Strategy Digest Vol 1 (Jan)

BMW and Affordability

An affordable BMW sounds like a classic oxymoron. Surprisingly, BMW has gone ahead with a well thought out strategic move to launch the entry level SUV - BMW X1 - in India. The X1’s price tag at INR 22 to INR 29 lakhs puts it in direct competition with the Honda CRVs and Toyota Fortuners of the extremely fast growing SUV segment in India.

The high end luxury car market in India is growing at an astonishing 74%. The playground offers attractive rewards with ever growing sales figures and BMW seems to have played the card just right. The BMW brand tag offers much more value to the Indian customer than a Toyota or a Honda and that is exactly where the BMW X1 scores over the competition.

However, if BMW really wants to conquer the Indian market even more convincingly it needs to capture the depth of the market that extends beyond the metros of India today. It needs to establish a robust after sales service network to make sure that models like X1 realize the sales potential they seem to possess. The X1 is a great launch and it’ll be interesting to see how Toyota, Honda and Hyundai face the new found competition from the grand daddy of automobiles.

The Mobile Store: Ready to evolve

With over 1200 stores and a 45% share of the organized cell phone retail market in India, The Mobile Store has been going great even with a strong pressure on margins. With a drastic shift in consumer preferences towards smart phones and falling price tags, The Mobile Store plans to change the phone shopping experience for its customers.

The Mobile Store plans to develop 300 of its stores across 50 cities into experience stores. These stores will allow users to get a feel of the phone, utilities, apps and new technology. It plans to do away with the cheap plastic dummy phones that we get to see presently. With trained Mobile Store personnel who will help the consumers choose apps and phones according to their needs, it plans to make it interactive for its consumers to make a wise choice while they buy a phone.

This plan undertaken by The Mobile Store is capital intensive and will surely put heavy pressure on the already squeezed margins in cell phone retail. Currently a retailer earns anywhere between 5-8% on the price. Moreover, the market is heavily price conscious and people make it point to get the cheapest deal even after they try out phones at outlets such as The Mobile Store. The implementation of the plan on a massive scale is also an issue with aggressive retailing tactics being employed by a growing number of competitors. 

Bypassing investment bankers in valuations

The selling of Honda’s stake in Hero Honda, Ranbaxy’s sale to Daiichi, Fortis-Wockhardt deal and the $3.7 bn Abbott-Piramal deal among many have a strikingly common story: There were no bankers involved in the valuations. It is a recent trend that has emerged lately when a lot of corporates strongly feel that “No Banker can ever know their business better that them”.

To add to it, more than 80 percent of the banker-madated deals in India are conducted completely by the promoters themselves and the bankers are left to pure mathematical execution. This trend seems to be fully justified and also enhances the confidentiality aspect of the deals. Information leaks have been a major cause of mammoth deals being brought down in a matter of days and bypassing the bankers seems to be a way of avoiding that. Other major examples include the TATA-JLR deal where the valuation was done by Tata’s close team and not bankers advising or executing the deal.

The bankers on the other hands are not losing out on the dealbook business but their profile of work is shifting more towards the financing, fund raising and implementation phases of the deals. It will be interesting none the less to follow the role of bankers in the deals to come in 2011.

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Strategy Digest Volume 1 (Dec)

Top newspapers gearing up to make readers pay for online content

Some of the world’s top newspapers including “The New York Times” and “The Times of London” have showcased a serious intent to charge readers for online content. In recent times, the US and UK newspaper industries have been continuously plagued by steeply declining advertisement revenues. The decision to charge for online content comes with its share of serious difficulties that include the possibility of a heavy decrease in online readership which might make advertising through this medium less attractive for marketers. The publishing houses are still sometime away from actual implementation but it is interesting to see the starkly different strategies that they plan to implement.

The Times of London - The Times of London plans to establish an opaque pay wall which will allow readers to access the content for a price of £1.00 for a day or £2.00 for a week. A similar strategy which seemed to work for the business counterpart, “The Financial Times”, in the earlier stages failed to deliver results for The Times which witnessed a grave downfall in readership by almost 90 percent during test runs.

The New York Times - NYT’s plan of going for a “metered” tariff is very different. It plans to charge readers after they have accessed a limited number of free articles on the website. FT has been using this model for the last few years and at present the digital revenue at FT represents about 20 percent of the total revenue.

