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The lesson in Kolaveri Di's success
Executive Summary: Within three weeks of its release on YouTube, the Kolaveri Di video garnered 19 million views and was shared by 6.5 million Facebook users. It was drawing more than 10,000 tweets daily by the end of its first online week. Having garnered over 45 million views so far, it has proved with its success that viral marketing works in India too. This case study explores what made Kolaveri the sensation it became and lists the elements that make up an ideal viral marketing campaign in India. It was agony and ecstasy in quick succession for leading Tamil movie star Dhanush last November. He recorded a song for the film 3 - a home production, in which he also plays the lead role - only to discover soon after that a disgruntled employee in his office had leaked it on YouTube. It put him and his wife Aishwarya, director of the film - she is also the daughter of the superstar Rajinikanth - in an embarrassing position, since Dhanush had just sold the film's music rights to Sony Music India. An early, unauthorised release of one of the songs could ruin the commercial prospects of the deal. "The song was the rough cut of Kolaveri Di. I was terrified," says Dhanush. There was nothing he could do to get the song off the site. "I realised to my chagrin that something leaked on the social media cannot be controlled," he adds. "I wanted to counter it, but how? I was at my wits' end."

Dhanush Potent Mix What Kolaveri Di teaches about creating successful viral marketing campaigns:
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Product should evoke strong emotions Should include humour Should use all means to

He considered releasing a CD of the song as a single, but Sony Music informed him that this would take at least two weeks. "Then someone suggested making a video of the song and releasing that as well on YouTube as the official version," says Shridhar Subramaniam, President, Sony Music Entertainment, India and Middle East. "The idea was accepted and we scrambled to make the video overnight."

     

This vital decision was to make all the difference. Sony Music hired a video camera and promptly shot a four minute video of Dhanush singing Kolaveri at A.R. Rahman's studio in Chennai. It was all done within half an hour and the video uploaded on YouTube on November 17 at 12.53 a.m.

connect with audiences Should have potential for parody Should use simple language Should generate curiosity Should be carefully seeded through the life cycle Should use multiple channels Should avoid blatantly selling the product

What followed is now part of Indian music and viral marketing history. As if by magic, the song became a rage, effortlessly transcending language barriers - the first Tamil song, albeit with a smattering of English, to do so. In the first four days, the video had four million views, swelling to 19 million in three weeks. On Facebook 6.5 million users have shared it, while 40 radio stations have played it across the world. At last count in February-end, the video had registered over 46.5 millions views on YouTube and been downloaded by two million people on their mobiles. In the most unlikely way, Dhanush's agony thus turned to ecstasy. A Tamil movie star until then, it brought him a pan-India reputation. He is much sought after now by corporate houses to endorse their brands. "Doors opened for me," he says. "Kolaveri's success exposed me to the world of marketing and I realised how much I had been missing out on."

The campaign was carefully designed to avoid sounding like a sales pitch. Some radio and TV channels got exclusive rights to use the song for two days. Noting the interest, news channels began discussing Kolaveri
A letter from Tata Group Chairman Ratan Tata, thanking Dhanush for the time spent with him, and seeking to take their business discussion forward, now adorns Dhanush's office wall. The film 3, earlier planned only in Tamil, will now be released in two more languages, Hindi and Telugu. But successful viral marketing campaigns such as Kolaveri do not happen every time, not even

for Dhanush. His next song on video, a paean of praise to cricketing icon Sachin Tendulkar, Sachin Anthem, uploaded, like Kolaveri, on YouTube, has garnered only 4.9 million views in three weeks so far. "Every kind of content has the potential to go viral when the consumer becomes the marketing channel," says Prashanth Challapalli, Business Head, Jack in the Box Worldwide - the agency which designed Kolaveri's viral strategy. "But no one knows which particular one will go viral. All we can do is to create content that has the potential to do so. What are the elements that go into this kind of content? Something that evokes strong emotion is one. Kolaveri did: it is the song of a jilted lover pouring out his anguish. "Emotions, especially unhappy ones, have a strong viral stimulus," says Jayaram K. Iyer, who teaches social media marketing and branding at Loyola Institute of Business Administration (LIBA), Chennai. "So do narratives of an underdog beating the establishment. Both were present in Kolaveri."

By the time minister Sharad Pawar was publicly slapped by a young man on November 24, Kolaveri's meaning had become known and promptly many riposted: 'Why this kolaveri?'
The experience of having failed in love is also almost universal. But to counter the sadness, the song also had humour. Humour is key to viral success - outstandingly successful videos on YouTube like 'Charlie Bit My Finger' or 'David at the Dentist' have plenty of it. The other aspect is to arouse curiosity. "It is critical to be intriguing. People should wonder what the campaign is all about," adds Iyer. Both Sony Music and Jack in the Box Worldwide invested intrigue into the process. "Non-Tamil speakers would not know what Kolaveri meant. Neither Dhanush nor any of us explained its meaning either," says Sony's Subramaniam. "It was a conscious strategy to evoke people's curiosity and get a conversation going." In the first few days after Kolaveri's release, a good deal of chatter focused on what on earth the word meant. Around 12 per cent of all conversation on Twitter about Kolaveri was confined to this particular point. "The biggest myth is that viral marketing campaigns make themselves," says Iyer. "Campaigns have to be orchestrated." And indeed, once the official version was uploaded, Kolaveri was carefully managed at every stage. Sony Music began by putting a link to the video on its Facebook page, which has a million followers. Next, it began releasing tweets about the video, creating the #whythiskolaveri account on Twitter. There were 179 tweets on the first day, which rose by 200 per cent daily, to peak at 14,907 tweets on November 24. "For people to share the video, they had to first see it," says Subramaniam. "We put the YouTube link in all our tweets. We were confident that once a person sees the video, he would share it for sure."

From the virtual world, the song was also shared with the real one towards the end of the first week, with radio stations and television channels being allowed to air it. FM station Radio Mirchi and MTV got exclusive rights to use the song for two days. Noting the stir in the entertainment space, news channels began discussing Kolaveri, further fuelling its popularity. Those who were drawn in and tweeted about it included mega star Amitabh Bachchan and leading industrialist Anand Mahindra. There were also critics, but the attacks only reinforced its now iconic status. "Kolaveri-D. Everyone is praising the robes, but the emperor is naked," tweeted lyricist Javed Akhtar. "Getting celebrities and influential people to seed the campaign through Twitter or Facebook pages is key,'' says Iyer, the LIBA professor. The success even saw parodies, says Challapalli. By the time Union Agriculture Minister Sharad Pawar was publicly slapped by a young man on November 24, Kolaveri's meaning - 'extreme frustration' or 'murderous rage' - had become sufficiently well known, and promptly many riposted: 'Why this kolaveri?' The IT industry produced a kolaveri parody of its own, while neighbour Pakistan created another. Sony Music could have invoked copyright and tried to suppress the parodies, but it did not. "People began to own the song and that helped," says Subramaniam. "Scope for co-creation is a critical factor for any viral campaign to succeed," adds Challapalli. Yet the campaign was also carefully designed to avoid sounding like a sales pitch. The film the song figures in, for instance, was never mentioned. "Content that sounds like a sales pitch fails," says Iyer. "Never use viral marketing as a sales channel. It puts people off instead of getting them excited." So in the end the video's success may not guarantee a super hit movie. Kolaveri has set the stage for a good opening but how successful the movie will be would depend on its content," says Subramaniam. Dhanush, naturally, is thrilled with the unexpected windfall. Has he identified the office employee who leaked the early version of Kolaveri? "No, but if I do find him, I will thank him," he says. But for the leak Kolaveri would never have become the viral marketing phenomenon it did.


Krishna Kumar, CEO, Media2Win The Idea Is All Important The idea behind advertising communication on any medium is to create impact, enable brand recall, establish a consumer connect and elicit consumer response. Whatever the medium, the content has to be such. The TV commercials that get everyone talking, are they not 'viral'? Anything can go viral, even an e-mailer. The idea is the key. Virals are not born, they are made. The idea has to grab you. One of our very successful virals has been Adultdost for Tata Sky – an e-mailer. The three main qualities needed to go viral are: 1. The Content: The idea and the execution are critical. At times, something unexpected too has the potential to spread. Kolaveri, incidentally, was one such piece of content, completely unexpected but it still connected. 2. The Impetus: It is provided either via advertising or by piggybacking on a popular social media person's feed. This need not be a celebrity but any "popular" social media individual whose views are followed by many. Such people introduce the content to a larger audience. The result is an accelerated start of a spread. That is the power of digital media. 3. The Participation: Consumer participation is what makes content stay fresh. Consumers create their own versions, upload and share. You must have seen Kolaveri versions getting uploaded. Recently someone tweeted after India's cricket victory, "Hey Malinga – Why this Kolaveri Di". So, the word Kolaveri will keep getting used, that's how the content gets refurbished and stays fresh. KRISHNA KUMAR CEO, Media2Win

Abraham Koshy, Professor of Marketing, IIM-A The Appeal Of Imperfection Kolaveri Di has broken most records of being the most watched, most

talked about and most viral of all music videos. Was this an accidental mega-hit or was it the result of a well-orchestrated 'strategy'? The debate between the influence of the invisible hand of Providence and the visible hand of real people increases the potency of the Kolaveri viral. For a song, a video or a story to be successful, three elements need to be aligned – message, messenger and media. The mark of a message that has potential to fire a viral phenomenon is its quality of being 'earthy', 'spontaneous', and 'identifiable with the messenger'. A message needs to be worth talking about – it should contain some comedy, some pathos, and some hope at the end. Had Kolaveri been punched and clipped to make it clinically precise, the song would have been robbed of its natural blemishes. Lack of precision and imperfections are natural and the masses identify with stories that exhibit them, leaving some room for imagination, self-projection and empathy. A lesson for viral marketing from the Kolaveri phenomenon is the unpredictability of the traction that messages acquire. The greatest utility of social networking is to use the technological possibilities as a vehicle to spread brand messages through community connections. Viral messages spread very rapidly. Brands, on the contrary, need stories and messages to stay afloat in the social network for a longer duration. And that is where marketers' infatuation with social media networks ends and a durable romance starts. ABRAHAM KOSHY Professor of Marketing, IIM Ahmedabad

Ikea growth in China
Executive Summary: IKEA is known globally for its low prices and innovatively designed furniture. In China, however, it faced peculiar problems. Its low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs. This case study analyses how IKEA adapted its strategies to expand and become profitable in China. It also assesses some lessons the company learnt in China that might be useful in India, where it plans to open its first store by 2014 and 25 stores in 10 to 15 years.

Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943. He began by selling pens, wallets and watches by going door to door to his customers. When he started selling his low-priced furniture, his rivals did everything to stop him. Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. What did IKEA do? It innovated to stay in business. It learnt how to design its own furniture, bought raw material from suppliers in Poland, and created its own exhibitions. Today, IKEA is the world's largest furniture retail chain and has more than 300 stores globally. In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. It understood early on that Chinese apartments were small and customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs. The store layouts reflected the typical sizes of apartments and also included a balcony. IKEA had faced similar problems previously when it entered the United States. The company initially tried to replicate its existing business model and products in the US. But it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US. The challenges it faced in China, however, were far bigger than the ones in the US. As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly. In 2004, for instance, its China revenue jumped 40 per cent from the year before. But there was a problem - its local stores were not profitable.

IKEA identified the strategic challenges and made attempts to overcome them. One of the main problems for IKEA was that its prices, considered low in Europe and North America, were higher than the average in China. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil. IKEA built a number of factories in China and increased local sourcing of materials. While globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume sales in the country come from local sourcing. These local factories resolved the problem of high import taxes in China. The company also started performing local quality inspections closer to manufacturing to save on repair costs. Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs. High prices were one of the biggest barriers in China for people to purchase IKEA products. IKEA's global branding that promises low prices did not work in China also because western products are seen as aspirational in Asian markets. In this regard, IKEA's low-price strategy seemed to create confusion among Chinese consumers. The main problem for IKEA was that its prices, considered low in Europe and the US, were higher than the average in China The company realised this and started targeting the young middle-class population. This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. IKEA also had to tweak its marketing strategy. In most markets, the company uses its product catalogue as a major marketing tool. In China, however, the catalogue provided opportunities for competitors to imitate the company's products. Indeed, local competitors copied IKEA's designs and then offered similar products at lower prices. IKEA decided not to react, as it realised Chinese laws were not strong enough to deter such activities. Instead, the company is using Chinese social media and micro-blogging website Weibo to target the urban youth. IKEA also adjusted its store location strategy. In Europe and the US, where most customers use personal vehicles, IKEA stores are usually located in the suburbs. In China, however, most customers use public transportation. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks. The China expansion came at a cost. Since 1999, IKEA has been working on becoming more eco-friendly. It has been charging for plastic bags, asking suppliers for green products, and increasing the use of renewable energy in its stores. All this proved difficult to implement in

China. Price-sensitive Chinese consumers seem to be annoyed when asked to pay extra for plastic bags and they did not want to bring their own shopping bags. Also, a majority of suppliers in China did not have the necessary technologies to provide green products that met IKEA's standards. Helping them adopt new technologies meant higher cost, which would hurt business. IKEA decided to stick with low prices to remain in business. As IKEA prepares to enter India, its China experiences will come in handy. It understood that in emerging markets, global brands may not replicate their success using a low-price strategy. There always will be local manufacturers who will have a lower cost structure. Chinese competitors copied IKEA's designs from its catalogue and then offered similar products at lower prices It is more important what customers think about the company rather than the other way around. IKEA wanted to be known as a low-price provider of durable furniture, while Chinese consumers looked at IKEA as an aspirational brand. It is likely that Indian consumers will also look at IKEA in a similar way. The company also learnt that emerging economies are not ready for environment-friendly practices, especially if they result in higher prices. IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, realised that understanding the local culture is important - Chinese people hate the do-it-yourself concept and Indians likely do so even more. IKEA may face some India-specific challenges such as varying laws in different states ruled by different political parties. This could make its operations, especially distribution and logistics, a bit challenging. IKEA already has had to wait a long time to get permission to open stores in India. The delay in policy-making at the state level could be even longer. Indian customer preferences and economic environment are similar to the Chinese market. IKEA will likely have hopes of attracting India's urban middle-class buyers who are keen on decorating their homes with stylish international brands. The company has learnt that doing business in emerging markets is a different ball game for a multinational company. IKEA did well to adapt in China, although it took numerous changes to its strategies and more than 12 years for the company to become profitable in the Asian nation.

FDI in retail in India has been a non-starter, hopelessly mired in special-interest politics:Prof Nirmalya Kumar Ikea's India rollout will be slow: Prof Nirmalya Kumar The success of IKEA in China is an interesting adaptation example by a global retailer. Yet, it may not be much of a predictor of IKEA's fortunes in India. This may have less to do with IKEA and more to do with the economic policies of India. A well-designed foreign direct investment (FDI) policy should have resulted in a rush of much-needed foreign investment to India, upgrading of the supply chain, modernisation of the retail sector, as well as more choices for consumers with lower prices. Instead, FDI in retail, like in higher education, has been a non-starter, hopelessly mired in specialinterest politics. The rules are so onerous that a mass retailer such as IKEA will find it hard to meet them without penalising customers with higher prices and lower choice. Also, it will be difficult for IKEA to find the type of location (size, off a highway, with great links to a major metropolis) that is crucial to the success of its business model. This will mean the first store will take much longer to open than Indians expect and the rollout will be painfully slow. Fortunately, as a privately held company with a longterm orientation, IKEA will persevere where more impatient publicly held firms may have given up. For India to kick its economy back to the growth rates necessary for meeting the aspirations of its citizens, we need to roll out the red carpet for foreign investors instead of red tape. Competition law and trade policies are supposed to ensure that a free competitive marketplace exists, with easy entry and exit, not protect existing competitors from new entrants. Capitalism without failure is like religion without sin. Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

It's essential for successful marketing campaigns to take into consideration the local approach: Yelena Zubareva The main challenge is to adapt: Yelena Zubareva There is no formula for success that fits all marketing strategies when a global brand decides to try a new market, except perhaps unconditional acceptance and responsiveness to changes. The greatest challenge is to adapt constantly. It's essential for successful marketing campaigns to take into consideration the local approach versus the global/regional desire for standardisation. A onesize-fits-all approach is a rare reality. A consistent global brand promise is a desirable asset but what makes a real difference is to be brave and ready to change the target audience and build a differentiating promise.

IKEA made all necessary adjustments to make sure there was no mismatch in its growth ambitions and brand promise. Becoming an aspirational brand which is blogging with the Chinese middle-class youth is an unexpected twist in its brand proposition. IKEA demonstrated courage to get the most relevant changes. By courage I mean all big corporations are ready to shift production, work with local sources, overcome legal requirements but not too many of them are ready to adapt a brand proposition that suits the level of development the market and consumer perception require. IKEA is a strong brand that understands that growing globally requires sacrifices and innovation from global teams, and they are ready to listen, respect and learn from the local environment. The European headquarters' excitement to enter new markets with proven best practices is something of the past, proving that the real shift in the global mindset is to recognise that local versus global can bring optimum results. Yelena Zubareva, Regional Marketing Manager, FWS/OEM SHELL

Executive Summary: Gujarat's power sector was in a shambles in 2001, when Narendra Modi became chief minister. A decade later it is in the forefront of states that have carried out sweeping power reforms, as a result of which it now has surplus power. This case study details the key steps the government took to bring about the change, which was carried out in a manner fair to all stakeholders. When Narendra Damodardas Modi took over as chief minister of Gujarat in October 2001, he found the state's power situation grim. The Gujarat State Electricity Board, or GSEB, had posted a loss of Rs 2,246 crore for 2000/01, on revenues of Rs 6,280 crore. Interest costs alone were Rs 1,227 crore. Transmission and distribution, or T&D, losses were a substantial 35.27 per cent, and load shedding was frequent. GSEB had no funds to add generation capacity on its own, nor was it able to persuade the private sector to invest. Reforming the GSEB, thus, became one of Modi's top priorities. "He feared that a bankrupt power utility could derail his vision for the state," says Saurabh Patel, Gujarat's Industries and Power Minister, then as now. "He knew electricity is crucial for growth." Click here to Enlarge Modi's first step was to identify a bureaucrat capable of taking on the enormous challenge. He chose Man- jula Subramaniam, a Gujarat cadre officer, who had been joint secretary in the prime minister's office from 1993 to 1998, playing a key role in the country's liberalisation, and

appointed her Chairperson of GSEB and Principal Secretary, Energy and Power. Subramaniam quickly realised that GSEB was too large an entity to be managed effectively. But she did not rush into unbundling it. Instead, she initially concentrated on two areas: bolstering the power utility's finances and building employee morale. Discovering that GSEB had secured loans at interest rates of 18 per cent or more, she sought debt restructuring, convincing banks and financial institutions to lower their rates, which resulted in savings of Rs 500 crore in 2002/03. Her next step was more radical. Rarely before had electricity boards renegotiated power purchase agreements, or PPAs, already signed with private players. But having examined the PPAs her board had entered into, Subramaniam felt the heat rate - a measure of generator efficiency - had been inflated by the power suppliers, who were consequently charging more than they should have. Though the private players initially resisted, the government-constituted committee set up for the process stood firm, and ultimately, after more than 18 months of hard bargaining, got the rates lowered, leading to a further saving of Rs 675 crore in 2002/03 and Rs 1,000 crore in 2003/04. Simultaneously, Modi's government began plugging the leakages in distribution. Power thefts in Gujarat then ranged between 20 per cent in urban areas and 70 per cent in rural regions. It passed a law against power thefts and set up five police stations across the state, solely to nab such thieves. Stringent action began against those who ran up large power bill arrears, including disconnecting their supply. Unmetered power supply, which some rural areas were getting was stopped altogether, with GSEB entering into a structural loan re-adjustment with Asian Development Bank to fund the installing of meters. Subramaniam also found that many employees, disturbed by widespread talk of power reforms, feared for their jobs, and were feeling somewhat alienated from GSEB. She appointed a consultant to suggest ways to win back their loyalties. From mid-2002, armed with the consultant's suggestions, the board began its special effort to reach out to employees. It started training programmes at all levels to reassure them that while people may be redeployed, no one would be laid off. Senior officials increased their interactions with the staff, including holding 'town hall' meetings where they shared details of the board's financial position and encouraged employees to ask questions. An internal newsletter was also started. Once assured of retaining their jobs, the employees themselves began discussing possible reforms. A 'reforms progress management group', comprising GSEB employees, was also set up. It was now time for the unbundling. In May 2003, the Gujarat government passed the Gujarat Electricity Industry (Reform and Reorganisation) Act, which divided the GSEB into a holding

company, a power generation company, a power transmission company and four distribution companies. This enabled better management and more efficient operations. Another key reform was the separation of the feeder line that supplied power to the rural areas into two: one to supply power for agricultural needs and other for household and other needs. This was part of the Jyoti Gram Yojna, a scheme Modi announced in 2003 to supply roundtheclock power to villages. "A single feeder has its limitations," says Mukesh Puri, Managing Director of the holding company, Gujarat Urja Vikas Nigam. "The villages got power for only 12 to 15 hours a day, often of poor quality and at odd hours." Since the tariff for power used for agricultural purposes was much lower, many used this subsidised supply for their household needs as well, resulting in huge losses for GSEB. "The chief minister asked us to have separate feeders, which was a pathbreaking step no state had attempted before," Puri adds, "The results were good." Though many rural residents had higher power bills to pay than in the past, they cooperated with the government, once they found they were assured of uninterrupted, better quality power. A study by Indian Institute of Management, Ahmedabad has estimated that the project saved the state capital expenditure of around Rs 23,000 crore, or about 5,000 megawatts, or MW. The Modi government has also taken scrupulous care to ensure that the state electricity regulator - unlike in most states - remains truly independent of political pressures. The regulator has, thus, been able to revise power tariffs every year, which ensured the state bridged the gap between the average cost of supply and what users paid for it. The result? The state electricity board posted its first profit of Rs 203 crore - after tax - in 2005/06. By 2010/11, net profit had risen to Rs 533 crore, while T&D losses had fallen to 20.13 per cent. Tariff collection efficiency is close to 100 per cent. Private players, once reluctant to invest in Gujarat's power generation, are now rushing in: of the power plants with a total installed capacity of 16,945 MW coming up in the state, 6,864 MW - or roughly, a third - is by the private sector. "Abundant power is a major USP of our state today," says minister Patel. A few worries remain. Though T&D losses have fallen, they are still higher than those of the southern states such as Andhra Pradesh, Karnataka, and Tamil Nadu. The cost of power in Gujarat has been traditionally high, and remains so. "Our share of hydel power is very low and our power plants are very far away from coalfields," says Puri. "At times the cost of transporting coal equals the cost of the coal." A sizeable proportion of its power - around 29 per cent - also comes from gas-based plants, and the high cost of gas has forced scaling down the operations of some of them.

