Case Study

The lesson in Kolaveri Di's successExecutive 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:    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. are they not 'viral'? Anything can go viral. The Impetus: It is provided either via advertising or by piggybacking on a popular social media person's feed. The idea is the key. At times. even an e-mailer. 3. Media2Win The Idea Is All Important The idea behind advertising communication on any medium is to create impact. That is the power of digital media. Media2Win Abraham Koshy. incidentally. Kolaveri. 2. IIM-A The Appeal Of Imperfection Kolaveri Di has broken most records of being the most watched. You must have seen Kolaveri versions getting uploaded. Professor of Marketing. The TV commercials that get everyone talking. that's how the content gets refurbished and stays fresh. The Participation: Consumer participation is what makes content stay fresh. was one such piece of content. the content has to be such. CEO. KRISHNA KUMAR CEO. Recently someone tweeted after India's cricket victory.EXPERT SPEAK: Krishna Kumar. Consumers create their own versions. The Content: The idea and the execution are critical. The idea has to grab you. Virals are not born. establish a consumer connect and elicit consumer response. upload and share. something unexpected too has the potential to spread. Such people introduce the content to a larger audience. they are made. Whatever the medium. The three main qualities needed to go viral are: 1. most . This need not be a celebrity but any "popular" social media individual whose views are followed by many. "Hey Malinga – Why this Kolaveri Di". The result is an accelerated start of a spread. enable brand recall. the word Kolaveri will keep getting used. completely unexpected but it still connected. So. One of our very successful virals has been Adultdost for Tata Sky – an e-mailer. A message needs to be worth talking about – it should contain some comedy. The mark of a message that has potential to fire a viral phenomenon is its quality of being 'earthy'. Had Kolaveri been punched and clipped to make it clinically precise. The greatest utility of social networking is to use the technological possibilities as a vehicle to spread brand messages through community connections. three elements need to be aligned – message. Lack of precision and imperfections are natural and the masses identify with stories that exhibit them. Viral messages spread very rapidly. some pathos. the song would have been robbed of its natural blemishes. leaving some room for imagination. 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. A lesson for viral marketing from the Kolaveri phenomenon is the unpredictability of the traction that messages acquire. 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. Brands.talked about and most viral of all music videos. 'spontaneous'. messenger and media. and 'identifiable with the messenger'. IIM Ahmedabad . self-projection and empathy. For a song. ABRAHAM KOSHY Professor of Marketing. a video or a story to be successful. and some hope at the end. on the contrary. The store layouts reflected the typical sizes of apartments and also included a balcony. It understood early on that Chinese apartments were small and customers required functional. it faced peculiar problems. however. It learnt how to design its own furniture. wallets and watches by going door to door to his customers. IKEA had to make a number of changes to its marketing strategy in the US. understand local needs. Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943. its China revenue jumped 40 per cent from the year before. however. IKEA is the world's largest furniture retail chain and has more than 300 stores globally. IKEA had faced similar problems previously when it entered the United States. But it had to customize its products based on local needs. Today. where it plans to open its first store by 2014 and 25 stores in 10 to 15 years. bought raw material from suppliers in Poland. and adapt its strategies accordingly. To meet local laws. When he started selling his low-priced furniture. for instance. for instance. Its low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs.Ikea growth in China Executive Summary: IKEA is known globally for its low prices and innovatively designed furniture. It also assesses some lessons the company learnt in China that might be useful in India. But there was a problem . In China. it formed a joint venture. He began by selling pens. The company made slight modifications to its furniture to meet local needs. Local suppliers were banned from providing raw material and furniture to IKEA. his rivals did everything to stop him. In 1998. The company initially tried to replicate its existing business model and products in the US. This case study analyses how IKEA adapted its strategies to expand and become profitable in China. were far bigger than the ones in the US. and created its own exhibitions. modular solutions. The challenges it faced in China. demanded bigger beds and bigger closets. In 2004.its local stores were not profitable. What did IKEA do? It innovated to stay in business. . the company's revenue grew rapidly. As the company opened more stores from Beijing to Shanghai. IKEA started its retail operations in China. and the company was not allowed to showcase its furniture in industry exhibitions. The venture served as a good platform to test the market. American customers. . IKEA has cut its prices by more than 60 per cent. the company is using Chinese social media and micro-blogging website Weibo to target the urban youth. the company uses its product catalogue as a major marketing tool. The company also started performing local quality inspections closer to manufacturing to save on repair costs. and because their design costs were usually nil. and increasing the use of renewable energy in its stores. This category of customers has relatively higher incomes. Since 1999.IKEA identified the strategic challenges and made attempts to overcome them. High prices were one of the biggest barriers in China for people to purchase IKEA products. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials. were higher than the average in China The company realised this and started targeting the young middle-class population. as IKEA was targeting the mass market in other parts of the world. For instance. IKEA decided not to react. IKEA has been working on becoming more eco-friendly. These local factories resolved the problem of high import taxes in China. IKEA's global branding that promises low prices did not work in China also because western products are seen as aspirational in Asian markets. helped by mass production and trimming supply chain costs. The company plans to reduce prices further. In most markets. most customers use public transportation. is better educated and is more aware of western styles. about 65 per cent of the volume sales in the country come from local sourcing. Targeting this segment helped IKEA project itself as an aspirational western brand. considered low in Europe and the US. One of the main problems for IKEA was that its prices. considered low in Europe and North America. It has been charging for plastic bags. were higher than the average in China. While globally 30 per cent of IKEA's range comes from China. IKEA's low-price strategy seemed to create confusion among Chinese consumers. as it realised Chinese laws were not strong enough to deter such activities. Indeed. IKEA also had to tweak its marketing strategy. This was a massive change in strategy. Instead. the catalogue provided opportunities for competitors to imitate the company's products. All this proved difficult to implement in . IKEA also adjusted its store location strategy. In China. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks. The main problem for IKEA was that its prices. In China. local competitors copied IKEA's designs and then offered similar products at lower prices. In this regard. IKEA stores are usually located in the suburbs. asking suppliers for green products. however. 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. however. In Europe and the US. where most customers use personal vehicles. Since 2000. The China expansion came at a cost. IKEA built a number of factories in China and increased local sourcing of materials. IKEA did well to adapt in China. IKEA. Helping them adopt new technologies meant higher cost. especially if they result in higher prices. IKEA may face some India-specific challenges such as varying laws in different states ruled by different political parties. 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. its China experiences will come in handy. a bit challenging. which would hurt business. although it took numerous changes to its strategies and more than 12 years for the company to become profitable in the Asian nation. IKEA decided to stick with low prices to remain in business. There always will be local manufacturers who will have a lower cost structure. The delay in policy-making at the state level could be even longer. It is likely that Indian consumers will also look at IKEA in a similar way. IKEA already has had to wait a long time to get permission to open stores in India. IKEA wanted to be known as a low-price provider of durable furniture.Chinese people hate the do-it-yourself concept and Indians likely do so even more. especially distribution and logistics. IKEA will likely have hopes of attracting India's urban middle-class buyers who are keen on decorating their homes with stylish international brands. Also. famous for its flat-pack furniture which consumers have to assemble themselves. The company has learnt that doing business in emerging markets is a different ball game for a multinational company. It understood that in emerging markets. This could make its operations. .China. while Chinese consumers looked at IKEA as an aspirational brand. 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. Indian customer preferences and economic environment are similar to the Chinese market. realised that understanding the local culture is important . The company also learnt that emerging economies are not ready for environment-friendly practices. global brands may not replicate their success using a low-price strategy. a majority of suppliers in China did not have the necessary technologies to provide green products that met IKEA's standards. As IKEA prepares to enter India. It's essential for successful marketing campaigns to take into consideration the local approach versus the global/regional desire for standardisation. hopelessly mired in specialinterest politics. it will be difficult for IKEA to find the type of location (size. Fortunately. . 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. Instead. 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. modernisation of the retail sector. it may not be much of a predictor of IKEA's fortunes in India. Yet. This may have less to do with IKEA and more to do with the economic policies of India. Also. Prof Nirmalya Kumar. has been a non-starter. like in higher education. we need to roll out the red carpet for foreign investors instead of red tape. 