CONSUMERS IN RECESSION

Management guru Arindam Chaudhuri’s latest blockbuster book, Discover The Diamond In You

The slowdown has not just blown away the bank balance of big corporate houses but also given a new definition to consumerism, says Naresh Gupta, EVP, Strategic Planning, Publicis India

Recession is the cyclone that has blown away the existing structures, markers and pathfinders. It has reorganised the landscape and consumers have been forced to reorganise their lives. As it happens, while adapting to a new stimulus, people give up a few of their old ways, and learn some new tricks. What has made this effort even more challenging is the fact that there are no previous experiences to fall back on. So we are seeing some major changes in behavior, which will have deeper impact in future, and some changes that are temporary and consumers may give it up, once the threat is over. Here are a few things that consumers are giving up. These are five behavioral trends that are driving our lives today.

Caution is in, optimism is out: India has been among the world’s most optimistic country. We have seen economic growth like never before, and future has never seemed as bright as it has in the past decade. This has lead to a constant search for new pleasures, new experiences and new beliefs. Category after category has been benefited with this optimism that the we have displayed. However, this optimism today is guarded. We are cautious, waiting and keenly watching what the future will bring. All in all, we have pressed the pause button. Thus, optimism is on hold.

Impulse is out, making choices is in: The shopping list has been trimmed down to what is needed. We are making hard choices, evaluating what we need to buy, and not buying whatever we may not need. Just a year ago we would not have blinked an eye and bought that car, Plasma or taken that foreign holiday. As we are relearning the paradox of choice, we are making choices.

EMI is out, MI is in: We had stopped buying a house, or a car or that home theatre system. We only bought the EMI. We always stretched ourselves to buy the bigger house, better car or powerful theatre system. The credit card was the currency and possession was the symbol. Recession has forced us to give up EMI, pack our credit cards, and learn to be frugal. What we look at is Monthly Income, and monthly savings. EMI has moved on to MI (monthly income).

Regular is out, bargain is in: Today’s shopping is all about bargains. Retailers are packing in freebies to lure the shoppers back to turnstiles. Movie tickets get you free popcorns, two shirts get you two more, cars get you free insurance, homes get you loan holidays. This has turned regular shoppers into bargain hunters. MRP now has no value; bargains are what drive the choice matrix. Will we now ever bother to check MRP? Image is out, image is in: Image has been a big driver of our lives. We have always wanted to display our success, progress and prosperity.

Recession or no recession, we will continue to display our progress and prosperity. If Image yesterday was displayed by ostentatious consumption, today it is displayed with being responsive and being caring. Image will continue to drive us beyond recession...

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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THE LETHAL TERMINATOR

Shin’s visit to some villages is paying huge dividends for LG today. Here, he gives a few strategies that helped LG stay ahead

In May 2009, Moon Bum Shin, Managing Director, LG India visited a couple of villages in far flung areas. He wanted to get a handle on the needs and demands of the rural consumer so that LG could adapt their product portfolio accordingly. The result of that tiring yet illuminating journey is now ready. The Korean consumer durable behemoth is all set to roll out a 50-litre refrigerator (by the festive season) based on the insights that Moon Bum Shin gained during his rural sojourn. Wondering why we are telling you their future plans instead of throwing light on their strategies during the last year to beat the slowdown. Well, that’s because Shin and co. have followed a similar ‘insightful’ strategy even amidst the difficult times.

Ask Shin and pat comes the reply, “As an organisation we were well prepared for the slowdown. So we focused heavily on launching insight-based products and named them ‘Stars of India’, which captured the needs of the Indian consumers.” The head honcho of LG India goes on to elaborate the three-pronged strategy of LG during the slowdown months. The first, of course, was focus on product innovation. LG has injected investments worth Rs.60 crore in R&D over the last one year. Besides, the company also launched a strong retail drive, working hard on giving face lifts to all its retail stores. Not only that, LG’s corporate team went all out on imparting ‘product demonstration’ training to all its store employees. The bid was to equip them to better handle consumers. Explains Shin: “The revamp cost for retail stores was not high. But we spent huge money on training manpower. The aim was to effectively channlise our resources into brand building.”

The third strategy that LG adopted was to expand its marketing focus from merely urban to India’s vast rural markets, a move that increased their marketing spends by at least 10% during the year. Avers Shin, “We have leveraged cricket as a property very well during the last year with our ‘Lead XI’ campaign during the Twenty20 World Cup, where LG was the official sponsor. That association really helped us,” explains Shin. Not only this, the consumer durable major specifically targeted public sector employees as their target audience in the latter half of 2008, primarily wishing to cash in on the 6th Pay Commission largesse. These master moves have paid huge dividends for LG in the form of a smashing 18% growth in the first three months of 2009, much higher than other competitors in the segment.

Given the success of LG’s new rural strategy, honchos at the Korean major’s corporate headquarters are now aiming at about 40% sales contribution from rural markets in coming times. In the calendar year 2008, the company posted a turnover of Rs.10,730 crore. But now, LG has tightened its belt to increase that figure by 25% and take it to a mouth-watering Rs.13,000 crore by end 2009.

