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  • 1. Learning with CasesINTRODUCTION The case study method of teaching used in management education is quite different from most of the methods of teaching used at the school and undergraduate course levels. Unlike traditional lecture-based teaching where student participation in the classroom is minimal, the case method is an active learning method, which requires participation and involvement from the student in the classroom. For students who have been exposed only to the traditional teaching methods, this calls for a major change in their approach to learning. This introduction is intended to provide students with some basic information about the case method, and guidelines about what they must do to gain the maximum benefit from the method. We begin by taking a brief look at what case studies are, and how they are used in the classroom. Then we discuss what the student needs to do to prepare for a class, and what she can expect during the case discussion. We also explain how student performance is evaluated in a case study based course. Finally, we describe the benefits a student of management can expect to gain through the use of the case method.WHAT IS A CASE STUDY? There is no universally accepted definition for a case study, and the case method means different things to different people. Consequently, all case studies are not structured similarly, and variations abound in terms of style, structure and approach. Case material ranges from small caselets (a few paragraphs to one-two pages) to short cases (four to six pages) and from 10 to 18 page case studies to the longer versions (25 pages and above). A case is usually a “description of an actual situation, commonly involving a decision, a challenge, an opportunity, a problem or an issue faced by a person or persons in an organization.”1 In learning with case studies, the student must deal with the situation described in the case, in the role of the manager or decision maker facing the situation. An important point to be emphasized here is that a case is not a problem. A problem usually has a unique, correct solution. On the other hand, a decision-maker faced with the situation described in a case can choose between several alternative courses of action, and each of these alternatives may plausibly be supported by logical argument. To put it simply, there is no unique, correct answer in the case study method. The case study method usually involves three stages: individual preparation, small group discussion, and large group or class discussion. While both the instructor and the student start with the same information, their roles are clearly different in each of these stages, as shown in Table 1. 1 Michiel R. Leeenders, Louise A. Mauffette-Launders and James Erskine, Writing Cases, (Ivey Publishing, 4th edition) 3.
  • 2. l Learning with Cases Table 1 Teacher and Student Roles in a Regular Case Class When Teacher Student or Participant Before Assigns case and often readings Receives case and assignment Class Prepares for class Prepares individually May consult colleagues Discusses case in small group During Deals with readings Raises questions regarding readings Class Leads case discussion Participates in discussion After Evaluates and records student Compares personal analysis with Class participation colleagues’ analysis. Evaluates materials and updates Reviews class discussion for major teaching note concepts learned. Source: Michiel R. Leeenders, Louise A. Mauffette-Launders and James Erskine, Writing Cases, (Ivey Publishing 4th edition) 3.CASE STUDIES IN THE CLASSROOM Case studies are usually discussed in class, in a large group. However, sometimes, instructors may require individuals or groups of students to provide a written analysis of a case study, or make an oral presentation on the case study in the classroom. Preparing for a Case Discussion Unlike lecture-based teaching, the case method requires intensive preparation by the students, before each class. If a case has been assigned for discussion in the class, the student must prepare carefully and thoroughly for the case discussion. The first step in this preparation is to read the case thoroughly. To grasp the situation described in a case study, the student will need to read it several times. The first reading of the case can be a light one, to get a broad idea of the story. The subsequent readings must be more focused, to help the student become familiar with the facts of the case, and the issues that are important in the situation being described in the case – the who, what, where, why and how of the case. However, familiarity with the facts described in the case is not enough. The student must also acquire a thorough understanding of the case situation, through a detailed analysis of the case. During the case analysis process, she must to attempt to identify the main protagonists in the case study (organizations, groups, or individuals described in the case) and their relationships. The student must also keep in mind that different kinds of information are presented in the case study2. There are facts, which are verifiable from several sources. There are inferences, which represent an individual’s judgment in a given situation. There is speculation, which is information which cannot be verified. There are also assumptions, which cannot be verified, and are generated during case analysis or discussion. Clearly, all these different types of information are not equally valuable 2 Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson, Strategic Management (Thomson Southwestern, 6th Edition) Civ2
  • 3. Learning with Casesfor managerial decision-making. Usually, the greater your reliance on facts (ratherthan speculation or assumptions), the better the logic and persuasiveness of yourarguments and the quality of your decisions.Broadly speaking, the different stages in the case analysis process could be asfollows3:1. Gaining familiarity with the case situation (critical case facts, persons, activities, contexts)2. Recognizing the symptoms (what are the things that are not as expected, or as they should be?)3. Identifying goals/objectives4. Conducting the analysis5. Making the diagnosis (identifying problems, i.e., discrepancies between goals and performance, prioritizing problems etc.)6. Preparing the action plan (identifying feasible action alternatives, selecting a course of action, implementation planning, plan for monitoring implementation) Exhibit 1 Components of a Situation Analysis 1. Corporate level situation analysis - Corporate mission and objectives - Resources and competencies - Environmental problems and opportunities - Demographic - Social-cultural - Economic - Technological - Legal and regulatory - Competition - Portfolio analysis 2. Product level situation analysis - Market analysis - Describe the product-market structure - Find out who buys - Assess why buyers buy - Determine how buyers make choices - Determine bases for market segmentation3 Adapted from: 1993, C. C. Lundberg and C. Enz, ‘A framework for student case preparation’, Case Research Journal, 13 (Summer):144/Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson, Strategic Management (Thomson Southwestern, 6th Edition) Ciii 3
  • 4. l Learning with Cases - Identify potential target markets - Competitive analysis - Identify direct competitors - Assess likelihood of new competitors - Determine stage in product life cycle - Assess pioneer advantages - Assess intensity of competition - Determine the competitors’ advantages and disadvantages - Market measurement - Estimate market potential - Determine relative potential of each geographic area - Track industry sales trends - Assess company or brand trends in sales and market share - Make forecasts - Profitability and productivity analysis - Determine the cost structure - Identify cost-volume-profit relationships - Perform break-even and target profit analysis - Make projections of sales or market share impact of marketing expenditures 3. Summary - Assess performance (identification of symptoms) - Define problems and opportunities Source: Developed from Joseph Guiltinan and Gordon Paul, ‘Marketing Management: Strategies and Programs’, Fourth Edition (New York: McGraw-Hill, 1990), Chapters 2-6/ Joseph Guiltinan and Gordon Paul, Cases in Marketing Management (McGraw-Hill, International Edition 1992) 2. The components of a situation analysis for a typical marketing case are given in Exhibit 1. This consists of situation analyses at the corporate and product levels and a summary of the results of the analysis. Cases in other functional areas such as strategy can also be analyzed using similar frameworks. As mentioned earlier, the situation analysis should be followed by problem diagnosis and action plan recommendations. While preparing for the case discussion, the student can also make notes with respect to the key aspects of the situation and the case analysis. These could include points such as the following: Which company (or companies) is being talked about? Which industry is referred to? What are the products/services mentioned? How/Why did the company land in problems (or became successful)? What decision issues/problems/challenges are the decision makers in the case faced with?4
  • 5. Learning with Cases Case Discussions in the Classroom A classroom case discussion is usually guided by the instructor. Students are expected to participate in the discussion and present their views. In some cases, the instructor may adopt a particular view, and challenge the students to respond. During the discussion, while a student presents his point of view, others may question or challenge him. Case instructors usually encourage innovative ways of looking at and analyzing problems, and arriving at possible alternatives. The interaction among students, and between the students and the instructor, must take place in a constructive and positive manner. Such interactions help to improve the analytical, communication, and interpersonal skills of the students. Students must be careful that the contributions they make to the discussion are relevant, and based on a sound analysis of the information presented in the case. Students can also refer to the notes they have prepared during the course of their preparation for the case discussion. The instructor may ask questions to the class at random about the case study itself or about the views put forward by an individual student. If a student has some new insights about the issues at hand, she is usually encouraged to share them with the class. Students must respond when the instructor asks some pertinent questions. The importance of preparing beforehand cannot be emphasized enough – a student will be able to participate meaningfully in the case discussion only if he is knowledgeable about the facts of the case, and has done a systematic case analysis. A case discussion may end with the instructor (or a student) summarizing the key learning points (or ‘takeaways’) of the session. Student performance in case discussions is usually evaluated, and is a significant factor in assessing overall performance in the course. The extent of participation is never the sole criterion in the evaluation – the quality of the participation is an equally (or more) important criterion. Working in a Group If a group of students is asked to analyze a case, they must ensure that they meet to discuss and analyze the case, by getting together for a group meeting at a suitable time and location. Before the meeting, all the team members must read the case and come with their own set of remarks/observations. The group must ensure that all the group members contribute to the preparation and discussion. It is important that the group is able to work as a cohesive team – problems between team members are likely to have an adverse impact on the group’s overall performance.PREPARING A WRITTEN CASE ANALYSIS Quite often, a written analysis of the case may be a part of the internal evaluation process. When a written analysis of a case is required, the student must ensure that the analysis is properly structured. An instructor may provide specific guidelines about how the analysis is to be structured. However, when submitting an analysis, the student must ensure that it is neat and free from any factual, language and grammar errors. In fact, this is a requirement for any report that a student may submit – not just a case analysis. 5
  • 6. l Learning with CasesMAKING A CASE PRESENTATION The instructor may ask a group of students to present their analysis and recommendations to the class. Alternatively, an individual student can also be asked to make a presentation. The key to a good presentation is good preparation. If the case has been studied and analyzed thoroughly, the content of the presentation should present no problems. However, a presentation is more than the content. Some of points that need to be kept in mind when making a case presentation are: As far as possible, divide the content uniformly so that each team member gets an opportunity to speak. Use visual aids such as OHP slides, Power Point presentations, advertisement/press clippings etc., as much as possible. Be brief and to-the-point. Stick to the time limits set by the instructor. Be well prepared.EVALUATING STUDENT PERFORMANCE The evaluation of a student’s performance in a case-driven course can be based on some or all of the following factors: Written case analyses (logical flow and structuring of the content, language and presentation, quality of analysis and recommendations, etc.). Case presentations (communication skills, logical flow and structuring of the content, quality of analysis and recommendations, etc.). Participation in classroom case discussions (quality and extent of participation). Case writing assignments or similar projects. Case-based examinations.BENEFITS FROM THE CASE METHOD The case benefit has several advantages over traditional teaching methods. The skills that students develop by being exposed to this method are listed in Exhibit 2. The consequences to the student from involvement in the method are listed in Exhibit 3. Some of the advantages of using case studies are given below: Cases allow students to learn by doing. They allow students to step into the shoes of decision-makers in real organizations, and deal with the issues managers face, with no risk to themselves or the organization involved. Cases improve the students ability to ask the right questions, in a given problem situation. Their ability to identify and understand the underlying problems rather than the symptoms of the problems is also enhanced. Case studies expose students to a wide range of industries, organizations, functions and responsibility levels. This provides students the flexibility and confidence to deal with a variety of tasks and responsibilities in their careers. It also helps students to make more informed decisions about their career choices.6
  • 7. Learning with Cases Exhibit 2 Inventory of Skills Developed by the Case Method 1. Qualitative and quantitative analytical skills, including problem identification skills, data handling skills and critical thinking skills. 2. Decision making skills, including generating different alternatives, selecting decision criteria, evaluating alternatives, choosing the best one, and formulating congruent action and implementation plans. 3. Application skills, using various tools, techniques and theories. 4. Oral communication skills, including speaking, listening and debating skills. 5. Time management skills, dealing with individual preparation, small group discussion and class discussion. 6. Interpersonal or social skills, dealing with peers, solving conflicts and practicing the art of compromise, in small or large groups. 7. Creative skills, looking for and finding solutions geared to the unique circumstances of each case. 8. Written communications skills, involving regular and effective note-taking, case reports and case exams.Source: Michiel R. Leeenders, Louise A. Mauffette-Launders and James Erskine,Writng Cases (Ivey Publishing, 4th edition) 7. Exhibit 3 Consequences of Student Involvement with the Case Method 1. Case analysis requires students to practice important managerial skills- diagnosis, making decisions, observing, listening, and persuading – while preparing for a case discussion. 2. Cases require students to relate analysis and action, to develop realistic and concrete actions despite the complexity and partial knowledge characterizing the situation being studied. 3. Students must confront the intractability of reality-complete with absence of needed information, an imbalance between needs and available resources, and conflicts among competing objectives. 4. Students develop a general managerial point of view – where responsibility is sensitive to action in a diverse environmental context.Source: 1993, C. C. Lundberg and C. Enz, ‘A framework for student casepreparation’, Case Research Journal, 13 (Summer) 134/ Michael A. Hitt, R. DuaneIreland and Robert E. Hoskisson, Strategic Management (Thomson Southwestern, 6thEdition) Cii. Cases studies strengthen the student’s grasp of management theory, by providing real-life examples of the underlying theoretical concepts. By providing rich, interesting information about real business situations, they breathe life into conceptual discussions. 7
  • 8. l Learning with Cases Cases provide students with an exposure to the actual working of business and other organizations in the real world. Case studies reflect the reality of managerial decision-making in the real world, in that students must make decisions based on insufficient information. Cases reflect the ambiguity and complexity that accompany most management issues. When working on a case study in a group, students must also be able to understand and deal with the different viewpoints and perspectives of the other members in their team. This serves to improve their communication and interpersonal skills. Case studies provide an integrated view of management. Managerial decision- making involves integration of theories and concepts learnt in different functional areas such as marketing and finance. The case method exposes students to this reality of management.8
  • 9. Lessons in Customer Service from Wal-Mart “We are agents for our customers. We want to sell them what they want to buy, and the name of the game is who can most efficiently deliver that merchandise from raw materials to the customer.” 1 - David Glass, former President, CEO and CFO, Wal-Mart. “The secret of successful retailing is to give your customers what they want. And really, if you think about it from your point of view as a customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.”2 - Sam Walton, founder of Wal-Mart.INTRODUCTION In March 2003, Fortune magazine ranked Wal-Mart as the world’s largest and America’s most admired company (Refer Exhibit I for awards and recognitions conferred on Wal-Mart). Fortune’s Managing Editor, Rik Kirkland, commented, “Eleven years after Sam Walton’s death, Wal-Mart, the company he founded, not only has grown tenfold to become the world’s biggest but also is now the world’s and America’s most admired. Best of all, Walton’s successors have achieved this unprecedented feat by preserving the unpretentious, relentlessly customer-focused culture.”3 In November 2002, Wal-Mart was ranked #1 by the customers in the 2002 department store customer satisfaction study, conducted by a leading consultancy firm, JD Power & Associates4 (Refer Exhibit II). Since its inception, Sam Walton (Walton) had cultivated a customer-focused culture at Wal-Mart. In his autobiography “Sam Walton – Made in America: My Story,” Walton stated ten rules that he followed in managing his company (Refer Exhibit III). One of the rules said, “Exceed your customer’s expectations. If you do they’ll come back over and over. Give them what they want – and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses – apologize. Stand behind everything you do. ‘Satisfaction guaranteed’ will make all the difference.” The rule reflected Walton’s commitment to his customers. Apart from being one of the core elements of its culture, Wal-Mart’s pursuit to provide the best customer service had its effect on the pricing and purchasing policies of the company. On the importance of providing customers value for their money, Walton said, “We believe in the value of the dollar. We exist to provide value to our customer, which means that in addition to quality and service, we have to save them money. Every time Wal-Mart spends one dollar foolishly, it comes right of our 1 As quoted in the article, “In retailing, the rich are getting richer, and many of the poor will fall by the wayside”, by Sawaya, Z., in Forbes dated January 6, 1992. 2 As quoted in the article, “Walmart.com, background information”, posted on www.walmart.com. 3 As quoted in the article, “The Worlds Most Admired Companies” by Paola Hjelt, Fortune, March 3, 2003. 4 Headquartered in California, JD Power and Associates is a global marketing information services firm that helps businesses and consumers make better decisions through credible and easily accessible customer-based information.
  • 10. Marketing Management customers’ pockets. Every time we save them a dollar, that puts us one more step ahead of the competition – which is where we always plan to be.”5 Wal-Mart was one of the first few companies in the retailing industry to use IT to offer value-added services to customers. Commenting on Wal-Mart’s venture into e- business through the launch of its site, Wal-Mart spokeswoman, Melissa Brown, said, “It is yet another way for us to take care of our customers.”6WALTON – A CUSTOMER-FOCUSED LEADER In July 1962, Walton – an economics graduate from the University of Missouri, established the first Wal-Mart Discount City in Rogers, a small town in the state of Arkansas, USA. He laid down three principles that later became an integral part of Wal-Mart’s culture. The principles were – respect for the individual, striving for excellence, and service to customers. Wal-Mart’s employees, also known as associates, were given a place of importance in Walton’s scheme. Walton believed that if employees were respected and treated well, they would in turn treat the customers with respect, and satisfied customers would continue their relationship with Wal-Mart. Associates were encouraged to come up with innovative ideas to solve their day-to-day problems, set new performance goals, make their work enjoyable and strive for excellence. They conducted meetings, known as “grassroots”, where they discussed ways and means to improve their performance. Walton emphasized the importance of keeping overall operating expenses low, so that the benefits could be reaped by both the company, through enhanced profitability, and by the customers, through reduced prices. Customers were the focus of all activities at Wal-Mart. To highlight the significance of customers, Walton had laid down rules for employees which read as follows: Rule # 1: The customer is always right. Rule # 2: If the customer happens to be wrong, refer to Rule # 1. He used to say to his employees, “There is only one boss – the customer. And he can fire everybody in the company, from the chairman down, simply by spending his money elsewhere.”7 In his efforts to maximize customer satisfaction, Walton implemented several innovative practices in Wal-Mart. The employees were asked to display ‘aggressive hospitality,’ that is, the employees were encouraged to provide customer service which was beyond their expectations. Such displays of aggressive hospitality enhanced Wal-Mart’s reputation as a customer-focused company. In one instance, Dremia Meier, an associate saved the life of a customer by conducting cardiopulmonary resuscitation (CPR).8 When she noticed that a customer in the parking lot had suffered a mild stroke, she immediately rushed to him and performed CPR, with the help of another associate, until the ambulance arrived. The customer’s life was saved and the manager of the Wal-Mart store later called on the customer at the hospital to enquire about his health. 5 As quoted in the book, “Sam Walton, Made in America: My Story”, by Sam Walton and John Huey, Page 13. 6 As quoted in the article, “A leader beyond bricks and mortar,” in Discount Store News, dated October 1999. 7 As quoted in the article “CRMs Not Just a Buzzword, It’s a Sound Business Principle,” by Aljosja Van Dorssen, Business Times, April 1, 2002. 8 CPR involves external cardiac massage and artificial respiration. This exercise attempts to restore circulation of the blood and prevents death/brain damage due to lack of oxygen in a person who has collapsed and has no pulse/stopped breathing.12
  • 11. Lessons in Customer Service from Wal-Mart The customers were viewed and treated as guests at Wal-Mart. The company was known for its ‘greeters’ who greeted the customers with a warm welcome and a friendly smile, the moment they entered a store. They offered the customers shopping carts and conveyed them that Wal-Mart was glad to have them at the store. Regular customers at Wal-Mart were made to feel special by being addressed by name. Whenever Walton or any other noted dignitary visited a store, or on any occasion (like company meetings), the employees greeted them with the famous ‘Wal-Mart Cheer’ (Refer Exhibit IV), which ended by addressing the customer as “#1 at Wal-Mart.” As soon as customers entered the store, the store associates looked after them completely. If customers asked where a product could be found, they were not merely shown the way, but were actually accompanied to the correct location. Even customers making low-value transactions were treated with the same respect and courtesy. All customers were allowed to exchange products or seek refunds for products if they wished. Other practices at Wal-Mart for the benefit of customers were the “Sundown rule” and the “10-foot attitude rule.” According to the Sundown rule, associates had to resolve all service-related requests made by customers before the sun set. The rule aimed to induce a sense of urgency in meeting customer service requests. The quick response to customer calls demonstrated Wal-Mart’s dedication to better customer service. In most cases, the customers’ problems were dealt with immediately. In case they were not put right the same day, the associates kept the customers informed about the action being taken. Employees followed the Sundown rule with complete dedication as could be seen on several occasions. In one particular instance, Jeff, a pharmacist at one of the Wal-Mart stores got a late night call from one of his customers, who was a diabetic patient. The customer said that she had mistakenly dropped her insulin in her garbage disposal bin. Conscious that it would be risky for a diabetic to be without insulin, Jeff immediately rushed to the store and saw to it that the insulin was delivered to the customer. Employees also followed the ‘ten-foot attitude’ rule which stated that whenever an employee was within a distance of 10 feet from a customer, he had to look into the customer’s eyes, greet him/her, and ask if he could be of any help. The employees practiced this rule without slacking. To encourage employees to provide the best customer service, Walton would say, “Let’s be the most friendly – offer a smile of welcome and assistance to all who do us a favor by entering our stores. Give better service – over and beyond what our customers expect. Why not? You wonderful, caring associates can do it, and do it better than any other retailing company in the world . . . exceed your customers’ expectations. If you do, they’ll come back over and over again.”9WAL- MART’S CUSTOMER- CENTRIC POLICIES Since the very beginning, Wal-Mart’s pricing policies were based on the recognition that consumers always wanted the best bargain on the products purchased by them without compromising on the quality. Walton had used the captions –“We Sell for Less” and “Satisfaction Guaranteed” on the very first Wal-Mart signboard. Wal-Mart followed what it called the Every Day Low Price (EDLP) policy. The policy was that Wal-Mart would always provide a wide variety of high quality, branded and unbranded products at the lowest possible price, offering better value for the customer’s money. A Wal-Mart advertisement explained: “Because you work hard for every dollar, you deserve the lowest price we can offer every time you make a 9 As quoted in the article, “Exceeding customer expectations,” posted on www.walmart.com. 13
  • 12. Marketing Management purchase. You deserve our Every Day Low Price. It’s not a sale; it’s a great price you can count on every day to make your dollar go further at Wal-Mart.”10 EDLP was extremely attractive to customers and emerged as the key contributor to Wal-Mart’s success over the years. Several initiatives the company took were based on the EDLP policy. For instance, Wal-Mart made heavy investments in technology to improve efficiency in distribution. Tim Crane, regional buyer for Wal-Mart said, “I’m proud to say EDLP has always been the philosophy of Wal-Mart. We offer value every day. Customers don’t have to wait for sales. We distribute 13 circulars a year, two during the Christmas period, one a month otherwise, and it is a rare day that we do any off-price advertising. We are not interested in co-op monies, exchanging terms, guaranteed sales, or any other deals which we feel add to the cost of the merchandise. We simply want the lowest net cost – we call that net down pricing. For EDLP to be successful, you must drive all the unnecessary costs out of the equation. When vendors work with the appropriate Wal-Mart buyers, they will, I assure you, work to achieve that.”11 Wal-Mart also introduced ideas like “rollback” of prices and “special buys” to enhance customer satisfaction. Under the “rollback” program, Wal-Mart made a commitment to its customers to reduce prices, whenever and wherever it could, and pass on the maximum savings to them. Whenever the company was able to reduce the procurement costs of products due to greater efficiency in its operations and supply chain management practices, it cut prices, passing on the benefits to customers. When prices were rolled back, a yellow “rollback smiley” logo appeared on the products in the store racks. Under the “special buy” pricing program, products marked with the ‘special buy’ logo, had extra quantity of the same product or a new product, offered for a limited period. Offering the best price to its customers formed the basis for Wal-Mart’s purchasing policies. Wal-Mart sourced merchandise directly from manufacturers. By eliminating the middlemen, Wal-Mart was able to sell to customers at lower prices, and in turn benefited from the large volumes of business generated. When Wal-Mart emerged as the leading company in the retailing industry, manufacturers actually competed with each other to offer Wal-Mart the best prices. Wal-Mart’s relationship with manufacturers later evolved from a normal transaction-oriented relationship to a more comprehensive vendor-retailer relationship, in which they became partners in their drive to serve the customer in the best possible manner. At the store level, customer service was a highly focused activity. Each Wal-Mart store was required to cover the customers in the surrounding area. The store managers were regularly updated on which products were moving and which were not. Based on this information and an assessment of the tastes and preference of the consumers in the vicinity of the store, Wal-Mart’s employees decided which goods to stock and how to arrange them inside the store. Commenting on the importance of customer service at Wal-Mart, Tom Coughlin, President and Chief Executive Officer, Wal-Mart Stores division, said, “Wal-Marts culture has always stressed the importance of customer service. Our associate base across the country is as diverse as the communities in which we have Wal-Mart stores. This allows us to provide the customer service expected from each individual customer that walks into our stores.”12 The customer friendly policies of Wal-Mart, coupled with its major expansion drive enabled the company to register significant growth rates during the 1970-2000 period. 10 As quoted in the article, “Pricing Philosophy,” posted on www.walmart.com. 11 As quoted in the article, “Wal-Mart’s top ten” by Loretta Roach, in Discount Merchandiser, dated August 1993. 12 As quoted in the heading titled, “Three Basic Beliefs,” posted on www.walmart.com.14
  • 13. Lessons in Customer Service from Wal-Mart During the 1970s, Wal-Mart’s sales increased from $31 million to $1.2 billion, a significant growth rate of 287%. In the same period, the number of Wal-Mart stores increased from 32 to 276. The growth continued in the 1980s with Wal-Mart’s sales increasing at a compounded annual rate of over 36%. Wal-Mart’s growth in the 1980s was fuelled by the introduction of the Sam’s Wholesale Clubs13 in 1983, and the Hypermart (which was later known as Super Center14) in 1987. In Wal-Mart’s annual report (1986-87), Walton again stressed on providing the best customer service in order to maintain its past successes. He said, “The key to success must be that we will all truly embrace the philosophy that our sole reason for being is to serve, even spoil those wonderful customers. To keep this focus on customer service despite our continuous change is just as critical today as it was in those dine stores thirty years ago.”USING IT FOR CUSTOMER DELIGHT Wal-Mart made heavy investments in IT in the 1980s. In the early 1980s, the company began to use Electronic Data Interchange (EDI) systems. EDI linked the computers at the stores and the distribution centers. It helped the company track the movement of goods in real-time and quickly replenish the stock at the stores. EDI helped in minimizing the incidences of stock-outs and enabled better inventory management. The system eliminated the inconvenience to customers due to the non- availability of products. In 1987, Wal-Mart installed a satellite communication system, costing an estimated $700 million. The system connected the stores, distribution centers and the suppliers’ systems and automated the entire distribution process of the company. The system also connected all the stores of the company with the General Office with 2-way voice and data communication, and one-way video communication. Although logistical systems were installed earlier, it was only in the late 1980s that Wal-Mart started thinking seriously of using IT to get more customer-related information. Wal-Mart’s management realized that the rapid rate, at which the company was expanding, was making it increasingly difficult to cater effectively to the diverse needs of millions of consumers. Consumers’ buying habits, needs and preferences differed from one area to another. Goods that were popular in one store were not as popular in others. Wal-Mart therefore began investing in data warehousing systems. In 1989, Wal-Mart started building a huge database of customer information in its data warehouse systems located at its headquarters at Bentonville, Arkansas. The company collected sales and customer related information for each store and fed that information into the warehouse systems. The data warehouse served as a storehouse of data, but a proper analysis of the data was required to gain insights into consumers’ needs and preferences and their buying patterns. For this purpose, the company used 13 Sam’s Club was a club chain with a large store in warehouse-type buildings targeted at small business owners and bulk merchandise buyers. At low prices and with an annual membership fee, customers could make huge savings on the merchandise at Sam’s Clubs. The club provided branded merchandise and around 4,000 items like tires, cameras, batteries, watches, office supplies, cocktail sausages, soft drinks, clothing, home furnishings, auto supplies, etc. 14 A Supercenter was smaller than the hypermart and was an extension of the discount store. It was a combination of discount and grocery stores under one roof. It stocked food products and other necessities in a single retail outlet as a one-stop shopping facility. Each Supercenter was between 97,000 to 211,000 square feet and employed 200 to 550 associates. 15
  • 14. Marketing Management data mining15 tools that could be used to analyze information relating to the products being sold upto the store level, and to determine the demographic and ethnic profile of customers within the vicinity of a store, how frequently each product had to be replenished and so on. In the early 1990s, Wal-Mart continued to employ new technologies to facilitate better analysis of customer data as they became available. Wal-Mart’s IT experts used 3-D visualization tools to make accurate estimates of products most likely to be bought by customers on the basis of parameters such as ethnicity, geographic location, weather patterns, local sports affiliations, and around 10,000 other varied parameters. Wal- Mart made around 90% of its stock replenishments every month, based on the analysis of customer data generated through the data warehouse. To make shopping at Wal-Mart a pleasant experience, Wal-Mart installed customer information kiosks16 in its stores in 1996. The kiosks helped customers find out the price of any product and get a brief description of it. Each Wal-Mart store had between two and five kiosks. To help customers locate a product which was out of stock in a particular store, Wal-Mart introduced an innovative hand-held product- locating devise called 960. If a customer found that a particular item was not available at a store, the store associate would enter the item number in the 960. The 960 would then indicate the nearest Wal-Mart store (within a 30-40 mile radius) that had the item, the location of the store, its telephone number and the quantity of the items left at the store. This helped customers find out where the item was available. The store associate also arranged for the product to be brought to the store, if needed urgently. The 960 device got a very positive response from customers. In 1996, Wal-Mart launched its website – www.walmart.com – to provide information to its customers on all the products it stocked and to enable online sales. The online sales site had plenty of user-friendly features. For prompt delivery of the goods ordered online, Wal-Mart tied up with Fingerhut, a US-based direct marketing company. The customers who registered themselves at the site could access the features on the site directly. The site contained a store map. On entering their local zip code, the customers were linked to a Wal-Mart store in their area. They could make an online enquiry regarding the availability of a particular product in that store and order it. The site also had advance features to ensure the security of online credit card transactions. It was also connected to a call centre, through which the customers could place their enquiries and grievances. The customers registered on the site were kept informed about in-store events such as sales promotions, price rollbacks, or ‘special buys’ in the Wal-Mart store in their area. The website also had some customer service tools, such as Netflix, which enabled customers to report a package lost in the mail. The customer had to click on the relevant icon on the screen, and Wal-Mart would send the required product to the customer. IT played an important role in improving the efficiency of operations at Wal-Mart. The benefits which accrued were passed on to customers, as per Wal-Mart’s policy. Wal-Mart’s Annual Report 1999 said, “The first and the most important thing about Wal-Mart’s information systems is precisely that the customer’s needs come first. By using technology to reduce inventory, expenses and shrinkage, we can create lower prices for our customers and better returns for our shareholders.” 15 Data mining means the extraction and analysis of data from a data warehouse. It has applications in many areas of business. Buyers can use it to keep store shelves adequately stocked, marketers can use it in store design and advertising, and business analysts can use it for stock projections. 16 Computer terminals installed at several locations in the stores.16
  • 15. Lessons in Customer Service from Wal-MartRECENT CUSTOMER SERVICE INITIATIVES At the dawn of the new millennium, Wal-Mart was one of the world’s largest companies, with revenues of $165 billion in fiscal 2000. Banking on its past success, Wal-Mart renewed its emphasis on customers and launched new initiatives to serve its customers better. One such initiative was the ‘store of the community’ program, launched in 2001. Under the program, Wal-Mart began remodeling its discount stores and super centers in the US to fulfill the needs of customers they served, in line with what the customers wanted. Explaining the program, Tom Coughlin, President and CEO of Wal-Mart Stores Division, said, “The one-size-fits-all concept simply doesn’t work anymore in the retail industry. Customers tell us what they want and it is our responsibility to meet those needs. Our store associates live and work in each store’s community and interact with over 100 million customers each week. If we utilize information from all available resources including customers, associates and suppliers, our store will reflect the interests of its community. We will sell merchandise the customers want to buy, not merchandise we want to sell. By accomplishing this goal, we create happy, satisfied customers because they can now complete all of their shopping in one location - our store.”17 Wal-Mart’s ‘store of the community’ program made effective use of bar code technology18 and advanced data mining techniques. The bar-code on each product sold in Wal-Mart’s stores was scanned at the time of billing. This enabled Wal-Mart to capture sales and customer details such as the product being purchased, its price, when it was purchased and by whom, and the other products in a customer’s shopping cart. This information was taken together with the demographics of the communities in the vicinity of the store, consumer feedback on various products, and the suggestions on various products made by the store associates. A direct consequence of the ‘store of the community’ program was that the merchandize mix of a Wal-Mart store in one region differed substantially from that of another. For instance, a Wal-Mart store in a middle-income area in Decatur, Georgia, east of Atlanta, with a majority black population stocked African-American angels and ethnic Santas, as part of its Christmas decoration display. The music department in the store had more albums of black pop stars. In contrast, another Wal-Mart store, located in the high-income suburbs of Northern Atlanta, an area with a majority of white population, stocked pop-albums of popular country stars, and its music section had costlier items. Similarly, the manner in which the products were displayed differed from one store to another. For instance, a Wal-Mart store located in Mountain View, California, which served the predominantly young and adventurous Silicon Valley population, had attractive displays of mountain bikes and had health supplements on offer. In contrast, a Wal-Mart store in Union city, California, surrounded by blue-collar employees stocked more of electronic items like home theater systems. The program benefited Wal-Mart by increasing its sales to existing customers significantly and also attracting new customers. By stocking all the products likely to be purchased by customers at one time and one place, Wal-Mart also reaped the benefits of cross selling. For example, a store at Glen Ellyn, a suburb to the west of Chicago sold toys, batteries, stationary products, snacks and popular children VCDs for its kid customers. 17 As quoted in the article, “This store is your store,” in Wal-Mart Annual Report 2001. 18 Invented by Joseph Woodland and Bernard Silver in 1949, barcode technology was first used commercially in 1974. The technology is used to identify the product and its price (among other details). A scanner transmits the information to a cash register or computer for action (such as printing out a receipt). 17
  • 16. Marketing Management The ‘store of the community’ program was a very successful initiative by Wal-Mart, which contributed to increased customer loyalty. By 2003, Wal-Mart was the world’s largest company, with revenues in fiscal 2002 amounting to $244.5 billion (Refer Exhibit V). However, despite its widespread recognition and success owing to its customer-centric culture, Wal-Mart was criticized by a few of its customers, particularly for its overcrowded stores. Analysts felt that its continued focus on policies like EDLP might harness its growth prospects in the future. Expressing her dissatisfaction with Wal- Mart, a customer said, “The kind of crowd that Wal-Mart brings in can be a little scary. If I had a choice, I’d go somewhere else.”19 Questions for Discussion 1. Walton encouraged his employees by saying, “Give better service – over and beyond what our customers expect. Why not? You wonderful, caring associates can do it, and do it better than any other retailing company in the world.” Explain the role of Walton’s leadership in developing a customer-centric culture at Wal- Mart? Do you think that in order to provide the best customer-service, organizations must always follow a top-down approach? Discuss. 2. Wal-Mart’s focus on customers led to the development of several customer- centric policies. Explain how these policies benefited both the customers and the company. Do you think that providing the best customer-service is always a win- win proposition? Discuss. 3. Wal-Mart was one of the first few retailing companies to use IT in its operations as early as the 1980s. Explain how Wal-Mart used IT for the benefit of its customers. © ICFAI Center for Management Research. All rights reserved. 19 As quoted in the article, “Meet Your Neighborhood Grocer,” by Brian O’Keefe, in Fortune, dated May 13, 2002.18
  • 17. Lessons in Customer Service from Wal-Mart Exhibit I Walmart’s Awards and Recognitions Year Awards & Recognition Awarder 1999 17th most respected company in the world and Financial Times and #1 most respected retailer in North America PriceWaterhouse Coopers Retailer of the Century Discount Store News and Mass Market Retailers 2000 5th most admired company in America Fortune Ranked No. 5* on Fortune’s Global Most Fortune Admired Companies list – up from No. 7 in 1999 2001 3rd most admired company in America Fortune Ranked as 8th most admired company in the Financial Times and world Price/Waterhouse 2002 Awarded the ‘Ron Brown’ Award for Corporate President of US Leadership’ Named #1 on the Fortune 500 list of world’s Fortune largest companies (2001) 2003 Named the most admired company in America Fortune Named #1 in the Fortune 500 list of world’s largest companies(2002)Source: www.walmartstores.comNB:*Ranking was based on parameters like leadership selection, people-centric values and teamwork. Exhibit II Department Store Customer Satisfaction Study (2002) In November 2002, J.D. Power and Associates, released the 2002 department store customer satisfaction study. The study attempted to measure the extent to which the largest moderate price and discount department stores in the US were satisfying the customers. The study was based on 2,100 telephone interviews from a representative sample of US households. Respondents include the adult in each household who most often shops in department stores and who had shopped the surveyed store in the past two months. The stores were ranked using a customer satisfaction index scale that ranged from 100 to 1,000. The parameters used to measure customer satisfaction, arranged in the order of their significance included: Value Sales and service associates Services Store environment Merchandise Reputation Sales and promotion Store location 19
  • 18. Marketing Management The top three companies in the discount department store category were: COMPANY RANK NO.OF POINTS TOP RATINGS FROM THE CUSTOMERS FOR: Wal-Mart 1 756 Value, Sales and service associates, Merchandise, and Sales and promotions Target 2 744 Services, Store environment and Reputation. Kmart 3 681 N.A The top four companies in the moderate price category included: COMPANY RANK NO.OF POINTS Kohl’s 1 750 JC Penney 2 736 Mervyn’s 3 735 Sears 4 733 Adapted from the press release, “2002 Department Store Customer Satisfaction Study,” posted on www.jdpa.com, dated November 12, 2002. Exhibit III Waltons Rules for Building a Business Rule 1 Commit to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work. I dont know if youre born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work, youll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you - like a fever. Rule 2 Share your profits with all your Associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations. Remain a corporation and retain control if you like, but behave as a servant leader20 in a partnership. Encourage your Associates to hold a stake in the company. Offer discounted stock, and grant them stock for their retirement. Its the single best thing we ever did. Rule 3 Motivate your partners. Money and ownership alone arent enough. Constantly, day-by-day, think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. Make bets with outrageous payoffs. If things get stale, cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing as to what your next trick is going to be. Dont become too predictable. 20 The term servant leader was used by Robert Greenleaf in his book Servant Leadership. According to Greenleaf, “The servant leader is servant first…… It begins with the natural feeling that one wants to serve, to serve first………”20
  • 19. Lessons in Customer Service from Wal-MartRule 4Communicate everything you possibly can to your partners. The more theyknow, the more theyll understand. The more they understand, the more theyll care.Once they care, theres no stopping them. If you dont trust your Associates to knowwhats going on, theyll know you dont really consider them partners. Information ispower, and the gain you get from empowering your Associates more than offsets therisk of informing your competitors.Rule 5Appreciate everything your Associates do for the business. A paycheck and astock option will buy one kind of loyalty. But all of us like to be told how muchsomebody appreciates what we do for them. We like to hear it often, and especiallywhen we have done something were really proud of. Nothing else can quitesubstitute for a few well-chosen, well-timed, sincere words of praise. Theyreabsolutely free - and worth a fortune.Rule 6Celebrate your successes. Find some humor in your failures. Dont take yourself soseriously. Loosen up, and everybody around you will loosen up. Have fun. Showenthusiasm - always. When all else fails, put on a costume and sing a silly song.Then make everybody else sing with you. Dont do a hula on Wall Street. Its beendone. Think up your own stunt. All of this is more important, and more fun, than youthink, and it really fools the competition. "Why should we take those cornballs atWal-Mart seriously?"Rule 7Listen to everyone in your company. And figure out ways to get them talking. Thefolks on the front lines - the ones who actually talk to the customer - are the onlyones who really know whats going on out there. Youd better find out what theyknow. This really is what total quality is all about. To push responsibility down inyour organization, and to force good ideas to bubble up within it, you must listen towhat your Associates are trying to tell you.Rule 8Exceed your customers expectations. If you do, theyll come back over and over.Give them what they want - and a little more. Let them know you appreciate them.Make good on all your mistakes, and dont make excuses - apologize. Stand behindeverything you do. The two most important words I ever wrote were on that firstWal-Mart sign, "Satisfaction Guaranteed." Theyre still up there, and they have madeall the difference.Rule 9Control your expenses better than your competition. This is where you canalways find the competitive advantage. For 25 years running - long before Wal-Martwas known as the nations largest retailer - we ranked No. 1 in our industry for thelowest ratio of expenses to sales. You can make a lot of different mistakes and stillrecover if you run an efficient operation. Or you can be brilliant and still go out ofbusiness if youre too inefficient.Rule 10Swim upstream. Go the other way. Ignore the conventional wisdom. If everybodyelse is doing it one way, theres a good chance you can find your niche by going inexactly the opposite direction. But be prepared for a lot of folks to wave you downand tell you youre headed the wrong way. I guess in all my years, what I heard moreoften than anything was: a town of less than 50,000 populations cannot support adiscount store for very long.Source: “Sam Walton, Made in America: My Story,” page nos 314-317. 21
  • 20. Marketing Management Exhibit IV The Wal-Mart Cheer Give me a W! Give me an A! Give me an L! Give me a Squiggly! Give me an M! Give me an A! Give me an R! Give me a T! What’s that spell? Wal-Mart! What’s that spell? Wal-Mart! Who’s number one? THE CUSTOMER Source: The book, “Sam Walton Made in America”, by Sam Walton and John Huey, Page 200. Exhibit V Wal-Mart’s Performance Milestones YEAR SALES NET INCOME STORES 1970 31 mn 1.2 mn 32 1980 1.2 bn 41 mn 276 1990 26 bn 1 bn 1528 2000 165 bn 5 bn 2960 2003 244.5 bn 8 bn 3400 Source: Wal-Mart Annual Reports 1980, 1990, 2003.22
  • 21. Lessons in Customer Service from Wal-MartAdditional Readings & References:1. Weiner, S, Retailing, Forbes, January 8, 1990.2. Edgerton, J, Netzer, B, The Biggest Blue Chips, Money, October 1990.3. Sawaya, Z, In Retailing, The Rich are Getting Richer, and Many of the Poor Will Fall by the Wayside, Forbes, January 6, 1992.4. Stalk Jr., G, Evans-Clark, P, Competing on Capabilities: The New Rules of Corporate Strategy, Harvard Business Review, March/April 1992.5. Charan, Ram, Capabilities-Based Competition, Harvard Business Review, May/June 1992.6. Life of a Salesman, Time, June 15, 1992.7. Moore, James F, The Evolution of Wal-Mart: Savvy Expansion and Leadership, Harvard Business Review, May/June 1993.8. Roach, Loretta, Wal-Marts Top Ten, Discount Merchandiser, August 1993.9. Scans Provide `Goods For Data Warehouse, Automatic I.D. News, May 1996.10. Schwartz, Ela, Helping Customers Help Themselves, Discount Merchandiser, January 1997.11. Through the Eyes of a Customer, Discount Store News, March 3, 1997.12. Harrison, Denise, Wal-Mart Taps NCR for Data Warehouse Expansion, ENT, March 19, 1997.13. Verity, John W, Coaxing Meaning out of Raw Data, www.businessweek.com, February 3, 1997.14. CIO Forum: Knowledge Payback, www.informationweek.com, September 14, 1998.15. Wilcox, Joe, Torode, Christina, What CIO’s want, Computer Reseller News, September 28, 1998.16. Holstein, William J, Sieder, Jill Jordan, Svetcov, Danielle, Data-crunching Santa, US. News & World Report, December 21, 1998.17. Newsome, Dwight, Whats the Worlds Largest Retailers Customer Service Secret? Think Small. One Customer at a Time. One Associate at a Time. Business Perspectives, Summer 2000.18. Guglielmo, Connie, Attention Shoppers, Inter@ctive Week, June 28, 1999.19. A Leader beyond Bricks and Mortar, Discount Store News, October 1999.20. Online, Chain Store Age, October 1999.21. Blankenhorn, Dana, Marketers Hone Targeting, Advertising Age, June 18, 2001.22. Johnson, Bradford C, Retail: The Wal-Mart Effect, The McKinsey Quarterly, 2002 Number 1.23. Schoenberger, Chana R, The Internet of Things, www.forbes.com, March 18, 2002.24. Hospel, Holly, Down the Rabbit Hole, Chase down Meetings Data for Fun and Profit, www.gwsae.org, March 2001.25. Blankenhorn, Dana, Marketers Hone Targeting, Advertising Age, June 18, 2001.26. Foote, Paul Sheldon, Krishnamurthi, Malini, Forecasting Using Data Warehousing Model: Wal-Marts Experience, Journal of Business Forecasting Methods & Systems, Fall 2001.27. Smarter, Faster, More Profitable, www.intelligententerprise.com, October 4, 2001.28. Stankevich, Debby Garbato, Sizing the Market, Retail Merchandiser, March 2002.29. Evans, Bob, Business Technology: The Customers Always Right, www.informationweek.com, April 22, 2002.30. Newman, Christine, Growing Your Revenue and Profitability: It’s All about Your Data, www.teradatamagazine.com, Third Quarter 2002.31. 2002 Department Store Customer Satisfaction Study, www.jdpa.com, November 12, 2002.32. Tsao, Amy, Online Retailing Finds its Legs, BusinessWeek Online, December 20, 2002.33. Hjelt, Paola, The Worlds Most Admired Companies, Fortune, March 3, 2003. 23
  • 22. Marketing Management 34. Sarah Marcisz, New Self Check-Out Systems in at Marion. Wal-Mart Store Has Eight Do-It-Yourself Computer Lanes, www.chronicle-tribune.com, March 8, 2003. 35. Zellner, Wendy; Sager, Ira, Fewer Smiles in the Aisles, Business Week, April 28, 2003. 36. Walmart.com., PC Magazine, May 6, 2003. 37. Kalakota, Ravi, Robinson, Marcia, From e-Business to Services: Why and Why Now?, www.informit.com, August 15, 2003. 38. Port, Otis, Arndt, Michael, Carey, John, Smart Tools, Business Week, spring 2003. 39. Bianco, Anthony, Zellner, Wendy, Brady, Diane, France, Mike, Lowry, Tom, Byrnes, Nanette, Zegel, Susan, Arndt, Michael, Berner, Robert, Palmer, Ann Therese, Is Wal- Mart Too Powerful? Business Week, October 6, 2003. 40. Kesler, Kerry, Angels save mans life at Asheboro Wal-Mart, www.courier- tribune.com. 41. Wal-Mart, www.walmart.com. 42. Showing the Value, www.wal-mart.com. 43. www.wal-martchina.com.24
  • 23. The Tasty Bite Story “Tasty Bite is a company that has virtually risen from the dead.” - A & M, in October 2000.THE TURNAROUND In September 1998, stock market followers were surprised when the scrip of Tasty Bite Eatables Limited (TBEL), a small Ready-to-Serve (RTS)1 food company, reached Rs 36. This was a 930% increase over its 1996 price of Rs 3.50. What was even more surprising was the fact that till September 1998, TBEL was a Board for Industrial and Financial Reconstruction (BIFR)2 case. Launched in the early 1990s, TBEL products were rejected by Indian consumers. Analysts said that the products had been launched ‘ahead of their time’ in the Indian markets. (TBEL products were made available in a pouch, which had to be boiled before serving.)3 Moreover, the fact that the products were priced very high added to their lackluster performance. However, TBEL not only became the first Indian company to get itself de-registered from BIFR within a year, it also emerged as the largest brand in the US ethnic foods market. In 1999, the company posted its first ever profit of Rs 4.71 million. By the end of 2000, TBEL had become a $ 5 million brand in the US retail market and its products were available in 6,000 stores across the US.THE BACKGROUND TBEL was formed in 1986 by Ravi Ghai (Ghai) and Ravi Kiran Aggarwal. Ghai was also the owner of the ice-cream brand Kwality, which was the market leader with a market share of over 50%. TBEL set up a unit to process 10,000 tonnes per annum (tpa) of frozen vegetables and 5000 tpa of RTS foods at Khutbao and Bhandgoan villages of Maharashtra at a cost of Rs 55.5 million. In February 1987, TBEL brought a public issue of Rs 7.5 million. The company commenced production in February 1989 and launched its first RTS products in 1990. Following a lukewarm response in the Indian markets, in 1991, TBEL introduced its products in the Middle East, Russia, and the US. The company did not fare well in these markets either. The lack of a focussed marketing approach was considered to be the main reason for its failure. In 1992, TBEL entered into a collaboration with the beverage company Pepsi. Pepsi was interested in collaborating with TBEL because government regulations required it to generate one dollar in export sales for every dollar it earned in India. Pepsi agreed to distribute TBEL’s RTS products abroad and help TBEL upgrade its facilities. In 1994, when the government abolished the export requirement norms for MNCs, Pepsi 1 The RTS food market can be categorized into ready-to-eat foods, mixes and powders, salted snacks and sweets. 2 The Board for Industrial and Financial Reconstruction (BIFR) is responsible for the revival of companies declared sick. A company is declared sick if it has incurred losses continuously for 3 years and its networth turns negative. 3 TBEL products were cooked and pasteurized in a multi-layer pouch, using high temperature and pressure for a short period of time. This technique, called Retort Pouch Packaging, protected the food from contamination and spoilage. As a result, there was no need to refrigerate the products.