But ultimately, it is a remarkable transformation for a state which was power deficient barely a decade ago, but now has a surplus of 2,114 MW and a vibrant energy sector. The separation of feeders for supply towards agricultural was a master for Gujarat: Kirit S. Parikh Where there is a will The Gujarat experience clearly shows what strong political will to reform the electricity sector can achieve. Of the many innovations the state tried, the separation of feeders for supply towards agricultural use was a master stroke. It not only helped farmers get quality power at fixed time but also ensured that leakages were curtailed. It enabled measurement of the power used for agricultural purposes as well, so as to arrive at the exact quantum of subsidy that needs to be reimbursed to the distribution companies. Today feeder separation is being adopted by many others states. Also the manner in which pilferage was tackled is interesting. I know how the CEO of a staterun distribution company that supplied to one half of a particular city in Gujarat was fully empowered to take all measures to match the low T&D losses of a private sector company that supplied to the other half of the city. The state has also been proactive in promoting renewable energy. By offering to buy solar power at `12.50 per unit, the state will soon see over 350 MW of power from solar energy. It is true that the cost of electricity is higher in Gujarat but that is because the state’s electricity regulator has proactively raised prices as costs of generation rose. This makes sense in the long term. As can be seen, companies foraying into Gujarat are not too concerned about paying a couple of rupees more for consistent and good quality power. The challenge that the state faces is on the T&D loss front where there is still scope for reduction by four percentage points or so. More needs to done there. Kirit S. Parikh is Ex-member of Planning Commission, and Chairman, Integrated Research and Action for Development

Gujarat's success mix of steps that have both commercial and social overtones: V. Raghuraman Shining contrast Commercial losses and poor health are hallmarks of the power utilities of states in India. The distribution companies, or discoms, incurred an accumulated loss of Rs 75,000 crore in 2008/09 which further rose to Rs 106,341 crore in 2009/10. The share of costs

recovered has deteriorated from 82.5 per cent in 2006/07 to 77 per cent in 2008/09. The dismal state of affairs is due to continued political pressure opposing reduction in subsidies and efforts to lower distribution losses. Most state utilities have not revised tariffs for a number of years. The state regulatory commissions are independent only on paper and are subject to political compulsions. Against this backdrop, the performance of Gujarat in turning around the GSEB is noteworthy. Timely tariff revisions have made the sector viable enabling the state to set up adequate generation capacity. The state is in a supply easy position with which it has been able to meet the requirements of the farm sector. It has also been able to meet the subsidy requirements of discoms on this account, which many states have not been able to do. Gujarat has been able to achieve the growth with a mix of steps that have both commercial and social overtones, with stress on credible implementation and realising rational user charges. The political will along with the turnaround strategy has produced the expected benefits. The worrying signs are high T&D losses, which are still over 20 per cent, and inadequate transmission links. These need to be fixed. The demand for revision of tariffs of utilities, which are using imported coal and have increased costs, if not heeded, could derail the capacity addition plans. However, the track record indicates that Gujarat has the ability to attend to the concerns. V. Raghuraman is former Principal Analyst, Energy, Confederation of Indian Industry

Executive Summary: In 2001, Volvo Buses India sold 20 coaches. By December 2011, 5,000 of them were running on Indian roads. Volvo did not achieve this by toning down its products or cutting prices as multinational companies often do. It developed the market and waited for it to mature. Volvo now has 76 per cent of the Indian luxury bus market. The company changed the way Indians travel. Now, as the competition closes in, it is preparing to launch products that could transform the market - again. A decade ago, buses were more or less a by-product of trucks. They were built on truck chassis. Body builders bought chassis primarily from Telco (now Tata Motors) and Ashok Leyland. The difference between city and inter-city buses, or regular and 'deluxe' ones, was reclining seats and a stylish paint job. That is how things were when Volvo Buses entered India. The Swedish company bid for a tender by the Delhi Transport Corporation (DTC) in 1998 while showcasing its B10LE low-entry city bus in several cities. The bus drew much interest. Akash Passey, Senior Vice Presidentregion international, Volvo Bus Corporation, who headed India operations then, says many people came to see it at the 1998

Delhi Auto Expo. He laughs, recalling an animated discussion between two youngsters he overheard. "The older of the two, in an attempt to explain how the bus loses height, said: 'When it halts, the driver jumps out and deflates the tyres'," he says. The coach prompted more weighty concerns too: were India's roads and travellers ready for rearengine buses? What about prices? Volvo city buses cost up to 10 times more than those used by state transport corporations. Meanwhile, the DTC tender was shelved. Selling to state companies was proving tough, so in 2000, Passey changed tack. He imported two Volvo B7R inter-city buses from Hong Kong and Singapore, and sent them out on a six-month demonstration drive. The B7R cost five times more than a 'deluxe' bus. But he persevered. "I felt there was little reason why an airconditioned bus would not work in a tropical country like India," he says. THE ROAD TO SUCCESS CHANGE STRATEGY Volvo brought in its inter-city bus when it saw the market was not ready for a city bus SELL THE CONCEPT, NOT JUST THE PRODUCT Volvo engaged with all stakeholders - from operators to passengers to drivers - to sell its buses USE MACRO CHANGES TO YOUR ADVANTAGE When Volvo saw that increasing congestion and growing environmental awareness were making public transport attractive, it brought back the city bus CHANGE THE GAME When the competition started to close in on Volvo, it introduced products that would increase the number of passengers

The changing economic landscape strengthened his resolve. The company approached private operators who ran inter-city 'deluxe' buses and could price tickets higher. Volvo refused to compromise on product specifications . Passey points out that inter-city buses are 12 metres long everywhere in the world.

Volvo departed from the industry norm by offering service support for the entire bus, and not just parts"

But in India, bus length was capped at 11 metres. "We got the regulation changed," says Passey. It was a good thing Volvo had a wide range of products. "All I had to do was choose the one best suited for India," he adds. "I did not choose the most sophisticated, because operators were used to frontengine buses, very little suspension and ordinary brakes." To persuade operators that Volvos were profitable, the sales team drew up a lifecycle cost comparison. Volvos had a few more seats than others - a disadvantage in the early 2000s, when states taxed operators per seat. But the biggest advantage was that they could run for 22 hours without maintenance. Operators were concerned whether Volvo would provide maintenance centres every 25 km, as was the usual practice. Passey says: "We told them you don't need that with a Volvo. We'll give you one every 400 km." Volvo also departed from the norm by offering service support for the entire bus, and not just individual parts. With maintenance hassles reduced, operators could focus on routes. For example, Mumbai-based Neeta Tours and Travels, which had 20 Volvos in 2004, figured it could serve seven destinations. A bus could leave Ahmedabad at 10 p.m., reach Mumbai at 6 a.m., then go to Pune and back, and then head back to Ahmedabad at 10 p.m. Operators could also focus on sprucing up service with hot towels and entertainment. This also meant they could raise ticket prices by as much as Rs 100 on some routes. Phanindra Sama, founder and CEO of redBus, a portal that sells bus tickets, says, "The Volvo phenomenon coincided with higher per capita income, more awareness about luxury, and increasing migration to cities from Tier-II and Tier-III towns." As Volvos could run farther than buses used till then, routes such as the 1,000-km BangaloreMumbai run became popular. Being faster, they could depart later than a deluxe coach, yet arrive at the same time. SPECIAL: Can Tata's Divo beat Volvo in the luxury bus market? In 2001 - within a year of demonstrating the inter-city coach - Volvo sold 20 of them in India. That figure reached 1,100 in 2006, and 5,000 by December 2011. Volvo now has 76 per cent of the luxury bus market. The market itself, according to industry estimates, is growing at around 10 per cent a year. Volvo expanded gradually, starting with South and West India. It was not until 2004 that it had a countrywide presence. "It was of utmost importance to us to have service leading sales and not the other way round," says Passey. Volvo stuck to its product specifications. It got India to change a regulation that capped bus length at 11 metres Volvo also reached out to not only operators, but also other stakeholders. It ran commercials in film theatres. Before launching the B7R in 2001, it sought driver and passenger feedback. "We realised we wouldn't sell much if we sold merely the product," says Passey. "We had to sell the concept of luxury bus travel." Eventually, state bus companies not only bought Volvos but also built brands around them: Garuda in Andhra

Pradesh, Shivneri in Maharashtra, Airawat in Karnataka. The development of expressways such as the Mumbai-Pune one helped things along. Volvo became a ticket brand - something no other commercial vehicle has achieved anywhere in the world - as passengers asked for Volvo tickets, rather than an operator or a route. More case studies As with the inter-city coach, the success of the city bus was gradual. In January 2006, Volvo sold its first city bus to the Bangalore Metropolitan Transport Corporation. Under the Jawaharlal Nehru National Urban Renewal Mission, Volvos now ply in 13 cities. Volvo hopes to make second-tier city connections viable, as traffi c is set to grow in this segment The company is again looking to change the market, especially with rivals such as Mercedes-Benz and Tata Motors tail-gating it. Its 14.5-m inter-city bus is the longest in India, with more space for passengers and luggage. Its 14.5-m multi-axle city bus is being pitched as a solution for urban traffic congestion. With the 9,100 medium-haul bus (for distances of 300 to 400 km), Volvo hopes to make second-tier city connections viable, as traffic is set to grow in this segment. This move - changing the market when the competition closes in - is possible because of a previous strategic step. In 2008, Volvo started manufacturing buses near Bangalore. It makes 1,100 buses a year, and hopes to raise production to 2,500 by 2013/14. Sama of red-Bus says: "The fact that Volvo manufactures its own buses works to its advantage. Mercedes still depends on its body maker, Sutlej." Would any other bus company, had it entered India in 2001, have done as well as Volvo? Perhaps, if its product range was comparable, and if it were patient enough to develop the market. After all, one of the crucial factors in Volvo's success in India is that it has invested in changing the circumstances. EXPERTS SPEAK To fare better in the transport market, Volvo should offer a systemic solution: Geetam Tiwari 'THINK BEYOND BUSES' Local manufacturers did not upgrade bus technology almost until 2004, because there was no demand for a better product. Given this environment, Volvo's strategy of bringing state-of-the-art products and creating a market for long-distance luxury travel has been commendable. Higher disposable incomes and other changes in the economic landscape have certainly contributed to the success of inter-city travel driven by Volvo. But it was also because local manufacturers could not create this market successfully.