Did anyone ever really tell them about a slowdown?!

Neha Saraiya

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Where life after death matters...

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Easy claim process and quick turnaround time brings customers close to LIC

“Morning yoga is a must for me. It not only keeps me healthy, but also provides me strength and concentration to carry on with my day long tiring work schedule,” says Purnendu Ray, one of the prominent agents of Life Insurance Corporation of India (LIC) based in Bhubaneswar (Orissa). And this keeps him as enthusiastic and energetic as he was looking when we met him in his office. He shared with us that at times his job becomes real tough for the fact that it’s tough to make people understand as to why they need to insure themselves in the first place. They just consider it as a tax saving mode. “So it’s on agents like us to explain to them all the details, and benefits associated with various life insurance policies.” However, he admits the fact that the name of LIC itself creates an environment of faith. “It makes our clients listen to us and believe what we say.”

While sipping his coffee, Purnendu revealed the secret of LIC’s success. “Easy claim process and quick turnaround time does the job for LIC.” Brand loyalty of customers is also a fact or that keeps LIC going. “There are clients who are associated with LIC for over two decades now. The reason is our service and our commitment to help our clients whenever they need us,” avers Purnendu.

When we were leaving Purnendu’s office he was preparing to meet 63-year-old Madhusudan Sutara, a client of LIC since early 90s. Now that’s called brand loyalty, what say?

Subrat Dash

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).


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‘Surprisingly SBI’ pleasantly surprises peers!

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Brand : SBI
Agency: O&M

SBI, shedding its conservative approach came as a pleasant surprise! A pinch of salt, a jot of honey and, of course, a lot of fizz was what the ‘Surprisingly SBI’ campaign designed by O&M added to the otherwise humdrum personality of this good ol’ man of Indian banking. In fact, the public sector banking behemoth, which was losing out to private banks’ hard line ‘aggressive’ marketing strategies, suddenly got charged up with this advertising campaign launched in 2005. The campaign that starred some poor chaps being taken for a ride by their friends by betting on some interesting but unfamiliar facts about SBI, definitely reached out to younger people for SBI. Even the deposits, which seemed to be stagnating, all of a sudden got stimulated and reached a total of $83.91-billion mark by the end of 2005 from just $72.88 billion in 2004. And by the time others started hunting for new tactics, SBI had already taken a lead!

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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1. Fevicol’s ad campaign
2. Hutch’s ‘Where ever you go, our netowrk follows’ campaign
3. ‘When barriers break’ campaign from Airtel

4. Nirma washing powder’s ad campaign
5. Pepsi’s ‘Nothing official about it’ campaign

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Go bite this ‘Apple’

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It was long due for Microsoft to pursue an aggressive marketing strategy in response to the direct attacks from Apple in the past. Will it hurt Apple?

After the Starbucks and Dunkin’ Donuts’ coffee combat and the recent Mountain Dew and Vault’s battle, it’s now the turn of the two techies – Microsoft and Apple, to get back in the ring after two years to wrestle it out for a fatter market share. Undoubtedly, the former is a much bigger player amongst the two but there is no denying that Apple has been giving nightmares to Microsoft for almost a decade now.

Microsoft has come up with two TV commercials explaining why it makes more sense to buy a normal PC during these recessionary times, rather than opting for Apple’s Mac, which is more expensive than its competition. It may have a direct impact on Apple’s top lines. Well, it was long due for Microsoft to pursue an aggessive marketing and advertising strategy in response to months and years of marketing attacks on it. Apple’s ‘Mac vs. PC’ commercial is one of the classic examples of its aggressive attacks on Microsoft in the past.

Apple has had nearly an uncontested run at Microsoft’s market share for almost a decade. Microsoft is now contesting and may hamper Apple’s ability to grow its share, provided Microsoft executes this well. Experts have claimed many times that Apple can be a threat to Microsoft’s top position but the long-awaited Microsoft’s reply has reinforced the fact that Apple is undoubtedly Microsoft’s biggest competitor. A US-based technology expert feels, “There has been a brand battle between the two companies and that is intensifying with Apple’s increasing success. Microsoft is obviously the larger player among the two, but it needs to protect its business.”

As far as the effect of the campaign is concerned, it will depend on content accuracy, volume and tone of the commercials. Apple’s campaign succeeded because it used humour to highlight some real operational problems in Microsoft products. “Microsoft will succeed if it addresses the problems highlighted by Apple and at the same time points out some inherent problems in Apple’s product,” says Richard L. Ptak, Managing Partner, Ptak, Noel & Associates.

However, experts fear that the strategy may backfire at Microsoft. The commercials showcase Mac which may give free publicity to Apple. Well, it will be very interesting to see how Apple responds to it. But the road isn’t that smooth here, as Rob Enderle, Principal Analyst, The Enderle Group states “With Steve Jobs on the bench, Apple’s ability to respond to this is more limited than it has been for over a decade and that too will help Microsoft avoid any backlash.”