  • 24. Marketing Management - I decided to walk out on TBEL, claiming that it would rather concentrate on its core business of soft drinks. In 1995, ex-Pepsi executives Ashok Vasudevan (Vasudevan) and Kartik Kilachand (Kilachand), who had been involved with TBEL earlier while they were in Pepsi, decided to market TBEL’s products in the US. Their US based natural food marketing and distribution company, Preferred Brands International (PBI), acquired the exclusive marketing rights for TBEL’s products. In 1995, PBI launched five TBEL products in Southern California, and later expanded the business to other parts of the country also. By the end of 1995, TBEL was in serious financial trouble due to excessive borrowings. Poor response to its products and poor capacity utilization took a heavy toll on the company’s financial health. In 1996, HLL acquired the Kwality ice-cream brand and took over Grand Foods, the holding company of Kwality Frozen Foods. Grand Foods happened to be the holding company of TBEL as well, so TBEL now became an HLL company. However, TBEL continued to perform badly and by March 1997, the accumulated losses touched Rs 96 million. TBEL was declared a sick unit and referred to BIFR. Vasudevan, who had worked with HLL for about a decade before joining Pepsi, convinced HLL’s management to get TBEL de-registered from BIFR by providing financial assistance. While TBEL’s equity capital remained Rs 20 million, the HLL group turned its Rs 120 million unsecured loans into preference capital at a premium of Rs 19.50 per share. As a result, TBEL’s net worth turned positive and the company was de-registered from BIFR. HLL began using TBEL’s idle capacity to process its own products and also initiated efforts to make TBEL more market savvy to survive in the competitive markets.THE TURNAROUND STORY In 1997, HLL decided against venturing into the frozen foods business. Consequently, it sold TBEL to PBI. PBI appointed Ravi Nigam (Nigam) of Britannia Industries as the President. The new management worked out a strategic initiative, which was named the ‘4C approach,’ for reviving the company and turning the business around (Refer Figure I). The four Cs strategy divided the core business into areas that needed to be focused on: Concentration, Conversion, Collaboration and Cultivation. As part of “Concentration, TBEL decided to invest in intensive research for its RTS products. The company also planned to expand its business globally as well as in India. A decision to enhance the business through e-business was also taken. The second ‘C’ of the strategy - conversion - concerned entering into conversion contracts with the National Dairy Development Board (NDDB) and the Maharashtra Agricultural Development and Fertilizer Promotion Corporation (MAFCO) for utilizing TBEL’s individual quick freezing (IQF)4 facility at its plant. The third ‘C’- collaboration – addressed the necessity of attaining optimum utilization of TBEL plant capacities through collaborations. TBEL’s 2,000-tonne cold storage facility for storing ice cream, pulp and vegetables was leased out to HLL and Tropicana (a juice brand from Pepsi). As a result of this, capacity utilization of the plant reached 90% in 1998-99. The fourth ‘C’ - cultivation – was reflected in the initiatives taken at Bhandgaon, Maharashtra, where the company’s 25-acre farm was situated. TBEL employed the local farmers and trained them in hi-tech methods of 4 A cold storage technology, freezes cooked or raw food products at certain temperatures for retaining the texture, nutrition and good taste.26
  • 25. The Tasty Bite Story Figure I Tasty Bite’s 4 ‘C’ Strategy TASTY BITEConcentration Conversion Collaboration CultivationRTS New Maximize Asset Partner with Key Contract FarmingProducts Utilization national and Global Players Global DemoUS Expansion Converting Farm existing relation- ManufacturingNew Global ships into long- IntegratedMarkets term contracts. Grading CenterIndiaE business The 4 C Approach Source: A&M, October 15, 2000. cultivation for producing high quality vegetables. This in-house sourcing of raw material enabled TBEL to maintain quality standards besides reducing its dependence on others. The company’s expansion plans required a considerable amount of money. Payments for placing a product in just one store of a chain in US ranged between $ 5000 and $ 10,000. Even with a narrower base of natural food store chains, it was difficult for PBI to pay $10,000 to each of the 200 stores it had shortlisted. To overcome this problem, the company undertook a cluster analysis study5 in various US cities and generated a demographic profile6 of the customers they needed to concentrate on. The company found that its potential customer’s age group was between 25-54, with average earnings of $ 75,000 a year. This helped the company narrow its focus and reduce its list of stores from 200 to 80. This reduced the amount of payments to be made to stores from $ 2 million to a more manageable $ 800,000. A smaller list of stores also led to a more focussed distribution strategy. Unlike other Indian food companies, PBI worked very hard to offer its customers products beyond pickles, spices and papads.7 The company thus decided to launch a wider range of products specifically targeted towards local US customers. After some 5 Cluster Analysis is an analytical statistical technique that arranges research data into mutually exclusive and collectively exhaustive groups (or clusters) where the contents of each cluster are similar to each other, but different to the other clusters in the analysis. 6 Demographic Profile is based on the age, gender, life-cycle stage and occupation of consumers. 7 An Indian side dish generally made of black gram flour. 27
  • 26. Marketing Management - I intensive research, it decided to launch the Tasty Bite range in the $5 billion natural food category8 through mainstream retail chains in the US. PBI also began advertising through sweepstakes9 at the retail level and in-store demonstrations, thus enhancing awareness and encouraging customers to experiment. This also helped in lowering advertising costs significantly. The company also focused on increasing the Americans’ understanding of Indian food. PBI realized that the average American customer was not able to understand the products being offered and their Hindi language names did not make sense to the customers. The company thus decided to slash the product portfolio from 25 to 8 and retained only those products that were familiar to the American consumer. Also, products were renamed in English for instant identification and easy understanding. Thus, ‘Palak Paneer’ became ‘Kashmir Spinach,’ ‘Navratan Korma’ became ‘Jaipur Vegetables’ and ‘Alu Chole’ became ‘Bombay Potatoes,’ and so on. The recipes were also modified to suit the western palate. PBI also modified the packaging to suit customer requirements. Earlier, products were sold in pack sizes that ranged from 200 gms to 1 Kg. This was replaced with a standard size of 300 gms, as unlike mainstream food in the US, Indian food was not consumed in large quantities. The smaller pack size motivated the consumers to give the products a try. By August 2001, the pack size was changed to 285 gms (10 ounces) to bring it in line with American standards of measurement. This also meant that a store shelf now accommodated nine packs as compared to the seven earlier. By 1998-99, TBEL began reaping the benefits of its turnaround efforts and recorded a net profit of Rs 4.7 million. By the end of 2000, its products were available in 27 US states through 33 leading natural food stores and mainstream supermarkets. By 2001, TBEL’s profits increased nearly three fold to Rs 13.42 million (Refer Table I). According to SPINS, an agency that tracked the market shares and consumer preferences of natural food brands in the US, TBEL was the largest brand in the category. Bombay Potatoes (Alu Chole) had become a common side dish for many Americans. TBEL’s entry into Holland, Switzerland and UK was also showing positive results Table I Growth of Revenues and Profits YEAR REVENUES PROFIT (LOSS) ( Rs Million) (Rs Million) 1996-97 23.6 (17) 1997-98 36.0 (2.6) 1998-99 54.7 4.7 1999-00 90.24 10.03 2000-01 131.07 13.42 Source: Business World, August 20, 2001. 8 The natural foods category consists of products that are minimally processed and are free from artificial ingredients, preservatives and other chemicals that do not occur naturally in food. 9 Sweepstakes includes any procedure in which a person is required to purchase something, pay something of value or make a donation as a condition of awarding a prize or receiving, using, competing for, or obtaining information about a prize.28
  • 27. The Tasty Bite StoryFUTURE PLANS In September 2000, TBEL began working towards repeating its export market success in the domestic market. TBEL divided the Indian market into two broad segments: the domestic segment focusing on working women, and the institutional segment comprising fast food restaurants, hotel chains, airline flight kitchens and the Indian Army and Navy. Nigam said, “Although Tasty Bite is the No. 1 selling Indian food brand in the US, the task in India is daunting. The challenge, therefore, is to first establish the category and then associate it with the brand.” TBEL was optimistic that its earlier dismal performance in the domestic market would not be repeated. A national study on the food and grocery sector GROFAST (Grocery and Food Advantage Study), conducted by KSA Technopak,10 showed that 73% of Indian consumers preferred to have traditional Indian meals in the RTS format rather than western food. This attitude was mainly attributed to the shift in the preferences of consumers and readiness of Indian consumers to experiment with food. A TBEL source remarked, “In India there is a paradigm shift among women. The Indian woman is no longer just a housewife, but is more the manager of the household. Also, the working woman is not guilty about eating outside food at home. Tasty Bite products, therefore, are designed to collaborate and not compete with the new Indian woman.” TBEL management felt that the Indian market had become mature enough to appreciate the convenience and value of RTS foods. TBEL launched its products in Pune, Mumbai, Bangalore, Chennai and Hyderabad without much advertisement and promotion support. Encouraged by the good sales reports, TBEL decided to launch the products nationally by the end of 2001. The company also decided to spend 40% of its domestic revenues to launch a billion brand-building campaign during 2001-02. TBEL also started conducting research for launching RTS sweets and non-vegetarian food. By 2001, HLL, Dabur Foods, MTR and Amul had also entered the Rs 10 billion Indian RTS food market. TBEL planned to increase its turnover to Rs 1 billion by 2003. The company seemed to be working hard to fulfil Kilachand’s vision of becoming ‘the most respected food company in India.’ Questions for Discussion: 1. Examine Pepsi’s and HLL’s involvement with TBEL. Do you think that their fleeting interest in TBEL was disadvantageous for the company? Give reasons to support your answer. 2. A renewed focus on customer service was one of the key components in TBEL’s turnaround. Prepare a detailed note outlining the major components of TBEL’s turnaround strategy and comment on their efficacy. © ICFAI Center for Management Research. All rights reserved. 10 Kurt Salmon Associates (KSA Technopak) is a Management Consulting firm, offering integrated strategy, process and technology deployment solutions to the Retail, Fashion, Food & Grocery and Healthcare industries. 29
  • 28. Marketing Management - I Additional Readings and References: 1. Tasty Bite in Limelight, January 26, 1998, Business Standard. 2. Sule Surekha, Tasty Bite turns savory, January 30, 1998, Indian Express. 3. Gupta Shalini, Avoid the offer, September 21, 1998, Business Standard. 4. Fernando V S, Investors begin to taste the turnaround of Tasty Bite, October 2 1999, Express India. 5. Jordan Miriam, A Pune company turns hot favorite on dining tables in US, February 28, 2000, Financial Express. 6. Jordan Miriam, Tasty Bite Eatables spices up its marketing to serve top US ethnic brand, March 1, 2000, Expressindia.com 7. Joseph K Mini, Tasty Bite eyes Nasdaq listing via ADR float, June 28, 2000, Financial Express. 8. Pande Shamni, Retailing Mother’s Recipe, July 22, 2000, Business Today. 9. Tasty Bite targets Rs 100 crore turnover by 2003, September 1, 2000. Expressindia.com 10. Krishnan Aarti, Tasty Bite Eatables: Avoid/Hold fresh Exposures, December 31, 2000, Hindu Business Line 11. Kaul Pummy, Tasty Bites sales, ad initiatives to go national, March 22, 2001, Financial Express. 12. Tasty Bite to sink teeth into regional specialties market, April 1, 2001, The Economic Times. 13. Tasty Bite tickles southern palate, July 4, 2001, Business Standard. 14. Kohli Vanita, A Taste of India, August 20, 2001, Business World. 15. www.aandm.com 16. www.dhan.com 17. www.indiainfoline.com 18. www.tastybite.com30
  • 29. Unilever in India: Building the Ice Cream Business If you remain with the same strategy for a long time and it doesnt deliver, there is no risk in changing the strategy, as long as you are doing some sensible thing. This is a major shift from the last five/six years. What we used to do was change flavours in the Max range, as we were looking at the mass market. This year, we are trying to bring innovation in a different plane. In the past we were afraid of charging a price, now we are saying that the product is so good that people will see a value for their money. What we are trying to bring is more excitement around the category. We did a lot of packaging change, for a more harmonized look. -J. H. Mehta, Executive Director (Ice Creams), HLL1INTRODUCTION In January 2000, in one of the profit center review meetings, the board of Hindustan Lever Ltd, Unilever’s Indian subsidiary, gave an ultimatum to the Ice Cream Executive Committee (ICEX) to break even by the end of 2001. It had been six years since the company had entered the ice cream business. During this period, despite its best efforts the division continued to be in the red. Responding to the board’s directive, J.H. Mehta, Executive Director, Ice Creams with his core ICEX team, embarked on a new business strategy to revive the loss making ice-cream business. HLL sold ice creams in 40,000 outlets countrywide. But seven cities -Mumbai, Delhi, Kolkata, Hyderabad, Bangalore, Chennai and Pune - represented two-thirds of the organized 80 million litres ice cream market. HLL decided to concentrate only on these seven cities for its ‘Kwality Wall’s’ brand. The number of manufacturing units was cut down to six from 40 that were present in 1995. HLL also decided to launch a range of new products backed by advertisements and innovative promotional offers. The company decided to promote Kwality Wall’s as an umbrella brand. The ice cream division made profits of Rs. 9.74 crores for the first time during January – June 2003, compared to losses of Rs. 2.86 crores and Rs. 9 crores in the first six months of 2002 and 2001. But HLL realized there were formidable challenges ahead in a fragmented market, where competition was intensifying.BACKGROUND NOTE HLL’s origin went back to 1885 when the Lever Brothers set up “William Hesketh Lever”, in England. In 1888, the company entered India by exporting ‘Sunlight’, its laundry soap. In 1930, the company merged with ‘Margarine Unie’ (a Netherlands based company which exported vanaspati to India), to form Unilever. In 1931, Unilever set up its first Indian subsidiary, the Hindustan Vanaspati Manufacturing Company for production of vanaspati. This was followed by the establishment of Lever Brothers India Ltd. in 1933 and United Traders Ltd. in 1935, for distribution of personal products. In November 1956, the three Indian subsidiaries merged to form Hindustan Lever Ltd. (HLL). 1 “Kwality Wall’s hopes to make the ‘right connection’ now”, The Hindu Business Line, 3rd April 2002.
  • 30. Marketing Management - I In 2003, HLL was India’s largest Fast Moving Consumer Goods (FMCG) company with a turnover of over Rs. 10,000 crores, an employee strength of 40,000 and more than 110 brands. It was well ahead of all the other players in the industry. HLL was a market leader in almost all the product categories in which it had a presence - soaps and detergents, hair care, skin care, household products, dental products and foods and beverages. HLL classified 30 of its brands as power brands. These were the best selling brands that contributed about 80% of the revenues. Examples were Surf, Fair & Lovely, Kissan, Pepsodent, Close-up, Sunsilk, Clinic, Lux, Lifebuoy, Wheel, Lakme, and Kwality Wall’s. All these brands had become household names. HLL’s ice-cream business had evolved through a number of acquisitions of ice cream brands and strategic tie-ups with Indian groups. Unilever, HLL’s parent company had experienced a phenomenal success in its food business in Europe in the early 1990s. This prompted Unilever to expand its food portfolio worldwide. India was identified as a promising market. Unilever entered the food business through group company Brooke Bond Lipton India Ltd. (BBLIL)2, which had acquired Kissan from the UB group and Dollops ice cream from Cadbury India in the early 1990s. In the mid- 1990s, BBLIL launched Unilever’s international Wall’s range of ice creams in India. BBLIL also entered into a strategic alliance with the Kwality Ice cream Group to sell ice creams under the Kwality Wall’s brand name. In 1995, BBLIL acquired the marketing and distribution rights of ‘Milkfood 100%’, a brand of ice creams from Jagatjit Industries. In January 1996, BBLIL merged with HLL. Eventually all the smaller brands were phased out and Kwality Wall’s emerged as the mother brand. The Indian Ice Cream Market In 2004, the Indian ice-cream market was valued at around Rs 1,000 crore of which the organised sector accounted for Rs 600 crore. When HLL entered the market in 1994, the segment was reserved for the small-scale industry. The market was dominated by a large number of small sized, local and regional manufacturers. Government regulations discouraged excessive capital investments in the sector. HLL classified its products as ‘frozen desserts’ (which used vegetable fat as opposed to milk fat used in ice creams), as these did not come under the purview of the reservation. After the Indian government liberalized the rules for the ice cream industry in 1997, the sector grew at a rate ranging from 15 to 20% per annum. In contrast, market growth in the 1980s and the early 1990s had been 2 – 3% per annum. With a low per capita consumption of ice cream at 200 ml, opportunities in India for ice-cream marketers were abundant. In the late 1990s and early 2000s, with the liberalization of the Indian ice cream market, multinational companies with their premium ice cream brands entered the scene. The new players included Baskin Robbins from the US based Allied Domecq International, Haagen-Dazs (owned by the Pillsbury Company), the Iowa based Blue Bunny and the Swiss major Movenpick. However, the international premium brands could not make much success out of their ventures. Baskin Robbins, which operated in India through a joint venture with Maharashtra Dairy Products Manufacturing Company Pvt. Ltd., managed to capture a market share of just under 5% of the Rs 600-crore organized ice-cream market, growing at only 3% in volume terms and showing a negligible value growth. 30 Baskin Robbins outlets were closed down across the country. The $600-million Iowa-based Wells Dairy Inc-owned Blue Bunny ice-cream, which commenced operations in 2000 through distribution and marketing 2 Brooke Bond’s presence in India dated back to 1903, when Brooke Bond Red Label tea was introduced. Brooke Bond joined the Unilever fold in 1984 through an international acquisition. Lipton’s links with India dated back to 1898. Unilever acquired Lipton in 1972, and Lipton Tea (India) Ltd. was incorporated in 1977. Brooke Bond and Lipton India merged in July 1993 to form BBLIL.32
  • 31. Unilever in India: Building the Ice Cream Businesscompany Sno Shack Frozen Foods, withdrew from India in 2002. Nestle SA acquiredSwiss ice-cream player Movenpick, in January 2003. Movenpick had parted wayswith its local franchisee, Ravi Jaipuria, in mid-2002. Steep operating costs coupledwith high prices, were the roadblocks which Movenpick faced in the Indian market.Many reasons had been cited for the failure of global brands in India. With the highimport duties on ice cream, most of these new brands targeted the premium ice creamsegment, which accounted for only the top 3-4% of the population. Not only werethese brands expensive, but many flavours were also not palette-friendly to Indians.Given that local ice-cream options were much cheaper and extensively distributed,global brands obviously did not generate the required volumes.3Among the important regional players there were Ahmedabad based VadilalIndustries Ltd. (VIL), Mother Dairy and southern stalwart Hatsun Agro Products Ltd.,which marketed Arun ice creams. VIL had three manufacturing bases – two in Gujaratand one in Uttar Pradesh (UP) and had a strong foothold in Gujarat, Rajasthan, UPand Madhya Pradesh through its Happinezz parlours. Vadilals plans included settingup an additional five, franchisee-operated ice-cream parlours (branded Happinezz) by2004, in Delhi alone.Hatsun Agro was a strong contender in the south with an estimated 34% market sharein the south and a 56% market share in Tamil Nadu alone. Hatsun had 1,100 exclusiveice-cream parlours, 60% of which were in Tamil Nadu. The companys cold storagesexisted in Chennai, Vijayawada, Anantapur, Bangalore and Salem. Hatsun Agrohowever did not have plans to go national with its Arun ice creams, owing to logisticsdifficulties.4 Another major contender was National Dairy Development Boards(NDDB) Mother Dairy, which had a major presence in Delhi. NDDB was engaged ina battle with the erstwhile associate Gujarat Co-operative Milk Marketing Federation(GCMMF)5. NDDB was in expansion mode on the product front for Mother Dairy icecreams and had undertaken a large-scale exercise to revamp its ice-cream distributionthrough pushcarts.But the main battle in the ice cream market was between Kwality Wall’s and Amul,owned by GCMMF. GCMMF had startled the industry by claiming that it had becomethe countrys leading ice-cream seller in both value and volume terms. HLL disputedthis by quoting A.C. Nielsen data, which reported Kwality Walls overall market shareat 38.3% in 2002, against Amuls 16.7%. In individual cities, HLL’s share was 36.9%in Mumbai (against 35% for Amul), 36.3% in Delhi (Amul at 9.7%), 30.5% inBangalore (15.2%) and 54.1% in Hyderabad (13.2%). GCMMF however, contestedthe data on the grounds that it was limited to seven cities. Besides, ice cream was soldthrough exclusive Deep Freezer Outlets (DFOs). A retailer who sold one brand, say,Kwality Walls, would not stock rival brands. Prasanna Shah, head of GCMMFs ice-cream division, explained, "Market surveys are based on sales reported by the same sample of outlets year after year. A.C. Nielsens panel has not been updated for the last four years and during this period we have been adding around 10,000 DFOs annually, the sales from which are not captured in the survey data. Further,3 Ratna Bhushan, “Ice cream MNCs’ plans melt in India”, www.blonnet.com, 8th October 2002.4 Hatsun Agro’s ice cream plant was located at Chennai.5 National Dairy Development Board (NDDB), was set up in 1965 and declared an institution of national importance by an Act of Parliament in 1987 for replicating the Amul success across the country. GCMMF’s tussle with NDDB was over ownership of the Mother Dairy trademark. This move questioned the raison d’etre of NDDB’s thrust into the realm of marketing, as it was under the Mother Dairy brand that it had routed various businesses and achieved volumes close to Rs 1,000 crore. GCMMF had applied for the ownership of the Mother Dairy brand on August 1, 2000 with the Registrar of Trade Marks, Government of India. Against this, the NDDB application made for the same was put up on August 14, 2000. 33
  • 32. Marketing Management - I during this period, HLL has withdrawn its ice-cream from virtually every market, barring six cities from where A.C. Nielsens sample is drawn."6HLL’S STRATEGY In 1994, HLL had launched its ice creams on the back of a string of acquisitions and strategic alliances. By 1995, HLL had captured more than 50% of the organized Indian ice cream market. In the early 2000s, the consumption of ice creams per head in India was still very low at 250 ml compared with 300, 700 and 1,200 ml in Pakistan, Sri Lanka and China respectively.7 HLL desired not just to increase its market share but to grow the entire segment. It wished to entice traditional consumers of products like sweets into the ice-cream eating habit through new flavours catering to ethnic tastes. HLL’s ice cream portfolio included Cornetto, targeted at young adults and older people, Feast for teenagers, Sundaes for the entire family and Max, targeted at children. Product Range Feast The Feast range of ice creams and frozen desserts, launched in 1995, was positioned as a youth ice cream brand with an attitude. Over the years, Feast expanded its chocolate only portfolio by including refreshment products like Mango Zap, Calypso Punch and Jaljeera Blast. In 2001, Kwality Wall’s launched the Feast Snacko priced at Rs. 15. It was a three-layered chocolate product available in the stick format. Cornetto Launched in 1996, with the tag line ‘Bite bite main pyar’, Cornetto targeted young adults and was positioned as the product for romantic and special moments (Exhibit: II). In 2002, to the range of Chocolate, Butterscotch and Strawberry Cornettos, HLL added the Super Cornetto range, which came in two combinations - Jamaican Magic and Hawaiian Bliss. Jamaican Magic was a combination of Rum & Raisin and Coffee, with a core of chocolate sauce cone topped with nuts. Hawaiian Bliss was a combination of the black currant and strawberry flavours with a strawberry sauce cone and a cherry topping. Both the Super Cornettos, which were substantially larger than the ordinary Cornetto, were priced at Rs 30. Max Targeted solely at children, Max was launched in the year 1999 as the masti ice cream. Max’s punch line said, Masti kar Befikar and encouraged all kids to go ahead and have lots of fun (Exhibit: III). All Max products were fortified with extra vitamins. Max Cups and Max 123 had Vitamin A while Max Orange and Max Joos had real fruit juices and Vitamin C. HLL claimed that a single Max Orange candy offered a child 15% of his daily requirement of Vitamin C. In 1999, HLL launched Max Uno, the one rupee ice candy. The product was the result of a market survey, which revealed children’s preferences for locally manufactured ice candy, popularly known, as ‘pepcees’. But pepcees were manufactured under unhygienic conditions and caused health problems. With two variants of orange and cola, Max Uno at one rupee was affordable even to children from the lowest income groups. In 2001, Max was extended as confectioneries (candies) with MaxMasti (a plain fruit candy at 25 paise), MaxMagik (a single candy with two flavours, one inside and one outside at 50 paise) and ChocoMax (a milky chocolate candy at 50 paise). In 6 Ratna Bhushan, “Ice cream: Hot battles”, The Catalyst –Hindu Business Line, 17th April 2003. 7 “A Premium Scoop”, Business Standard, 22nd April 2002.34
  • 33. Unilever in India: Building the Ice Cream Business2002, HLL added Maxcream and ToffyMax to its range of Max confectionaries,priced at 50 paise.SundaesKwality Wall’s Sundaes were launched in 2001 in India in Chocolate, Strawberry andMango flavours. Later, HLL added a Black Currant8 sauce and Black Currant DryFruit pieces. Kwality Wall’s positioned Sundaes as an offering, which helped bringfamilies together for fun and enjoyment, in an age when families hardly found time tospend together. It was called the 10 p.m ice cream to symbolize the coming togetherof family members to have ice cream at night after dinner (Exhibit: I).SoftiesHLL had been a pioneer in tapping the softy cone segment (soft ice-cream dispensedinto a cone from a machine), whose size was estimated at Rs. 30 - 40 crore. After sixmonths of test marketing in Chennai, HLL announced the launch of Softy kiosks forselling softy ice creams in 2000. Investment in each outlet, including the vendingmachine, worked out to Rs 7 lakh. The product was priced at Rs 5 per cone. WhenKwality Wall’s launched its softy cones in Chennai for Rs 5, players like theBangalore-based MTR foods and fast food chains like McDonalds were alreadyoperating in the market. Also, there were other local parlours selling softy cones. In2003, the softy ice creams business accounted for less than 5% of HLL’s ice creamsegment revenues.The distribution set-up for softies was different from that of other ice cream products,which were distributed in groceries and other retail outlets. HLL pursued a differentbusiness model. The company provided the equipment, training, advertising andquality standards while the franchisee provided the place and manpower. A tamper-proof wet mix system ensured there was no human contact with the ice cream rightfrom the factory till the consumer got the product. For pre-set ice cream varietiessuch as cones, cups and bricks, the cold chain had to be maintained and the productshad to be transported by refrigerated trucks to the outlets. The ready mix on the otherhand, could be distributed to the softy parlours with no cold chain involvement. HLLrolled out the product in the South and West of India and planned to have around 45-50 softy kiosks in each city. 9However, HLL could not expand its distribution as rapidly as planned because thesofty business was capital intensive. Initially, in 2000, when HLL had ventured intothe business, a retailer had to invest Rs. 3 lakhs if he were to buy a softy machine orpay a deposit of Rs 1 lakh to lease one. HLL sold its softy mix at upwards of Rs 70,against the Rs. 62 per litre mix that other parlours got from local ice cream players.Also, the local players sold 20 cones with one litre of the cheaper mix, whereas HLL’sone-litre mix gave only 16 fillings. HLL sources explained this was due to the higherair-content in local softies. According to analysts, the break-even point for HLL’ssofty ice-cream vendors was 250 cones per day. For an unorganized player whoowned a machine costing Rs 1.5 lakh and used a cheaper mix, the break-even pointwas only 125.HLL reacted by introducing a softy machine worth Rs 1.5 lakh and products at variousprice points. For instance, while a plain softy sold at Rs 7, a softy with a sauce toppingsold for Rs 12 and an addition of nuts made the price Rs 17. In its quest for value8 Black currants rich in vitamin C and minerals were grown in Europe, USA and Chile. They were used to make jellies, jams, drinks and sauces the world over. There was an interesting history to sundaes. In the 1980s, when this dish was first put together in the US, it was against the law to sell soda and consequently, ice-cream sodas on Sundays. So the trend of serving ice cream with sauces and toppings instead of soda began. Soon, ice-cream sundaes became so popular that people opted for this dessert on weekdays as well. Source: www.hll.com9 “Kwality Wall’s steps into softy segment”, The Hindu Business Line, 21st September 2000. 35
  • 34. Marketing Management - I creation, Kwality Wall’s undertook a rejig in its product size and price points. For instance, a 100-ml cup of Max Vanilla ice cream was redesigned to 90 ml in 2001 and offered at Rs. 11. Earlier, a one-litre pack of plain vanilla cost Rs. 69. This was relaunched in 2002 as Vanilla Gold in a 750 ml pack at Rs. 65 essentially to attract the take-away segment. To induce consumer sampling and encourage feedback, HLL launched a dare to compare initiative in six major cities of India. HLL blind-folded consumers and encouraged them to sample its newly launched Vanilla Gold against the next biggest competitor in the city and then rate the same. Consumer ratings indicated that Vanilla Gold was superior compared to the competing brand in terms of its taste. More than 87% of sampled customers rated it as the most preferred Vanilla. HLL vs. Amul In the late 1990s, GCMMF launched its value-for-money Amul ice creams. These included products like the Tricone to attack Kwality Wall’s Cornetto and the Frostik to compete with Feast — both priced nearly 25% lower. In 2000, Amul launched a full-scale attack on HLL with a new sub-brand Fundoo, in two candy flavours at Re 1 each, pitching it directly against Max Uno. While Max Uno was priced at Re 1 for 15 ml, Fundoo was pegged at Re 1 for 45 ml. Under the Fundoo range, Amul also launched ice creams at higher price-points, in four variants of vanilla (Rs 10), strawberry (Rs 12), Sundae (Rs 15) and mango (Rs 14). HLL retaliated by launching a range of Max extensions in 2000, in the price range of Re.1 to Rs. 16 - Max Joos (fruit juice with vitamin C), Max Vitameter, Biki Max (ice-cream sandwiched between two glucose biscuits) and Max Rose (with rose milk in it). The company also launched Max 123, an ice cream with three flavours - strawberry, vanilla and chocolate.10 While Amul focused on price, HLL maintained its premium positioning, emphasizing the hygienic and wholesome food value of its ice creams. Amul offered price-cuts for its existing sub-brands. It ran a scheme on its premier sub-brand ‘Tricone’, (which was pitched against Kwality Wall’s Cornetto priced at Rs. 30), by offering a price cut of Rs 5 on its normal price of Rs 15. It also offered Rs 3 off Rs. 15 on Frostik, placed against Kwality Walls Feast, which sold for Rs 19. Similarly, in a bid to promote its five-litre bulk pack for parties, caterers and institutional buyers, GCMMF launched a campaign that said ‘Rs 4.30 only for a scoop of 100 ml’, to emphasize the price advantage. GCMMF entered the softy business in 2001 and launched its softies under the sub brand ‘Snowcap’ at Rs.5. GCMMF distributed its softies by leveraging the distribution network set up for its pizzas.11 Of the 300 outlets selling pizzas, 100 were converted into softy outlets. According to the ‘Ice-cream Mood’ survey conducted by FCB Ulka in 2002, Amul was perceived as being superior on creaminess, taste and price, while Kwality Wall’s scored higher on its variety and range. Another finding was that Kwality Wall’s had a more contemporary image than Amul and was preferred by youngsters — especially Cornetto and Feast — while Amul was more attractively priced and appealed to families. 12 In 2002, Amul started using the added attraction of health with its Slim Scoop and marketed it as a ‘fat-free ice cream’. It was available in vanilla and mango flavours. The company had plans to introduce banana and pineapple flavours also. Slim Scoop contained less than 0.5% fat and conformed to Prevention of Food Adulteration norms. The 500-ml vanilla Slim Scoop pack cost Rs. 40, while the mango variant was 10 “Cold War”, www.agencyfaqs.com, 30th May 2000. 11 GCMMF, made a foray in fast food business in 2001 by launching its pizzas to increase Amul cheese consumption. 12 Purvita Chatterjee, “ Amul ice creams to focus on take-away home segment”, www.blonnet.com, 4th May 2002.36
  • 35. Unilever in India: Building the Ice Cream Businesspriced at Rs 55.13 In 2003, HLL planned to introduce a low-fat ice cream. With Amulhaving made a foray already, HLL geared up to enter the market by the summer of2004. Meanwhile, Amul focused on its distribution system to ensure greateravailability of ice cream at pushcarts and small outlets. The company felt thatavailability was the most important factor in ice cream sales. So Amul ice creamswere sold in nooks and corners in STD booths, local kirana shops, drug stores andbakeries.HLL had a clear edge over Amul with its cold chain, a critical success factor in thebusiness. By the late 1990s, the company had increased its reach to 35,000 retailcabinets across the country while Amul had a total of 10,000 cabinets. One reason forHLL’s expanded reach was the relatively low deposit that HLL charged its retailersfor refrigerated cabinets. While it was possible to install an HLL refrigerated cabinetfor a deposit of Rs 5,000 only, Amul charged anything between Rs. 10,000 and Rs.20,000.14 When Amul was expanding its retail presence, HLL took the challengeahead by launching ice cream vending through carts (or “trikes”). In 1999, HLL tiedup with Voltas for retail cold-chain components. These specialized freezing systems,which were used in HLL’s cycle vending ice cream cabinets, ensured frozenconditions of -25 Celsius for over ten hours. This move enabled HLL to increase thereach of its frozen desserts to over 900 towns by the end of 2001. HLL had 6,000 to7,000 trikes across the country. The company estimated about a quarter of thecompany’s sales came from cycle vendors.New Marketing InitiativesIn the early 2000s, HLL launched a number of marketing initiatives in the light ofincreasing competition. The initiatives were implemented in four phases. In the firstphase called the ‘Innovation’ phase, HLL introduced the Indian impulse consumer to arange of products like the Feast bar and Softies, while the Viennetta, Vanilla Gold andBlack Currant Sundaes targeted the take-home segment. In mature ice-cream markets,the take-home segment accounted for more than 70% of all ice-cream consumption. InIndia, the take-home segment contributed to a mere 20% of the market. Even in themost affluent cities, ice cream eating at home was confined to special occasions(perhaps only when guests visited or for a party) and was by and large restricted to thethree regular flavours — Vanilla, Chocolate and Butterscotch. Thus the market waslimited to regular flavours and ice-cream consumption was restricted to an occasionalexperience. 15In 2002, HLL decided to expand the take home segment, introducing the ‘HomeDelivery Concept’ in Delhi, Chennai, Mumbai and Hyderabad. HLL entered into astrategic tie-up with Pizza Corner to use its call centres and delivery network todistribute its products. Pizza Corner had 29 retail outlets in six cities. While thestrategic tie-up with HLL helped Pizza Corner increase its customer base, HLL wasable to introduce an organized delivery system for its ice-cream product. HLL alsoexplored the possibility of setting up exclusive ice-cream parlours across the country.The companys ice-cream division already had two such parlours up and running inBangalore.In the second ‘Communication’ phase, Kwality Wall’s was relaunched with the catchline ‘Ho jaaya dil ka connection’, to capture the fun proposition of bonding with13 Robin Abreu, “Fight on for crème de la ice cream market”, www.domain-b.com, 13th May 2002.14 Lalitha Srinivasan and Chandan Dubey, “Walls versus Amul: Storm in the vanilla cup”, www.financialexpress.com, 17th May 1999.15 Purvita Chatterjee, “ Amul ice creams to focus on take-away home segment”, www.blonnet.com, 4th May 2002. 37
  • 36. Marketing Management - I family and friends, while being relevant to all target audiences right from children, teenagers, adults to families. Kwality Wall’s also introduced the international heart logo, as a symbol of warmth, togetherness and happiness, to maintain a common identity across the globe (Figure (i)). Figure I Kwality Wall’s International Heart Logo Source: www.hll.com The third initiative called ‘Activation and Visibility’ featured various innovative promotional campaigns to increase the brand’s visibility. In 2001, HLL decided to swing 20% of its total advertising budget in favour of events and other promotional activities to address a focused audience and at the same time create excitement. To leverage Cornetto’s association with romance, HLL announced a special contest during Valentine’s Day of 2001. The contest called Cornetto Khao Jodi Banao invited participation from couples across the country. In order to participate, the couple had to buy two Cornetto ice creams, affix the lids on the contest form along with their pictures and send them by post. The form had the prize-winning slogan to be completed by the couple at the time of participation. The contest continued till the end of February and the winners were chosen by the end of March, by a panel of judges comprising celebrities and leading designers. The first prize was a pair of Compaq Personal Computers, the second prize was a pair of mobile phones for two couples, the third prize was a Fast Track Watch from Titan for 10 couples and the fourth prize was a Levis pair of jeans for 100 couples. Consolation prizes were given for another 1000 couples. In May 2001, Kwality Wall’s launched a special promotional campaign for its Feast range. The ‘What’s on your stick?’ offer required consumers to buy any of the Feast range of products and look for a special print on their sticks. If the print on the stick depicted a picture of a wave, the lucky consumer won the first prize, which was a free trip to Mauritius. If the stick had the picture of a motorbike, the consumer was entitled to the second prize, a TVS motorbike. If the print portrayed a camera, the customer was entitled to the third prize, a Canon camera. The picture of an ice candy stick won the consumer, the consolation prize of a Feast Jaljeera Blast (actual jaljeera drink, in the form of an ice candy). In 2002, HLL launched an innovative, aggressive and the first of its kind promotional campaign called ‘Ek Din Ka Raja’ (EDKR). Unlike the previous product specific campaigns, EDKR covered the entire range of ice creams. Running from March 2002 to May 2002, EDKR was the biggest ever promotional campaign for Kwality Wall’s. The contest was awarded the Best Promotion Campaign in India award at the Promotion Marketing Awards of Asia (PMAA) in Singapore. The promotion also won two more awards in Asia - a Silver for the ‘Best Idea or Concept’ and a Bronze for the ‘Best use of Direct Marketing’ out of 97 short listed entries from Singapore, India,38
  • 37. Unilever in India: Building the Ice Cream BusinessPhilippines, China, Japan, Taiwan, Thailand and Korea.16 The total number ofredemptions was close to a million, with each consumer spending a minimum of Rs.100 to Rs. 125 per redemption.The EDKR contest entitled up to 10 lucky consumers to spend Rs 10 lakhs in a daysshopping with their family in Mumbai. They could opt to spend on consumer goodslike cars, home appliances and furnishings but all within 24 hours. Every ice creampack had a certain number of points. Consumers had to collect wrappers / lids till theyreached 150 points to be eligible to participate in the Ek Din Ka Raja promotion. Afteraccumulating sufficient points, when they got them redeemed at redemption centersset up for the purpose, they received a scratch card. There were assured prizes for allthose who got a scratch card, ranging from microwave ovens, walkmans, and watchesto video games and fun books. The bumper prize entitled ten consumers to shop forRs. 10 lakhs in a day. The bumper prize winning consumer was flown in to Mumbaialong with his family (up to four members), was provided a chauffeur driven car and aday of shopping at BPL, Hyundai, Tanishq, Westside and Wipro.In 2002, Kwality Walls launched the ‘Fridge mein Kwality Walls hai kya’ promotion.Customers who stocked Kwality Walls products in their homes were rewarded. Thispromotion was launched on the 15th of September and ran till the 31st of October inDelhi, Mumbai and Bangalore. The promotion was spearheaded by 23 "Cool-Men" inspecial Kwality Walls vans. These Cool-Men visited households at random across thethree cities. Those households that had Kwality Wall’s take-home products stocked intheir refrigerators were eligible for scratch cards and prizes. Prizes included free tripsto Australia, holiday packages to Goa, Ooty, Kodaikanal and Yercaud, gifts fromWhirlpool Appliances, offers from Pizza Corner, games from Funskool and dessertsfrom Kwality Walls.17In March 2003, Kwality Wall’s relaunched its kids portfolio of ice creams with fournew products, a new-look Max the Lion, and a summer promotion in association withCartoon Network18. The new additions were Mango Tango, Rainbow, Twister andSuper Twister, priced between Rs 7 and Rs 15, in addition to the Orange, Choberryand 123 flavours. The animated lion character, Max, was reinvented as a grown-uplion and given a new name, ‘Max, the Lion King’.The promotion, `Bano Toonstar with Scooby-Doo and Max, ran till the end of May.Children had to collect three Max wrappers with the `Bano Toonstar logo, and getthem redeemed at `Max Jungle centres for scratch cards. HLL set up 1000 suchredemption centers. The number on the scratch card entitled them to prizes likecomics, board games, cameras and tents, while the grand prize of the promotion blitzwas the opportunity to become a Toonstar, in special mini animation series producedby Cartoon Network. The `Bano Toonstar promotion was taken forward through amix of TV, print, radio, on-ground and in-store promotions, and school contactprogrammes. There were 4000 spots across major TV channels with the catch line –‘It could be you, solving adventures with Scooby Doo’.In August 2003, HLL launched a new range of limited edition ice creams centering onthe festive season of Dusshera and Diwali. In its kids’ range, Max, HLL introduced‘Max Rocket’ (in strawberry & chocolate flavours) and ‘Max Chakri’ (in blackcurrant & strawberry flavours), named after popular Indian crackers that kidsidentified the festive season with. In the Cornetto range, HLL launched Black Currantand Honey Fudge and the all-time favourite Indian flavour, Pista Kulfi, on a stick,16 “HLL’s Ek Din Ka Raja promo gets kudos from PMAA”, www.indiantelevision.com, 7th August 2002.17 “Kwality Wall’s announces winner of new promo”, www.indiantelevision.com, 2nd October 2002.18 “HLL relaunches kids ice cream portfolio-Ties up with Cartoon Network for promos”, www.blonnet.com, 21st March 2003. 39
  • 38. Marketing Management - I priced at Rs. 10. The Sundae combinations included Kool Khubani (with apricot sauce and pista flavour), Kamaal Karamel (caramel with butterscotch flavour) and a chocolate offering Choco Dryfruit Dhamaka (with chocolate sauce and a mixture of dry fruits). The new limited edition range was backed by yet another promotional offer - The Teen Vardaan Contest. Ten lucky families got the opportunity to fulfill up to three wishes each, amounting to Rs. 10 Lakhs. The promotion which built on the success of the previous promotional campaign, Ek Din Ka Raja, required consumers to collect 50 points by purchasing Kwality Wall’s ice creams. Once the 50 points were collected, consumers were entitled to a scratch card from a Vardaan Centre. Call Centres were established to direct consumers to the nearest Vardaan Centre. On the scratch card, the consumer could win assured prizes and higher-level gifts and collect them from the Vardaan centre or the call centre. Apart from the grand prize, i.e. the granting of three wishes, the assured and higher level prizes included DVD players, walkmans, video games, Batman sets, pushback cars, jigsaw puzzles, trump cards and crystal bowls.LOOKING AHEAD HLL believed sustainable competitive advantage would come from differentiation, not from price. The company believed that the only way to grow the ice cream market was to make the product exciting. After increasing penetration in the market with low- priced products, HLL shifted focus to the high end of the market. As a step in that direction, low priced products in the Kwality Walls portfolio such as Max Funjoos priced at Rs 2, were withdrawn and the lowest price point in the Kwality Walls range was made Rs 5. In 2003, HLL withdrew from the institutional sales segment of the ice-cream business as part of its strategy to focus on the premium segment, which fetched greater margins and profits. While HLL continued selling its plain flavours, its advertising and marketing efforts were more focused on new launches from its international range like the Viennetta. The visual ads for the various products like Super Cornetto or the Black Currant sundaes began emphasizing a softer, creamier and natural feel to the ice cream. For instance, HLL added a sauce inside the Cornetto to give it a softer taste. In April 2004, HLL reduced prices across some of its ice creams, particularly in the premium-end. The price for the premium Viennetta ice cream was slashed from Rs 125 to Rs 99. Meanwhile, in a bid to drive sales of its ice creams, the company planned to launch an aggressive campaign using print, outdoor as well as electronic media. Titled Dil ka dhol bajao, the campaign sought to convey to the consumer that any reason was good enough to celebrate with a Kwality Walls ice cream. While Amul had more volume share, Kwality Wall’s had greater value share. For its ice cream and milk business, Amul had begun investing in increasing its milk capacity. It had firmed up plans to invest Rs 100-120 crore to expand this from 1.1 million litres a day to 1.8 million litres a day at its Gandhinagar factory. The cooperative was also planning to expand its production facilities beyond Gujarat to serve other markets in India. In 2003, GCMMF bought an ice-cream manufacturing unit in Nagpur. Amul expected to generate sales of 34 million litres during 2004 laying emphasis on offering value for money products. For HLL, the challenge was to maintain profitability, while keeping Amul at bay. To push Kwality Wall’s, HLL decided to focus on select outlets, innovative and exciting promotional schemes, new look vending trikes (cycle vendors), enhanced outlet level visibility and innovative signage. Globally, the company had over 200 options to choose from. To sustain the excitement, HLL had plans to launch products from Unilever’s international range at regular intervals, modified to suit Indian tastes. © ICFAI Knowledge Center. All rights reserved.40
  • 39. Unilever in India: Building the Ice Cream Business Exhibit I TVC for Kwality Wall’s Sundae A woman casts an eye around the She then retires to the kitchen house and sees the family members and extracts delicious cups of ice looking impatiently at the clock. cream from the refrigerator. As the clock chimes 10, the The rest of the family is already teenage daughter waltzes into gathered there armed with their the dining room. cups and spoons. The woman enters with the ice creams ...make the new Kwality Walls laid on a tray. MVO: "Exotic black Sundae simply irresistible." Super: currant sauce and creamy vanilla... Ho jaaye dil ka connection.Source: www.agencyfaqs.com 41
  • 40. Marketing Management - I Exhibit II TVC for Kwality Walls Super Cornetto A boy says good-bye to his girl as she ...a stall selling Kwality Walls Super boards a train. He looks around Cornetto. He snaps into action and leaps uncertainly and spots... across... ...the platform to the stall. But before The boy grabs an unopened cone from a he can buy a cone, the train slowly man nearby and rushes up to the girls chugs out. compartment. But the jostling crowd does not let him Just then a helpful passenger offers to reach her and the train gathers speed. pass it on to her.42
  • 41. Unilever in India: Building the Ice Cream BusinessThe boy lunges forward and thrusts it The cone exchanges hands and finallyinto his hands. It goes to a nun who gets closer to its goal. The boypasses it on reluctantly, her face a meanwhile, runs alongside to make sureplump disappointed mask. his girl gets his token of love.MVO: "New Kwality Walls Super The girl digs her teeth into it, relishing theCornetto. Two exotic flavours with taste. She smacks the cone as the boysauce and nuts in a crispy cone." By gives a whoop of joy. Super: Ho jaaye dilnow the cone reaches where it should. ka connection.Source: www.agencyfaqs.com 43
  • 42. Marketing Management - I Exhibit III TVC for Kwality Walls Max A kid spots a man at a fair trying But his efforts are not very rewarding. to flex his muscles at the hammer The kid takes a huge bite out of his Max corner. ice cream... ...and gets ready to show his strength. MVO: "Naya Doodh badam Max. Picking up the hammer, he smashes the Damdaar Max. Max from Kwality ball to the top. Walls. Masti kar. Befikar." Source: www.agencyfaqs.com44
  • 43. Unilever in India: Building the Ice Cream BusinessBibliography1. Ratna Bhushan, “Ice cream, hot battles”, The Hindu Business Line Catalyst, 16th April 2004.2. Harish Damodaran and Ratna Bhushan, “Amul utterly keen on creaming Hind Lever”, The Hindu Business Line, 5th April 2002.3. “Kwality Wall’s brings you the ultimate temptation”, Company Press Release, 10th April 2003.4. Janaki Murali, “Kwality Wall’s hopes to make the right connection now”, www.blonnet.com, 3rd April 2002.5. “Kwality Wall’s hopes to make the right connection now”, The Hindu Business Line, 3rd April 2002.6. Ratna Bhushan, “Ice cream MNCs plans melt in India”, www.blonnet.com, 8th October 2002.7. “A Premium Scoop”, Business Standard, 22nd April 2002.8. “Kwality Wall’s steps into the softy segment”, The Hindu Business Line, 21t September 2000.9. Purvita Chatterjee, “Amul ice creams to focus on take-away home segment”, www.blonnet.com, 4th May 2002.10. Robin Abreu, “Fight on for crème de la ice cream market”, www.domain-b.com, 13th May 2002.11. Lalitha Srinivasan and Chandan Dubey, “Walls versus amul: Storm in the vanilla cup”, www.financialexpress.com, 17th May 1999.12. “HLL’s Ek Din Ka Raja promo gets kudos from PMAA”, www.indiantelevision.com, 7th August 2002.13. “HLL relaunches kids ice cream portfolio – Ties up with Cartoon Network for promos”, www.blonnet.com, 21st March 2003.14. www.hll.com 45
  • 44. Allen Solly – Entering the Indian Women’s Western Wear Market “Women have too many different kinds of clothing. They want exclusive outfits and would not buy mass produced garments. They just want the look and do not care about the label. It is too risky. It is a headache. It just would not work.” - Excerpt from a news article on www.BharatTextile.com, January 11, 2002. “We feel there is a definite potential to expand the market by offering a range of western women’s wear, properly styled and cut according to body types, under the Allen Solly brand name. That will complete the whole lifestyle package – we will have both Allen Solly Men’s and Women’s wear, and have a strong retail line-up for both.” - Vikram Rao, Director, Indian Rayon, in October 2002.WOOING INDIAN WOMEN In September 2002, leading Indian apparel company, Madura Garments (Madura, Refer Exhibit I for a brief profile of the company) launched a line of readymade women’s western wear under the brand name ‘Allen Solly Women’s Wear.’ The launch was backed by advertisements in the national print and outdoor media. The move attracted attention for two reasons. First, this was the first-ever nationwide exercise by any company to offer readymade Western wear for women in India on this large a scale. Second, Madura seemed to have taken a risk by trying to extend its hitherto ‘exclusively for men’ brand, Allen Solly, to the women’s segment. The nationwide launch was undertaken following the brand’s impressive performance during the test-marketing phase in the city of Bangalore (Karnataka) in December 2001. Through Allen Solly Women’s Wear, Madura formally extended the concept of Friday Dressing1 to women all over the country. The scope of operations and marketing support was what set Allen Solly apart from the earlier entrants in the branded women’s wear segment, Indus League2 and Raymond’s.3 Indus League had launched women’s wear under the ‘Scullers’ range, while Raymond’s had entered the segment with its designer range ‘Be.’ By late-2002, many other brands, such as Benetton, Mango, Wills Sports and Blackberrys, had either launched (or were planning to launch) exclusive women’s wear in the country. This rush to enter the segment was not difficult to understand, considering the fact that the market was almost completely in the hands of the unorganized sector and had very few branded players. Most of the national level branded players were present only in the men’s wear segment. In 2001, the women’s wear industry was estimated to be around Rs 161 billion4 with a growth rate of 9%, of which the women’s western wear 1 A concept that originated in the US, Friday Dressing refers to the trend of allowing employees to dress in casuals instead of formal wear on Fridays. 2 A Bangalore-based company set up with venture funding from Draper International, USA, Dalmia Cements, India and ICICI Ventures, India. Formed by the former employees of Madura Garments, it owned popular brands such as Indigo Nation, Scullers and Ironwood. 3 Raymond’s is a leading textile company in India that produces and markets a wide range of pure wool and wool-blended fabric, blankets, shawls and apparel accessories. Major Raymond textile and apparel brands include The Lineage Collection, Teral, Park Avenues, Parx and Manzoni. 4 In December 2002, Rs 48 equalled 1 US $.
