his part, rules out anentry into coconut oils for now. But heis confident that the brand equity ofAlmond Drops will fetch him cus-tomers in other categories as well. “Thename of the game is conversion. Youhave to convert the person from the hairoil he or she is currently using. For us, ithas to be other branded oil because ofthe premium pricing of Almond Drops."he says. This is easier said than done,say rivals. Hair oil is bought largely bywomen who happen to be very loyaltowards the brands they consume, andit takes a lot of persuasion to changetheir preferences.

Meanwhile, attracted by AlmondDrops' domination of the fragrant hairoil market, rivals have entered the seg-ment. Marico with its Hair & Care lighthair oil and Dabur with its Vatika are thelatest entrants to the almond hair oilspace. Says Dabur India ExecutiveDirector (consumer care) VS Sitaram:“We will leverage our herbal heritagefor Vatika Almond oil since it isenriched with herbs." Then there areimminent new brands such as Mumbai-based VVF's newly acquiredMahabhringol oil which could beredone in a year's time for launch. VVFalso lays claim to backward linkages inoil-making, just like Marico in coconutoil.

Aware of the mounting competition,Bajaj Corp has begun to expandAlmond Drops in the South. “TheSouth being a stronghold for coconutoil, we had to offer something morewholesome," says Malhotra. Whilesouthern markets account for 28 percent of the overall hair oil market, lighthair oils only get one per cent of theirrevenue from there. Brand ambassadorswould also help make it younger,according to Kumar of Technopak. Thecompany has done well in the otherregional market of the East, where Dey'sMedical's Keo Karpin, the secondlargest light hair oil, rules the roost. Ithas around 40 per cent of volume shareand 43 per cent value share in this mar-ket.

Almond Drops' unique selling

proposition is its Vitamin E content thatis claimed to be 300 times more nutri-tious than coconut oil. The ingredientopen up possibilities for extensions inskin care such as creams and soaps, as itwould for scalp and hair care productssuch as shampoos and creams, detailsof which will be let out after the IPO. Toinitiate further, Bajaj Corp is also push-ing its smaller packs priced at Re 1 andRs 5 in these regions. “The smaller unitsgive around 7 to 8 per cent of totalsales," says Malhotra.

Emerging from a one-brand compa-ny to a multi-brand one would requireBajaj Corp to juggle priorities. Would itscatter its focus? Kumar of Technopaksays: “It is better to diversify and lever-age top-lines and economies of scale,rather than wait for margins to get hitwith new player coming in." Malhotraagrees, “Organic growth for our flagshiphair oil brand, Almond Drops, is 30 percent. But sooner or later, it will slowdown to 13 per cent. For a boost, wehave to look at inorganic means beyondthe existing product, outside hair oils."Well said, but can he deliver?

Business Standard


89

“FOR MARKETING, THE TOPTEN SOAP BRANDS SPENDAROUND RS 600CRORE IN

ADVERTISING EVERY YEAR. IFWE HAVE TO MAKE NOISE,

WENEED TO HAVE A SIMILAR BUDGET”

Cute is out and naughty is in.Just ask Rasna. The com-pany, which for years

relied on innocence to sell, hasnow repositioned itself as abolder and naughtier option. Inline with that, the company haschanged its 'I love you Rasna'positioning to 'Shararat ki ekghoont' (one sip of mischief).

The genesis for the campaign wasthat even though the company has a 97per cent market share in the concentrat-ed juice category, it was keen to rope innon-users, especially those who con-sume aerated beverages to quench theirthirst. Other players in this industryinclude Coca-Cola's Sunfill which has amarket share of 2 per cent, followed bySugar Free (0.2 per cent), C Sip VitaminC, Kissan Mr Fruit and Tang.

Rasna Chairman & ManagingDirector Piruz Khambatta says: “Thechange comes after research we con-

ducted showed there was a marked shiftin motherhood." The consumer studyconducted across four towns covered600 families. Findings revealed thatthere are three types of mothers: Thenew-age mother whose relationshipwith the child is empowering, nurtur-ing and friendly; the vigilant gatekeepermother is more balanced, goal-drivenand bureaucratic, who urges her child

to become an achiever; and the tradi-tional oppressive mother who isauthoritative and strict, which in turneither creates a rebellious child or aloner.

Having discovered these threetraits in mothers, Khambatta decided

that his brand had to be one which part-ners in exploration, discovery, victoryand fantasy. With that in mind,Khambatta and advertising agencyMudra sat down to deliberate. “I alsowanted to appeal to the up-market sec-tions, so I had to show them today'sworld," adds he. The company decidedto come out with three TV commercials,all showing children pulling a fast one.For instance, one of the ads showcases ayoung girl competing with a battery-operated bear and an Egyptian mummyfor Rasna. The moment the buzzer goesoff the girl puts her hand behind thebear's back and pulls out the battery,thus killing the battery-operated bear.

Business Standard


90

SUMMER MISCHIEFRasna has repositioned again, this time it is wooing kids by

being bold and naughtyByravee Iyer

Similarly, the child then throws the second competitor out of theway by removing the pin stuck on thelength of cloth taped around theEgyptian mummy. Having overpoweredboth her competitors, the girl then happily sips away all of the Rasnadrink. The ads end with the tag line:Shararat ki ek ghoont.

Change with the timesRasna was launched in 1982 by

Pioma Industries. In 2008-09, companyposted revenues of Rs 400 crore, whichwas 30 per cent higher than the previ-ous year. The demand for Rasna peaksduring the summer months. Most of thecompany's business is transacted fromJanuary to July. As Rasna is the categoryleader by a far margin, the companydoes not set aside a large part of its rev-enue for advertising and brand build-ing. This year, for instance, it plans tospend Rs 17 crore. This would not bemore than 4 or 5 per cent of the turnoverfor the year. Most beverage companiesspend up to 15 per cent of their turnoveron brand building.

Though it is the market leader,Rasna has frequently felt the need torediscover itself. This is not the firsttime Rasna's trying its hand at reposi-tioning. Five years ago, the companydecided that it no longer wanted to be akid's drink. That was when many com-panies had decided to take the healthroute and Rasna was swift to join thebandwagon. Thus it changed its taglineto “Relish a gain". To reiterate its point itlaunched Juc Fit, a fruit-based healthdrink. Khambatta even roped in brandconsultant Shombit Sengupta ofShining Emotional Surplus to design anew logo for the company. Thus wasborn the leaf logo which signifies valuefor money and health.

Marketers opine that the move didlittle for Rasna. On the contrary, manypeople started moving away from it anddrinking aerated beverages which werevery competitively priced. Rasna madean effort to enter newer markets like the milk foods category with abrand called Shake Up. It also tried tomake its mark in the Cola market with'Rasna Cola Cola', but neither of the

two really took off.

New positioningAs for the latest positioning of Rasna

that builds around the smart kid, brandconsultant Harish Bijoor of HarishBijoor Consults feels that in a societylike India it's important for a brand likeRasna to evolve. “A child 20 years agowas far different from children today.Everything is getting edgy and mar-keters need to keep pace," he says.However, he's not very excited by thetagline, “I'd rather prefer visual naugh-tiness like the new Limca ad, than havesuch a tagline."

Typically, summer at Rasna implieslaunching new variants. In the past thecompany came out with products likepremium Powder, Alphonso Mango,Home made Nimbupani, Ghar kaRange, Aquafun and so on. This timethough, Khambatta believes he's got itright with the new ads. He's also not in ahurry to launch variants just yet.“While we will be coming out with vari-ants in the second half of the year, rightnow we're just concentrating on this,"he admits.

The product proposition of value-for-money stays the same. “We contin-ue to have SKUs from 50 paise onwardsthat go up to Rs 10," says Khambatta. Heharps on the Rasna per glass value, cit-ing that a glass of Rasna along with sug-ar will cost Rs 3 as opposed to a glass ofTropicana, which will cost Rs 15. Buthow does he manage to keep prices solow? “We are a fully Indian companyand we manufacture every requiredingredient here itself. There are noimports of concentrates as the case maybe with multinational corporations,"

Khambatta explains.On the distribution front, Rasna has

the market nicely covered with 1.8 mil-lion retail outlets, a 460-strong salesforce, 4,500 stockiest, 35 depots andfive branch offices. It is available in allvillages and towns with a population of5,000 or more.

Business Standard


91

THE COMPANY HASCHANGED ITS YEARS

OLD ‘I LOVE YOURASNA’ POSITIONING

TO ‘SHARARAT KIEK GHOONT’

When telecom equip-ment maker ZTE firstset base in India in1999, it faced a prob-lem common to

Chinese companies: The general suspi-cion that their business practices weresomehow devious and their “cheap”products flawed. A decade later, this lit-tle-known Shenzhen-headquartered

company, which operates in a highlyprice- and technology-competitive mar-ket, has moved up from being India'stenth-largest player to the fifth-largest(Ericsson, Nokia, Nokia-Siemens andHuawei precede it). It accounts for thelion's share of CDMA networks run bystate-owned BSNL, RelianceCommunications and Tata Teleservices,and, in the past year and a half, has

Business Standard


92

SCALING THE CHINESE WALL

Telecom equipmentmaker ZTE had toovercome strongprejudices to establishitself in IndiaKanika Datta

bagged orders from several of the newlicencees. So much so that India hasbecome ZTE's largest overseas market.How did ZTE overcome the odds toestablish itself in a market in whichstrong biases persist? D K Ghosh, chair-man and managing director of ZTEIndia since 2006, says the solutions layin addressing cultural issues as much asrealigning business practices.

Mind your languageFor Chinese companies globally, lan-guage is inevitably a big barrier and thetoughest to overcome. China is one ofthe world's most linguistically isolatedcountries, making it difficult for peopleto pick up Mandarin easily. The factthat few Chinese executives spokeEnglish, the global language of busi-ness, increased the scope for misunder-standing. This was the issue Ghosh says

he tackled first.“The cultural gap has been a big

problem for us and I knew I had to takesteps to bridge this. One of the things Idid was to alter the format of our seniormanagement meetings," Ghosh says.Typically, meetings that were held todiscuss Indian operations were attend-ed by senior Indian managers andChinese executives from headquarters.“From the outset I found that thesemeetings would be conducted inChinese - which none of the Indiansunderstood! So I stopped proceedingsand appointed an English interpreterfrom among the senior executives." heexplains.