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. upgrading of the supply chain. off a highway. not protect existing competitors from new entrants. A well-designed foreign direct investment (FDI) policy should have resulted in a rush of much-needed foreign investment to India. as well as more choices for consumers with lower prices. Capitalism without failure is like religion without sin. with great links to a major metropolis) that is crucial to the success of its business model. IKEA will persevere where more impatient publicly held firms may have given up. 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. The greatest challenge is to adapt constantly. with easy entry and exit. Competition law and trade policies are supposed to ensure that a free competitive marketplace exists. FDI in retail. except perhaps unconditional acceptance and responsiveness to changes. For India to kick its economy back to the growth rates necessary for meeting the aspirations of its citizens.FDI in retail in India has been a non-starter. as a privately held company with a longterm orientation. This will mean the first store will take much longer to open than Indians expect and the rollout will be painfully slow. on revenues of Rs 6. proving that the real shift in the global mindset is to recognise that local versus global can bring optimum results. and load shedding was frequent. Becoming an aspirational brand which is blogging with the Chinese middle-class youth is an unexpected twist in its brand proposition. a Gujarat cadre officer.227 crore. "He feared that a bankrupt power utility could derail his vision for the state. which was carried out in a manner fair to all stakeholders. "He knew electricity is crucial for growth. work with local sources. This case study details the key steps the government took to bring about the change. When Narendra Damodardas Modi took over as chief minister of Gujarat in October 2001. had posted a loss of Rs 2. He chose Man.jula Subramaniam." says Saurabh Patel.246 crore for 2000/01. Gujarat's Industries and Power Minister. The European headquarters' excitement to enter new markets with proven best practices is something of the past. Regional Marketing Manager. he found the state's power situation grim. GSEB had no funds to add generation capacity on its own.IKEA made all necessary adjustments to make sure there was no mismatch in its growth ambitions and brand promise. who had been joint secretary in the prime minister's office from 1993 to 1998. The Gujarat State Electricity Board. or T&D. Transmission and distribution. and they are ready to listen. A decade later it is in the forefront of states that have carried out sweeping power reforms.27 per cent. IKEA is a strong brand that understands that growing globally requires sacrifices and innovation from global teams. when Narendra Modi became chief minister. and . became one of Modi's top priorities. as a result of which it now has surplus power. losses were a substantial 35. then as now. respect and learn from the local environment. FWS/OEM SHELL Executive Summary: Gujarat's power sector was in a shambles in 2001. 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 demonstrated courage to get the most relevant changes. Interest costs alone were Rs 1. thus. Yelena Zubareva.280 crore. playing a key role in the country's liberalisation. By courage I mean all big corporations are ready to shift production. or GSEB." Click here to Enlarge Modi's first step was to identify a bureaucrat capable of taking on the enormous challenge. Reforming the GSEB. nor was it able to persuade the private sector to invest. was also set up. In May 2003.000 crore in 2003/04. Discovering that GSEB had secured loans at interest rates of 18 per cent or more. It was now time for the unbundling. the employees themselves began discussing possible reforms. Stringent action began against those who ran up large power bill arrears. including holding 'town hall' meetings where they shared details of the board's financial position and encouraged employees to ask questions. she sought debt restructuring. disturbed by widespread talk of power reforms. Simultaneously. which divided the GSEB into a holding . no one would be laid off.a measure of generator efficiency .appointed her Chairperson of GSEB and Principal Secretary. Subramaniam quickly realised that GSEB was too large an entity to be managed effectively. and ultimately. Rarely before had electricity boards renegotiated power purchase agreements. with GSEB entering into a structural loan re-adjustment with Asian Development Bank to fund the installing of meters. got the rates lowered. already signed with private players. An internal newsletter was also started. including disconnecting their supply. A 'reforms progress management group'. But she did not rush into unbundling it. and were feeling somewhat alienated from GSEB. convincing banks and financial institutions to lower their rates. armed with the consultant's suggestions. the government-constituted committee set up for the process stood firm. From mid-2002. Subramaniam felt the heat rate . the board began its special effort to reach out to employees. It passed a law against power thefts and set up five police stations across the state. which some rural areas were getting was stopped altogether. Instead. Subramaniam also found that many employees. she initially concentrated on two areas: bolstering the power utility's finances and building employee morale. But having examined the PPAs her board had entered into. comprising GSEB employees. who were consequently charging more than they should have. the Gujarat government passed the Gujarat Electricity Industry (Reform and Reorganisation) Act. Senior officials increased their interactions with the staff. solely to nab such thieves. Her next step was more radical. Power thefts in Gujarat then ranged between 20 per cent in urban areas and 70 per cent in rural regions. Energy and Power. leading to a further saving of Rs 675 crore in 2002/03 and Rs 1. which resulted in savings of Rs 500 crore in 2002/03. It started training programmes at all levels to reassure them that while people may be redeployed. or PPAs. She appointed a consultant to suggest ways to win back their loyalties. Once assured of retaining their jobs.had been inflated by the power suppliers. Though the private players initially resisted. feared for their jobs. after more than 18 months of hard bargaining. Modi's government began plugging the leakages in distribution. Unmetered power supply. a power transmission company and four distribution companies. "A single feeder has its limitations. 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. "The results were good." A sizeable proportion of its power . been able to revise power tariffs every year. "Our share of hydel power is very low and our power plants are very far away from coalfields.13 per cent. The regulator has." says Mukesh Puri. Private players. "Abundant power is a major USP of our state today. ." says Puri. The result? The state electricity board posted its first profit of Rs 203 crore . they are still higher than those of the southern states such as Andhra Pradesh. and Tamil Nadu.after tax . The cost of power in Gujarat has been traditionally high.in 2005/06. resulting in huge losses for GSEB. A study by Indian Institute of Management." Since the tariff for power used for agricultural purposes was much lower. a power generation company.000 crore." Though many rural residents had higher power bills to pay than in the past. net profit had risen to Rs 533 crore. once they found they were assured of uninterrupted. A few worries remain. or MW.company.is by the private sector. often of poor quality and at odd hours. or about 5. This enabled better management and more efficient operations. and remains so. "The chief minister asked us to have separate feeders. Karnataka. many used this subsidised supply for their household needs as well. "At times the cost of transporting coal equals the cost of the coal." Puri adds. which ensured the state bridged the gap between the average cost of supply and what users paid for it.unlike in most states . "The villages got power for only 12 to 15 hours a day. are now rushing in: of the power plants with a total installed capacity of 16.around 29 per cent . Managing Director of the holding company. better quality power.864 MW . which was a pathbreaking step no state had attempted before. while T&D losses had fallen to 20." says minister Patel.or roughly. Though T&D losses have fallen. Ahmedabad has estimated that the project saved the state capital expenditure of around Rs 23. thus. The Modi government has also taken scrupulous care to ensure that the state electricity regulator . a scheme Modi announced in 2003 to supply roundtheclock power to villages. once reluctant to invest in Gujarat's power generation. This was part of the Jyoti Gram Yojna.remains truly independent of political pressures. and the high cost of gas has forced scaling down the operations of some of them. Tariff collection efficiency is close to 100 per cent. a third .000 megawatts. By 2010/11.945 MW coming up in the state. Gujarat Urja Vikas Nigam. 6.also comes from gas-based plants. they cooperated with the government. Today feeder separation is being adopted by many others states. 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. 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. 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 separation of feeders for supply towards agricultural use was a master stroke. By offering to buy solar power at `12. the state will soon see over 350 MW of power from solar energy. Of the many innovations the state tried.000 crore in 2008/09 which further rose to Rs 106. or discoms. companies foraying into Gujarat are not too concerned about paying a couple of rupees more for consistent and good quality power. Parikh is Ex-member of Planning Commission.50 per unit. and Chairman. Parikh Where there is a will The Gujarat experience clearly shows what strong political will to reform the electricity sector can achieve. The share of costs . It not only helped farmers get quality power at fixed time but also ensured that leakages were curtailed. The distribution companies. Kirit S. incurred an accumulated loss of Rs 75. Integrated Research and Action for Development Gujarat's success mix of steps that have both commercial and social overtones: V.114 MW and a vibrant energy sector. it is a remarkable transformation for a state which was power deficient barely a decade ago. but now has a surplus of 2. Also the manner in which pilferage was tackled is interesting. It enabled measurement of the power used for agricultural purposes as well. The state has also been proactive in promoting renewable energy. so as to arrive at the exact quantum of subsidy that needs to be reimbursed to the distribution companies. As can be seen.341 crore in 2009/10.But ultimately. More needs to done there. The separation of feeders for supply towards agricultural was a master for Gujarat: Kirit S. Raghuraman Shining contrast Commercial losses and poor health are hallmarks of the power utilities of states in India. The bus drew much interest. Confederation of Indian Industry Executive Summary: In 2001. and inadequate transmission links. Raghuraman is former Principal Analyst. Gujarat has been able to achieve the growth with a mix of steps that have both commercial and social overtones. Energy. Volvo Bus Corporation.5 per cent in 2006/07 to 77 per cent in 2008/09. says many people came to see it at the 1998 . The worrying signs are high T&D losses. the track record indicates that Gujarat has the ability to attend to the concerns. if not heeded.recovered has deteriorated from 82. Now. Akash Passey. They were built on truck chassis. Timely tariff revisions have made the sector viable enabling the state to set up adequate generation capacity. or regular and 'deluxe' ones. It has also been able to meet the subsidy requirements of discoms on this account. Against this backdrop. The state is in a supply easy position with which it has been able to meet the requirements of the farm sector. 