  • 45. Allen Solly – Entering the Indian Women’s… market was estimated to be growing at 15-20% per annum, according to a study conducted by KSA-Technopak.5 Some analysts felt that these figures did not justify the pace with which companies were entering the market. And, more importantly, many analysts felt that the business did not hold too much promise, because Indian women would not be comfortable giving up their traditional attire. Around 95% of working women in India wore salwar suits (Refer Exhibit II) to work, and perhaps not many of them would be willing to shift to Western corporate wear. Madura, however, justified its move, citing studies, which revealed that though Indian women liked to experiment with Western wear, they did not have access to styles that suited them. The company was confident that it would be able to make a success of the venture despite the increasing number of players and the threat of much cheaper unorganized sector products.BACKGROUND NOTE The Indian apparel industry was dominated by the unorganized sector, with market share of over 97%. The industry was divided into two segments, ready-to-wear and tailormade. The industry was also divided on demographic (men, women and kids) and geographic (each state having its own dressing style) parameters. Over the decades, the developments in men’s and women’s wear segments showed markedly different trends. While traditionally Indian men preferred to get their clothes stitched by their trusted tailors, by the early-1990s, ready-to-wear clothes had become extremely popular. However, most Indian women traditionally wore sarees and other ethnic wear (Refer Exhibit II). Though Western wear entered the country through Hindi movies in the 1950s itself, it remained limited only to teenage girls even by the early 1980s. This was so because after marriage Indian women were generally expected to wear sarees. Though the saree segment was also almost entirely in the hands of small, localized players, there were a few national brands as well. Garden (from the house of Bombay Dyeing) was one of the first popular brands. Over the years, many other brands such as Vimal, Kunwar Ajay, Roop Milan and Parag emerged. Saree prices ranged from as low as Rs 50 to as high as a few million rupees. As society became more liberal and the number of working women increased, there was a growing need for attire that was more ‘work-friendly’ than the saree. Consequently, salwar-suits, which were convenient and easy to wear, became popular among women. This trend brought in a marked change in the way women bought clothes. While sarees were almost always bought readymade, women preferred getting their salwar suits tailored. This was because while sarees were a ‘one-size-fits-all’ kind of a garment, salwar-suits needed to be tailored according to the individual’s requirements. Gradually, salwar suits became popular all over the country, and women from many states replaced their traditional attire with salwar suits. Interestingly, the salwar suit segment had no national level branded players even at the beginning of the 21st century. In the salwar suit segment ‘local’ salwar suits were available for as low as Rs 150, while designer label (purchased from high-end boutiques) salwar suits cost Rs 50,000 or more. Despite the growing popularity of salwar-suits, the saree remained the most favored and the highest selling product in the country (a KSA-Technopak study 5 Kurt Salmon Associates (KSA Technopak) is a Management Consulting firm, offering strategy, process and technology deployment solutions to the Retail, Fashion, Food & Grocery and Healthcare industries. 47
  • 46. Marketing Management - I revealed that around 197 million women purchased roughly 315 million sarees in 2001). Gradually, ethnic wear (gagra choli and Lehangas), as a segment became a niche segment as ethnic clothes were worn only on special occasions such as festivals and marriages. However, the category’s growth was higher than that of salwar suits. With many designer boutiques and exclusive showrooms entering the business, the salwar suit segment saw some efforts towards branding, though primarily on a local scale (in 2001, around 103 million customers bought 145 million ethnic wear sets, out of which 48 million were ready-to-wear and 97 million were tailormade). By the late 1990s, the Indian economy (and Indian society) showed clear trends of becoming increasingly westernized in terms of lifestyles, education and vocation, especially in urban areas. The growing number of career-oriented women resulted in a major shift in the way certain products and services were marketed in India. The emergence of products such as ready-to-eat/serve food, fast food joints, take-away meals, branded jewellery and branded sarees/salwar suits was a direct result of the above developments. The introduction of corporate, formal, western wear for women was another step in this direction. With cultural changes sweeping Indian society, many companies viewed branded women’s western wear as a segment that had tremendous potential. According to a KSA-Technopak study, of the total Indian women’s wear business valued at Rs 161 billion, the readymade segment comprised 78% (Refer Table I). Table I The Indian Apparel Market (2001-02) (in Rs billion) A B C D E Category Tailored Readymade Total Branded Readymade* Men 88.000 110.00 198.00 53.00 Women 35.000 126.00 161.00 31.00 Kids 9.50 62.50 72.00 6.00 Total 132.50 298.50 431.00 90.00 * Branded Readymade (E) is a subset of the readymade segment (C). Source: KSA-Technopak In the women’s branded readymade segment, while the premium segment (Rs 1000 and above) grew by 18% in 2001, the medium segment (Rs 500 – 1000) grew by 15% and the lower segment (Rs 200-500) grew by around 12%. These growth figures were expected to remain more or less constant in the future. As the table indicates, there exists a difference of Rs 22 million between the market for men’s and women’s branded readymades. Perhaps this is why there was a plethora of national level brands in the men’s segment. Since competition in the men’s segment was intense and demand was reportedly inching towards saturation levels, the future growth was projected to come from the women’s and kid’s wear segments. Of the Rs 31 billion branded readymade women’s wear market, about Rs 6 billion was from women’s Western wear, and this market was projected to grow at 25% in the future.48
  • 47. Allen Solly – Entering the Indian Women’s…THE MARKET GETS BRANDED Indus League was the first company to enter the branded women’s wear segment in the country. In 2000, the company launched a women’s range named ‘Scullers Woman’ as an extension of its popular men’s wear brand ‘Scullers.’ Promoted as ‘smart casuals for work and after,’ the Scullers women’s range was launched in three basic lines, Essentials, Manhattan and Chromium. Essentials offered basic knitted cotton blouses, flat front trousers, skirts and capris; Manhattan offered party and evening wear; and Chromium offered formal wear and evening wear (Refer Exhibit III). The company also launched a silk apparel collection named Geometric, which offered short tops, shirts and sarong sets. Scullers was marketed through exclusive ‘Scullers Club Stores’ located in major cities across the country. The range was also made available at major retail stores such as Shoppers Stop, Globus, Pantaloons and Lifestyle. Since it was the pioneer in the market, Scullers Woman received an enthusiastic response. The next major brand to enter the market was ‘Be,’ launched by Raymond’s in July 2001. While Scullers products were marketed through existing stores (both company- owned and multi-brand stores), Raymond’s Be brand was sold through exclusive stores. Commenting on Raymond’s entry into women’s wear, Gautam Singhania (Singhania), the company’s Chairman & Managing Director, said, “After much thought, we have decided to take the plunge. The launch of the Be range is an initiative aimed at corporatizing the designer range of clothing. Be will provide a platform for designers to showcase their talents for larger number of consumers.” The first exclusive Be showrooms were opened in Delhi and Mumbai. Leading fashion designers (such as Rohit Bal, Rajesh Pratap Singh, Raghavendra Rathore and Manish Arora) created outfits for the Be range. Priced between Rs 800 and Rs 7000, Be offered ethnic and fusion wear as well as Western wear. Taking the cue from Scullers Woman and Be, Madura decided to enter this segment. The decision was also inspired by the company’s discovery that women purchased Allen Solly men’s trousers in 26 and 28-inch waist sizes. Madura employed leading market research agency Indian Market Research Bureau (IMRB) to conduct a market study on the Indian work culture and the requirements of women regarding Western readymades. The study revealed that while Indian women loved ethnic clothes, they were not comfortable in them while working. Factors such as increased number of women in the workplace and challenging jobs that required a lot of traveling indicated a growing need for Western wear. The study also revealed that though Western wear was available in the market, their international styling was unsuitable for Indian women. Equipped with these findings, the company decided to focus primarily on the comfort and styling aspects of its proposed brand. The first task was to make the product suit the needs and body proportions of Indian women. According to IMRB’s research findings, the body types of Indian women could be divided into four broad categories: comfort – for a body small on top, wider on the hips; straight – equal on top, waist and hips; trim – equal on top and bottom with narrow waist; and regular – wide shouldered and narrow at waist and hips. To offer specialized and modern styling, the company recruited Stephen King, a renowned UK-based designer, to create designs suitable for all four body types. And to cater to the requirements of women who were on the heavier side, Allen Solly trousers were offered in waist size as high as 36 inches. The company also planned to launch a 38-inch trouser in future. 49
  • 48. Marketing Management - I Besides trousers, the Allen Solly range offered woven and knitted tops, and jackets in cottons and new fabrics like polynosic, lycra tencel, rayon blends and soft acrylic concentrating on the Autumn and Winter seasons (Refer Exhibit III). All garments were designed in line with the findings of market research. The range was available in bright as well as pastel shades, giving customer, a wide variety to mix and match from. The knitted range was priced between Rs 499 and Rs 999, woven tops were priced between Rs 599 and Rs 899, and trousers were priced between Rs 799 and Rs 1099. By September 2002, Madura announced the launch of Allen Solly nationwide, and by October 2002, six exclusive outlets (one each in Chennai, Hyderabad, Mumbai and Kolkata and two in Bangalore) were established. In addition, the company planned to retail the range through leading retail showrooms across the country. Special attention was paid to the designing of exclusive showrooms, keeping in mind the targeted clientele (the Mumbai store was designed by well-known UK-based architect Jean Claude Pannighetti). The stores were planned in a way that made the shopping experience a unique and pleasant one. Garments were stacked in easy to find, fit-based categories, making it easier for customer to locate garments of the required size. All the stores were given a contemporary look with radiant steel, pleasant whites and Belgian glass providing a bright and open ambience. The target customer base for Allen Solly women’s Western wear was identified as the self assured, office going women in SEC A6 between 22-40 years of age, who wore Western outfits once or twice a week, and had an income of Rs 8,000 and above per month. Commenting on the decision to launch the range, Vasant Kumar, Vice- President (Marketing), Madura, said, “Our target is not women who already wear western clothes; we are pegging on converting the salwar-kameez category. If in the process, we manage to attract the former category, that is just a bonus.” The company reportedly sought to attract women who gave importance to ‘sophisticated professionalism’ in their lives. To support the brand, Madura decided to go in for aggressive campaigning and earmarked a total investment of Rs 100 million. Of this, around Rs 60 million was allotted for advertising and the remaining Rs 40 million was allotted for background research, creative team, manufacturing and retailing. Promotional exercises for the brand began with a fashion show organized by the company, which displayed the entire range. The company made extensive use of mailers to reach targeted customers. The mailer contained an inch tape, with a message ‘Every body is perfect; you have just got to dress it right.’ Madura planned to promote the brand mainly through outdoor advertising and print campaigns (refer Exhibit IV for a print advertisement). The campaigns focused on the workplace success of women and how this success was handled with style and flair by the women concerned. The idea was to establish the brand as a true reflection of the attitude of women in the 21st century Indian workplace. Leading magazines and other publications that were read by women from the targeted segment carried the print advertisements, while billboards and hoardings were extensively used at prime locations in all the cities the range was launched in. The initial response to Allen Solly women’s wear was reportedly positive, especially due to the availability of ‘comfort fit’ trousers. The brand seemed to have gained a significant amount of recognition due to advertisements and media coverage. 6 Socio-Economic Classifications (SEC) categorize urban Indian households into five segments, SEC A, SEC B, SEC C, SEC D and SEC E, on the basis of education, occupation and chief wage earner’s profile. A and B are high SEC classes, SEC C falls in the mid SEC class and SEC D and E are low SEC classes.50
  • 49. Allen Solly – Entering the Indian Women’s… However, despite this positive response, Madura’s decision to launch the range attracted criticism from some industry observers. Doubts were expressed about the logic behind extending a successful, nine-year old men’s wear brand to the women’s wear segment. By extending the brand, the company saved a lot of time and money that would have gone in building a new brand. However, such a move may make some men shift to a ‘pure men’s brand’ in future. Though Scullers, ColorPlus and Wills Lifestyle had also similarly extended their brands, none of these brands had a brand image as popular and well entrenched in the country as that of Allen Solly. However, company sources disagreed that men might shift to a pure men’s brand and claimed that launching women’s wear did not make Allen Solly a unisex brand. Madura Garments’ design consultant Stephen King said, “Allen Solly is not a unisex brand for the simple reason that the shapes and sizes of garments vary between men and women.” He also added, “I do not expect men to switch over to other brands just because women’s wear is also available under the same brand.” Madura sources claimed that there was no decline in the demand for the Allen Solly men’s range after the launch of the women’s range. The company also revealed that, according to its market study findings, many men were pleased with the decision to extend Allen Solly to women’s wear. However, some industry players felt that the sales of Allen Solly men’s wear could be negatively affected in the long run. Perhaps to be on the safer side, Madura decided to incorporate some elements in its communication strategy that would help restrict the flight of customers from its men’s wear range. For instance, one of the visuals in an advertisement showed an Allen Solly male model welcoming an Allen Solly female model, while the ad line read, ‘Allen Solly introduces work wear for women.’ The aim was to convey the idea that the women’s wear range was a welcome development for both genders as far as the Allen Solly brand was concerned. Analysts also pointed out that by categorizing women’s garments on the basis of body types, Madura risked investments in large inventories for itself as well as its retailers. The issue of inventory assumed greater significance considering the fact that the shelf life of women’s wear was reported to be lesser than that of men’s wear. Moreover, retailers needed to continually replenish the stocks with new styles and colors to ensure repeat visits.FUTURE PROSPECTS Despite the apprehensions of some analysts, many players began taking interest in the Western women’s wear segment in India. Leading textile company Arvind Mills (the market leader in the Indian denim market with brands such as Lee, Levis and Newport) planned to enter into the women’s Western wear segment by early-2003 under its popular premium brand ‘Arrow.’ Darshan Mehta, President, Arvind Brands, said, “In the US, there is a strong women’s line under Arrow, which we plan to launch in India.” Meanwhile, existing players were also working towards the success of their brands. Raymond’s planned to extend its distribution chain to 100 exclusive Be outlets by 2003, mainly through the franchisee route. The company also considered the possibility of integrating Be with the existing Raymond’s retail outlet network. Said Singhania, “We already have 250 outlets for Raymond. Going down the line, we will certainly look at integrating Raymond with Be.” Madura announced that it would strengthen its retail network and record a turnover of Rs 500 million during 2002- 2005 through the Allen Solly women’s wear range. Even private fashion labels were entering the business, attracted by the changing market dynamics. Many leading fashion designers such as Ritu Beri and Puja Mehra 51
  • 50. Marketing Management - I Gupta (Puja) launched their range of women’s clothing through exclusive retail outlets. These clothes were not exorbitantly priced like private fashion labels usually were. Ritu Beri’s ‘Label’ collection offered Western wear, ethnic and party wear while Puja’s Bizarre’s collection offered only Western wear. With four exclusive showrooms in Delhi, Puja planned to expand to other cities. Puja had split Western women’s wear into five categories, daywear, lounge wear, club wear, holiday wear and party wear. Catering to all the above categories, Bizarre garments were priced between Rs 500 to Rs 5000. Though the projected growth rates were attractive, industry observers felt that there was not enough room for so many players. Moreover, they were of the opinion that companies would find it tough to figure out the perfect fit and offer the best dressing solutions for working women. However, the players seemed to be confident about their prospects as the number of working women was expected to increase in the future. One important question needed to be answered: would the projected growth rates of Western women’s wear turn into real figures? Questions for Discussion: 1. Examine the circumstances that prompted Madura to launch women’s Western wear in the Indian readymade women’s wear industry. Why do you think companies primarily offered only men’s wear in the branded readymade apparel segment in the country? What kind of cultural and social changes led to the launch of Allen Solly Women’s Wear? 2. Critically analyze the product development, retailing and promotional strategies adopted for Allen Solly women’s wear. What are the essential differences between marketing readymade apparel to men and marketing readymade apparel to women in a developing country? How would your answer differ if the target customer base belonged to a developed country? 3. ‘Madura has taken a major risk by extending a ‘pure men’s brand’ to the women’s wear segment.’ Comment on this statement in light of observation that men might switch over to a pure male brand in the future. Do you think Madura’s move could erode Allen Solly’s brand equity? 4. With many players entering the women’s Western wear segment, do you think Allen Solly would be able to grow as planned? As part of a team responsible for managing the brand, help the company design a marketing strategy plan to attain leadership position in the women’s western wear segment. © ICFAI Center for Management Research. All rights reserved.52
  • 51. Allen Solly – Entering the Indian Women’s… Exhibit I Madura – The Company Madura Garments began functioning as a subsidiary of Madura Coats Ltd. (Madura Coats), in which Coats Viyella plc, Europe’s largest clothing supplier, held a majority stake. Coats Viyella owned internationally established brands such as Peter England, Louis Philippe, Van Heusen, Allen Solly and Byford, which were marketed in India by Madura Coats. The company was the pioneer in the branded readymade men’s wear market in India. It launched the Louis Philippe range of shirts and trousers in 1989, which emerged as the market leader in the super premium men’s wear category in India (the range included silk printed shirts, trousers, blazers, ties, T-shirts, socks and other accessories). In 1990, the Van Heusen range targeted at corporate executives was launched. Van Heusen soon became India’s largest selling brand in the readymade shirts segment. Allen Solly, which was launched in India in 1993, introduced the concept of Friday Dressing in the country. Allen Solly also targeted corporate executives and was positioned as ‘formal wear with a relaxed attitude.’ Encouraged by the success of Louis Philippe and Allen Solly, Madura launched another brand, Peter England in 1997, which targeted the mid-segment The company also entered into the knits segment with Byford. In 1998, it launched San Frisco men’s trousers and trouser sub-brands Spiritus (of Louis Philippe) and Elements (of Peter England). Through Elements, Madura entered the casuals (trousers and jackets) segments. In December 1999, the Aditya Birla group textile company, Indian Rayon, took over Madura. Madura continued launching innovative styles under its premium brands Uncrushables, Tencel, 7 day Fit and Citrus collection under Allen Solly; Permapress, Stretch and Monet under Louis Philippe; and Durapress, Boardroom Black, Flat Front Trousers, and Contemporary Creams under Van Heusen. Madura also launched a highly innovative brand in the form of Van Heusen’s odor-free range Durafresh. In the same year it also launched Louis Philippe’s Stretch Collection. Madura Garments also concentrated on the export segment, and became a supplier to global players such as Tommy Hilfiger and Marks & Spencer. To improve its designs, Madura set up a full-fledged design studio at Bangalore headed by Stephen King. In 2002, the company registered a turnover of Rs 3.5 billion and its export revenues reached Rs 500 million.Source: ICMR Exhibit II Traditional Clothes Worn By Indian Women SAREE SALWAR-SUITSource: www.google.com Source:www.neerus.com 53
  • 52. Marketing Management - I Exhibit III The New Western Wear Offerings for Indian Women SCULLERS ALLEN SOLLY BE Source: www.scullers.com Source: www.blonnet.com Source: www.raymondsindia.com Exhibit IV An Allen Solly Print Media Advertisement Source: The Times of India, December 22, 2002.54
  • 53. Allen Solly – Entering the Indian Women’s…Additional Readings & References:1. Kurian Bobby, Womenswear to be Launched Under Indigo Nation...., Business Line, April 4, 2000.2. Apparel Allen Solly Brand to Dress Up Women as Well, www.textileoffice.com, June 1, 2001.3. Raymonds Be: For the ‘Complete Woman,’ The Catalyst, July 31, 2001.4. Madura Garments: Gets into Women’s Range, Business Line, December 18, 2001.5. Chatterjee Purvita, Raymond Wants to Be: With it, Business Line, January 10, 2002.6. Mary Vijaya S. B., When Sally met Solly, The Hindu, April 23, 2002.7. Begg Yusuf, Hoping for a New Wardrobe, Business Standard, June 8, 2002.8. Whos wearing the pants? Allen Solly Launches Womenswear, Business Line, August 23, 2002.9. Jagannathan Venkatachari, All’s Well that Sells Well, www.domain-b.com, August 31, 2002.10. Challapalli Sravanthi, The Woman in Allen Solly, The Catalyst, September 12, 2002.11. Chandran Praveen, Rs 10-crore Fund for Allen Solly Women’s Wear, Business Line, October 3, 2002.12. Joseph Jaimon, Allen Solly: Now for Women, biz.yahoo.com, October 4, 2002.13. Allen Solly Womenwear Targets Rs 10 cr, Economic Times, October 4, 2002.14. It’s Friday Dressing for Women Now, Business Line, October 5, 2002.15. Raymond May Take Premium Brand Global, Business Standard, October 5, 2002.16. Raymonds First Be: in Mumbai, Business Line, October 12, 2002.17. www.scullers.com18. www.allensolly.com19. www.bharattextile.com20. www.ksa-technopak.com21. www.imagefashion.com 55
  • 54. Hindustan Lever – Rural Marketing Initiatives “Consider the market, out of five lakh villages in India only one lakh have been tapped so far.” Irfan Khan, Corporate Communications Manager, Hindustan Lever Ltd., in 2001.TEACHING PEOPLE HOW TO WASH UTENSILS! In June 2002, the employees of Hindustan Lever Ltd. (HLL), a subsidiary of the fast moving consumer goods (FMCG) major Unilever and India’s leading FMCG company literally took to streets. The company was undertaking a promotional exercise in the rural areas of three states – Madhya Pradesh (MP), Bihar and Orissa for its utensil-cleansing bar, ‘Vim.’ A part of HLL’s ongoing television (TV) campaign, ‘Vim Khar Khar Challenge1,’ the promotion drive involved company officials to visit rural towns and demonstrate how vessels are cleaned with Vim. Commenting on this, Sanjay Bhel, HLL’s Marketing Manager, said, “For the purpose, we are educating the rural masses on the on-going ‘Vim Khar Khar Challenge’ TV commercial by conducting live demonstrations about vessel cleaning. Our aim is to tap the growth rate of the Rs 4 billion2 scouring bar market – although it has been growing at a rate of 15% per annum, since last year it has been decelerating.” This exercise was just one of the numerous marketing drives undertaken by HLL over the decades to increase its penetration in the Indian rural markets. The company had, in fact, earned the distinction of becoming one of the few Indian companies that had tapped the country’s vast rural population so extensively. It was therefore not mere coincidence that around 50% of its turnover came from rural markets. With the penetration of their products reaching saturation levels in many urban markets, FMCG companies had to turn towards rural areas in order to sustain revenue growth and profitability. Since the disposable income in the hands of rural people had been increasing in the late-1990s and the early 21st century, it made sense for companies to focus their energies on this segment. Industry observers also felt that HLL was at an advantage compared to most of its competitors – thanks to its consistent, pioneering efforts towards establishing well-entrenched distribution and marketing networks to reach the vast Indian rural masses.BACKGROUND NOTE HLL’s origins can be traced back to the England based company, ‘William Hesketh Lever,’ established in 1885 by Lever Brothers. The company entered India in 1888 through the export of its laundry soap ‘Sunlight.’ In 1930, the company merged with the Netherlands-based Margarine Unie, [an established player in India through the export of vanaspati (hydrogenated edible fat)] to form Unilever Ltd.3 in UK. The same year, the company established the Hindustan Manufacturing Company for production 1 The campaign featured ladies struggling to scrub and clean very dirty utensils, making a rough noise (‘khar khar’ is a Hindi language term denoting this noise) with an ordinary washing bar. Vim bar was then shown as the solution to the problem. 2 In October 2002, Rs 48 equalled 1 US $. 3 In 2002, Unilever’s operations were spread across 40 countries. Its key businesses include food, home and personal care products. Many of its brands were leaders in the respective categories in various parts of the world.
  • 55. Hindustan Lever – Rural Marketing Initiativesof edible oil. Initially, a majority of Unilever’s revenues came from soaps andvanaspati. In 1932, HLL’s Vanaspati accounted for almost three-fourth of India’sproduction of nearly 6,000 tonnes.In October 1933, Lever Brothers (India) Pvt., Ltd. (LBIL) was incorporated as awholly owned subsidiary of Unilever. Two years later, United Traders was set up forimport and distribution of toilet products. These three subsidiaries were merged in1956 to form HLL. HLL offered 10% of its equity to the public by an initial publicoffer in the same year. In the late-1950s the company undertook modernization of itsfacilities. It also expanded its manufacturing capacity for vanaspathi by buyingfactories at Trichy (Tamilnadu), Shamnagar and Ghaziabad (near Delhi). By 1960,HLL’s annual production of vanaspati had gone up to 3,36,00 tonnes.In 1961, HLL introduced ‘Lux’ soap in a range of colors. The 1960s-1970s witnesseda series of new product launches – ‘Anik’ (clarified butter, in the early-1960s),Sunsilk (shampoo, in 1964), ‘Rin’ (washing-bar, in 1969), ‘Clinic’ (shampoo, in1971), and ‘Liril’ (bathing soap, in 1974). In 1975, HLL entered the oral care marketwith a gel toothpaste called ‘Close-Up.’ In late-1970s, HLL set up 70 medium andsmall-scale factories in the rural areas for manufacturing soaps and detergent.The company also diversified into manufacturing chemicals and set up chemicalplants at Haldia (Calcutta, West Bengal), Taloja (Maharashtra) and Jammu (Jammuand Kashmir). In 1980, Unilever offered HLL shares for sale in order to reduce thenon-resident holding in the company to 51% to comply with the Foreign ExchangeRegulation Act (FERA) regulations4. The company also complied with thegovernment’s condition of minimum 10% export and 60% turnover from prioritysectors.In 1983, a new plant for synthetic detergents was set up in Chindwara district of MP.In 1986, HLL moved into agri-products by setting up a unit in Hyderabad (AndhraPradesh). In the same year, the company introduced a new variant of ‘Lux’. This wasfollowed by the launch of ‘Lifebouy Personal’ and ‘Breeze’ soaps in 1987. In 1988,HLL set up a manufacturing facility at Pondicherry in collaboration with NationalStarch Corporation, USA. In 1989, a synthetic detergent plant and a toilet soap plantwere established in Sumerpur and Orai (both in Uttar Pradesh) respectively.In 1991, HLL launched Lifebuoy Plus and Le Sancy soaps in the market. In 1992, thecompany came out with two more dental care products, Pepsodent and Mentadent G.Between 1992-1996, HLL bought many companies like Tomco, Kwality, Kissan, andLakme. In the late 1990s, HLL formed a 50:50 joint venture with the US basedKimberly Clark Corporation called Kimberly Clark Lever Limited (KCLL) thatmanufactured diapers and sanitary napkins. HLL formed another joint venture, LeverJohnson, with the US based S.C.Johnson & Co. to manufacture and market pestrepellants and disinfectants.The early 1990s (1991-1994) was a period of global recession and ‘value-for-money’became the buzzword for many FMCG companies all around the world. Even in India,there was a paradigm shift towards value-for-money products. Growth in the urbanmarkets had slowed down and even the rural market showed signs of sluggishness interms of both value and volumes. This was evident from the fact that the growth involumes (in rural areas), which had been 52% in 1996, dropped steeply to 29% in1997. In spite of the sluggish market conditions, HLL had been successful inlaunching ten new brand extensions and products in 1996 alone. In early 1997 also,the company had launched six new products and brand extensions.4 The erstwhile Foreign Exchange Regulations Act (FERA) of 1973 was formulated to regulate dealings in foreign exchange and foreign securities. As per FERA, MNCs operating in India had to either exit the country, or dilute their stake in the companies concerned. 57
  • 56. Marketing Management In 1997, HLL had a total market share of 58-60% in the FMCG sector, which further increased to 62% in 1998. HLL launched 41 new products and re-launched around 41 product innovations. The company also took up many initiatives in the area of distribution to double its reach in the rural markets. It also set up ten new factories in India – among them two each for packet tea and personal products and one each for soaps and detergents. The year 2001 was a tough year for the Indian FMCG sector due to the country’s economic growth slowing down to 4% from 6.4% in 2000. However, HLL was able to post significant gains despite a slowdown in both the rural markets and the industrial segment. This was because of its strategy to focus on its ‘Power Brands,’ aimed at sustaining profitable growths in slow markets. As a result, HLL’s financial results clearly depicted its leadership position in most of the product categories it operated in. From Rs 17.57 billion in 1992, sales increased to Rs 109.71 billion in 2001. Profit after tax also increased from Rs 985 million to Rs 15.4 billion in 2001 (Refer Exhibit I for the company’s key financials). HLL was undoubtedly the company that had virtually shaped India’s FMCG market over the decades. The company had built some of the most successful brands in India and many of its advertising campaigns had become part of the country’s advertising folklore. Amongst over 110 brands that it owned, HLL called the 30 best selling brands as ‘Power Brands’ – a title well deserved. This was because brands such as Fair & Lovely, Pond’s, Pepsodent, Close-up, Sunsilk, Clinic, Lakme, Surf, Rin, Wheel, Lifebuoy, Lux, Breeze, Vim, Kwality, Brook Bond, Lipton, Annapurna, Kissan, and Dalda had become an integral part of almost every Indian household (Refer Exhibit II for HLL’s product/brand profile). Interestingly, many of the above products, and especially those in categories like fabric wash, personal wash and beverages derived more than 50% of their sales from rural areas. HLL’s efforts to build a market for its products in these areas had started way back in the days it began operations in the country. By the 1990s, rural markets had become a significant destination for FMCG marketers like never before (Refer Exhibit III for a note on rural marketing in India).HLL GOES TO THE VILLAGES Traditionally, HLL used both wholesalers and retailers to penetrate the rural markets. A fleet of motor vans covered small towns and villages. These vans induced retailers to stock HLL products and display advertising material in their shops. In many towns, there were redistribution stockists who carried bulk stocks and serviced retailers. There were some 7,000 redistribution stockists who served over a million retail outlets. In the late-1990s, HLL realized that despite its pioneering efforts to expand its rural consumer base, a large part of the market remained untapped. Thus, the company set itself a target of contacting 16 million new village households by 1999. This was to be achieved by strongly focusing on the sales, marketing, and production of the ‘Power Brands’ in the rural markets. HLL adopted a phased approach in order to meet its target and decided to address the key issues related to availability, awareness and overcoming prevalent attitudes and habits of rural consumers. Penetrative pricing was also an important factor that was addressed. One of HLL’s initial initiatives was in the form of ‘Project Streamline’ that was introduced in select states of the country in 1998. Project Streamline addressed the problems of the rural distribution system, to enhance HLL’s control on the rural supply chain as well as to increase the number of rural retail outlets from 50,000 in 1998 to 100,000 in a time span of one year.58
  • 57. Hindustan Lever – Rural Marketing InitiativesProject Streamline was targeted at places that had a poor market development basethus making any kind of distribution unavailable. This project was to be carried outwith the help of a rural distributor who had 15-20 rural sub-stockists, connected tohim in villages. The sub-stockists performed the role of driving distribution in theneighboring villages using unconventional means like bullock-carts and tractors.As a part of the project, HLL aimed at providing higher quality services to consumersin terms of ‘frequency,’ ‘full-line availability’ and ‘credit5.’ As a result, the number ofHLL brands and the Stock Keeping Units (SKUs)6 stocked by the village retailersincreased. This initiative helped HLL increase its reach in the rural market to 37% in1998 from 25% in 1995.In mid-1998, the personal products division of HLL launched another campaign called‘Project Bharat’ to be carried out by the end of 1999. ‘Project Bharat’ was a directmarketing exercise undertaken to address the issues of awareness, attitudes and habitsof rural consumers and increase the penetration level of HLL products. It was the firstand the largest rural home-to-home operation to have ever been taken up by anycompany in India. The company carried out its direct marketing operations in the highpotential districts of the country to attract first-time users.Under ‘Project Bharat,’ HLL vans visited villages and sold small packs consisting oflow-unit-price pack each of its detergent, toothpaste, face cream and talcum powderfor Rs 15. During the sales, company representatives also explained to the people howto use these products with the help of a video show. The villagers were also educatedabout the superior benefits of using the company’s products as compared to theircurrent habits. This was very helpful for HLL as it created awareness of its productcategories and the availability of the affordable packs.However, the company sensed that the sampling campaign was not enough to attractfirst time users. Therefore, it rolled out a follow-up program called the ‘IntegratedRural Promotion Van’ (IRPV), which further enhanced the awareness about HLL’sproducts in villages with a population above 2000.Another program targeted at villages with a population of less than 2000 wassimultaneously launched. Under this program, the company provided self-employment opportunities to villagers through Self-Help Groups (SHG). SHG’soperated like direct-to-home distributors wherein groups of 15-20 villagers who arebelow the poverty line (those people whose monthly incomes was less than Rs 750 permonth) were provided with an opportunity to take micro-credit from banks. Using thismoney, villagers could buy HLL’s products and sell them to consumers, therebygenerating income as well as employment for themselves. This activity also helped thecompany increase the reach of its products.Apart from this, in May 1999, the company tied up with various Non-Governmentalorganizations (NGOs), United Nations Development Programme (UNDP) and othervoluntary organizations to increase awareness about health and hygiene in villages.The company set a goal of reaching 2,35,000 villages from the existing 85,000 andcovering 75% of the population from the existing 43%.To further increase the effectiveness of the campaign, the company aimed at achievinga 65% reach through the TV media up from the current reach of 33%. Starting withMaharashtra, the company encouraged primary education in villages with the help of5 Frequency in terms of supply of stocks to the rural distributors; Full-line availability in terms of making available all the range of products belonging to a particular brand and having similar use; and credit in terms of offering credit to rural distributors and sub-stockists.6 SKUs refer to the different brands with their different sizes and colors all counted as separate units. 59
  • 58. Marketing Management V-Sat connections7. This helped it to create greater awareness about hygiene and cleanliness thus influencing people’s behavior, which in turn would have a direct impact on its sales. By the end of 1999, HLL had covered 13 million households through ‘Project Bharat.’ The campaign was successful in increasing penetration levels, usership and the awareness about the company’s products in the districts targeted. This also helped HLL grow at a better pace than the industry. In the shampoo market, while the urban growth rate was only 4-5%, the rural growth was at 15-16%. Similarly, in the skincare market the urban growth was only at 7-8% whereas it was 14% in the rural markets. In August 1999, HLL launched a nationwide Community Dental Health campaign in association with the Indian Medical Association (IMA) to promote its toothpaste Pepsodent. HLL stood at the second position in terms of market share in the dental care segment (37%) that comprised of Pepsodent’s 16% and Close-Up’s 21% whereas Colgate-Palmolive was the leader with over 50% market share in the Rs 10 billion toothpaste market. The vision of the project was ‘to make every person in urban and rural India to adopt a good oral care regime.’ Company sources placed the total investment in the program between Rs 100-200 million. The company wanted to attain the leadership status with the help of aggressive marketing initiatives. Statistics revealed that penetration levels in India were very low with the per capita consumption (of toothpaste) being only 0.75 gm. Moreover, only 47% of the Indian population used toothpaste – while 27% used toothpowder, the rest used traditional methods such as coal and neem sticks. The growth in the segment was around 3-4% in the urban market, whereas the rural market growth was projected at 9- 10%. As a part of the project several infomercials were launched to increase awareness on dental hygiene and also to highlight common dental problems and their causes. These infomercials were aired on Doordarshan (India’s national television channel). Around 200 health fairs were organized, predominantly in the rural areas. Various dental health programmes as well as education & check up modules were organized at public health centers. Representatives of IMA and local public health centers conducted educative demonstrations on good brushing habits, correct use of dentrifices and other issues related to dental hygiene. Dental checkups were also conducted in these health centers. The Dental Health Campaign was carried out for a period of three years and targeted 100 million people across rural India. By 1999, the promotion covered 10 districts in UP and Maharashtra and by the end of 2000, the number touched 50. This campaign aimed to increase the direct reach of toothpaste in rural India to 1.25 lakh villages, up from the existing 40,000 villages by the year 2001. The IMA-Pepsodent project increased the overall dental care penetration in the country to 58-60% from the prevailing 48%. In April 2000, the company launched another campaign called ‘Project Millennium’ wherein it targeted increasing its share in the tea market. HLL planned ways to tap the ‘chai-ki-dukan’ (tea vendors). The company provided affordable tea packets that were suitably blended to appeal to the rural taste of ‘Kadak chai’ (strong tea). The company test marketed an especially designed product ‘chai-ki-goli’, (fully soluble ball) that was dropped in boiling milk-water combination. These were priced very attractively at four for a rupee. All these initiatives seemed to have paid off for HLL, since the increase in brand consciousness and disposable incomes had significantly altered the consumption 7 VSAT is an earthbound station used in satellite communications of data, voice and video signals.60
  • 59. Hindustan Lever – Rural Marketing Initiatives patterns of rural people. In a survey conducted in December 2000 called the ‘Emerging Market Trends’ by the Center for Industrial and Economic Research, it was found that HLL had overtaken both Colgate-Palmolive and Nirma in creating brand awareness and penetration in rural households. The survey revealed that HLL was leading with 88% rural market penetration whereas Nirma and Colgate-Palmolive followed in that order with 56% and 33% respectively. HLL’s brands had the highest penetration in many product categories (Refer Exhibit IV). Inspired by the success of its earlier ventures, HLL went on to participate in a rural communication programme called the ‘Grameenon ke Beech’ (Amidst villagers) in August 2001. The program was launched by the Rural Communications & Marketing Pvt Ltd, (RC&M), an agency that specialized in rural advertising and marketing. Besides HLL, the other companies that had participated in this programme included Colgate-Palmolive, automobile major Mahindra & Mahindra and foods major Parle. The first phase of the programme covered 1,000 villages and 2,000 satellite villages in 22 districts of western UP and 13 districts of central UP over a period of six months8. The program involved setting up of company stalls, product briefings and demonstrations, interactive games, lucky draws, magic shows and the screening of a hit movie interspersed with product commercials. In late 2001, HLL launched another project called ‘Project Shakti’ in the state of Andhra Pradesh for a period of six months. Project Shakti sought to create a sustainable partnership between HLL and its low income rural consumers by providing them access to micro-credit; an opportunity to direct that credit into investment opportunities as company distributors; and reward for growth and enterprise through shared profits. During 2001, the ‘rural cell’ within HLL worked closely with self help groups, NGOs and governmental bodies in Andhra Pradesh to put in place a comprehensive experiment in training these self help groups. At the end of six months of implementation (March 2002), HLL claimed to have achieved a 20% increase in consumption in the areas where it was carried out. This was a favorable development for the company, coming at a time of an overall economic slowdown. Having been successful in this initiative, HLL decided to expand this project to other states like Gujarat, Maharashtra and MP. The project at Gujarat was to be carried out in early-2002. HLL also planned to work with a group of NGOs to implement the project in the states of Maharashtra and MP in 2002-03.STAYING ON IN THE VILLAGES Continuing its focus on rural areas, HLL launched a massive rural campaign to reposition one of its leading brands, Lifebuoy, in February 2002. Lifebuoy was the single largest soap brand in rural India with 20 lakh soaps sold every year and had an estimated value of Rs 5 billion. The re-launch of 107-year-old Lifebuoy was primarily done to increase growth in the sluggish soap market. Commenting on this Category Head, Mass Market Soaps and Detergents, Sanjay Dube said, “It is the biggest and comprehensive re-launch of any of our brands.” HLL decided to further highlight the concepts of health and hygiene in rural areas to support the relaunch. The product was given a completely new look (size and shape), formulation, fragrance, lather profile and was repositioned as a family soap rather than a male soap. The company introduced many variations of the product including Lifebuoy Active Red, Lifebuoy Active Orange, Lifebuoy International Plus and Lifebuoy International Gold. HLL expected the campaign to bring the company’s growth to double-digit levels in 2002. 8 The second phase was started in early 2002 and covered eastern UP and Bihar. 61
  • 60. Marketing Management It was evident that HLL’s rural marketing initiatives were paying off well and in some cases more than it had expected. The company had left competitors Colgate-Palmolive and Nirma way behind in terms of the overall market penetration in the rural areas (Refer Table I). Table I Indian FMCG Companies – Overall Rural Market Penetration (in %) COMPANY HOUSEHOLD PENETRATION HLL 88 Nirma Chemical Works 56 Colgate Palmolive 33 Parle Foods 31 Malhotra Marketing 27 Source: www.etstrategicmarketing.com However, there was the question of how long would it be when even the rural markets became saturated. A study conducted by the Asian Market Research Association (AMRA), a Korean-based market research agency, on extensive consumer behavior in India, stated that the growth potential for FMCG brands was more in the downtown suburbs rather than the urban metros and rural areas. However, how long would it be before HLL and other FMCG marketers lost their fancy for the villages, remains to be answered. Questions for Discussion: 1. Discuss the importance of building a strong distribution system to effectively market an FMCG product, especially in rural areas. What were the reasons behind HLL deciding to focus its efforts and resources in building up the rural consumer base? 2. Discuss the various measures taken by HLL to increase the awareness and penetration levels of its products in the Indian rural markets. What do you think are the crucial differences between marketing FMCG products in rural areas and urban areas in a developing country like India? 3. Comment on the marketing structure adopted by HLL to ensure the availability of its products in the rural areas. How far has the distribution strategy contributed to HLL’s growth in rural India? 4. ‘Growth potential for FMCG brands was more in the downtown suburbs rather than the urban metros and rural areas.’ Comment on the emerging market scenario in India for FMCG products and discuss whether FMCG companies need to shift their focus on the suburbs in the future. Justify your answer. © ICFAI Center for Management Research. All rights reserved.62
  • 61. Hindustan Lever – Rural Marketing Initiatives Exhibit I Hll – Key Financials (in Rs crores)Year 1994 1995 1996 1997 1998 1999 2000 2001Profit and Loss AccountSales 2826.4 3366.95 6600.11 7819.7 9481.85 10142.4 10603.7 10971.9 8 1 9 9 0Other 56.21 66.70 118.08 183.87 244.74 318.98 345.07Income 381.79Interest (20.15) (57.00) (33.89) (29.28) (22.39) (13.15) 7.74 (29.54)PBT 302.71 372.22 605.25 850.25 1130.44 1387.94 1665.09 1943.37PAT 189.96 239.22 412.70 580.25 837.44 1069.94 1310.09 1540.95EPS of 1.30 1.64 2.08 2.81 3.67 4.86 5.95 7.46Re.1(adjustedfor bonus)DPS of 0.80 1.00 1.25 1.70 2.20 2.90 3.50 5.00Re.1(adjustedfor bonus)Balance SheetFixed 328.90 395.56 721.71 794.09 1053.77 1087.17 1203.47 1320.06AssetsInvestments 191.45 122.83 328.77 531.57 697.51 1006.11 1769.74 1635.93Net Current 342.02 457.67 378.67 122.42 226.06 187.25 (373.38) (75.04)AssetsNet - - - - - - - 246.48Deferredtax 862.37 976.06 1429.15 1448.0 1977.34 2280.53 2599.83 3127.43 8Share 146.99 145.84 199.17 199.17 219.57 220.06 220.06 220.12CapitalReserves & 391.27 492.44 792.36 1062.3 1493.46 1883.20 2268.16 2823.57Surplus 3Share 177.57 177.57 177.57 - - - - -PremiumSuspenseAccountLoan Funds 146.54 160.21 260.05 186.58 264.31 177.27 111.61 83.74 862.37 976.06 1429.15 1448.0 1977.34 2280.53 2599.83 3127.43 8Source: www.hll.com 63
  • 62. Marketing Management Exhibit II Hll – Product/Brand Profile Hll – Product/Brand Profile PERSONAL CARE CATEGORY BRANDS Skin Care Fair &Lovely Pond’s Oral Care Pepsodent Close-Up Hair Care Sunsilk Clinic Deodorants Axe Color Cosmetics Lakme SOAPS & DETERGENTS CATEGORY PRODUCTS Fabric Wash Surf Rin Wheel Personal Wash Lifebuoy Lux Breeze Household Care Vim FOOD & BEVERAGES CATEGORY PRODUCTS Ice Creams Kwality Wall’s Cornetto Kwality Wall’s Feast Kwality Wall’s Max Kwality Wall’s Cornetto Soft Kwality Wall’s Black Current Sundae Popular Foods Annapurna Culinary Kissan Beverages Brook Bond 3 Roses Brook Bond Red Label Brook Bond A-1 Brook Bond Taj Mahal Brook Bond Bru Lipton Taaza Lipton Yellow Label Lipton Green Label Oil & Fats Dalda Source: www.hll.com *The list is not exhaustive. Brands listed above were among the best selling brands of HLL. Exhibit III About Rural Marketing The vast size and large demand base of the Indian rural market offers great opportunities to FMCG companies. A location is defined as ‘rural’ if 75% of the population is engaged in agriculture related activity. India has been classified into 450 districts and approximately 6,30,000 villages. Around 90% of the rural population was concentrated in these villages with an average population of less than 2000. These villages can be sorted depending upon64
  • 63. Hindustan Lever – Rural Marketing Initiatives different parameters like income levels, literacy levels, penetration, accessibility and distance from nearest towns. Almost half of India’s national income is generated from these villages, thereby making rural markets an important part of the total market. In August 2002, around 700 million people, approximately 75% of the Indian population was engaged in agricultural activity and contributed to 1/3rd of the country’s GNP. Apart from the fact that the rural population was very large in number, it had also grown richer during the 1990s, with substantial improvements in incomes and spending power. This was the direct result of a dramatic boost in crop yields due to good successive monsoons. Tax exemptions for agricultural income also contributed to the enhanced rural purchasing power. Thus, rural India was seen as a vast market with unlimited opportunities. Therefore it is not surprising when many companies that market FMCGs of every day use, put in place parallel rural marketing strategies. The biggest brands in India belong to companies with a strong rural presence. Many FMCG companies had already hit saturation points in urban India by the mid-1990s. Thus, the late 1990s saw many FMCG companies in India shifting their emphasis on rural marketing. In late 1999, companies like HLL, Marico Industries, Colgate-Palmolive and Britannia Industries took up rural marketing in a serious manner. However, selling FMCG products in rural India was a tough task. Analysts say that the success of a brand in the Indian rural market was very unpredictable. It has always been difficult to gauge the rural market. This was evident since many brands had not been successful in rural India. Many a times, success in the rural markets has even been attributed to luck. Therefore, it is important for a company to understand the social dynamics and attitude variations within each village. A company has to address several problems before it can successfully sell its products in the market. Some of them are: Physical Distribution Channel Management and Promotion and Marketing Communication Amongst these, problems related to physical distribution and channel management adversely affect the service and the cost of the company. Typically a market structure consists of a primary rural market and retail sales outlets. The retail sales outlets in towns act as the stock points to service the retail outlets in the villages. But maintenance of the service required for delivery of the product at retail level becomes costly as well as difficult. One way this problem could be solved is by using delivery vans that take products to the customers in the rural areas as well as facilitate direct contact with them, further accelerating sales promotion. However, only big companies can afford to undertake such initiatives. Companies that have fewer resources can opt for syndicated distribution wherein a tie-up among non-competitive marketers can be established to facilitate distribution. Rural marketing requires more intensive personal selling as compared to urban marketing. The companies intending to penetrate rural markets must understand the psyche of the rural consumers and then act accordingly. Therefore to capture the rural market effectively, a company must relate its brand to the lifestyle of rural folk. This can be done with the help of various rural folk media to reach the villagers in their own language and in large numbers. This way the brand would be associated with the rituals, celebrations, festivals, melas (fairs) and other activities where they assemble.Source: www.indiainfoline.com 65
  • 64. Marketing Management Exhibit IV Indian Fmcg Market – Brand Penetration CATEGORY WITHIN HIGHEST PENETRATION CATEGORY BRAND (COMPANY) Toilet Soap 91% Lifebuoy (HLL) Washing Cakes/Bars 88% Wheel (HLL) Edible Oil 84% Double Iran Mustard Tea 77% Lipton Taaza (HLL) Washing Powder/liquid 70% Nirma (Nirma) Salt 64% Tata Salt (Tata) Biscuits 61% Parle G (Parle) Skin Cream 58% Fair & Lovely Fairness Cream (HLL) Talcum Powders 65% Pond’s (HLL) Source: www.etstrategicmarketing.com66
  • 65. Hindustan Lever – Rural Marketing InitiativesAdditional Readings & References:1. Chaze Aaron, Marketing Companies to Rule the Roost, Wednesday, June 4 1997, www.indianexpress.com.2. Nagpal Sunitha, Buy/Sell/Hold, Wednesday, July 23 1997, www.indianexpress.com.3. Singh Namrata, Growth Put at 24% as Suds Settle in Shampoo Market, Wednesday, April 8, 1998, www.expressindia.com.4. Marketplace Briefing, Thursday, April 30, 1998, www.expressindia.com.5. HLLs Q4 Net Up 54 pc to Rs 2.29 Billion; No Bonus Shares, Future Forays into Branded Fruits, Veg Products, says Dadiseth, February 15, 1999, www.rediff.com.6. Pegu Rinku, Maya Bazaar Marketing: Companies are Looking to The Rural Market to Shore up Their Bottom Lines, May 30, 1999, www.the-week.com.7. Singh Namrata, Pepsodent Joins IMA for Massive Oral Care Drive, Wednesday, August 25, 1999, www.financialexpress.com.8. THE INDEX: Colgate Palmolive, Monday, September 27, 1999, www.financialexpress.com.9. Raman Manjari, Prahalad -- Market to The Poor, Wednesday, January 12, 2000, www.expressindia.com.10. Singh Namrata, HLL Will Have to Seek New Paradigm in Marketing, Saturday, February 19, 2000, www.financialexpress.com.11. Jha Neeraj, Whipping Up an FMCG Excitement, Monday, June 19, 2000, www.financialexpress.com.12. Jha Neeraj, The FMCG Advertising Matrix, Monday, June 19, 2000, www.financialexpress.com.13. HLL Clocks 16.1% Growth in Profit, 0.42% in Sales, Saturday, October 14, 2000, www.expressindia.com.14. HLL Reports Flat Growth, Profit Up By 16.1 pc, Saturday, October 14, 2000, www.indian-express.com.15. HLL Edges Past Nirma, Colgate-Palmolive, Wednesday, December 27, 2000, www.financialexpress.com16. The Bottom of The Pyramid, January 2001, www.tomorrow-web.com17. Rural Market - A World of Opportunity, Thursday, October 11, 2001, www.hinduonnet.com.18. Fair Deal? Cos on Mela Merry-Go-Round Seek to Grab Rural Buyers, October 16, 2001, www.financialexpress.com.19. HLL Plans Rural Campaign to Reposition Lifebuoy -- To Pitch on Hygiene Platform, February 12, 2002, www.blonnet.com.20. Chatterjee Purvita, HLL Plans Rural Thrust for Toothpaste Brands, February 20, 2002, www.blonnet.com.21. Singh Namrata, Project Shakti Powers HLL Rural Sales By 20%, Saturday, March 16, 2002, www.financialexpress.com.22. Dr Y S R Moorthi, We’re Like This Only, April 10, 2002, www.indiatimes.com.23. Narayan Tarun ‘FMCG Growth Potential In Downtown Suburbs’, Wednesday, April 17, 2002, www.financialexpress.com.24. Parthasarathy Venkatesh, Does the Rural Market Like It Hot or Cold?, April 25, 2002, www.blonnet.com.25. Meheta Mona, HLL to Focus On Rural Markets to Promote Vim, Friday, June 21, 2002, www.financialexpress.com.26. Lahari Chakravarthy Sampat, A Peek into the Rural Market, July 08, 2002, www.etstrategicmarketing.com.27. www.hll.com.28. www.equitymaster.com29. www.karvy.com.30. www.indiainfoline.com 67
  • 66. Fairness Wars “The saffron and milk combination in Fairever clicked with the people because they were familiar with the goodness of the products. And we changed the rules by introducing saffron which had never been used in fairness creams in the past.” C.K. Ranganathan, CEO & MD, CavinKare Ltd “Fair & Lovely continues to grow in a healthy manner. Only two out of ten Indians use face creams. That means strong growth prospects for all brands.” A HLL SpokespersonWHO’S THE FAIREST OF THEM ALL? In June 1999, the FMCG major Hindustan Lever Ltd. (HLL)1 announced that it would offer 50% extra volume on its Fair & Lovely (F&L) fairness cream at the same price to the consumers.2 This was seen by industry analysts as a combative initiative to prevent CavinKare’s3 Fairever from gaining popularity in retail markets. HLL’s scheme led to increased sales of F&L and encouraged consumers to stay with F&L and not shift to the rival brand. In December 1999, Godrej Soaps4 created a new product category – fairness soaps – by launching its FairGlow Fairness Soap. The product was successful and reported sales of more than Rs. 700 million in the first year of its launch. Godrej extended the brand to fairness cream by launching FairGlow Fairness Cream in July 2000. By 2001, CavinKare’s Fairever fairness cream, with the USP of ‘a fairness cream with saffron’ acquired a 15% share, and F&L’s share fell from 93% (in 1998) to 76%. Within a year of its launch, Godrej’s FairGlow cream became the third largest fairness cream brand, with a 4% share in the Rs. 6 billion fairness cream market in India. The other players, including J.L. Morrison’s Nivea Visage fairness cream and Emami Group’s Emami Naturally Fair cream, had the remaining 5% share. Clearly, the fairness cream and soaps market was witnessing a fierce battle among the three major players – HLL, CavinKare, and Godrej – each trying to woo the consumer with their attractive schemes.BACKGROUND In 1975, HLL launched its first fairness cream under the F&L brand. With the launch of F&L, the market, which was dominated by Ponds (Vanishing Cream and Cold Cream) and Lakme (Moisturizing Lotion), lost their dominant position. The 1 HLL, a 51.6% subsidiary of Unilever Plc, was the largest FMCG company in India, with a turnover of Rs114 billion in 2000. The company’s business ranged from personal and household care products to foods, beverages, specialty chemicals and animal feeds. 2 Initially HLL offered Rs. 5 off on F&L. This was followed by 20% extra volume for the same price, which was later increased to 50% extra volume. 3 In 1983, C.K. Ranganathan (Ranganathan) established Chik India, with an investment of Rs.15000. Chik India was later renamed Beauty Cosmetics, and then went public in 1991. In 1998, the company was renamed CavinKare Ltd. 4 Godrej Soaps’ major product lines were toilet soaps and detergents, industrial chemicals, cosmetics and men’s toiletries. It had interests in several other businesses such as real estate, agro produce, etc through its subsidiaries. In April 2001, the consumer goods business of Godrej Soaps was demerged into a new company. The chemicals division remained with Godrej Soaps, with the new name, Godrej Industries.