The publishing houses strongly believe that paid subscriptions allow them to gather valued data which in turn helps fine tune advertising programmes for the target audience. This offers better value to the marketers and increases the efficiency of advertising revenue for the newspapers.

“The Great India Nautanki Company” in China

Kingdom of Dreams, which is India’s first of its kind live entertainment complex, is ready to be established in China. The Great India Nautanki Company (GINC) which controls the Kingdom of Dreams has entered into a JV with China’s leading stage equipment manufacturer Dafeng to setup 10 live entertainment destinations in China at an investment of roughly $100mn each. It is common to hear about Bollywood popularity in the USA and Europe, but GINC’s strategic move into China with its theatrical firepower presents an interesting strategy that has been adopted by the company. GINC is banking on China’s local tourism where more than 30 million people travel each year.

The idea behind Kingdom of Dreams is to deliver an assortment of complete Indian entertainment which would include Indian handicraft, architecture, exotic Indian cuisine and India’s most expensive theatrical extravaganza – “Zangoora”. Wireless interpretation machines and dubbed dialogues will pave the way for our Chini brothers to understand and enjoy Indian art. The move sounds fresh and aims at more than 24 percent ROI.

Dell enters the smart phone market in India

A month after unveiling the Dell Streak tablet, Dell has launched two Android based smart phones, XCD 35 and XCD 28 attractively priced at Rs. 16,990 and Rs. 10,990 respectively. After establishing a strong foothold in the laptop market in India, it is interesting to see Dell exploring the hyper-competitive smart phone market in India.

The smart phone segment in India has seen a dramatic turnaround from being the corporates’ delight to becoming an affordable gadget for the tech lovers. The competition is intense and has proved to be tough to deal with, even for supremely experienced players like Nokia. The segment is growing at an attractive 30 percent. With Apple, Nokia, Samsung and HTC fighting it our hard in this segment Dell is obviously a late entrant and will have to perform exceptionally to make a name.

Dell’s strategy is banked upon a) The upcoming rollout of 3G services in India which will further boost demand for smart phones, b) Dell’s established clientele in the laptop segment and it’s highly rated after sales support network and c) The growing acceptance of Google’s Android mobile platform in India.

Dell wishes to couple this launch with an extension of its retail network in India to enhance sales. The customer is at the winning end with tonnes of choices in the smart phone segment and Dell’s entrance will be another headache for Nokia which has been struggling lately.

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Strategy Digest Volume 4 (Nov)

Britannia to enter bridge snack segment

Britannia Industries Ltd. is all set to launch its new product 'Timepass' which will mark its entry into the healthy bridge snack segment. Timepass will be a product with double baked bread and is expected to be launched in about three to four months.

Britannia believes that the bridge snack segment will be another foray into the healthy snack segment which is a big market in India now and is growing at a healthy rate. Britannia had recently also launched Nutrichoice diabetic buscuits, to fortify its market share in the healthy snacks segment.

Conde Nast launches 3rd magazine

Conde Nast just launched its third magazine, Conde Nast Traveller. This follows its two magazines, Vogue and GQ, which have been successful in the Indian market.

The reason behind the success of Conde Nast is its proper identification of its target customer. Conde Nast is targetting the affluent Indian, and all of its magazines are prices at over Rs. 100. Since its focus is solely on the upper-class segment, Conde Nast also finds it easier to get advertisers targetting the same segment.

Though it has competitors in the travel magazine market, most of their competitors are licensee brands which have a low focus on brand-building. On the other hand, Conde Nast it trying to build its brand by having high-class events and having a greater digital presence.

Canon India strengthens retail footprint

Canon India has strengthened its retail footprint by launching its first stand-alone store, Canon Image Square, in Noida. This store is an initiative towards its ambition of having 300 exclusive retail stores in India.

The company had previously launched exclusive non-selling stores called 'Xperience Zones’ and ‘Image Lounges’ in a few tier I cities in India where consumers could experience the look and performance of the Canon Products.

This foray of Canon India is similar to the foray that Sony entered in the form of Sony World, which had worked well for Sony India. Also, exclusive retail stores can be a good supplement to multi-brand stores where consumers can finally purchase a Canon product after experiencing it at the exclusive Canon store.

ONGC to invest in renewable energy

ONGC will be investing Rs. 500 crore in renewable energy R&D to make the country less dependable on hydrocarbon reserves. India currently is highly dependent on hydrocarbon reserves and the non-conventional sources of energy are barely used.