5. was reclining seats and a stylish paint job. The dismal state of affairs is due to continued political pressure opposing reduction in subsidies and efforts to lower distribution losses. Volvo now has 76 per cent of the Indian luxury bus market.again. Volvo did not achieve this by toning down its products or cutting prices as multinational companies often do. However. as the competition closes in. the performance of Gujarat in turning around the GSEB is noteworthy.000 of them were running on Indian roads. A decade ago. with stress on credible implementation and realising rational user charges. By December 2011. That is how things were when Volvo Buses entered India. Body builders bought chassis primarily from Telco (now Tata Motors) and Ashok Leyland. buses were more or less a by-product of trucks. could derail the capacity addition plans. The company changed the way Indians travel. Most state utilities have not revised tariffs for a number of years. Volvo Buses India sold 20 coaches. The state regulatory commissions are independent only on paper and are subject to political compulsions. which are still over 20 per cent. The difference between city and inter-city buses. which are using imported coal and have increased costs. The political will along with the turnaround strategy has produced the expected benefits. The demand for revision of tariffs of utilities. Senior Vice Presidentregion international. V. It developed the market and waited for it to mature. who headed India operations then. it is preparing to launch products that could transform the market . 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. which many states have not been able to do. These need to be fixed. in an attempt to explain how the bus loses height. He laughs.from operators to passengers to drivers . and sent them out on a six-month demonstration drive. said: 'When it halts. 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. Volvo departed from the industry norm by offering service support for the entire bus. The company approached private operators who ran inter-city 'deluxe' buses and could price tickets higher. Selling to state companies was proving tough. "The older of the two. Meanwhile." he says. Passey changed tack. the DTC tender was shelved. 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. it introduced products that would increase the number of passengers The changing economic landscape strengthened his resolve. so in 2000. "I felt there was little reason why an airconditioned bus would not work in a tropical country like India. it brought back the city bus CHANGE THE GAME When the competition started to close in on Volvo. recalling an animated discussion between two youngsters he overheard.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. the driver jumps out and deflates the tyres'. The B7R cost five times more than a 'deluxe' bus. Volvo refused to compromise on product specifications . But he persevered. NOT JUST THE PRODUCT Volvo engaged with all stakeholders . and not just parts" ." he says. He imported two Volvo B7R inter-city buses from Hong Kong and Singapore. Passey points out that inter-city buses are 12 metres long everywhere in the world.Delhi Auto Expo. it sought driver and passenger feedback.100 in 2006." says Passey. Volvo now has 76 per cent of the luxury bus market.But in India.000-km BangaloreMumbai run became popular. Phanindra Sama. "I did not choose the most sophisticated." To persuade operators that Volvos were profitable." says Passey. SPECIAL: Can Tata's Divo beat Volvo in the luxury bus market? In 2001 .000 by December 2011. "We had to sell the concept of luxury bus travel. founder and CEO of redBus.. but also other stakeholders. says. Operators could also focus on sprucing up service with hot towels and entertainment." he adds. which had 20 Volvos in 2004. reach Mumbai at 6 a. It was not until 2004 that it had a countrywide presence..a disadvantage in the early 2000s. bus length was capped at 11 metres. a portal that sells bus tickets. yet arrive at the same time. It got India to change a regulation that capped bus length at 11 metres Volvo also reached out to not only operators. "We realised we wouldn't sell much if we sold merely the product." Volvo also departed from the norm by offering service support for the entire bus. and 5. "All I had to do was choose the one best suited for India. Volvo stuck to its product specifications.within a year of demonstrating the inter-city coach . "We got the regulation changed. That figure reached 1." says Passey. is growing at around 10 per cent a year. But the biggest advantage was that they could run for 22 hours without maintenance.m. very little suspension and ordinary brakes. For example. and increasing migration to cities from Tier-II and Tier-III towns. With maintenance hassles reduced. Passey says: "We told them you don't need that with a Volvo. because operators were used to frontengine buses." Eventually. We'll give you one every 400 km. the sales team drew up a lifecycle cost comparison. routes such as the 1. state bus companies not only bought Volvos but also built brands around them: Garuda in Andhra . they could depart later than a deluxe coach. according to industry estimates. Before launching the B7R in 2001." As Volvos could run farther than buses used till then. as was the usual practice.m. and not just individual parts. It ran commercials in film theatres. Volvos had a few more seats than others . when states taxed operators per seat. It was a good thing Volvo had a wide range of products. A bus could leave Ahmedabad at 10 p. Operators were concerned whether Volvo would provide maintenance centres every 25 km. Mumbai-based Neeta Tours and Travels. starting with South and West India. The market itself. This also meant they could raise ticket prices by as much as Rs 100 on some routes. "The Volvo phenomenon coincided with higher per capita income. more awareness about luxury. operators could focus on routes. and then head back to Ahmedabad at 10 p. Being faster. "It was of utmost importance to us to have service leading sales and not the other way round.m.Volvo sold 20 of them in India. Volvo expanded gradually. then go to Pune and back. figured it could serve seven destinations. as passengers asked for Volvo tickets. as traffic is set to grow in this segment. had it entered India in 2001.100 medium-haul bus (for distances of 300 to 400 km).is possible because of a previous strategic step.500 by 2013/14. Volvo hopes to make second-tier city connections viable. After all. With the 9." Would any other bus company. one of the crucial factors in Volvo's success in India is that it has invested in changing the circumstances. This move . But it was also because local manufacturers could not create this market successfully. Shivneri in Maharashtra.100 buses a year. Its 14. Volvo hopes to make second-tier city connections viable. and hopes to raise production to 2. Its 14. Airawat in Karnataka. Volvo sold its first city bus to the Bangalore Metropolitan Transport Corporation.5-m multi-axle city bus is being pitched as a solution for urban traffic congestion.Pradesh. and if it were patient enough to develop the market. if its product range was comparable. The development of expressways such as the Mumbai-Pune one helped things along. Volvo started manufacturing buses near Bangalore. More case studies As with the inter-city coach. especially with rivals such as Mercedes-Benz and Tata Motors tail-gating it. Volvo became a ticket brand . have done as well as Volvo? Perhaps. because there was no demand for a better product.something no other commercial vehicle has achieved anywhere in the world . Mercedes still depends on its body maker. with more space for passengers and luggage. EXPERTS SPEAK To fare better in the transport market. It makes 1. Volvo should offer a systemic solution: Geetam Tiwari 'THINK BEYOND BUSES' Local manufacturers did not upgrade bus technology almost until 2004.5-m inter-city bus is the longest in India. Volvo's strategy of bringing state-of-the-art products and creating a market for long-distance luxury travel has been commendable. the success of the city bus was gradual. In 2008. . Sutlej. In January 2006. Given this environment. Under the Jawaharlal Nehru National Urban Renewal Mission. Higher disposable incomes and other changes in the economic landscape have certainly contributed to the success of inter-city travel driven by Volvo.changing the market when the competition closes in . Volvos now ply in 13 cities. Sama of red-Bus says: "The fact that Volvo manufactures its own buses works to its advantage. as traffi c is set to grow in this segment The company is again looking to change the market. rather than an operator or a route. to create a financially viable market. What Volvo has demonstrated is that though Indians are traditionally cost conscious. stops for level boarding. As the urban population is going to double in 25 years . but also state-ofthe-art roads designed for public transport. This means creating central lanes for buses. will grow faster and larger. and making streets safe for pedestrians (because every public transport user is a pedestrian at the beginning and end of the journey). especially to cater to the common man. Geetam Tiwari. but no one really cared. 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. and IT service providers and offer comprehensive solutions supported by local or state governments. The country requires about 5. We are far away from a bullet train era. Its buses were many times costlier. for which commuters would pay a premium. It firmly believed there was a market for luxury bus transport in India. and air travel did not suit them. {quote}Volvo was first to spot this opportunity. They were willing to pay a premium for bus transport. operators. passenger information systems. money cannot be recovered from fares alone. and people bought into it. A comfortable journey that reduces travel time by a few hours was what Volvo bus operators offered to justify the premium fares. There is need for thought on financing public transport systems. the luxury bus segment. Growing environmental concerns and easy availability of information technology will fuel this growth. and not just vehicle manufacturers. Ministry of Urban Development Chair Professor of Transport Planning. There were quality issues. and the operators needed to charge higher fares to make money. Things began to change with liberalisation. Volvo's success lies in converting this belief into a value proposition.