  • 67. Fairness Wars dominance of HLLs F&L continued till 1998, when CavinKare launched its Fairever cream in direct competition with F&L. Within six months of its launch, Fairever captured more than 6% of the market share. The success of Fairever attracted other players. Every product in this segment was witnessing growth higher than the overall personal care product category growth. The fairness cream market was growing at 25% p.a., as compared to the overall cosmetic products market’s growth of 15% p.a. In 2000, there were 7 main brands in the fairness product market across the country. Table I Major Players in the Fairness Products Market Company Brand Product Category HLL Fair & Lovely Cream, Soap Emami Naturally Fair Cream CavinKare Fairever Cream Paras Freshia Cream Godrej FairGlow Soap, Cream Ponds Ponds fairness cream, Ponds cold cream Cream, Lotion Lakme Lakme Sunscreen lotion, Lakme Sunscreen Cream, Lotion creamFAIR (NESS) WARS In 1998, CavinKare launched Fairever fairness cream. The company took care to stick to the herbal platform that its consumers had come to associate with all CavinKare products. Fairever seemed to be an instant success. Fairever’s market share jumped from 1.23% in 1998 to 8.13% in 1999. The brand was expected to grow from Rs 160 million in 1999 to Rs 560 million in 2000. Its success attracted many players, including Godrej (FairGlow) and Paras Chemicals (Freshia). Existing products like Emami Naturally Fair and F&L were promoted with renewed vigor. In December 1999, Godrej launched FairGlow fairness soap and created a new product category. The soap claimed to remove blemishes to give the user a smooth and glowing complexion. FairGlow was positioned as a twin advantage soap – a clean fresh bath and the added benefit of fairness. In early 2000, Godrej Soaps launched Nikhar, which was based on the ancient Indian formula of milk, besan and turmeric. Though Nikhar and FairGlow were positioned differently – Nikhar targeted fairness and FairGlow claimed to protect skin naturally – the objective of both was the same, get more of a stagnating market. In April 2000, HLL introduced Lux Skincare soap, positioned on the sunscreen platform. Priced at Rs.14 for a 75gm cake, it was able to garner only a 0.5% share by 2000 end. In comparison, the mother brand Lux had a share of 14%. Retailers claimed that sales for the Lux variant were poor as it promised only protection from ultraviolet rays. While this soap prevented one from growing darker, it did not promise to enhance the complexion. By 2000 end, F&L cream seemed to be losing ground not only to other creams but also to FairGlow soap. The switch from cream to soap was largely because soaps were perceived to be less harmful to the skin than cream. HLL did not have a product in its soap portfolio for this segment, and this was where Godrej seemed to have gained. However, in 2001, HLL followed Godrej’s footsteps and launched Fair & Lovely Fairness Soap. This intensified the competition. F&L’s extension into soaps was in tune with HLL’s strategy to develop and grow the premium segment of the market. 69
  • 68. Marketing Management Since the growth in the toilet soap market had slowed down, the industry felt that premium soaps would re-energise the market. Sangeeta Pendurkar, Marketing Manager, HLL, said, “ We are targeting the 50,000 tonne premium soaps market with F&L. We believe F&L soap will synergise with F&L cream as research reveals that the usage of both will deliver better fairness.” Analysts felt that though FairGlow had the first mover advantage, F&L soap’s growth potential could not be underestimated given the strong equity of the mother brand. In 1999, HLL and CavinKare hiked the price of F&L and Fairever by Re. 1 from Rs.25 and Rs.26 respectively. In 2000, Fairever was back to its original price to maintain price parity. Many stockists said that this was done to push the product against F&L. A stockist commented, “The company was trying out this price to compete with F&L and other new brands that have come in. But we did not see higher sales due to this and the company reverted to its original price.” During 2000-01, while the fairness cream market was growing at an average of 15% Fairever’s growth had slowed down. Analysts felt that this was mainly because Fairever was priced higher than competing products. Meanwhile, in January 2000, HLL filed a patent infringement suit for Rs.100 million in the Kolkata High Court against CavinKare Ltd. HLL alleged that CavinKare was using its patented F&L formula without its knowledge or permission. HLL obtained an ex-parte stay on CavinKare, but CavinKare got the stay vacated in a week’s time. It also filed a patent revocation application in the Chennai High Court and defended the suit on the grounds that HLL’s patent was not valid. CavinKare further claimed that the ingredients contained in the composition were ‘prior art’ and that the new patent was not an improvement of the earlier patent, which had expired in 1988. In September 2000, the companies suddenly opted for an out-of-court settlement. CavinKare gave an undertaking to the court that the company would not “manufacture and/or market either by themselves or by their agents any fairness cream by using silicone compound in combination with other ingredients covered in patent no. 169917 of the plaintiff (HLL), namely Niacinamide, Parsol MCX, Parsol 1789, with effect from September 15, 2000.” HLL also gave an undertaking that it would not interfere with the sale of the cream manufactured on or before September 15, 2000, lying with the wholesalers, re-distribution stockists, and retailers.PROMOTIONAL WARS During 2000-01, with major players entering the market, the existing products were promoted with renewed vigor through price reductions, extra volumes, etc. Many products were marketed aggressively. While F&L advertisements projected fairness comparable to the moon’s silvery glow, FairGlow offered the added benefit of a blemish-free complexion. But Fairever, which sold at a higher price, did not initiate any promotional activities. B. Nandakumar, President (Marketing) CavinKare, explained, “We will not tailor our product to the competition. We’ll do so for the consumer. Freebies are not the only way to garner sales.” However, analysts believed that CavinKare did not undertake any promotional activities due to lack of financial muscle. On February 14, 2000, as a part of its promotional activities, Godrej Soaps announced the ‘Godrej FairGlow Friendship Funda’5 in various colleges in Maharashtra. In August 2000, it launched the ‘FairGlow Express,’ the first branded local train in India, 5 ‘Friendship Funda’ was a system for delivering messages on Valentine’s Day. About 50,000 cards were distributed so students could write their Valentine’s Day love messages. Special mailboxes for collecting these cards were spread out over 50 different campuses. The cards were collected, sorted, and handed over to the addressees.70
  • 69. Fairness Wars in Mumbai, in partnership with Western Railways. In December 2000, Godrej took its FairGlow brand to the web by launching www.fairglow.com. Later, it launched a unique online promotional scheme – ‘the FairGlow Face of the Fortnight.’ Every fortnight, one winner was selected and showcased on the website. The winner also won prizes like perfume hampers, gold and pearl jewellery, holiday for two etc. In early 2001, Godrej Soaps also launched its FairGlow cream in an affordable sachet (pouch pack). The 9gm sachet was priced at Rs. 5, and claimed to give around 15-20 applications per pack. It was initially launched in South India, and was expected to enter other markets very soon.THE WARS CONTINUE UNABATED In early 2001, three major players – HLL, CavinKare and Godrej – competed fiercely to penetrate the market further with their attractive schemes. A growing number of pharma and OTC drug companies like Emami, Ayurvedic Concepts, Paras etc. also entered this segment. Companies were also facing competition from Amway, Avon, Modicare etc., which were into direct selling. The market was seeing a major convergence of product categories with the emergence of more and more variants to fill every conceivable niche. This heightened competition forced companies to increase their advertisement spends. HLL re-launched F&L and quadrupled its advertising expenditure. CavinKare more than doubled its ad spends from Rs.215 million in 1999 to Rs.500 million in 2001. Godrej and Emami too planned to raise their ad spends. But even as ad spends increased, fakes entered the market. Fair & Lovely’s fakes were rampant with names like Pure & Lovely and Fare & Lovely. Fairevers copies were Four Ever, For Ever or Fare Ever. In early 2001, HLL launched Nutririch Fair & Lovely Fairness Reviving Lotion to protect its brand from any threat in the premium segment. The new product was claimed to be scientifically formulated to protect the skin from harmful ultraviolet rays and enhance natural fairness. The new formula, containing Triple UV Guard Sun protection system and the fairness ingredients Vitamin B3 and milk proteins, promised to restore and protect the natural skin colours from the sun’s darkening effects. The product was also claimed to contain Niacinamide making it the only patented formula fairness cream. It was targeted at women in the age group of 18-35 and was priced at a premium. A 50ml pack was priced at Rs.38 and a 100ml pack at Rs.68. HLL also launched ‘Pears Naturals Fairness cream’ at the same time. By mid 2001, the fairness concept was no longer restricted to creams and soaps, but had expanded to talcs also. Emami was test marketing a herbal fairness talc in the South. The rapid expansion of the fairness business had two consequences: cutthroat competition and a flurry of copycats. Every company - from the market leader to the new entrants – was forced to rethink its marketing strategies, spend lavishly on advertisements, and even seek legal action against unfair claims. Even though there was no scientific backing for the manufacturer’s claims that their products enhanced fairness, prevented darkening of skin, or removed blemishes, sales of fairness products continued to gallop. Dr R.K. Pandhi, Head of the Department of Dermatology, AIIMS, Delhi, said, “I have never come across a medical study that substantiated such claims. No externally applied cream can change your skin colour. Indeed, the amount of melanin in an individuals skin cannot be reduced by applying fairness creams, bathing with sun-blocking soaps or using fairness talc.” In 2001, the organised market of branded fairness cream products was worth about Rs 6 billion. The unbranded and fakes market was estimated to be Rs 1.5 billion. The 71
  • 70. Marketing Management market was big and the potential was even bigger. In India, beauty seemed to be associated with fairness more than with anything else. With such an attitude firmly entrenched in the minds of millions of people, the fairness products market would see fair days ahead. Questions for Discussion: 1. Though CavinKare’s Fairever was an instant success, its market share stagnated after two years of its launch. How can CavinKare increase Fairever’s market share? 2. “In the early 1970s, fairness products were offered in the form of creams. By 2000-01, the fairness concept was no longer restricted to creams, but had expanded to soaps and talcs also.” Discuss. 3. HLL’s Fair & Lovely was the pioneer in the fairness products segment, and ruled the market until 1998. After 1998 it started losing its share to new entrants and direct selling companies. Explain the steps taken by HLL to regain its position in the fairness products market. © ICFAI Center for Management Research. All rights reserved.72
  • 71. Fairness WarsAdditional Readings and References:1. Sinha Shuchi, Fair & Growing, Financial Express, January 20012. Manjal Shilpa, Nothing’s Forever, Business Standard, July 14, 20013. Barua Vidisha, High Court orders in favour of Fairever, Business Standard, January 31, 20014. HC curbs sale of Cavinkare Product, Economic Times, January 25, 20005. Basu Jaya, Who’s the fairest of them all?, Business Today, July 7-21, 20006. HLL, CavinKare settle dispute on Fairever cream, Business Standard, September 1, 20007. Chandrasekaran Anupama, Overambitious?, Business Standard, March 7, 20008. Dua Aarti, FairGlow creates stir in soap market, Business Standard, April 7, 20009. Krishnamurthy Narayan, When Brands Mean the World, A&M, November 15, 200010. Biswas Rajorshi, CavinKare eyes Rs.200 crore sales in this fiscal, Business Standard, Novermber 16, 199911. Beauty Cosmetics to alter name, Financial Express, September 2, 199812. Rath Anamika, Who’s the fairest of them all?, Business World, March 22, 199813. www.fairglow.com14. www.cavinkare.com 73
  • 72. Ujala – The Supreme Whitener “He wears only white and swears by white. At a time when Hindustan Lever managing director M S Banga is busy pruning his portfolio of brands, our man is marching ahead with expansion plans in the fast moving consumer goods (FMCG) sector. That’s MP Ramachandran, chairman and managing director of the Rs 2 billion1 Jyothi— the man behind the magic fabric whitener brand Ujala.’ - The Economic Times, July 2001.SHAKING THE MARKET LEADER By the end of 2002, Ujala, a fabric whitener2 from a company named Jyothi Laboratories (Jyothi) based in Andheri, Mumbai, had emerged as the market leader in the whitener segment of the Indian fabric care industry. What was noteworthy about Ujala’s achievement was the fact that it had gained most of its market share in the segment, by eating into the erstwhile leader, Robin Blue’s sales. Robin Blue was marketed by one of the country’s leading fast moving consumer goods (FMCG) companies, the Reckitt Benckiser subsidiary, Reckitt & Coleman (R&C)3. By the beginning of 2002, Ujala had emerged as one of the few brands in the Indian FMCG sector that was posting handsome growth figures despite stagnation in the sector as a whole. A survey conducted by ORG-MARG (a market research organization) showed that the sales turnover of the consumer goods industry had fallen by 2.5% in January-February 2002 in comparison to the same period in the previous year. Of the categories analyzed by the ‘ORG-MARG All-India Retail Audit,’ only 12.5% showed positive growth. However, the survey also showed that despite this downturn, brands owned by smaller FMCG companies fared better than their bigger counterparts. Names such as Gold Winner, Ghari, Gemini, WaghBakri, AllOut, and Ujala had found a place in the list of top brands that had successfully beaten the downturn. Their success reflected a major shift in the FMCG sector. A decade back, brands owned by multinationals had ruled the roost, and smaller brands had been content with a niche market. However, from the late-1990s onwards, smaller brands had started to threaten the bigger players in many product categories. Ujala was one of these smaller brands which had 1 In February 2003, Rs 48 equaled 1 US $. 2 Also called post wash fabric whiteners or optical whiteners, fabric whiteners are used to brighten white clothes after they have been washed. These whiteners are available in two varieties, powder and liquid. They are dissolved in water and then clothes are soaked in the solution for a few minutes and then dried. Such whiteners are popularly known as ‘neel’ (a Hindi language term for the word ‘blue’) in India. 3 R&C (now Reckitt Benckiser India Ltd.), is a 51% subsidiary of Reckitt Benckiser Plc, a company formed by the global merger of Reckitt & Coleman Plc and Benckiser Plc in December 1998. Reckitt’s presence in India dates back to 1934 when a group company Atlantic East Ltd. (AEL), started operations in India. Initially, the Company was engaged in trading activity. Over the years, it set up manufacturing facilities. Reckitt & Coleman India (RCI) was incorporated in 1951 to take over manufacturing operations of AEL. The trading activities of RCI and the operations of AEL were merged in 1969. RCI was a wholly owned subsidiary of Reckitt & Coleman UK till 1970 when it offered shares to the Indian public to reduce the foreign holding to 70%. The parent company’s holdings were further reduced to 40% in 1977. However, the parent hiked its stake to 51% in 1994. The company’s name was changed to Reckitt Benckiser in 1999 to reflect the change in global parentage. It has a presence in several niche segments such as household cleaners, surface care, shoe care and insecticides.
  • 73. Ujala – The Supreme Whitener successfully overtaken the erstwhile market leader Robin Blue and caught the attention of marketing experts, the media and the public.ABOUT FABRIC WHITENERS Fabric whiteners, which are classified as ‘laundry aids,’ complement the use of detergents by making clothes whiter. Fabric whiteners can be further classified as bleaches and blues. Bleaches whiten and brighten fabrics and help remove stubborn stains by converting the dirt into colorless, soluble particles that can be easily removed by detergents. A variety of different bleaches, with different chemical compositions, are available in the market (Refer Table I). Table I Different Types of Bleaches Type of bleach Use Best as… Chlorine Removes stains, whitens and brightens; Disinfectant, whitener (Liquid or Gel) repeated use weakens fabrics Hydrogen Peroxide Removes stains, whitens Milder solution able to whiten fabrics Oxygen Removes stains; Safe for most colored fabrics Color removers Reduce or completely removes colored Removing rust or dye stains from dyes from apparel white apparelSource: Kansas State University Agricultural Experiment Station and Cooperative Extension Service. Blues, or optical brighteners, contain a blue dye or pigment or a solution of fine blue powder. During the washing process, the fabric picks up the blue color, which makes it ‘appear’ whiter. Optical brighteners work on the principle that ‘white with a little blue tint appears to be brighter4’ (if two similar white fabrics are kept under a spectrograph, the one with a blue tint would appear brighter). The popularity of blues in India is rooted in the country’s societal system and cultural values. The cleanliness of clothes has traditionally been regarded as an indicator of the efficiency of the housekeeper, that is, the lady of the house. Consequently, most of the detergents in the country were sold on the ‘our product washes the whitest’ platform. A majority of the detergent and washing soap advertisements emphasized whiteness and featured literally ‘shining’ white clothes as a symbol of the housewife’s prowess. Shombit Sengupta (Sengupta), an international brand strategist, attributed the above phenomenon to the attitude of Indians regarding laundry. According to Sengupta, washing was regarded as a chore in the West, while Indians reportedly had a ‘more holistic relationship’ with this task, as laundry was done everyday. Since blues happened to make clothes whiter, Indian households used them frequently. Also, unlike the West, where the concept of the unified detergent had emerged, in India blues continued to be used separately after clothes had been washed. Sengupta said, “The concept of a unified detergent in India would always be a problem, which is why products like Robin would always be a necessity in the marketplace.” Despite the widespread use of blues, the Indian fabric whitener market was highly fragmented. Most of the players were small manufacturers who sold their products at 4 The human eye sees objects because of the light reflected by them. When light falls on an object, it absorbs the full spectrum of the light and throws back only a part of it. The color of an object is perceived according to the part of the spectrum reflected by it. The blue tint on white fabrics absorbs the yellow part of the spectrum, thereby making the yellowish tint invisible. This makes the cloth look whiter. 75
  • 74. Marketing Management very low prices. R&C, the first player in the organized sector, dominated the market for years with its Robin Blue powder. The brand’s popularity grew to such an extent that over time, the term ‘blue’ became synonymous with the name Robin. Though other organized sector brands like Ranipal were also available, they remained confined to limited geographical areas and posed no significant threat. Since Robin enjoyed a smooth run, R&C did not make any major marketing efforts to promote the brand. While Robin continued to be used by a limited number of ‘brand- conscious’ urban consumers, the rural masses continued to use locally manufactured blues. The entry of Ujala into the market in 1983 did not attract much attention – perhaps, Robin saw it as ‘just another’ local brand. However, in the years to come, Ujala went from strength to strength – all due to the sustained and focused efforts of Jyothi’s promoter M P Ramchandran (MPR).BACKGROUND NOTE The story of Jyothi can be traced back to M P Ramchandran (MPR), an accountant in a chemical company in the suburbs of Andheri, Mumbai (Maharashtra). MPR had developed a formula for fabric whiteners in 1960 since he was not satisfied with the products available in the market at that time. For many years, he looked for an opportunity to market his formula (his whitener, unlike the blue powders available in the market, was a violet colored liquid that dissolved easily in water). In 1972, MPR set up a small factory in Guruvayoor in Kerala, with the help of one of his acquaintances at the chemical company. The first batch of whiteners, named Ujala, consisted of only 500 bottles, and was sold mostly to MPR’s friends. These customers found the whitener to be very effective and came back again and again to buy more. MPR continued to manage his small venture along with his job for more than a decade. Finally, in 1983, he left his job to concentrate fully on the whitener business. Jyothi was thus born with a capital of Rs 5000 and just five employees. In an attempt to create a market for Ujala in Mumbai, MPR continued to work from Andheri, although the factory was located in Kerala. The initial days were hard, with no demand in sight. At one point of time, MPR had even decided to close down operations. An unexpected order of 1000 bottles from a small shopkeeper near Guruvayoor changed it all. Ujala never looked back again. Over the years, Jyothi registered a growth rate of 50% per annum. The factory in Kerala was expanded, and in 1991 Jyothi set up another factory at Pondicherry with a capacity of 5,00,000 bottles a day.5 By that time, Ujala had become the market leader in South India, thanks to its superior product characteristics. Jyothi concentrated on the southern market until 1998, when it went national. By then it had captured 90% of the market in Kerala and Tamil Nadu. Within a year it captured 25% of the Rs 2 billion organized sector fabric whitener market in the country. This development brought Ujala on par with Robin Blue, which also had a 25% share of the market. Alarmed at the rapid erosion in Robin’s market share and Ujala’s growing popularity, R&C decided to reinvigorate Robin. In 1999, the company changed Robin’s logo, launched a liquid variant of Robin Blue named Robin Dazzling, and invested substantially in promotion and advertising. However, Robin Dazzling had a low sales off take. R&C then came up with another variant, Robin Sunglow, which again received a lukewarm response in the market. Meanwhile, the market saw more action with the Pidilite group of Industries6 (Pidilite) purchasing the Ranipal brand, which had a market share of around 1% from IDI7 for 5 By 2002, the company had nine factories with a total capacity of 2 million bottles per day. 6 Pidilite is India’s largest manufacturer of consumer and industrial adhesives and sealants. Its other product lines include art materials, construction/paint chemicals, industrial and textile76
  • 75. Ujala – The Supreme Whitener Rs 40 million. Pidilite relaunched and repositioned Ranipal with a new logo and new packaging. The company also pioneered the concept of selling fabric whiteners in sachets. In 2000, Jyothi transformed itself from a proprietary concern to a corporate entity.8 In 2001, the blue market was estimated to be about Rs 4 billion, of which around 75% was dominated by the liquid variety. The market for blue powder was shrinking. Interestingly, Ujala’s market share kept rising in spite of the fact that it was priced higher than Robin.9 It was able to capture more than 60% of the market, while Robin Blue, lagged behind with a mere 6% market share (the remaining 34% was in the hands of local manufacturers). Ujala’s impressive success was clearly the result of a well-planned and executed marketing plan coupled perhaps, with a bit of luck and good timing. The whitener became one of the few small-time brands to become so popular in the intensely competitive Indian FMCG market.MARKETING UJALA Ujala was lucky in that the Robin brand did not receive sufficient marketing support from R&C. By the time Ujala entered the market, Robin had become an old-fashioned brand that lacked ‘visibility, readability and proximity’ in spite of its initial popularity and strong performance. Although at one point of time, Robin had become a generic name for blues, its brand equity was nearly dormant. This gave Ujala ample scope to become strong enough to be able to transfer the value of ‘blue’ to the color violet. Ujala also owned its success to Jyothi’s management style. After comparing the management style of Jyothi with that of its nearest competitor R&C, analysts commented that the former, with ‘no share price worries’ and ‘no foreign parent to please,’ was able to connect with the ground realities. As a result, Jyothi’s products were more suited to local and regional markets. Ujala’s liquid whitener, the first innovative product in the fabric whitener segment, offered consumers a number of advantages over its ‘powder blue’ counterparts. Unlike the powder versions, liquid whitener was easily and uniformly soluble in water, thus giving much better results. Instead of dissolving in the water, powder blues often formed clots, leading to wastage. Since Ujala was a liquid, it did not have any such disadvantage (while Robin sold ‘Ultramarine Blue,’ Ujala was an ‘Insta- Violet Concentrate’ that was essentially acid milling violet). Another aspect, which helped Ujala gain market share, was its focus on rural markets, the primary markets for fabric whiteners. The fact that Robin had neglected this market and remained primarily an urban phenomenon worked to Ujala’s advantage. Jyothi’s rural distribution network, which made Ujala available through 4,000 distributors and 2.5 million retailers across the country, was considered to be one of the strongest in India. Commenting on Jyothi’s ‘Indian way of doing things,’ Ullas Kamath (Ullas), Director (Finance), said, “A general manager in a multinational probably has the same function resins, and organic pigments and preparations. Its largest brand Fevicol is synonymous with the adhesive category. The company has 40 brands spanning 400 industrial and consumer products. 7 Indian Dyestuff Industries (IDI), a Mafatlal Group company. 8 In 2000, Jyothi sold 10% of its stake in the company to ING Barings, which is a part of the ING Group, a global financial institution of Dutch origin offering banking, insurance and asset management to over 50 million private, corporate and institutional clients in 65 countries. 9 While a 75ml pack of Ujala was priced at Rs 8, Robin sold the same volume at Rs 7. 77
  • 76. Marketing Management of a field staff in our organization.” The field staff of the organization enjoyed a close relationship with shop owners throughout the country. Ullas remarked that this strategy of direct marketing, which Jyothi had followed from the very beginning, had paid off handsomely. The company did not rely on surveys done by research firms even for market information on products. Instead, it always utilized its vast network of field staff to regularly collect information from the market. This formed its basis for market intelligence. Ujala’s initial success came through word-of-mouth publicity. Later, the advertising account of the company was handled by the Mumbai-based advertising agency Situations Advertising and Marketing Services. Innovative radio advertisements made the brand quite popular in the states of Kerala, Tamil Nadu and Karnataka. Ujala followed a common advertisement theme for the country as a whole, but ‘regionalized’ the content of the advertisements in terms of the language used and (sometimes) the models employed. Jyothi spent a lot on advertisements that were broadcast over FM radio channels and the state-owned All India Radio (AIR). A considerable amount was also spent on television (TV) advertising. The TV advertisements for Ujala were aired frequently on almost all the leading TV channels in the country, leading to high brand recall (Refer Exhibit I for an Ujala TV commercial). Jyothi did not set a limit on its advertising budget as long as it was found to be helping the brand. MPR said, “We do not wish to disclose our advertising budget, but we believe in going to any extent and to continue for any number of years as long as the brand clicks.” The jingle devised for Ujala became very popular and media reports revealed that many people found themselves singing it consciously/unconsciously! The jingle ‘Aya Naya Ujala, Char Boondon Wala’ (a Hindi language phrase) literally meant, ‘Here Comes the New Ujala, Only Four Drops Are Required.’ The jingle drove home the idea that only four drops of Ujala were required to whiten clothes as compared to the higher quantity required while using other brands. Robin countered the above claim, stating that less Robin liquid was required as compared to Ujala, to whiten clothes. Its advertisements argued that since four drops of Ujala had to be added per liter of water, 32 drops of Ujala would be required for a normal (8 liter) bucket of water, which was far more than the amount of Robin liquid required for a similar wash. However, this claim failed to make an impact on consumers. Though its advertisements were very effective, Jyothi landed in trouble because of them quite often and had to deal with criticism from the advertisement fraternity. The company’s decision to use comparative advertising for Ujala resulted in a major controversy in 1999. The controversial TV advertisement (aired in Bengali) explained why ‘neel’ (‘blue’) should never be used and showed another whitener brand as ‘inferior’ to Ujala. The whitener shown to be inferior resembled Robin Blue. R&C filed a suit in the Kolkata high court claiming that Jyothi’s TV and print advertisements denigrated its product by claiming superiority over blues. R&C argued that the term ‘neel’ used by Ujala referred to Robin Blue as in the local market people often referred to it as ‘Robin Neel.’ R&C also argued that Jyothi’s claim to have invented Ujala was misleading, as the ingredient (acid milling violet) was already known. On basis of these arguments, R&C filed a case under Section 36A of the Monopolies and Restrictive Trade Practices Act 1961 (MRTP).10 10 Under the MRTP act, an organization can be charged with indulging in unfair trade practices if it is found that for the purpose of promoting its sales, it gave false or misleading facts about the goods, services or trade of another person. In addition, an organization can be booked under MRTP, if it falsely represents its goods to be of a particular standard, quality, grade, composition, style or model.78
  • 77. Ujala – The Supreme Whitener However, the court decided that there was no authenticated survey to verify that Robin Blue was also known as Robin Neel. It further stated that even if for the sake of argument it accepted that Robin Blue was indeed called Robin Neel, the word ‘neel’ used in Ujala’s advertisement could not be equated to Robin Neel. The court also decided that there had been no misrepresentation of facts by Jyothi, as it had never claimed to have invented insta-violet concentrate. Jyothi had only claimed to have developed the formula of Ujala. The court declared that such a claim could not be called misleading or regarded as a misrepresentation of facts and decided the case in favor of Jyothi. In another advertisement, Ujala depicted a group of kids teasing a fellow student because her uniform was not dazzling white. This advertisement met with criticism from the advertising fraternity. The use of children in this advertisement was considered quite unnecessary. According to Suguna Swamy, Creative Director of leading advertising agency, Ogilvy & Mather (Chennai), “The Ujala campaign does not make any sense. No kid will ever ask his friend whether he has switched over to a whitening product such as Ujala.” Jyothi was criticized for using ‘peer group pressure’ and ‘social embarrassment’ in its advertisements. Despite these minor problems, Jyothi continued to have a dream run with Ujala. By 2001, the company had grown significantly: it employed about 5000 people, of which 1200 were field staff distributed all over the country. In 2001, the company decided to enter the FMCG market in a big way through personal care products. In the same year, Jyothi planned to make an initial public offering to raise about Rs 1-1.2 billion to fund its expansion and diversification plans.11 Till then, it was a closely held company with only some investment from ING Barings, and Ujala was the only brand in its portfolio. Commenting on this decision, MPR said “We plan to launch at least 2-3 new brands every year and want to become a full-fledged FMCG player.”WHAT LIES AHEAD In the early 21st century, Jyothi launched a number of different products in the FMCG category. In 2000, it launched ‘Exo,’ a dish washing bar and soon extended it to a dish washing scrub. The company entered the mosquito repellent market in 2001, with the brand ‘Maxo’ coils. It planned to extend this brand to a liquid vaporizer in the future. In the same year, Jyothi entered the incense stick market through the ‘Maya’ brand. While Exo was made available only in a few southern states, Maxo and Maya were marketed across the country. Maxo managed to gain a 20% share of the market in its category, but the performance of Maya and Exo was reportedly much below Jyothi’s expectations. In line with its diversification plans, Jyothi took over Tata Chemicals’ detergent unit in Pithampur, Madhya Pradesh, for about Rs 40 million in 2001. After this, it was rumored that Jyothi intended to take over Tata Chemicals’ ‘Shudh’ brand of detergent. Meanwhile, undeterred by the lackluster performance of its recent launches, Jyothi entered the very competitive bathing soaps segment with Jeeva, an Ayurvedic soap in 2001.12 As with Ujala, the new brands were promoted vigorously. For Jeeva, Jyothi turned to celebrity endorsement for the first time, using Simran, a popular South- Indian movie star. 11 The plan for raising money through an IPO was later abandoned and Jyothi decided to sustain itself on internal accruals. 12 Ayurveda is a traditional alternative medical system that was developed in India over 5000 years ago. The system works on the premise that diseases are the result of living out of harmony with the environment and seeks to heal by re-integrating an individual’s mind and spirit by tackling the various basic elements that the human body is comprised of. Ayurvedic soaps are made of herbal ingredients and are marketed on health and purity platforms. 79
  • 78. Marketing Management However, none of the new brands managed to generate as much excitement as Ujala. This prompted analysts to state that while diversification was necessary given the fact that the fabric whitener market seemed to have reached saturation point, the company could not expect to have an easy run. Many analysts felt that the company would not be able to replicate the success of Ujala in any of the new segments it had entered. When Jyothi entered the fabric whitener segment, it had to contend with only one national-level player. But the new segments it had entered into were already dominated by many strong brands. In the dish washing segment, it had to face ‘Vim,’ which was brought out by the country’s number one FMCG company, the Unilever subsidiary Hindustan Lever Ltd. (HLL13); and in the mosquito repellent segment it had to deal with formidable brands such as ‘All-Out,’ ‘Tortoise’ and ‘Good Knight.’ In the soaps category, Jyothi seemed to have played it safe by entering a niche segment – however, even here, popular brands ‘Hamam’ and ‘Medimix’ were expected to give Jeeva a tough time. Meanwhile, in October 2002, ARIA Investment Partners L.P, CDC Financial Services (Mauritius) Limited, and South Asia Regional Fund14 collectively invested about Rs 1.3 billion in Jyothi. The investment was one of the largest non-technology private equity transactions in India in that calendar year. The move suggested that the new investors trusted Jyothi to ‘pull off an Ujala’ in the new categories it had entered into. Whether the company would be able to do so or not was something only time would tell. Questions for Discussion: 1. Analyze the conditions prevailing in the Indian fabric whitener market when Jyothi Laboratories entered the whitener segment. Focusing separately on each element of the marketing mix, explain how and why the company’s moves helped Ujala become the market leader. 2. With R&C planning to continue its efforts to regain Robin’s lost glory and Pidilite promoting Ranipal aggressively, what do you think the future has in store for Ujala? What measures would you recommend to help Ujala maintain its leadership status? 3. Critically comment on the rationale underlying Jyothi’s decision to diversify into other segments of the FMCG sector. Do you think Jyothi will find it difficult to replicate Ujala’s success with its new products? Justify your answer. © ICFAI Center for Management Research. All rights reserved. 13 In 2001, HLL shifted its fabric whitener brand ‘Ala’ under one of its major fabric care brands, ‘Rin.’ This move was accompanied by the brand’s relaunch with new packaging and new promotional thrust. Though Ala was not a ‘blue’ and was classified as a ‘bleach,’ it rapidly gained popularity as a fabric whitener due to HLL’s strong marketing support. 14 ARIA Investment Partners, L.P is a pan-Asian private equity fund which backs the expansion of successful businesses across Asia. CDC Financial Services (Mauritius) Limited and South Asia Regional Fund are both affiliates of CDC Capital Partners, a leading private equity investor focusing on Indian and India-focused companies. CDC Capital Partners has a $ 250 million portfolio of over 50 investments across a wide range of companies.80
  • 79. Ujala – The Supreme Whitener Exhibit I An Ujala TV CommercialThe husband is disgusted Two women wearing sparkling One of the ladies thrusts thewith the blue spots made by white sarees enter with a bottle bottle towards the viewers as she‘neel’ on his white shirt. of Ujala in hand. In the explains the benefits of using background the jingle ‘Aya Ujala. naya Ujala, char boondon wala’ can be heard. The advertisement goes on The wife is astounded with the The husband is very happy with to explain how Ujala should results. The brightness of the his ‘sparkling’ shirt. be used while the camera clothes is reflected on her face. focuses on the easy solubility of the liquid.The ad ends with the imageof a stack of sparkling whiteshirts and a bottle of Ujalabesides them. The catch linesays ‘Safedi ka naya rang’that is, ‘the new color ofbrightness.’Source: www.xposeindia.com 81
  • 80. Marketing Management Additional Readings & References: 1. Apex Court Verdict Helps Jyothi Labs Edge out Reckitt & Colman, www.expressindia.com, May 15, 1999. 2. Reckitt & Coleman Gives Robin A ‘Dazzling’ Facelift, www.expressindia.com, June 9, 1999. 3. Ujala Corners 60% Market Share, www.domain-b.com, January 2001. 4. Jyothi Labs Plans IPO to Fund Plans for New Brands, Hindu Business Line, February 15, 2001. 5. Reckitt Test-Markets One More Fabric-Care Brand in the South, Financial Express, March 21, 2001 6. No Kidding, Ads are for Kids, The Hindu Business Line, November 10, 2001 7. Jyothi Labs to Buy Tata Chemicals’ Shudh, Financial Express, January 29, 2002. 8. FMCGs Still On a Crawl, Smaller Brands Fare Better, The Economic Times, April 24, 2002. 9. Smaller FMCG Brands Make a Splash, The Economic Times, April 24, 2002. 10. ARIA & CDC Invest in Jyothi Laboratories Limited, www.clsa.com, October 16, 2002. 11. www.indiainfoline.com 12. www.pgmba.com 13. www.economictimes.com 14. www.expressindia.com82
  • 81. Revamping Rasna – A Marketing Overhaul Saga “At Rasna we are constantly looking at new innovations and strategies. Today, the per capita consumption of Rasna is 15 glasses and our vision is to increase the per capita consumption to 100 glasses by 2005 and to reach out to one billion Indians every year.” - Piruz Khambatta, Chairman and Managing Director, Rasna Ltd., in March 2002.NO MORE ‘I LOVE YOU RASNA’ Pioma Industries Ltd. (Pioma) is perhaps not a familiar name for the average Indian consumer. However, Pioma’s brand ‘Rasna’ is very well known. In fact, the name Rasna is almost a generic name for soft drink concentrates (SDC), a segment that had been created and nurtured by the company in the Indian beverages market. Rasna’s extremely popular advertisements with the tagline, ‘I love you Rasna,’ had become an integral part of the Indian advertising folklore. In March 2002, Pioma announced a radical overhauling of its strategies for the Rasna brand. This development was rather unexpected, as the brand had been lying dormant since long. Company sources revealed that these developments were in line with a restructuring program that had been conceptualized in mid-2001. Keeping in line with this plan, Pioma launched two new brands, Rasna Utsav (Rasna Festive) and Rasna Rozana (Rasna Daily) in March 2002. The launch was accompanied by a multi-media advertisement campaign, for which the company allocated Rs 160 million. The television campaign that ran across all major national and regional channels featured a ‘song’ exclusively composed for the new launches. A notable feature of this commercial was the fact that it was voiced by one of the country’s most well known singers, Asha Bhonsle, who had never sung for any commercial before. Pioma soon released music cassettes and CDs featuring remixes of old, popular Hindi songs and the new Rasna song. In addition to this, the company sponsored musical events across the country. Industry observers were however, viewing the above developments as Pioma’s desperate attempts to infuse fresh life into Rasna. There were apprehensions regarding its success given the fact that previous attempts in form of brand extensions had failed to have any significant impact on Rasna’s growth prospects. And unlike the late 70s, the average beverage consumer in India had a host of other options, such as colas, fruit juices, iced tea, tetrapacked juices and other soft drinks. Most importantly, Rasna’s stronghold in the SDC market was facing severe competition from Coca-Cola’s newly launched ‘Sunfill’ and Dr. Morepen’s ‘C-sip’. Rasna’s fading ‘brand awareness’ and its lacklustre image had become major hurdles, capable of marring the prospects of the new marketing overhaul exercise as well.THE MAKING OF RASNA Pioma, an Ahmedabad (Gujarat) based company was the first to introduce the concept of SDC in India. Its proprietors, the Khambattas saw a huge untapped potential in the market with Coca-Cola, an MNC cola major, on the verge of closing all its operations in India, due to policy changes with regard to MNCs operating in India. At that point of time, there were no major players in the preparatory SDCs market. Pioma thus
  • 82. Marketing Management launched an SDC under the brand name ‘Jaffe’ in 1976 and marketed it with the help of Voltas. The brand name was changed to Rasna in 1979. Rasna’s SDC, comprised a powder sachet and a small bottle of thick, coloured liquid. While the powder provided the taste, the liquid gave the flavor. These ingredients had to be mixed with a specified amount of water and sugar. The resulting syrup could then be used over a period of time by mixing it with water. Though many analysts felt that Rasna’s do-it-yourself concept would be cumbersome and hence unappealing to consumers, it became the very reason for its success. This was because Rasna was able to exploit the Indian middle class housewife’s traditional distrust for food and drink not made at home. Not only was Rasna easy to prepare, it was reportedly the first brand in the country that provided consumers real fruit-like flavor and taste. And at only 50 paise per glass, it was easily one of the most affordable drinks available in the market. With many popular flavors such as Pineapple, Orange, Mango and Lime becoming runaway successes, Rasna soon established itself as an effective alternative to other products such as squashes, soft drinks and syrups. Pioma had eight factories that manufactured its SDC – five in Gujarat, two in Silvassa and one in Punjab. The company had a dedicated R&D team in Ahmedabad (Gujarat) to support its policy of launching new flavors in quick succession. The division was constantly involved in monitoring new flavor developments, controlling quality, innovating new flavors at regular intervals and analyzing new flavors at regular intervals. As a result, many new flavors were launched over the years. In addition to the standard fruity flavors, Rasna was made available in many local flavors such as ‘Kala Khatta’ (tangy), ‘Khus’ and ‘Rose’ that became very popular. To ensure high quality standards, Rasna’s products were manufactured in a totally automated environment. Advanced world-class technology was used for packaging. The packs were pilferage-proof with moisture-resistant lining, thus, retaining both flavor and freshness. One of the major factors responsible for Rasna’s rapid sales growth was its well- entrenched, efficient sales and distribution network covering the entire country. The sales force was managed by the company’s five regional offices, which ensured availability of Rasna products to consumers in the retail outlets nearest to them. During summer, when the sales of the company soared, Pioma recruited additional sales force on a temporary basis to ensure availability of the products. The company had 24 warehouses in various parts of the country, 24 distributors and 2000 stockists. These stockists served over 2,00,000 retail outlets directly and over 2,00,000 retail outlets indirectly via wholesalers. Reportedly, Rasna’s product range was one of the world’s largest distributed food brands at that time. To retain the interest and loyalty of its consumers, the company undertook various creative promotional activities. These included shop sampling, house-to-house calls, and live demos on the method of preparation, retail window displays, gift offers to customers and other trade schemes. The company devised innovative methods every year to sustain the element of fun and surprise. In addition, Pioma participated in various exhibitions and fairs that provided an excellent opportunity for direct interaction with the consumers. The fairs also helped the company increase its visibility in the rural markets by distributing large number of free product samples to consumers in the fairs. Above all, Rasna’s advertisement campaigns helped it become a trusted and popular brand amongst Indian consumers. Pioma was one of the few companies that went in for large-scale advertising on the state-owned TV channel, Doordarshan. Rasna also sponsored many programs on the channel, especially the ones that appealed to children, such as the animated series, ‘Spiderman.’ The advertisements essentially revolved around cute and very-likeable children who were floored by Rasna’s84