Energy is a major infrastructural bottleneck for India and India’s growth rate is largely contingent upon the energy available. To be self-sustainable in energy consumption, ONGC intends to conduct R&D mostly in the solar, thermal, LED (light emitting diode) and fuel cells, which also result in less carbon emission.

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Growth strategies in the luxury industry: the case of LVMH

The author of this post is Erminia Monzo, an exchange student at IIM Ahmedabad. She hails from the University of Bocconi, Italy.

Growth is extremely difficult to manage in luxury companies, as they have to strike a balance between raking in the profits versus maintaining an exclusive aura around the brand and goods sold. Empirical research in literature shows that multi-brand companies dominate in the luxury industry from a dimensional point of view and all together retain a higher market share than mono-brand companies. Also, there seems to be no significant difference in terms of economic performance between mono- and multi-brand companies operating in different business segments of the luxury sectors. So, why is the general trend in the luxury goods industry towards the consolidation and the promotion of multi-brand conglomerates? The immediate answer lies in the importance of the intangible components of luxury goods: in order to maximize the company dimensions and allow it to achieve a dominant position in the market without destroying the brand equity, companies must accept the limits of brand extension and move to the next step, i.e. brand portfolio; therefore the intangible components strongly influence the decision to grow through the external acquisition of brands because of the need to find a balance between the firm’s necessity to grow and exclusivity, which creates high value for the final customer.

LVMH, known as the luxury industry best player, has managed to formulate and execute this strategy successfully. Headquartered in Paris, LVMH Moët Hennessy – Louis Vuitton is world leader in the luxury sector with a unique portfolio of over 60 prestigious brands. The sustainability of its strategy of growth through brand acquisition is mainly due to the following reasons:

• Ability to grasp the sector specificities of the brand;
• Creation of a balanced and attractive brand portfolio;
• Management of the brand portfolio not just with a logic of maximizing financial results in the short term but also with a logic of creating symbolic value for customers in the medium/long term;
• Ability to acquire the adequate managerial to tools to reach an appropriate balance between brand autonomy and integration, search for synergies and maintenance of the brand identity.

The resilience of the multi-brand strategy during the last financial crisis has shown its capability not solely confined to managing cyclical patterns of luxury goods during good times but also to be able to weather through extreme periods of down turn. LVMH as a group managed to recover from the crisis remarkably also because sales from a division or market could cross-subsidize losses made in another. The diversity of LVMH’s business allowed the possibility of LVMH to free resources to meet new challenges and also take on emerging opportunities whereas other competitors in the same industry were barely surviving. LVMH took advantage of this period to expand into the hotel industry, a move indirectly strengthening specific brands in its portfolio. Also, despite facing a complex market, LVMH has been able to discover the peculiarities of the Chinese consumer by leveraging on its existing brand capabilities and also developing new competences together with local Chinese managers. Up till date, LVMH has successfully managed the acquisition and positioning of the Chinese brand Wenjun, one of China’s top traditional spirits distilleries, because of the organization’s ability to adapt and learn. Accordingly, despite failed attempts at multi-channel marketing via the internet, LVMH shows no slowing down when it comes to e-shops and has recently launched separate e-stores for Kenzo and Loewe, two of the brands it owns. The point here is that, with an era of hyper-competition and rapid change, LVMH as large as it seems, is nimble when it comes to learning, adapting and reacting to contemporary challenges.

Overall, with LVMH’s fundamental values propelling it forward, and financial bottom lines restricting its parameters and overall direction, there is no doubt that LVMH has mastered the art of the multi-brand strategy. Although, this must be said with caution, that this strategy is not for the faint hearted or simply any aspiring conglomerate. Competitive advantages such as material scale advantage, a stellar brand portfolio, balanced categories of goods and a wide geographic exposure are built up over a long period of time, led by a strong leadership.

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Strategy Digest Volume 2 (Nov)

Videocon to reorganize businesses

Videocon, an electronics-to-energy conglomerate, has decided to undertake reorganization to facilitate greater focus on each of its businesses. Videocon has been increasing the number of verticals it operates in, all under the Videocon umbrella.

The consumer electronics business of Videocon, which contributes approximately half of the company's revenue, is likely to continue under the Videocon brand whereas the other business will likely be spun off. Videocon while most likely appoint a consulting firm to assist them in figuring out the best way to reorganize in order to benefit the company and its shareholders.

Harley to assemble bikes in India

In a move that will most likely reduce the prices of high-end bikes in India, Harley Davidson, the well-known manufacturer of luxury bikes, will start assembling bikes at Bawal in Haryana.