In the absence of this, there was aclear wall between the Indians and theChinese - not least of which was the lin-gering suspicion that the Chinese exec-utives actually knew English but pre-

tended not to understand to suit the sit-uation. Once the presence of an inter-preter became standard practice atZTE's India meetings, these misgivingsabated. “It was a simple solution but itproved far-reaching because a lot of keyinformation would have been lost if themeetings had been conducted inChinese only," Ghosh adds.

Trust exercisesMultinationals in general tend toappoint their “own” people to seniorpositions in companies they set upoverseas and Chinese companies are nodifferent. Given the language barriers,however, this practice also heightensthe potential for misunderstanding. ForIndia, however, ZTE made an excep-tion, introducing the concept of trustedmanagers, a model it eventually repli-cated worldwide.

Business Standard


93

ZTE found that the concept of train-ing trusted managers for the India oper-ations was possible because Indianshave a wide breadth and flexibility ofknowledge (in terms of technical com-petence/software and so on). Therefore,the thinking went, if Indians could betrained to be international managersand technical experts, it would helpZTE in its global sales effort. To startwith, 300 Indians with two or threeyears' experience were hired and relo-cated after short local orientation toChina where they were given intensetraining across disciplines for almost ayear. Candidates were then screenedbased on their specialisation and indi-vidual competence and relocated to dif-ferent departments in India.

“This marked a major change; earlierthe Chinese management could nottrust anyone local with classified infor-mation," says Ghosh. “Now, for the firsttime in the world, these Indians wouldbe the nucleus of a trusted core team."Today, of the 2,000-odd employees inZTE India, 86 per cent are Indian.

Now, just under a year later, themodel is being expanded and consoli-dated - more people are being selectedfrom India, Bangladesh and so on, andthe model is being replicated in Europewhere ZTE has hired Europeans to betrained in China.

Meanwhile, says Ghosh, there havebeen lots of experiments to improverelationships across nationalities. “Onehas to do with recognition - we havebeen rewarding locals with more thanaverage performance with a lot of pompand show."

Don't 'buy incompetence'Managing the external environment interms of customer perception is alsocritical to overcoming reputation prob-lems. In ZTE's case, this required alter-ing familiar but less savoury businessdevelopment practices and realigningthe sales pitch to allay customer fears.

One of ZTE's biggest critics in theinitial days was state-owned BSNL.Dissatisfied with its equipment and ser-vice, “they were almost throwing thingsat us," says Ghosh. “In this connection,one of the common practices was that of

passing gifts under the table to get busi-ness. I put a stop to that," he adds. Thefocus, instead, was placed on projectexecution.

Obviously, there was a rebound ofsorts for some time but things settleddown after that because, as Ghoshpoints out, “people now had to deliverinstead of buying incompetence".

Now, ZTE equipment accounts for85 per cent of BSNL's CDMA network.

At the same time, Ghosh says he alsostopped the practice of sending out a“football team” on customer calls -another common Chinese business cus-tom - because it made them uncomfort-able. “As a result, perceptions graduallyimproved because our executives estab-lished personal links," he adds.

Tying in with this, of course, was thequality issue. As Ghosh points out, thiswas essentially a “state of mind” and thecumulative effect of working with cus-tomers gradually helped establishZTE's reputation as a technology-leader(for instance, it is the leading providerof NGN, a fixed-line 3G network prod-uct).

Meanwhile, ZTE also focused oncustomer needs. For instance, one of themajor issues with new telecomlicensees was the shortage of finance.“Chinese banks are flush with funds, sowe were able to organise $4 billion to $5billion for Indian operators to set uptheir networks," says Ghosh. “Most ofthese projects would have not have tak-en off if it hadn't been for this," he adds.

Of course, prejudices and “securityconcerns” remain - a fact that Chinesecompanies will have to learn to live

with. Ghosh provides a recent examplewhen a ZTE team comprising Chineseand Indian technical experts was con-ducting some testing work in a publicthoroughfare. “Our Chinese expertswere working feverishly and this imme-diately aroused the suspicion of a shop-keeper who phoned the police com-plaining that they were spies and so on,"he says. The police arrested everyonebut they were soon freed after ZTE weexplained the issue. “But the incidentgoes to show that this kind of distrustremains and there isn't much we can doabout it," says Ghosh.

Business Standard


94

ONE OF ZTE’S BIGGESTCRITICS IN THE INITIALDAYS WAS STATEOWNED

BSNL. DISSATISFIED WITHITS EQUIPMENT AND

SERVICE, ‘THEY WEREALMOST THROWING

THINGS AT US’

Volkswagen (VW), who?That's the common questionthe bosses at the world'sthird largest car maker facedevery time they made a mar-

keting pitch in India. While its two sisterbrands - Audi and SkodaAuto - had ahigh recall value, very few were aware ofthe VW brand name here.

Not anymore. Look at the long queuefor the German car maker's latest offering- Polo - launched in India just twomonths back. Consumers are willing towait three to four months for the hatch-back priced at Rs 4.55 lakh (ex-Mumbai),although cheaper models of other manu-facturers are being offered off-the-shelf.VW claims it has confirmed orders forabout 6,500 units for Polo, while 500have been delivered already.

Neeraj Garg, Director, VolkswagenPassenger Cars, Volkswagen Group SalesIndia, says VW indeed had a very lowbrand recall in India. To correct that,Garg says, “the company opted for a con-tinuous activity in the market becausebrand awareness always has a shelf life.We need to improve our brand aware-ness, we need to improve our reach. Thefact that we have been successful inbeing different from others in the marketis what is going to work for us".

VW is taking the “continuous activi-ty” part quite seriously. Polo was the lat-est in a chain of six models ranging fromcompact cars to big sedans to giant sportsutility vehicles launched in the last twoyears.

The company produces/assemblesthe Polo, Jetta and Passat in India while itimports the Phaeton, Touareg andBeetle. While Polo is manufactured inthe company's 110,000 units per yearcapacity Chakan plant, the Passat andJetta are assembled at Skoda'sAurangabad plant.

And there's more to come. VW is gear-ing up to launch a sedan in the mass mar-ket segment later this year. The new carin the mid-level category will competeagainst models such as Maruti's SX4,Fiat's Linea, Hyundai's Verna and Ford'sFiesta.

It is also working on a car that wouldreplace Polo in the entry-level segment.VW hopes this will generate almost dou-ble the volumes compared to Polo,which will remain its flagship premium,yet volume generating car. All these ini-tiatives are expected to increase the VWgroup's share in India from the current 1per cent to 10 per cent in the next fiveyears.

What makes VW's gameplan in Indiaall the more interesting is its decision inDecember last year to pick a significantminority stake in Suzuki. Though thedetails are sketchy, there has beenintense speculation in industry circlesthat the tie-up will lead to joint develop-ment activities in India - a country whereMaruti makes one in two cars sold.

With so much at stake in India, VWfigured out that it needed to make a hugenoise about its challenger status in India.So when it launched Touareg and theNew Beetle Sedan late last year, VW didthe most expensive print advertisingcampaign in India with a multi-croreroadblock campaign across all editionsof India's largest English daily, TheTimes of India. Roadblock refers to anadvertiser paying a premium to black outall other advertisers.

Mumbaikars also saw other initia-tives such as a giant banner in the skydisplaying the new Beetle and the VWlogo - a first such campaign for any auto-mobile manufacturer.

The company is now looking at moreinnovative ways for taking its brand for-ward in a tough market, which is con-

trolled by only three manufacturers -Maruti Suzuki, Hyundai Motors andTata Motors with combined sales of wellover 1.4 million units (as of March 31,2010).

Lutz Kothe, chief general manager,marketing and public relations,Volkswagen Group Sales India, saysinnovation is the way to go. “Our carscarry innovation and so our marketingcampaign should also carry innovation.We had to do something which couldmake India talk about us. We had a sig-nificant double digit jump in sales afterthe campaign," Kothe says.

But will good cars and innovativecampaigns be enough for a late entrantlike VW to take on the established lead-ers in areas of technology, distributionand reach?

The jury is out on this. While manypoint to the uphill task that a late entrantlike VW has in building its brand inIndia, VW executives are confident.“The loyalty factor for auto brands", saysKothe, “is quite low in India compared toother markets. This means customers arelooking for newer things in their cars. Wedo not see a situation where we have topull customers, they are and will readilycome to us".

Adds Garg: “The Indian car market isgoing to grow to three million units from1.7 million units in another three to fouryears time. That gives enough opportu-nity to all players for expansion".

VW has also been building distribu-tion. It presently has about 25 stand-alone dealers and intends to take it up to40 in India as the company does notwant to utilise the dealer resources of itssister brands for distribution. There willbe gradual ramp-up in the number laterwith the next phase of expansionplanned for areas outside the main cities.

Watch this space.

Business Standard


95

VOLKSWAGEN'S BIG LEAPThe world’s third largest car maker is all set to make a splash in Indiawith a slew of launches Swaraj Baggonkar

Till recently, General Electric(GE) honchos would often talkof a turnover of $8 billion inIndia by 2010. This was 16 per

cent of the company's projected emerg-ing market business for the year. At thattime, GE hoped to sell gas turbines, con-sumer loans, water treatment plants,medical equipment et al in large num-bers; hence the ambitious target. GEhad ended 2008 with $2.8 billion. So,will it hit $8 billion when the books areclosed for the year? The day of reckon-ing is almost here.

GE India President & CEO JohnFlannery says the company no longerdiscloses numbers for one countryalone. So it's difficult to get him to com-ment if GE is on course to reach thatsize. But he does indicate that the targetmay have been ambitious. “There is noshortage of opportunities in India, andthere is a good fit to become two or three

times the size we are today. That puts ussomewhere close to the number you arepoking at," says he. “Some of thosethings were aspirational, an attempt toget the organisation excited."

In his letter to shareowners in the2009 annual report, GE Chairman of theBoard and Chief Executive JeffreyImmelt had said that GE had a $38-bil-lion business in growth markets, whichinclude resource- and people-richregions like West Asia, Latin America,China and India. “We sought out pock-ets of growth wherever we could findthem. We deepened our position in fast-growing markets in Australia, Brazil,China and India."