  • 83. Revamping Rasna – A Marketing Overhaul Saga attractive colors, taste and fruity flavors. Eventually, Rasna’s TV commercial featuring a small girl with the tagline ‘I love you Rasna,’ was adopted as the brand’s tagline for many more commercials over the next couple of years. As a result of all the above, Rasna virtually ruled the market during the 1980s and the early-1990s. For over 17 years, it remained the undisputed market leader in the Indian SDC market. This was aided largely by the fact that there was no serious competition in the market. Soft drinks as a segment was virtually stagnant and only a few syrups (Rooh Afza, Sharbet-e-azam) and squashes (Dipy’s, Kissan) were available in the market (Refer Exhibit II for the soft drink market in India). However, most of these products were priced higher. Moreover, there was very little marketing support provided by their respective companies. Buoyed by its success in the Indian market, in 1993 Pioma decided to market Rasna on the global platform as well. Besides the SDC, Pioma developed a whole new range of non-alcoholic beverages under the Rasna brand for in-house consumption. The company took special care to meet the specific requirements and preferences of global customers and leverage its own core competencies in terms of flavors and technology. By this time, Pioma also realized that it could tap the demand for ethnic Indian foods in global markets and cash in on the brand’s strong image. This realization led to the launch of products under two different categories – Rasna Beverages and Foods and Rasna Ethnic Basket. While the former comprised a range of drinks, the latter constituted a complete range of ready to consumer or easy to cook authentic Indian foods (Refer Exhibit I for products offered globally). By 1995, Rasna accounted for an estimated 90% of the total SDC market in India. The brand also led the in-home soft drink consumption market in India with an estimated market share of 75%. However, Pioma’s ‘dream-run’ seemed to be coming to an end with the heightened activity in the Indian beverages market. In the early 1990s, after the markets opened up due to the liberalization a Coca-Cola and Pepsi changed the dynamics of the market. Moreover, with the advent of fruit juices in tetrapacks and aerated drinks in plastic bottles, the scope for SDC products such as Rasna that needed to be ‘prepared’ began declining. The consumers soon began turning towards colas, fruit juices and other ‘ready to drink’ products. At the same time, a large number of other national and regional players entered the market. Reportedly, Pioma found it extremely difficult to hold on to its market shares and sales figures. According to many analysts, the decline in Pioma’s fortunes was mostly of its own making, as it failed to understand the shifting preference of the consumers towards ready-to-drink preparations. They pointed that Rasna ignored the changing trends in the market. Variations were launched only when competition had strongly established itself. Moreover, Rasna failed to sustain its stronghold in the lower-income segment as it did little to sustain the brand’s popularity among the consumers (after its initial promotional exercises).RASNA WAKES UP TO THE CHALLENGE Pioma finally decided to extend Rasna’s brand portfolio and launched a pre-sweetened mix-and-drink product in 1996. Targeted at the upper end of the market, Rasna International was a nutritious and vitamin-enriched version of the regular Rasna SDC version. This was followed by the launch of Rasna Royal, positioned as a vitamin- enriched version of Rasna. It was targeted at health-conscious consumers who did not prefer Rasna SDC on account of its synthetic image (that is usage of synthetic colors and artificial flavors). These two products were priced at the higher end, as against the ‘low price’ policy followed by Rasna for the other products. The sales of Rasna Royal did not pick up from the very beginning. Analysts attributed its failure to the strong positioning of Rasna SDC as a cost-effective drink. While 85
  • 84. Marketing Management consumers were willing to bear the inconvenience of preparing the SDC version on account of its lower cost, they were unwilling to do so for Rasna Royal as they had paid a higher price for it (Rasna Royal was priced Rs 4 higher than the SDC version). Eventually, the company had to discontinue Rasna Royal. On the other hand, Rasna International became quite successful, primarily because it did not need any preparation. Commenting on the analysts forecasts that Rasna International might not succeed given the high pricing of the product, Khambatta said, “Contrary to common perception, Rasna International has done exceedingly well and has created a market segment for pre-sweetened fortified soft drinks.” By 1999, Rasna International’s sales accounted for an estimated 15% of the Rasna’s total turnover of Rs 650 million, even as SDC’s contribution kept declining. In summer 1999, Rasna also went against its tradition of launching ‘one-new-flavour per season’ and launched two new flavours, Rasna Yorker (Yorker) and Rasna Aqua Fun (Aqua Fun). The company launched these products in order to exploit the Cricket World Cup fever. Kapil Dev was brought in to endorse Rasna Yorker. Though Yorker succeeded moderately, Aqua Fun was a dismal failure. The failure of Aqua Fun was attributed mainly to its blue color, which was not readily accepted by the Indian consumer in the food products segment. Pioma’s efforts at broadening its product portfolio continued with the launch of Oranjolt in 2000, an aerated fruit drink, available in 1.5 litre PET bottles. The brand, launched in selected outlets, failed to attract customers and soon had to be withdrawn. Commenting on Oranjolt’s failure, Khambatta said “Oranjolt was never meant to be an aerated drink and it was just, one in the range of innovations that Rasna constantly did.” However, he agreed that Oranjolt’s failure was a result of certain inherent product problems. It was common practice for many Indian retailers to switch their shop refrigerators at night. This resulted in quality problems, as Oranjolt required refrigeration at all times. The short shelf life of the Oranjolt also contributed to its failure as the company failed to set up a strong distribution network for the product, which could allow it to replace Oranjolt every three to four weeks. Following its failure, the company sent the product for further improvement at its R&D facility. Despite its efforts, the woes of Rasna increased through the late 1990s and 2000. Rasna SDC’s volume continued to shrink by over 7% every year. Moreover, the steadily increasing prices of Rasna SDC, over the years proved to be another significant hurdle for Pioma. Initially priced between Rs 8-10, Rasna SDC was sought by the middle-class family as an affordable hospitality drink during the 1980s. By the late 1990s, it had gone up to Rs 22-24, which according to the analysts was supposedly above the reach of its target audience. However, company sources argued that the rise in prices had been in line with the inflation through the years and was always in the affordable range. The growing awareness among the consumers regarding the difference between natural and artificial synthetic flavors, the increasing purchasing power and availability of more international products in tetrapacks all resulted in the decline of Rasna’s market. According to estimates, the tetrapack category had increased three fold (to Rs 6 billion) between 1993 and 2001. In 2001, only 12% of the soft drinks were consumed at home. The shift in consumer tastes towards colas and fruit juices continued unabated. Alarmed by its failure to extend Rasna’s product portfolio, Pioma began planning a three-year revamping program in mid-2001. The program aimed at overhauling all its operations and creating a new brand identity for Rasna. In the fiscal year 2001-2002, Pioma Industries changed its name to Rasna Ltd.86
  • 85. Revamping Rasna – A Marketing Overhaul SagaFACING CHALLENGES – THE SECOND INNING The major thrust of the company’s restructuring exercise was to reach out to the masses and create brand awareness in towns and remote villages. Emphasis was also laid on the availability of Rasna products in the price range of 80 paise per glass to Rs 4 per glass. Till now, Rasna was available only in two price segments – Rs 4 and Re 1. The company’s principal focus in 2002 was to increase the number of segments to make Rasna products more affordable to larger various sections of society. The company also extended its strategy of Rasna being a mass drink to its global markets. Commenting on this, Khambatta said, “We have made sure that the Rasna International brand is placed along with the other preparatory soft drink brands such as Tang in international retail stores, and not in the Indian foods counter in those stores.” Rasna’s revamping exercise included increasing the per capita consumption of Rasna from 15 to 100 glasses, reaching across to all sectors of society and age groups. Moreover, plans were also made to foray into related segments in the food sector in the next two years and strengthen its global operations. Efforts were also made to establish itself as one of India’s top 10 products in terms of brand recall and visibility and become one of the top 20 most admired companies in the country. Rasna announced these plans in early 2002 and called the overall exercise as the ‘Rasna for one billion Indians’ project. Khambatta, explaining the company’s new marketing strategy said, “We are implementing a strategy through which we wish to make consumers drink more Rasna as well as get new people accustomed to the brand. We have come out with more product offerings to attract the new consumers. For those who are already used to the Rasna taste, we have brought out value-added products. We are more aware than anybody else about the price-centric behavior of the Indian market and have accordingly positioned our products.” According to its renewed distribution strategy, Rasna planned to reach an estimated 7,00,000 retailers annually. With its plans to reach the rural areas, the company began strengthening its distribution channels in order to cover villages with a population of up to 5,000. Following this, the company appointed 47 additional sales personnel, 350 cycle salesmen, and 145 pilot salesmen in addition to new stockists for the relevant areas. It also engaged 500 vans for the coverage of rural areas. However, Rasna was careful not to neglect the urban markets. According to company sources, “There are pockets with rural consumers even in the metros and they are large in number.” Hence, the company’s advertisements also targeted the urban and semi-urban families. As a part of its new strategy, the company focused on multi-media advertising and promotion, wherein an effective marketing strategy was adopted to communicate the brand message, using the different media such as TV, radio and print. Mudra Communications (Mudra), a leading advertising agency, undertook the advertising and promotional activities. Mudra developed an advertisement campaign constituting five television commercials, radio advertising and outdoor media campaigns. Special emphasis was laid on ‘outdoor visibility’ and over 45,000 bus shelters, 5,000 pole kiosks, 300 bus panels and over 200 billboards were used to display the brand message across the country. With a new, catchy brand tagline, ‘Relish a gain,’ the campaign highlighted the affordability and easy availability of Rasna products. Speaking about the changed corporate identity and its reflection in advertising campaigns, Khambatta said, “Our aim is to reach out to the masses and we wanted a direct link between the brand and 87
  • 86. Marketing Management our advertising.” Commenting on the advertisement campaigns Sachin Kamath, Accounts Director, Mudra Communications said, “We changed the advertising strategy to include every age group and every section of the society. ‘Relish a Gain’ concept has been created in Hindi as a song, which covers the total range of products to focus on Rasna’s values in different moments of life.” According to company sources, the message expected to be conveyed through the advertisements was, “Whenever you feel like celebrating, drink Rasna”. Special emphasis was laid on its affordability and value-for-money. Moreover, its product lines were categorized into two brands (Rasna Utsav and Rasna Rozana) so as to effectively target different consumer segments in India. While Utsav, an improvement over Rasna SDC, targeted the lower income group in rural markets, Rozana, a mix and serve powdered drink (no need to add sugar) targeted the convenience seeking semi-urban and urban consumers. Rasna relaunched Rasna International as well under the sub-brand, Rozana Fruit Booster. Fruit Booster was aimed at competing with Sunfill and Tang (both pre-sweetened powdered soft drinks), serving the upper end of the market (See Table I for Rasna’s new brand profile). Table I Rasna’s New Brand Profile BRAND CAPACITY PRICE FLAVOURS (in Rs) UTSAV (Improved Rasna SDC 1 litre 5.00 10 containing Nature Gain (powder) and Fruit Gain (liquid) that are to be mixed to prepare the drink 6 litres 28.50 18 litres 65.50 ROZANA (Pre-sweetened powder/soft drink) Rozana Amrit 1 glass 2.00 3 (Orange, Mango and 10 glasses 15.00 Nimbu Pani) 25 glasses 35.00 Rozana Ras 100 ml 15.00 3 (Orange, Mango, and Pineapple) 200 ml 28.00 Rozana Fruit Boosters (International) 200 g 45.00 3 (Orange, Mango and 500 g 107.00 Pineapple) Source: ICMR In addition, a completely new identity, a new ‘leaf’ symbol was added to the Rasna brand name. Commenting on this, Khambatta said, “Apart from talking about the core values of Rasna, we also wanted a symbol for Rasna so that the product gets distinct visibility. We want the consumers to identify Rasna from the image of the leaf.” Since the company planned to focus on rural markets, it felt that the product awareness could be best created by means of a symbol and hence the leaf (with red and green background) was chosen as the brand symbol.88
  • 87. Revamping Rasna – A Marketing Overhaul Saga All the new brands were enriched with vitamins and ingredients to render instant energy. Commenting on the launches Khambatta said, “With the launch of the Rozana line, we are reiterating our commitment to providing a health gain to our consumers. The products in the Rozana line contain Fruit Powder, Glucose/lactose, Vitamin A, C, B2, B6 as well as Niacin, Folic Acid, Calcium and Phosphorus, making it one of the healthiest and most refreshing soft drinks available. Cutting across all segments, Rasna has also ensured that the Rozana line is affordable to all sections of society.” Rasna in order to establish its Rozana line strongly in the market, priced Rozana Amrit sachets at Rs.2, while its major competitors Sunfill and Tang sachets were priced at Rs 2 and Rs 5 respectively. This was expected to help Rasna beat competition as well as increase its reach among the lower-income groups. Speaking about the launch of the Rs 2.00 Rozana Amrit sachets, Khambatta said, “At Rs 2 per sachet, it will be both a value-for-money product as well as convenient as you just have to mix it in water and drink.” It also seemed to be more convenient compared to other product offerings of Rasna, as you did not need to add sugar to the mix. According to the company sources, the launch of single-use sachets was expected to trigger the sales of powdered soft drinks in India expanding the market exponentially and increasing the share of powdered soft drinks in the total cold drinks market in India (in 2002, the powdered soft drink market accounted for less than 1% of the 12.1 billion cold drink market). As a result of the above initiatives, Rasna was able to retain its leadership in the Rs 2.5 billion preparatory soft drink market, with an estimated 82% market share. The other major players, Kissan and Roohafza respectively shared 8% and 7% of the market. In 2002, Rasna was credited to be one of the most widely distributed products in India reaching over 5,00,000 independent retail outlets throughout the country. Rasna emerged as a mass brand appealing to all socio-economic classifications (SEC) in both rural and urban markets. In 2002, Rasna was rated 7th in the Food and Beverages category in India and was rated 21st among the most recalled brands in India.HOPING FOR A SWEET FUTURE Although Rasna succeeded in increasing its sales in mid-2002, few analysts were skeptical about the long-term success if revamping strategy. The entry of players like Coca-Cola, Kraft Foods, Dr.Morepen Labs and Hindustan Lever Ltd. and their financial muscle was expected to pose tough competition for Rasna in the future. In 2002, Rasna was in the process of finalizing a joint venture with Del Monte, the largest producer of canned fruits and vegetables in the US to offer convenience foods. While Del Monte wanted to leverage Rasna’s vast and efficient distribution network, the latter planned to access Del Monte’s technical expertise. Though the venture was planned to take off in mid-2002, analysts felt that the decision to foray into other segments of the food market might not yield expected results given the intense competition in the sector. However, brushing off the apprehensions, Khambatta said, “I believe that competition is an opportunity for growth. We will fight competition with good quality. Our strength lies in Rasna’s nationwide distribution network. We are not scared or nervous of the cola giant Coke.” Analysts also commented that Rasna was making a big mistake by trying to make Rasna ‘everything to everyone.’1 Commenting on this, Jagdeep Kapoor, Managing Director, Samsika Marketing Consultancy, said, “If you try to be everything to 1 www.agencyfaqs.com, April 2002. 89
  • 88. Marketing Management everyone you might end up being nothing to anyone.” Kapoor said that focus on children had significantly contributed to Rasna’s success. By broadbasing its target audience, and by extending its product to all the sectors of the community, Rasna brand lost its core slot, which its competitor Sunfill captured with its commercial depicting a child on a hunger strike giving in to his temptation for a glass of Sunfill. However, Rasna countered this argument saying that Rasna products were always targeted at the family and never specifically for children. (However, company sources agreed that in the past, children had been their means to get households to buy their product). According to an advertising professional who was previously associated with Rasna, “The problem with Rasna lies in its advertising, which is clueless about where the brand really fits in today’s scenario. Rasna entered middle-class homes by saying you have so many glasses from one pack, which works out to so much per glass. However, with the colas getting belligerent and prices coming down steeply, that advantage ceased to exist. A glass of cola would be at most 20% more expensive, but that is offset by the cola associations – young, hip, aspirational. Increasingly, in middle-class homes, Rasna is not seen to be ‘with it’. So what is Rasna? Where does it fit? Is it still relevant?” Industry observers remarked that there were three critical success factors in the preparatory drinks segment – economy, taste and children’s affinity. And with almost all the players focusing equally on all the three factors, Rasna indeed seems to have a tough time ahead to retain its leadership status. Questions for Discussion: 1. Analyze the environment in which Pioma started selling Rasna and highlight the reasons for the brand’s runaway success. Do you think Rasna is losing its stronghold in the Indian beverages market? Justify your stand. 2. Critically comment on the failure of products such as Rasna Royal, Rasna Aqua Fun and Oranjolt. What were the factors that led Rasna to go for a major revamping exercise for the brand? 3. Discuss the initiatives taken by Rasna to rejuvenate its brand with specific reference to the positioning and advertising aspects. In light of the changing market dynamics and the intensifying competition, will the current strategies help Rasna sustain its leadership position? © ICFAI Center for Management Research. All rights reserved.90
  • 89. Revamping Rasna – A Marketing Overhaul Saga Exhibit I Rasna –International Presence & Offerings REGION COUNTRIES Middle East & Gulf Saudi Arabia, U.A.E., Oman, Qatar, Bahrain, Yemen, Kuwait, Jordan. Central Asia Russia, Bangladesh, Nepal, Pakistan, Maldives. Africa Guinee, Tanzania, Somalia, Gambia, Sudan, Nigeria, Liberia, Angola, Mozambique, Mali. South East Asia & Oceanic Fiji, Brunie, Vietnam, Malaysia, Haiti, Australia. BEVERAGES AND FOODS ETHNIC FOODS Rasna Instant Drink Rasna Curry In A Hurry Rasna Lite - Low Calorie Instant Rasna Premium Pickles and Gherkins Drink Rasna Curry Pastes and Sauces Fruto Diet Instant Drink Rasna Instant Curry Mix Powders Disco Mix – Sugar Free Instant Drink Rasna Chutneys Body Fuel - Health Drink Rasna Syrups Orangejolt Rasna Fruit Squashes Rasna Soft Drink Concentrate Rasna Fruit Jam Rasna Fruit Drink Rasna Fruit Cordial Rasna Candies Rasna Frutants Rasna FlavorsSource: www.rasnainternational.com 91
  • 90. Marketing Management Exhibit II Soft Drink Market in India Non-alcoholic drinks can be classified into fruit drinks and soft drinks. Fruit drinks include drinks such as fruit juices and squashes. Softdrinks can be segmented on the basis of carbonation, flavor type or place of consumption. Based on carbonation, soft drinks are principally classified into carbonated and non- carbonated drinks. While the carbonated drinks mainly include Cola, orange and lemon, the non-carbonated drinks include mango flavors. Cola products account for over 60% of the total soft drink market and include popular brands such as Coca- Cola, Pepsi, Thumps Up etc. Non-cola segment constitutes for over 35% of the market and can be divided into four sub groups based on types of available flavours that include – *Orange: Popular brands include Fanta, Mirinda Orange etc. *Clear lime: 7Up, Sprite *Cloudy lime: Limca, Mirinda Lemon *Mango: Maaza, Slice Based on the place of consumption, the soft drink market can be classified into two segments – On –premise (at the place of purchase) consumption of soft drinks, for example railway stations, restaurants and cinemas; and In-House consumption of soft drinks purchased for consumption at home. In India on premise consumption accounts for an estimated 80% of the total soft drink market with in-house consumption accounting for the remaining 20% of the market. Until 1990s, domestic players like Parle Group (Thumps Up, Limca, Goldspot) dominated the softdrink market in India. However, with the advent of the MNC players like Pepsi (1991) and Coke (re-entered in 1993 after it was banned in 1977) in the early 1990s, the market control shifted towards them by the late 1990s. The per capita consumption of soft drinks in India is among the lowest in the world – 5 bottles per annum compared to the 800 bottles per annum in the USA. Delhi reports the highest per capita consumption in the country – 50 bottles per annum. The consumption of PET bottles is more in the urban areas (75% of total PET bottle [plastic bottles] consumption) whereas the sales of 200ml bottles were higher in the rural areas. According to a survey, 91% of the soft drink consumption in India is in the lower, lower middle and upper middle class section. In 2000, the soft drink market accounted for 6480 million bottles. The market growth had reportedly slowed down during 2000 with a growth rate of 7-8% compared to 22% in 1999. This decline in growth was attributed to the rise in soft drink prices during 2000 on account of increased excise duties. Though Pepsi led the soft drink market during the mid 1990s, Coca-Cola through its constant acquisition of the major national and international brands such as Gold Spot, Limca, Thumps Up, Canada Dry and Crush during the 1990s and 2000, emerged as the new leader in the soft drink market during 2001 with Pepsi closely following it. Apart from these segments, the soft drink market has a sub segment – the soft drink concentrate segment (SDC) or the preparatory soft drink segment. This segment includes the soft drinks that are available in concentrated forms that need to be diluted or mixed at home for consumption. The major players in the segment are Rasna, Kissan and Roohafza with Rasna ruling the roost with over 82% of the total SDC market in 2001 and Kissan and Roohafza following it with 8% and 7% of the market share respectively. Source: www.indiainfoline.com92
  • 91. Revamping Rasna – A Marketing Overhaul SagaAdditional Readings & References:1. Zachariah Reeba, Rasna-Maker Pioma, Del Monte Talk Joint Venture, www.rediff.com, March 2001.2. Asha Bhonsle Sings Jingle for Rasna, www.domain-b.com, January 1, 2002.3. Rasna Stirs Up an Image Change, www.blonnet.com, March 3, 2002.4. Rasna Launches Rozana, www.reachouthyderabad.com, March 2002.5. Srinivasan Lalitha, Rasna Set To Counter Coke’s Sunfill With New Strategy, www.financialexpress.com, March 28, 2002.6. Shastri Padmaja, Small Is Beautiful: Rasna To Launch Sachet Packets, Financial Express, March 2002.7. Kurian Vinson, Rasna Promo Turns Over a New Leaf, www.blonnet.com, April 11, 2002.8. Shatrujeet N & Chakraborty Aloknath, Rasna and Frooti: Caught in an Advertising Bind, April 15, 2002.9. Srinivasan Lalitha, Mixing a Brand New Mocktail, Financial Express, May 4, 2002.10. Rasna Booster Formula, www.business-standard.com, August 6, 2002.11. www.rasnainternational.com12. www.expresshotelierandcaterer.com13. www.domain-b.com14. www.blonnet.com15. www.thesynergyonline.com16. www.tribuneindia.com17. www.agencyfaqs.com18. www.indiainfoline.com19. www.indiantelevision.com20. www.aandm.com21. www.geocities.com 93
  • 92. Cielo – A Car in Trouble “Daewoo is good at making cars, but rotten at marketing them.” - An automobile industry analyst, in 2000.THE ENTRY OF DAEWOO The entry of the Korean automobile major, Daewoo Motors India Ltd. (Daewoo) in the Indian passenger car market was heralded as a milestone for the industry. This was because Daewoo was the multinational to challenge the might of the market leader Maruti Udyog Ltd. (MUL). Daewoo’s first vehicle, the 1500 cc Cielo was launched in three versions (Cielo, Cielo GLX and Cielo GLE) in July 1995. Consumers who until now had no other option besides the Maruti Esteem in the mid-size segment (Refer Exhibit I), rushed to buy the Cielo. Bookings for the three models reached 114,000 in a short span of time. With the car registering high initial volumes and its plans to become a Rs 100 billion company by 1998-99, Daewoo seemed all set to give MUL serious competition. However, Daewoo was in for a major shock as around 70,000 customers cancelled their bookings within a few months. Daewoo had predicted an annual turnover of over Rs 10 billion and sales of 20,000 cars by March 1996 - but managed to record a turnover of Rs 6.05 billion and sales of only 9,044 cars. During April-December 1996, only 13,776 Cielos were sold against the targeted 52,000. During April 1997-February 1998, 9006 Cielos were sold, a decline of 41% from the corresponding period previous year. In 1998-99, 5500 Cielos were sold, a fall of nearly 50% over the previous year. The entry of competition in form of General Motors and Ford in 1996 and the general downturn in the mid-size car segment added to the company’s problems. Daewoo recorded a loss of Rs 351.4 million in the six months that ended in March 1998 as sales declined to Rs 1.22 billion from Rs 2.7 billion in the corresponding period in the previous year. Daewoo was surprised to realize that its globally tried and trusted formula of providing excellent service with low prices had failed miserably in India. Daewoo’s miseries nevertheless did not come as a surprise to the industry watchers. Even while Daewoo had announced its targets at the time of Cielo’s launch, they were termed ‘too ambitious and unrealistic’ by analysts. Media reports stated that Daewoo itself was responsible for the mess it had landed itself in. A Business Standard report mentioned, “A close look into the performance of the company from the drawing board stage throws up a perfect case study on what an organization should not do.”BACKGROUND NOTE Daewoo was a part of the $ 65 billion Daewoo Group, founded in 1967 in Korea. The group, which by 2001 had operations in 123 countries, had begun by exporting readymade garments to US retailers. Over the next decade, the group diversified into general trading, construction, machinery, automotive, ship building, electronics and telecommunications, among other areas. The group’s automotive business, Daewoo Motors was considered to be one of its most important ventures. In 1977, Daewoo Motors entered into a joint venture with the US auto major General Motors. However, the venture did not prove to be a success with frequent skirmishes between the two partners. In 1991, Daewoo bought out GM’s 50% stake in the venture for $ 50 billion.
  • 93. Ceilo – A Car in Trouble Daewoo Motors realized that it would have to look beyond the European and US markets, given the intense competition and higher customer expectations in terms of quality and performance in these markets. Thus, the company decided to penetrate those emerging markets where the demand for automobiles was expected to increase in the future. The markets identified were Eastern Europe, Latin America and Asia. The decision to enter the Indian car market was a part of this strategy. Daewoo Motors took over the 50% equity held by Japan’s Toyota in DCM-Toyota and renamed the company Daewoo Motors India Ltd. In January 1997, DCM Ltd. sold 24% of its shareholding to Daewoo, raising its stake in the company to 75%. By 1998, Daewoo further increased its stake to 92%. Daewoo Motor’s overseas expansions were funded largely on borrowed money. However, the company was unable to keep up the repayment on its debts. In 2000, after the company’s labor unions refused to accept a restructuring plan for the company, Daewoo Motors was declared bankrupt and talks were initiated to look for a suitable buyer. GM again evinced interest in the venture amidst stiff opposition from the worker unions.THE MISTAKES The lack of a focussed approach and inconsistent policies were reported to be the two main reasons that led to the Cielo’s poor performance. However, the seeds for Cielo’s downfall had been sown when Daewoo launched the car in an extremely hurried manner - the MoU1 was signed in October 1994 and the first Cielo rolled off the assembly lines in July 1995. In its hurry to start its Indian operations, Daewoo entered the market with a high import content - thereby not being able to keep the prices lower than the competitors. The low indigenisation level also translated into high costs of spares. Experts commented that the Cielo had been launched without any detailed market survey. Daewoo began production of the Cielo at the Surajpur factory, originally built by the DCM-Toyota venture in 1985 to manufacture light commercial vehicles (LCVs). As the scale of operations increased substantially with not much modification to the plant, quality defects could not be completely avoided. Complaints of poor fuel efficiency soon surfaced. A Daewoo official from Korea remarked, “We had problems due to bad quality of fuel.” Media reports remarked that this had happened because Daewoo did not understand the Indian market properly. Daewoo sought to tackle this problem through its sales staff. However, the sales staff was reported as not being sufficiently trained to counter such problems. They simply could not react to consumer complaints. Like most of the other automobile companies in the mid 1990s, Daewoo had been lured by the much talked about ‘Indian middle class market boom,’ which never took off in reality. Daewoo had assumed that there was a huge pent-up demand for cars priced above Rs 0.5 million. The company also banked heavily on demand from the taxi/hotel car fleet and corporate segments. However, most of the above did not materialize the way Daewoo had planned. A Business India report revealed that most prospective Cielo buyers already owned an Esteem, and the decision to buy a second or third car could be postponed. The liquidity crunch due to the recession in the economy resulted in demand declining sharply - from the individuals as well as the taxi/hotel car fleet and corporate segments. In late 1995, Daewoo realized that it needed to give Cielo a strong push to improve the sales. The company then devised a promotional campaign, called the ‘Diwali 1 DCM-Daewoo had signed a MoU with the Government to import CKD (completely knocked down kits). The MoU had to be signed since imports of CKD items for cars was banned and required a license. 95
  • 94. Marketing Management Bonanza scheme’ for corporates, offering one Cielo free on purchase of every ten cars. This was followed up with a lottery scheme for individuals, wherein the winner was awarded a car. It was revealed later that the promotional scheme was pushed by Daewoo’s marketing head from Korea inspite of the Indian managers vehemently opposing it. A former Daewoo executive said, “There was actually no need of the promotion. People began to look at the car with suspicion.” The Cielo had till then been promoted as a feature-rich, luxury family car. The free Cielo scheme did immense damage to the car’s brand equity, particularly in north India, which accounted for around 80% of Cielo sales. The bonanza scheme somehow projected a picture that Daewoo had substantial non-moving Cielo stocks, thereby turning off the ‘status-conscious’ buyers. Before this scheme, Cielo was selling about 2,500 cars a month, which fell to 100 by the time the scheme ended in early 1996. In its desperation to maintain volumes, Daewoo then began offering hitherto unheard of incentives to dealers and financiers, who in turn passed them on to customers through lower interest rates. Daewoo and its financiers were even questioned by the Monopolies & Restrictive Trade Practices authorities to explain how its finance rate could be as low as 14.33%, while the prevailing car finance rate was 23%. The company explained it by claiming that it was offering discounts of up to 10% of the car value (Rs 0.6 million) to financiers, provided they reduced the cost to the customer by keeping the interest rate low. Daewoo later claimed that these inquiries were instigated by its competitors to tarnish its image. After the finance schemes, Cielo announced a test drive scheme to lure the buyers in April 1997. The scheme entitled all car owners to participate in a draw where 200 Cielos were given to the winners for 18 months. On completion of this period, the winners had the option of either buying the car by paying 70% of its original on-road price or returning it to Daewoo. The company claimed to have successfully tried out this scheme in the UK and Korea earlier. The scheme was intended to enhance Cielo’s credibility in the marketplace. However, the low finance rates and the test drive schemes faced the same criticism the free Cielo scheme did. Daewoo’s positioning efforts for the Cielo were termed ‘unmemorable and poor’ by analysts - largely due to the frequent changes in the positioning. Initially the car was positioned on the ‘technology with aesthetics’ plank, which was later moved on to a ‘premium family car’ positioning. Analysts remarked that the family-car positioning did not match with the premium image Cielo was trying to project in the beginning. This premium communication began to clash with subsequent value-for-money initiatives that followed. Such moves only ended up confusing the customer. S G Awasthi, managing director, Daewoo, defended the company’s stand saying that there were no benchmarks in India when Cielo was launched and that market segmentation had not even begun to emerge. He said, “It was difficult to position the car clearly or to communicate it. So we did not position it against any product, but with the idea that Cielo will find its own niche.” A Daewoo source commented, “Tell me one ad campaign that improved the car’s sales by even 0.1%? Cielo began on a luxury plank and ended on a ‘Val-You’ note.” Media reports remarked that Daewoo’s not being able to properly position the car proved to be the biggest reason behind Cielo’s failure. An analyst commented, “They must have tried almost every positioning.”THE BIGGEST BLUNDER? As all of Daewoo’s efforts seemed to be failing, the company Daewoo decided to introduce a hefty price cut of Rs 0.15 million in January 1998. After this, the GLE model cost Rs 0.49 million in Delhi showrooms compared to the earlier price of Rs 0.62 million, while the GLX model cost Rs 0.57 million compared to the earlier Rs 0.68 million.96
  • 95. Ceilo – A Car in Trouble Daewoo’s move took the industry players as well as the customers by surprise. It was even reported that a leading Daewoo competitor sent anonymous letters to automobile dealers on ‘how the price reduction had seriously eroded customer confidence in Cielo and was done mainly for the 1996 models stuck in their stock.’ However, Awasthi preferred to call it ‘price correction,’ saying that the price slash had been possible because of the company’s achieving a higher indigenisation level (70.10%) and better foreign exchange management. He added that the decision was in line with Daewoo’s global strategy of working on lower margins. Ten days before the price cut announcement, Daewoo had stopped delivering the Cielo to showrooms, hoping to minimize the impact of the price reduction on recent customers. To ensure that existing customers did not feel cheated, the company wrote to each customer individually. They were offered the first bookings for Daewoo’s yet to be launched small car, besides a customized package of free servicing. They were also explained how the price change did not really compromise the price they had paid. Daewoo held meetings with senior managers from its regional offices, dealers and the finance companies to explain the rationale behind the price cut. Daewoo also began monitoring the reactions to the price correction by sending out nearly 1,50,000 letters to the public. In addition to each of the existing Cielo customers, potential buyers – companies, Government and professionals like chartered accountants and doctors were targeted. Each dealership was put under watch by the regional managers to remove any feelings of ‘betrayal’ in old customers. Immediately after the price cut, Cielo’s sales increased to 906 per month in January and February 1998 compared to 314 units in December 1997. Although Cielo became the cheapest mid-size car in the Indian market, this move almost wiped out the car’s credibility in the market. After the price reduction, Daewoo had to work very hard towards salvaging the car’s image. This was done by the new ‘value benefits’ positioning for Cielo in the mid-size segment. Daewoo launched the ‘Valyou’ campaign designed to educate the customer on the new positioning, highlighting the Cielo’s features. The idea was to convey that the Cielo now offered more value for less money and not just the same value for less money. Thus, the aspects of Technology Valyou, Comfort Valyou, and Safety Valyou were emphasized. As a result of these initiatives, in March 1998 sales went further up to 1102 cars. For 1997-98, Daewoo increased its advertising budget substantially and released double-page advertisements in leading national dailies carrying pictures of a range of automobiles. This was done to give confidence to customers that Daewoo was not just a single-product company. Also, whereas the earlier advertising focussed on Cielo, it now focussed on the Daewoo brand in the same way as other multinational car brands did. However, these moves failed to have the desired effect and as predicted by industry analysts, the impact of the price cut and new campaigns soon wore off - by February 1999, sales fell to a low of 148 cars per month.SHIFTING THE FOCUS TO MATIZ In October 1998, Daewoo launched its small car ‘Matiz,’ which soon became very popular amongst the customers. Though Matiz did not fare as well as its rival Santro (from Hyundai) initially, over the next few months, its demand increased significantly. While 23,265 units were sold during April-December 1999, demand increased by 52.2% to 35,398 cars during April-December 2000. Analysts claimed that Daewoo seemed to be neglecting Cielo after the launch of Matiz. In May 1999, Daewoo stopped production of the GLE and GLX versions of Cielo and replaced them with the Cielo Executive and the Nexia. While the former was positioned as the basic Cielo version with the best features of both GLE and GLX, the Nexia was promoted as being an upgraded version of the Cielo. The move failed badly because the dealers as well as the customers failed to see any worthwhile additions to the earlier Cielo model. 97
  • 96. Marketing Management Referring to Nexia as a slightly modified Cielo, a Daewoo dealer commented, “We have the Rs 0.4 million Cielo and the Rs 0.6 million Cielo (i.e. the Nexia).” This was not surprising, for while Nexia’s engine and interiors had been substantially changed, Nexia’s exterior was very similar to Cielo. Daewoo said that it was not able to create a perceptual difference between the two cars amongst the consumers. Nexia failed to catch the customer’s fancy and sales never really picked up. Daewoo attributed the low sales to the fact that the market for mid-size cars had become rather crowded. During the pre-launch and launch period of Nexia, Daewoo completely stopped advertising for Cielo. This created the impression that the Cielo was going to be completely phased out. This prevented the company from positioning both cars independent of each other. From 2553 cars sold during April-December 1999, Cielo sales declined by 45.8% to 1385 cars during April-December 2000. Daewoo’s plans to launch a Compressed Natural Gas (CNG) version of the Cielo were yet to materialize even in mid 2001. Matiz had a 70% market share in the Korean market and had received a good response in most of the 114 countries it was sold in. However, its performance in India was nowhere near its global success and Daewoo continued to run into losses. In 1999-00, the company had a loss of Rs 1.16 billion on gross sales of Rs 12.78 billion. The loss increased to Rs 3.4 billion on gross sales of Rs 11.84 billion in 2000-01. Daewoo’s rivals were quick to comment that the Matiz was also bearing the brunt of the company’s poor marketing skills, adding that the poor legacy of the Cielo experience would be hard to shake off. Daewoo though, was still hopeful of succeeding in the Indian car market. The company expected the market to reach the one million mark by 2005-2006. Kim said, “Who would want to lose an opportunity to be part of that?” He added that Daewoo would break even in 2001-02. To meet this target, Daewoo was working towards enhancing its dealership and sales and servicing network as part of the restructuring programme. The company also undertook a massive cost cutting exercise, which involved cutting down on staff strength. In order to reduce the wage bill, Daewoo reduced the working hours and also reduced the number of workers from 3000 in 1998 to 1951 in 2001. The company’s prospects however showed no signs of improving as for the first quarter of 2001-02, Daewoo posted a net loss of Rs 1.21 billion - almost double the Rs 607 million figure in the corresponding period in 2000-01. At this juncture, the company even had to postpone its plans to launch three new top-end cars, Lanos, Nubira and Magnus. In August 2001, Daewoo revealed plans to change the positioning of Cielo once more. The company’s new managing director Young-Tae Cho claimed that the Cielo in its current form could not be continued. Until Daewoo managed to boost the car’s sales, one would have to agree with the industry experts, who claimed that the company would never be able to make a success of Cielo. Questions for Discussion: 1. Analyze the reasons behind the failure of Daewoo Cielo. Do you agree that the company itself was responsible for its problems? 2. In spite of being the first MNC player in India after MUL, Daewoo could not make its automobile venture a success. How far was the Korean parent responsible for the Cielo debacle? Discuss. 3. Was Daewoo neglecting Cielo after the launch of Matiz? Do you agree with Cho’s decision to change Cielo’s positioning once again? Justify your answer with reasons. © ICFAI Center for Management Research. All rights reserved.98
  • 97. Ceilo – A Car in Trouble Exhibit I Categorizing Indian Cars Category ModelsEconomy segment (up to Rs. 0.25 Maruti Omni, Maruti 800, Padminimillion)Mid-size segment (Rs. 0.28-0.4 Premier 118NE, Ambassador Nova, Fiat Uno,million) Zen, Hyundai Santro, Daewoo Matiz, Tata Indica, ContessaPremium car segment (lower end) Esteem, Cielo Executive, Fiat Siena, Hyundai(Rs. 0.5-0.7 million) Accent, Ford Ikon, Opel Corsa, NexiaPremium car segment (upper end) Suzuki Baleno, Mitsubishi Lancer, Opel Astra,(Rs.0.7-1 million) Ford Escort, Honda CityLuxury segment (Above Rs1 Mercedes Benz and other imported modelsmillion).Source: ICMR. 99
  • 98. Marketing Management Additional Readings & References: 1. First off the block, Business India, July 31, 1995. 2. Ganguli Bodhisatva, From trucks to cars, Business India, January 15, 1996. 3. Ganguli Bodhisatva, DCM-DAEWOO, Still short, Business India, June 3, 1996. 4. Ganguli Bodhisatva, Exit DCM, Business India, February 24, 1997. 5. Sorabjee Hormazd, No hand-me-downs, thank you, Business India, June 16, 1997. 6. Cielo price cut by Rs 0.13 milion, Business Standard, January 5, 1998. 7. Daewoo’s nightmare, Business India, January 26, 1998. 8. Raman Manjari, Cielo drives home the value equation, Business Standard, March 2, 1998. 9. Daewoo halts output of Cielo GLE, GLX models, Indian Express, May 8, 1999. 10. Pande Bhanu & Singh Iqbal, Will the real Daewoo stand up?, Business Standard, May 11, 1999. 11. Rajashekhar M, Generation Nexia, Business Standard, July 11, 2000. 12. Madhavan N, Things that went wrong with Daewoos India operations, Business Standard, November 15, 2000. 13. Ganguli Bodhisatva, Can Matiz paint a new picture?, Business India. 14. Ganguli Bodhisatva, Sudden slowdown, Business India. 15. Datt Namrata, Daewoo in overdrive, Business India. 16. Ganguli Bodhisatva, Daewoo’s dilemma, Business India.100
  • 99. Airtel Magic – Selling a Pre-Paid Cellphone Service “Magic’s success can be attributed to the one on one relationship that the brand has built successfully with its customers. Add to that the vibrant colours, the local language and simplicity that the brand communicates with, and the celebrity association, Magic creates a lasting bond with its customers.” - Vivek Goyal, CEO, Bharti Mobitel Ltd., in January 2002.CASTING THE CELEBRITY MAGIC In 2002, the leading Indian telecommunications company, Bharti Cellular Limited (Bharti) signed the famous cricket player Saurav Ganguly and leading movie stars, Madhavan and Kareena Kapoor as endorsers for its brand, Airtel Magic (pre-paid cellular card). Its objective was to create the highest recall for Magic in the pre-paid cellular telephony segment by cashing in on the two biggest passions of India – movies and cricket. Bharti also changed the tagline for Magic from ‘You Can Do Magic’ to ‘Magic Hai To Mumkin Hai’ (If there is Magic, it’s possible). The move attracted considerable media attention, as it was unusual for a company to spend so lavishly to promote a single brand. In October 2002, Bharti launched a television commercial (TVC), featuring Shah Rukh Khan (leading actor, already endorsing Magic since a couple of years) and Kareena Kapoor. The TVC, developed by one of India’s leading advertising agencies, Percept Advertising, was the first of the series of four TVCs for Magic’s new campaign. According to Bharti, the TVCs aimed at attracting young adults in SEC B and C categories of the Indian market1. Commenting on the new developments, Hemant Sachdev (Hemant), Director, Marketing and Corporate Communications, Bharti Enterprises, said, “The aim is to be relevant to the masses and make all their dreams, hopes and desires come true instantly, at Rs 3002 per month.” However, industry observers felt that these actions were necessiated by the intensifying competition in the pre-paid cellular card segment in India in the early 21st century (Refer Exhibit I for a note on cellular telephony). Many new players (national as well as international) had entered the segment and the competition had become quite severe. Besides Magic, the major players in the pre-paid card segment in 2002 included Idea (Tata, AT&T and Birla Group), Speed (Essar), Hutch (Hutchison), Wings (RPG), Cellsuvidha (Fascel) and Yes (Usha Martin). In October 2002, Magic led the market, with 30% of the market share. Bharti claimed that its strategies were one of the most ambitious experiments ever in the Indian pre- paid cellular telephony market. However, given the increasing competitive pressure, doubts were being expressed regarding the ability of Bharti’s marketing initiatives to help Magic retain its ‘Magic’ in the future. 1 Socio-Economic Classification (SEC) categorized urban Indian households into five segments SEC A, SEC B, SEC C, SEC D and SEC E, based on education, occupation and chief wage earner’s profile. A&B are high SEC classes. Mid SEC class is SEC C and low SEC classes include D&E. 2 In November 2002, Rs 48 equaled 1 US $.