{quote}Urban public transport remains a challenge because it requires not just state-of-the-art buses, but also state-ofthe-art roads designed for public transport. This means creating central lanes for buses, stops for level boarding, passenger information systems, and making streets safe for pedestrians (because every public transport user is a pedestrian at the beginning and end of the journey). Also, money cannot be recovered from fares alone. There is need for thought on financing public transport systems. To fare better in the urban transport market, Volvo should offer a systemic solution, not just buses. It could form a consortium of planners, operators, and IT service providers and offer comprehensive solutions supported by local or state governments. As the urban population is going to double in 25 years - about 600 million people by 2040 - the urban transport market will grow and could attract more investment. Growing environmental concerns and easy availability of information technology will fuel this growth. So demand for good quality buses will grow. Most Indian cities will not be able to meet mobility demand without state-of-theart bus transport. The country requires about 5,000 more buses a year. It is up to the government and the mobility service providers, and not just vehicle manufacturers, to create a financially viable market. Geetam Tiwari, Ministry of Urban Development Chair Professor of Transport Planning, IIT Delhi

Volvo's success lies in converting its belief that there was a market for luxury travel in India into a value proposition: Abdul Majeed 'FILLING IN THE QUALITY VOID' The bus industry in India started with a focus on public transport, especially to cater to the common man. There were quality issues, but no one really cared. Things began to change with liberalisation, as more people began to move from the middle class to the upper middle class and above. They sought better quality travel. You needed to book months in advance for trains, and air travel did not suit them. They were willing to pay a premium for bus transport, but no such service was available barring a few air-conditioned buses. {quote}Volvo was first to spot this opportunity. It firmly believed there was a market for luxury bus transport in India, for which commuters would pay a premium. Volvo's success lies in converting this belief into a value proposition. Its buses were many times costlier, and the operators needed to charge higher fares to make money. A comfortable journey that reduces travel time by a few hours was what Volvo bus operators offered to justify the premium fares, and people bought into it. The rest is history. What Volvo has demonstrated is that though Indians are traditionally cost conscious, there is a growing crop of customers who demand quality. As road infrastructure improves and people get richer, the luxury bus segment, especially for inter-city travel, will grow faster and larger. We are far away from a bullet train era, and the poor state of the railways would only catalyse this

shift. Volvo's success has triggered the entry of more players into the luxury segment. The Swedish company is best placed to take advantage of this transformation, as luxury bus travel in the country has become synonymous with Volvo. Abdul Majeed, Partner and Leader - Automotive, PwC

What lessons can be drawn from Volvo's success? Write to us at [email protected] Your views will be published in our online edition, and the best comment will win a Harvard Business School Press pocket mentor. Previous case studies are at

Executive Summary: Once a household name, Dutch consumer electronics major Philips has slipped over the years to become an 'also ran'. Its repeated attempts to rekindle its mojo have failed. Will its attempt at repositioning its products at the youth work? This case study looks at what went wrong and what the company needs to do in order to succeed. In April 2010, when Philips Electronics India Ltd announced its plan to outsource its TV business to Videocon Industries, the decision came as no surprise. The five-year pact, under which Videocon is handling Philips's TV manufacturing, distribution and sales in India, is aimed at restoring the profitability of the TV business. Philips was once a dominant player in the segment, with a market share of around 15 per cent in the early 1990s, but business eroded as Korean and Indian brands grabbed market share. As volumes fell, the company struggled to run its TV factory in Pune efficiently. It took the third-party route to manufacture CRTs and imported LCD screens, but this didn't help. Then the company licensed the unit to Videocon. The downfall of Philips's consumer business - especially TV began in late 1990s Through the arrangement, Philips will get royalty income based on turnover. Videocon's economies of scale in manufacturing and its strong distribution network will help the Philips brand reach more outlets and reduce the cost per unit. The downfall of Philips's consumer business - especially TV began in late 1990s. The reasons were beyond the control of the management. The entry of Korean chaebols such as Samsung and LG started eating into the market share of older players such as Onida, Videocon and Philips. Philips decided to stick to its usual strategy: relying on technology rather than strengthening distribution and marketing. It didn't want to compete with the Koreans on pricing, and thought the superior technology of its products, be it picture or sound quality, would stand out. "We took a conscious decision not to cut prices," says Kris Ramachandran, former CEO of Philips Electronics India.

LOW-VOLTAGE BRAND THE PROBLEM The company’s brand image has declined over the years, and has very little recall value among youth THE CAUSE Despite its technological strengths, the company failed to market its products well, which hurt its brand perception THE CHALLENGE The company rolled out multiple strategies to overcome its problem, but they failed in a market dominated by fleet-footed Korean companies

In no time, the strategy flopped. The slow-moving Philips couldn't sustain its top position and its market share fell to some 3.5 per cent by 1999. After losing its relevance in the consumer business, Philips did take some steps to address the situation. In early 2000, it roped in PwC to revamp its consumer products portfolio, set up new processes and overhaul the supply chain. After this, it launched a new range of CRT TVs under the brand name EyeQ. "The idea was to Indianise products to suit local tastes," says Rajeev Karwal, who headed Philips's consumer electronics division in 1999.

The new sets had 300 channels, as opposed to 60 channels in older ones. High-end plasma TVs were also introduced. "The earlier TVs were more suited for Europeans, who like subtle colours. Indians, on the other hand, have a fondness for saturation and bright colours. The later versions of our TVs focused on targeting this issue," says S. Venkataramani, NonExecutive Director, Philips India. In lighting, Philips has historically been the segment leader in India, with a market share of around 30 per cent "Philips was strong in innovation, but lacked aggressive marketing," says Karwal. "When I joined Philips, I brought in fresh blood to challenge internal systems. A country like India requires go-to-market strategies. We tied up with dealers and proved that the technologies of our Korean counterparts are no superior to ours." Philips also rejigged its skills portfolio. Its workforce went from more than 11,000 in the early 1990s to around 3,500 by 2005. From six legal entities, it became one legal entity. "The focus was on reshaping the company to ensure sustainable, profitable growth," says Ramachandran. A 2001 survey by ad agency JWT further helped Philips improve its brand image. Although the brand was iconic in India for several decades with customers associating the transistor radio and incandescent bulbs with the Philips name, the survey found that people did not associate the brand with highend technology. To revive its past glory, Philips's product offerings have undergone a sea change So from 2001 on, most of Philips's ad campaigns emphasised the advanced features of its products. Gradually, the company reclaimed some lost ground. The TV market share went up to eight per cent in 2002. Although Philips sustained its TV market share at around six per cent in

the following years, it lost the way when it shifted focus from TVs to lowmargin products such as DVD players, MP3 players and headphones. When the consumer electronics and appliances market exploded - it went from Rs 20,000 crore in 2005 to Rs 33,000 crore in 2010 - Philips's revenues from the consumer business declined from nearly Rs 1,091 crore in 2005 to Rs 659 crore in 2010. The revenue mix got overhauled. From over 42 per cent of turnover in 2005, the consumer business fell to some 28 per cent in 2010. According to some senior executives, this was partly because the CRT division was given less importance at a time when the CRT market was growing in India. "Since the parent company exited the CRT industry in 2006, the Indian arm, too, showed little interest in the business, and it affected growth momentum," says A.D.A. Ratnam, President of Philips India's consumer lifestyle division. While the consumer business hit a brick wall, exponential growth in the lighting and health care segments kept Philips going. In lighting, the company has historically been the leader, with a market share of more than 30 per cent - more than twice that of its nearest competitors, Bajaj Electricals, Havells, Wipro Consumer Care and Lighting, and Surya Roshni. "Whether it's CFL or LED technology, Philips is a pioneer in bringing lighting solutions to India," says Nirupam Sahay, President of Philips's lighting division. "We have a big distribution network and reach out to one million electrical and non-electrical outlets." For professional lighting, Philips's client portfolio includes corporate and government customers such as Asian Paints, McDonalds India, Cognizant Technologies and Kolkata Municipal Corporation. In 2005, lighting accounted for slightly over 34 per cent of revenues. In the past five years, the company's dependence on this segment has grown - it now accounts for 51 per cent of Philips's revenues. But even the lighting business has seen plenty of ups and downs. To streamline this segment, the company had to shut down a factory each in Kolkata and Mumbai in the late 1990s. Later, the dumping of Chinese lighting products affected its market share. Timely government intervention in the form of anti-dumping laws helped CFL manufacturers. Today, Philips gets a big chunk of its revenues from audio video multimedia (AVM), which includes DVDs and home theatre systems. In fact, it leads the DVD market with a share of over 24 per cent. This, though, could be shortlived. Sector experts say changes in the AVM in-dustry will keep Philips's consumer electronics business under threat. "The DVD market is dying," says Deepa Doraiswamy, Industry Manager for electronics and security at Frost & Sullivan South Asia & Middle East. "The transition to store movies and music on a pen drive is already occurring at a fast clip." Still, Philips is doing all it can to revive its past glory. Product offerings across all three categories - consumer lifestyle, lighting and health care - have undergone a sea change. Starting with the launch of MP3 players in 2009, Philips has come out with new products, many of which target youth.