That GE may have fallen short of itstarget for India does not mean that GEhasn't tasted success in India. It ran ahugely successful business process out-sourcing outfit, Gecis, till 2004 when itwas sold to General Atlantic Partners

and Oak Hill Capital Partners for almost$500 million. The John F WelchTechnology Centre in Bangalore, whichwas inaugurated in September 2000,has helped GE cut drastically go-to-mar-ket time (up to 50 per cent in some cas-es), save huge amounts of money anddevelop products for world markets. Noestimates of the benefits are publiclyavailable. Bangalore is a cost centre forGE, into which it has so far invested$175 million. It has four partnershipsgoing in India with state-owned BharatHeavy Electricals Corporation, StateBank of India, Wipro and now TriveniEngineering. And it is very much in thereckoning for the Indian Air Force'sorder for 126 fighter jets.

But there have been serious reversestoo. GE Capital had taken a huge expo-sure to unsecured loans and delinquen-cies were high. It so much wanted toinvest in a diesel locomotive factory in

Business Standard


96

GE India’s new president & CEO, John Flannery,plans to resurrect thecompany’s fortunes by localising operations Bhupesh Bhandari

GENERALELECTRIC 2.0

the country; but right before the generalelections last year, the governmentscrapped the bids and decided to put upthe factory on its own. The GE gas tur-bines at the Dabhol power plant ofRatnagiri Gas & Power broke down.Nuclear power is another huge oppor-tunity (GE was one of the most vocalsupporters of the Indo-US civiliannuclear deal), but nobody knows whenit will start rolling. Then TPS Chopra,the successor of GE's first CEO in India,Scott Bayman (he drove GE in India forten long years), left last year. Choprawould often complain of the slow paceof affairs in India.

Clearly, things haven't gone the waythey were intended. How much has thatdeterred GE? “We are very proud ofwhat we have accomplished so far inIndia. Are we satisfied with where weare? No, we have still higher aspira-tions," says Flannery. “We are here forthe long haul. We will make majorinvestments. We are going to do what ittakes to win in India. Some things havebalanced favourably, someunfavourably. That's not uncommon ina developing economy."

The task aheadFlannery brings with him consider-able experience. A 1983 graduate ofFairfield University and an MBA fromthe Wharton School at the Universityof Pennsylvania, he has spent 22 yearsin GE. Before he moved to India, hewas president & CEO of GE Capital forAsia Pacific. His brief, before hewinged his way to India in January,from Immelt was three-fold: GrowGE's presence in multiple dimensions,localise it and transform the organisa-tion for the long haul. Flannery does-n't like to call it Plan B - it is morelike revised Plan A, says he. Themacroeconomic opportunity in Indiastill excites GE. The opportunities inGE's core areas of infrastructure(power, railway, water treatment andso on), oil & gas and finance continueto remain huge. “These (growth) mar-kets are investing trillions of dollarsin infrastructure and favour a multi-business company that can bring solu-tions. This allows us to form a 'com-

pany-to-country' approach in coun-tries where government and businesswork together to solve infrastructureneeds," Immelt had said in his letterto shareowners.

Flannery's first step has been tochange GE's reporting structures inIndia. Ever since GE set up shop inIndia, all the business lines reported totheir global business headquarters. As aresult, they didn't have a reporting rela-tionship with the Indian CEO. What itmeant was that GE's business in Indiawas not looked as a single profit & losscentre. Key decisions on products, dis-tribution and investments were takenoutside India. The results, as a conse-quence, were less than desired.

All management thinkers havestressed the need for multinational cor-porations to think local. Those who lis-tened carefully to the Indian customerhave gained immensely; those who did-n't have failed miserably. The success ofLG and Samsung of Korea and Suzuki ofJapan can largely be attributed to stronglocal product development, manufac-turing and distribution. All of themempowered their local employees totake important decisions. GE now is astandalone profit & loss account inIndia. Business lines all report directlyto Flannery. “I will be able to control thevast majority of decision-making," sayshe. In fact, the buzz in the market placeis that the Bangalore technology centretoo may become a part of the integratedIndian operations soon.

This will help GE go to a customerwith more than one product. Till recent-ly, various GE teams often made separatesales pitches to the same customer.Flannery admits this can often becomevery frustrating for the customer. Withintegrated operations, GE will be able topresent a unified face to the customer. “Italso gives us more scale and criticalmass, creates better jobs and careeropportunities. The company with thebest team on the field ends up numberone or number two," says Flannery. Buthe stresses that India will still stay veryclosely connected to GE's internationalbusiness: “The centre of gravity will beIndia, but we are not seceding from thecompany. We will get the best from GE. It

has the history of evolving as the marketschange. The hallmark of the company isconstant evolution."

Go localThat taken care of, Flannery wants tolocalise GE's business. This meanssending people out to the market togather what products and services arerequired, designing and manufactur-ing those products in India, and final-ly distributing them in India. The firstis on track, says he. For design,Flannery plans to leverage the skillsets of the Bangalore technology cen-tre. So far, it has focused on GE's glob-al requirements. To save cost and timewas the first brief to the centre. Thebusiness verticals for which this workis done are aviation (commercial air-craft engines), energy (oil and gas,power and water treatment), trans-portation (diesel locomotives and sig-nal systems) and healthcare. In addi-tion, there is a 400-strong team whichcarries out work on “Blue Sky” tech-nologies - new substances, materials,nanotechnology and solutions.

The brief could now change. In addi-tion to the work it is doing, it will workon products that could be relevant forIndia. “The brief is changing as we speakin an incremental and supplementalway. It will continue to be a key base forGE's global operations; that won't stop.But we will add resources to go local;some resources may be shifted," saysFlannery. “For the past 18 months, therehas been in-country, for-country team atwork for India-specific products anddesigns." To be fair, some products devel-oped at Bangalore have already foundtheir way to the Indian market - the elec-trocardiogram that weighs just 1.1 kgand costs around Rs 35,000, the low-costbaby warmer which sells for around Rs150,000, for instance.

The next part of the jigsaw puzzle islocal manufacturing. Here, Flannerywants to make use of frugal Indian man-ufacturing skills. Immelt had outlinedthe strategy in his letter. “Our focus ison introducing more new products atmore price points. We are driving man-agement practices to capture newopportunities, called reverse innova-

Business Standard


97

tion. Essentially, this takes a low-cost,emerging-market business model andtranslates it to the developed world," hehad said. “To this end, we have devel-oped a full line of high-margin, low-costhealthcare devices, designed in Chinaand India, and now marketed success-fully in the developed world."

GE already has two manufacturingjoint ventures in India with BHEL andWipro; it has now signed a third onewith Triveni for steam turbines. GE,says Flannery, found Triveni efficient inturbines of up to 30 MW. Its ownstrength is above 100 MW. So, the twohave come together for turbines of 30MW to 100 MW. “If it works well, you'llhave a new player in 30 MW to 100 MWwith the best in technology and cost-competitiveness. We could distributethese turbines globally in the long term.That's where GE's distribution capabili-ty, global footprint and customer rela-tionships would come in," saysFlannery. GE, of course, is impressedwith Triveni's supply chain, productiondesign and costs. It can deliver turbinesat low price points. “Triveni can doreverse innovation. It, we observed,was consistently hitting price pointslower than that of global manufactur-ers. We are not talking of a 5 or 10 percent change in margins," says Flannery.The prices could be 30 to 40 per centbelow global prices, experts reckon.The reason for the tie-up is clear.

GE could do more such tie-ups withlow-cost manufacturers in the days tocome. “You will see more investmentsin supply chain and direct manufactur-ing capabilities. That can be green-fieldor partnerships or even acquisition ofcompanies with a manufacturing foot-print," says Flannery. So far as a distrib-ution network in the country is con-cerned, Flannery says he still needs tofigure out how to go about it.

Ups and downsA broad strategy is fine, but Flanneryneeds to look at individual businessesas well. In financial services, it was anopen secret that GE Capital was stuckwith huge delinquencies in its retailportfolio. There was also talk in themarket that GE Capital was looking

for a buyer for its portfolio. Flanneryadmits there was a problem of delin-quencies with unsecured retail loans.To deal with that, GE Capital hasshrunk its retail loan book. A part ofits transportation finance portfoliowas sold to Shriram TransportFinance Company in December lastyear. This, says Flannery, has broughtdown the delinquencies as well as thelosses. “GE Capital became profitablein India for the first time in two yearsduring the January to March 2010quarter," says he.

Going ahead, Flannery has decidedto focus on institutional finance inareas that tie up with GE's business. Inother words, it could finance the pur-chase of turbines by power plants,water treatment equipment by factoriesand healthcare machines by hospitals.At the moment, this book is as small asthat of retail finance. “We aren't talkingof big dollars at present," says Flannery.On the positive side, he adds that thepartnership with SBI, India's largestlender, for credit cards is steady. “Wewould like to build on this relation-ship," says he, but does not give details.

There have been some positivedevelopments on the railway businessas well. Strained for resources, theIndian government has come round theview that it won't be such a good idea toput up the locomotive factory on itsown. So, it has restarted the process tofind a private investor. And this timethe stakes are bigger: Not just diesellocomotive, it also wants an electriclocomotive plant and another one tomake spares for the two factories. “Wewill take another crack at it. We will def-initely restart our interest in the diesellocomotive factory and assess the othertwo; they look interesting as well," saysFlannery. In the last round, GE haddeveloped a prototype for the diesellocomotive in its Bangalore centre. So,it has a product ready to offer. Flannerysays it is not certain if GE will returnwith the same prototype.

Power playPower will be a tougher nut to crack.One, GE's strength is gas turbines,renewable energy (wind and so on)

and nuclear power - the gap in itsportfolio is coal, which is 50 to 60 percent of the market. “We will continueto look at ways to play in that," saysFlannery. But he is convinced that thedependence on coal to generate powerwill decline over time. “Coal tends tobe more commodity- and less technol-ogy-driven. We are trying to stay upon the technology curve. Coal tends tobe a very basic technological andengineering undertaking. For environ-mental reasons, higher growth will bein other sectors of the energy space."