  • 100. Marketing ManagementBACKGROUND NOTE Cellular telephony was introduced in India during the early 1990s. At that time, there were only two major private players, Bharti (Airtel) and Essar (Essar) and both these companies offered only post-paid services. Initially, the cellular services market registered limited growth. This was primarily due to the high tariff rates charged by the companies (about Rs 16 per minute for outgoing calls). Indians who were used to paying much lesser amounts (Rs 1.20 for 3 minutes) for landline telephone calls found these to be very expensive. However, as there were only two players, a monopoly regime prevailed. The tariff rates as well as the prices of cellular phone handsets (instrument) available in that period continued to remain high. Hence, cellular phone services during that period were regarded as a luxury and companies mostly targeted the elite segment of the society. Moreover, these services were mostly restricted to the metros. Other factors such as lack of awareness among people, lack of infrastructural facilities, low standard of living, and government regulations were also responsible for the slow growth of cellular phone services in India. Although the cellular services market in India grew during the late 1990s (as the number of players increased and tariffs and handset prices came down significantly) the growth was rather marginal. This was because the cellular service providers offered only post-paid cellular services, which were still perceived to be very costly as compared to landline communications. Following this realization, the major cellular service providers in India, launched pre-paid cellular services in the late 1990s. The main purpose of these services was to target customers from all sections of society (unlike post-paid services, which were targeted only at the premium segment). On account of the benefits they offered (Refer Exhibit I), pre-paid cellular card services gained quick popularity during the late 1990s. Between the late 1990s and early 2000s, tariff rates declined 75%. Reportedly, Indian cellular players were offering the lowest cellular tariffs in the world (Rs 1.99 for 60 seconds). By October 2002, of the 8.5 million cellular phone users in the country, 65% belonged to the pre-paid segment. Also, an estimated 80% of the new add-ons were pre-paid card subscribers. Bharti, being one of the early entrants in the industry, (Refer Exhibit II for a note on Bharti), launched its own pre-paid cellular service under the Magic brand in January 1999. Magic was first launched in Delhi and later in other circles3 in India (where the company offered cellular services under its flagship brand, Airtel). Through Magic, Bharti targeted the infrequent users of mobile phone. Acquiring Magic connection was very easy – all a customer needed to do was walk into an outlet (selling Magic) with a handset. Here the customer was provided with a pre-activated SIM card4 (which had to be loaded with the calling value) and a recharge card (which was required for loading the calling value into the SIM card). These cards were valid only for specific period (beyond which the services could not be availed), depending on the value of the recharge card loaded. Whenever a customer utilized his Magic 3 India was divided into 21 ‘telecom circles’ (circles). These circles were divided into three categories ‘A,’ ‘B,’ and ‘C’ based on their size and importance. Category ‘A’ - Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu. Category ‘B’ - Kerala, Punjab, Haryana, Uttar Pradesh, Rajasthan, Madhya Pradesh and West Bengal. Category ‘C’ - Himachal Pradesh, Bihar, Orissa, Assam and North East. Cellular licenses were separately issued to the four metros in India – Delhi, Chennai, Mumbai and Kolkata. 4 Subscriber Identification Module (SIM) card is a smart card that allows cellphone users to make and receive calls. The SIM card contains a microprocessor chip, which stores unique information about the user account, including his phone number and security numbers, thus helping the network to identify the user.102
  • 101. Airtel Magic – Selling a Pre-Paid Cellphone Service card, a specific amount was deducted as per the applicable tariff rates. Customers were required to recharge the card before the expiry of the validity period to avail the services (further). When the card was recharged, customers were provided with a new calling value possessing a new validity period. The company provided a grace period of 30-90 days based on the denomination of recharge card. However, no incoming or outgoing calls were allowed during this period. The attractively designed Magic cards could be activated/recharged by using a 16- digit number. Bharti adopted the international ‘scratch system’ for Magic cards, that is, customers were required to scratch a marked area on the card to acquire the activation number. To establish Magic as a brand and make it more accessible, Bharti focused on its distribution strategies. Apart from company outlets, Magic was made available at departmental stores, gift shops, retailing outlets, telephone booths and even ‘Kirana’ stores (small grocery shops). Besides the absence of rental hassles and security deposits, Magic offered features such as instant connectivity, pre-activated STD/ISD facility (customers did not have to maintain a minimum balance in the pre-paid card for utilizing the STD/ISD services), voice mail and short messaging service (SMS). To meet the requirements of varying customer groups Magic was made available in various denominations (ranging between Rs 300 to Rs 3,000). Due to its innovative and customer-friendly features, Magic came to be credited by industry observers for bringing about dynamic changes in the Indian cellular services market and expanding the cellular user base. By providing affordable and easily accessible services to all sections of the community and maintaining strong relationship with customers, Magic was able to differentiate itself from other pre-paid cellular services. Magic soon became the market leader and was the most visible pre-paid cellular brand in the country – aided by Bharti’s (and Airtel’s) strong presence in 16 states of the country (reaching around 400 million customers). However, Bharti was not content with sitting back and savoring the short-term success of Magic. The company realized that the Indian cellular telephony market was undergoing a radical transformation. With the entry of a fourth player in various telecom circles in 2002 (until then only three players were operating in all circles), the future was expected to be rather uncertain. The subscriber base was over 6.4 million by March 2002 as compared to 3.5 million in March 2001. Telecom circles in the states of Rajasthan, Haryana and Kerala posted an estimated growth rate (in subscribers) of 179%, 151% and 151% respectively in 2002. This growth could be primarily attributed to the introduction of pre-paid cards, which accounted for over 55% of an operator’s revenue. In early 2002, analysts forecasted that the number of subscribers using pre-paid cellular services in India was estimated to reach over 25 million by the year 2004 (from 4.5 million in 2002). The immense potential the market offered lured almost all major players to shift their focus to the pre-paid segment to design new marketing strategies to expand their user base in this segment. With the intensifying competition in the market, Bharti also felt the need to revamp its own marketing strategies and retain its position as the market leader.ALL SET TO CREATE MAGIC In early 2002, Magic decided to revamp its marketing strategies. There were plans to launch the service in newer areas and bring about changes in pricing, positioning and advertising. The company also planned to make new value additions by providing better services. As a first step in this direction, Magic was brought under Bharti’s umbrella brand, Airtel, and was renamed Airtel Magic. Company sources said that the 103
  • 102. Marketing Management move was aimed at banking on the strengths of Airtel as a brand. While the earlier brand strategy aimed at customers interested in using mobile services, the new strategy was aimed at attracting even non-interested customers by appealing to their needs and requirements (offering them a value they did not perceive earlier). In line with this strategy, Magic was positioned as a friendly, mass-market brand. Sources at Bharti revealed that in its repositioning exercise under the Airtel brand, Magic targeted youth and stood for simplicity and attitude that said, ‘anything is possible.’ Explaining the rationale behind the brand repositioning on the Airtel level, Hemant said, “As we grew to a 15-circle telecom network, we wanted to become generic to mobility in the country.” As a part of its revamping exercise, Bharti also changed the logo. The new Magic logo reflected the new brand values of youthfulness, energy, simplicity and friendliness (See Exhibit III for Old and New Logos of Magic). Bharti then focused on extending its distribution base in all the circles in which it operated and therefore, ensured the availability of Magic cards in the remotest parts of its operating circles. By late 2002, the states of Kerala and A.P. had 2000 and 4,500 stores respectively. In Chennai (Tamil Nadu) and Kolkata (West Bengal) there were over 2,500 and 3,000 outlets respectively. In mid 2002, in an innovative move, Bharti entered into a strategic tie-up with a leading Indian private sector bank, ICICI to offer recharge facility for Magic cards users at the bank’s ATMs5 across Andhra Pradesh, Delhi and Kolkata. Commenting on this, Pawan Kapur, Chief Executive, Bharti Mobile (Andhra Pradesh) said, “It is another innovative combination of customer benefit and technological advancement.” Bharti also focused on revamping of its pricing strategies from time to time (at regular intervals) in order to stay ahead of competition. The company charged different rates for incoming and outgoing calls depending on the time when the call was made. For instance, customers in Delhi were charged Rs 1.35 (per 30 seconds) and Rs 0.99 (per 30 seconds) for incoming calls in the time slot of 8.00 am and 10.00 p.m. However, these rates were much lower at night (outgoing calls cost only Rs 0.67 for 30 seconds, while incoming calls cost Rs 0.49). In order to increase its penetration in the market, Magic also came up with many special offers during mid and late 2002. In mid 2002, Magic was made available at only Rs 290 (as against Rs 300 previously), which included Rs 90 worth free talk time valid for 7 days (as against Rs 50 previously). One of its special launch offers included providing free talk time worth Rs 290 to new subscribers (Rs 145 worth talk time free at the end of the third month and the balance Rs 145 worth, at the end of sixth month from the date of making the first call from magic card). Free voice mail service was also offered to new subscribers for a period of three months. As a part of its efforts to expand its reach, Bharti offered and introduced many special features for Magic subscribers. These included free caller line identification, and innovative services like balance on screen (balance amount displayed at the end of each call) and balance on demand (balance amount derived by pressing specific numbers on the phone without making or receiving a call). Bharti also introduced doorstep delivery of Magic cards in mid-2002. Although the service was initially available only in Delhi and Gurgaon (for a recharge value of Rs 500 and above), there were plans to extend it to other circles as well. 5 ATMs (automatic teller machines) interact with users and with the central system of the concerned bank to execute a transaction (dispense cash and print receipts). Customers wishing to recharge a Magic card were provided the 16-digit recharge pin number through a printed receipt.104
  • 103. Airtel Magic – Selling a Pre-Paid Cellphone Service In mid 2002, Bharti launched its regional roaming6 network in Asia for Magic subscribers. Under this offer, subscribers were able to utilize roaming services in over 66 countries across the world, underlying Europe, Australia, the Asia-Pacific region, the Middle East and the US. This service was offered free of charge for calls placed through any Airtel network in India. Regional roaming facility was offered to customers within the country as well in mid 2002. Apart from this, the company also waived airtime charges on incoming calls between Airtel cellular customers (intra- operator calls) in some parts of the country. New celebrity endorsers who projected a fresh and youthful image were chosen. The idea was to reflect Magic’s brand values of energy, hope, optimism and achievement. Explaining the rationale behind focus on celebrity endorsements, P H Rao, MD, Bharti Mobinet Ltd., said, “Magic is a youth brand, and all these celebrities depict exuberance and confidence to succeed, which are in synergy with the core values of the product.” These campaigns were extensively covered by both the print and television media. Besides the new tagline of ‘Magic Hai To Mumkin Hai,’ Bharti devised many ad- specific taglines to take the brand closer to masses. Some of them were ‘Kabhi bhi Kahin bhi’ (Anytime, anywhere) ‘Jahan Chaho, Airtel Magic Pao’ (Wherever you want, you will find Magic), Airtel Magic gives you the max out of life, ‘Kharch aapki mutthi mein’ (Costs are under your control) and ‘Life banao ab aur bhi aasaan’ (Make life easier with Magic). To promote the brand and retain its customers, Bharti conducted many contests for its subscribers through SMS. For instance, the ‘Khulja Sim Sim’ contest launched in April 2002, offered a treasure hunt kind of an interactive game through SMS, wherein many attractive prizes were given to the winners. Many other such contests were held, either as part of a new scheme’s promotional efforts or to coincide with some local Indian festival. In 2002, Bharti entered into many new telecom circles as the fourth player. Due to the strong brand equity of both Airtel and Magic it picked up instant momentum. Magic was reportedly very popular with customers (especially the youth) who appreciated the (ease of operation, affordability and ready availability) the brand offered.THE INDUSTRY STRIKES BACK Bharti’s aggressive marketing, advertising and promotional efforts led other players to focus on their marketing efforts as well (Refer Exhibit IV for competition details). Companies resorted to price reductions, new service additions, value additions and focused advertising and promotional campaigns. For instance, in Mumbai, BPL Mobile and Hutchison Max Telecom made incoming calls (from across the country) free to counter Bharti’s waiver of airtime charges for incoming calls in Mumbai. Apart from this, BPL and Hutchison also announced the launch of new advertising campaigns in Mumbai. Hutchison and BPL also launched their 32K7 SIM cards in order to match Bharti’s 32K SIM offer (previously, the players offered only 8- Kilobyte memory SIM cards). BPL and Hutch also waived airtime charges for incoming calls and reduced their roaming service charges. Both Hutch and BPL 6 Roaming facility denotes a cellular phone’s ability to receive and make calls outside the customer’s home calling area (service area). 7 The SIM card offered certain value-added services such as details of train/flight schedules and movie timings, check bank balance and download music tunes or pictures on their cell phones. 105
  • 104. Marketing Management announced a flat rate of Rs 1.49 (60 seconds) as roaming charges, as against the previous Rs 3 (60 seconds) on all partner networks. In January 2002, Spice allowed national roaming named Spice Quicky on its pre-paid card. In late 2002, in the light of price slashes by Bharti, Hutch and BPL, MTNL also slashed tariff rates of its Dolphin cellular service in Mumbai and Delhi, in order to sustain its market in these circles. Escotel, one of the leading cellular service providers in UP (West) launched roaming services (both incoming and outgoing) for its pre-paid card subscribers in late 2002. It announced plans to extend these services to its other circles as well. In mid 2002, Idea Cellular Ltd. planned to focus on creating brand awareness and launched an aggressive advertising campaign with an ad-spend of Rs 630 million (7% of its net revenues). The company developed new TVCs to highlight the company’s tagline ‘Liberation through idea.’ Apart from its advertising strategies, the company announced plans to offer various value-added services that included games on mobile, SMS in 9 languages and pre-paid roaming facility. However, the company decided against the usage of celebrity endorsements for its pre-paid cellular service, Idea ChitChat. Bharti’s competitors launched various promotional campaigns for their brands – many of them copying those of Bharti’s. While Spice awarded free talk-time to winners of a Soccer World cup related promotional event, the subscribers of Idea ChitChat in Andhra Pradesh could win gold coins, watches and talk-time under a special scheme. However, the most severe competition was witnessed in the area of tariff reduction. In the Karnataka circle, Spice reduced tariff rates on its pre-paid cellular cards, Simple and Uth in mid 2002. According to the new rates, Simple subscribers were required to pay Rs 1.49 (30 seconds) both for incoming and outgoing calls (24 hours a day) and Uth subscribers were required to pay only Rs 0.5 (30 seconds) at night as against Rs 0.75 charged previously. In September 2002, Spice even offered interesting and even useful information like train timings, astrology, news, movie tickets, cricket updates, stock market news through its brand, Genie. With Hutch Essar entering the Karnataka cellular market as the fourth operator in 2002, both Bharti and Spice were devising strategies to retain their respective positions in the market. The case was the same in Andhra Pradesh (AP), where Hutch entered in August 2002. Hutch8 was becoming a formidable competitor for Bharti in many circles. With its aggressive marketing and promotional campaigns and a range of value added services, Hutch had garnered considerable shares in many circles by mid 2002. Value added services offered by Hutch (through its advanced 16K SIM) included regional roaming, dial-in service, voice messaging (in India and even to US or Canada), voice mail, voice response service, unified messaging service and other online menu services (such as SMS, railway information, train timings, movie tickets, stock market news, TV schedules). In Kolkata, Hutchison’s Command recorded over 55.03% growth between January and August 2002, while Orange, Essar and Fascel reported growth rates of 46%, 36.67% and 46.29% respectively for the same period. In early August 2002, Hutchison announced a new scheme ‘Go Hutch for Rs 74’ in Andhra Pradesh, wherein pre-paid customers were offered a talk time of worth Rs 175 on purchase of a pre-paid card of Rs 249, which made Hutch pre-paid card cheaper to other pre-paid cellular services in the state. In response to this, Bharti introduced its new Magic Recharge scheme, under which, subscribers could accumulate free talk time for every fourth recharge card bought. 8 A brand belonging to the Hutchison group. Hutchison operated through the Orange, Hutchison Max (Mumbai), Celforce (Gujarat) and Hutch/Hutch Essar (Andhra Pradesh, Karnataka, Delhi and Chennai) brands.106
  • 105. Airtel Magic – Selling a Pre-Paid Cellphone Service Bharti decided to design different marketing strategies for different circles depending on the strategies, employed by the competitors. While the company was focusing on its pricing strategies, its competitors in various sectors were concentrated on new service offerings and value additions (For instance, in the Chennai circle, the cellular war between RPG Group, Bharti and Hutch was more value and service driven). Since price reduction moves were almost immediately matched by the players, companies had begun focussing on developing value-added offerings and schemes to expand their market and gain customer loyalty. Analysts remarked that the players were coming up with new schemes or value-additions almost every week to get the better of their competitors. Some such schemes launched in mid 2002 included Tamil SMS and Audiotimes (a service which enabled subscribers to send song clippings to other cell phone users) by RPG. Bharti shot back with an offer wherein new Magic subscribers were given an audiocassette containing popular Tamil movie songs. Various value-added services were also offered in late 2002 in Chennai such as Panchangam (SMS-based), which informed customers about good (and bad) timings during the day. Bharti also tied up with a leading Internet portal, indiatimes.com to offer news headlines and stock market news through SMS. By constantly keeping itself abreast with the moves of its competitors and launching various proactive/reactive schemes, Bharti was able to retain its leadership position. Despite continual attacks from Hutch, RPG, Spice, Idea Cellular and BPL, Bharti’s cellular services received good high response in all circles during 2002. It was reported that in Mumbai, 60-75% of customers seeking Airtel services were BPL Mobile and Hutch subscribers. In fact, it was becoming difficult for the company to activate cellular connections in Mumbai swiftly on account of the high rush – in some cases, it took almost three days to activate a connection.THE FUTURE – FAR FROM MAGICAL While the players in the cellular market in India were focussing heavily on the pre- paid card segment due to its high potential, some analysts expressed doubts about the profitability of this segment in the long run. They said that low profit margins from the pre-paid segment (on account of low tariff and high advertising, promotional and customer service costs) could lead to losses in the long run. As the fierce competition would make price-cuts and heavy investments in advertising and promotions inevitable, this seemed quite possible. However, it was believed such problems might be overcome by building up a vast customer base and making up for margins by increasing sales volumes (A company’s cost per subscriber decreased with the increase in the subscriber base, thereby, resulting in increased margins.) However, the biggest challenge came in the form of CellOne, a cellular service launched by the state-owned telecom major, Bharat Sanchar Nigam Ltd. (BSNL) in October 2002. Not only were the rental charges of CellOne much lower than those of any other player, BSNL had plans to (further) reduce tariff. Given the vast reach of BSNL and years of experience in the Indian telecom sector, the new, private players were justified in their fears. Moreover, BSNL did not have to pay any license fee (8- 12% of the revenue share paid by all private players) to the government. Being a major stakeholder in the fixed line telephone network (90%), it did not have to shell a large share of its revenues as interconnect charges (over 70% of the calls made from cellular network used fixed line network) for routing calls, both landline and STD. With such control (on fixed line network) and established infrastructure, BSNL could pose a severe threat to its competitors on the pricing front. With the Department of Telecommunications announcing plans to grant International Long Distance (ILD) 107
  • 106. Marketing Management license to BSNL and BSNL planning to acquire a subscriber base of over 4 million (by late 2003 across 1,000 cities), the competition in the cellular market was expected to intensify further. Meanwhile, true to the belief of industry observers that the cellular telecom sector would see product/service innovations, Bharti launched a two-in-one cellular card in October 2002. This product offered both the features of post-paid and pre-paid cards in one card 9. It was aimed at customers residing in places where post-paid facilities were not available. The product was available with all Magic vendors and ICICI’s ATMs. Commenting on Bharti’s leadership position, representatives of BPL and Hutch said that Bharti might seem to have an advantage at present but it was a long-term game and it was too early to respond. As the market awaited the response of other competitors in November 2002, Indian pre-paid cellular services customers expected the future to be anything but dull. Competitive tariff plans, value-added services and to top it all, entertaining advertisement campaigns – customers, perhaps, could not have asked for more! Questions for Discussion: 1. Explore the circumstances in which Bharti launched Magic and explain the strategies adopted by the company to establish Magic in the Indian pre-paid card market. Identify the reasons for the instant success of Magic in India. 2. Examine the need for marketing revamp and repositioning of Magic brand during early 2002. Do you think Bharti succeeded in the repositioning efforts for Magic? Discuss. 3. Discuss the strategic moves of Bharti’s competitors to counter its aggressive marketing strategies to expand its market in the early 2000s. How far were these competitors successful? 4. Critically examine Bharti’s future in the pre-paid card market, in the light of the intensified competition, entry of BSNL and low margins available in the business. Suggest how Bharti could retain its leading position in the pre-paid cellular card market. © ICFAI Center for Management Research. All rights reserved. 9 The starter pack of the product costed Rs 999, which included an airtime worth Rs 499 and which carried an additional charge of Rs 10 as rental charge every day. For both, incoming and outgoing calls, customers were charged at Rs 1.15 (30 seconds) between 8 am and 9 pm and Rs 0.25 between 9pm and 8am.108
  • 107. Airtel Magic – Selling a Pre-Paid Cellphone Service Exhibit I Cellular Telephony & the Pre-Paid/Post-Paid Issue The basic concept of cellular phones originated in 1947 in the US, when researchers at Bell Laboratories got the idea of cellular communications from the mobile car phone technology used by the police department of the country. However, it took over three decades for the first cellular communication system to evolve. The public trials of the first cellular system began in Chicago during the late 1970s and the cellular telephone services were introduced in the US in the early 1980s, and gained popularity in a short span of time. By the late 1980s, cellular services had become popular in many developed countries across the world. Over the years, on account of dynamic technological advancements in the sector there was an improvement in the number and quality of services provided. There were mainly, two types of cellular services offered by operators – post-paid and prepaid: Post paid cellular services, also called billing card services, required the customers to pay for the cellular services utilized by them at the end of a specific period (generally, every month). These services also included fixed rental charges for the services provided. Post-paid cards were just like telephone bills and electricity bills, which have to be paid at regular intervals. Prepaid cellular services required the customers to pay in advance for the services they were to use. These cards were available in different denominations, and the customer could choose one keeping in mind his/her call requirements and budget. The services were withdrawn when the customers exhausted the call time they were entitled to. Pre-paid cellular services drastically increased cellular penetration across the world, redefined the subscriber segments and operator market shares, and resulted in the creation of new sales channels and service processes. As per a report on www.cellphones.about.com, the pre-paid cellular user base was drastically increasing across the world in the early 21st century. In Europe, more than 57% of cellular users were reportedly planning to shift to prepaid card services, while in Canada, the prepaid subscriber base was posting double growth rate as compared to post-paid services. In Japan, China and Singapore, the pre-paid segment grew at a considerable pace in 2002. In the US, though the prepaid cellular market amounted to only 10% of the total cellular market, the number of subscribers opting for pre-paid card services increased significantly during the early 2000s. The reasons for the above were not difficult to understand – pre-paid cellular services were much cheaper compared to post-paid services as there was no monthly rentals involved. Unlike the post-paid services, where the user was required to pay for the services used (plus rental charges) at the end of every month, pre-paid services require users to prepay for the airtime chosen. Pre-paid cards eliminated the risk of exceeding the spending limits as the card ‘expired’ on completion of the air time allotted. Apart from these, prepaid cards offered other benefits like increased convenience due to elimination of credit checks/security checks/real identity disclosures/ security deposits and signing contracts. However, few disadvantages were also associated with pre-paid cards. Pre-paid cards proved expensive on a per minute basis. In general, a minute cost doubles in case of a pre-paid service as against a post-paid service. Moreover, the range of services offered in a post-paid cellular connection was generally more as compared to pre-paid card services. Value added services were charged at a higher price for pre-paid card owners.Source: ICMR 109
  • 108. Marketing Management Exhibit II About The Bharti Group The Bharti Group has been a leading player in the Indian telecom industry ever since its entry into the sector during the early 1990s. Bharti Tele-Ventures, a part of Bharti telecom, offered various telecom services such as cellular, fixed line, V-SAT and the Internet. The operations of Bharti Tele- Ventures were managed by four wholly owned subsidiaries. These included Bharti Cellular Ltd. (Cellular), Bharti Telenet Ltd. (Access), Bharti Telesonic Ltd. (Long Distance) and Bharti Broadband Networks Ltd. (Broadband Solutions). The flagship services of the Bharti group in different telecommunication markets included Airtel (cellular), Mantra (Internet Services) and Beetel (telephone instruments). Bharti Cellular Ltd. was one of the first private players that entered the cellular telephony sector in India. Bharti launched Airtel, a post-paid cellular service in Delhi in November 1995. Bharti laid the foundations of the Indian cellular business and Airtel became a popular brand due to its innovative marketing strategies, continuous technological upgradations, new value-added service offerings and efficient customer service. Initially, confined only to the Delhi circle, Airtel services were extended to other places as well. Bharti revolutionized the cellular market in India. It was the first cellular operator to set cellular showrooms – Airtel Connect, a one stop cellular shop where the customers could purchase handsets, get new connections, subscribe to various value-added services and pay their mobile bills. Bharti was also the first player to provide roaming cellular services and other services such as Smart mail, Fax facility, Call hold, Call waiting and Webmessage. On account of such initiatives, Airtel was even voted the ‘Best Cellular Service’ in the country for four consecutive years (1997-2000). Bharti acquired fourth operator license in eight circles in India during July 2001, following which it launched its services in Mumbai, Maharashtra, Gujarat, Haryana, Uttar Pradesh (West), Kerala, Tamilnadu and Madhya Pradesh in 2002. Bharti also launched its services in Punjab in early 2002, when the Department of telecommunication re-allotted the license to Bharti empowering it to operate in Punjab. In 2002, Bharti along with the other two leading cellular players, Hutchison and BATATA-BPL accounted for over 67% of the total Indian cellular services market. The remaining market was shared by Escotel, Aircel, Koshika, Spice Communications, Reliance Telecom, BSNL and MTNL. In the early 21st century, many leading players were seen entering into partnerships with one another to sustain the increasing competitive pressures and achieve higher economies of scale. A series of mergers and acquisitions followed. In June 2002, Idea Cellular (consolidated cellular services of Birla, AT &T and Tata) merged with BPL cellular in order to consolidate their position. Hutchison acquired complete control of Fascel. Bharti also followed this trend and acquired Skycell Communications Ltd., a leading player in Chennai in mid 2002 and renamed it as Bharti Mobinet Ltd. It also acquired Spice Cell in Kolkata. Source: ICMR Exhibit III OLD LOGO OF MAGIC NEW LOGO OF MAGIC Source: www.rayandkeshav.com110
  • 109. Airtel Magic – Selling a Pre-Paid Cellphone Service Exhibit IV Post-Paid & Pre-Paid Cellular Brands in India (Late 2002)Telecom Circle Post-Paid Brands Pre-Paid BrandsHimachal AirTel, Reliance Telecom, NAPradesh EscortelDelhi Airtel, Idea, Hutchison, Dolphin Airtel Magic, Idea ChitChat, HutchPunjab Spice Communications, Airtel Spice, AirTel MagicHaryana Escotel, Aircel, Airtel Escotel, AirTel MagicUP West Escotel, Airtel Airtel Magic, EscotelUP East Aircel, Escotel Aircel and EscotelMadhya Pradesh RPG Cellular, Airtel, Reliance RPG telecomGujarat Fascel, Idea, Airtel, Celforce Fascel, Idea ChitChat, Airtel Magic, CelforceKolkatta Airtel, Usha Martin, Hutchison Airtel Magic, HutchMumbai BPL, Hutchison Max, Airtel BPL, Hutch, Airtel MagicMaharashtra BPL Mobile cellular, Idea, Airtel Airtel Magic, Idea ChitChat, BPLAndhra Pradesh Idea, Airtel, Hutch Essar Idea ChitChat, Airtel Magic and HutchKarnataka Spice Communications, Airtel, Spice, Airtel Magic, Hutch Hutch EssarChennai RPG Cellular, Airtel, Hutch Airtel Magic, RPG, Hutch EssarKerala BPL Cellular, Escotel Mobile, BPL, Escotel, Airtel Magic AirtelTamil Nadu BPL Mobile, Aircel, Airtel BPL, Airtel Magic, AircelSource: ICMR Cellular Service Subscriber Base in India Growth/decline Growth/decline Circle Jan-02 Feb-02 Feb-01 *m-o-m (in %) *y-o-y(in %) All Metros 2.260 2.374 5.05 1.304 82.0 A Circle 1.965 2.065 5.10 1.101 87.5 B Circle 1.306 1.391 6.54 0.903 54.0 C Circle 0.207 0.218 5.14 0.109 99.8 All India 5.738 6.048 5.41 3.417 77.0 Source: www.geocities.com/mabaalaji/wn2.html 111
  • 110. Marketing Management Additional Readings & References: 1. Pre-paid Wireless – Buy Now, Talk Later, www.commercetimes.com, April 12, 2001. 2. Value-adds To Drive Chennai Cell Market Post 4th Operator Entry, Financial Express, June 2002. 3. Bharti to Roll Out Services Today, http://in.biz.yahoo.com, July 2002. 4. AirTel Magic Goes Roaming in South, www.deccanherald.com, July 26, 2002. 5. Panchal Salil, Cellular Phones War Hots Up Again, www.rediff.com, August 2002. 6. Joseph Jaimon, Airtel: Magic in the Making, http://in.biz.yahoo.com, August 2002. 7. Hutch Offers New Pre-paid Scheme in AP, www.blonnet.com, August 9, 2002. 8. Panchal Salil, The Cellular Arena: How do the Gladiators Stand, www.rediff.com, August 2002. 9. Mo Crystyl, Growth at all Costs, www.asiaweek.com, August 31, 2002. 10. CellOne May Trigger Rate War, http://autofeed.msn.co.in, October 5, 2002. 11. AirTel Hopes To Create Magic In This Segment, www.agencyfaqs.com, October 10, 2002. 12. Cellular Operators at War –Consumers Set to Win, http://server1.msn.co.in, October 2002. 13. Das Gupta Surajeet, Taking a Call on Branding, www.business-standard.com, 2002. 14. www.blonnet.com 15. http://cal.airtelworld.com 16. www.airtelworld.com 17. www.spicetele.com 18. www.spicecorpltd.com 19. www.coai.com 20. http://inventors.about.com 21. www.geocities/mabaalaji/awn2001.html 22. http://www.geocities.com/mabaalaji/wn2.html 23. www.deccanherald.com112
  • 111. L’ oréal – Building a Global Cosmetic Brand “It is a strategy based on buying local cosmetics brands, giving them a facelift and exporting them around the world.” - One Brand at a Time: The Secret of L’Oréal’s Global Makeover, www.fortune.com, August 12, 2002.L’ORÉAL MAKES WAVES In November 2002, L’Oréal, the France-based leading global cosmetics major, received the ‘Global Corporate Achievement Award 2002,’ for Europe by ‘The Economist Group.’ Awarded by the publisher of the world’s leading weekly business and current affairs journal ‘The Economist,’ the honor was given in appreciation and recognition of the ‘depth, breadth, and diversity of L’Oréal’s management team.’ In the same month, L’Oréal’s Chairman and CEO, Lindsey Owen Jones (Jones) was honored with the ‘Best Manager of the Last 20 Years’ title by the French Minister of Finance and Economy, Francis Mer. This award instituted by the leading French business publication, Challenges, was in recognition of Jones’ outstanding achievements in transforming L’Oréal from a French company into a global powerhouse. Jones also received the prestigious ‘Manager of the Year 2002’ award from the French Prime Minister, Jean-Pierre Raffarin. Jones was the first foreign head of any French company to receive this award, which was sponsored by the leading French business publication, Le Nouvel Economiste. These honors were not just a ‘cosmetic’ eulogy; L’Oréal deserved them, for it was the only company in its industry to post a double-digit profit for 18 consecutive years (Refer Exhibit I for L’Oréal’s key financials). L’Oréal, which had operations in 130 countries in the world, posted a turnover of € 13.7 billion1 in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002 (half-yearly results), respectively. Commenting on L’Oréal’s performance, Jones said, “At L’Oréal, we are 50,000 people who share the same desire; because it is not just about business but about a dream we have to realize, perfection.” Known for its diverse mix of brands (from Europe, America and Asia), like L’Oréal Paris, Maybelline, Garnier, Soft Sheen Carson, Matrix, Redken, L’Oréal Professionnel, Vichy, La Roche-Posay, Lancôme, Helena Rubinstein, Biotherm, Kiehl’s, Shu Uemura, Armani, Cacharel and Ralph Lauren, L’Oréal was the only cosmetics company in the world to own more than one brand franchise and have a presence in all the distribution channels of the industry (Refer Exhibit II for a note on the global cosmetics industry).BACKGROUND NOTE In 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair color formula. The uniqueness of this formula, named Aureole, was that it did not damage hair while coloring it, unlike other hair color products that used relatively harsh chemicals. Schueller formulated and manufactured his products on his own and sold them to Parisian hairdressers. Two years later, in 1909, Schueller set up a company and named it ‘Societe Francaise de Teintures inoffensives pour Cheveux.’ From the very beginning, Schueller gave a lot of importance to research and innovation to develop new and better beauty care products. By 1920, the company 1 April 2003 exchange rate: $ 1.08569 = 1 €.
  • 112. Marketing Management employed three in-house chemists and made brisk business selling hair color in various countries like Holland, Austria and Italy. Schueller used advertising in a major way to market his products. He used promotional posters made by famous graphic artists like Paul Colin, Charles Loupot, and Raymond Savignac to promote his company’s products. In 1933, Schueller, created and launched a beauty magazine for women named, Votre Beaute. In 1937, he started the ‘clean children’ campaign and created a jingle ‘Be nice and clean, smell good’ for Dop shampoo, which went on to become one of the most famous jingles in France. In the early 1940s, the company’s name was changed to L’Oréal, which was an adaptation of one of the brands ‘L’Aureole’ (the halo). In 1957, after Schueller’s death, Francois Dalle (Dalle), Shueller’s deputy, took over as the company’s Chairman and CEO. During the 1950s, the company pioneered the concept of advertising products through film commercials screened at movie theaters. The first movie advertisement was for L’Oréal’s ‘Amber Solaire’ (sun care cream) with the tagline, “Just as it was before the war, Amber Solaire is back.”2 In 1963, L’Oréal became a publicly traded company. This posed a threat to its existence as it could easily come under the state’s control,3 which in turn could affect its international growth plans. Dalle therefore began taking steps to internationalize L’Oréal’s ownership structure to prevent it from coming under the control of the government. His efforts bore fruit a decade later in 1973, when he persuaded Liliane Bettencourt (Bettencourt), Schueller’s daughter and the company’s main shareholder, to dilute her majority stake. Later, half of L’Oréal’s stock was sold to Gesparal, a France-based manufacturer of personal care products, while the other half was publicly traded. Later, 49% of Gesparal’s stock was sold to Nestlè, the Swiss food products giant, while the remaining 51% was held by Bettencourt. In 1972, the company launched the legendry advertisement campaign ‘Because I’m worth it’ to promote the ‘Preference’ line of hair color. The slogan summed up the company’s philosophy of providing the most innovative, high-quality and advanced products at an affordable price. The campaign was considered as brilliant by many marketing gurus. The slogan seemed to cleverly differentiate L’Oréal’s products from others and proved to be a ‘winning’ factor. In the cosmetics business, profit margins tend to be generally low as there was not much differentiation between the products offered by various companies. L’Oréal’s decision to differentiate its products by attaching an emotional quality to its brands thus worked very well. The emotional pitch, ‘Because I’m worth it,’ indirectly conveyed the message that “I’m willing to pay more”. According to a www.republic.org article, it conveyed that, “I will prove that I value myself by paying more than I have to.” This translated directly into profits for the company. Commenting on the campaign, an analyst stated, “The extra 50% L’Oréal charges for nothing other than your warm glow of self-satisfaction, goes from your pocket right to theirs, and everyone’s happy. Genius.” Over the next few years, the company’s business expanded considerably. It started distributing its products through agents and consignments to the US, South America, 2 Initially launched in 1936, Amber Solaire was withdrawn from the market during the war period due to production hitches. It was re-launched in 1957. 3 The French people were attached to the notion of having a special identity called the ‘l’exception française’, which was nurtured by all French politicians. It was rooted in two beliefs: the threat from the outside world (global trade and Anglo-Saxon economics) and the role of the French state in preventing such threat. The French political system was attached to the idea of a strong French state, which could provide security to the French community and its trade. Therefore, the French state played a central role in subsidizing, managing and directing the ways in which France’s publicly owned businesses were managed. L’Oréal being a publicly traded company was easily susceptible to come under the state’s influence.114
  • 113. L’ oréal – Building a Global Cosmetic Brand Russia and the Far East. L’Oréal soon emerged as the only cosmetics brand in the world that had products in all segments of the industry, that is, Consumer, Luxury, Professional and Pharmaceutical. Although the company started as a hair color manufacturer, over the decades it had branched out into a wide range of beauty products such as permanents, styling aids, body and skincare cosmetics and, cleansers and fragrances over the decades (Refer Table I for product launches till the mid-1990s and Table II for a segment-wise break-up of sales for the year 2002). Table I L’oréal – Product Launches YEAR PRODUCT (SEGMENT) YEAR PRODUCT (SEGMENT) 1929 Immedia (Professional) 1977 Eau Jeune (Luxury) 1934 Dop (Consumer) 1978 Anais Anais (Luxury) 1936 Ambre Solaire (Consumer) 1982 Drakker Noire (Luxury) 1940 Oreol (Pharmaceuticals) 1983 Plentitude (Consumer) 1960 Elnett (Consumer) 1985 Studio Line (Professional) 1964 Dercos (Luxury) 1986 Nisome (Luxury) 1966 Maquimat, Recital (Consumer) 1990 Tresor (Luxury) 1967 Mini Vogue (Consumer) 1993 Capitol Soleil (Pharmaceutical) 1972 Elseve (Consumer) Source: www.loreal.com Table II L’oréal – Segment-Wise Sales Break-up (2002) Division Products % of sales (2002) Consumer Garnier, Le Club des Createurs de Beaute, 56 products L’Oréal Paris, Maybelline, Soft Sheen/Carson Luxury Biotherm, Cacharel, Giorgio Armani, Guy 24 Laroche, Helena Rubinstein, Kiehls, Lancome, Paloma Picasso, Ralph Lauren, Shu Uemura Professional Kerastase Paris, L’Oréal Professionnel, Matrix, 14 Redken Pharmaceuticals La Roche-Posay, Vichy Laboratories 6 Adapted from ‘L’Oréal’s Global Makeover,’ www.fortune.com.ON THE ROAD TO FAME By the 1970s, L’Oréal’s products had become quite popular in many countries outside France. Jones’ entry in the late-1970s marked the beginning of a new era of growth for the company. During 1978-1981, Jones functioned as the head of L’Oréal’s Italian business. Due to his exceptional performance, Jones was given the responsibility of looking after L’Oréal’s US operations (the company’s most important overseas operation) during 1981-1984. Managing the company’s US operations was not an easy task. Jones’ colleagues argued that European brands such as Lancome (in the luxury cosmetics segment) could never compete with established American brands like Estee Lauder and Revlon. 115
  • 114. Marketing Management In spite of their doubts and the reluctance of retailers to carry European brands, Jones persuaded Macy’s, one of the leading retail stores in the US, to give Lancome the same shelf space that it gave to Estee Lauder. Not surprisingly, Lancome’s sales increased by 25% in the US in 1983. Jones, a company insider with good management skills, succeeded Dalle as L’Oréal’s Chairman in 1988. He was aware that Dalle had begun the work of internationalizing L’Oréal to prevent it from remaining as ‘just a French cosmetics company.’ As he tried to continue Dalle’s work, he realized that he had to tackle the situation created by L’Oréal’s image. During the late 1980s and early 1990s, almost 75% of the company’s sales were in Europe, mainly in France. L’Oréal’s image was so closely tied to Parisian sophistication, it was difficult to market its brands internationally. Jones thus decided to take a series of concrete steps to make L’Oréal a globally recognized brand and the leading cosmetics company in the world. In what proved to be a major advantage later on, he decided to acquire brands of different origins. In the cosmetics industry, companies did not acquire diverse brands; they generally homogenized their brands to make them acceptable across different cultures. By choosing to work with brands from different cultures, Jones deliberately took L’Oréal down a different road. Commenting on his decision, Jones said, “We have made a conscious effort to diversify the cultural origins of our brands.” The rationale for the above decision was to ‘make the brands embody their country of origin.’ The reason Jones had so much conviction in this philosophy was his own multicultural background (he was born in Wales, studied at Oxford and Paris, married an Italian, and had a French-born daughter). Many analysts were of the opinion that Jones had turned what many marketing Gurus had considered a ‘narrowing factor’ into a ‘marketing virtue’.MAY BE? NO, IT ‘IS’ MAYBELLINE One of the first brands that L’Oréal bought in line with the above strategy was the Memphis (US) based Maybelline.4 The company acquired Maybelline in 1996 for $ 758 million. Buying Maybelline was a risky decision because the brand was well known for bringing out ordinary, staid color lipsticks and nail polishes. In 1996, Maybelline had a 3% share in the US nail enamel market. Maybelline was not a well- known brand outside the US. In 1995-96, only 7% of its revenues ($350 million) came from outside the US. L’Oréal decided to overcome this problem by giving Maybelline a complete makeover and turning it into a global mass-market brand while retaining its American image. The first thing that L’Oréal did was to move Maybelline’s headquarters to New York, a city known for its fast and sophisticated lifestyles. Commenting on this decision, Jones said, “Memphis just did not quite fit the sort of profile for finding some of the key people we needed.” Then L’Oréal aggressively promoted the US origins of Maybelline by attaching the tagline ‘Urban American Chic’ to it. The company also attached ‘New York’ to the brand name in order to associate Maybelline with ‘American street smart.’ In 1997, the company launched Maybelline’s new make-up line called ‘Miami chill’ with bold colors like yellow and green. This gave the brand a new look and targeted it 4 Maybelline was established in 1915 in the US by T L Williams. After beginning with the hugely successful mascara (a cosmetic to darken the eyelashes), Maybelline expanded its product portfolio to include other cosmetics and built up a sizeable brand equity. Till 1967, it was under the control of the Williams family. It was sold to Plough Inc. (later Schering- Plough Corp.) in 1971, to Wasserstein Perella & Co. in 1990, and finally to L’Orèal in 1996.116
  • 115. L’ oréal – Building a Global Cosmetic Brand at spirited and lively teenagers and middle-aged women. It also renamed Maybelline’s ‘Great Finish’ line of nail polish ‘Express Finish,’ because the nail enamel dried within one minute of application. The company positioned it as a product used by the ‘urban woman on the go.’ This revamp was very successful: Maybelline’s market share in the US increased to 15% in 1997 from just 3% in 1996. In addition, Maybelline’s sales rose steeply from just over $320 million in 1996 to $ 600 million in 1999. In 1999, buoyed by the success of Maybelline in the US, L’Oréal acquired the Maybelline brand in Japan from Kose Corporation, the brand’s Japanese distributor, thus gaining world rights to Maybelline. L’Oréal introduced its new line of Maybelline lipsticks and nail polishes in the Japanese market. However, Maybelline’s ‘Moisture Whip’ (a wet look lipstick) did not do well in Japanese markets as it dried quickly after application. L’Oréal gave the lipstick a makeover by adding more moisturizers to it. The new Japanese version of ‘Moisture Whip’ was given a new name ‘Water Shine Diamonds.’ Water Shine Diamonds became a runaway success in Japan. Commenting on the success of the brand, Yoshitsugu Kaketa, L’Oréal’s Consumer-Products General Manager (Japan), said, “It was so successful in Japan that we started to sell Water Shine in Asia and then around the world.” By the end of 1999, Maybelline was being sold in more than 70 countries around the world. While in 1999 50% of the brand’s total revenues came from outside the US, by 2000 the figure increased to 56%. Maybelline became the leading brand in the medium priced makeup segment in Western Europe with a 20% market share. Commenting on the company’s superior brand management framework, an August 2000 www.industryweek.com article stated, “L’Oréal achieved sales growth of nearly 20% by developing new products, expanding into key international markets, and investing in new facilities, all the while concentrating on increasing the reach of the group’s top 10 brands.”CASHING IN ON THE MAYBELLINE FORMULA Maybelline’s success proved Jones’ philosophy of creating successful cosmetic brands by embracing two different yet prominent beauty cultures (French and American). Commenting on this, Guy Peyrelongue, head of Maybelline, Cosmair Inc.,5 US Division, said, “It is a cross-fertilization.” L’Oréal followed this strategy for the other brands it acquired over the years, such as Redken (hair care), Ralph Lauren (fragrances), Caron (skin care and cosmetics), SoftSheen (skin care and cosmetics), Helena Rubenstein (luxury cosmetics) and Kheil (skin care) (Refer Table III). Table III Origins of Some L’oréal Brands ORIGIN BRANDS EUROPEAN L’Oréal Paris, Garnier, Vichy, La Roche-Posay, Lancome, Giorgio Armani, Cacharel, Biotherm, L’Oréal Professional Paris. US Kiehl’s, Ralph Lauren, Matrix, Redken, Softsheen-Carson, Maybelline, Helena Rubinstein. ASIAN Shu Uemura. Source: www.loreal-finance.com. 5 L’Oréal’s wholly-owned US subsidiary. 117
  • 116. Marketing Management L’Oréal acquired the above relatively unknown brands, gave them a facelift, and repackaged and marketed them aggressively. The US-based hair care firms Soft Sheen and Carson were acquired in 1998 and 2000 respectively. Both these brands catered to African-American women. Jones merged these two brands as SoftSheen/Carson and used them as a launch pad to aggressively promote itself outside the US – specifically Africa. As a result, the brand derived over 30% of its $ 200 million revenues in 2002 from outside the US, most of it from South Africa. L’Oréal firmly believed in the strategy of promoting all its brands in different nations. Even though it had brands originating in different cultures, it sold all its different lines in all countries. However, L’Oréal promoted only one brand aggressively in a country. The brand to be promoted was selected on the basis of the local culture. Thus, for people who preferred ‘American’ products, L’Oréal promoted Maybelline, and for those who preferred ‘French’ products, the L’Oréal brand was promoted. Similarly, the company promoted Asian and Italian brands for customers who preferred them. Jones also encouraged competition between the different brands of the company. For instance, L’Oréal acquired Redken, a US-based hair care brand in 1998, and introduced it in the French market, where it would have to compete with L’Oréal’s Preference line of hair care products. Analysts were skeptical of this move as they thought introducing new brands in the same category would cannibalize L’Oréal’s own, established brands. However, Jones took a different point of view; he argued that the competition would inspire both the Redken and Preference marketing teams to work harder. Since self-competition was encouraged at L’Oréal, teams had ample freedom to innovate and develop better products. This kind of competitive spirit from within allowed L’Oréal to beat competition from other players in the market. Commenting on this, Jones said, “The only way to favor creativity in large corporations is to favor multiple brands in different places which compete with each other.” To encourage competition and nurture creativity, L’Oréal operated two research centers – one in Paris and the other in New York. These centers helped Jones maintain L’Oréal’s image as the ‘scientific’ beauty company. The company spent around 3% of its revenues on research every year, which was more than the industry average of less than 2%. L’Oréal employed 2,700 researchers from all over the world and had 493 patents registered in its name in 2001, the largest ever for any cosmetics company in one year. L’Oréal made sure that each of its brands had its own image and took care that the image of one product did not overlap with the image of another product. A cosmetics industry analyst, Marlene Eskin, said, “That is a big challenge for this company – to add brands, yet keep the differentiation.” One of L’Oréal’s most radical experiments was the makeover and re-launch of the Helena Rubinstein skin care and cosmetics brand. Originally positioned in the luxury segment, Helena Rubinstein had the image of a product used by middle aged-women. In 1999, L’Oréal relaunched the brand and targeted it at a much younger and trendier audience than the brand’s typical luxury customers (middle aged-women). Now, the target users were women aged between 20-30 years, living in urban centers like London, Paris, New York and Tokyo. The company also opened a Spa6 in New York to promote the brand (the first instance of a company attempting to run a retail operation as part of a promotional package). L’Oréal also made use of ‘dramatic’ advertisements to promote the brand. In one of its advertisements, the model sported a green lipstick and white eye-shadow. Many 6 The word spa (originally name of famous mineral springs in Spa, Belgium) refers to any place/resort that has one or more of the following facilities: therapeutic baths, massages, mineral springs, health improvement, beauty treatment, exercise, relaxation and meditation (not an exhaustive list).118
  • 117. L’ oréal – Building a Global Cosmetic Brand analysts even thought that such advertising for a traditional luxury brand was incoherent. However, Jones argued that industry observers who held this opinion had not taken into account how fast the market was changing. He said, “Is it incoherent for younger people to buy luxury cosmetics? Why? Perhaps it was 10 years ago when luxury was equated to the middle-aged customer. But sorry, the biggest luxury consumers in all of Asia, which is one of the strongest luxury markets in the world, are between 20 and 25. This is why the Guccis and Pradas have taken the luxury- goods market by storm.” Jones also said, “The worldwide luxury consumer no longer equates to a middle-aged lady. She can be. But she can also be young and trendy. So the whole idea that it is incongruous for Helena Rubinstein to be cutting edge in terms of image and makeup is out of date by about 10 years. On the contrary, it is very good, original positioning for Helena Rubinstein to be the coolest of the traditional luxury brands.” Thus, L’Oréal cleverly positioned Helena Rubinstein as a luxury brand for a younger audience without overlapping its image with that of other luxury brands like Biotherm, Lancome and Shu Umeura. L’Oréal attached a tinge of glamour to its brands to make them more appealing to customers. The company liberally used celebrities from various fields of life, from all parts of the world, for promoting its brands. Some of the well-known personalities featured in L’Oréal’s promotional campaigns included Claudia Schiffer, Gong Li, Kate Moss, Jennifer Aniston, Heather Locklear, Vanessa Williams, Milla Jovovich, Diana Hayden, Dayle Haddon, Andie MacDowell, Laeticia Casta, Virginie Ledoyen, Catherine Deneuve, Noémie Lenoir, Jessica Alba, Beyoncé Knowles and Natalie Imbruglia. L’Oréal’s brand management strategists believed that good brand management was all about hitting the right audience with the right product. Commenting on the company’s brand portfolio management strategies, Jones said, “It is a very carefully crafted portfolio. Each brand is positioned on a very precise segment, which overlaps as little as possible with the others.”FUTURE PROSPECTS L’Oréal’s efforts paid off handsomely. The company posted a profit of € 1464 million for the financial year 2002, as against € 1236 million for the financial year 2001. Its overall sales grew by 10% in 2002, and much of this increase was attributed to impressive growth rates achieved in emerging markets like Asia (of the 21% increase in sales volume, China contributed 61%), Latin America (sales grew by 22% with sales in Brazil increasing to 50%) and Eastern Europe (sales grew by 30% with sales in Russia increasing by 61%). Industry observers noted that L’Oréal was much ahead of its competitors in terms of profitability and growth rate. L’Oréal’s rival in the luxury segment, Estee Lauder, had reportedly posted a 22% drop in profits in August 2002. The company had also announced a cost-cutting program. Even Revlon, L’Oréal’s competitor in the mass- market segment, had posted nine consecutive quarterly losses since late-2001. Not all competitors were in such bad shape though; rival companies like Beiersdorf (a Germany-based company that owns the globally popular brand Nivea), Avon and Procter & Gamble had been performing quite well. However, industry analysts agreed that no other cosmetics player matched L’Oréal’s combination of ‘strong brands, global reach, and narrow product focus.’ In March 2003, L’Oréal ventured into new businesses that were closely related to its core activities. One such initiative was Laboratoires Innéov, L’Oréal’s joint venture with Nestlè. Through Inneov, L’Oréal entered the market of cosmetic nutritional supplements. Analysts observed that this would mark the beginning of 119
  • 118. Marketing Management ‘neutraceutical’7 development. A research analyst at Frost and Sullivan (US-based leading provider of strategic market and technical information), commented, “The Inneov business will draw on both the growing demand for skin products designed to retain youthfulness and the growing market for dietary supplements.” L’Oréal expected the cosmetics market to grow at 4%-5% per annum in the future. Looking at the future with optimism, Jones said, “No other consumer products group has grown as quickly as we have. The prospects for the next three to four years seem promising to me. L’Oréal has the good fortune of being involved in a business that is a bit less sensitive than others to economic cycles. When the economic climate is bleak, you might put off buying a new car, but you will still buy a tube of lipstick that lets you ‘take a different sort of trip’ for a much smaller price.” In March 2003, the company entered the prestigious list of the world’s fifty most admired companies compiled by leading business magazine, Fortune, for the first time. This was yet another indicator of the fact that L’Oréal seemed to be going from strength to strength each year. If the strategists at the helm of affairs continued focusing on enhancing stakeholder value year after year, the future would continue to be rosy for the company that sold millions of women the dream of living a ‘beautiful’ life. Questions for Discussion: 1. Critically comment on L’Oréal’s global brand management strategies. Do you think L’Oréal’s strategies were primarily responsible for its impressive financial performance? What other factors helped the company remain profitable since over two decades? 2. With specific reference to Maybelline, critically comment on Jones’ strategy of acquiring relatively unknown brands of different cultural origins, giving them a makeover and marketing them globally. What are the merits and demerits of acquiring an existing brand vis-à-vis creating a new brand? 3. L’Oréal maintained a large portfolio of brands and was present in all the four segments of the cosmetics market. What positioning strategy did the company follow to ensure that the image of its brands did not overlap? How and why did L’Oréal encourage competition among its brands in a particular segment and at the same time prevent the brands from cannibalizing each other? © ICFAI Center for Management Research. All rights reserved. 7 The term ‘Neutraceutical’ is derived by combining two words ‘nutritional’ and ‘pharmaceutical’ and refers to foods that act as medicines. Neutraceuticals act as a source of specific food that provides essential nutrients to users.120
  • 119. L’ oréal – Building a Global Cosmetic Brand Exhibit I L’oréal – Consolidated Financial Statements (1997-2002) (In € million) 2002 2001 2000 (2) 1999 (1) 1998 1998 1997 (2) (1) RESULTS OF OPERATIONS Consolidated sales 14,288 13,740 12,671 10,751 9,588 11,498 10,537 Pre-tax profit of fully 1,698 1,502 1,322 1,125 979 1,339 1,183 consolidated companies As a % of 11.9 10.9 10.4 10.5 10.2 11.6 11.2 consolidated sales Corporate tax 580 536 488 429 375 488 422 Net profit before 1,464 1,236 1,033 833 722 807 722 capital gains and losses and minority interests As a % of 10.2 9 8.2 7.7 7.5 7 6.9 consolidated sales Net profit before 1,456 1,229 1,028 827 719 719 641 capital gains and losses and after minority interests Total dividend 433 365 297 230 191 191 165 BALANCE SHEETS Fixed assets 8,130 8,140 7,605 5,198 5,299 5,590 5,346 Current assets 6,843 6,724 6,256 5,139 4,229 4,937 4,512 Cash and short-term 2,216 1,954 1,588 1,080 762 903 825 investments Shareholder’s equity 7,434 7,210 6,179 5,470 5,123 5,428 5,015 (3) Loans and debt 2,646 2,939 3,424 1,914 1,718 1,748 1,767 PER SHARE DATA (Notes 4 to 7) Net profit before 2.15 1.82 1.52 1.22 1.06 1.06 0.95 capital gains and losses and after minority interests per share (8) (9) (10) Net dividend per 0.64 0.54 0.44 0.34 0.28 0.28 0.24 share (11) (12) Tax credit 0.32 0.27 0.22 0.17 0.14 0.14 0.12 Share price as of 31st 72.55 80.9 91.3 79.65 61.59 61.59 35.9 December (11) Weighted average 675,990,516 676,062,160 676,062,160 676,062,160 676,062,160 676,06216 676,062,16 number of shares 0 0 outstandingSource: www.loreal-finance.com (1) For purposes of comparability, the figures include: - in 1998, the pro forma impact of the change in the consolidation method for Synthélabo, following its merger with Sanofi in May 1999, - the impact in 1998 and 1999 of the application of CRC Regulation no.99-02 from 1st January 2000 onwards. This involves the inclusion of all deferred tax liabilities, 121
  • 120. Marketing Management evaluated using the balance sheet approach and the extended concept, the activation of financial leasing contracts considered to be material, and the reclassification of profit sharing under ‘Personal costs’. (2) The figures for 1999 and 2000 also include the impact on the balance sheet of adopting the preferential method for the recording of employee retirement obligation and related benefits from 1st January 2001 onwards. However, the new method had no material impact on the profit and loss account of the years concerned. (3) Plus minority interests. (4) Including investment certificates issued in 1986 and bonus share issues. Public Exchange Offers were made for investment certificates and voting right certificates on the date of the Annual General Meeting on 25th May 1993. The certificates were reconstituted as shares following the Special General Meeting on 29th March 1999 and the Extraordinary General Meeting on 1st June 1999. (5) Restated to reflect the ten-for-one share split decided at the Extraordinary General Meeting of 14th June 1990. (6) Figures restated to reflect the one-for-ten bonus share allocation decided by the Board of Directors as of 23rd May 1996. (7) Ten-for-one share split (Annual General Meeting of 30th May 2000). (8) Net earnings per share are based on the weighted average number of shares outstanding in accordance with the accounting standards. (9) In order to provide data that are genuinely recurrent, LOréal calculates and publishes net earnings per share based on net profit before capital gains and losses and after minority interests, before allowing for the provision for depreciation of treasury shares, capital gains and losses on fixed assets, restructuring costs, and the amortization of goodwill. (10) No financial instruments have been issued which could result in the creation of new LOréal shares. (11) The LOréal share has been listed in euros on the Paris Bourse since 4th January 1999, where it was listed in 1963. The share capital was fixed at € 135,212,432 at the Annual General Meeting of 1st June 1999: the par value of one share is now € 0.2. (12) The dividend fixed in euros since the annual General Meeting of 30th May 2000. Exhibit II A Brief Note on the Global Cosmetics Industry The term ‘Cosmetics industry’ usually refers to the ‘cosmetics, toiletry and perfumery’ industry. Cosmetic products perform six functions: they clean, perfume, protect, change the appearance, correct body odors and keep the body in good condition. Cosmetics, toiletries and perfumes have become an important part of every individual’s daily life and they have come to be regarded as equally important as health related (pharmaceutical) products. On the basis of product usage, the cosmetics industry can be divided into four segments: Luxury, Consumer or Mass-Markets, Professional and Pharmaceuticals. Globally, the European cosmetics industry has maintained its position as the leader (since the122
  • 121. L’ oréal – Building a Global Cosmetic Brand1980s) in the industry. In 2000, the European cosmetics industry generated almost€ 50 billion in sales, which was twice the sales volume of the Japanese cosmeticsindustry and one-third more than that of the US cosmetics industry. L’Oréal hasremained the global leader in the industry with a 16.8% market share, followed byEstee Lauder with a 10.9% market share, and Proctor & Gamble with a 9.3%market share (Refer Table IV for the top ten companies). Table IV Top Ten Companies In The Global Cosmetics Industry Company Market Share L’Oréal (France) 16.8% Estee Lauder Companies Inc (US) 10.9% Proctor & Gamble (US) 9.3% Revlon Inc (US) 7.1% Avon Products Inc (US) 4.7% Shiseido Company Ltd (Japan) 4.2% Coty Inc (France) 3.3% Kanebo Ltd (Japan) 2.1% Kose Company Ltd (Japan) 2.0% Chapel SA 1.7% Source: www.web.new.ufl.eduEstablished in 1946 in New York, US, Estee Lauder competed with L’Oréal in theluxury segment with brands like Estée Lauder, Aramis, Clinique, Prescriptives,Origins, M·A·C, Bobbi Brown Essentials, Tommy Hilfiger, Jane, Donna Karan,Aveda, La Mer, Stila, and Jo Malone. Proctor and Gamble, the US based FMCGmanufacturer, competed with L’Oréal in the mass-market segment with skincare,haircare and bodycare products. Some of P&G’s well-known brands includeBiactol, Camay, Cover Girl, Ellen Betrix, Infasil, Max Factor (skincare), HerbalEssences, Loving Care, Natural Instincts, Nice n’ Easy, Pantene Pro-V, Rejoice,Vidal Sassoon, Wash & Go (haircare), Laura Biagiotti, Hugo Boss and HelmutLang (perfumes). The US-based Revlon Inc also competed with L’Oréal in themass-market segment with brands like Charlie, Colorsilk, Colorstay, Fire&Ice andSkinlights. Other companies like Avon, Kose, Coty and Shiseido competedglobally in the mass-market segment. L’Oréal remained the overall industry leader,as it was the only company that competed in all four segments.The cosmetics industry has always been characterized by extensive research andinnovation by companies to introduce newer and better products. Since the 1990s,the industry has witnessed many changes in terms of the manufacture of cosmeticsowing to growing awareness among consumers about the harmful effects that harshchemicals (generally used in cosmetics) may cause to their body (skin and hair).This was one of the reasons for the manufacture of products with natural or herbalingredients by companies like L’Oréal and P&G. Due to the increased focus on‘wellness,’ the industry as a whole is now moving towards ‘cosmecuticals’ and‘neutraceuticals, that is, products that combine the qualities of nutrients and beautyaids. Industry analysts speculate that the market for these products would risesharply in the 21st century.Source: Compiled from various sources. 123