"India has a huge young population, so we decided our target customers should be 15 to 30 years old, because that's where buying is going to happen," says Ratnam. "We have to get into the lifecycle of consumers earlier." It has launched devices priced as low as Rs 150. "The focus is to make products that are not overengineered and are easy to replenish," says Ratnam. "Youngsters don't want to hold on to a product for 10 years." Philips has revamped its personal care portfolio, and introduced shavers, body groomers and epilators. It roped in John Abraham and Kareena Kapoor as brand ambassadors. This is the first time the Philips brand has been promoted by celebrities in India. Since 2009, Philips has opened 75 exclusive 'light lounges' in 40 cities. They sell decorative home lighting products priced between Rs 575 and Rs 45,000. Besides, Philips has 750 'light shoppes' - shop-in-shops in stores such as the Future Group's HomeTown and Lifestyle International's Home Centre. In 2011, Philips acquired leading appliances maker Maya Appliances, which owns the Preethi brand of kitchenware. "For each segment, Philips is trying to redefine the market," says Rajeev Chopra, Philips India's Managing Director and CEO. Philips's record inspires little confidence in its comeback attempt. Philips lacks a clearcut strategy for India, says Karwal, the former MD. "They are like a bull in a China shop." Will the current strategies work? Does Philips lack a clear vision in India? Does it need to focus more on marketing efforts? 'All Is Not Lost For Philips' The mantra for Philips's rejuvenation is more relevant products, better price points,and the will to fight: Y.L.R. Moorthi Philips is first a technology company and then a marketing company. The reverse is true of Samsung and LG (though they enormously improved their products in the last decade). Philips should emulate the marketing aggressiveness of the Korean majors. Here’s how. The one thing that sets the Koreans apart from not just Philips but all other competitors is their speed of execution. Even tried and tested players like Nokia are not able to take the heat. The Korean majors brought their best products globally with little or no time lag to India. They managed to put up manufacturing plants in record time. They showcased their good products through savvy marketing (“Golden Eye” TV and umbrella “health” branding by LG). They recruited dealers at an astonishing pace in the early years. In the 1990s, it was Videocon that headed the table for dealer promotions. In the new millennium, the Korean duo launched a promotion broadside that left little to chance. It touched all stakeholders – dealers, customers and even shop boys. All these are object lessons in marketing for competitors like Philips. Besides, there is a certain law of gravity in electronic hardware. Prices of electric goods always fall, be they laptops, VCRs,

audio gadgets or mobiles. A company that doesn’t prepare itself for constant product upgrades and a simultaneous price squeeze will fall by the wayside. The Koreans excelled at this balancing act to lead the charts. That said, all is not lost for Philips. At one point of time it was the benchmark of innovation in audio. Also, inspired leadership intermittently did boost market share in categories like DVD players for them. There are also bright spots like the lighting business and the acquisition of Preethi. Though a multinational, Philips is seen as a home-grown brand like Bata, Surf or Lifebuoy. Strangely, they never quite leveraged this strength. Thus the mantra for Philips’ rejuvenation is more relevant products, better price points, aggressive marketing and the will to fight. Maybe we can encapsulate the Philips story in just one line: past imperfect, future tense. Y.L.R. Moorthi, Professor (Marketing), IIM Bangalore 'Milking A Dying Cow?' Philips tried to revive its profitability by focusing on the bottom line and neglecting its strength: innovation: Ankan Biswas As a brand, Philips was very strong in India till the end of 1990s. A 1997 survey showed that brand awareness was higher for Philips than Coca-Cola. Today, the Philips brand has little significance among youth – the most important market. Its brand dilution happened globally, at a different pace in different regions. Although it started as a lighting company, consumer electronics became its face. It was R&D, not marketing, that gave the brand its strength. Inventions such as the cassette tape, CD and 100Hz TV kept Philips in a leading position in consumer perception. As the market became competitive and margins razorthin, Philips started losing money in consumer electronics. Philips CE tried to revive its sagging profitability by neglecting its strength: it focused on the bottom line and marketing without strengthening innovation. Its consumer electronics patent pool steadily eroded over the last decade. It tried one strategy after another but failed. Many of its divisions were connected with consumer electronics, such as semiconductors and components. Philips got rid of these as they did not fit into its new game plan. The last nail in the coffin is the licensing of the TV brand to its lesser competitors. The strategy of “milking a dying cow― does not augur well with consumers. Philips’s strategy today is to become a leader in health care, and retain its top position in lighting with new technologies such as LED. Managing LED will bring back challenges similar to those of the semiconductor division. Philips used its global strategy in the Indian market scenario where the dynamics are different. While Korean brands invested in manufacturing in India, Philips closed its plants. While the Koreans developed India-specific models, Philips tried to introduce expensive models with a bit of tinkering, ruining a once vibrant brand. The brand transformation of Philips is a lesson for all marketers.

Ankan Biswas, Chairman, Digital Broadcast Council, Consumer Electronics and Appliances Manufacturers Association

Double trouble

Cross-badging,or selling the same car with cosmetic changes under different brand names, has not worked so far in India. This case study looks at where the problem lies: is the strategy at fault or the execution?
N. Madhavan Edition: April 28, 2013 Tags: India Best SMEs | Best SMEs STORY TOOLS
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Ain't no time to disco for India's auto sector Car sales fall first time in a decade

VW Vento and Skoda Rapid

Executive Summary: Cross-badging,or selling the same car with cosmetic changes under different brand names, has not worked so far in India. This case study looks at where the problem lies: is the strategy at fault or the execution? In January 2012, Japanese auto major Nissan's Indian subsidiary Nissan Motor India sold 1,855 units of its compact car Micra. The same month French carmaker Renault launched its compact car Pulse in India. In February this year, Micra sales were down to 608 units, while Pulse sold 420 units. Turn to sedans. In August 2012, Nissan's sedan Sunny sold 2,757 units. In September that year Renault launched its sedan, Scala. By February this year Sunny sales had fallen to 1,191 units, while Scala sold 620 units.
And guess what? Nissan and Renault are not even competitors. They have been strategic partners since 1999. Micra, Pulse, Sunny and Scala are all products of the Nissan-Renault alliance. Or take German car manufacturer Volkswagen's sedan Vento. It sold 3,474 units in India in October 2011. A month later, carmaker Skoda launched its sedan Rapid. Vento's sales have since fallen to 1,909 by February this year. Once again, Skoda is part of the Volkswagen group - Vento and Rapid are from the same stable. In fact, Micra and Pulse are essentially the same cars, with some cosmetic differences, made in the same factories, but sold under different names. So too are Sunny and Scala, or Vento and Rapid. Welcome to the strategy of crossbadging , or selling the same car under different brand names - a concept new to India, but used for decades in the United States and Europe to boost sales. "Automobile makers resort to crossbadging to save on engineering, design and product development

costs, to achieve economies of scale, to reduce the lead time in bringing a new product to the market, and to widen their product portfolio and get better returns with incremental investment," says Vijay Kakade, Director, Automotive and Transportation Practice, Frost & Sullivan. It costs at least Rs 300 crore to develop a car for India. But cross-badging requires merely tooling changes - an investment of less than Rs 20 crore. It would have cost Renault India a lot more time and money to develop a compact car, or a sedan had it chosen not to cross badge Nissan models." Indeed, reports claim Nissan will soon fill a big gap in its product portfolio - it has no compact sports utility vehicle (SUV) - by crossbadging the highly successful Renault Duster. "Cross-badging offers a clear value proposition to the manufacturers and helps them expand the market," says Nitish Tipnis, Director, Marketing and Sales, Hover Automotive - Nissan's master franchisee in India. But does it? In India, both attempts so far have been failures. Cross-badging did not expand the market; on the contrary, it shrank. "The extent of failure is such that the combined volumes of Scala and Sunny's sales in February this year was 1,811 units, which is lower than the number Sunny alone sold - 2,757 units - before Scala was launched," says Kakade. The same is true for the NissanRenault products. While some attribute this to the slowdown, which is squeezing the entire industry, a closer look at the numbers shows that the fall in sales of the original brand is far higher than the overall decline in the market. Why has cross-badging not worked? Examples from other countries have established that brand loyalty is critical to the success of crossbadging. But neither Nissan (nor Renault) nor Volkswagen have been around long enough in India to win the fierce brand loyalty that crossbadging banks upon. Worse, while a fully loaded Micra costs Rs 5.61 lakh today, a Pulse with similar features is priced at Rs 5.76 lakh. Few will see

sense in paying more for essentially the same car simply to flaunt the Renault label. The same applies to the sedans, Scala and Sunny. Volkswagen did the opposite, pricing Skoda's Rapid lower than Vento. But that left Vento customers feeling short changed, apart from lowering the resale value of both cars. There may have been some gaps in communication too. "Crossbadging offers clear value to car manufacturers but what about the customers," says Abdul Majeed, Partner and Leader- Automotive Practice, PwC. "It is very important to communicate the value proposition to the consumer." Others claim the Indian market is not yet mature enough for this particular strategy. "Indian customers have not evolved to a level where they understand the nuances of cross-badging," says B.V.R. Subbu, automotive entrepreneur and former President, Hyundai Motor India Ltd. Not only is the Indian consumer primarily value driven, but the auto market is also highly competitive with well entrenched and aggressive players. There are no shortcuts like crossbadging to brand building, large investments are essential. "It is financially prudent and more effective to spend heavily on developing one brand," adds Subbu. He feels Renault and Nissan would have fared better if they had common dealerships and service centres and had sold their respective brands under the one roof rather than cross-badging each other's products.

"It is a strategy that is best avoided in India," he adds. Nissan itself is alive to crossbadging's limitations. "Crossbadging can at best be a temporary strategy to enhance product line-up and make dealerships profitable, but if used over a long period of time, it will lead to brand erosion," says Toshiyuki Shiga,

COO, Nissan Motor Co. Globally too, cross-badging, though long practised, has not always been a success. In recent times the only instance of cross badging working is that of the Subaru BRZ and the Toyota Scion FR-S, both launched in the US this year. But there were specific reasons for this. This sports car was developed jointly by Subaru and Toyota Motor Co, thereby producing, according to auto experts, a better vehicle than either could have done individually. Subaro took care of the engineering, chassis and power train while Toyota handled the design. It was not a case of taking an existing model and cross-badging it. In contrast, General Motors in the US has tried cross-badging all too frequently - and is paying for doing so. "Excessive cross-badging is one of the factors that contributed to General Motors' bankruptcy," says Kakade. Cross branding fails because it takes away the powerful rationalising argument that justifies consumers' decision to make a choice: Professor Abraham Koshy NO FOOLING THE INDIAN CONSUMER Why has the cross-branding strategy not worked in the automobile market in India? The similarity of the features in cross-branded products, despite the products belonging to different companies and sporting different brands, is an important reason for lower consumer preference. While buying automobiles, do Indians value the product more or the brand? There is no easy answer. Automobile buying is a high-involvement process for the consumer, she is willing to spend time, effort and energy to arrive at the decision. Consumers actively search for information from multiple sources and analyse it, comparing products and brands. The fact that a model and brand from one company looks very similar to another model and brand from a different company will spur the consumer to look for an explanation rather than search for the differences between the two. The differences in price points of the two further accentuate her need for an acceptable explanation. The similarity of the physical features overrule the brand value quotient. If physical features were discernibly different, the brand would act as a decisive force in consumer choice. Cross-branding strategy fails because it takes away from consumers the powerful rationalising argument that justifies their decision to make a choice that entails financial, social and psychological risk. Will consumers be more tolerant of cross-branding behaviour in future? Most likely, yes. Consumer familiarity with the product class and gradual acceptance of this new rule of the game will reduce resistance to the cross-branding phenomenon. At this point in history of automobile industry in India, cross-branding is driven essentially by production and manufacturing considerations than by

consumer logic. Professor Abraham Koshy, Professor of Marketing, IIM-A

For crossbadging to succeed, manufacturers first need to establish their brands well in the market: Rakesh Batra WHO KNOWS THE MOTHER BRAND? India as an automotive market is still evolving. Consumers do not have a clear perspective on different brands, their premium positioning, etc. How many of us know the difference in brand value between a Micra and a Pulse? We are not a country where a customer walks into a multibrand showroom, looks at competing brands and understands the ethos of the different brands. For crossbadging to succeed, manufacturers first need to establish their brands well in the market. Cross-badging in India is being used primarily as a cost optimisation strategy, and to expand the product line-ups. Global original equipment manufacturers (OEMS) are lately appreciating that India is a different market and needs to be treated separately, which has resulted in a lot of iterations of their market strategy. While such iterations, coupled with the market slowdown, are leading to unprofitable operations in India, OEMs are trying to leverage common platforms, engines, etc, to sustain various brands they have established in the Indian market and to compete with the likes of Maruti and Hyundai. This in turn results in cross-badging of products. Cross-badging in India can be used by manufacturers very successfully to increase the life cycle of their products, say, with the premium brand launching the product and the sister brand introducing the cross-badged product when the original product enters the mature stage of its life cycle. This would further help the OEM concentrate on and establish a strong customer base for just one brand product at a time. (Views expressed are personal) Rakesh Batra, National Leader, India Automotive Practice, Ernst & Young