{quote}Urban public transport remains a challenge because it requires not just state-of-the-art buses. Most Indian cities will not be able to meet mobility demand without state-of-theart bus transport. especially for inter-city travel. Also.the urban transport market will grow and could attract more investment. You needed to book months in advance for trains.000 more buses a year. Volvo should offer a systemic solution. as more people began to move from the middle class to the upper middle class and above. It is up to the government and the mobility service providers. and the poor state of the railways would only catalyse this . So demand for good quality buses will grow. The rest is history. It could form a consortium of planners. To fare better in the urban transport market. there is a growing crop of customers who demand quality. not just buses. As road infrastructure improves and people get richer.about 600 million people by 2040 . They sought better quality travel. but no such service was available barring a few air-conditioned buses. is aimed at restoring the profitability of the TV business." says Kris Ramachandran. Philips will get royalty income based on turnover. former CEO of Philips Electronics India. Dutch consumer electronics major Philips has slipped over the years to become an 'also ran'. and the best comment will win a Harvard Business School Press pocket mentor. It didn't want to compete with the Koreans on pricing. PwC What lessons can be drawn from Volvo's success? Write to us at [email protected]. would stand out. It took the third-party route to manufacture CRTs and imported LCD screens. under which Videocon is handling Philips's TV manufacturing.Automotive. 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. but business eroded as Korean and Indian brands grabbed market share. when Philips Electronics India Ltd announced its plan to outsource its TV business to Videocon Industries. "We took a conscious decision not to cut prices. The downfall of Philips's consumer business .businesstoday. and thought the superior technology of its products. Your views will be published in our online edition. The entry of Korean chaebols such as Samsung and LG started eating into the market share of older players such as Onida. but this didn't help.in/casestudy Executive Summary: Once a household name. 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. Previous case studies are at www. distribution and sales in India. The reasons were beyond the control of the management. as luxury bus travel in the country has become synonymous with Volvo. Volvo's success has triggered the entry of more players into the luxury segment.shift. In April 2010. Partner and Leader . .especially TV began in late 1990s Through the arrangement. The five-year pact. Its repeated attempts to rekindle its mojo have failed. the company struggled to run its TV factory in Pune efficiently. Philips decided to stick to its usual strategy: relying on technology rather than strengthening distribution and marketing. Abdul Majeed. the decision came as no surprise. As volumes fell. Videocon and Philips. be it picture or sound quality. The downfall of Philips's consumer business . with a market share of around 15 per cent in the early 1990s. Then the company licensed the unit to Videocon.especially TV began in late 1990s. Philips was once a dominant player in the segment. The Swedish company is best placed to take advantage of this transformation. 500 by 2005. profitable growth. From six legal entities." Philips also rejigged its skills portfolio. the company failed to market its products well. High-end plasma TVs were also introduced. but lacked aggressive marketing. A 2001 survey by ad agency JWT further helped Philips improve its brand image." says S. Venkataramani. After this. Philips has historically been the segment leader in India. "The idea was to Indianise products to suit local tastes. The new sets had 300 channels. it roped in PwC to revamp its consumer products portfolio." says Rajeev Karwal. Its workforce went from more than 11. who headed Philips's consumer electronics division in 1999.LOW-VOLTAGE BRAND THE PROBLEM The company’s brand image has declined over the years. Although Philips sustained its TV market share at around six per cent in .000 in the early 1990s to around 3. Although the brand was iconic in India for several decades with customers associating the transistor radio and incandescent bulbs with the Philips name. We tied up with dealers and proved that the technologies of our Korean counterparts are no superior to ours. set up new processes and overhaul the supply chain. the strategy flopped. most of Philips's ad campaigns emphasised the advanced features of its products. Philips's product offerings have undergone a sea change So from 2001 on. In early 2000. on the other hand. NonExecutive Director. Philips did take some steps to address the situation. the company reclaimed some lost ground. To revive its past glory. After losing its relevance in the consumer business. Philips India. A country like India requires go-to-market strategies.5 per cent by 1999. which hurt its brand perception THE CHALLENGE The company rolled out multiple strategies to overcome its problem. the survey found that people did not associate the brand with highend technology. as opposed to 60 channels in older ones. The slow-moving Philips couldn't sustain its top position and its market share fell to some 3. Indians. who like subtle colours. it launched a new range of CRT TVs under the brand name EyeQ. "The focus was on reshaping the company to ensure sustainable. "When I joined Philips. with a market share of around 30 per cent "Philips was strong in innovation. have a fondness for saturation and bright colours." says Karwal. and has very little recall value among youth THE CAUSE Despite its technological strengths. I brought in fresh blood to challenge internal systems. The TV market share went up to eight per cent in 2002. it became one legal entity. The later versions of our TVs focused on targeting this issue. Gradually." says Ramachandran. "The earlier TVs were more suited for Europeans. but they failed in a market dominated by fleet-footed Korean companies In no time. In lighting. the Indian arm. Starting with the launch of MP3 players in 2009. the dumping of Chinese lighting products affected its market share. which includes DVDs and home theatre systems.Philips's revenues from the consumer business declined from nearly Rs 1. In 2005.D. To streamline this segment. it leads the DVD market with a share of over 24 per cent. though. Industry Manager for electronics and security at Frost & Sullivan South Asia & Middle East. Havells.it now accounts for 51 per cent of Philips's revenues. "The transition to store movies and music on a pen drive is already occurring at a fast clip. "Since the parent company exited the CRT industry in 2006. Philips has come out with new products. Today." For professional lighting. it lost the way when it shifted focus from TVs to lowmargin products such as DVD players. the company's dependence on this segment has grown ." says A. In the past five years.000 crore in 2010 ." Still." says Nirupam Sahay. Bajaj Electricals. lighting accounted for slightly over 34 per cent of revenues. .000 crore in 2005 to Rs 33. According to some senior executives. Later.consumer lifestyle.the following years. the company had to shut down a factory each in Kolkata and Mumbai in the late 1990s. showed little interest in the business. "Whether it's CFL or LED technology. exponential growth in the lighting and health care segments kept Philips going. When the consumer electronics and appliances market exploded . While the consumer business hit a brick wall.have undergone a sea change. But even the lighting business has seen plenty of ups and downs. the company has historically been the leader. Ratnam. Philips is a pioneer in bringing lighting solutions to India. "We have a big distribution network and reach out to one million electrical and non-electrical outlets. and Surya Roshni. In lighting. President of Philips's lighting division. From over 42 per cent of turnover in 2005. MP3 players and headphones.it went from Rs 20. Sector experts say changes in the AVM in-dustry will keep Philips's consumer electronics business under threat." says Deepa Doraiswamy. Cognizant Technologies and Kolkata Municipal Corporation. could be shortlived. Wipro Consumer Care and Lighting. Product offerings across all three categories .A. Philips gets a big chunk of its revenues from audio video multimedia (AVM).more than twice that of its nearest competitors. Philips's client portfolio includes corporate and government customers such as Asian Paints. many of which target youth. Timely government intervention in the form of anti-dumping laws helped CFL manufacturers. and it affected growth momentum. Philips is doing all it can to revive its past glory. lighting and health care . this was partly because the CRT division was given less importance at a time when the CRT market was growing in India. "The DVD market is dying. In fact. too. McDonalds India.091 crore in 2005 to Rs 659 crore in 2010. The revenue mix got overhauled. with a market share of more than 30 per cent . This. the consumer business fell to some 28 per cent in 2010. President of Philips India's consumer lifestyle division. They managed to put up manufacturing plants in record time. Since 2009. In 2011. The Korean majors brought their best products globally with little or no time lag to India. They recruited dealers at an astonishing pace in the early years. Besides. The one thing that sets the Koreans apart from not just Philips but all other competitors is their speed of execution."India has a huge young population. body groomers and epilators. customers and even shop boys. Besides. In the new millennium. "The focus is to make products that are not overengineered and are easy to replenish. Philips has opened 75 exclusive 'light lounges' in 40 cities.R. It roped in John Abraham and Kareena Kapoor as brand ambassadors. They showcased their good products through savvy marketing (“Golden Eye” TV and umbrella “health” branding by LG). This is the first time the Philips brand has been promoted by celebrities in India. All these are object lessons in marketing for competitors like Philips.000. Philips has 750 'light shoppes' ." says Ratnam. there is a certain law of gravity in electronic hardware. and introduced shavers. "We have to get into the lifecycle of consumers earlier. Philips is trying to redefine the market. VCRs. Philips should emulate the marketing aggressiveness of the Korean majors. In the 1990s. Philips India's Managing Director and CEO." says Ratnam. so we decided our target customers should be 15 to 30 years old.L. be they laptops.shop-in-shops in stores such as the Future Group's HomeTown and Lifestyle International's Home Centre. better price points. says Karwal. Even tried and tested players like Nokia are not able to take the heat." Philips has revamped its personal care portfolio. the Korean duo launched a promotion broadside that left little to chance. Prices of electric goods always fall. Philips acquired leading appliances maker Maya Appliances. It touched all stakeholders – dealers." It has launched devices priced as low as Rs 150. Philips's record inspires little confidence in its comeback attempt." says Rajeev Chopra. it was Videocon that headed the table for dealer promotions. They sell decorative home lighting products priced between Rs 575 and Rs 45. "For each segment. "Youngsters don't want to hold on to a product for 10 years.and the will to fight: Y." 