But there is no denying of the fact that Microsoft has got this one right and timely, which may bring some serious hiccups in Apple’s so far uninterrupted growth path. But if Apple manages to come up with yet another campaign like the first one (Mac Vs Pc), it will not take much time for tables to turn against Microsoft. Ballmer may again have to go back to knock at Crispin Porter + Bogusky’s door (Microsoft’s ad agency for the latest campaign) to get them another campaign aiming at Apple. Well! Whosoever be the winner of this battle, it will be an interesting one to watch.

Pawan Chabra

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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“Mistakes are made by all...”

Why has IIPM always been opposed to B-school rankings?

Though last quarter saw Vishal Retail taking a huge hit in profitability, it’s still not ready to bow down to the slowdown heat. But then, how? The Group President answers...

4Ps B&M: Have you scrapped the expansion plans of Vishal Retail given that the company’s profitability has been badly hit?
AK: We haven’t scrapped the plans, but have paused them for the time being. Our main concern at present is to improve our same store sales growth and also the company’s financial health. We have been growing at 100% y-o-y. In fact in 2008, Vishal Retail achieved a turnover of Rs.10 billion and we hope to take that number to Rs.14 billion this fiscal. However, we are facing a little problem on the personnel front. We had increased our hiring in the last quarter, because of which our employee cost had gone up tremendously. But, as of now, we are in the process of rationalising our employee strength and shedding off the excess flab.

4Ps B&M: What were the main reasons behind the whopping 86% fall in December profits?
AK: Our main sales in winters come from North India. But this year, the weather conditions were such that there was no winter. Moreover, we do not anticipate good results in the coming quarter too. We have a huge inventory pile up for the season and we’re determined to sell it off, even if it means selling at low prices to avoid handling and maintenance costs.

4Ps B&M: What’s the rationale behind centralising your warehouses?
AK: In our endeavour to consolidate our back-end operations, we have brought all our 22 warehouses across north, east, west and south under one zone. At one time, we had warehouses covering 1.2 million sq. ft., but now we have consolidated our operations under 4-5 warehouses spread over just 0.4 million sq. ft. This step will not only help in consolidating our supply chain management, increasing our operating efficiency and reducing costs, but also keep an eye on pilferage. In the bargain, we are even resorting to reverse logistics and have converted our cost-centres to revenue-centres.

4Ps B&M: What strategies are you adopting to induce the customer to buy from your stores?
AK: We are rationalising our SKUs and revising our price points. The prices at which we offer our products are the lowest in the industry and yet our quality is no less than any branded product. We are aggressively pricing our products to attract customers to our showrooms. When customers will come to our stores, we will introduce them to our private labels. Once a certain amount of confidence is generated among customers for our private labels, our sales will touch the sky and give a much required boost to our bottomlines. Moreover, as the awareness about our products increases, it will be easy for us to sell through distributors.

4Ps B&M: Any plans to tie up with local kirana stores?
AK: There is no such plan as of now. Currently our focus is on improving the same store sales growth. Rumours of our tie-up with kirana stores are doing the rounds in the market, but there is nothing in the pipeline as of now.

4Ps B&M: Are you in talks with banks to lower the interest rate on your debt?
AK: Vishal Retail has currently Rs.7.5 billion debt at 13-13.5% interest rate. We are in talks with banks to reduce the rate of interest and they’ve been quite positive so far. In fact, few banks have even assured us that they would drastically slash the interest rate.

4Ps B&M: Efforts by you are on to re-size and relocate your retail stores. Why such re-organising?
AK: There is nothing wrong in re-organising our retail set-up. Most of the other retailers are also doing the same. If by re-sizing or relocating the stores, we can improve our per sq. ft. return, then I would say it is a very wise decision. Mistakes are made by all and the need of the hour is to correct those mistakes. And we’re just doing that.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Alive and trying to kick their real (e)state of mind!

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Real estate companies in India have failed to understand the magic of branding... Niharika Patra talks how this will bring heartaches, now and tomorrow!

So what’s a brand? Well, if you ask the renowned business innovator and author Stephen Sapiro, he’d probably shoot back – “No, it is not Nike’s ‘swoosh’. It is not McDonald’s ‘I’m Lovin’ It’ jingle. It is not Accenture’s Tiger Woods ads. It is not the design of my website or my ‘Unconventional Thinking’ tag line.” Well, he’d perhaps speak every word in the dictionary explaining what a brand isn’t, but does that answer your original question? Not really! Now to talk about Erik Hansen, Tom Peters’ brand manager. As he says, “[A brand is] what your customers say it is...” Well, that pretty much sums up our argument here – what the customers say it is... But there’s one community of traders that don’t appear very convinced by the power of the judgmental customers – the Indian realtors, whose lot needs to understand why branding in itself is critical to their existence. And if there are a few who do, they just don’t get the fact that one must use branding as a tool to ‘sell’ products, rather than waste resources in demonstrating that they’re still alive and trying to kick!