  • 122. Marketing Management Additional Readings & References: 1. LOréal Reinforces its Presence in Eastern Europe, www.loreal.com, October 13, 1997. 2. LOréal Acquires Maybelline in Japan, www.loreal.com, March 30, 1999. 3. LOréal’s Owen-Jones: ‘I Strive for Something I Never Totally Achieve’, www.businessweek.com, June 28, 1999. 4. L’Oréal: The Beauty of Global Branding, www.businessweek.com, June 28, 1999. 5. Mudd Tom, Global Movers and Shakers, www.industryweek.com, August 21, 2000. 6. Moskowitz Milton & Levering Robert, 10 Great Companies in Europe: LOréal, www.fortune.com, January 22, 2002. 7. The World-Renowned Singer Natalie Imbruglia Joins LOréal Paris, www.newswire.com, June 27, 2002. 8. One Brand at a Time: The Secret of L’Oréal’s Global Makeover, www.fortune.com, August 12, 2002. 9. Tomlinson Richard, L’Oréal’s Global Makeover, www.fortune.com, August 15, 2002. 10. Lindsay Owen-Jones Manager of the Year 2002, www.loreal.com, November 20, 2002. 11. Lindsay Owen Jones: ‘2003 off to a Great Start ’, www.loreal.com, February, 28, 2003. 12. Cosmetic Food – The Next Nutraceuticals? www.foodnavigator.com, March 20, 2003. 13. www.scf-online.com 14. www.republic.org 15. www.maybelline.com 16. www.free-cliffnotes.com 17. www.indiainfoline.com124
  • 123. Samsung – The Making of A Global Brand “Now theyre in consumers consideration set. After Sony, they have the potential to be the No. 2 brand globally.” -Jan Lindermann, Global Director for Brand valuation, Interbrand in 2001.EMERGING GIANT? In 1998, South Korea’s leading consumer electronics major, Samsung Electronics Corporation (Samsung), entered into an agreement with the International Olympic Association to sponsor the 1998 Seoul Olympics. According to company sources, Samsung wanted to sponsor Olympics to establish itself as a global brand. Analysts felt that by associating itself with the Olympics, Samsung would increase its brand visibility and brand recall among its consumers worldwide. They also pointed out that to become the next Sony (Refer Exhibit I) of the consumer electronics market, Samsung would have to invest heavily in marketing. In the late 1990s, Samsung entered into various marketing alliances with companies worldwide and sponsored events to enhance its brand awareness. Due to its marketing efforts, its brand value appreciated by 200% from $3.1 billion in 1999 to $8.3 billion in 2002. Consequently, in 2002, Samsung emerged as the only non-Japanese brand from Asia to be listed in the global top 100 brands valued by Interbrand Inc1 (Refer Table I). The company was ranked 34th in Interbrand’s list of the world’s top 100 brands. In spite of the worldwide downturn in 2002, Samsung posted a net profit of 1.7 trillion won2 for the third quarter of 2002-03, which was much higher than its net profit of 425 million won in 2001 for the same period. In 2002-03, Samsung emerged as the number three player in the global cell phone market after Motorola and Nokia. It also emerged as the world leader in the $24.9 billion memory chip market. Table I Brand Value of Samsung (in $ billions) YEAR RANK BRAND VALUE 1999 - 3.1 2000 43 5.2 2001 42 6.4 2002 34 8.3 Source: www.samsung.com According to industry sources, Samsung’s innovative advertising strategies, improvements in product design and focus on global markets helped it achieve an increase in earnings over the years. 1 Interbrand is a leading brand consultant established in 1974. Interbrand lists top 100 brands of the world in association with the BusinessWeek Magazine. 2 As on March 3rd 2003, 1 US$ = 1,188.60 Won. (KRW)
  • 124. Marketing ManagementBACKGROUND NOTE Samsung was established in 1969 as the flagship company of Samsung Corporation (Refer Exhibit II). It was the third largest player in the Korean electronics market after Lucky Goldstar (LG) and Daewoo.3 Samsung achieved fast growth through exports, which constituted around 70% of its total production. Most of the exports were to the USA on Original Equipment Manufacturer (OEM) basis. It supplied components for high tech industries in the USA. In the early 1970s, Samsung decided to venture into the television market, and in 1972 it started production of black & white television sets for the local market. After its success in the television market, Samsung set up its home appliances plant in 1973. By 1974 it started manufacturing refrigerators and washing machines. By the mid 1970s, Samsung started production of color TVs (CTVs) and energy efficient high cold refrigerators. By the late 1970s, the company’s exports to the US markets exceeded US $100 million. During the same period, it established a marketing subsidiary in the USA. In the 1980s, it started manufacturing microwave ovens and air conditioners. In 1980, it acquired Korea Telecommunications Corp, which was renamed Samsung Semiconductor & Telecommunications Co in 1982. In the same year, Samsung established a sales subsidiary in Germany and its first overseas plant in Portugal to cater to European markets. In 1986, research labs were established in Santa Clara (California) and Tokyo to improve the product line. In 1988, the Samsung Semiconductor business was merged with Samsung. By the end of 1989, Samsung was ranked 13th in semiconductor sales worldwide. Though Samsung was able to establish its brand image in the Korean market, it was regarded as an OEM in global markets. Since Samsung had a poor brand image in global markets and its products had a high defect rate, many consumers associated Samsung’s products with poor quality. To change this perception of its products, Samsung Corporation initiated a restructuring process across the group in 1994. Samsung Electronics, the flagship company of the group (contributing around 90% of the group’s profits), was the main focus of this restructuring. In 1994, a business restructuring process – ‘New Management’ - was initiated to transform Samsung into a global brand. This process identified three major focus areas: quality, globalization and multifaceted integration. The company shifted its focus from quantity to quality, and set up manufacturing units across the world to bring down costs, tap global markets efficiently and employ the best talent. The group also implemented various quality initiatives such as Six Sigma and manufacturing initiatives such as assembly manufacturing to enhance output through the optimum utilization of resources. This change in focus enabled Samsung to become one of the top global brands and also the world leader in around 17 product categories (Refer Exhibit III). Due to the emphasis on continuous innovation, it launched technologically superior products, and by 2001 it posted a net income of $2.2 billion (Refer Exhibit IV). By 2002, Samsung’s product range included digital media network, device solution network, digital appliance network and telecommunication (Refer Table II for the Samsung’s Product Profile). It had manufacturing bases worldwide, a presence in around 47 countries, and approximately 64,000 employees. Samsung also had around 24 production subsidiaries, 35 sales subsidiaries and 20 branch offices worldwide (Refer Table III). 3 LG and Daewoo are the largest Korean conglomerates. General Motors bought a stake in Daewoo, when it was liquidated in 2002 due to financial problems.126
  • 125. Samsung – The Making of A Global Brand Table II Product Profile of Samsung Electronics PRODUCT PRODUCTS CATEGORYDigital Media TVs, Monitors, Laptops, Mobile Hand PC, DVD Player,Network Digital Camcorder, Laser Printer, ODD: 32X DVD/ CDRW Combo Drive, HDD.Digital Solution 512 Mb DDR, 32 Mb UtRAM, 1 Gb Nand Flash, SmartNetwork Card IC, Compact LCD Driver IC, Embedde ARM, 40" TFT-LCD, 1.8" TFT-LCD.Digital Appliance Refrigerator, Air Conditioner, Washing Machine,Network Microwave Oven, Vacuum Cleaner.Telecommunication Mobile Phone: TFT Color LCD, X –4200, PDA: I –300, CDMA 2000 1x EV-DO, AceMAP Solution Softswitch.Source: www.samsungelectronics.com Table III Global Network of Samsung* CONTINENT COUNTRYPRODUCTION NORTH Mexico, Brazil, USASUBSIDIARIES AMERICA EUROPE England, Spain, Hungary ASIA China, India, Malaysia, Philippines, Thailand, Vietnam, Indonesia, South KoreaSALES NORTH USA, Canada, MexicoSUBSIDIARIES AMERICA SOUTH Colombia, Argentina, Republic of AMERICA Panama EUROPE England, Germany, France, Italy, Sweden, Portugal, Poland, The Netherlands, Russia ASIA Ukraine, Japan, China, Singapore, Philippines, UAE, South Korea AUSTRALIA Australia AFRICA South AfricaBRANCH SOUTH Brazil, Colombia, PeruOFFICES AMERICA AFRICA Egypt, Morocco, Ivory Coast, Tunisia ASIA Iran, Saudi Arabia, Jordan, Turkey, China, Malaysia, South Korea, Kazakstan EUROPE Austria, Russia, Latvia* This list is not exhaustive.Source: www.samsungelectronics.com 127
  • 126. Marketing ManagementTHE MAKING OF A GLOBAL BRAND In 1993, as a first step in its globalization drive, Samsung acquired a new corporate identity. It changed its logo and that of the group. In the new logo, the words Samsung Electronics were written in white color on a blue color background to represent stability, reliability and warmth. The words Samsung Electronics were written in English so that they would be easy to read and remember worldwide. The logo was shaped elliptical representing a moving world – symbolizing advancement and change. The first and last letters ‘S’ and ‘G,’ broke out of oval shape partially in order to connect the interior with the exterior. According to company sources, this design represented the company’s wish to connect itself with the world and serve society as a whole (Refer Figure I). Figure I Source: www.iniche.comPRODUCT INITIATIVES Samsung realized that to become a global brand, it had to change the perceptions of consumers who felt that it was an OEM player and associated its products with low technology. Generally, consumers in developed markets (such as the US) opted for Samsung when they could not afford brands such as Sony and Panasonic. To change consumer perceptions, Samsung decided to focus on product design and launch innovative products. Samsung decided to revamp its image by: Moving away from cheap imitated products Offering innovative and technologically advanced products Initiating marketing activities worldwide to increase the visibility of the Samsung brand. In 1994, Samsung restructured its design department. It integrated all its design activities under four design groups. These groups formed the ‘Samsung Electronics Design Institute.’ (Earlier, the design department was called the ‘Industrial Design Center’). Samsung established design institutes in Seoul (South Korea), Palo Alto (California, US) and Middlesex (England). The Samsung Electronics Design Institute set about designing new products that would appeal to consumers’ worldwide. In 1996, Yun Jong Yong (Yun) was appointed as the CEO of Samsung. He brought about major changes across the organization. After holding a brain storming session with senior executives, he decided to base Samsung’s design philosophy on the principle of ‘Balance of Reason and Feeling.’ In other words, Samsung’s designs should balance technological excellence with human adaptability. Yun also declared the year 1996 as the ‘Year of Design Revolution’ and initiated a program for building a complete global design with a budget of $126 million.128
  • 127. Samsung – The Making of A Global BrandSamsung product designs won Industrial Design Excellence Awards (IDEA)4 in 1996.The products that won the awards were the NETboard computer (which targeted USstudents between 16-25 years); the ‘Weeble’ phone that shook from right to left whenthe phone rang to get the attention of the consumer, and ‘Junior TV,’ which had awearable remote.In the late 1990s, Samsung realized the importance of customization over massproduction. It therefore developed innovative products (considered fun and high endproducts) for the mobile phone sector in accordance with customer preferences inlocal markets.Samsung used ‘Lifestyle segmenting’ instead of ‘technological segmentation’ tomarket its products since consumers generally bought electronic products whichreflected their lifestyle instead of those that had specific technological features. Usinglifestyle segmentation, the company divided the market and positioned its products.Samsung invested around $3 million in market research to identify the lifestyle andpurchase patterns of Generation Y (13-25 years old) and Generation N (Internet-friendly) consumers. The lifestyle-based product designing strategy was successful atSamsung due to effective coordination of the activities of the company’sgeographically disposed design teams. Its team of designers in North American,European and Korean markets undertook surveys to understand the lifestyles ofconsumers. Then workshops were conducted so that all teams could share ideas forproduct design.Samsung established a Lifestyle Research Group for studying consumer behavior anda Materials and Finishes Group for deciding on the materials, colors and productfinishing for all product lines. In addition to the above two groups, it also establishedan Advanced Design Group, enabling exploration of new product concepts byinterdisciplinary teams. And in order to encourage innovation, it announced an annualdesign competition for its designers.In 1999, Samsung announced its plan to become one of the top three digital productsuppliers in four markets: personal multimedia, mobile multimedia, home multimediaand component business. It set a sales target of $58 billion by 2005 for those markets.Samsung also announced the launch of various digital products in different categories.To achieve its targets, the company announced R&D investment of around $1.4billion spread over the next 10 years.In 1999, Samsung launched products such as the SCH-3500, the world’s first CDMAPCS portable telephone combining voice activated dialing and Internet access, aportable digital audio player with MP3 audio compression format (with a removableSmartMedia card). According to Yun, “our new product portfolio reflects a basic shiftin strategy, demonstrating our deep conviction that digital connectivity is the future ofour industry, especially in terms of personal and mobile multimedia products.”By the early 21st century, Samsung emerged as one of the biggest brands in the mobilephones segment. In the cell phone market, it changed its focus from low-end massmarkets to high-end markets. The selling price of Samsung’s mobile phones washigher than that of Nokia’s products because of the high technology and additionalfeatures that Samsung offered to customers. A typical Samsung mobile phone allowedconsumers to dispatch e-mail, access dictionaries, the Bible, and Buddhist songbooks,and play electronic games. Samsung also launched a 50-gram phone, which was saidto be world’s lightest phone. It could be worn as a wristwatch and it had facility ofgiving voice commands. Analysts felt that though this kind of product did notgenerate volumes, it helped Samsung project itself as a high-technology company.4 IDEA Awards are sponsored by Business Week magazine and awarded by the Industrial Designer Society of America for excellence in product design. 129
  • 128. Marketing ManagementCONSOLIDATING PRESENCE IN DIFFERENT MARKETS To change its brand image, Samsung decided to associate itself with global sport events. In 1998, when Seoul hosted the Olympics, Samsung became the official sponsor of the wireless technology to the games. This move helped it boost its image worldwide. In 1999, Erick Kim (Kim), a Korean American working with IBM, took over as the marketing head of Samsung. He focused on capturing the US retail market for consumer electronic goods, such as TVs, washing machines and microwave ovens, through partnerships with US retailing giants. Samsung entered into a partnership with Best Buy one of the top US retailers. Best Buy executives conducted customer research to analyze consumer-buying behavior. This information was passed on to Samsung’s engineers, who tried to create gadgets that would meet customer expectations. This relationship resulted in the creation of two best selling products – a DVD/VCR player and a cell phone, which could function as a Personal Digital Assistant. In 2001, sales of Samsung products through Best Buy were reported to be around $500 million. For 2002, the company expected sales of $1 billion through Best Buy. Samsung also entered into alliances with US retailers such as CompUSA and Sears, Roebuck & Co to increase its market presence in USA. In countries like Nigeria, Samsung focused on providing value for money and high technology products. It tried to build its image by providing information about the company through TV and Radio commercials and media events. It also invited Nigerian journalists to Korea to provide them a detailed picture of the company. Samsung also improved its communication with distributors, as they could provide the company customer feedback. It also planned to build close relationships with dealers and distributors to push its products in Nigerian markets (as dealers and distributors play a major role in initial product sales). Due to its brand building activities across the world, Samsung reported a net profit of 2.95 trillion won in 2001 on total revenues of 32.4 trillion won. In July 2001, Samsung entered into a marketing alliance with AOL Time Warner to work together on AOLTV set-top box5 with the TiVo recording service.6 In return, Samsung products would be promoted in AOL Time Warner’s marketing initiatives. Due to this alliance, Samsung products were promoted in People, Entertainment Weekly and Sports Illustrated of AOL Time Warner’s magazines. In early 2003, Samsung announced that it would concentrate on US and European markets, where its brand was considered weak in product categories other than mobile phone handsets. Kim Said, “Our brand is weaker in Europe and the U.S., but in cell phones were pretty strong. In those regions well be even more focused. Wireless and digital TV are the two areas well focus on in Europe and the U.S.” Samsung emphasized on brand building when entering new markets. When entering India, one of the world’s largest markets, Samsung realized that its products were unknown in Indian markets. In India, like elsewhere in the world, Japanese goods were considered to be of better quality than Korean goods. To project itself as a high technology company, Samsung undertook a two-month corporate campaign, which highlighted the company’s strengths in semiconductors, colour picture tubes, colour televisions and mobile phone handsets. In addition to strengthening the Samsung brand in specific markets, the company also launched global advertisement campaigns to enhance its brand image worldwide. 5 A set-top box is a device that enables a television set to become a user interface to the Internet and also enables a television set to receive and decode digital television (DTV) broadcasts. 6 TiVo is an American company offering a branded subscription-based interactive television service that lets viewers program and control which television shows they watch, and when.130
  • 129. Samsung – The Making of A Global BrandADVERTISING AND PROMOTIONAL STRATEGIES In 1997, Samsung launched its first corporate advertising campaign – Nobel Prize Series. This ad was aired in nine languages across Europe, the Middle East, South America and CIS countries. The advertisement showed a man (representing a Nobel Prize Laureate) passing from one scene to another. As the man passes through different scenes, Samsung products transform into more advanced models. According to company sources, the idea was to convey the message that Samsung uses Nobel Prize Laureates’ ideas for making its products. Samsung also signed an agreement with the Nobel Prize foundation to sponsor the Nobel Prize Series program, worldwide. The program was developed by the Nobel Foundation, Sweden to spread achievements of the Nobel Prize Laureates. Initially, Samsung’s advertising activities were decentralized. The company employed various ad agencies to design campaigns for its products. However, in 1999, Kim forfeited Samsung’s agreements with around 55 advertising firms and signed a $400 million contract with a US based ad agency, Foote, Cone & Belding (FCB).7 FCB created global campaigns for the company (featuring models carrying the company’s gadgets), which highlighted the superior technology of Samsung products. In 1999, Samsung unveiled a new campaign in the US with a new slogan – ‘Samsung DIGITall: Everyone’s invited’ – on the eve of its 30th anniversary. Samsung re- designed its logo to convey its objective: making life filled with convenience, abundance and enjoyment through innovative digital products (Refer Figure II). The new slogan, Samsung DigitAll, expressed the company’s aim of providing digital products ‘For all generations, For all customers and For all products.’ In April 2001, Samsung launched its new brand campaign, which was created by True North Communications’ FCB Worldwide. This campaign was aired in around 30 countries with a budget of $400 million. As part of the brand campaign, the company advertised an 30-second TV spots on various channels such as CNN, VH1, ESPN, TNT and NBC during NBA games. The first advertisement in the series – ‘Anthem’ – was set in U.K. The advertisement showed different Samsung products – flat screen TV monitor, MP3 Player, watch phone being used by people from different ethnic backgrounds. The voice over was: “There is a world where you see, hear and feel things like never before, where design awakens all your senses. This is the world of Samsung and everyone’s invited.” At the end of the commercial the company’s tagline ‘DigitAll, Everyone’s invited’ appeared (Refer Exhibit V) Figure II Source: www.hvdm.nl 7 Founded in 1873, US based FCB is one of the world’s top ten ad agencies. It has a presence in around 28 countries. The agency offers integrated services to its clients, with interactive CRM solutions across both online and offline channels. 131
  • 130. Marketing Management The ‘DigitAll’ campaign was launched across all countries where the company had a presence and across all product lines. The campaign involved the sponsorship of events at global and regional levels. Reportedly around 30 people from Samsung’s Seoul and North America offices worked with FCB on the campaign. In 2001, Samsung added the word ‘WOW’ to its marketing campaigns to show the admiration of consumers for its innovative but affordable products. It was reported that Samsung’s 2001 global brand campaign increased consumer awareness about Samsung from 83.7% in 2000 to 91.2% in 2001, and in the US, brand awareness and preference for Samsung increased from 56.4% to 74.1% for the same period. In April 2002, Samsung adopted Internet marketing to reach high-profile consumers. It concentrated on increasing brand awareness, web traffic, and give product information with every advertisement. It bought ad space on more than 50 websites such as Fortune.com, Forbes.com and BusinessWeek.com. At same time, Samsung continued to advertise in the print and television. Said Peter Weedfald, vice president, marketing communications and new media, “We are integrating all forms of media; it allows us to articulate the demand for our products and manage promotions in real time.” As part of its outdoor advertising initiative, Samsung bought a 65-foot-tall electronic billboard in New York’s Times Square. In May 2002, Samsung announced its plans to extend its ‘DigitAll’ campaign, by launching new global campaigns with different tag lines – ‘DigitAll Passion,’ ‘DigitAll Escape,’ and ‘DigitAll Wow.’ The new ads promoted existing products, like mobile phones, colour LCD mobile phones, entertainment products, and future products like the Internet refrigerator. These advertisements highlighted the flexibility and user-friendly nature of Samsung products. The campaign, for which the company had budgeted around $200 million, was aired on TV spots across US, the Europe, CIS, Southeast Asia, South America, Africa, the Middle East and China. According to Kim, “Many consumers think of digital technology as an elite experience that’s inaccessible to them. Samsung prides itself on developing revolutionary technology that meets everyone’s needs – business or personal.”BEATING SONY? In 2001, Samsung declared that it would beat Sony in the consumer electronics market by 2005. Kim said, “We want to beat Sony. Sony has the strongest brand awareness; we want to be stronger than Sony by 2005.” However, analysts felt that it would be difficult for Samsung to beat Sony so soon as Samsung was regarded as an OEM player till the mid-1990s. In 2002, while Samsung was ranked 34th with a brand value of $8.1 billion, Sony was ranked 21st with an estimated brand value of $13.90 billion. However, while Samsung’s rank had moved up from 42 in 2001, Sony’s had slipped down from 20th in 2001. In the third quarter of 2002, Samsung emerged as the world’s number three player in the mobile market, beating Siemens and Ericsson, with a marketshare of 36.4%. In CDMA technology, it was the world’s number one player (Refer Table IV). However, analysts felt that though Samsung’s brand building inititatives had improved its brand value and image in the global market, it was not yet in a position to overtake Sony. According to analysts, the company needed to concentrate on manufacturing high technology products. Though Samsung offered televisions, digital cameras, MP3 players and DVD/VCRs, its product range did not include stereos and personal computers, which enjoyed high demand in the US, the world’s largest market for consumer electronics. Moreover, Sony’s Walkman and DVD player were still considered benchmarks of quality in consumer electronics market.132
  • 131. Samsung – The Making of A Global Brand Table IV Mobile Phone Vendor Market Share For 3Q 2002 (in %) GSM Handset CDMA Handset Nokia 44.4 9.4 Motorola 14.1 18.7 Siemens* 11.9 0 Samsung Electronics 9.1 27.3 Sony Ericsson 6.5 2.1 LG Electronics 1.2 19.2 *Siemens does not make CDMA mobile phones. Source: www.nordicwirelesswatch.comThough initially Sony downplayed the rivalry, in 2001, it accepted it. Sony Chairman,Nobuyuki Idei, said, “The product design and the product planning – they’re learningfrom us. So Sony is a very good target for them.” Since Sony was Samsung’s largestcustomer for chips, analysts felt that Samsung could not risk direct combat with Sonyin international markets. Analysts also pointed out that both Samsung and Sonyneeded each other for their survival.Since digital technology was replacing analog technology, Samsung felt it was in aposition to produce high technology products. With the digitalization of consumerelectronics, Samsung’s expertise in chip making would enable it to offertechnologically advanced products to its consumers.However, analysts were skeptical about the company’s performance due to the fallingprices of PCs, cell phones and PDAs. They also expressed doubts about thecompany’s ability to pump more money into R&D. Since chips generated most of thecompany’s profits, falling chip prices would affect its R&D investment.Questions for Discussion:1. By 2002, Samsung was rated as one of the top 3 players in the global mobile handset market. Analysts attributed Samsung’s success to its marketing initiatives. Discuss the role of marketing in Samsung’s success.2. Compared to established rivals like Sony, Matsushita and Nokia, Samsung was a late entrant in the global consumer electronics market. Comment on Samsung’s brand building initiatives in the global consumer electronics market.3. Which one of Samsung’s marketing strategies was mainly responsible for its success as a global brand? In what way did it help Samsung? Discuss.4. Analysts felt that it would not be easy for Samsung to beat Sony, which was known for technologically superior products like the Trinitron television, Playstation and Walkman. Do you think Samsung can beat Sony only through aggressive marketing, without bringing out any technologically advanced products?© ICFAI Center for Management Research. All rights reserved. 133
  • 132. Marketing Management Exhibit I Sony Corporation The history of Sony dates back to 1946 when Masaru Ibuka, Tamon Maeda and Akio Morita formed a company called Tokyo Tsushin Kogyo (Tokyo Telecommunications Engg. Co) with an initial capital of 19,000 yen in the city of Nagoya with just 20 employees to undertake research and manufacture of telecommunications and measuring equipment. The company’s main objective were as follows: to establish an ideal factory, free, dynamic and pleasant where technical personnel of sincere motivation can exercise their technological skills to the highest level. The first product of the company was an electric rice cooker, which failed to generate sales for the company. Since its first product was a failure, the company entered into the replacement parts business for electric phonographs. In 1950, the company produced Japan’s first tape recorder. The machine was bulky and heavy, however, it performed excellently. But, tape recorder could not find enough market, as it was a totally new concept in Japan and people were not ready to pay a high price for it even if they liked its performance. Soon Morita realized that unique technology and unique products were not enough to keep a business going. In 1955, the company produced its first transistorized radio and in 1957 it produced a pocket radio. These two products were a huge hit in the market and the company expanded to US markets. In 1958, Tokyo Tsushin Kogyo was renamed Sony, and in 1960 it established its first overseas sales subsidiary, the Sony Corporation of America, with a capital of $500,000. In the following year it expanded its operations to Switzerland through Sony Overseas S.A. In 1972, Sony became the first Japanese company to set up manufacturing facilities in the US, and in 1973, Sony received an Emmy award for its Trinitron technology. In 1976, Morita took over as CEO from Ibuka, and in 1979, Sony produced an innovative product – Walkman – which achieved a cult following and high sales boosting the company’s profits during the 1980s. In 1981, Sony came up with the 3.5-inch floppy disk. In 1989, Norio Ohga took over as CEO and Chairman of Sony from Morita. During Ohga’s regime, Sony emphasized process innovations to improve efficiency and control production costs. During Morita’s period, the emphasis was on product development, while in Ohga’s period the emphasis was on process innovation. In the same year, Sony acquired Trans Corn Systems Division and Columbia pictures. In 1994, Sony was restructured to improve the speed and quality of its corporate decisions. It formed eight new internal companies and focused on specific markets. In the same year, Sony established SW Networks (SWN), a full service radio network with more than 600 affiliate stations catering to both domestic and international markets. In 1995, due to the lack of new products and an unfavorable exchange rate between the dollar and the Yen, Sony ran into problems. In the same year, Noboyudki Idei took over as president from Ohga. Under Idei, Sony strengthened its market position. In the late 1990s, it developed an innovative product – the PlayStation (computer game machines). More than six million PlayStations were sold within 3 years of its introduction. In 1998, Sony restructured its consumer electronics business to make operations more efficient and better adaptable to networks, which were becoming increasingly important. In 1999, Sony signed a joint venture with Royal Philips Electronics and Sun Microsystems to develop networked entertainment products. In early 1999, Sony again announced that it would restructure its businesses into four autonomous units. In the same year it introduced the world’s most sophisticated robot called AIBO (Japanese word for companion and English abbreviation for Artificial Intelligence Robot). For 2001, Sony reported net income of $134 million. By this time it had a presence in more than 61 countries and offered products and services in the categories of consumer electronics, games, pictures and music. Source: www.sony.net134
  • 133. Samsung – The Making of A Global Brand Exhibit II About Samsung CorporationThe history of Samsung’s parent company - Samsung Corporation – dates back to 1938.Initially, the group exported dried fish, vegetables and fruit to China. By 1948 it ownedflourmills and confectionery machines. Subsequently, it expanded its businesses anddiversified into various fields. In 1951, Samsung Moolsan (Samsung Corporation) wasformed, and by 1953, the company ventured into the manufacture of Sugar through theCheil Sugar Manufacturing Co, which was the only sugar manufacturing company inSouth Korea at that time.In the early 1960s, the company diversified into the textile, banking and insurancesectors. In 1965, it entered the print media by acquiring the Saechan PaperManufacturing. And in 1969, it established the group’s flagship company SamsungElectronics. The 1970s saw the group diversifying into heavy engineering, chemicalsand petrochemical industries. Later in the 1980s, the company diversified into hightechnology area and the aerospace industry. In 1983, Samsung developed its first chip,the 64K Dynamic Random Access Memory (DRAM) chip, through its subsidiarySamsung Semiconductor & Telecommunications, and emerged as Original EquipmentManufacturer (OEM) for companies such as Intel.In 1985, it set up Samsung Data Systems (renamed as Samsung SDS), which wasinvolved in consulting, business integration and data center services. In 1987, on thedeath of Lee Byung Chull, Lee Kun Hee (Hee), his son, was appointed chairman of thegroup. In 1994, the group diversified into the automobile industry. This move has beenregarded as one of the biggest mistakes committed by the group. In the same year, dueto economic reasons, the New Management Philosophy was introduced. Thisphilosophy laid emphasis on qualitative rather than quantitative growth. In 1995, theSamsung Corporation diversified into the Financial services business through SamsungFinance, which was renamed Samsung Capital. In 1996, Samsung Electronicsdeveloped the world’s first giga-bit DRAM, and in the same year, Samsung establishedits commercial vehicles plant.In 1997, the company faced a severe cash crunch due to the South Asian crisis. Thiscrisis resulted in a high exchange rate for the South Korean currency (won). In order togenerate cash for its investments and decrease debts, Samsung restructured theorganization. It initiated cost cutting measures on a large scale; it also hived off non-core businesses such as the Samsung Construction Equipment Business to generatecash. It also hived of its forklift business and sold of real estate and other assets(amounting to $300 million) and decreased its global investments by 30%. It sold 10 ofits business units to overseas companies for around $1.5 billion dollars. It also laid offaround 50,000 people. In February 1998, Samsung Corp produced its first passengercar. By 1999, Samsung Corp had lowered its high debt-equity ratio from 365% in 1997to 148%. In 1999, Samsung Corp closed down its passenger and commercial vehiclebusiness and its chairman, Kun-Hee-Lee, covered the group’s debt through personalstock worth 2.8 trillion won.In 2000, Samsung Corp announced a new management program to stay ahead of thecompetition in the digital age. According to the new management program, thecompany aimed at devoting “human resources and technology to create superiorproducts and services, thereby contributing to a better global society.” By 2000, itemployed around 174,000 employees all over the world. Its net income in 2000 was $7.3 billion on net sales of $119.5 billion.In 2001, Samsung announced its vision – “continuously striving to conquer new era indigital technology and products.” By 2002, Samsung Corp was involved in heavyengineering, consumer electronics, financial services and chemicals. It had a presencein more than 60 countries.Source: ICFAI Center for Management Research 135
  • 134. Marketing Management Exhibit III Market Position of Samsung in Various Product Categories Worldwide* (Figures for 2001) PRODUCT PRODUCT MARKET MARKET CATEGORY SHARE POSITION Monitor Digital Media Network 21% First VCR Digital Media Network 20% First DVDP Digital Media Network 17% Third ODD Digital Media Network 13% First D-RAM Digital Solution Network 29% First S-RAM Digital Solution Network 26% First TFT-LCD Digital Solution Network 20% First Microwave Digital Appliance 25% First Oven Network CDMA Telecommunications 27.3% First Mobile Phone* GSM Mobile Telecommunications 9.1% First Phone* * Figures are for 2002 * This list is not exhaustive. Source: www.samsungelectronics.com Exhibit IV Income Statements of Samsung Electronics from 1997-2001 (in thousands US$) 2001 2000 1999 1998 1997 Sales: Domestic 7,926,014 8,222,763 7,029,885 5,380,693 5,663,406 Export 16,493,575 17,632,254 13,714,980 11,259,056 7,386,318 Total Sales 24,419,589 25,855,017 20,744,865 16,639,749 13,049,724 Cost of Sales 18,487,732 16,586,258 14,027,936 11,578,914 8,976,018 Gross Profit 5,931,857 9,268,759 6,716,929 5,060,835 4,073,706 Selling Expenses 4,200,836 3,661,553 3,157,358 2,492,518 2,055,176 Operating Profit 1,731,021 5,607,206 3,559,571 2,568,371 2,018,530 Non operating income Interest & Dividend 95,365 117,969 180,890 279,383 120,977 Gain on foreign 180,429 225,543 212,448 863,231 1,321,352 currency transactions136
  • 135. Samsung – The Making of A Global BrandGain on foreign currency 35,736 25,733 207,638 - -translationGain on valuation of 591,848 657,109 236,888 - -investments (equitymethod)Other 469,551 489,779 470,591 371,563 290,965 1,372,929 1,516,133 1,308,455 1,514,177 1,733,294Non operating expensesInterest Expense 154,709 258,949 572,835 924,894 536,428Amortization of deferred - - - 1,559,267 1,117,517chargesLoss on foreign currency 183,196 210,444 222,768 857,732 1,478,708transactionsLoss on foreign currency 68,999 179,365 84,666 - -translationLoss on valuation of 40,821 - - - -inventoriesOther 331,484 481,508 576,914 375,354 508,878 779209 1,130,266 1,457,183 3,717,247 3,641,531Ordinary Profit 2,324,741 5993073 3410823 365247 110293Extraordinary Income - 115,863 - 235,068 46Extraordinary Loss - - 211,484 259,920 1,773Net Income before Taxes 2324741 6108936 3199339 340395 108556Income Tax Expense 102316 1573091 681148 80895 21283Net Income 2,222,425 4,535,845 2,518,191 259,500 87,283Source: www.samsungelectronics.com Exhibit V Samsung – Digitall Advertisements 137
  • 136. Marketing Management Source: www.adage.com.138
  • 137. Samsung – The Making of A Global BrandAdditional Readings & References:1. Nussbaum Bruce, Koreas Samsung: The Hungriest Tiger, BusinessWeek, June 2, 1997.2. Samsung Celebrates 30 Years and New Products, www.twice.com, September 11, 1999.3. Brown Heidi, Look Out, Sony, Forbes, April 16, 2001.4. Samsung: No Longer Unsung, BusinessWeek, August 6, 2001.5. Holstein. J. William, Samsung’s Golden Touch, Fortune, March 17, 2002.6. Elkin Toby, Samsung Massively Boosts Online Advertising, www.adage.com, April 29, 2002.7. Orr Deborah, The Rise of Samsung, Forbes Global, November 11, 2002.8. Van Marc, Samsung to Sell 43 Mln Handsets in 2002, www.nordiacwirelesswatch.com, November 21, 2002.9. www.idsa.org10. www.samsung.com11. www.samsungelectronics.com12. www.adage.com13. www.internetnews.com 139
  • 138. Amway’s Indian Network Marketing Experience “Our biggest challenge is not how to expand the market in India, but how to convince the indifferent Indian consumers about the world-class quality of Amway Products. The quality of the product is Amway’s strength.” - Sudershan Banerjee, CEO & MD, Amway India in 1999.A DREAM GONE AWRY In the late 1990s, the global direct selling giant Amway had to contend with increasing doubts regarding its survival in India. The company that had become synonymous with network marketing or multi-level marketing (MLM)1 the worldover was beset with problems. Media reports were quick to point out Amway’s failure to sell the basic concept of direct selling to the Indians. Though the company managed to rope in a substantial number of distributors, the attrition rate was at an alarming high of 60-65%. Most of the products that the distributors bought, they consumed themselves. Estimates put the percentage of self-consumption at almost 50-60% of the total volume. (There were rumors that some distributors enrolled just to take advantage of the distributor’s margin of 18-30%). In the initial stages, when trials were the only criterion, this worked well. However, this self-consumption did not translate into repeat purchases. This was because the percentage of ‘active’ distributors at any given point of time remained at a low level of 35-40%. Many people who joined in the initial frenzy returned the product kits within the first month. Company sources claimed that the returns constituted just 1% of the total strength, but rivals and ex-employees put the figure at over 5%. Of the total distributors, only about 10% showed reasonably high levels of activity. 1 The MLM system utilized a multi-tiered salesforce of independent distributors - none of them employees - to sell products directly to consumers. These distributors earned commissions at two levels - the first, the difference between the distributor’s cost and selling prices, and second, a proportion of the commissions earned by other distributors recruited. MLM thus completely bypassed the retail chain and cut costs of the traditional distribution system. A typical MLM setup began with the recruitment of a group of distributors who paid a registration fee and picked up product kits. Once these goods were sold, the distributors were given the next lot. The more a distributor sold, the higher the commission. Besides selling the goods, the distributors were also expected to hire new distributors for selling the company’s products. The recruiting distributor also got an extra commission based on the sales effected by the distributors hired by him/her. As for the company, the compulsion on the part of the distributors to recruit more and more distributors led to its network penetrating very deep among the consumers. Also, the actual cost of marketing never exceeded 25% of the selling price on an average. As the distributor’s primary commission was a mark-up on the selling price, the only outgo for the MLM team was the commission, which averaged at 9% and at peak levels stood at 21%. These distributo in turn, paid commission to the ‘down-the-line’ distributors out of their own earnings. Fast moving consumer goods targeted at niche markets such as specialist cosmetics or premium fragrances were typically the most suitable for a MLM setup. Also, if the products were portable and needed to be demonstrated-vacuum cleaners for instance the personal interaction that MLM facilitated, helped a lot. Products, which were neither purchased very often nor very rarely, and were neither too expensive nor too cheap could be marketed well through this system.
  • 139. Amway’s Indian Network Marketing Experience To top it all, Amway was burdened with an image that had little basis in fact. Its products began to be perceived as being very expensive and meant only for the premium segment. This was identified as the single biggest reason for the high attrition rate. What was overlooked was the fact that almost all Amway products were concentrates. When used in the proper diluted form, the cost per use of each product worked out to be at par with (and in some cases, even lower than) the nearest competitor’s products. For instance, the product named LOC (priced above Rs 320 for a 1-liter pack), when diluted gave around 165 bottles. The cost per usage was thus very low. Either the distributors were themselves not aware of this fact, or they were unable to communicate this to the customers. Since the distributors themselves were unsure about the price-value equation of the products they were selling, they could not effectively convince the consumers either. Amway also had to contend with customers complaining of poor customer service on the part of the company. Analysts commented that as long as the volume of products that moved through the network was high, network market such as Amway was satisfied. Even though customers complained of the lack of services, the company deemed it more beneficial to go for higher sales force motivation programs rather than undertake customer service initiatives. This was largely due to the fact that the company was almost never involved directly with the end-consumers and the sales volumes were the end of all discussions.MAKING OF THE DREAM Privately held by the DeVos and Van Andel families of US, Amway, short for American Way, was set up in 1959. Amway and its publicly traded sister companies supported 53 affiliate operations worldwide. About 70% of Amway’s sales were outside North America. With over 12,000 employees around the world, Amway was renowned for its strong R&D centre in Michigan, which had 24 laboratories. Amway was present in over 80 countries and its manufacturing plants were located in US, Hungary, Korea, China and India. The company had over 3 million distributors across the world. Besides its direct selling portfolio of 450 products, Amway promoted around 3,000 products through catalogue sales2 as well. Amway had received permission from the Foreign Investment Promotion Board (FIPB) in 1994, to invest $15 million in the Indian operations and to source products from India. The company began with identifying small and medium-scale companies to source its products from. Commercial operations began in May 1998 with a partnership arrangement with Network 21, a company, which acted as a support system and assisted in organizing training, seminars and meetings. Besides its extensive internal research efforts before entering India, Amway also conducted market research through agencies such as Pathfinders and ORG-MARG. Though prior to its entry into India, Amway did recognize the need for a special India-specific pricing strategy and eventually there were just a few marginal cuts in the prices, which were still almost 20% higher than those of the competing FMCG products. The company began with appointing distributors in the country by adopting the ‘NRI sponsored’ by getting NRIs to rope in their friends/relatives in India into Amway distributorship. These distributors were duly provided with starter business kits containing products, training material, and sales literature. The company’s introductory product range comprised four home care and two personal care products, made available to distributors at the Amway Distribution Centers (ADCs) or through tele-service. A significant portion of Amway’s investment was on transferring state-of-the-art technology and processes to third-party 2 A sales catalog refers to a list of products/services provided by companies. These are sent to selected addresses. The consumers then place the orders based on the information provided in the catalog. The global catalog sales market stood at $ 87 billion in 1998. 141
  • 140. Marketing Management manufacturers from the small and medium-scale sectors for the indigenous production of its product range. Amway assisted its three manufacturing partners, the ISO 9001- certified Jejuplast at Pune, Naisa Industries at Daman, and the Hyderabad-based Sarvotham Care, to achieve benchmarking levels of product development, engineering and quality. These facilities were equipped with advanced machinery and world class technologies for production, packaging, and water filtration. Amway scientists and engineers at the India Technical Centre provided assistance in the processes of technology transfer and quality control. The company supported its independent distributors with five full service ADCs at New Delhi, Bangalore, Chennai, Calcutta and Mumbai. ADCs operated as product selection centers for Amway’s entire product range and as training centers for distributors. Amway appointed Sembawang Shriram Integrated Logistics, and Mumbai-based First Flight Couriers as its total logistics partners for home delivery of Amway products across 151 cities in the country. Amway’s domestic operations fell into five areas - personal care, homecare, nutrition, cosmetics and home tech. The company introduced India-specific products, in pursuance of its go ‘glocal’ philosophy. Also, for the first time in its history, Amway utilized media advertising to promote its products. In the beginning, Amway had to deal with the negative attitude of many Indians to direct selling. Direct selling was typically seen as unwelcome, an intrusion into one’s privacy. This was true to a certain extent. Sales people often used a ‘hardsell’, the product quality was sometimes poor and most importantly, the salespeople were poorly trained and lacking in motivation. However, Amway changed all this radically and a significant change was brought in the field. Amway was able to break the time tested and traditional distribution set-up of manufacturer-distributor-retailer-consumer. Within 11 months, Amway became the country’s largest direct selling company and after two years of the commercial launch, Amway’s distributor base crossed the 200,000 mark. Its strengths were clearly manifested in the aggressive product launch plans, its products which claimed to exceed consumer expectations, the ‘money back’ policy, and a distribution network spread across 26 cities servicing more than 306 locations. In 1999, Amway reported a sales figure of Rs 100 crore. Reacting to reports stating this as a ‘below-expectations’ figure, company sources commented that the concept of network marketing had not been a constraint for Amway. The then CEO & MD Bill Pinckney commented, “The direct selling model is not new to India. What’s new is the structure. And while it’s true that consumers do not rush in to buy an Amway product, network marketing works as a low-key approach and evolves over time.” However, the problems like distributor attrition, a false ‘premium’ image and customer dissatisfaction soon began surfacing. Amway could not sit back and let competitors like Oriflame, Avon and Modicare take advantage of its weaknesses.PICKING UP THE PIECES Amway soon woke up to the reality that it had to take steps to put its MLM machinery back to the track. For this, it had to first identify where it had gone wrong. Amway realized that like most direct marketing networks, it had hoped to leverage the global promise of the lucrative business opportunity for its distributors. Though this made sense in the developed consumer markets of the West, in India, distributors also needed to know the value of the products they were selling, this aspect was overlooked by the company. One of the first ‘corrective’ measures it took was putting stickers on its products, which clearly indicated the number of usages very clearly. For instance, it introduced stickers on the packs of its car-wash solution to emphasize the number of washes that a consumer could get per bottle. The idea was to firmly establish the fact of Amway’s142
  • 141. Amway’s Indian Network Marketing Experienceproducts being highly concentrated and with very low per usage cost. This practicewas later expanded to other products as well.Amway realized that a complicated market such as India needed a focused approachfor each of the product categories. To strengthen its product focus, Amway set upstrategic business units. Thus, though Amway had centralized marketing of allproducts worldwide, its Indian arm appointed category managers for individualproduct categories.Amway also decided to focus on the market in the smaller towns. Quick expansion ofthe distribution network to smaller towns was identified as a major tool to offset theimpact of attrition. The game plan was to reach consumer homes all over directly bymaking the current distribution system more effective and decentralized. In early1999, Amway realized that servicing distributors in 160 cities through its 13 locationswas curbing growth due to unavailability of critical infrastructure like networkedbanks, toll-free phones and multi-service courier companies. The cost of making long-distance calls, the courier companies’ refusal to accept cash and the time taken todeliver products were the three major hurdles that Amway faced. The typical directselling system comprised a central warehouse located close to the manufacturinglocations, which sent the products to regional hubs like the metros and then on to thebranch offices. As opposed to the traditional FMCG delivery setup, where thedistributors or retailers carried inventory, here it was taken care of by the companywarehouses and their region-specific distribution centers. Long distance calls andcourier companies took care of distribution in cities where the company had nopresence. However, with these facilities not being up to the mark, Amway decidedthat it had to effectively handle these issues and rapidly expand its offices in order tocapture the growing direct selling clientele in the country.The company also decided to give incentives to cost and freight agents (C&FAs) whocould deliver parcels in the same city within 48 hours and outside in about 72 hours.Amway then planned to tap unemployed youth in smaller towns by subsidizing theentry fee for the starters’ sales kit. Amway also offered to finance the sales kitsthrough interest-free loans. It even gave free kits to visually impaired youth inRajasthan. But media reports were skeptical about Amway’s strategy to use localizedstrategies for its global products. This ‘gamble’ was Amway’s biggest test case theworld over, they remarked.In a bid to make its products more affordable, Amway introduced value-for-money‘chhota (small) packs’ in December 1999. The sachets significantly boosted sales.Sachets had two advantages – they helped Amway shake-off the ‘super-premium-products-only’ tag, and with their lower prices invited consumers from lower incomelevels to try the products. This was expected to lead to brand penetration.The most significant of Amway’s Indian initiatives were its ‘Indianisation’ efforts.The company started printing Hindi slogan ‘Hamara apna business’ (our ownbusiness) on its stationery. The company’s first product line, Persona, was createdspecially for the Indian consumers. Amway even named its expansion drives as‘Operation Gaadi’ and ‘Operation Ghar.’ Operation Gaadi was launched in east-UttarPradesh where a store was mounted on a truck and made trips to different regions ondifferent days. The project was later extended to West Bengal as well. Operation Gharwas primarily designed to provide better service to the customers as well as to its largefamily of distributors. Involving an outlay of Rs 15 crore in its Phase I, OperationGhar eventually covered 19 state capitals. Operation Ghar was designed to providefive Es - ease of ordering, ease of paying, ease of receiving, ease of returning and easeof information/operations. Amway also utilized the Internet and electronic kiosks tohook up with its distributors and give them information. 143
  • 142. Marketing Management‘NETWORK’ING ITS WAY INTO THE FUTURE By 2004, Amway planned to become a Rs 1000 crore company with a physical presence in 198 centers across India. The company also revealed that by 2002, it would be selling all the 450 Amway products that were available abroad, in India. As part of its plans to tap unexplored markets, Amway announced an ambitious expansion of its distribution infrastructure in Andhra Pradesh, which included setting up a warehouse. Once the marketing business in urban areas was strengthened, Amway planned to turn its attention to untapped rural areas as well. Even as Amway was establishing its roots in India, it was already facing troubles abroad. The very concept of network marketing was being threatened by the growing popularity of e-commerce and the Internet. Through the World Wide Web, manufacturers had the opportunity of engaging in one-on-one direct selling in an even simpler way. This posed a major threat to multilevel marketers. However, the real threat seemed to be the merging of telecom networks with the cable television operators. This brought the customer directly in touch with the company through telemarketing tools. This would naturally make the salesperson obsolete. Of course, given the pace of developments on the Indian telecommunications front, network marketers could take it easy for at least some more years. However, Amway prepared to meet these challenges by taking initiatives to further strengthen its online presence. With Internet usage levels increasing and little spare time for shopping, Amway believed that the Indians would gradually move to online shopping. But it thought the process would take time, as the pleasure of window- shopping and the actual shopping experience could not be replaced very easily. Amway provided graphics and three-dimensional views in the product display sections on its website. The company also planned to have portals in various Indian languages to ensure wide coverage.THE INDIAN MLM JOURNEY MLM was the fastest growing sector of the direct selling industry worldwide. In 1988, the total revenue generated by MLM was $ 12 billion, which doubled to $ 24 billion by 1998. The direct-marketing industry in India was about Rs 6 billion in 1999. This was a growth of 62% over the previous year. In the pre-liberalization era, network marketing in India was usually in the form of various chit fund companies like Sahara India. These had a system of agents, who simultaneously mobilized deposits and appointed sub-agents for further deposit mobilization. Companies such as Eureka Forbes and Cease-Fire pioneered the direct selling system in the country with a sales force that was trained to make direct house-to-house sales. Oriflame International was the first international major to begin network marketing operations in India in 1995. This was followed by the entry of Avon India in late 1996. Tupperware, with product portfolio comprising plastic food storage and serving containers, also entered India in 1996. Later, Avon’s decision to opt out of the MLM setup came as a major setback to the industry.3 3 Avon was the world’s largest seller of beauty products operating in 135 countries. The company opted for MLM in India while worldwide it was known for its door-to-door direct selling success. Avon’s decision to adopt MLM was led by the belief that in India, door-to- door salespeople were treated with a strange indifference. However, this led to Avon losing its focus on its stronghold of having a strong end-user focus. Besides, the company could not make the shift in mindset that multi-level selling required, as MLM required a strong distribution push mentality, which was very different from the hard selling to the end users144
  • 143. Amway’s Indian Network Marketing ExperienceThe first homegrown MLM major was Modicare, started by the house of Modis in1996. Modicare’s network was spread across northern and western India.Commenting on the Indian MLM experience, S.K.Gupta, COO said, “The concept isespecially relevant for India because of the highly fragmented retail structure, highbrand proliferation which limits shelf-space and massive brand wars both at the tradeand advertising level.”The direct selling industry in India was in its initial stages even in early 2001. BesidesAmway, Oriflame Avon and Tupperware, other players included Lotus Learning, LBPublishers and DK Learning, all selling books. All the direct selling companies weremembers of the Indian Direct Sellers’ Association (IDSA), and were bound by itscode of conduct.4While in international markets, a wide range of products was successfully solddirectly to homes, this was not the case in India. In the mature economies, customerswere fully aware of the competing products available, whereas in developingeconomies such as India, awareness levels were comparatively low. Industryobservers commented, “The way the market is booming, no direct sale company canmeet all its customers only through its own sales force.” However, MLM companiesopted for direct selling as against the high visibility retail set up for competitivecosmetics players such as Revlon, aiming to get an image of exclusivity.There was some resistance to the network-marketing concept in India, as Indianspreferred the security of a job. Being a salesperson in an MLM setup did not providethis security. This hampered the company’s ability to attract competent personnel. Theproblem was aggravated by the fact that companies treated direct selling as ‘justanother’ promotional tool, while it was mainly about motivation. One positive aspectof network selling was that it was very convenient for women as the job could be donepart-time and at hours of their convenience. Also, the products sold also usuallytargeted at women, and this made it easier for the Indian women to accept thedistributorships.Most Indian direct selling failures stemmed from the fact that they did not understandthe concept thoroughly. Companies who opted for advertising in the media soon foundthat it had a negative impact. Advertising created a suspicion in the mind of thesalesperson that the company was taking direct orders and thus, reducingcommissions. In some cases, it also negated the impact of demonstrations. EurekaForbes handled this carefully, when it advertised not its product, but the salesperson asa friend of the customer. Advertising went hand in hand with retail, as people ought tobe told where to go and get the product. In an MLM setup, advertising was not thebest way to spend money. Though this did sometimes result in inadequate productexposure, the money which would have been spent on advertising was usually that Avon was good at. Avon had also significantly lowered its advertising expenditures. Avon’s Managing Director, David F Gosling said, “It was a mistake to adopt multi-level system when we weren’t good at it. We soon realized that we should stick to what we knew best.” He claimed that MLM had simply turned into a recruiting machine and it was difficult to ensure that the distributor down the chain was not thriving on the performance of his recruits without actually performing (selling) himself. Also, Avon held back the much-needed distribution push as the company gradually lost faith in the system. Within two years, Avon switched back to door-to-door selling, putting in place a three-tier network of beauty representatives (BR), beauty advisors (BA) and independent sales managers, which established clearer relationships between the distributor and the company.4 IDSA primarily focused on promoting consumers’ awareness and interest. Its other main objective was to support and protect the character and status of the direct selling industry, and assist in the maintaining of qualitative standards in direct selling. Legitimate direct selling companies were thus concerned with developing, protecting and maintaining a suitable public image and ensured that their salesforce observed company as well as industry standards of performance and complied with ethical and legal requirements. 145
  • 144. Marketing Management diverted into training and motivating the salesperson to contact as many customers as possible. Though Oriflame and Avon did advertise, it was mainly attributed to their being prima-facie into cosmetics and personal care, thereby involving an image factor. Amway, which was into home care products in a big way, had decided not to go in for advertising on a scale as large as adopted by Oriflame and Avon. Competition was intensifying in the industry in the early 21st century. Amway seemed to be faring better than competitors like Modicare - a fact attributed mainly to its premium brand image. Both Amway and Modicare were not the typical door-to-door selling companies, as they sold only to customers known to their distributors. While Amway targeted only the upper section customers, Modicare targeted the middle and the upper middle class customers. Some of Modicare’s products were priced at one- fourth of the price of Amway’s products. Modicare sources said this was because its products were priced for the Indian market, while Amway’s pricing was more in tune with its global counterpart. Modicare was even willing to reduce its margins in certain cases. Also, Modicare offered 100% refund even when the product had been used, unlike the 75% refund offered by Amway. This could turn out to be a cause for concern for Amway in the long run. Questions for Discussion: 1. Comment on the concept of network or multilevel marketing. Do you think the model would be successful in India? Also, compare and contrast the MLM model with the traditional distribution system, bringing out the merits and demerits of both. 2. Study the developments that occurred after Amway launched its commercial operations in India. List the reasons, which led to the ‘below-expectations’ performance of the company. 3. Critically examine the corrective measures adopted by Amway to make the MLM model a success. What further measures can the company take in order to tackle the competition from FMCG majors like HLL and P&G? © ICFAI Center for Management Research. All rights reserved.146
  • 145. Amway’s Indian Network Marketing Experience Exhibit I Amway Products Available In India (April 2001) Brand Product Category Bingo Toy Buff Up 500ml Furniture Cream Car Wash 500ml Household Care Chunky the Monkey Toy Dish Drops 1 Liter, 500 ml Household Care G&H Body Shampoo Personal Care G&H Lotion 65 ml Personal Care Leather & Vinyl Cleaner 500ml Household Care L.O.C 1 Liter, 500 ml Household Care Nature Shower CHS 250ml Personal Care Persona (Pack of 4 Brushes) Tooth Brushes Pursue 5 ml, 500 ml, 200ml Disinfectant Cleaner SAB Delicate 500ml Liquid Cleaner SA8 with Natural Softener 1 Liter, 500ml Liquid Cleaner Satinique DC Conditioner 250ml Personal Care Satinique DC Shampoo 250ml Personal Care Satinique 2-in-1 250ml Personal Care See Spray 500ml Household Care Zoom 500ml Household Care Glucosamine HCl with Boswellia Nutrition Product Protein Powder 455 gms Nutrition Product Siberian Ginseng with Gingko Biloba Nutrition Product Triple Guard Echinacea Nutrition Product Advanced Daily Eye Cream Personal Care Alpha Hydroxy Serum Plus Personal Care Satinique 2-in-1 Sachets (20 nos.) Personal Care G&H Lotion Sachets (30 nos.) Personal Care Car Wash Sachets (20 nos.) Household Care Nutrilite Calendar 2001 Greeting Cards Sales Aids Body Sponge Pour and Measure Cap PC Pump Dispenser HC Pump Dispenser 500ml HC Pump Dispenser 1L Turret Top Cap Pistol Grip Sprayer Dispenser BottleSource: www.amwayindia.com 147
  • 146. Marketing Management Additional Readings or References: 1. Raman A.T., Way to sell, Business India, February 26, 1996 2. Datt Namrata, Opening doors, Business India, March 11, 1996 3. Subramaniam Ganga, A female force, Business India, August 12, 1996 4. Kawatra Pareena, The New Multi-Level Marketing Model, Business Today, September 22, 1996 5. Bansal Shuchi, Amway takes the direct route to India, Business World, December 11, 1996 6. Varghese Nina, Amway to Set Up Shop in India by Sept., Hindu Business Line, March 26, 1997 7. Chakraborty Alokananda, Casting the net, Business India, January 26, 1998 8. The American Way, Hindu Business Line, February 5, 1998 9. Ramachandran Rishikesh, The Success of Amway has a lot to do with entrepreneurialism, Hindu Business Line, February 5, 1998 10. Stanchart Amway Card unveiled, Hindu Business Line, April 8, 1998 11. Amway’s new distribution centre in Chennai, Hindu Business Line, April 16, 1998 12. Amway fancies Indian market, Hindu Business Line, May 5, 1998 13. Amway signs deal to promote UNICEF products, Hindu Business Line, November 4, 1998 14. Datta Namrata, Channel Discovery, Business India, March 8, 1999 15. Amway launches Operation Ghar; states products made locally, Hindu Business Line, April 17, 1999 16. Jain Shweta, Getting More Personal, A&M, April 30, 1999 17. Amway India business to touch Rs 1,000 cr. in 2002, Hindu Business Line, August 9, 1999 18. Thakur Punam, Amway finds its way, Business India, December 13, 1999 19. Amway introduces low-cost sachets, Hindu Business Line, December 17, 1999 20. Amway seeks to step into unexplored markets, Hindu Business Line, March 3, 2000 21. Prasad Shishir, Which Way Amway, Business Standard, June 22, 1999 22. Pande Bhanu, Avon raises its level, Business Standard, September 29, 1999 23. Bright prospects for Amway India after June 2001, The Financial Express, July 31, 2000 24. www.amway.com 25. www.amway-in.com148
  • 147. The Corporate Glass Ceiling “Those who complain about glass ceilings should keep in mind that glass can be shattered if one strikes it hard enough and long enough.” - Russel Madden.1 “The glass ceiling that’s holding women executives back is not just above them, it’s all around them, in the whole structure of the organization: the beams, the walls, the very air...most of the barriers that persist today are insidious – a revolution couldn’t find them to blast them away.” - Debra Meyerson and Joyce K. Fletcher.2 “People often say there is a glass ceiling. And my reflection on that is, it’s just a thick layer of men.” - Laura Liswood, Secretary General of the Council of Woman World Leaders.THE ‘GLASS CEILING’ BREAKS In February 1998, Meg Whitman (Meg) became the President and CEO of eBay, the largest online auction company in the world. In July 1999, Carly Fiorina (Carly) was announced the CEO of Hewlett Packard (HP). Carly became the first woman CEO of a Dow 50 company and the only woman CEO of a Fortune 503 company. In January 2002, Patricia F Russo (Pat) was made President and CEO of Lucent Technologies4. The trend of women achieving top management positions was not only noticed in the developed countries, but also in the developing countries like India. In June 2001, Lalita D Gupte (Lalita) was made the head of ICICI’s global operations. She also ranked 31 in the Fortune’s Power Fifty,5 2001. Other examples included Kalpana Morparia, Senior General Manager (Legal), ICICI and Gayathri Parathasarthy Head, Development Integration Services, a SBU for the IT services division at i-Flex Solutions. Indian women achieved top management positions in corporates outside India as well. In April 2000, Indra Nooyi (Indra) was promoted as the Chief Financial Officer (CFO) and President of PepsiCo. Indra had the rare distinction of being the highest- ranking Indian woman in the corporate world of America. She was also ranked by Fortune as one of the most powerful women. In August 2002, Naina Lal Kidwai (Naina) became the Vice-Chairman and Managing Director of the Indian investment banking division of HSBC. Naina was also ranked third on Fortune’s list of Asia’s most powerful women, and she was declared the 47th most powerful women in business in the world. Others included Jayashree Vallal, Vice-President at Cisco Systems, and Radha Ramaswami Basu, CEO of Support.com. 1 A fiction and non-fiction writer, Russel Madden has a Master’s degree in Communication Studies and a Bachelor’s degree in Communication Studies and general studies from the University of Iowa. One of his popular books, ‘The Greatest Good’, is based on politics and ethics. 2 Authors of the Harvard Business Review article “A Modest Manifesto for Shattering the Glass Ceiling.” 3 The list of 50 largest companies in the US based on revenues. 4 In Fortune magazine’s annual survey of the Power Fifty, 50 Most Powerful Women in Business are selected. The magazine tracks the emergence of women who came to power slowly, by staying with a company, steadily built influence, and rose to power through determination and insider knowledge. 5 List of ‘Most Powerful Women in Business’ across the world.