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. Philips lacks a clearcut strategy for India. because that's where buying is going to happen. the former MD. . Here’s how. Moorthi Philips is first a technology company and then a marketing company. which owns the Preethi brand of kitchenware. The reverse is true of Samsung and LG (though they enormously improved their products in the last decade). "They are like a bull in a China shop. While Korean brands invested in manufacturing in India. the Philips brand has little significance among youth – the most important market. 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. all is not lost for Philips. Inventions such as the cassette tape. The last nail in the coffin is the licensing of the TV brand to its lesser competitors. CD and 100Hz TV kept Philips in a leading position in consumer perception. Philips used its global strategy in the Indian market scenario where the dynamics are different. The brand transformation of Philips is a lesson for all marketers. at a different pace in different regions. consumer electronics became its face. future tense. Many of its divisions were connected with consumer electronics. Philips was very strong in India till the end of 1990s. they never quite leveraged this strength. As the market became competitive and margins razorthin. A company that doesn’t prepare itself for constant product upgrades and a simultaneous price squeeze will fall by the wayside. Philips is seen as a home-grown brand like Bata.R. Philips tried to introduce expensive models with a bit of tinkering. Maybe we can encapsulate the Philips story in just one line: past imperfect. Today. Philips’s strategy today is to become a leader in health care. It was R&D. There are also bright spots like the lighting business and the acquisition of Preethi. Managing LED will bring back challenges similar to those of the semiconductor division.audio gadgets or mobiles. At one point of time it was the benchmark of innovation in audio. such as semiconductors and components. The Koreans excelled at this balancing act to lead the charts. Although it started as a lighting company. Its consumer electronics patent pool steadily eroded over the last decade.L. Strangely. Though a multinational. better price points. that gave the brand its strength. Its brand dilution happened globally. That said. Thus the mantra for Philips’ rejuvenation is more relevant products. ruining a once vibrant brand. While the Koreans developed India-specific models. It tried one strategy after another but failed. Professor (Marketing). Philips CE tried to revive its sagging profitability by neglecting its strength: it focused on the bottom line and marketing without strengthening innovation. . not marketing. A 1997 survey showed that brand awareness was higher for Philips than Coca-Cola. Surf or Lifebuoy. Philips closed its plants. inspired leadership intermittently did boost market share in categories like DVD players for them. Y. The strategy of “milking a dying cow― does not augur well with consumers. Also. and retain its top position in lighting with new technologies such as LED. Philips started losing money in consumer electronics. aggressive marketing and the will to fight. Moorthi. Philips got rid of these as they did not fit into its new game plan. 2013 Tags: India Best SMEs | Best SMEs STORY TOOLS     Change font size Print this story E-Mail this story Comment RELATED   Ain't no time to disco for India's auto sector Car sales fall first time in a decade VW Vento and Skoda Rapid . Madhavan Edition: April 28. Chairman. has not worked so far in India.Ankan Biswas.or selling the same car with cosmetic changes under different brand names. Digital Broadcast Council. Consumer Electronics and Appliances Manufacturers Association Double trouble Cross-badging. This case study looks at where the problem lies: is the strategy at fault or the execution? N. Micra and Pulse are essentially the same cars. design and product development . Nissan's sedan Sunny sold 2. This case study looks at where the problem lies: is the strategy at fault or the execution? In January 2012.191 units.or selling the same car with cosmetic changes under different brand names. Japanese auto major Nissan's Indian subsidiary Nissan Motor India sold 1. A month later.474 units in India in October 2011. In fact. Vento's sales have since fallen to 1. but sold under different names. Sunny and Scala are all products of the Nissan-Renault alliance. while Pulse sold 420 units. has not worked so far in India. In September that year Renault launched its sedan. Turn to sedans. By February this year Sunny sales had fallen to 1. carmaker Skoda launched its sedan Rapid.Vento and Rapid are from the same stable. Scala. They have been strategic partners since 1999.855 units of its compact car Micra. So too are Sunny and Scala.Executive Summary: Cross-badging. In February this year. or selling the same car under different brand names . but used for decades in the United States and Europe to boost sales. Micra sales were down to 608 units. made in the same factories.a concept new to India. Pulse. It sold 3. Once again. or Vento and Rapid. In August 2012. Skoda is part of the Volkswagen group .909 by February this year. while Scala sold 620 units. "Automobile makers resort to crossbadging to save on engineering.757 units. Welcome to the strategy of crossbadging . with some cosmetic differences. Or take German car manufacturer Volkswagen's sedan Vento. And guess what? Nissan and Renault are not even competitors. Micra. The same month French carmaker Renault launched its compact car Pulse in India. Nissan's master franchisee in India.before Scala was launched. It would have cost Renault India a lot more time and money to develop a compact car. which is squeezing the entire industry. Marketing and Sales. Director. while a fully loaded Micra costs Rs 5. Frost & Sullivan." says Nitish Tipnis.61 lakh today. reports claim Nissan will soon fill a big gap in its product portfolio .an investment of less than Rs 20 crore. to reduce the lead time in bringing a new product to the market.costs." says Kakade. or a sedan had it chosen not to cross badge Nissan models. "The extent of failure is such that the combined volumes of Scala and Sunny's sales in February this year was 1. While some attribute this to the slowdown. a Pulse with similar features is priced at Rs 5. It costs at least Rs 300 crore to develop a car for India. it shrank.2. Hover Automotive . Few will see . But neither Nissan (nor Renault) nor Volkswagen have been around long enough in India to win the fierce brand loyalty that crossbadging banks upon.757 units . "Cross-badging offers a clear value proposition to the manufacturers and helps them expand the market. to achieve economies of scale." Indeed.it has no compact sports utility vehicle (SUV) . The same is true for the NissanRenault products. and to widen their product portfolio and get better returns with incremental investment." says Vijay Kakade.by crossbadging the highly successful Renault Duster. Worse.76 lakh. Why has cross-badging not worked? Examples from other countries have established that brand loyalty is critical to the success of crossbadging. on the contrary. Automotive and Transportation Practice. both attempts so far have been failures. Director. 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. But cross-badging requires merely tooling changes . Cross-badging did not expand the market.811 units. But does it? In India. which is lower than the number Sunny alone sold . There are no shortcuts like crossbadging to brand building." says B." adds Subbu." Others claim the Indian market is not yet mature enough for this particular strategy. 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. But that left Vento customers feeling short changed. Partner and Leader. automotive entrepreneur and former President. PwC. Nissan itself is alive to crossbadging's limitations. "Crossbadging offers clear value to car manufacturers but what about the customers.V." says Toshiyuki Shiga. "Indian customers have not evolved to a level where they understand the nuances of cross-badging. but the auto market is also highly competitive with well entrenched and aggressive players. "Crossbadging can at best be a temporary strategy to enhance product line-up and make dealerships profitable. "It is very important to communicate the value proposition to the consumer. Scala and Sunny. pricing Skoda's Rapid lower than Vento. Subbu. The same applies to the sedans. large investments are essential. but if used over a long period of time.R.sense in paying more for essentially the same car simply to flaunt the Renault label.Automotive Practice. it will lead to brand erosion. Volkswagen did the opposite. "It is a strategy that is best avoided in India." says Abdul Majeed. apart from lowering the resale value of both cars. ." he adds. Hyundai Motor India Ltd. There may have been some gaps in communication too. "It is financially prudent and more effective to spend heavily on developing one brand. Not only is the Indian consumer primarily value driven. Will consumers be more tolerant of cross-branding behaviour in future? Most likely. she is willing to spend time. If physical features were discernibly different. In recent times the only instance of cross badging working is that of the Subaru BRZ and the Toyota Scion FR-S. General Motors in the US has tried cross-badging all too frequently . Consumers actively search for information from multiple sources and analyse it. It was not a case of taking an existing model and cross-badging it.COO. social and psychological risk. both launched in the US this year. 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. do Indians value the product more or the brand? There is no easy answer. according to auto experts. Subaro took care of the engineering. Globally too. While buying automobiles. The differences in price points of the two further accentuate her need for an acceptable explanation. Consumer familiarity with the product class and gradual acceptance of this new rule of the game will reduce resistance to the cross-branding phenomenon. Nissan Motor Co." says Kakade. the brand would act as a decisive force in consumer choice. But there were specific reasons for this.and is paying for doing so. The similarity of the physical features overrule the brand value quotient. cross-badging. chassis and power train while Toyota handled the design. despite the products belonging to different companies and sporting different brands. "Excessive cross-badging is one of the factors that contributed to General Motors' bankruptcy. a better vehicle than either could have done individually. yes. Automobile buying is a high-involvement process for the consumer. comparing products and brands. has not always been a success. effort and energy to arrive at the decision. 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. though long practised. In contrast. At this point in history of automobile industry in India. 