Two, there have been aggressivesales from China. So much so, localmanufacturers of power equipment arelobbying hard with the government forprotection in some form. Flannery feelsGE still has an advantage over others.“It's very important to look at the life-cycle cost of this equation. We have avery strong story there around technol-ogy and service offering. These are verylong-lived assets."

Three, Dabhol was bad publicity forGE's turbines. Flannery says GE engi-neers have fixed the problem and allturbines at the power plant inMaharashtra are on stream. A servicecontract has been written for GE. And,adds he, Dabhol no longer crops upwhen GE executives make a sales pitchto power companies. Four, the fate ofnuclear power in India, which can be ahuge opportunity for GE, still hangs inbalance. Consensus is yet to emerge onthe liabilities that could arise from aChernobyl-like accident. Still, Flanneryis convinced of the opportunity for GEin power; what also excites him aboutthe business is that every order for tur-bines comes with regular revenues frommaintenance contracts.

Jack Welch, GE's best-known CEOand Immelt's predecessor, had laid downthe principle that the company ought tobe amongst the top three players in everyline of business in a market; it shouldexit any business where it is a laggard. Itmay not be the right time to put Indiathrough that test. Flannery, on his part,says if he can grow the company, localiseit and change its structure, his job will bedone. “If I can do these three things, mybosses, I think, will be happy."

Business Standard


98

It’s a market that has so far been thestronghold of local co-operatives,but Groupe Danone is unperturbed.A year after its split with BritanniaIndustries, the French foods major’s

Indian subsidiary, Danone India, is quiet-ly charting plans to grab a significant pieof the flavoured and value-added milkcategory.

The task ahead is a tricky one. On onehand is the competition from co-opera-tives which occupy a lion’s share of themarket with their grassroot level distribu-tion system. On the other are nationalplayers like Britannia and Nestle whichhave a strong customer connect.However, Danone is banking on its prod-uct innovation to make an impact.

In the first five months of operations inIndia, the company has launched threeproducts — chocolate smoothies (ChocoPlus) in Hyderabad, plain yogurts(Danone Dahi) and a range of flavouredyogurts (strawberry, mango and vanilla),in Pune and Maharashtra. It has partneredwith Dynamix, as the co-manufacturerfor Danone products in India.

According to industry estimates, thesize of the flavoured and value-added milkmarket is around Rs 250 crore. Gujarat Co-operative Milk Marketing Federation(GCMMF), which owns and markets theAmul brands of dairy products, is theleader in the segment with 60 per centmarket share. Other strong regional play-ers include Saras in Rajasthan, Verka inPunjab and Nandini in Karnataka. Theseregional players cumulatively enjoy thesecond largest share.

Analysts say that the market is crowd-

ed with similar products, which is theoneof the main reasons why most playershaven’t managed to grow beyond theirregional markets.

But Danone is clear about its position-ing in this category. “We have launched achocolate smoothie and not chocolateflavoured milk,” says a Danonespokesperson. “Our operations are funda-mentally different from the others. In thedairy sector, other players are focusedheavily on the plain milk business, whileour focus is on value-added products.Besides, we will not launch products thatare not perceived as healthy.”

It is not difficult to see why Danone isconscious about launching its productsunder the health and nutrition label. “Theflavoured milk segment is one driven bythe well -to-do income class and is there-fore focused on the health platform, “saysV Sridhar, additional director, food andagriculture, Technopak Advisors.

But Danone’s former business partner,Britannia Industries, has also adopted thesame health route for a variety of its prod-ucts in recent times. The company hastest-marketed Actimind, its functionalflavoured milk product, four months backin Tamil Nadu. “We don’t want to be justanother player in this market by simplyadding flavour into milk. Our objective isto build the functional health and nutri-tional market,” says Vinod Menon, headof dairy business in Britannia Industries.

Britannia’s initial foray into this space,however, was not too encouraging. It hadlaunched a flavoured milk called Zip Sipa few years ago but discontinued it later.

“Milk-based products is a tough cate-

gory to be in,” says Sanjay Sharma, CEOof MTR Foods which had experimentedwith a number of flavours like almond,chocolate, thandai and cinnamon-basedmilk before deciding to focus on almondfor its flavoured milk. Essentially, everyvalue-added feature becomes crucial inthe category as there are as many as a fewhundred manufacturers in each region,he says. MTR Foods’ use of saffron andalmond flakes in its flavoured milk aresome examples of value additions takenup by companies in this segment.

It is also a price sensitive market.Danone’s chocolate smoothie, ChocoPlus is priced at Rs 15 for a 200 ml tetrapack, while Britannia’s Actimind ispriced at Rs 15 for 150 ml bottle. Marketleader Amul’s Kool is priced at Rs 13 for a200 ml bottle and 200 ml tetra pack. Mostplayers are in the Rs 13-18 price range for175-200 ml offerings.

Analysts say that while the currentphase would be about educating the mar-ket about the product, the next level ofinnovations would be crucial for compa-nies. For example, Britannia has alreadytaken the lead in adopting HDPE bottleswhich are of superior quality, more con-venient as opposed to tetra packs and isideal for storing dairy products for alonger duration.

Danone says that acquisitions willplay a part in Danone India’s business oneway or the other. “We are aware that thereare numerous local companies in India.But we will not be able to share any detailsabout any talks for a potential joint ven-ture or buyout. We are continuously eval-uating opportunities and are in touchwith other players in the industry,” saysthe Danone spokesperson.

Britannia says that is working towardsproducts that could add value to milk inthe near future. Amul is in no mood toacquiesce its market share either.

“In order to face competition, Amulwill focus on further improvement in qual-ity of its products. It currently offers milk ineight flavours and intends to give thrust onits existing flavours this summer,” says asenior Amul executive. Technopak’sSridhar says that the next level of innova-tions in the flavoured milk business wouldbe about lower calories, higher nutritionand convenience in packaging.

Business Standard


99

DANONE INDIA SEESWEALTH IN HEALTHA year after its split with Britannia, the Frenchdairy major is betting big on milk products.Butthe task ahead is trickyArchana M Prasanna & Kalpesh Damor

More than a century ago,Ardeshir Godrej gaveup law and decided tomake surgical equip-ment. He took a loan

from a friend of his father, and with thatmoney he made scalpels, forceps, scis-sors and pincers. He then showed theseto the owner of the company he wasworking with. The owner wasimpressed with what he saw but whenGodrej requested the product be tagged“Made in India", the deal fell through.

Today, the Rs 10,000-crore groupnamed after him wants to straddle theemerging markets in Asia, Europe,Africa and South America with its haircolours, household insecticides, soaps

and so on. A quarter of its businesscomes from abroad, and it wants toscale up the contribution in the days tocome. It has become the second-largestplayer in insecticides in Asia (Japanexcluded).

Much of this growth has comethrough acquisitions. So far, GodrejConsumer Products has spent almost Rs2,000 crore to buy companies, brandsand distribution networks abroad. Thecompany's board last year authorised itto raise Rs 3,000 crore for expansion.So, the war chest still has considerableammunition left, though some of thismoney, around Rs 800 crore, may go inthe purchase of Sara Lee's 51 per centstake in Godrej Sara Lee.

“Over the last few years, we have fol-lowed a very disciplined and focusedapproach to identifying acquisitionsthat represent a strong fit with our busi-ness, both strategically and opera-tionally," Godrej Consumer ProductsChairman Adi Godrej recently said in astatement.

The acquisitions, fast and furiousthat they have been, appear fragmentedacross geographies and product lines.For the company, there is method in themadness. “It's our “3 by 3” matrix strate-gy," says Godrej Consumer ProductsManaging Director Dalip Sehgal. Thecompany will operate in three conti-nents (Asia, Africa and South America)in three categories: Hair care, home care

Business Standard


100

OVERSEAS CALLGodrej is on an acquisition drive to expand its hair care,home care andpersonal wash business in Asia,Africa and South America Byravee Iyer

(including insecticides) and personalwash.

The three continents have nowbegun to grow fast, which has opened ahuge market for consumer products.These are also markets where multina-tionals like Unilever, Procter & Gambleand L'Oreal don't have an overbearingpresence; this leaves ample scope forsmaller companies and regional brandsto grow. And the three product cate-gories are those in which the Godrejgroup has done well in its domesticmarket. Godrej Consumer Products isthe leader in hair colours and dyes withbrands like Godrej Expert, Renew andColour Soft. Its Godrej No. 1 is the third-largest brand in the soap market afterHindustan Unilever's Lifebuoy andLux. And Godrej Sara Lee leads thepack in household insecticides withbrands like Goodknight, Hit and Jet.“These emerging markets are not verydifferent from Indian consumers, andhence we will build on what we alreadyknow," says Sehgal.

Investment analysts say that Indiancompanies like Godrej ConsumerProducts have realised the worth ofemerging market and are thus in a hurryto expand there. “The company's strate-gy is similar to other Indian FMCG com-panies like Marico, which are trying togarner 24 to 30 per cent of their busi-ness from their international business,"says Anand Shah of Angel Broking.Apart from Marico, Dabur and Wirpotoo have begun to push hard in EastAsia and West Asia, respectively. So,Godrej Consumer Products may not bethe only one to think of emerging mar-kets; but it is certainly the most aggres-sive of the lot.

A close scrutiny of the acquisitionsshows that Godrej Consumer Products

has brought products, brands as well asdistribution networks. This gives it theopportunity to move products acrossgeographies. Trade channels can beused to sell multiple products. Itsregional brands can thus become multi-national in nature. “It's all about cross-synergies," says Sehgal.

African safariThe focus on emerging markets is

new. The first overseas acquisition thatGodrej Consumer Products had doneway back in 2005 was Keyline Brands inthe United Kingdom. This companyowned brands that once belonged tolarge companies like Unilever andHenkel but had become too small fortheir attention - Erasmic, Aapri, Nulonand Cuticura. These brands wereretailed through large chains likeSainsbury's, Tesco and Boots, andGodrej Consumer Products thought itcould use the acquisition to place itsown brands in the network. But growthin this business has been lacklustre,around 7 per cent per annum. Some ofthese brands have been taken to WestAsia (the rights for the best-known ofthese, Cuticura, are held by Chennai-based Cholayil Pharma) and Sehgalsays the sales force will be strengthenedto sell more through groceries.