Loaded with attitude and being part of a market which is still largely unorganised, the real estate companies have failed to understand the true value of branding. What else could be expected from a sector where a majority of players do not believe in marketing themselves through means other than just word-of-mouth.

The basic problem is these players actually lack the foresight to understand the strong benefits associated with advertising. Well, of course we are not arguing about their lack of the microeconomics here (read ‘Advertising Elasticity of Demand’) but any sensible management rule defines marketing as an act that pronounces merits galore! Especially, at a time when global realty market is reeling under the weight of the financial slowdown, the large players should understand that branding is of utmost importance, especially when there are negative sentiments floating in the market; and thus their falling sales! Earlier dependent on just print media and supplements, thankfully some big names have started using media vehicles like sponsorship in cricket to build up on their lost images. DLF for example, has sponsored the DLF Indian Premier League T20, Tri Series and the UAE Cup and Emaar MGF tied-up with international cricketing events.

But despite the fact that of late, a few like DLF, Omaxe, Parsvnath, Unitech et al, have switched over to other non-traditional means of marketing, the basic problem lives on – i.e., customers even today find a mismatch in their branding promises and the products they deliver. Worse, the Indian reality market still can boast of numerous other players, who have failed to even recognise this fact. Even premium property sellers are not relying much on branding as a means to reach their costumers. Says Samarth Bedi, V-P, O&M, Mumbai to 4PsB&M, “Brands and branding do matter in whichever industry you go. And real estate is no exception. But the brand should communicate values and ethics behind it and marketing should not be used as a means to just talk about discounts (which most real estate companies actually do).” The importance of branding increases even more during the current crisis. Real estate has been badly hit by the slowdown. Reports suggest that the worst is yet to come for the sector as demand is expected to fall further. Fitch ratings predicts that the real estate market in India will continue to remain in the negative outlook zone for the whole of 2009, and only in the first part of 2010 would we see some recovery. Prices have already fallen and with supply exceeding demand by miles, housing prices will only get better for the consumers (the mid-segment has already seen a 10-15% fall while the upper segment has seen as much as 80% fall). In such a scenario, branding becomes even more significant. Says Pradeep Kumar Jain, Executive Chairman, Parsvanth Builders to 4PsB&M, “Branding helps reinstate customers’ confidence in real estate developers, more so in times of recession, when customers are skeptical in parking huge money.”

All said and done, it becomes clear that branding is important and does help improve sales. But the problem with real estate companies in India is that they are small in size and marketing is still at a very nascent stage. Unlike their Western counterparts, Indian companies don’t talk about any core value. Says Bedi, “There is no clear message that realty companies communicate to consumers through their ads.” For now, the realtors are showing real symptoms of ‘ambiguous marketing’, something that is as fatal as jumping off the 9th level of one of their tall structures. So there’s our verdict, – they’re alive, and they’re trying to kick, but how long...?!

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Honey, is there a problem?

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In a market characteriszed by a progressive consumer and rising income, broadband service has not been a particular success. 4Ps B&M’s Surbhi Chawla finds out why..

There are plans and there are visions. While the former involves the laying down of foundations for experiments to materialise, the latter envisages the ultimate culmination of the entire cycle of events. The government’s directive to achieve 20 million broadband subscribers by 2010 is an instance where the ‘plan’ fell short of the ‘vision’. According to a report by E&Y and CII titled ‘India 2012 Telecom growth continues’ in 2007 (termed as the year of broadband) there were only 3.1 million broadband subscribers, increasing to 5.8 million by the end of 2008. Going by the current growth rates, it is expected that there would be only 14 million broadband subscribers by 2010, missing the target by 6 million! In contrast mobile services are growing at a much faster rate, adding 15.41 million subscribers in January 2009 alone. As a result, takers for internet services are rising faster in the mobile segment than are for broadband services. “In India mobile broadband would be more popular,” informs T Ramachandaran, DG, COAI. In an evolving society, even though such anomalies can be attributed to consumer preferences, the reason behind the failure of a cheaper service vis-a-vis an expensive alternative is still unexplainable.

“There is no denying about the potential of broadband in India, the problem is that we do not have any infrastructure and it would be futile to advertise when you can’t deliver,” informs an insider from Reliance Communications (RCOM). This fact can be well-illustrated by looking at the definition of broadband. Broadband is defined as an ‘always on’ data connection that is able to support interactive services, including internet access and has the capability of minimum download of 256 kilo bits per second (kbps) to an individual subscriber. In sharp contrast to its capability, the Indian version delivers only 100 kbps. Also there are no real content that is available to the Indian users.