The Harley Davidson recognized the potential in India for such bikes in India and said that the growing economy, rising middle class and better road infrastructure makes leisure bikes a good proposition. India is currently the 2nd-highest bike market in the world but most of the bikes are used for commuting purposes. However, the rising number of millionaires in the country has increased the demand for high-end leisure bikes.

Tata DoCoMo prices 3G services aggressively

In a bid to convert many of its 2G customers, Tata DoCoMo has announced an aggressive tariff policy for its 3G services. In the process, Tata DoCoMo has also become the first private operator, and 3nd overall after BSNL and MTNL, to introduce 3G services.

Most of its plans do not differentiate between its 2G and 3G customers as 3G customers will pay 0.66-1.1 paise per call, which is approximate the same as 1 paisa a second paid by the current 2G customers of Tata DoCoMo. Also, for its 2G customers wanting to experience 3G services, they can do so at a nominal cost. Of course, it remains to be seen how the other private players price their services, and these set of prices introduced by Tata DoCoMo could only be transient prices till the competitors set theirs.

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Strategy Digest Volume 1 (Nov)

Can Nokia regain ground?

In recent times, the smart phones and high-end touchscreen phones have dominated the market and much of the market-share has been taken away from Nokia by players such as Apple and Samsung.

However, Nokia is ready to launch new phones which touchscreen facilities, high of design, overhauled current operating system and a new operating system. The new operating system, called the MeeGo, will be launched later this year and promises to be competitive with the rest. Nokia also plans to price its new products aggressively to regain the lost market share.

An example of such a phone is the N8 which is banking on its overhauled operating system, Symbian 3, which is more memory-efficient and can also run more applications simultaneously. It has a 12-megapixel camera and will be priced at approximately Rs. 26,000 competing with the Samsungs and LGs. Nokia wants to build its brand and increase sales through improving user experience and giving them more value for money phones.

Oracle to buy software firm

Oracle Corp. announced that it would be acquiring the Art Technology Group (ATG) for $1 billion. This would strengthen its e-commerce software applications. This acquisition will increase Oracle's retail software portfolio, which also includes Retek, a company it acquired in 2005. This acquisition is another example of a major technology company acquiring other firms in order to diversify its product portfolio.

This deal is considered to be a safe and sound acquisition for Oracle which was reflected in its share price increasing after the acquisition announcement.

SpiceJet plans for expansion

SpiceJet, the low-cost Indian airline, is planning for a huge expansion and intends to spend upto $ 900 million to buy new aircrafts. SpiceJet will buy 30 NextGens from Bombardier Inc. and plans to double its fleet size from the current 22 by 2013.

SpiceJet is looking at taking advantage of the growing aviation sector in India and the growth opportunities available by connecting tier 2 and tier 3 cities. Also, it is looking at entering the international markets where there are few low-cost airlines.

However, the source of funding for this expansion plan is unclear. It might resort to the share plan that it had planned to raise $ 75 million before Kalanithi Maran, the Sun TV founder, came forward and bought a stake in the firm.

BHP Billiton still forced to wait

BHP Billiton, the resources major, is still awaiting a green signal for its offer for Potash Corp, the world's largest supplier of fertilizers, an all-cash $ 39 billion deal.

The Canadian government is still unwilling to let the deal go through although there have been rumours that the government is being advised by bureaucrats to pass the deal.

BHP has currently bid for Potash Corp at $130 per share and analysts expect the offer to go higher before the deal goes through. The deal is expected to help BHP gain access to high-quality resources at a reasonable rate.

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Strategy Digest Vol 5 (Oct)

Conglomerates now look for brand-holding firms

Several business conglomerates in the country are looking for ways to take care of their generations-old brand names and manage their different brands for different industries. Juggling a wide portfolio of brands and retaining the core identity of the parent calls for more than sound brand management capabilities and a simple brand identity manual. This means a strategic shift in thinking about the brand as a core intangible asset that has to be safeguarded and monetised through a robust mechanism like a brand holding firm. These firms would earn royalty from each of the operating companies using the brand as a shared resource. It is like a licensing agreement within a company. The contract in this case spells out how and where the corporate brand can be used in existing and new business areas. It could also be useful option for family-owned companies where frequent spats can lead to dilution of the corporate brand as members deploy it indiscriminately into new businesses and markets.