Godrej Consumer Products has donea course-correction since then. Its ener-gies are now focused on the emergingmarkets. Africa is the most densely pop-ulated continent in the world and hous-es 13 per cent of the population.Further, its economy is anticipated togrow at 4.3 per cent this year. GodrejConsumer Products started out withSouth Africa where it has acquired twohair care companies - Rapidol andKinky. Rapidol is into hair colours,

Kinky into extensions, braids and so on.Rapidol has grown 49 per cent in thelast one year and Kinky has grown 39per cent.

The South African market for haircare is huge. Godrej Africa Director &Chief Executive Officer Keith Harrisonputs it at $2 billion. Analysts say GodrejConsumer Products has bought smart.Rapidol's competition is restricted toL'Oreal's Dark n lovely, and its Inectosells at a discount in the price-sensitivemarket. Rapidol therefore lords it over90 per cent of the market. And Kinky, itis estimated, sits on approximately 12per cent market share, although thiscategory is not read by Nielsen or anyother market tracker. At present, it has24 stores across three provinces inSouth Africa and is in the process ofexpanding to rest of the country.

Rapidol and Kinky export to 15African countries. But GodrejConsumer Products has bigger plans. Itis on a mission to set up four hubsacross the entire continent that willcover South Africa, West Africa, EastAfrica and Central Africa. This is a partof the company's 'One Africa' strategy,which looks at opportunities across thecontinent.

Apart from hair care, GodrejConsumer Products also has an eye onthe personal wash market in Africa.“Personal wash is a huge opportunity inthe continent," Godrej Executive Vice-president (international operations)Jimmy Anklesaria says. “Recent reportssuggest that the African continent isvulnerable to the swine flu epidemic; sopersonal wash becomes critical for us."This is where its acquisition of Turafrom Lornamead fits in with its soaps,moisturising lotions and skin creams,all sold under the Tura brand. It givesGodrej Consumer Products inroads intoWest Africa, particularly Nigeria whichhas a population of 140 million and eco-nomic growth of about 6 per cent perannum.

Tura reaches about 70 per cent oftotal outlets in Nigeria. Once the deal isthrough, Godrej Consumer Productswill be able to mount its hair care prod-ucts on this network. In addition, thisgives Godrej Consumer Products an

Business Standard


101

opportunity to sell its Indian brandslike Renew, Godrej No. 1 and Cinthol inthe oil-rich country. In fact, Godrej No.1 has already begun to sell in certainpockets of Africa. Cuticura too is beingtested in the region. Over time, Godrejplans to take its household insecticidesalso to Africa.

Asian rideWhile Africa is a virgin market, Asia

has strong regional brands. Sectorexperts predict a scramble for thesebrands and markets in the near future.Several of these brands have alreadychanged hands. Godrej ConsumerProducts joined the bandwagon recent-ly when it bought Indonesian maker ofhousehold insecticides MegasariMakmur along with its distributioncompany.

Megasari Makmur is a young compa-ny - it was formed in 1996. But its acqui-sition gives Godrej Consumer Productsa strong foothold in Indonesia which isone of the largest markets in the region.At $345 million, it is the fourth-largestmarket for household insecticides inthe world after China, Brazil and India.Megasari Makmur has 35 per cent ofthis market. As much as 72 per cent ofMegasari Makmur's business comesfrom insecticides with brands like Hit,Stella and Mitu, though it is alsoIndonesia's biggest maker of air-careproducts and wipes. The acquisitioncomes with six factories, 11 branchesand 74 regional distributors. The deal isexpected to be closed in a couple ofmonths. It will catapult Godrej as thesecond-largest household insecticidecompany in Asia (ex-Japan).

Godrej Sara Lee has been active inAsia for a while. Its products are sold in51 countries, most of it in the Indiansub-continent. It has full-fledged opera-tions in Sri Lanka and Bangladesh andnow wants to set up a plant in Nepal. InIndia, of course, it straddles the wholespectrum of household insecticideswith mats, coils, lotions and aerosols.Goodknight, a mosquito repellant in allthe four forms, is a category leader. Jet issmaller but has a market share ofaround 80 per cent in anti-mosquitocoils in the state of Andhra Pradesh.

Hit, which is for use against flying andcrawling insects like cockroaches, hasbuilt the category from scratch in thelast 15 or so years.

Sara Lee, it is an open secret, hasdecided to exit its consumer productsbusiness of around $2 billion perannum to focus on foods. Godrej has theright to buy it out of the joint venture,Godrej Sara Lee (it did a profit after taxof Rs 104 crore on a turnover of Rs 755crore in 2008-09), in such a case and theright to sell brands like Ambipur, Kiwiand Brylcreem in the country. It is cer-tain that it will exercise this right. Therehave also been reports that Godrejcould be in the race to acquire SaraLee's consumer products business.

This still leaves the third pillar of thestrategy, South America, unclear. Someannouncements in this regard couldcome in the future. Still, it has been along journey for Godrej since the daysof its founder.

Business Standard


102

While watching theBengali film Antaheen,in which Rahul Boseplays a cop cyber-romancing a television

journalist, one wonders why the girlkeeps oiling her hair. But the piece fallsinto place when you notice that the open-ing credits acknowledge the contributionof Nihar, a hair oil brand of Marico, whichsits proudly next to the girl when she istending to her hair.

In-film product promotion has been acommon feature in Bollywood movies forsome time now; it's now spreading toregional films as well. Regional film pro-ducers have also started echoing whattheir Bollywood counterparts have beensaying for a while: If there is a movie,there will be products placed in it, mostlythose that have paid to be in the frame.

So in the Telugu film, AnukokundaOka Roju, actor Jagapati Babu is seen car-rying a pack of Real juice most of the time.In Bhojpuri film Parivaar, the hero takesup dealership of HUL's brand Wheelwhen his financial condition worsens.

Others aren't far behind. The sevenbrothers in the Marathi film AmhiSatpute use Tata's Ace to transport theirfarm produce to the town. In the samefilm, a restaurant owner serves his cus-tomers rotis made from Annapurna atta.

Product placement in Hollywoodfilms actually started a long time ago.Among the earliest to tread this path wasWings, a silent film released in 1927. Thefirst to win Best Picture Oscar, it con-tained a plug for Hershey's chocolate.However, it is now that brands havebegun to speak louder than ever in film

scenes. Brand experts say even thoughfilm-branding is not the main medium formarketing of brands (it accounts for just 2-3 per cent of the total advertisement bud-get of most big brands), it is cost-effectiveand acts as a bonus value.

In-film branding in fact helps toreduce publicity budgets of films by aminimum of 15 per cent.

Producers say if the low shelf life ofmovies has cut down theatrical collec-tions, it has opened another window ofrevenue in the form of brand associationsor in-film placements. Brands expect highvisibility not only from theatres, but alsowhen the film is shown on TV.

“Though the theatre life of movies hasreduced to three or four weeks, it stillmakes sense for brands to associate withfilms as they enjoy visibility, when theyare aired on TV. They don't have to pay foradvertisement spots separately," saysHarsha Joshi, chief operating officerMadison India.

Rahul Puri, Executive Director - MuktaArts, says if done well, brands get an enor-mous reach through in-film promotions.Mukta arts first used this in the RishiKapoor starrer Karz almost 30 years ago.“The HMV record in the Om Shanti Omsong is still something people associatewith," Puri says.

According to industry estimates, bigbrands are ready to pay anything betweenRs 5 crore and Rs 12 crore to be part of abig film from an established banner.

Brand experts say brand integration orin-film placement is not just plain vanillaadvertisement. “In-film helps the brandin getting instant recognition becauseunlike TV where during advertisements,

viewers shuffle the channel, the advan-tage of in-film placement is that the view-er can't skip the message," says Ajay Das,media controller-strategy and planning, RK Swamy.

The process of brand and film integra-tion has also led to a marriage of alliancebetween the two. “Brands and producersdo understand the value that both partiescan bring to the table and in delivering aco-owned message through film," saysShikha Kapur, VP Marketing UTVMotion Pictures. For example, in recentfilms like 3Idiots, it's difficult to miss theubiquitious two-wheeler - Flyte, a powerscooter brand from the Mahindragroup.The scooter was central to the film.The Volvo SUV XC90R design was anoth-er strategic placement in the film. Volvospecially got two red SUVs air-lifted fromits headquarters in Sweden to facilitatethe integration.

No one is however clear about theexact return on investment on in-filmplacement. “A brand comes on board notfor the cash component of in-film but foran overall synergy with the film. Forexample, we associated with Sunsilk forFashion. The brand was in the film andwent on to create a property outside thefilm, which helped both the film and thebrand," says Kapur.

And it is not just in-film that brandstarget while tying up with films. Today allbig banner movies are marketed heavilyso the brands associated with the movieare promoted too.

For example, a fashion show wasorganised to promote the movie Ghajniand Aamir Khan walked the ramp in VanHeusen customised attire for the film.

Business Standard


103

IN-FILM BRANDINGGOES REGIONALAfter Bollywood, it’s the turn of others to integrate brand promotionwith the storyline of their movies. Swarup Chakraborty

Dilip Chhabria was recentlyapproached by a Hyderabadreal estate developer whowanted India's best-knownautomobile designer to come

up with home theatres for the Rs 15-crorevillas he is building in the city. The briefwas to design post-modern television andspeakers - something that would fit inwell with the deluxe surroundings. Sopleased is Chhabria with the results thathe has put together a team of 20 to look atopportunities in this area.

But what's a car designer doing withtelevisions? “I want to pander to thehuman psyche to deliver change.Whatever we do, it should be from a glob-al point of view at Indian costs. That's myvision," says Chhabria. Shorn of the jar-gon, it means that Chhabria wants to selldesigns abroad because he can do itcheaper. It also shows that Chhabria hasopened another source of revenue anddiversified his risks.

From designing cars for people withdeep pockets, Chhabria has come a longway. He has done buses, motorcycles and

even helicopter interiors. He has begun todo office and home interiors, furniture,refrigerators and now televisions also.Interiors, he is confident, will account foralmost 30 per cent of his business in thenext few years. Just how big is Chhabria?His DC Design is closely held. So, itsfinancials are not in the public domain.Some of his friends say that it could bearound Rs 50 crore in size. Chhabria ofcourse is tightlipped about it. “Peoplealways perceive us to be far bigger thanwe are, and it ends up hurting investors."But he does admit that his gross profitmargins could be as high as 30 per cent.Not bad at all.