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. is an important reason for lower consumer preference. cross-branding is driven essentially by production and manufacturing considerations than by . thereby producing. This sports car was developed jointly by Subaru and Toyota Motor Co. Professor Abraham Koshy. engines. manufacturers first need to establish their brands well in the market. coupled with the market slowdown. etc.consumer logic. say. India Automotive Practice. Professor of Marketing. (Views expressed are personal) Rakesh Batra. their premium positioning. Global original equipment manufacturers (OEMS) are lately appreciating that India is a different market and needs to be treated separately. are leading to unprofitable operations in India. This in turn results in cross-badging of products. Cross-badging in India is being used primarily as a cost optimisation strategy. This would further help the OEM concentrate on and establish a strong customer base for just one brand product at a time. Ernst & Young . IIM-A For crossbadging to succeed. While such iterations. 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. looks at competing brands and understands the ethos of the different brands. which has resulted in a lot of iterations of their market strategy. to sustain various brands they have established in the Indian market and to compete with the likes of Maruti and Hyundai. Cross-badging in India can be used by manufacturers very successfully to increase the life cycle of their products. OEMs are trying to leverage common platforms. 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. 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. etc. and to expand the product line-ups. National Leader. For crossbadging to succeed. There was also the risk of failure. This case study looks at how the two companies leveraged their respective strengths to achieve their disparate goals. It took Eicher six years and Rs 25 crore to build the truck. The building is a "green" structure. Lal found a partner which had all that. which ties into the after-sales service. the world's second-largest truck maker after Daimler AG of Germany. a 35-tonne spiral staircase made of steel hangs from the ceiling." says Lal. Volvo brought advanced manufacturing technology and set up new processes to improve Eicher's after-sales service. joined hands with Swedish truck maker Volvo in 2008 to form VE Commercial Vehicles (VECV). where Eicher Managing Director and CEO Siddhartha Lal sits in a corner office. Eicher started developing a heavy truck to compete with market leaders Tata Motors and Ashok Leyland.082 crore and added its heavy trucks distribution business to buy a 50 per cent stake.in/re-bullet). It was eager to expand its commercial vehicle . It is also a reflection of Lal's business mantra of maximising the use of available resources. At the newly constructed headquarters of Eicher Motors in Gurgaon. Eicher moved its truck and bus business to a new company. 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. Eicher probably could have done that on its own but it would have required a vast amount of time and effort. a thirdgeneration member of the family that controls Eicher. The partners set up a component distribution centre. Volvo. 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. into which Volvo pumped about Rs 1. for instance. on the other hand. Lal wanted to boost Eicher's commercial vehicles business in India and also build an overseas presence. Eicher was set up in 1948 to import tractors. to monitor inventory at retail outlets and Eicher's warehouses.Executive Summary: In 2008. It entered the commercial vehicle business in 1986 when it began selling a six-tonne fully imported truck from Japanese auto maker Mitsubishi. and Lal didn't want to take that chance. wanted to crack the small and medium-truck segment in India. "In order to crack the market we needed more muscle . In Volvo. systems and technology. who had previously turned around Eicher's iconic Royal Enfield motorcycle unit (see businesstoday. which means it is constructed largely with renewable material and is energy-efficient. 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. The flight of steps goes all the way up to the sixth floor of the glass-and-steel building. the joint venture VECV. He needed a foreign partner to make a great leap forward. Efficient utilisation of resources is the main reason why Lal.funds. In 1997. Senior Vice President and Director at VECV. . "Frugal engineering is something all global manufacturers are looking at. 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. Exports to neighbouring countries such as Sri Lanka.443 crore in 2012. 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.66 crore in 2012. VECV plans to invest Rs 1." says Jeffrey W. "They (Eicher) decided to break into the Asian market but could not do so without a joint venture model. leader of automotive practice at consultancy and audit firm PricewaterhouseCoopers (PwC). These engines will conform to Euro-VI emission standards . improve processes and set up an engine factory at Pithampur in Madhya Pradesh. In the next two years." says Abdul Majeed. 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.business in the country. Volvo knew if it completely overhauled the Eicher platform the cost would jump significantly. but Volvo trucks were costlier than products sold by local rivals. he adds. Vinod Aggarwal. CEO of VECV. and the other was to make India a base for exports to other emerging markets. "We (Volvo) realised we wanted to participate in India's mainstream business. India country manager at PTC Inc. for which we had to produce trucks at a lower price. The investments have started showing results.300 crore to expand manufacturing and distribution capacity. VECV's share has risen by a percentage point every year to five per cent. In buses. Wilmot. starting this year.200 crore to develop products. One was to get a significant market share in India.000 engines a year. VECV has a cash surplus of Rs 700 crore and posted a net profit of Rs 336. which offers services such as product and supply chain management. the market share has tripled to 14 per cent.to be implemented in Europe from January 2014. Nepal and Bangladesh contribute four per cent to VECV's total sales. But vehicles made in India were not good enough to export. The factory can make 100. Eicher's low-cost manufacturing base offered Volvo that opportunity. VECV will export 30 per cent engines annually to Europe. It had to selectively inject technology to make the products better." says Philippe Divry. set up a bus body plant and expand capacity. In the heavy vehicles segment. Eicher's revenue from the trucks and bus business has more than doubled since forming the joint venture to Rs 5. Divry says Volvo had two main goals while forming the joint venture. Aggarwal says VECV has invested Rs 1. Eicher's revenue from the trucks and bus business has more than doubled since forming the joint venture to Rs 5. after Volvo. and their working styles seem compatible enough. Sitting in the Gurgaon headquarters. because the low-cost Eicher vehicles offer Volvo a chance to boost its presence in emerging economies without diluting its brand image.443 crore in 2012 Aggarwal of VECV says Eicher will now be the Swedish company's fifth truck brand globally." says PwC's Majeed. While things currently look fine. 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.. But he has managed to prove his own doubts wrong and reoriented Eicher's commercial vehicle business. They also bring complementary strengths to the relationship . Both partners seem committed to the relationship as evidenced by their growing investment in it over time. UD. a learning from one developing country is being taken to other countries. Volvo must anticipate and resolve tricky issues' A joint venture's initial success is often linked to the '4Cs of Partner Fit': Convergence. "In joint ventures like these. Lal recalls he initially had doubts about VECV's success. "The world opens up for us by using their (Volvo's) distribution network. Volvo has gradually learnt what it takes to compete effectively in India.Volvo contributes its global brand and experience. 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. Renault. Both partners seem committed to the relationship. . Many prior ventures between multinational companies and Indian players have faced these issues. Hopefully. world-class technology and processes whereas Eicher provides local market understanding along with frugal manufacturing capabilities. Complementarities. and consequently ended fractiously. some tricky issues might arise in the future. It has invested more into the joint venture over time as compared to Eicher. and their working styles seem compatible enough: Prashant Kale 'Eicher. and Mack. Commitment and Compatibility." Exporting Eicher-branded vehicles benefits Volvo as well.. Eicher and Volvo would anticipate these evolving issues and have effective ways to address them. 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.Prashant Kale. fills the gaps of the better half. and reliability. Needless to say. strong enough to compete with global majors like Tata Motors and Ashok Leyland. as well as build upon the low-cost manufacturing base available with domestic manufacturers in India. Vijay Kakade. is a perfect marriage wherein each individual company has its own strengths and. VE Commercial Vehicles. This partnership will definitely reshape Eicher's presence in the Indian and overseas markets. 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. Automotive & Transportation Practice. comfort. it will help pave the way for it to address the high-volume market of low-cost medium. 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. Frost & Sullivan . in the long run. It will help Eicher re-align its product line to address the changing scenario for both domestic as well overseas markets. at the same time. overseas' The Volvo-Eicher joint venture. VE Commercial Vehicles will be one of the prime competitors in India's low-cost trucks market. just like the recent move of establishing an engine assembly line at Pithampur to meet the requirements of its European market. In case of Volvo. which are considered synonymous with quality. This partnership will benefit Volvo in a similar way.and heavy-duty trucks. It definitely assures customers that their expectations will be met with respect to the products coming out of this joint venture. Director. But unlike in the West. Subramanian has aged much beyond his 43 years." rues a dishevelled Subramanian. Madhavan STORY TOOLS     Edition: June 28. the change in Subhiksha's fortunes has been as dramatic as its rapid rise from being just a regional player to a national one. 2009 Change font size Print this story E-Mail this story Comment Subhiksha Trading Services' R.and the recent crisis-without doubt an avoidable tragedy. people in India preferred to shop groceries close . Vendor payments were defaulted and shelves ran empty It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit) came to his mind. that they were extremely price sensitive on groceries and that discount stores were the largest growing format. "We were a darling company that could do no wrong till September 2008 and suddenly we were in trouble. In fact.Pushing the accelerator instead of brakes N. an IIT Madras and IIM Ahmedabad alumnus. Subramanian Over the last nine months. Subramanian. Organised retail. as he looked back at Subhiksha's early days-clearly successful. was non-existent. R. Research revealed that grocery was one of the largest categories of spending for the average customer. was then into the financial services business of asset securitisation. 