Even if the logic pertaining to an increase in the consumer base holds true, it is hard to ignore the fact that it is actually not possible for the private sector companies to offer entire junket of broadband services in India. Despite the vast fibre optics that these operators have already laid, they still do not have the last mile covered. Additionally, these telecos require multiple permissions in order to dig and lay new fibre optic cables, a situation which is herculean if not impossible. The only player that has these end points covered is state-owned BSNL. In the year 2004, Telecom Regulatory Authority of India (TRAI) had recommended that the state provider should unbundle these local loops in order to give access to the private players, but to no avail. The other option for connecting the fibre optical end points could be the introduction of WiMax but there are indications about the auctions being held before March 31, 2009 and it would be only by the beginning of 2010 that it would be functional.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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“Currency futures have boosted commodity trading”

The Most Revolutionary Concept In Education PLANMAN CHE CENTRE FOR HIGHER EDUCATION, Supported by IIPM India’s Leading B-School

Impact of currency futures is felt immediately as the three national online exchanges surpassed a combined peak daily turnover of Rs.3,000 crore within four months

While accelerating the process of economic growth and development of nations, globalisation has also exposed stakeholders in international trade to risks associated with global events. The western economic turbulence is sending shivers across domestic markets, virtually worldwide, reflecting in high volatility in the prices of goods and services.

What soon dawned upon the major economies is the thought that derivative instruments are the answer to such risks while markets become transparent and efficient empowering stakeholders. As these instruments are capable of helping the stakeholders efficiently mitigate risks, the large economies are fast resorting to exchange-traded derivative markets.

In addition to its risk-managing capability, exchange-traded derivatives across asset classes have also proved to be a stabiliser of price volatility in developed markets. The process of ‘price discovery’ that happens through convergence of information coming from a large number of heterogeneous participants on the exchange effectively does the same. The Indian government too gave its go-ahead for futures trading in a range of commodities in the local markets in 2002. The entire domestic commodity derivatives ecosystem has grown organically at a phenomenal pace ever since.

Although commodity futures bestowed immense benefits to the economic stakeholders in India, with currency futures yet to get the government nod till late 2008 it remained inadequate for all the traders dealing in global commodities. Rising volatility in exchange rates hurt competitiveness of Indian exporters and importers in an increasingly cost-conscious international market. And in a scenario where currency risks crossed national borders rapidly, an Indian exporter, despite being cost-competitive, was at a risk because the local currency could appreciate sharply from the very time he signed the contract to when he received the payment. The only option left for exporters and importers was to hedge their currency risk by widely using inter-bank OTC markets even though they were costlier, inefficient, plagued by non-transparency, scale effect, homogeneity of players, and last but not the least limited accessibility. Moreover, as global commodities constitute the bulk (80%) of the turnover of the Indian derivatives market, it was necessary that the commodity players were allowed to participate to send out the rich information of the real sector they carried for the market to discover the right exchange rate. So, currency futures had become a must in India.

In such a scenario, the government’s permission to start currency futures in India last year was a welcome step in linking the financial sector with the real (read: commodities) sector of the economy. The long-felt vaccum of currency derivatives as a risk management tool got immediately reflected: the three national online exchanges surpassed a combined peak daily turnover of Rs.3,000 crore in January within four months of starting currency futures. And it is hoped that growing participation and turnover in exchange-traded currency futures would justify the long-felt demand for this instrument in India, especially commodity-based companies, importers, and exporters in the SME segment who were so far at the receiving end in the OTC markets. Taking the SME segment participants closer to the commodities ecosystem via these currency futures would not only connect the segment of the financial markets to the real sector but also help equitably deliver the benefits to all the players.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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WANTED: A SMALL HOME!

IIPM set to beat economic slowdown

Love is strange. Time was when real estate biggies hated thinking ‘small’; now love for all things small is their only priority...

Dissuaded by the steep rise in home loan interest rates over the last one year, theatre actor Gauri Srivastava had been putting off the decision to buy her dream home for months. Complicating her decision were the bloated price tags that accompanied property prices in the National Capital Region and her fervent hope that prices will come down sooner than later. But, her home is not a distant dream anymore. Hoping to benefit from the government’s recent announcement of concessions for new home loans below Rs.20 lakh, a rash of private developers are busy launching new projects to cash in on the demand for ‘affordable housing’. Locations for these affordable homes may be a little far-flung (in places like Greater Noida, Faridabad, Karjat, Panvel, Indore, Raigarh and Sonepat), but like Gauri, thousands of consumers are finally heaving a sigh of relief; relishing the thought of soon moving into their own ‘small’ nest!

Asserts Jaipal Reddy, Union Minister for Urban Development, “There is immense demand in the small and mid- housing segment.” Omaxe, BPTP and DLF are a few among the big league of realty players who have set their sight on this new value-for-money game. If National Affordable Housing and Infrastructure (NAFIL)–Omaxe’s subsidiary company– has plans for properties in the sub-10 lakh range in Panvel, Indore, et al; Omaxe itself is finalising homes in the Rs.25 lakh bracket in locations like Greater Noida. BPTP, on its part, claims to be getting great responses for its affordable housing projects in Faridabad that again fall in the sub-20 lakh category. Even DLF is fine tuning ideas to launch housing for the masses believing that that indeed is the future to look forward to for Indian realty.