Executive Summary: In 2008, Eicher Motors tied up with Swedish truck maker Volvo in its bid to become a larger player and build a global presence in the commercial vehicle business. Volvo, on the other hand, wanted to crack the small and medium-truck segment in India. This case study looks at how the two companies leveraged their respective strengths to achieve their disparate goals. At the newly constructed headquarters of Eicher Motors in Gurgaon, a 35-tonne spiral staircase made of steel hangs from the ceiling. The flight of steps goes all the way up to the sixth floor of the glass-and-steel building, where Eicher Managing Director and CEO Siddhartha Lal sits in a corner office. The building is a "green" structure, which means it is constructed largely with renewable material and is energy-efficient. It is also a reflection of Lal's business mantra of maximising the use of available resources. Efficient utilisation of resources is the main reason why Lal, a thirdgeneration member of the family that controls Eicher, joined hands with Swedish truck maker Volvo in 2008 to form VE Commercial Vehicles (VECV). Lal wanted to boost Eicher's commercial vehicles business in India and also build an overseas presence.
Eicher probably could have done that on its own but it would have required a vast amount of time and effort. In 1997, for instance, Eicher started developing a heavy truck to compete with market leaders Tata Motors and Ashok Leyland. It took Eicher six years and Rs 25 crore to build the truck. There was also the risk of failure, and Lal didn't want to take that chance. Eicher was set up in 1948 to import tractors. It entered the commercial vehicle business in 1986 when it began selling a six-tonne fully imported truck from Japanese auto maker Mitsubishi. The partnership ended in 1993. Eicher continued building its own trucks until 2006/07 when Lal realised the growing demand for technologically advanced trucks and buses in the rapidly expanding Indian economy. He needed a foreign partner to make a great leap forward. "In order to crack the market we needed more muscle - funds, systems and technology," says Lal, who had previously turned around Eicher's iconic Royal Enfield motorcycle unit (see In Volvo, the world's second-largest truck maker after Daimler AG of Germany, Lal found a partner which had all that. Eicher moved its truck and bus business to a new company, the joint venture VECV, into which Volvo pumped about Rs 1,082 crore and added its heavy trucks distribution business to buy a 50 per cent stake. Volvo brought advanced manufacturing technology and set up new processes to improve Eicher's after-sales service. The partners set up a component distribution centre, which ties into the after-sales service, to monitor inventory at retail outlets and Eicher's warehouses. How does Volvo benefit from the tie-up? The European giant was until then supplying heavy trucks to select industries such as mining and construction in India. It was eager to expand its commercial vehicle

business in the country, but Volvo trucks were costlier than products sold by local rivals. "We (Volvo) realised we wanted to participate in India's mainstream business, for which we had to produce trucks at a lower price," says Philippe Divry, Senior Vice President and Director at VECV. Divry says Volvo had two main goals while forming the joint venture. One was to get a significant market share in India, and the other was to make India a base for exports to other emerging markets. But vehicles made in India were not good enough to export. Volvo knew if it completely overhauled the Eicher platform the cost would jump significantly. It had to selectively inject technology to make the products better. Eicher's low-cost manufacturing base offered Volvo that opportunity. "Frugal engineering is something all global manufacturers are looking at," says Abdul Majeed, leader of automotive practice at consultancy and audit firm PricewaterhouseCoopers (PwC). Vinod Aggarwal, CEO of VECV, says a global truck maker would have had to spend three to four times the amount Eicher did in developing a new truck or setting up a new factory. Aggarwal says VECV has invested Rs 1,300 crore to expand manufacturing and distribution capacity, improve processes and set up an engine factory at Pithampur in Madhya Pradesh. The factory can make 100,000 engines a year. VECV will export 30 per cent engines annually to Europe, starting this year. These engines will conform to Euro-VI emission standards - to be implemented in Europe from January 2014. In the next two years, VECV plans to invest Rs 1,200 crore to develop products, set up a bus body plant and expand capacity, he adds. The investments have started showing results. The market share of Eicher-branded light and medium trucks grew to more than 31 per cent in 2012 from 27 per cent in 2008. In the heavy vehicles segment, VECV's share has risen by a percentage point every year to five per cent. In buses, the market share has tripled to 14 per cent. Eicher's revenue from the trucks and bus business has more than doubled since forming the joint venture to Rs 5,443 crore in 2012. VECV has a cash surplus of Rs 700 crore and posted a net profit of Rs 336.66 crore in 2012. Exports to neighbouring countries such as Sri Lanka, Nepal and Bangladesh contribute four per cent to VECV's total sales. In the next few years the target is to take this to 12 per cent by exporting vehicles to Southeast Asia, West Asia and Africa. "They (Eicher) decided to break into the Asian market but could not do so without a joint venture model," says Jeffrey W. Wilmot, India country manager at PTC Inc, which offers services such as product and supply chain management.

Eicher's revenue from the trucks and bus business has more than doubled since forming the joint venture to Rs 5,443 crore in 2012
Aggarwal of VECV says Eicher will now be the Swedish company's fifth truck brand globally, after Volvo, UD, Renault, and Mack. "The world opens up for us by using their (Volvo's) distribution network." Exporting Eicher-branded vehicles benefits Volvo as well, because the low-cost Eicher vehicles offer Volvo a chance to boost its presence in emerging economies without diluting its brand image. "In joint ventures like these, a learning from one developing country is being taken to other countries," says PwC's Majeed. Sitting in the Gurgaon headquarters, Lal recalls he initially had doubts about VECV's success. But he has managed to prove his own doubts wrong and reoriented Eicher's commercial vehicle business. Both partners seem committed to the relationship... and their working styles seem compatible enough: Prashant Kale 'Eicher, Volvo must anticipate and resolve tricky issues' A joint venture's initial success is often linked to the '4Cs of Partner Fit': Convergence, Complementarities, Commitment and Compatibility. The Volvo-Eicher joint venture demonstrates that the partners have 'convergent objectives' in terms of wanting to crack into India's large commercial vehicle market against established incumbents like Tata Motors and new global rivals like Daimler. They also bring complementary strengths to the relationship - Volvo contributes its global brand and experience, world-class technology and processes whereas Eicher provides local market understanding along with frugal manufacturing capabilities. Both partners seem committed to the relationship as evidenced by their growing investment in it over time, and their working styles seem compatible enough. While things currently look fine, some tricky issues might arise in the future. Volvo has gradually learnt what it takes to compete effectively in India. It has invested more into the joint venture over time as compared to Eicher. Will the mutual dependence and bargaining power between the partners become more asymmetric? Volvo may want more control and a bigger say in decisionmaking and it may not value Eicher's contribution to the same extent as before. Many prior ventures between multinational companies and Indian players have faced these issues, and consequently ended fractiously. Hopefully, Eicher and Volvo would anticipate these evolving issues and have effective ways to address them.

Prashant Kale, Professor of Strategy at Rice University and Learning Director for Program on 'Managing Strategic Alliances' at the Wharton School

VE Commercial Vehicles will be one of the prime competitors in India’s low-cost trucks market: Vijay Kakade 'Tie-up will reshape Eicher's presence in India, overseas' The Volvo-Eicher joint venture, VE Commercial Vehicles, is a perfect marriage wherein each individual company has its own strengths and, at the same time, fills the gaps of the better half. This partnership will definitely reshape Eicher's presence in the Indian and overseas markets, as it will bring in Volvo's expertise of trucks manufacturing along with leveraging its global network to enhance Eicher's overseas business. The venture will help both companies fill their gaps. It will help Eicher re-align its product line to address the changing scenario for both domestic as well overseas markets. In case of Volvo, it will help pave the way for it to address the high-volume market of low-cost medium- and heavy-duty trucks, as well as build upon the low-cost manufacturing base available with domestic manufacturers in India. This partnership will benefit Volvo in a similar way, just like the recent move of establishing an engine assembly line at Pithampur to meet the requirements of its European market. VE Commercial Vehicles will also be able to reap benefits of the brand proposition that Volvo has already created with the masses in India because of its luxury buses and value-added trucks, which are considered synonymous with quality, comfort, and reliability. It definitely assures customers that their expectations will be met with respect to the products coming out of this joint venture. Needless to say, in the long run, VE Commercial Vehicles will be one of the prime competitors in India's low-cost trucks market, strong enough to compete with global majors like Tata Motors and Ashok Leyland. Vijay Kakade, Director, Automotive & Transportation Practice, Frost & Sullivan

Pushing the accelerator instead of brakes
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Edition: June 28, 2009

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Subhiksha Trading Services' R. Subramanian

Over the last nine months, R. Subramanian has aged much beyond his 43 years. The Managing Director of Subhiksha Trading Services-which pioneered the discounted retail format in Indiahas been struggling to get his brainchild operational again after it collapsed in February following a cash cycle squeeze. In fact, the change in Subhiksha's fortunes has been as dramatic as its rapid rise from being just a regional player to a national one. "We were a darling company that could do no wrong till September 2008 and suddenly we were in trouble," rues a dishevelled Subramanian, as he looked back at Subhiksha's early days-clearly successful- and the recent crisis-without doubt an avoidable tragedy.
Vendor payments were defaulted and shelves ran empty It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit) came to his mind. Organised retail, in India, was non-existent. Subramanian, an IIT Madras and IIM Ahmedabad alumnus, was then into the financial services business of asset securitisation.