As a child, much of Chhabria's timewas spent sketching cars. This fascinationled him to the Automotive Art School atPasadena in the US. After a short stint atGeneral Motors, Chhabria returned toIndia and used his father's business infra-structure to design car parts. Around thattime, Mahindra & Mahindra wanted toupgrade the design of its SUV called theArmada. The company was happy withhis work and pushed him to start his own

design consultancy. Thus was born DCDesign in 1993. “Mahindra & Mahindrapromised me I'd always have business,"Chhabria laughs.

Seventeen years later, Chhabria canboast of a whole lot of customers like TataMotors, BMW and General Motors. Hehas also worked for top lawyer RohitKocchar, businessman Adi Godrej andBollywood superstars Shah Rukh Khan,Amitabh Bachchan and Ajay Devgan. Onthe non-auto side, he has designed forCoca-Cola and Videocon. Aware that thebusiness is driven solely by him and thathe needs to build an institution that out-lives him, Chhabria has set up with theDY Patil group the DYP-DC Centre forAutomotive Research and Studies atPune. Growth has been rapid. In 1993, thecompany had eight employees on its rollsand came out with just two cars. Today,Chhabria has 450 people working forhim, who churn out 250 unique cars ayear. Next year he hopes to increase thatnumber to 600.

And DC Design does not have a mar-keting team. Typically, the company gets

Business Standard


104

DESIGNS ON PROFITAutomobile designer Dilip Chhabria nurtures global ambitions,wantsto go mass-market in India and diversify into areas like furniture,refrigerators and television Byravee Iyer

about 100 calls a day. A small team of twohas been set up to take these calls. On anaverage, about 15 of these turn out to beprudent for business. Following that, quo-tations and specifications are sent backand forth. Finally, the customer comesdown to Chhabria's office and freezes inon the specifications. Terms are settledand money is transmitted. “We keep inmind those who are willing to pay, and wealso have to see if it (the order) can bescaled up. If it meets the criteria then westart work," says Chhabria.

Revenue streamsChhabria has two streams of revenues.The business-to-business stream comesfrom companies that need design inputs,changes, upgrades and so on. The busi-ness-to-consumer stream of coursecomes from individuals. “We've con-sciously ensured that both these busi-nesses contribute equally to our rev-enue," says Chhabria. But why not focusentirely on the business-to-businessside? After all, isn't this where the moneylies? “We don't have to do a project just forrevenue. It has to excite us, and only thendo we ask ourselves if it is profitable,"says he. To underscore the point,Chhabria says the car he designed forShah Rukh Khan cost the actor Rs 4 crore.

At any given time, his 450 employeeswork on 40 projects. “We've got to finishprojects in about 4 months; anythingmore than that and people lose interest."Within the business-to-business opera-tions, it is the foreign automakers whotake up the bulk of DC Desgin's time; somuch so that the ratio is at 75:25 againstIndians. However, he is confident that thefigures will reverse in five years' time.“That will grow our Indian side," heanswers cautiously. According to him, themain issue with Indian companies is thelack of importance given to design; mostof them seek “tangible changes".“International companies have 200-mem-ber design teams; here in India there arejust about 20 people working on design,"Chhabria adds. Getting on board Indiancompanies, Chhabria reckons, will alsoimprove his profit margins.

For Chhabria, the leap of faith willhappen when he designs a car up fromscratch. That alone can pitchfork him into

the league of global design houses likePinnifarina of Italy. To be sure, he hasmade a beginning here. Chhabria helpedReva design its next generation of cars,the NXG and NXR. But that is hardlymass-market. He has put in place a 30-member team just for this in the last threeyears. “In terms of design, we're thebiggest; but now, having worked withReva, we've got our engineering capacityalso ready," says he. However, he feels thatit will be at least two years before heacquires the complete suite of skills.

Skill and scaleThe advantages, Chhabria claims, are allwith him. “We do things which are notfrom the mediocrity of India. We are mav-ericks because we provide first-worldattributes at third-world costs." In fact, hegoes on to say that he costs just about afourth of the likes of Pinnifarnia or anyother Japanese or American design firm.What is more, his team works 70 hours aweek, versus the 35 hours people inorganisations abroad put in. “As a result,we take 60 per cent of the time the otherstake; this makes us the fastest developersin the world," he says. “And if you're wor-ried about quality, you can read the letterof appreciation from Renault." The letterfrom the company's design head, PatrickLecharpy, said: “You've reached the level Idreamed. You can now compete with thebest international designers."

To gain scale, Chhabria needs to gomass-market. For this, he last year inked apact with former Maruti Suzuki honchoJagdish Khattar's Carnation Auto thatdeals with automobile service, spares,accessories and pre-owned cars. The duowill provide customisation solutions andsemi-customisation kits across the coun-try through Carnation's nationwide net-work. For Chhabria, this means addition-al volumes of about 500 to 1,000 cars ayear. “Volumes were an issue we weregrappling with as it made no sense for usto open showrooms on high rentals for afew thousand cars," says Chhabria.“Chhabria was not a name accessible tothe masses. Through this partnership,Carnation will make it affordable andavailable to the masses," adds Khattar.First off the block is the Innov8, a take onthe Toyota Innova, which will be followed

by kits for the Honda City and the MarutiSuzuki Swift. The partnership went livelast month, and Khattar says the initialresults “are encouraging".

Not a cakewalkDesign, especially in the world of automo-biles, has become a fast-moving commod-ity. Consumers have begun to tire ofdesigns quickly. Car upgrades havebecome more frequent. Chhabria is onlytoo aware of the challenges it poses. “Withevery generation, cars have begun to lookmore aggressive and mean. But it's impor-tant to levitate ten years ahead. From thetime it goes from pen and paper to theactual launch, it's about five years. Andafter that the car has to be valid for anoth-er five years." There's a tinge of sadnesswhen he adds, “But at the end of the day,90 per cent of car design is regulation andthere's only 10 per cent of creativity thatcan be manipulated."

Chhabria, of course, has begun tohedge his risks. He has thus expandedinto refrigerators, home and office interi-ors, bus bodies, motorcycles, helicopterinteriors. Explaining the rationale,Chhabria says, “We got into furnituredesign as we saw a huge potential there,and we took orders from our automotiveclients. Besides, our identity is one ofinnovation, design and creativity. As adesign company, we could do just aboutanything else, and so we took a top-downapproach." There are other challengestoo. There are people around in the coun-try who simply copy his designs. And hehas to worry how to retain the 450 peoplehe has trained. “So many of them arelured by West Asia and the hefty salariesoffered there. To beat that, we are payingWest Asian wages here (four or five timesthat of India).”

Those who have worked with himhave kind words to spare. Sanjeev Shah ofEverest spices is a longtime customer ofthe company and has so far had six of hisvehicles modified by DC Design. “I justtell him what I want, and in the last 12years he's always managed to get it right,”says he. But Chhabria will need morethan just kind words from friends if hewants to join the big league of global auto-mobile designers.

Business Standard


105

The game is on. Pepsi is cur-rently running one of itscostliest advertisement cam-paigns, The Game, riding onthe Indian Premier League

wave. The campaign builds on Pepsi’syouth-centred theme of Youngistaan,introduced two years ago, taking it toanother level. This time it combinesgaming with TV advertising. The latestcampaign, rolled out two weeks ago,casts film stars Ranbir Kapoor, who isalso Pepsi’s brand ambassador, andSanjay Dutt. It is designed as an interac-tive game spread across three levels,with each level corresponding to onecommercial. Of the three, two arealready on air and the third is expectedto go on air soon.

In the commercial for Level 1, RanbirKapoor is seen entering a maze lookingfor a Pepsi. Inside the maze are seatedgame master Sanjay Dutt and next to himhis lady love, played by actressJacqueline Fernandes. Continuing in thespirit of earlier Pepsi commercials whereRanbir is shown devising ingenious

ways to grab a Pepsi, here he must fightthe game master. Dutt, dressed in a bulkyred suit, plays the role of villain as hetries to keep Ranbir away from Pepsi. Hemakes Ranbir fall into a tub of water andprompts the viewer to crack a riddle:“Pepsi peeyega to bolega yahi!”(Whatwill Ranbir say on drinking Pepsi?) A.Wow, B. Now, or C. How. A numberflashes on the screen which users cancall/SMS with what they think is theright answer. They can also log on to theYoungistaan website (www.youngis-taan. com) and play the game.

In the commercial for Level 2, whichbroke last Thursday, Ranbir solves theriddle and breaks out of the water tub,only to land in a tunnel whose exit dooris locked. Chotu, a one-foot-tall gamingcharacter sent by the game master,prompts Ranbir to find the key to thedoor. Within no time hundreds of Chotulook-alikes appear, all shouting: “Whereis the key?” Stuck again, Ranbir has threeoptions to choose from to get to the nextlevel, A. Magnifying lens, B. Scissors,and C. Horse shoe magnet.

The commercial for Level 3 breaksthis Thursday, followed by the conclud-ing film the week after. The winner willget Rs 50 lakh. Besides, there are prizes(free mobile talk time and songs down-loads) for thousands others who give thecorrect answers. All the ads in the cam-paign end with the new tagline“Youngistaan Ka Wow”, which wasintroduced in February this year inanother Pepsi commercial where Ranbirmanages to steal a bottle of Pepsireserved for the leader of a country.

Engaging consumersFor several years now, Pepsi has been tar-geting the youth — between 16 and 25years — as its core audience. The entireseries of Youngistaan campaigns — thefirst one rolled out in early 2008 with thetagline “Yeh hai Youngistaan meri jaan”— has centred on appealing the youth oftoday who is smart, in control of himselfand believes in achieving whatever hewants. “While the series has been able tobring alive the optimism in today’syouth, the challenge for us was to take

Business Standard


106

ARE YOU GAME?Pepsi uses gaming to make its ad campaign more engaging.