  • 148. Organizational Behavior With the above developments, some analysts and feminist groups were quick enough to announce that finally, women were breaking the highest of the ‘glass ceilings’ which had become an invisible barrier for many women making efforts to achieve top management positions in leading corporates across the world. Though there was a significant improvement in women’s participation in the corporate world during the last few decades, not many women reached the ‘O-Zone’6 level. The debate over the glass ceiling’s existence had been continuing for many decades. Women had been raising voices against the ‘glass ceiling’ phenomenon. However, the men in the corporate world denied the very existence of any such phenomenon. Moreover, some women who had reached high positions did not testify the existence of the glass ceiling. They felt that it only took some extra effort, some compromises and support from the family, for women to reach the top.THE ‘GLASS CEILING’ CONTROVERSY According to the US Department of Labor, a ‘glass ceiling’ is “an artificial barrier based on attitudinal or organizational bias that prevents qualified women and other minorities7 from advancing upward in their organization into senior management level positions.” The concept of ‘glass ceiling’ surfaced in the US in the late 1970s. A glass ceiling was not a barrier to an individual as such, but a barrier to women and other minorities as a group. Initially, one of the main reasons cited for the existence of a glass ceiling was that women did not have the required experience and skills to reach the top management. They were restricted to clerical and other support services jobs. The reason seemed to be true, as in the late 1970s and early 1980s, very few women had proper college education and fewer had management degrees. A survey conducted by the Wall Street Journal in 1986 revealed that the highest-ranking women in most industries were in non-operating areas such as personnel, public relations and finance. These functional specializations rarely led to top management positions. However, in the mid and late 1980s, the trend changed with more women taking up higher education in management and seeking careers in operating areas8 within a company. This was the period when the debate over the existence of ‘glass ceiling’ began. Surveys conducted during the mid-1980s (Refer Table I) revealed the negative organizational bias against women. According to the Harlan and Weiss study9 conducted on male and female executives doing similar kind of jobs, men were allowed to manage more number of people, had more freedom to ‘hire and fire’, and had a direct control over the company’s assets. According to media reports, the tradition of less women employees representing top management positions continued even during the beginning of the 21st century. In a survey conducted by the US-based Equal Employment Opportunity Commission, 44 million people were employed in the private industry in the US in 2002 out of which 20.72 million (47.1%) were women. However, only 12.5% of all the Fortune 500 companies comprised women corporate officers holding top management positions. Out of the highest-paid executives in Fortune 500 companies, women only 4.1% were women. 6 The ‘O- Zone level’ comprises top management positions including the Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Financial Officer (CFO), Chief Information Officer (CIO) and Chief Technology Officer (CTO). 7 According to the U.S. government, minorities included American Indians or Alaskan Native, Asian or Pacific Islander, Blacks, and Hispanic individuals. 8 Operating areas include technical and manufacturing jobs. The non-operating areas include personnel, public relations and finance. 9 Harlan and Weiss are US-based researchers working primarily on the inequality of women and other gender discrimination issues affecting career advancement.152
  • 149. The Corporate Glass Ceiling Table I Major Obstacles to Women’s Career Reported By Different Surveys in The 1980s PERCENTA GE OF FACTOR WOMEN AGREEING Wall Street Journal/Gallop Survey Family responsibilities 3% Male chauvinism, attitude towards a female boss, slow 50% advancement of women, and being a woman There are disadvantages of being a woman in the business world 80% Have been thwarted on their way up the ladder by male attitudes 25% toward women Paid less than men of equal ability 70% Korn/Ferry International Survey Being a woman 40% Los Angeles Times Survey Sex discrimination 67% Signs of racism 60%Source: Compiled from www.feminist.orgSome feminist groups felt that the major reasons for glass ceiling was jobsegregation10, the ‘old-boy’ network11, sex discrimination and the absence of strictanti-discrimination laws. Sexual harassment12 was seen as another major impedimentin a woman’s career. In the developing countries, the scenario was even worse, withthe percentage of women in corporates being much lower than that in the developedcountries.The feminist groups felt that the biggest barrier in women’s progress was the male-dominated management, which made all decisions for the company. They alleged thatwhile considering candidates for promotions, the all-men executive board seemed togive preference to men over women. Some women even complained that they werenot invited for certain meetings as they were not considered ‘policymakers.’ Anotherreason for the existence of a glass ceiling was thought to be the lack of proper anti-discrimination laws and government actions. Above all, the real problem seemed to lie10 The concentration of women and men in different types and levels of activity and employment, with women being confined to a narrower range of occupations (horizontal segregation) than men, and to the lower grades of work (vertical segregation).11 An informal, exclusive system of mutual assistance and friendship through which men belonging to a particular group, (e.g. alumni of a school), exchange favors and connections, as in politics or business.12 According to the US Equal Employment Opportunity Commission, sexual harassment was a form of gender discrimination; it included unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature, submission to or rejection of which explicitly or implicitly affected an individual’s employment, unreasonably interfered with an individual’s performance or created an intimidating, hostile or offensive work environment. 153
  • 150. Organizational Behavior in men’s attitude towards problems faced by women. They did not perceive these problems as problems at all, which made it difficult for women to solve these. Instances from some leading multinational companies proved the above to be true. For instance, in 2001, Linda Morgan (Linda), a Black woman, working as a manager at one of Johnson and Johnson’s (J&J) subsidiaries, filed a lawsuit against J&J, which was popular as a equal opportunities employer (Refer Exhibit I). Linda alleged that she was denied promotions, though she had good performance evaluations. She said that she had requested her White superiors for promotions, but was not even called for an interview, though she was highly qualified than the employees who were called for promotion interviews. As per the law suit, J&J also hired people from the minority communities at lower salaries than the White employees with the same or lower qualifications. In 2001, Karen Bauries King (Karen), one of the women Vice-Presidents of Marriott International (Marriott), filed a law suit against the company. She had joined Marriott as an assistant manager (health plan contracts) and, in ten years, she became the vice- president of its benefit resources division. However, in March 2000, she was asked to leave. Karen alleged that the company discriminated against women, paid them less, did not promote them, and finally, asked them to leave whenever it wished. Karen and her supporters said that, “female employees hit a glass ceiling as they approach the senior vice president level.”THE DEBATE CONTINUES Notwithstanding the above arguments by feminist groups, some analysts argued that no glass ceiling existed at all. According to them, women could not reach top management positions only because most of them left their careers mid-way due to personal reasons (like marriage and raising a family). They said, in order to become a CEO, a woman executive would have to sacrifice some aspects of her personal life. The top management posts demanded more commitment and required about 80 hours of work per week. Thus women in such positions would have to forgo their personal lives, which was not possible for most women. Moreover, women themselves left more demanding jobs for more flexible jobs, which allowed them to spend more time with their families, particularly their kids. Analysts felt that women were paid lower salaries since they left the jobs midway, worked for lesser time and joined low-risk jobs. Though few women reached the top management and were totally committed to their careers, they did not seem to understand how a business worked. It was reported that women who did not realize the importance of office politics, proper channels, and did not have self-confidence and the ability to take quick decisions failed in their jobs. They further alleged that the invisible ‘glass ceiling’ was used as an excuse by women executives who could not become a part of the top management. Moreover, women themselves seemed to create barriers for themselves – they showed a lack of desire for moving up the ladder. Many women felt contended with their present jobs and did not try for senior positions. As the debate over the existence of a glass ceiling continued across the globe, some women continued to make their presence felt in the boardrooms and others continued with their efforts to break the glass ceiling. Women not only reached the top management, but also became the CEOs of some of the Fortune 500 companies (Refer Exhibit II and III). Surprisingly, all these women denied existence of a glass ceiling. For instance, Carly believed that there was no glass ceiling in the US corporations, “I hope that we are at a point that everyone has figured out that there is not a glass ceiling.” Naina shared her experiences: “I did face a few obstacles in my career but most were because I was154
  • 151. The Corporate Glass Ceiling very young, not so much because of gender bias. People with much more experience seemed to be available and that was a problem sometimes, but none due to my being a woman.” Lalita felt that ICICI had been an equal opportunity employer (Refer Exhibit IV). She said, “ICICI has always displayed more of a pro-woman bias than an anti- woman one. I have never encountered the glass ceiling here. I know it exists but I have never faced it.”13 Another individual, Aruna believed in the non-existence of the glass ceiling, “Right through my career, even at the time when I was with TCS, I never found being distinguished because I was a woman. In the tech industry the glass-ceiling does not exist, you see a lot of women tech heads here. If there is a ceiling it is in the mind of the women themselves and not in the industry.” However, some analysts felt that these were only a few examples of women who could come up to top ranks. Reportedly, many women were struggling to rise through the ranks in different organizations in several industries. Toddi Gutner14 said, “Just because a handful of corporate women have made it to the top doesn’t mean the battle for equal opportunity is over.” Another analyst commented15, “For every Fiorina, who claims the glass ceiling has been shattered, there are hundreds of thousands of working women who know it remains firmly in place.” Analysts felt that women leaders who have achieved top positions should make efforts to eliminate the barriers to the advancement of other women.THE FUTURE Though the glass ceiling in the developed countries seemed to have broken only in selected industries like medicine, information technology and financial services (Refer Exhibit V), this development was less visible in the developing countries. Analysts also felt that in the developing countries, especially in the Asian region, it was the ‘culture’ that was primarily responsible for the existence of a strong glass ceiling. The culture did not allow women to work, and they were primarily entrusted with the job of homemaking. Analysts opined that in countries including Korea and India, marriage and male chauvinism had stopped women from building their careers. In addition, the corporate organizations in these countries did not seem to favour women. To avoid hitting the glass ceiling, some women became entrepreneurs. In the US, the number of companies owned by women had grown by 16% during 1992-97. Similarly, the employment of women in companies owned by women increased by three times their employment in other companies. Even in the Asian countries, women-owned companies were increasing. Some examples were the Addon Company promoted by Choi Young Sun, Sung Joo International by Sung Joo Kim, Pugmarks India by Anuja Gupta and ML Infomap Pvt. Ltd. by Manosi Lahiri. However, becoming entrepreneurs was not the ultimate solution for the problem of glass ceiling. In India, there seemed to be an unwritten rule of not employing women. Statistics substantiated this view and revealed that only 3% women held senior positions16 in the Indian private sector. In addition, a survey revealed that even women graduates from premier business schools like the IIMs were not very keen to build a career. Pallavi Jha, former chairperson of the Confederation of Indian Industries (Maharashtra Region) said, “A study on women graduates of the Indian Institute of Management, Ahmedabad, showed that more than 70 per cent do not pursue a career.” Some leading companies in India reportedly said directly that they were traditional in their ways, and did not hire women as a matter of policy. One example is Videocon 13 www.womenexcel.com 14 In a BusinessWeek article dated August 29, 2002. 15 According to Paula Schuck in her article “Glass ceiling still restricting women,” www.canoe.ca. 16 As quoted in www.indianest.com and www.corpwatchindia.com 155
  • 152. Organizational Behavior International (Videocon), a leading consumer durable manufacturer that did not hire women in its corporate office, though it had more than 4000 woman workers in its factories. Commenting on its policy, the chairman of Videocon said, “We are from an orthodox family and this is the way we work.” The Tata Group also maintained in the ‘no-women rule’ for many decades, which changed during the early 1980s. Bajaj Auto (Bajaj) was yet another company, which did not hire women for its shop floor as a matter of principle. In 1995, Bajaj changed its policy, but only a few women were hired in the other departments of the company. In 2002, the company had only 6 women managers at various levels. A company official defended it by saying, “We did not recruit women earlier because our factory in Pune was away from the city. We recruit from engineering college campuses and not many women are keen on a manufacturing job like ours.” On the other hand, some leading organizations in India were employing women in highly responsible positions. Women managers were also being praised by their male counterparts for their soft skills like caring, understanding, good teamwork, good communication skills, patience, perseverance, etc. According to analysts, as women had unique skills and style of management, the organizations should utilize these by assigning them the right responsibilities. Suresh Guptan, Executive in-charge at Tata Services added another point of view saying, “While women still appear to be struggling, middle-level female professionals are being promoted over more deserving men simply because it is politically the correct thing to do.” Questions for Discussion: 1. Explain the concept of corporate glass ceiling. What do you think are the various factors that prevent women from rising through the ranks in corporates around the world? 2. “For every Fiorina who claims the glass ceiling has been shattered, there are hundreds of thousands of working women who know it remains firmly in place.” Critically analyze the statement and justify your answer. 3. Though the debate on glass ceiling continues, some obstacles did prevent women from reaching top management positions. How do you think these obstacles can be overcome by women, particularly in developing countries like India? Explain. © ICFAI Center for Management Research. All rights reserved.156
  • 153. The Corporate Glass Ceiling Exhibit I J&J’s ‘Our Credo’We believe our first responsibility is to the doctors, nurses and patients, to mothersand fathers and all others who use our products and services. In meeting theirneeds everything we do must be of high quality. We must constantly strive toreduce our costs in order to maintain reasonable prices. Customers orders must beserviced promptly and accurately. Our suppliers and distributors must have anopportunity to make a fair profit.We are responsible to our employees, the men and women who work with usthroughout the world. Everyone must be considered as an individual. We mustrespect their dignity and recognize their merit. They must have a sense of securityin their jobs. Compensation must be fair and adequate, and working conditionsclean, orderly and safe. We must be mindful of ways to help our employees fulfilltheir family responsibilities. Employees must feel free to make suggestions andcomplaints. There must be equal opportunity for employment, development andadvancement for those qualified. We must provide competent management, andtheir actions must be just and ethical.We are responsible to the communities in which we live and work and to the worldcommunity as well. We must be good citizens — support good works and charitiesand bear our fair share of taxes. We must encourage civic improvements and betterhealth and education. We must maintain in good order the property we areprivileged to use, protecting the environment and natural resources.Our final responsibility is to our stockholders. Business must make a sound profit.We must experiment with new ideas. Research must be carried on, innovativeprograms developed and mistakes paid for. New equipment must be purchased,new facilities provided and new products launched. Reserves must be created toprovide for adverse times. When we operate according to these principles, thestockholders should realize a fair return.Source: www.jnj.com Exhibit II Women CEOS in Global CorporationsSome of the women CEOs in global corporations included Meg, Carly and Pat. Meg graduated in Economics in 1977 from Princeton and got an MBA from Harvard in 1979. She started her career at Procter and Gamble in the brand management department. She then shifted to Walt Disney Company’s consumer products division, to hold the position of the senior Vice-President (Marketing) and a brand marketing position. Meg also worked as the President of the Stride Rite division, the Executive Vice-President of the Keds division and as Vice-President of Bain & Company. She then became the President and CEO of Florists Transworld Delivery (FTD) and moved on to become the General Manager of the Preschool division of Hasbro Inc., where she was responsible for the global marketing of the ‘Mr. Potato Heads’ brand. In February 1998, Meg became the President and CEO of eBay. Carly graduated in Medieval History and Philosophy from Stanford University in 1976. She started her career with teaching English in Bologna, Italy, followed by a receptionist’s job in a New York City brokerage company. She got interested in business while working at the brokerage company and during the same time, she did her Master’s in Business Administration from the University of Maryland. In 1980, Carly joined the sales department of AT&T. Through her good sales skills, she moved up the corporate ladder at AT&T and in 1989, she joined its equipment department. In 1992, Carly became the first female officer in the network systems business of AT&T. She started working 157
  • 154. Organizational Behavior for Rich McGinn, the CEO of Lucent Technologies (Lucent), a subsidiary of AT&T. In 1996, Rich McGinn made her Lucent’s first woman Executive Vice- President of corporate operations. She handled Lucent’s initial public offering (IPO). She also played a major role in Lucent’s spin-off from AT&T. In July 1999, Carly was chosen as the CEO of HP. She had the distinction of being the first woman CEO of HP. Carly was the highest ranking woman in corporate America. She topped the Fortune list of ‘Most Powerful Women’ for four consecutive years, and was the only woman CEO of a Fortune 50 company. Pat was a Harvard alumnus, who joined the sales and marketing management team of IBM, where she worked for eight years. In 1981, she shifted to AT&T, where she had took up executive positions in various categories including human resources, marketing, and strategic planning. In 1992, she was made the President of AT&T’s business unit, Global Business Communications Systems. In 1997, she was made the Executive Vice-President of the Corporate Operations division of Lucent Technologies, after the company spun off from AT&T. In 1999, Pat became the Executive VP and CEO of Lucent’s Service Provider Networks Group. In August 2000, Pat quit Lucent to join Eastman Kodak as the COO, and she again joined Lucent as CEO in 2002. Source: ICMR Exhibit III Indian Women in Top Management Positions Even in the developing countries including India, women had reached the helm of organizations. Indra had the rare distinction of being the highest-ranking Indian woman in the corporate world. She graduated from the Madras Christian College and IIM Calcutta. Her career started at Mettur Beardsell, from where she shifted to Johnson & Johnson. In 1976, she left India and joined Yale University’s Graduate School of Management. After obtaining a degree from the University, she worked for the Boston Consultancy Group, Asea Brown Boveri and Motorola. In 1994, she joined PepsiCo and rose through the ranks to become the CFO in April 2000. In December 2000, she was made the President of the company. Naina graduated in Economics from the Delhi University and completed her Chartered Accountancy course in 1977. In 1982, she became the first Indian woman to enroll into the MBA course offered by the Harvard Business School. Naina’s professional career started in the mid-1980s at ANZ Grindlays Bank, where she rose through the ranks. She then joined Morgan Stanley India, and became the head of investment banking in JM Morgan Stanley17 in 1994. In August 2002, she left JM Morgan Stanley to head the Indian investment banking division of HSBC as the Vice-Chairman and Managing Director. Lalita joined ICICI as an officer in 1971, after completing her Masters in Management Studies from Jamnalal Bajaj Institute of Management Studies. She rose through the ranks in ICICI in the next thirty years and played a major role in the growth of ICICI and its transformation into a financial services company. Aruna was another woman who reached one of the top ranks in corporate India. She started her career in 1984 at Tata Consultancy Services (TCS). In early 1990s, she joined Aptech as the head of its subsidiary, Hexaware India. She then moved to Cap Gemini Ernst & Young (India), the software consultancy arm of Ernst & Young, to head its Advanced Development and Integration department. Over the years, she was promoted as the principal of Cap Gemini Ernst & Young (India). Source: ICMR 17 Morgan Stanley entered into a joint venture with JM Financials.158
  • 155. The Corporate Glass Ceiling Exhibit IV Organizational Structure of ICICI Mr. K.V. Kamath MD & CEOMrs. Lalita D. Gupta Mr. S.H. Bhojani Mr. Sanjeev Kerker Joint MD & CEO Deputy MD SGM – Risk Management Mrs. Shalini Shah Mr. A.T. Kusra Mr. V. Srinivasan Mr. Mrs. Kalpara Molparia GM –Accounts & GM - HRD G.M. Secretarial Custodial R.Venkataraghavan SGM - Legal Taxatation Services SAP – Central Operations – Group - MIS Mrs. Kalpana Morparia Mr. S. Mukherji Mrs. Shikha Sharma Mr. M.J. Subbaiah Mr. Arvind Joshi Mr. S.P. NagarKatte SGM - Treasury Major Client SGM – Personal SGM – Growth GM - IT GM – M&A Group Financial Services Client Group Dr. Nachiket Mor GM –Treasury Mr. S. Khasnotis Mrs. Ramani Nirula Dr. S.C. Nanda GM – Western Region GM – Northern Region GM – Corporate Marketing (Investments – Economic Research) Mr. R. Kannan Mrs. Chanda Kochhar Mr. A. Mukerji GM – Oil & Gas GM - MCG GM – Infrastructure Group, Structured Products, Advisory Services Source: www.icici.com 159
  • 156. Organizational Behavior Exhibit V Representation of Women in Management, 2000 Percent of all positions filled by women Percent of management positions filled by women 100 80 60 40 20 0 Ad . Ed rof. in s os e . er t n . Pr tals Fi e n ed in en s nc d Re ati o bl mu ne ra m .M m pi na P En u si lT uc Pu om of rta B tai H th ic C O te Source: US General Accounting Office report160
  • 157. The Corporate Glass CeilingAdditional Readings & References:1. Gopalakrishnan Kishori, Women in India: Breaking the Stereotype, www.siliconindia.com, June 29, 2000.2. Bahl Taru, Running The Show, Her Way!, The Tribune, July 8, 2000.3. Indian woman third on Fortune list, www.rediff.com, October 5, 2000.4. Warner Melaine, Americas 50 Most Powerful Women, Fortune, October 6, 2000.5. Alam Srinivas, World at her feet, Business World, October 23, 2000.6. Lee Karen, Benefits VP charges former employer with gender bias, www.benefitnews.com, April 01, 2001.7. Patil Vimla, Striving to break through the glass ceiling..., The Tribune, October 14, 2001.8. Petersen Melody, Two Employees File Bias Suit Against Johnson & Johnson, www.idcg.net, 2001.9. Dev Sudipta, Women in IT shatter the glass-ceiling myth, Financial Express, February 25, 2002.10. Srivastava Roli, Women Not Welcome in Corporate India, Times of India, April 18, 2002.11. A Woman’s Touch, www.womenexcel.com12. www.fortune.com. 161
  • 158. Employee Satisfaction – An Outcome of Motivated WorkforceCASELET 1 Smile Hotels Group is a leading hotel group in India. It has about 40 hotels in various cities across India and 25 in overseas locations. The group emphasizes employee training and development, and customer service. But the CEO of the group, Hari Prasad Thakur (Thakur), observed that the customer growth rate of the group’s hotels had not been quite good for the last three years. He approached a consultancy and asked it to conduct a customer survey to find out their opinion about the hotel’s customer service. The survey revealed customer satisfaction to be average. It was almost equal to the rating given to some of the new hotels in the industry. Thakur was shocked to see the results of the survey and called all the senior managers in the company for a meeting. Addressing them, he began, “Good morning, Ladies and Gentlemen! As you all know, I had recently hired a consultancy to conduct a customer survey for us. I have the results here with me. It is with great disappointment that I have to inform you all that our group of hotels have rated very low on customer satisfaction. I had never imagined that our customers have such a poor opinion about us. You can see that we are rated at par with some not-so-known hotels.” On hearing this, most of the managers were shocked. Some of them expressed their disbelief saying, “Oh! We can’t believe this.” After giving them sufficient time to digest this unpleasant news, Thakur continued, “I had gone in for the survey because customer growth rate has been declining considerably for the last three years. What do you think we can do to satisfy and retain customers?” The managers suggested various plans to attract and retain customers. The marketing manager of the company, Milind Patil (Patil), said, “It might be a good idea to offer our loyal customers free holiday trips, discounts in holiday packages, discounts in room rent, coupons and lucky draws.” The associate marketing manager (corporate sector), Hitesh Chaudhary (Chaudhary), added, “We can increase our number of corporate clientele by providing them extra facilities. This, I am sure, will help us attract more executives to stay with us.” However, Thakur was not convinced. When both, Patil and Chaudhary, were trying to convince Thakur, the HR manager, Soma Roy (Roy), interrupted them saying, “I am sorry to interrupt you but what I wish to point out to you all is that these techniques will work only for a short period of time. If we are looking for a permanent solution, I suggest we should focus on our customer service aspect which is crucial for our business. Our employees are trained to deliver good quality service to our customers. But, I believe that we have to motivate them to serve customers still better. Only by doing this will we be able to improve our customer satisfaction level.” On hearing this, the operations manager responded, “What else do we have to give to our employees? Our employees already get the best salaries in the industry.” Roy replied, “Salary alone won’t do. Why can’t we begin an employee recognition program? We will reward employees who offer superior customer service. It would motivate our employees to serve the customers better. Improved service will fetch us more customers.” Thakur appreciated Roy for his suggestion and said, “That seems to be a good idea. We will implement it. Can you tell us how we should go about it?”
  • 159. Employee Satisfaction – An Outcome of Motivated Workforce Roy replied, “We will categorize high performers into three categories – good performers, very good performers, and excellent performers. The performance can be measured in terms of integrity, honesty, kindness, respect for customers, environmental awareness, teamwork, coordination, cooperation and trustworthiness.” Thakur then asked, “What type of rewards would you suggest should be given to each of these categories of high performers?” Roy replied, “For good performers we may give special two-star badges which they can pin to their coat. For very good performers we can give three-star badges and cash rewards, and excellent performers can be given five-star badges. They can be felicitated in the anniversary celebration function of the group and may be given good ranking that would get them faster promotions.” Suggestions from other managers were also invited and the recognition program was launched. Questions for Discussion: 1. The salaries of employees of Smile Hotels Group were the best in the industry. Do you think the recognition program was needed to motivate employees? The CEO didn’t accept the suggestions offered by the marketing managers to attract more customers but accepted the suggestion given by the HR manager. Why do you think he liked the HR manager’s suggestion? Substantiate your answer. 2. What more do you suggest can be done by Smile Hotels Group to motivate the employees and improve customer service?CASELET 2 Situation A John Morgeld (Morgeld) received an appointment letter from Akay Enterprises (Akay). It was his first job and he would be joining the company as an executive trainee (production). He had got offers from two other companies but he selected Akay because the company promised a cooperative and supportive work environment for newcomers, an informal organizational culture and excellent growth opportunities for employees who stayed with the company. On the day of joining, he wore an executive dress, tie and shoes and went to the office. The receptionist looked at him and asked him whether he was a marketing executive from any company. When Morgeld answered in the negative and introduced himself as a new employee, the receptionist wished him and began to attend her calls. Morgeld did not know whether he should go inside the office or wait at the reception till he was called in. He chose the second option and waited. He waited for two hours and nothing happened. So, he got up and asked the receptionist what he was supposed to do. The receptionist asked him to go inside. Morgeld entered into a large hall having several cabins. He did not know, of all the square cabins, which one he should go to. Randomly, he chose one and introduced himself to the man sitting in the cabin. The man looked at Morgeld and began to laugh. After laughing for two minutes, he told Morgeld that all employees come in casuals to office and Morgeld looked like the CEO of the company in that suit. He advised Morgeld to come in casuals. But he didn’t seem to know whom Morgeld should approach and asked him to ask the person in the next cabin. When Morgeld knocked on the next cabin and introduced himself, the person inside asked him to go to the big cabin at the far end of the hall where the general manager (GM) of the 163
  • 160. Organizational Behavior company sat. Morgeld went to the GM and introduced himself. The GM looked irritated on being disturbed by Morgeld. When Morgeld stated his reason for being there, the GM directed Morgeld to approach the production manager, Shashank Ray (Ray). When Morgeld went to meet Ray whose office was on another floor in the same building, Ray’s secretary took the appointment letter from him and told him that Ray was busy in a meeting with some important guest. The secretary asked him to sit in the reception till he was called. After two hours, Morgeld was called in. Ray saw Morgeld and he also laughed for a few minutes and told him to come to office dressed in casuals. Ray told Morgeld he had another urgent appointment and asked him to meet his colleague Dheeraj Patel (Patel) who would instruct him regarding the work he would have to do. Patel’s appraisal was done recently and he was given grade ‘D.’ He was not given any increment. Patel told all the possible negative points about the workplace to Morgeld and asked him to leave the place as quickly as possible to have a better career. Patel also warned him not to be seen interacting with other employees during office hours as it was an unwritten rule in the organization that no employee should be caught socializing during office hours. Patel then told Morgeld that he had some urgent work and left. It was one o’clock and no one seemed to leave for lunch. Morgeld waited and waited. Then at three o’clock, the office boy came with tea. When Morgeld asked him where he should go to have his lunch, the office boy told him that lunch was available in the office canteen between 12 to 2.30 pm and at three o’clock in the afternoon, he cannot expect to get anything but coffee and tea in the canteen. On the very first day of his joining the new office, Morgeld returned home hungry and sad. Situation B Morgeld had completed two years of working at Akay. He was always constantly instructed and closely monitored by his team leader, Sadgun Chari (Chari). Morgeld was never allowed to take any decision on his own. After two years, for the first time, he was given a very important task by Chari. Chari told Morgeld that he would not be able to guide him because he had several other projects on hand. Morgeld felt very happy. But Chari told him, “If you can do this task, you can be sure of a promotion this year, but if you can’t, I can’t even assure you of your job.” Hearing this, Morgeld felt highly pressurized. He was suddenly given a very important task and Chari was not ready to offer help. He prayed to God and began to work on it. He put his heart and soul in it. He worked 14 hours a day. Sometimes he spent sleepless nights. However, he finished the task successfully on time. He went to office and found that Chari was on leave. He remembered what Chari had said when he had handed him the project. Chari had cautioned Morgeld that if he couldn’t finish the project by the due date, it would put their boss, Ray, in a difficult position since he was answerable to the head office. Therefore, Morgeld went to Ray’s cabin since Chari was on leave. Ray looked at him with a puzzled look on his face. Morgeld drew his own interpretation of the expression on Ray’s face and thought inwardly, “I guess he is thinking – Why did he come directly to my cabin?” Ray asked Morgeld “Where is Chari?” Morgeld replied, “He is on leave, Sir. Hence I came to submit this file to you. Chari told me that it is urgent.” Ray looked at the file and told Morgeld, “You keep it with you. After Chari comes, he will have a look at it and then forward it to me.” Morgeld said, “But, Sir, it is urgent, I believe.” Ray got irritated and said, “I know that. You take this file back and start with the next task which is more urgent, OK?” Morgeld came out of Ray’s cabin in no mood to take up the next task.164
  • 161. Employee Satisfaction – An Outcome of Motivated Workforce Questions for Discussion: 1. “The first impression is the best impression,” What kind of impression did Morgeld get about his organization? Would this be good for the company? 2. In Situation A and B, Morgeld was demotivated in many ways. Comment on the urgency of the task given to Morgeld and the way he was treated upon completion of the task. What was the impact of the work environment on his morale?CASELET 3 When Manisha Sharma’s (Manisha) uncle, Hariprakash Sharma (Hariprakash), visited her at work in Modern Technologies (Modern), he was pleasantly surprised and amazed to see his niece working leisurely under a tree in the company’s sprawling garden. Later, over a cup of coffee in the company cafeteria, Hariprakash asked Manisha how the company allowed its employees to be away from their desks. “Doesn’t this affect employee productivity?” he asked. Smiling at her uncle’s amazement, Manisha explained, “My company believes in providing its employees with the flexibility of working in an ideal environment rather than imposing restrictions upon them regarding the place of work. The company’s effort towards creating a relaxed work environment has helped it in more than one way. It has resulted in developing a motivated and highly productive workforce. In fact the company is rated among the top three companies in the country for the fifth consecutive year, with regard to work culture and quality of work life.” Manisha went on to elaborate, “In fact, like Modern, there are many other companies that also believe in providing their employees with an ideal work environment. These efforts are made to help employees cope with the stress associated with working on time-bound projects. Modern aims at creating a stress-free work environment. It does this by providing its employees with natural surroundings in which to work and with facilities such as a hygienically maintained cafeteria, a well-equipped gymnasium, tennis grounds, and a golf course.” Hariprakash listened to Manisha keenly. As they walked past the golf course, Hariprakash wondered aloud whether such strategies really worked. Manisha clarified his doubt stating that Modern was among the very few companies that had performed well during the last few years despite the economic recession. The conversation between Manisha and Hariprakash revealed that Modern implemented many such strategies to nurture a motivated workforce. It offered facilities like telecommuting, flextime, and a holiday on completion of every six-week project schedule. All these were a part of the company’s HR policy. Besides, the company provided excellent growth opportunities for exceptional performers. It had exclusive employee development plans that helped its members progress through the career ladder. In addition to all this, the high salary structure in the organization enhanced employee loyalty and motivated them to attain organizational goals. The enhanced commitment and loyalty towards the organization resulted in bringing down the attrition rate to a considerable extent. Hariprakash could now comprehend how the company benefited from its various strategies to provide its employees with a congenial work environment. “These efforts of Modern to provide a people-friendly work environment,” agreed Hariprakash, “helped retain the invaluable assets of the company – the people.” 165
  • 162. Organizational Behavior Questions for Discussion: 1. “The modern corporate world has redefined the rules of work efficiency and aims at employee wellness, in order to obtain maximum productivity from its employees.” In the context of the present case, discuss the various measures taken by organizations to enhance employee productivity by catering to employee wellness. 2. Organizations have introduced alternative work schedules to help their employees tackle work-related stress, thereby increasing their productivity. Describe the various alternative work schedules that help increase employee productivity. © ICFAI Center for Management Research. All rights reserved.166
  • 163. Needs Drive PerformanceCASELET 1 Milan Khanna (Khanna), HR manager of the GK Group of Industries, found himself in a pensive mood after studying the annual HR report. The report had serious implications not only for his job but for the company as well. The annual attrition rate had grown by 18% during the preceding year, taking the present employee turnover to a glaring 33%. Most of the talented workforce was leaving the organization for better offers in the industry. Some of them were leaving even when the new pay was not as good as that in this company. This was the trend despite the GK Group being considered one of the best pay-masters in the industry. Moreover, during the previous financial year, the company had given liberal incentives in the form of bonuses to its exceptional performers. The GK Group began as a software firm and later diversified its operations into biotechnology and bioinformatics. Its employees were highly talented knowledge workers and were motivated by their jobs and the various opportunities that their job promised to offer. However, a review of the exit interviews conducted during the past three years revealed a striking fact about employee motivation – “Merely increasing the pay and doling out incentives have only a marginal value as there are many other companies to match your offer.” The exit interviews also revealed that efficient employees left the organization seeking greater responsibilities, accountability and empowerment. Lack of personal and professional growth opportunities in the organization prompted people to quit and search for greener pastures. The lack of opportunities for learning and growth in the organization, along with little or no attempts towards employee empowerment proved to be some of the prime reasons for the high attrition rate at the GK Group. In the light of these facts, Khanna came up with a new strategy to contain the rate of attrition in the company. His strategy was aimed at understanding the complexity of employee needs and evaluating them. The management charted out a career growth plan for each of its employees for an average period of three years, with the objective of developing the overall personality of every organizational member. The plan also included defining performance benchmarks so as to establish a correlation between expected and actual employee performance. The employees were to be appraised of their performance at the end of every six months in relation to these benchmarks so that they could correct any deviation from the established standards. The strategy proposed by Khanna aimed at creating a win-win situation for both the individual members as well as the organization. Therefore, attempts were made to correlate individual goals and organizational objectives. Recognizing the importance of skill upgradation and employee empowerment, the management decided to promote personality development and learning of employees through well established training facilities. These measures aimed to empower and retain within the organization, the human capital and talent, which form the most crucial factors in the success of any knowledge enterprise. When the GK Group implemented this strategy in the years that followed, it received wide acceptance and also brought in the desired results of motivating, empowering and retaining the workforce in the organization.
  • 164. Organizational Behavior Questions for Discussion: 1. “Merely increasing the pay and doling out incentives have only a marginal value as there are many other companies to match your offer.” Substantiate this statement by describing the various other means of motivating and retaining the workforce in an organization. 2. Discuss the various challenges faced by HR managers in modern organizations and outline the measures they can initiate to cater to the ever-changing needs of employees.CASELET 2 Neha Kapoor (Kapoor) and Tina Menon (Menon) were excited about their first job offer from a leading multinational company, Meridian Business Solutions (Meridian). Meridian, a UK-based consultancy, offered business development and improvement solutions to organizations in a wide range of industries. Kapoor and Menon had just passed out from a prestigious business school with a masters degree in business administration. Both were bright students and Menon had been a topper all through in college. As students, Kapoor and Menon had always dreamt of working for a multinational company like Meridian. Their dream finally came true when they received a call from Meridian. Having topped the written test and the personal interview, both were offered the position of business development executives in the company. Their job responsibility was to tap potential clients from the corporate world. This seemed to be an ideal break for them as they were keen on getting a job that offered wide exposure to the business environment. The job was a challenging one that provided adequate opportunities for valuable corporate experience. Besides, the compensation offered was also at par with the best in the industry. The first few months at Meridian were a learning experience for both of them. Kapoor and Menon were extremely enthusiastic about their jobs. The company had given them adequate training and reasonable autonomy to perform their job. They soon began handling clients independently. They were involved in getting new clients and were also responsible for maintaining smooth relationships with them. Both of them reported to the regional sales manager, Nitish Bajaj (Bajaj). Of the two, Bajaj was more impressed with Menon’s performance. Within a couple of months of joining the company, Menon had obtained and closed a deal with a very high profile client. Business with this client was expected to rake in huge profits for the company. In a party organized in the company to celebrate the occasion, Bajaj announced a cash award for Menon in appreciation of her commitment and dedication to the job. This served to reinforce Menon’s motivation and made her strive even harder to better her performance. After both of them had completed a year of working in the company, the time for their performance review came up. The company had a yearly performance appraisal system which rated employees on the basis of their performance throughout the year. Based on these ratings, the employees were paid hefty performance bonuses that served as effective motivators for its employees. However, the yearly performance appraisal brought with it a rather unpleasant surprise for Menon. Menon had hoped to receive a handsome bonus as an outcome of her performance review. She was aware that she would be appraised by Bajaj who had expressed appreciation for her good performance and announced a cash award for her within a few months of her joining the company. Meridian, however, did not have a transparent policy regarding appraisals and remuneration paid to employees. So, the168
  • 165. Needs Drive Performanceoutcome of the appraisal was not immediately known to anyone but the employeesthemselves. It was only in course of time that details about the rewards could begathered informally. In Menon’s case too, it took a while for her to know the outcomeof her colleague, Kapoor’s appraisal. And what she heard shocked her. Kapoor hadbeen given a bonus much higher than what she had been given. It came as a surprisenot only to Menon, but to the rest of the employees as well that Kapoor had been ratedhigher than Menon, since everyone in the company knew that Menon was better at thejob than Kapoor. The performance bonus thus, served as a demotivating factor forMenon as she began to feel that she deserved much more than what she had got andthat her performance certainly did not call for receiving a lower bonus than Kapoor.Menon’s demotivation was evident from her subsequent performance on the job. Shestopped working as enthusiastically as she did earlier and was content with doing justthe bare minimum required for her job. This change in attitude took place as sheobviously felt that there was no point working so hard when she wasn’t beingrecognized for doing a good job. On comparing the efforts she had put into the job andthe reward she had received, with the efforts put in by Kapoor and the reward given toher, Menon began to perceive an inequity in the way employees were rewarded atMeridian. Since she was being paid less than her expectations, she decided to put inless effort so as to bring about a perceived equity of pay between Kapoor and herself.Consequently, Menon’s productivity level deteriorated and, in turn, it affected theperformance and profitability of the organization. Thus, Menon’s negative attituderesulted in negative implications for the organization. Also, this frustration at the jobmade Menon look around for new jobs.Questions for Discussion:1. The annual performance review had a demotivating effect on Tina Menon. Briefly discuss the motivational theory that best describes Menon’s response to the appraisal.2. Based on the equity theory, explain in what other ways Menon could have reacted to the outcome of the performance appraisal?© ICFAI Center for Management Research. All rights reserved. 169
  • 166. Employee Participation, Organization Structure and Decision MakingCASELET 1 It was the first meeting that was being convened by Raj Malhotra (Malhotra), the new branch manager of the Tirupur branch of KNB Bank, a growing private sector bank. In comparison to other branches, the Tirupur branch had performed badly ever since its inception seven years ago, and Malhotra being young and enthusiastic, was determined to bring about a dramatic improvement in its performance. The meeting was the first such in the history of the branch as it involved the participation of all the employees of the branch, not just to welcome their new manager, but also to make certain crucial decisions that would result in enhancing the branch’s performance. The assistant manager, Abhiram Krishna (Krishna), had made all the arrangements for the meeting which commenced with Malhotra thanking everyone present for the warm welcome he was given on taking charge. After a brief mention of the various posts and responsibilities he had held till then in his career, Malhotra described the bank’s foray into the insurance sector and pointed out the additional responsibility that every employee of the bank had, to make this diversification a success. Malhotra then emphasized the targets that had to be achieved by the branch for that financial year, both in its regular products as well as in insurance. With the opening up of the insurance sector in India, a majority of the private sector banks began to show keen interest in entering the sector by forming joint ventures with established insurance companies. KNB Bank too entered into a joint venture with Secure Insurance Services, a UK-based insurance company, to sell life insurance products to Indian customers. All the branch offices of KNB Bank were instructed by the corporate office to promote the sales of insurance products along with the regular bank products such as loans, fixed deposits, safety bonds, credit cards and various types of accounts. Malhotra invited suggestions from all employees to improve the branch’s performance and achieve the annual target for that year. However, there was very little participation from the employees, despite Malhotra making repeated requests to them to fearlessly voice their opinions. Having received no substantial inputs from his subordinates, Malhotra then presented his plan of action to the employees in a meeting. Of the various measures put forth by Malhotra to enhance sales, there was enforcement of sales targets even for employees dealing with routine banking operations such as cash transactions, generation of demand drafts, opening of new accounts and handling of customer queries. Although this was unacceptable to the employees, none of them voiced their objection even when Malhotra asked for their opinion. The meeting then concluded after a few more strategies to improve the branch sales were discussed. The next day, one of the senior employees, Anand Trivedi (Trivedi), approached Krishna, with a document in hand. Krishna, who was busy preparing the monthly reports for the bank, glanced up, and seeing the document in Trivedi’s hand, asked what it was about. Trivedi replied that it was a representation from the employees. Krishna immediately stopped what he was doing and reached for the document. In their representation, the employees requested the management not to impose sales targets on them. They justified their protest by stating that it would be extremely stressful for them to concentrate both on processing routine transactions and on
  • 167. Employee Participation, Organization Structure… enhancing sales of the bank’s products and services. They claimed that of late, the number of transactions had increased tremendously. Krishna was visibly irritated after he read the representation and asked Trivedi why the employees had not opposed the decision during the meeting itself. Trivedi replied that while the meeting was in progress, each employee had thought that he would be the only one to oppose it and had hesitated to voice his opposition for fear of antagonizing the management. It was only after the meeting was over and the employees could discuss the matter with each other that they realized that everyone was equally opposed to the decision. Krishna assured Trivedi that although it was not possible for him to promise anything, he would certainly make all efforts possible to make the management reconsider the action plan. Questions for Discussion: 1. Raj Malhotra encouraged employee participation in the decision-making process of his branch. What is this type of decision-making known as? Also discuss the possible benefits of employee participation in decision-making. 2. During the meeting, all the employees gave their assent to Malhotra’s proposal for a new action plan. However, soon after the meeting, they forwarded a written appeal asking the management to reconsider the action plan. What, in your opinion, made the employees behave in this manner? What is this phenomenon known as? What are the characteristic features of such a phenomenon?CASELET 2 Ashrita Airlines (Ashrita), a Mumbai-based company, operated flights to all the Asian countries. In all these countries, Ashrita had subsidiaries which offered Airport Terminal Services. The services included traffic control, cargo services, security services and catering (for staff and passengers). The subsidiary in each country was headed by a country manager who enjoyed a great degree of freedom and could take decisions without having to consult the headquarters. The organization structure at Ashrita was flat in nature. Under the CEO, there were country managers. Under country managers, there were functional managers. All functional executives reported to the respective functional managers. For example, finance executives reported to finance manager and sales executives reported to sales manager. Ashrita rotated its employees across different jobs to help them acquire cross- functional expertise. But the policy of job rotation did not apply to specialists such as engineers and technicians. Ashrita’s country manager in India, Ajay Arora (Arora), focused on improving the efficiency of the organization’s terminal services. Arora paid close attention even to minute details of the company’s operations. He ensured that the food served on flight conformed to the customers’ tastes and preferences, and that the passengers’ luggage was transferred from the flight to the luggage room within minutes and they did not have to wait for more than 10 minutes for their luggage. If any customer reported any problem in dealing with any employee at Ashrita, Arora immediately took action in the matter. He called the employee who had interacted with the customer and brought to his notice the customer’s complaint about his service. Arora also pointed out to the employee that if one customer left Ashrita, it meant a loss of business for the company. He emphasized the fact that