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 India. " reveals Subramanian. Sales grew steadily. In what proved to be a watershed decision later in its brief history. 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.320 Sept 2008: 1. In the first year 10 stores were opened and the count rose to 19 by March 1999. Subramanian. IIT Madras and IIM Ahmedabad Business: Discounted retail Funding: R. This money was used to expand outside Chennai. 60 to 70 stores were added in a month. Expanded too fast too soon In 2004. scale up at a rapid pace.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. consortium of banks (debt) Employees: 14. but by March 2007 it had shot up to . Cash flows were reasonable and debt. "We opened our first shop in Chennai in March 1997 with funds from the financial services business. volumes were picking up and customers were responding. Between late 2004 and early 2007. Subhiksha had 140 stores across 30 towns in Tamil Nadu. 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. Rs 160 crore worth of equity was raised. Subhiksha decided to expand nationally and more so. the retail sector was seeing an enhanced level of activity. Problems did arise initially though. The question we faced was do we expand sequentially (one state at a time) or parallely (many states simultaneously)? We opted for the latter." recalls Subramanian. "We realised that we had done our bit in Tamil Nadu and it was time to go national. 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. That apart.000 (by end of 2008) Revenue: Rs 2. The pace of rollout is evident from the fact that till September 2006. Subhiksha had a store count of just 160. at Rs 15 crore against the net worth of Rs 23 crore. Subhiksha Year of founding: 1997 Founder: R. By 2002-03. The model slowly fell into place-a large number of small stores with easy accessibility offering products at a discount. of Stores 1997: 10 1999: 19 2000: 50 2003: 140 Mar 2007: 670 Mar 2008: 1. Subramanian. into the rest of Tamil Nadu.305 crore (2007-08) The flameout Year No. By then Subhiksha was breaking even. as its unique discounting model enraged the retail trade in Chennai. was comfortable. which accused it of unfairly undercutting their business. ICICI Venture (equity). On an average.by. 000 crore. we thought.670 and by March 2008 to 1. tripled our revenues (from Rs 833 crore to Rs 2. Despite the cost pressures in 2006 after Reliance. would at best lower our valuation by 10 per cent or so.650-in all 1. we were finding it difficult to borrow.305 crore) and almost quadrupled our profits (from Rs 11 crore to Rs 39 crore). By then the stock markets had begun to weaken. it announced a merger plan with Blue Green Construction Ltd.320). But we should have raised equity in March 2008.320. It was to be funded by Rs 400 crore equity and Rs 600 crore debt. Used working capital for expansion "By July 2008. Buoyed by its performance." says Subramanian. and which had done some research on the CDIT business. picked up the 10 per cent stake in Subhiksha that was offloaded by ICICI Venture for Rs 230 crore.300 crore. There was a lot of investor interest in Subhiksha. in September we had some good offers for equity but . in March 2008.500 stores were added in just 24 months. beginning of its decline too). In June 2008. failed to capitalise on Premji's investment and the goodwill it created to raise money from the market. "Business was growing like mad. which had been contemplating and postponing initial public offering (IPO) since 2007. There was nothing to tell us that we were in for a complete collapse of the equity markets.000-crore investment plan for increasing the store count to 2." concedes Subramanian. The banks were getting worried too. By then Subhiksha had become the country's largest mobile phone retailer with an annual turnover of Rs 1. between 2006-07 and 2007-08 we doubled our stores (from 670 to 1. a company listed on the Madras Stock Exchange. Wipro Chairman Azim Premji. This strategy will return better money for shareholders as stock market is booming.320 as of March 2008) and add a new line of business-consumer durables information technology (CDIT) products retailing. The bridge loan of Rs 125 crore was coming up for repayment in September 2008 and there was no sign of equity.200 (from 1. "We kept thinking: why dilute equity for shareholders? We wanted to keep equity low and raise more debt. By September 2008. it was 1. Subramanian It was clearly the highest point in the retailer's history (and. In fact. Chose debt over equity to fund expansion R. The company. Not doing it then was a mistake. in a way. pegging the company's valuation at Rs 2. "A weak market." explains Subramanian. the Birlas and others announced plans to enter retail. But we kept the expansion going as we were confident of raising equity. Subhiksha entered 2008-09 with a Rs 1. They were finding it difficult to lend. lenders.200 stores once the CDR process is through.before we could grab it Lehman Brothers collapsed and the markets fell off. which is perfectly right. Start afresh' Geoff Hiscock .650 stores. adding. "In a way we got into trouble at the wrong time. Says Subramanian." rues Subhiksha's founder. In the absence of borrowings." Has the discounted retail model failed? His response is quick: "Subhiksha's problem was cash flow mismanagement. "We desperately worked with various stakeholders to put something together to prevent a collapse. Salaries and other statutory dues were not paid. everybody's reaction was emotional. But unfortunately it was a period when liquidity was tight. relations with ICICI Venture soured (it withdrew its nominees from the board and reportedly sought government investigation into the affairs of Subhiksha)." By end-February 2009 operations came to a standstill. too. Consequently vendor payments were defaulted. We ran a profitable business. He adds: "Regaining the credibility of vendors. All we needed then was Rs 125 crore to be back in shape. They stopped supplies and the shelves ran empty. "I don't see ourselves getting back to 1." Independent directors quit. There were people who said we should have been more careful in managing our money. "At this stage. The model is eminently successful." claims Subramanian." SOLUTION 1 Geoff Hiscock 'Junk Brand Subhiksha. Security staff deserted their jobs and over 600 stores were vandalised in November-December 2008. they have to follow our path. 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. could not do much as the markets were crazy. Subhiksha made the cardinal mistake of diverting working capital to fund expansion. Premji and ICICI Venture objected to the merger of Subhikhsa with Blue Green Construction Ltd. Investors. We should clearly be back in business in the second quarter of the current fiscal. If anybody wants to be a serious grocery player in India. we had four meetings of the collective financial stakeholders. We were completely overconfident when it came to raising equity." reveals Subramanian. We will probably restart about 1. Between September and November 2008. and that we did not have a plan B. investors and the employees will be the toughest challenge for us. timing is everything. Likewise. SOLUTION 2 Arvind Singhal 'Successful model turned into usuccessful business' Arvind Singhal Chairman. and another South-based regional player (Trinethra in Andhra Pradesh). Less than a year later. But the Subhiksha brand. Once the credit shutters go up. like its stores. Technopak Why did Subhiksha apparently succeed in the first place. Subramanian might be better off using his skills to prepare a fresh iteration of the low-cost supermarket model under a new name. I got a glimpse of what might be ahead for Subhiksha when I ducked into one of its Bangalore stores. Other than Future Group's Big Bazaar to some extent. Subramanian hit trouble. If he wants to stay in retail. as it most certainly did in the second-half of 2008. He had an opportunity in 2007 and early 2008 to raise money through a private placement or an initial public offer. as credit everywhere started to tighten up. The shop was in unexpected disarray. 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.Author. this is when Subhiksha Founder R. and why did the business unravel so quickly? More importantly. Last August. the shelves already were understocked and the staff seemed unmotivated. Subramanian's early business life included working through a turnaround and restructuring of the troubled Enfield motorcycle company between 1989 and 1993. but the timing didn't suit and by July 2008 the chance was gone. the Subhiksha brand was in tatters. Subhiksha made no bones about reaching out to . With that experience. proving once again that in business. India's modern retail boom still has a long way to run. With a business strategy running on breakneck debt-funded expansion. Launch or expand at the right time and a rising tide lifts even the slowest of ships. India's Store Wars In March 2008. he should have anticipated the need for a bigger buffer to handle a downturn. It is now not worth reviving. Most disturbing of all was the distinct lack of customers. no other entrant in the retail sector acknowledged this fact. only cash will save the day. the most brilliant idea and the best execution can come unstuck if the business mood swings to negative. and Subramanian may yet pull off a corporate debt restructuring. despite the thrum of retail activity elsewhere along the street. the Boston Consulting Group named Subhiksha one of the world's top 50 "local dynamos". has been trashed since February. Deike Diers and Andrea Gulisano Edition: May 26. 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. Reckless expansion across disconnected geographies required a reckless increase in debt. and cut costs everywhere. However. as in store locations. 2013 Tags: 7-eleven | London school of business | LBS case study STORY TOOLS     Change font size Print this story E-Mail this story Comment RELATED  How Kraft Foods made Oreo a global brand . all these flaws began to surface: Angry suppliers and other vendors. the focus of its promoter and other investors also apparently shifted from delivering value to its customers to creating valuation for themselves. the model worked. All these led to a sudden seizure of the operations. distribution and replenishment logistics or improving customer experience or even building employee capabilities. It also operated on very low backend and corporate overhead costs. once the business started to unravel. dissatisfied customers. Sadly. Revival. While the original premise for the business (no frills/deep-discount retailing) remains powerfully intact. at this stage looks nearly impossible. as its ambitions grew. even in a truncated form. Margot Huber. As long as it remained focussed on this core group.the relatively lower income strata families. Hangout Haven This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market. it is unfortunate that this once promising business itself is poised to become history. fit-outs and in-store service and experience. agitated employees and worried lenders. and operated within a small geography. This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market. it is a no-frills store with little emphasis on decor. 