Amit Ranjan Rai

107Business Standard


the communication to a different level.Instead of a one-way communication,we wanted the new campaign to besomething that could engage our targetgroup. We wanted to effectively engagethe youth with the brand,” says SandeepSingh Arora, executive vice-president(marketing), PepsiCo India.

How to do that? Says Arora, whiletelevision is certainly the most effectivemedium when it comes to reaching theaudience, the challenge was how tomake it more participative. Reality TVwas one of the ideas that was bouncedduring the brainstorming, but certainlynot the most captivating. Gaming, whichinterests a big section of Pepsi’s targetgroup, appeared more effective. Thecompany along with its creative agencyJWT India thus decided to create a single360-degree gaming campaign that notonly involved television on a big scalebut also mobile phone and the internet,the two widely popular digital mediumsfor its target group. While Pepsi has beenusing these mediums for promotions, ithas never done so in a unified way untilnow.

Pepsi identifies 9 per cent of the view-ers that watch TV as its key target group(between ages 16 and 25); the other 90per cent are the more general viewers inall age groups. With the new campaign itwants to sharp shoot its communicationon the 9 per cent (target group) so that asignificant number among them partici-pate in the game and thus engage withthe brand. At the same time, it doesn’twant the campaign to be unexciting forthe rest 90 per cent. “The task for us wasalso to ensure there is huge entertain-ment for the balance 90 per cent, and infact, also getting some of them to partici-pate in the game,” says Singh.

Brief and actionThe brief to JWT India was to create a360-degree gaming campaign with anidea captivating enough to excite Pepsi’skey target group to engage with thebrand, and at the same time thoroughlyentertaining for the rest. Singh says,“The one thing we kept insisting was todo it at a scale and level that would actu-ally wow the audience.”

JWT India Executive Creative

Director Soumitra Karnik, who concep-tualised the campaign with his team,says, “If the product is about refresh-ment, then its communication alsoneeds to be equally refreshing. We haveattempted to mix the niche format ofvideo-gaming with the mainstream.While the digital media happens to be apart of our 360-degree approach to thecampaign, we have now made the TVcommercial interactive. This is some-thing never been done before. The con-sumer is actually playing the game with-in the commercial.”

The TV commercials for the cam-paign which broke on March 27 will bebeamed throughout the IPL cricketseries. “IPL is the perfect platform to rollout the campaign because the game isdesigned to be sequential and interac-tive. Day after day, week after week, thewhole country would be glued to thisone sporting event which will help us tobuild quick reach,” says JWT’s Karnik.Besides IPL, the commercials will beaired on most other popular channelswith a heavy presence on general enter-tainment channels. The campaign issupported with a number of online ini-tiatives as well. For instance, on April 2,Pepsi invited Ranbir Kapoor for a chatwith fans on Facebook. Approximately21,000 fans logged on to participate.

As for the response to the ad, Pepsisays there were close to 1 million partici-pations in a week for level 1 of the game.“The numbers speak, the game is alreadymassively popular,” says Karnik. “It willcertainly be one of the most seen cam-paigns this IPL season,” adds Singh.

“INSTEAD OF A ONE-WAYCOMMUNICATION, WE

WANTED THE NEWCAMPAIGN TO BESOMETHING THAT

COULD ENGAGE OURTARGET GROUP”

It’s not only the mass brands that areadopting small-pack strategy toincrease penetration; premium and

niche brands like Kellogg’s too are goingthe same way.

You can now buy Kellogg’s CornFlakes, the company’s flagship brand, forjust Rs 10. The company calls it Kpak for-mat. It is the third brand to be added in theKpak range (after Chocos and HoneyLoops). The idea is to increase the pene-tration of the Kellogg’s’s brands throughaffordability, as breakfast cereals are still avery small market in India.

Anupam Dutta, Managing Director,Kellogg’s India, says, “Low price pointshelp us reach the Tier II and III towns. Welaunched Chocos Kpak in Tamil Nadufirst and then rolled it out nationally. Thesmall pack for Kellogg’s’s Corn Flakes wasfirst test-marketed in Tamil Nadu, andgoing by the response, we decided tolaunch it nationally this year.”

A low fat option, Kellogg’s’s CornFlakes at Rs 10 has what the companycalls ‘Iron Shakti’. The product position-ing has been changed as well: From abreakfast cereal, it is now also a ‘Shaam kaNashta’ (evening snack). The new posi-tioning will help promote out-of-homeconsumption.

While the small-pack strategy willhelp Kellogg’s push sales in tier II and IIItowns, the company is not looking to hitrural markets yet as it feels there is still alot of head-room in urban India, consider-

ing the low penetration.Kellogg’s has a market share of more

than 70 per cent value share in the ready-to-eat cereal category. But competition forKellogg’s is heating up. PepsiCo hasincreased its focus on Quaker and is alsoplanning to bring more products from itsglobal breakfast portfolio.

Competition is also strong from theprivate labels of some retailers like theFuture Group, which have made a hugesuccess out of its Tasty Treat cornflakes.But Dutta is unfazed: “More players willonly help drive category growth,” he says.

Devendra Chawla, Head (privatebrands) of the Future Group, agrees:“There’s no competition as the category isunder-penetrated. More players will onlyhelp the category grow. For instance,before our launch of Tasty Treat corn-flakes, only two out of 100 bills at ourstores used to be of cornflakes. After ourlaunch, it has become three on an aver-age.”

While Tasty Treat cornflakes arepriced the same as Kellogg’s, none is avail-able at the Rs 10 price point, which givesKellogg’s the first mover advantage.

The size of the ready-to-eat breakfastcereal category is around Rs 350-400crore and is growing at 30 per cent. “Thereis immense potential for a category suchas ours that remains untapped. And theactive category growth is likely to benefitall players,” adds Dutta.

Kellogg’s plans to further expand its

distribution network in line with itsexpansion plans and bring out new intro-ductions.

In India, Kellog’s is present only inbreakfast cereals. However, worldwide ithas a wide portfolio of product categorieslike cookies, crackers, toaster pastries, ,frozen waffles and veggie foods. But at themoment Kellogg’s has no plans to diversi-fy into other categories.

Business Standard


108

KELLOGG'S GOESSNACKING

The premium brand has gone to the bottom of the pyramid bylaunching corn flakes at a price point of just Rs 10. Seema Sindhu

109

Radio Days, an award-win-ning 1987 film directed byWoody Allen, looks back onAmerican family life dur-ing the golden age of radio.

The narrator (Woody Allen himself)tells us how the radio influenced himin the days before TV. Each member ofthe narrator's family finds in radioshows an escape from reality throughthe gossip of celebrities, sports legendsof the day, crooners, etc.

Woody Allen isn't alone. For manylike him, that golden age of radio isonly in the dark alleys of nostalgia.

But the good news is that there aresome early signs of an increasing num-ber of people getting hooked to theirfavourite radio shows once again. AndIndia Inc has been quick to spot theopportunity of value-for-money brandpromotion on radio.

Consumer durables major LG, forinstance, is running extensive cam-paigns to promote mobile phones, air-conditioners, refrigerators and micro-ovens through radio advertisements. LK Gupta, chief marketing officer, LG,says the medium has evolved substan-tially in the last three to four years bothin terms of engagement as well asreach to more cities. It provides roomfor customizing messages for brand-building which serves to connect bet-ter with consumers at the local level.

A spokesperson from Samsungagrees that radio gives good recall toadvertisers as a support medium totelevision and print. "Brands attempt-ing to improvise jingles tend to havehigher return on investment on radiothan on any other media. For all ourcampaigns involving consumer partic-ipation we prefer using the radio as ithas an immediate impact," he says

Samsung advertised on radio wide-

ly to encourage consumer participa-tion in nominating torch bearers forthe Beijing Olympics in 2008. Sincethen the company has increased ad-spends on radio significantly.

It is not only out-of-the-jar advertis-ing campaigns which vie for listeners'attention on radio channels thesedays. In a unique radio activation mod-ule formulated by Pepsico Indiarecently, youngsters were invited toparticipate in creating the 'Youngistanka Wow' anthem with musical duoVishal and Shekhar in the span of aday.

Sandeep Singh Arora, executivevice president marketing (Cola),Pepsico India, says, "While televisiongives you great reach, it is only radiowhich provides the flexibility to inter-act and co-create with listeners. The'Youngistan ka Wow' anthem campaignwas run across 23 cities in the coun-try."

Radio also allows advertisers toreach out to a specific target groupwithout having to purchase mediaspace on a national scale. The lowinvestment required has furtherspurred advertisers' interest in themedium. LG's Gupta says, "While thecost per thousand reach for a 30 sec-ond commercial on television isaround Rs 2000, for radio it is approxi-mately Rs 150."

Big FM, a Reliance Media World ini-tiative, has registered a 10 per cent risein the number of brands which adver-tised on the channel last year over theprevious year. Praveen Malhotra,senior vice president sales, Big FM,says, "We are seeing companies acrosscategories using radio effectively forbuilding brands."

To cash in on the potential the sec-tor is showing, Radio Mirchi has start-

ed offering all-round solutions toadvertisers. Prashant Panday, chiefexecutive officer, Radio Mirchi, says,"We create solutions for brands usingthe best tricks in the radio business. Ifrequired, we add in the on-ground andonline components as well."

Radio Mirchi currently has over5,000 brands which advertise acrossthe network. More than 30 per cent ofthe business comes from retail clients.Apart from retail advertisers, all tele-com, auto, FMCG, consumer durables,media and entertainment, education,real estate and BFI (banking, finance,insurance) brands, Panday informs,spend heavily on radio.

However, everyone agrees radiostill has a long way to go. AshishPherwani, associate director, mediaand entertainment, at Ernst andYoung, says the advertising revenue ofthe radio industry at Rs 800 crore isjust 3.5 per cent of the total advertisingpie and saw flat growth in the previoustwo financial years due to the econom-ic slowdown. But things are changingand he expects the industry to grow byroughly 10 per cent in the currentfinancial year.

A lot, however, will depend on the third phase of the FM privatisa-tion policy and whether it permitsplayers to bid for multiple frequen-cies/licences in metros, he adds.