Affirms Rohtas Goel, CMD, Omaxe Developers, “Affordable housing is emerging as the best option for the developers in the present scenario,” obviously referring to the dying demand for luxury homes and penthouses, given the prevailing liquidity crunch in the economy. A big hurdle however is that in some cases realtors bought land at very steep prices when the sector was at its peak. Converting these into affordable housing projects may not be so easy. Sachin Sandhir, MD, RICS avers, “This would require a change in mindset for the developers. High land cost has been a major obstacle constituting up to 35% of project cost. Building affordable housing on these will reduce margins and affect viability of projects.” A reason perhaps that most of these new affordable projects are taking off in relatively less-prime locations. Also since large parcels of land (required for mass housing) are located mostly on city peripheries, connectivity and infrastructure support are a potential constraint.

Despite all hiccups however, industry insiders believe that the affordable housing segment is all set to grow phenomenally from hereon. “While housing sector leads the pack among all the realty segments, we have a strong belief that affordable housing will witness the highest interest among the investors,” explains Goel. So get set to see the roll-out of many more small and mid-segment homes soon. Hopefully, they will turn out to be the silver lining amidst the dark clouds hovering over Indian realty... For now, ‘small’ is in, at least for Gauri and her ilk!

Pawan Chabra

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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NOW THAT’S A TOTALLY HATKE WAY TO CREATE A BRAND

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WHEN NARSIMHAN WAS TOLD TO THINK DIFFERENTLY ABOUT VIRGIN MOBILE, LITTLE DID HE KNOW THAT EVERYTHING ABOUT IT WOULD BE IN HATKE ISHTYLE

“Our first offering & the competition is already seeing red,” was what Prasad Narsimhan had to say about the dramatic launch of Virgin Mobile in India. The CMO of the company couldn’t have asked for a better launch pad for the brand. Yelling & shrieking its arrival (literally!), Virgin Mobile on March 10, 2008, took the readers of a leading Indian English daily by surprise, when all the headlines on the first page were in the colour ‘red.’ What’s more? The ad became the talk of the town when as a new telecom company, Virgin Mobile announced a truly whacky scheme of paying its subscribers for all the incoming calls that they receive. Virgin Mobile was quick to realise that the desi lads and lassies love to talk for hours on their mobile, but have limited pocket money for the same. “The response to this scheme (paying 10 paise for every 60 seconds of incoming calls on the Virgin Mobile phone) has been overwhelming,” avers Narsimhan. A truly clutter-breaking strategy for Virgin Mobile, as the Indian telecom market already has 4-5 well-established players in each circle.

After the initial attack on other telecom players, Virgin Mobile did not sit back, rather it continued its lethal assault. With a host of telecom players slugging it out, Virgin Mobile knew it would have to take a hatke route, and here’s when the seeds were sowed to launch a mobile brand that revolves around the youth. “When we came in, the market was very competitive and others (competitors) were targeting almost everyone. That gave us the opportunity to think that can we look at only a part of the segment and delight them, rather than appeasing all,” explains Narasimhan. So, from day one, Virgin Mobile’s strategy has been to be ‘relevant to the youth’ in everything that it does. Rajeev Raja, ex-ECD of Bates 141 (the agency that handles the Virgin Mobile account) shares, “The brief given to the agency was simple – to launch a mobile for the youth.” So Virgin Mobile, within a span of just two weeks after the launch, brought out two very catchy TV commercials that instantly caught the eyeballs of their target audience – the Gen Y.

The rationale behind targeting youngsters was that in India, youth constitute a large chunk of the population. The challenge was to create a sharp brand entity in the minds of this target group. As many as 1,000 scripts were made around the ‘Think hatke’ theme and only 2-3 got selected to be made into TVCs. And undoubtedly Virgin Mobile’s TVCs are standing testimony of how to ‘Think hatke.’ That’s not all. The TVCs were backed by equally well chalked out outdoor and online campaigns; the places chosen are quite a hit with the Gen Y. The idea was not only to promote Virgin Mobile at these venues, but to develop long-term relationship with the youth. “Rather than deploying a carpet bombing strategy, the idea is to be where the youth is, like college campuses, movie halls, et al,” avers Narsimhan. So far, Virgin Mobile has got the right set of ingredients to break the clutter. Nevertheless, with other operators spending huge chunks of money to promote their VAS services, it would be interesting to see what Virgin Mobile plans to offer as it calls out loud, ‘Watch out for me!’

Surbhi Chawla

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Who’s the real slim shady?

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Experts also opine that rather than critically affecting the industry, perchance the economic downturn has simply affected the unnecessary hype and hoopla that had previously surrounded Bollywood for the last few years. But Rakesh Sippy of Raksha Distributors provides a different spin altogether, saying films and actors in the current economic climate are in fact ‘right priced’ rather than being illogically overpriced, as they had been earlier. And he holds private corporations the accused for the previous overpricing. “Corporates were paying much more to actors than they actually deserved,” he puts forth, adding that when the going was good, the deals kept being signed, but when the going went bad, these corporations, for whom the movie business was ‘just another division in their company’, simply stopped investing to save money for their other divisions.