7-Eleven spread its wings slowly. In 1969. But in Indonesia. In its early years. but its core customer remains the same: people on the go who need a one-stop shop to quickly buy everyday products. surf the Internet and meet friends. over 10. clearly. it grew strategically in suburbs in the United States and areas too small for a supermarket: by 1963. "At 7-Eleven. most 7-Eleven stores all over the world are conveniently located in office areas and are open around the clock." says the company's website. the chain has grown to about 49. 7- . The 7-Eleven chain has about 49.Executive Summary: 7-Eleven is known in the United States as a convenience store chain where customers can grab snacks.500 stores in 16 countries across the world. drinks and other everyday products on the go. Initially. the international convenience store synonymous with anytime. But it began to grow at breakneck pace after it adopted a franchisee model the following year. Indonesia's 7-Elevens are. on-the-go shopping in most parts of the world. eggs and bread from an ice dock in 1927. Instead. whenever they need us. Typically. it had 1. 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.000 stores across the country. And it isn't some trendy new French restaurant in a Dutch-era heritage building. In most parts of the world. It's one of the hippest places to hang out in Jakarta.500 stores in 16 countries. more than 10.000 of them in North America Today.000 in North America itself. our purpose and mission is to make life a little easier for our guests by being where they need us. a long way from the original concept behind the world's largest convenience store chain.7-Eleven has been positioned as a trendy spot where young people spend time. thousands of people in the Indonesian capital spend their evenings sipping coffee or beer on pavement tables at their neighbourhood 7-Eleven. and in the US they can pick-up their online Amazon shopping there. For one. 7-Eleven in Indonesia has everything local markets offer.Eleven began expanding beyond US borders and set up shop in Canada. 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.often exclusively . In the 1970s and early 1980s. almost all stores arfe operated by franchisees. The store is open 24 hours. 7-Eleven studied the culture. 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. Sixty-five per cent of the Indonesian . habits and tastes of the Indonesian population and realised Indonesia lacked places where young people could hang out. is airconditioned and. in Taiwan. Japan and Asian markets such as Taiwan.customer traffic can be increased significantly. it expanded to Mexico. It was among the world's largest growing economies with a population of 240 million and a growing class of consumers. eat. 7-Eleven in Indonesia included everything local markets and street vendors offered . when 7-Eleven entered the Indonesian market in 2008. Dunking Donuts or coffee shops such as Starbucks which entered Southeast Asia a whi le ago. has wireless connectivity. offers leisure activities such as concerts.and more. People traditionally gather at street markets and share stories. Moreover. It also has live entertainment and wireless connectivity So. a big chunk of them between the ages of 15 and 19. But Indonesia had some typical traits not found in other markets. 7Eleven Corporation moved its corporate headquarters to Japan in 2001. eat in local markets and roadside food stalls called warungs or Western fastfood chains such as McDonalds. 7-Eleven's entry strategy is to target urban markets and tailor stores to local tastes. and more. drink and follow their new passion: being online. With the increasing importance of emerging Asian markets such as Thailand. most importantly. who understand the local environment. To achieve this customer orientation and competitive advantage. has hasslefree parking. the local language has a special word for it: nongkrong. just hanging out and doing nothing is so deeply embedded in Indonesian culture. Indonesia is highly plugged-in: the country had an estimated 20 to 30 million Internet users in 2009. By offering these services . Singapore and the Philippines. they can service their bicycles or photocopy at the convenience store. customers in Hong Kong can pay their phone and utility bills at a local 7-Eleven. the Philippines and Malaysia. For example. Traditionally. . It leveraged the fact that its stores are open 24/7. When it came to pricing strategy. 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. even when other food retail competitors are closed. new competitors will come into this market and existing ones are likely to reposition themselves. attracts new customers. 7-Eleven Indonesia's unique customer experience extends to popular local artists and social media websites. who tweet and post about their experience. the social network connectivity of visitors to 7-Eleven stores. The stores are located in commercial and office areas. But unlike the US.franchise's customers are less than 30 years old and love social networking. It is "hip" to hang-out at the local 7Eleven store. which makes it worthwhile to stay open 24/7. 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. instead it focuses on big hubs in Indonesia. He/she is not bound by time and stops by throughout the day and night. the archipelago of around 17. the local franchise followed the company's traditional model. Although 7-Eleven has a first mover advantage and has already built up a strong brand name and large customer base. 7-Eleven also featured local artists or live bands to further attract the nongkrong-ing crowds at its stores. but not public transport stations because they are not seen as premium locations. 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. In addition. The placement strategy of 7-Eleven Indonesia was also the same as the US. 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 35.000 islands does not have a 7-Eleven literally at every corner. and priced products at the upper end. Metro and Wal-Mart .have had their share of failures. Adaptation needs to be limited for luxury brands as their target market tends to be the top of the pyramid. Even the most successful global retailers . To succeed.Retail is one area. Similarly. Retail is one area. where consumption patterns are global. Prof Nirmalya Kumar. where global success stories are few and far between. especially mass merchandise retail. after China and India. 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. 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. 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. For global firms. for technological products. How much to adapt while retaining the brand DNA is a classic dilemma. While other . 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. especially mass merchandise retail. like software or smartphones. they face the challenge of different demographics and income patterns. Kudos to 7Eleven for unlocking this. Indonesia has perhaps the greatest potential. the adaptation needed is relatively small. 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.Carrefour. 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. keeping pace with changing customer needs. It has to carefully chose the right corner to be spacious enough for both the store and Internet cafe. 2. Kumar Sharma STORY TOOLS     Edition: November 1. The new local strategy is aligned to the growing demographic opportunity in the Indonesian market. 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. 2009 Change font size Print this story E-Mail this story Comment 1. While the entry strategy perfectly captured a strategic position. Moving forward. Capturing this important market with the right positioning . The local 7-Eleven concept is not that hard to copy after all. drinks and fast Internet have been the key success factors. 7-Eleven stands out for its marketing strategy.0 E. trendy place to hang out with affordable meals. 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. and strategically located to be viable as a 24/7 concept.brands are struggling to find their place in the market. e-Choupal version 3. a fast-moving economy and a competitive environment in Indonesia are the challenges for 7-Eleven. where young people below 30 account for almost 40 per cent of the population.a cool. 3 of e-Choupal . competitors are adapting their strategy to win back market share. fertiliser. women employment etc .. price.000 villages covering 4 million farmers OFFERING: Network now offered five services: • Information: weather..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 .to insurance • Sales: Farmers sell crops to ITC centres • Other: Cattle care. etc. water harvesting.the two key virtues of competition ITC'S GAIN: Access to inputs for its agri business. • Purchase: Seed. 40.0 The Scale-up REACH: By 2006. offer the use of network to other companies Version 2.Version 1. etc. • Knowledge: farming methods. soil testing. Agri-Business. even if temporarily. the one-stop shops catering to all the needs of the rural community. the company was opening 5-6 e-Choupals a day and had a target of reaching 100 million farmers. which rose close to double-digit figures in case of some commodities in 2006-07. you better know the following: 1) That adversities could crop up unexpectedly. and are willing to pay for . ITC. 2) That some adversities can be turned into opportunities. the larger foreboding was loud and clear: The acts of government taken in the national interest could hobble e-Choupal's anchor business. in addition to PCs. 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. Version 3. As the company scoped around for new opportunities. it found many-some emerging from the adversities that have got it rethinking. new partners Though the impact varied from state to state. 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.0 The Deepening NEW BUSINESSES: Add two new anchor businesses: 1) Rural jobs and employability and 2) Personalised agri services.When you run Corporate India's largest. use of analytics. and the man who scripted the e-Choupal model of business. These opportunities not only make transition to Version 3 possible. That hit a roadblock of sorts in 2006-07. At one point. for two-way interaction with farmers. the company behind the e-Choupal initiative that had reached four million farmers in six states in six years till 2006. but also help modify the existing strengths of Version 1 & 2 (see box above). Chief Executive. it would mean adding mobile phones to the existing channels of Net-based computers and Choupal Saagars. "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. 3) And that every little opportunity has to be made most of. It was so with ITC. Sivakumar. Technologically. most ambitious and most celebrated rural initiative." says S. The trigger for the government reaction was the spike in wholesale price inflation. 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. Plus strengthen existing commodity sourcing MORE INTERACTION: Through Choupal Saagars and Haats and via mobile phones NEW TECHNOLOGY: Use of especially enabled mobile phones. Opportunity:Farmers willing to invest more Response: Offer them services they really need. 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. .Though the average farm productivity is still low in India.