Business Standard


India Inc has been quick to spot the value-for-money brand promotionopportunity on radio Sharmistha Mukherjee

RADIO DAYS ARE BACK

There is a new pecking order inthe world of DTH (direct-to-home) services. Sun Directhas replaced Tata Sky as thenumber two after Dish TV

with 5.3 million subscribers. But thisdoesn’t seem to bother Tata Sky too much.The company says it is no longer focusedon volumes alone; it wants to focus alsoon the quality of customers and maximiserevenues from them.

For an industry mired in losses ofalmost Rs 5,000 crore, this could blaze anew trail. As Tata Sky has a quarter of the20 million DTH customers in the country,sector experts believe it carries a quarterof the industry’s losses on its books. Theclosely-held company, which is a ventureof the Tata Group and STAR and startedoperations in 2006, does not discloseits profit and loss.

All operators give a subsidy onthe set-top box. The DTH volumesare still small to justify local pro-duction of set-top boxes. So theyhave to be imported. The largeryour base of customers, the largerwill be your losses. This is whatTata Sky wants to plug. “We willnever sacrifice volume share com-pletely for value share. But webelieve that a sustainable businessmodel will come from adequate sharein value terms and not from volume forvolume’s sake,” says Tata Sky CEOVikram Kaushik. “Every one started talk-ing of how many million connections onehad. That, multiplied by the amount ofloss per box, will prove lethal!”

Numbers countVivek Couto, the founder of MediaPartners Asia, a Hong Kong-based mediaresearch agency which tracks the DTHindustry in India, reckons that any opera-

tor has to acquire 5 to 6 million sub-scribers, who should each pay Rs 300 amonth, to break even. Tata Sky could bealmost there. It hit the 5-million customermark on March 25. While Kaushik doesnot give absolute numbers, he says hisaverage revenue per user (ARPU) is dou-ble of its publicly-quoted rival (Dish TV).For the quarter ended December 31, 2009,Dish TV had disclosed an ARPU of Rs 135a month. This puts Tata Sky’s ARPU at Rs

270 a month. (It could result in cash flowsof Rs 135 crore a month!)

Sun Direct Chief Operating OfficerTony D’Silva argues what matters is notgross ARPU but net ARPU — what is leftafter paying the broadcasters for chan-nels. “That is why our margins remainlow. When we claim an ARPU of Rs 99 to105 a month, we give just the subscriptionrevenues.” So, a high ARPU is meaning-less if the channels are priced high.

Where everybody agrees is that DTHARPUs, like in telecom, are low in India.

The industry average is around $3(Rs 135 to 140). In contrast,

Malaysia has an ARPU of$25, Australia $60, the

Business Standard


MONEY FOR VALUETata Sky wants to net the value-conscious consumer willing to pay forit.Will it get enough volumes? Sayantani Kar

110

US $70 and UK $90. So, there could be anupside to the business.

At the end of the day, DTH is a sub-scription-based business. Long-termhealth will depend on subscriptionrenewals. “You have to have a healthyrelationship with the subscriber, wherehe should place adequate value to whatyou offer and he should be willing to payyou,” says Kaushik. “If he continues toseek only the cheapest product available,then he is not the kind of subscriber togive you that value. In fact, it is a danger-ous subscriber to acquire because hemight churn out.”

Willing to pay?Tata Sky thus wants customers who arewilling to pay a small premium for morevalue. It has put in place a segmentedstrategy with products, services and fea-tures aimed at different segments, skewedof course towards the quality-conscioussubscriber. Kaushik claims that two-thirds of all Tata Sky customers are fromsocio-economic category A, and anotherone-third are from B plus.

It first launched a set-top box with arecorder called Tata Sky Plus in 2008.After initial sluggishness, volumes havenow begun to pick up. Tata Sky ChiefMarketing Officer Vikram Mehra saysthat as many as 10 per cent of Tata Sky’snew customers opt for Tata Sky Plus. Thishas helped the company drop Tata SkyPlus prices to Rs 5,999. But rivals maysoon launch a similar product.

The company is betting on its value-added services as another glue for the val-ue-conscious subscriber. It is the onlyoperator which charges for all its interac-tive services since its launch in 2006.

Most players provide these for freewith the exception of movies on demand.Says Dish TV Chief Operating OfficerSalil Kapoor:

“The DTH industry is still at an earlystage for value-added services. Usersneed to get into the habit of using servicesthrough their TVs; hence, our suite is forfree.”

Teams from both Tata Sky and its part-ners develop the content after soundingconcepts out with various consumer pan-els. Educational services for childrenhave been popular on Tata Sky.

Subscribers who use this service havebeen found to spend 66 minutes on it perday, according to a study by GFK-Mode.An insight revealed that parents wantedtheir children to learn something out ofthe themes that they were fond of watch-ing on TV, such as cartoons on Disney andTurner. Tata Sky roped in the same brandsto deliver content. Apart from nurseryrhymes, mathematics and general knowl-edge, there are also craft lessons fromPogo, for instance. This service has found,says Mehra, 500,000 takers.

It was another such insight that led tothe latest service that teaches English. Alarge number of housewives felt their lackof confidence in speaking the languagehampered their interactions with theirchildren. The mothers did not want to

enroll in a course as that would let the catout of the bag; they were happy to learn inthe confines of their bedroom. Researchalso showed that a full course could cre-ate tension with the husband who wouldkeep a tab on the wife’s progress. So, thecontent, which has been developed withthe British Council, offers tips on how tospeak English. The content is new everyday. Mehra claims that 100,000 peoplehave signed up for the service and anoth-er 1,500 or so are joining every day.

Both the services have been priced atRs 30 a month. Others such as the one oncooking are bundled at a slight premium.GFK-Mode recently surveyed over 6,500users to find out the usage of interactiveapplications on the Tata Sky platform. Itfound that on average, a householdwatches television for 180 minutes, ofwhich 34 are spent on the value-addedservices. “No single channel can claimthat viewing time on a daily basis,” saysMehra.

It is obvious that Tata Sky is spending agood amount of money on the content,either through one-time payments orshared revenues. So, does it make moneyon these services? This is importantbecause it could launch more such ser-vices in the future. “We have started mak-

Business Standard


111

“ WE BELIEVE THAT ASUSTAINABLE BUSINESSMODEL WILL COME FROM

ADEQUATE SHARE IN VALUETERMS AND NOT FROM

VOLUME FOR VOLUME’S SAKE ”

ing money on the interactive services,”says Mehra.

That customers have begun to moveup the value chain also shows, claimsMehra, in the market for movie ondemand. “We are the only player who canclaim more than 2 million purchases inour three years of operation. Movie aftermovie, we realise that any movie which isreleased on Tata Sky has a much biggerbuy-rate than other platforms,” says he.Kaminey in 2009 saw 78,000 hits on TataSky, which an industry observer said wassignificantly higher than other platforms.Slumdog Millionnaire, which was exclu-sively available on the platform for fourdays before others could air it, got around150,000 hits. Tata Sky has also stoppedgiving free subscription to customers.Many rivals give a few months’ subscrip-tion free with every connection.

Movies, interactive services and a pro-gramming guide in Hindi, Tata Skybelieves, have widened its base beyondthe larger cities. Since 2009, it has beengetting more than 50 per cent of its vol-umes from outside the 50 top cities. “Badquality theatres in small towns havemade our paid movie service popularwith the value-conscious consumersthere,” says Mehra.

Stiff competitionBut is it good enough? Will these serviceshelp Tata Sky acquire and retain cus-tomers? The competition in the marketplace is severe. Apart from Dish TV andSun Direct, there are Airtel Bharti DTH,Videocon d2h and Reliance BigTV com-peting for the pie. Dish TV is the marketleader with its own suite of value-addedservices, Sun Direct is a price warriorwith a strong brand equity in the South,and Airtel is riding its leadership in thetelecom space to expand. Videocon d2h istrying something new by bundling theset-top box in the television. It is bankingon its strengths in television manufactur-ing and distribution.

Like Airtel, Tata Sky wants to leveragethe distribution of Tata Teleservices toreach its hardware and recharge couponsto customers. Tata Sky also has more than1,500 exclusive franchise outlets with aservice called BOB, or boy on bicycle, forhome deliveries. The company spent

almost six months to get it right to finetune the scheme because it wanted it to beprofitable for the boys who are hired by itsfranchisees.

Fine-tuning its customer service is amust if the company wants sticky price-agnostic customers. Tata Sky has threedifferent call centres at Pune, Mohali andHyderabad with almost 1,300 people.Doesn’t it make more sense to have a sin-gle call centre because efficiencies wouldbe better? “We intentionally went withdifferent regions because we didn’t want aPunjabi speaking in a Marathi accent orvice versa,” says Kaushik. “Typically, TVis consumed by the elderly or housewiveswho are more comfortable in their owndialect rather than English. This makesthe consumer comfortable.”

According to Tata Sky, Nielsen hassaid that customer satisfaction is higherfor it than any other company in DTH. Butthat was in 2007. Rivals surely have got-ten wiser since then. For example, DishTV knows the value of retaining sub-scribers rather than just acquiring newones. “For every acquisition, we have aretention scheme. Over the last one year,we have had four different recharge offersfor our existing consumers such as givingaway Rs 300 worth of content free forevery recharge of Rs 300. There would beno point in acquiring subscribers if wecan’t hold our existing flock together,”says Kapoor of Dish TV. He should knowbecause Dish TV remains the largest play-er with over 6.8 million subscribers.

For Tata Sky, Mehra claims, ease ofrecharge is a differentiator. “We were thefirst to start a pre-paid service. As wespeak, only 15 per cent of our rechargesare actually vouchers that you have to buyfrom a shop; 85 per cent of it happens overSMS, the web or call centres which areeven equipped with voice-recognitionsoftware. These are convenient optionsfor the customers. We have customisedour services to the way our subscriberswant them,” he adds.

“We are also very serious about track-ing customer service. Every Mondaymorning, people report to me what is thepercentage of field repairs that wereaddressed within 24, 48 and 72 hours.What is the percentage of installations,”says Kaushik. “Last week, we made more

than 82 per cent of installations within 24hours anywhere in the country,” he adds.Will Tata Sky’s bet on value-added ser-vices for higher paying consumers pay offor is it barking up the wrong tree?

Business Standard


112

final strategist r1

Documents