Interestingly, well entrenched film producer and director Mahesh Bhatt supports Sippy’s spin, “The recent architects of the new Bollywood, the corporate houses, relied more on share market funds to fund projects. Thus, the moment downturn struck – and markets went down – they are facing graver situation [than what traditional filmmakers are facing].” Due to this, industry veterans do forecast that some more projects could go on hold in coming few months. But another seasoned player, Shubho Shekhar Bhattacharjee, CEO of Planman Motion Pictures (producer of Mithya, The Last Lear...), disagrees and feels that most decisions to hold projects is not because of lack of funds. “It’s mostly panic driven. People have funds but because of the dampening of the mood in the industry, they are sitting on the funds and taking a cautious approach.”

It is a fact that theatrical revenues have taken a big hit in the past months. Statistically, here too one cannot plainly blame the slowdown, as a significant part of the downfall occurred during the weeks of the terror attacks (even during Raj Thackeray’s followers’ unlettered attacks or during other preceding blasts). As per Sanjay Mehta, arguably the biggest distributor in New Delhi, occupancies in the Delhi territory alone fell by 50% post each terror attack. In fact, even satellite revenues (which contribute up to 30% of gross collections) could be hit up to 50%. This is considerable given the fact that movies do consider satellite territories important. Consider this – Welcome got Rs. 12 crores and Singh is Kinng got Rs.16 crores by selling satellite rights. Moreover, satellite rights were sold pre-release for a lot of movies. The Aamir Khan starrer Ghajini’s satellite rights were sold in early 2008 for a whopping Rs. 22 crores. No such deals are happening now. Most of the recently released films like Dostana, Yuvraaj, Golmal Returns et al have not been able to bag a satellite deal yet. Planman Motion Pictures’ Bhattacharjee explains, “Even the satellite deals that are happening now are for very low prices. A movie, which would have earlier got a crore or two, is being sold for Rs.50-60 lakhs.” Renowned film producer Pritish Nandy adds, “The reason no satellite deal has happened for past two-three months is the absurdly low rates that the channels are putting up for the films. No filmmaker can afford to sell at those rates. The channels are going through a bad time with pressures on revenues from advertising.” And the result? Film producer Vipul Shah asserts to us, “I do feel that a family, which was watching almost five, even six films a month, will watch a maximum of only two now; and even that pretty selectively.”

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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After years of recording gravity-defying growth, auto majors in India are finally feeling the heat.

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For long now, India and Indians have debated over the repercussions of ever-increasing oil prices. There were two wheelers and four wheelers rolled out of the assembly lines all across the country and auto financers were running after prospective ‘drivers’ and ‘riders’, everywhere… Cheap funds, cheap bikes, cheaper cars (with that ‘interest’ string attached), but ‘expensive’ oil! That was the buzz around, and India was worried (and so were the Americans, of course!). It felt like wartime, with guns but no bullets, with automobile engines all around but perhaps no oil to vroom around! And the financials of the auto majors? Oh! They stood tall and pretty, prouder than bearing the ‘seal of the eagle’! Happy Capitalism was the dream word, but no more a reverie!

Then came the turmoil, and happy faces soon faded into the background; many of them belonging to the automaker community. And 4Ps B&M spoke, last issue (dated November 7 – November 20, 2008) through its cover feature titled, ‘Bechara Bajaj’ commenting on the deplorable 34% fall in sales figures (in units) reported for October 2008 as compared to the same month the previous year. We thought, it was just the ailing Bajaj (and hence ‘Bechara’) that was getting its pockets ripped apart by the recessionary jackals. But then came some more shockers – Hero Honda and TVS, the other two two-wheeler players also reported a fall in sales units over the previous year. And if that wasn’t enough to convince us all of the melancholic environment in their factories, the Society of Indian Automobile Manufacturers (SIAM) disclosed that sales figures for the entire auto industry (including the four wheeler giants) had plummeted by a 14.2% during the month of October 2008 (compared to the previous year). That meant a reduction in monthly sales by 145,817 units for the industry! And suddenly, it feels like the war times are back, with no guns available this time… Yes, oil prices have stabilized globally and there is good news everywhere when it comes to this ‘liquid gold’ at the moment. But there are cut downs reported all across the sector with players announcing reduction in production volumes… No engines, but oil… no guns, just bullets!!!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Cartels are the most pernicious of anti-competitive practices!

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PRADEEP MEHTA, SECRETARY GENERAL, CUTS CENTRE FOR INTERNATIONAL TRADE, ECONOMICS AND ENVIRONMENT

"Cartels don’t only relate to price fixing, but also division of business, territory, restriction on output..."