Research revealed that grocery was one of the largest categories of spending for the average customer, that they were extremely price sensitive on groceries and that discount stores were the largest growing format. But unlike in the West, people in India preferred to shop groceries close

by. The model slowly fell into place-a large number of small stores with easy accessibility offering products at a discount. "We opened our first shop in Chennai in March 1997 with funds from the financial services business, a team of passionate youngsters with little retail experience and a plan to set up a Chennai-centric retail business with low prices and high level of neighbourhood focus as the USP," recalls Subramanian. In the first year 10 stores were opened and the count rose to 19 by March 1999. By then Subhiksha was breaking even, volumes were picking up and customers were responding. Problems did arise initially though, as its unique discounting model enraged the retail trade in Chennai, which accused it of unfairly undercutting their business. Subhiksha Year of founding: 1997 Founder: R. Subramanian, IIT Madras and IIM Ahmedabad Business: Discounted retail Funding: R. Subramanian, ICICI Venture (equity); consortium of banks (debt) Employees: 14,000 (by end of 2008) Revenue: Rs 2,305 crore (2007-08) The flameout Year No. of Stores 1997: 10 1999: 19 2000: 50 2003: 140 Mar 2007: 670 Mar 2008: 1,320 Sept 2008: 1,650 Feb 2009: 0 Key problem: 'Rapid debt funded expansion and cash flow mismanagement'
By 2000 Subhiksha grew to nearly 50 shops in Chennai retailing groceries and medicines. ICICI Venture's decision then to pick up a 10 per cent stake in Subhiksha for Rs 15 crore gave the retailer enhanced credibility in the market. This money was used to expand outside Chennai, into the rest of Tamil Nadu. By 2002-03, Subhiksha had 140 stores across 30 towns in Tamil Nadu. Sales grew steadily. Cash flows were reasonable and debt, at Rs 15 crore against the net worth of Rs 23 crore, was comfortable.

Expanded too fast too soon In 2004, the retail sector was seeing an enhanced level of activity. In what proved to be a watershed decision later in its brief history, Subhiksha decided to expand nationally and more so, scale up at a rapid pace. "We realised that we had done our bit in Tamil Nadu and it was time to go national. The question we faced was do we expand sequentially (one state at a time) or parallely (many states simultaneously)? We opted for the latter," reveals Subramanian. Between late 2004 and early 2007, Rs 160 crore worth of equity was raised. That apart, a debt of Rs 220 crore and a bridge loan of Rs 125 crore (pending raising of equity from capital markets) was arranged to fund the national rollout. On an average, 60 to 70 stores were added in a month.

The pace of rollout is evident from the fact that till September 2006, Subhiksha had a store count of just 160, but by March 2007 it had shot up to

670 and by March 2008 to 1,320. By September 2008, it was 1,650-in all 1,500 stores were added in just 24 months. "Business was growing like mad. Despite the cost pressures in 2006 after Reliance, the Birlas and others announced plans to enter retail, between 2006-07 and 2007-08 we doubled our stores (from 670 to 1,320), tripled our revenues (from Rs 833 crore to Rs 2,305 crore) and almost quadrupled our profits (from Rs 11 crore to Rs 39 crore)," says Subramanian. By then Subhiksha had become the country's largest mobile phone retailer with an annual turnover of Rs 1,000 crore. Buoyed by its performance, Wipro Chairman Azim Premji, in March 2008, picked up the 10 per cent stake in Subhiksha that was offloaded by ICICI Venture for Rs 230 crore, pegging the company's valuation at Rs 2,300 crore. Chose debt over equity to fund expansion
R. Subramanian It was clearly the highest point in the retailer's history (and, in a way, beginning of its decline too). The company, which had been contemplating and postponing initial public offering (IPO) since 2007, failed to capitalise on Premji's investment and the goodwill it created to raise money from the market.

"We kept thinking: why dilute equity for shareholders? We wanted to keep equity low and raise more debt. This strategy will return better money for shareholders as stock market is booming. But we should have raised equity in March 2008. There was a lot of investor interest in Subhiksha. Not doing it then was a mistake," concedes Subramanian. Subhiksha entered 2008-09 with a Rs 1,000-crore investment plan for increasing the store count to 2,200 (from 1,320 as of March 2008) and add a new line of business-consumer durables information technology (CDIT) products retailing. It was to be funded by Rs 400 crore equity and Rs 600 crore debt. In June 2008, it announced a merger plan with Blue Green Construction Ltd, a company listed on the Madras Stock Exchange, and which had done some research on the CDIT business. By then the stock markets had begun to weaken. "A weak market, we thought, would at best lower our valuation by 10 per cent or so. There was nothing to tell us that we were in for a complete collapse of the equity markets," explains Subramanian. The banks were getting worried too. The bridge loan of Rs 125 crore was coming up for repayment in September 2008 and there was no sign of equity. They were finding it difficult to lend. Used working capital for expansion "By July 2008, we were finding it difficult to borrow. But we kept the expansion going as we were confident of raising equity. In fact, in September we had some good offers for equity but

before we could grab it Lehman Brothers collapsed and the markets fell off," reveals Subramanian. In the absence of borrowings, Subhiksha made the cardinal mistake of diverting working capital to fund expansion. Consequently vendor payments were defaulted. They stopped supplies and the shelves ran empty. Salaries and other statutory dues were not paid. Security staff deserted their jobs and over 600 stores were vandalised in November-December 2008.
"We desperately worked with various stakeholders to put something together to prevent a collapse. All we needed then was Rs 125 crore to be back in shape. Between September and November 2008, we had four meetings of the collective financial stakeholders. But unfortunately it was a period when liquidity was tight. Investors, too, could not do much as the markets were crazy," rues Subhiksha's founder, adding, "In a way we got into trouble at the wrong time." By end-February 2009 operations came to a standstill. Says Subramanian, "At this stage, everybody's reaction was emotional. There were people who said we should have been more careful in managing our money, which is perfectly right, and that we did not have a plan B." Independent directors quit, relations with ICICI Venture soured (it withdrew its nominees from the board and reportedly sought government investigation into the affairs of Subhiksha). Premji and ICICI Venture objected to the merger of Subhikhsa with Blue Green Construction Ltd.

Cash flow mismanagement Subramanian is now banking on the much-delayed corporate debt restructuring (CDR) process (involving 13 banks with cumulative exposure of over Rs 800 crore) to bring Subhiksha back to life. "I don't see ourselves getting back to 1,650 stores. We will probably restart about 1,200 stores once the CDR process is through. We should clearly be back in business in the second quarter of the current fiscal," claims Subramanian. He adds: "Regaining the credibility of vendors, lenders, investors and the employees will be the toughest challenge for us."
Has the discounted retail model failed? His response is quick: "Subhiksha's problem was cash flow mismanagement. We ran a profitable business. We were completely overconfident when it came to raising equity. If anybody wants to be a serious grocery player in India, they have to follow our path. The model is eminently successful."

Geoff Hiscock 'Junk Brand Subhiksha. Start afresh' Geoff Hiscock

Author, India's Store Wars

In March 2008, the Boston Consulting Group named Subhiksha one of the world's top 50 "local dynamos". Less than a year later, the Subhiksha brand was in tatters, proving once again that in business, timing is everything. Launch or expand at the right time and a rising tide lifts even the slowest of ships. Likewise, the most brilliant idea and the best execution can come unstuck if the business mood swings to negative, as it most certainly did in the second-half of 2008. Once the credit shutters go up, only cash will save the day. With a business strategy running on breakneck debt-funded expansion, this is when Subhiksha Founder R. Subramanian hit trouble. Subramanian's early business life included working through a turnaround and restructuring of the troubled Enfield motorcycle company between 1989 and 1993. With that experience, he should have anticipated the need for a bigger buffer to handle a downturn. He had an opportunity in 2007 and early 2008 to raise money through a private placement or an initial public offer, but the timing didn't suit and by July 2008 the chance was gone. Last August, as credit everywhere started to tighten up, I got a glimpse of what might be ahead for Subhiksha when I ducked into one of its Bangalore stores. The shop was in unexpected disarray; the shelves already were understocked and the staff seemed unmotivated. Most disturbing of all was the distinct lack of customers, despite the thrum of retail activity elsewhere along the street. India's modern retail boom still has a long way to run, and Subramanian may yet pull off a corporate debt restructuring. But the Subhiksha brand, like its stores, has been trashed since February. It is now not worth reviving. If he wants to stay in retail, Subramanian might be better off using his skills to prepare a fresh iteration of the low-cost supermarket model under a new name.

Arvind Singhal 'Successful model turned into usuccessful business' Arvind Singhal Chairman, Technopak Why did Subhiksha apparently succeed in the first place, and why did the business unravel so quickly? More importantly, is there any way the business can be resurrected or even salvaged partially? Subhiksha's early success was due to the fact that the big opportunity for Indian retail lay (and still lies) in a no-frills/ deep-discount business model. Other than Future Group's Big Bazaar to some extent, and another South-based regional player (Trinethra in Andhra Pradesh), no other entrant in the retail sector acknowledged this fact. Subhiksha made no bones about reaching out to

the relatively lower income strata families, and cut costs everywhere, as in store locations, fit-outs and in-store service and experience.

It also operated on very low backend and corporate overhead costs. As long as it remained focussed on this core group, and operated within a small geography, the model worked. However, as its ambitions grew, the focus of its promoter and other investors also apparently shifted from delivering value to its customers to creating valuation for themselves. Reckless expansion across disconnected geographies required a reckless increase in debt. The humungous quantum of money raised was spent largely on store expansion (without caring about store-by-store viability) and not on strengthening the backend including supply chain, distribution and replenishment logistics or improving customer experience or even building employee capabilities. Sadly, once the business started to unravel, all these flaws began to surface: Angry suppliers and other vendors, dissatisfied customers, agitated employees and worried lenders. All these led to a sudden seizure of the operations. Revival, even in a truncated form, at this stage looks nearly impossible. While the original premise for the business (no frills/deep-discount retailing) remains powerfully intact, it is unfortunate that this once promising business itself is poised to become history.

Hangout Haven

This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market.
Margot Huber, Deike Diers and Andrea Gulisano Edition: May 26, 2013 Tags: 7-eleven | London school of business | LBS case study STORY TOOLS
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How Kraft Foods made Oreo a global brand

Executive Summary: 7-Eleven is known in the United States as a convenience store chain where customers can grab snacks, drinks and other everyday products on the go. In most parts of the world, it is a no-frills store with little emphasis on decor. But in Indonesia,7-Eleven has been positioned as a trendy spot where young people spend time, surf the Internet and meet friends. This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market. It's one of the hippest places to hang out in Jakarta. And it isn't some trendy new French restaurant in a Dutch-era heritage building. Instead, thousands of people in the Indonesian capital spend their evenings sipping coffee or beer on pavement tables at their neighbourhood 7-Eleven, the international convenience store synonymous with anytime, on-the-go shopping in most parts of the world. Indonesia's 7-Elevens are, clearly, a long way from the original concept behind the world's largest convenience store chain. "At 7-Eleven, our purpose and mission is to make life a little easier for our guests by being where they need us, whenever they need us," says the company's website. And that's what it has been doing all over the world since the first convenience store was born after a Southland Ice Co employee in Dallas started selling milk, eggs and bread from an ice dock in 1927.