Which are the sectors in India where cartels exist or may be in process of coming into being?
Airlines, banks (setting of bank charges and interest rates on savings A/Cs), cement and telecom sectors have come under the scanner for cartelisation in India more recently. Also, collusion has often been found in a number of government procurements, for example in construction activity. Most of these cartels work under guise of trade associations. In cases abroad, even trade associations have been charged for aiding and abetting collusion.

What is the impact of cartels in an industry and economy?
Cartels are considered the most pernicious of anti-competitive practices. In many jurisdictions cartelisation or collusion is treated as a criminal activity under the law. While companies have paid heavy fines, senior executives have even undergone jail sentences. Besides, cartels don’t only relate to price fixing but also division of business, territory, restriction on output, et al. They can create barriers to new entrants and non members to the cartel agreement.

Any efforts to quash cartelisation?
A recent example is in the cement sector where the MRTPC passed cease and desist orders on some old enquiries. The recent alliance between Jet and Kingfisher in the airline industry is being analysed from the perspective that it maybe a cartel. Few months ago the private airlines had got together to set up the Federation of Indian Airlines and proposed benchmarks for fares, but the low cost airlines fell out.

Are there steel cartels too?
I do not see any signs of cartelisation in the steel industry. Prices went up phenomenally due to high demand, which resulted from high economic growth.

The likely impact of the Jet-Kingfisher alliance on the industry?
The possibility of price fixing is very high and most likely to happen. The flip side is that if these airlines do not cooperate on prices then they would operate in a dirty way and hurt themselves badly. They may even shut down, thus affecting the whole economy.

Would you consider this the end of the low-cost regime in Indian skies?
The low cost regime will stand on its own and not relate to these major players. However, if the major players raise their prices, then smaller/low cost players will also raise prices.

Which are the international cartels operating in India and what is their impact on consumers and economy?

Very little work has been done to find out the impact of international cartels on India. One study done by Evenett on the impact of an international cartel in vitamins did show a cost of about $25 million on India. CUTS had moved the MRTPC to investigate the matter but they did not bother to do anything. Another recent case of airlines fixing prices on cargo rates across the transatlantic route and elsewhere has also had an impact on India, for both exports and imports. But nothing has been done. Perhaps there is no appreciation of facts. One hopes that the new Competition Commission of India will do something when it comes into action, as it has extra territorial jurisdiction powers.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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“Private labels will rule the retail world”

PAUL MARTIN, GLOBAL SALES MANAGER, PLANET RETAIL

Recently, an interesting thing happened in the UK retail market. Tesco, regarded as the worldwide pioneer of own brand private labels, suddenly started introducing ‘phantom’ private label brands in its stores. For the first time, Tesco was abandoning its policy of only offering own labels under its own name. The move is important as Tesco has been at the vanguard of the three-tier private label strategy (‘good, better and best’ approach) which is now adopted by most of the world’s leading grocers.

This surely indicates that the growing power of retailers across the globe and their growing focus on private labels, which offer higher margins and a point of difference over rivals, means that private labels are becoming increasingly important in almost every market. In fact, in developed markets, private labels are moving beyond their original price and functional benefits, to more sophisticated tools for promoting retailers’ ethical credentials. Private labels generally need a highly developed retail environment to succeed with high levels of concentration, consumer trust in retailers and the presence of international players. For these reasons, the share of private labels is highest in Europe, where private label penetration has reached 53% in Switzerland. In contrast, the private label share in a fragmented market such as China is under 5%.

In immature retail markets, penetration of private labels tends to be generally lower. This is due to the fact that retail markets are usually quite fragmented, consisting of a large number of smaller retailers where price competition is less intense. Smaller retailers also generally have less control over the supply chain. Having a grip on the supply chain is an important requirement for launching private labels.

So keeping all these in mind, launch of phantom is a nice strategic move by Tesco. However, it remains to be seen how consumers will react. Will they be happy to see more variety or will they be even more confused now?

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

Kamal Gianchandani

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Kamal Gianchandani: on the other hand, is the man who micro-retails film content – via stores, online, home delivery service – under ADA’s youngest venture (four months old to be precise) Bigflix. Gianchandani, an MBA from Pune University and another former PVR Pictures employee, believes that Bigflix is a result of the “group’s vision to have comprehensive presence in filmed and non-filmed entertainment sector.” His total focus these days is on tapping the home entertainment market in India, which he believes is largely untapped. Sample this: Unlike in India, where theatrical revenues account for 67% of a studio’s revenues, domestic theatrical revenues account for only 18% for Hollywood studios. With growing relevance of alternate revenue streams like telecast rights, home and mobile entertainment, the share of theatres in media consumption is likely to stagnate. When that happens, Bigflix will be ready to net in the moolah. Gianchandani plans to spend a cool Rs.25 crore to build the brand Bigflix in this financial year and says that “over 40-50% of (his) time is spent on increasing numbers (adding more customers and clients) and the balance 50% time is spent on identifying gaps in service and improving them.” For now, the company is busy packaging its latest offering, of allowing users to download movies through their set top boxes for viewing.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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