The 7-Eleven chain has about 49,500 stores in 16 countries across the world, over 10,000 of them in North America
Today, the chain has grown to about 49,500 stores in 16 countries, more than 10,000 in North America itself, but its core customer remains the same: people on the go who need a one-stop shop to quickly buy everyday products. Typically, most 7-Eleven stores all over the world are conveniently located in office areas and are open around the clock. Initially, 7-Eleven spread its wings slowly. In its early years, it grew strategically in suburbs in the United States and areas too small for a supermarket: by 1963, it had 1,000 stores across the country. But it began to grow at breakneck pace after it adopted a franchisee model the following year. In 1969, 7-

Eleven began expanding beyond US borders and set up shop in Canada. In the 1970s and early 1980s, it expanded to Mexico, Japan and Asian markets such as Taiwan, Singapore and the Philippines. With the increasing importance of emerging Asian markets such as Thailand, the Philippines and Malaysia, 7Eleven Corporation moved its corporate headquarters to Japan in 2001. Traditionally, 7-Eleven's entry strategy is to target urban markets and tailor stores to local tastes. For example, customers in Hong Kong can pay their phone and utility bills at a local 7-Eleven; in Taiwan, they can service their bicycles or photocopy at the convenience store; and in the US they can pick-up their online Amazon shopping there. By offering these services - often exclusively - customer traffic can be increased significantly. To achieve this customer orientation and competitive advantage, almost all stores arfe operated by franchisees, who understand the local environment. 7-Eleven in Indonesia has everything local markets offer, and more. It also has live entertainment and wireless connectivity So, when 7-Eleven entered the Indonesian market in 2008, the question was: what was the Indonesian customer looking for and where should the retailer position itself? The Southeast Asian country was an ideal market for a retailer. It was among the world's largest growing economies with a population of 240 million and a growing class of consumers. But Indonesia had some typical traits not found in other markets. For one, just hanging out and doing nothing is so deeply embedded in Indonesian culture, the local language has a special word for it: nongkrong. People traditionally gather at street markets and share stories, eat in local markets and roadside food stalls called warungs or Western fastfood chains such as McDonalds, Dunking Donuts or coffee shops such as Starbucks which entered Southeast Asia a whi le ago. Moreover, Indonesia is highly plugged-in: the country had an estimated 20 to 30 million Internet users in 2009, a big chunk of them between the ages of 15 and 19. 7-Eleven studied the culture, habits and tastes of the Indonesian population and realised Indonesia lacked places where young people could hang out, eat, drink and follow their new passion: being online. It adopted a unique business model in the country: it blended a small supermarket with inexpensive readymade food and seating to cater to Jakarta customers looking for outdoor recreation space in a city where traffic jams often restrict mobility. 7-Eleven in Indonesia included everything local markets and street vendors offered - and more. The store is open 24 hours, has hasslefree parking, offers leisure activities such as concerts, is airconditioned and, most importantly, has wireless connectivity. Sixty-five per cent of the Indonesian

franchise's customers are less than 30 years old and love social networking. 7-Eleven also featured local artists or live bands to further attract the nongkrong-ing crowds at its stores. The target customers 7-Eleven in Indonesia is more focused on the experience of hanging out rather than the convenience store concept itself. Its valued customer there is between 18 and 35, works in a large commercial area and is happy to pay a premium for food and drinks if he has an enjoyable place to spend some time. He/she is not bound by time and stops by throughout the day and night, which makes it worthwhile to stay open 24/7. In addition, the social network connectivity of visitors to 7-Eleven stores, who tweet and post about their experience, attracts new customers. It is "hip" to hang-out at the local 7Eleven store. When it came to pricing strategy, the local franchise followed the company's traditional model. It leveraged the fact that its stores are open 24/7, even when other food retail competitors are closed, and priced products at the upper end. The placement strategy of 7-Eleven Indonesia was also the same as the US. The stores are located in commercial and office areas, but not public transport stations because they are not seen as premium locations. But unlike the US, the archipelago of around 17,000 islands does not have a 7-Eleven literally at every corner; instead it focuses on big hubs in Indonesia. 7-Eleven Indonesia's unique customer experience extends to popular local artists and social media websites. Local artists perform in 7-Eleven stores because their fans like to hang out in these areas and 7-Eleven provides the location at low or no costs. Although 7-Eleven has a first mover advantage and has already built up a strong brand name and large customer base, new competitors will come into this market and existing ones are likely to reposition themselves. 7-Eleven should continue to innovate its product range and offer additional services that meet local traditions and customer needs to stay ahead of the competition.

Retail is one area, especially mass merchandise retail, where global success stories are few and far between: Prof Nirmalya Kumar How much to adapt is a classic dilemma for global brands As global brands from Western countries adapt to emerging markets, they face the challenge of different demographics and income patterns. How much to adapt while retaining the brand DNA is a classic dilemma. Adaptation needs to be limited for luxury brands as their target market tends to be the top of the pyramid, where consumption patterns are global. Similarly, for technological products, like software or smartphones, the adaptation needed is relatively small. Retail is one area, especially mass merchandise retail, where global success stories are few and far between. Even the most successful global retailers - Carrefour, Metro and Wal-Mart - have had their share of failures. Why is global mass retailing so challenging? The products/brands sold by mass retailers are not unique and are already widely available in the country. As a later entrant, a global retailer is unlikely to find the best locations available and it is unlikely to have a lower cost of operations than local mom-and-pop stores. To succeed, the global retailer has to offer better customer experience while hoping that savings from state-of-the-art global systems will more than compensate for the higher real estate and operating cost disadvantages. The 7-Eleven case in Indonesia is an outstanding example of a global retailer having found a unique proposition with its customer experience that taps directly into the demographic differences of the country. For global firms, after China and India, Indonesia has perhaps the greatest potential. Kudos to 7Eleven for unlocking this. Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

It shifted its core brand proposition from a convenience store in the US to a place where convenience store meets Internet cafe: Lassi Lastiani 7-Eleven Stands Out For Its Marketing Strategy 7-Eleven's success in Indonesia is an ideal case to study how a brand redefines its marketing strategy to enter a new market. While other

brands are struggling to find their place in the market, 7-Eleven stands out for its marketing strategy. The new local strategy is aligned to the growing demographic opportunity in the Indonesian market, where young people below 30 account for almost 40 per cent of the population. Capturing this important market with the right positioning - a cool, trendy place to hang out with affordable meals, drinks and fast Internet have been the key success factors. It shifted its core brand proposition from a convenience store in the US to a place where convenience store meets Internet cafe for young people in Indonesia. Moving forward, keeping pace with changing customer needs, a fast-moving economy and a competitive environment in Indonesia are the challenges for 7-Eleven. While the entry strategy perfectly captured a strategic position, competitors are adapting their strategy to win back market share. The local 7-Eleven concept is not that hard to copy after all, especially when some competitors have been established in the country for a longer period of time. The size and design of 7-Eleven stores needed to implement its strategy also deters expansion in every corner of the country. It has to carefully chose the right corner to be spacious enough for both the store and Internet cafe, and strategically located to be viable as a 24/7 concept.

e-Choupal version 3.0
E. Kumar Sharma STORY TOOLS
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Edition: November 1, 2009

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1, 2, 3 of e-Choupal

Version 1.0 The Start IDEA: To give power of scale to small farmers by aggregating them as sellers (of produce) and as buyers (of farm inputs) FARMERS' GAIN: They get bargain and choice - the two key virtues of competition ITC'S GAIN: Access to inputs for its agri business; offer the use of network to other companies

Version 2.0 The Scale-up REACH: By 2006, 40,000 villages covering 4 million farmers OFFERING: Network now offered five services: • Information: weather, price, etc. • Knowledge: farming methods, soil testing, etc. • Purchase: Seed, insurance • Sales: Farmers sell crops to ITC centres • Other: Cattle care, water harvesting, women employment etc

When you run Corporate India's largest, most ambitious and most celebrated rural initiative, you better know the following: 1) That adversities could crop up unexpectedly. 2) That some adversities can be turned into opportunities. 3) And that every little opportunity has to be made most of. It was so with ITC, the company behind the e-Choupal initiative that had reached four million farmers in six states in six years till 2006. At one point, the company was opening 5-6 e-Choupals a day and had a target of reaching 100 million farmers. That hit a roadblock of sorts in 2006-07. The very basis of the e-Choupal's core business-commodity sourcing from farmers directly-was endangered with the government clamping down on companies trading with farmers directly. The trigger for the government reaction was the spike in wholesale price inflation, which rose close to double-digit figures in case of some commodities in 2006-07.

Version 3.0 The Deepening NEW BUSINESSES: Add two new anchor businesses: 1) Rural jobs and employability and 2) Personalised agri services. Plus strengthen existing commodity sourcing MORE INTERACTION: Through Choupal Saagars and Haats and via mobile phones NEW TECHNOLOGY: Use of especially enabled mobile phones, in addition to PCs, for two-way interaction with farmers; use of analytics; new partners

Though the impact varied from state to state, the larger foreboding was loud and clear: The acts of government taken in the national interest could hobble e-Choupal's anchor business, even if temporarily. What does the company do then? Roll out plans for Version 3 of e-Choupal that will add at least two more anchor businesses to start with and deepen the engagement with individual farmers way beyond what was being done in Version 1 and 2. "The idea is to discover new anchor businesses and try and insulate the e-Choupal model from the risks of reversal in government's agri reforms," says S. Sivakumar, Chief Executive, Agri-Business, ITC, and the man who scripted the e-Choupal model of business. Technologically, it would mean adding mobile phones to the existing channels of Net-based computers and Choupal Saagars, the one-stop shops catering to all the needs of the rural community. As the company scoped around for new opportunities, it found many-some emerging from the adversities that have got it rethinking. These opportunities not only make transition to Version 3 possible, but also help modify the existing strengths of Version 1 & 2 (see box above). It's spotting of these opportunities and turning them into current and future businesses that has become a case study in persevering with rural India. Opportunity:Farmers willing to invest more Response: Offer them services they really need, and are willing to pay for

Though the average farm productivity is still low in India, the last 10 years have seen an unprecedented rise in farmers' income. This has been driven by a record increase in the price of agricultural produce (government's minimum support prices for food grains alone have risen by 30-90 per cent in two years) and a good run with monsoons-this year's deficiency notwithstanding.

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