As new India strategy, ArcelorMittal to build smaller plants

As part of a new strategy for India, ArcelorMittal plans to begin with, smaller steel plants in states of Jharkhand, Orissa and Karnataka, that could be expanded later, instead of mega units as proposed earlier. This would help them have larger number of footprints and allow for faster execution of plans. Going ahead with the new strategy, the company may also look at acquiring small units in India and was reportedly in talks with at least a dozen firms for the purpose.

Dr Reddy's to enhance OTC presence by marketing drugs for Cipla, Vitabiotics

Dr Reddy's Laboratories (DRL) has entered into an agreement with drug major Cipla and UK-based Vitabiotics to market over-the-counter (OTC) and prescription drugs, besides nutraceutical products, in Russia and CIS countries, adding immediately to its revenues from the Russian and CIS market. There are long-term synergies, as Dr Reddy's has a strong sales and marketing network and our partners have a basket of products already registered and distributed in these markets. The agreement with Cipla will enhance Dr Reddy's presence in the OTC space and in therapy areas of gastroenterology, dermatology and oncology in both Russia and Ukraine.

Corporates look to cash in on growing football craze, Venky's close to a club buy

Venkateshwara Hatcheries, better known as Venky’s, is close to becoming the first Indian company to own an English Premier League (EPL) football club, the 135-year-old Blackburn Rovers. Both foreign football clubs and Indian firms have sought to promote football in India, given the sport’s rising popularity and growing business opportunities. Chelsea FC has been in talks with several companies to promote the game in the hope that India can seek to host the World Cup by 2030. Venky’s move comes after several attempts by domestic companies to own EPL teams. Sahara India Group earlier this year placed a bid, of which they later pulled out, to buy a 51 per cent stake in cash-strapped Liverpool. Ambani brothers Mukesh and Anil have also been keen on owning Liverpool and Newcastle United, respectively, but denied making any bids.

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Walt Disney of India

Suppandi, Shikari Shambhu, Ramu and Shamu, King Hooja, Amar Chitra Katha

All these kindle fond memories in most of us, a reminder of what we read in our childhood days. These old brands of Tinkle and Amar Chitra Katha which we fondly associated with the famous Uncle Pai, have now been acquired by a relatively new venture known as ACK Media or Amar Chitra Katha Pvt. Ltd.

ACK Media, a venture launched in 2007, was founded and is headed by Samir Patil, an ex-Mckinsey partner with 10 years of experience in media, hi-tech, and healthcare firms. ACK Media started with acquisition of Amar Chitra Katha and Tinkle brands from the India Book House in November 2007. Then, in April 2008 they acquired a controlling stake in Karadi Tales (series of popular audio books for children). Since then a number of steps have been taken to develop and revamp the old charm of the ACK characters and stories.

In addition to improving content in print, magazines, comics, home video space, ACK wanted to improve its distribution network and have a better relationship with the end customer. Hence, it acquired India Book House in May 2010, and gained control of a distribution network that includes 400 cities, 2500 stores and over 22000 vendors. Also, in order to cash in on the growing size of web users, websites of Tinkle Online, Amarchitrakatha.com etc. were launched which have been developing considerable traction ever since. Also, to capitalize on the telecommunication and mobile data access revolution, there are several mobile games and apps in the making.

There has been a lot of activity in TV & film production space as well. Apart from a deal it struck with Cartoon Network for an animated series, ACK has a content partnership with Turner Broadcasting System to produce two animated films and a series on Amar Chitra Katha stories. Other Indian comic book houses are also making similar attempts to revive the market For example, Raj Comics has tied up with a mobile services provider, and Diamond comics is slated to launch a TV channel this year.

In the near past, ACK had said that they were looking to raise Rs. 100 crore by selling stakes to private equity firms in order to increase their product portfolio, mostly in the digital space. The latest buzz is that Kishore Biyani is interested in acquiring 40% of ACK. Biyani’s reasons are still unclear, but it seems that Biyani wants ACK to venture more into animation and eventually theme parks, as part of his ambitions of creating the Disneyland of India.

The concept of making cartoons popular by involving social media, creating TV & Films animations and launching theme parks sounds fascinating, but there is a catch. Firstly, the world of children that grew up on Tinkle and Amar Chitra Katha has grown up into adults now. The current generation of children has too many options in terms of entertainment, and hence domestic comics figure forms a very small part of their leisure time, if at all . Secondly, the urban children population in Tier I and Tier II cities has undergone an anglicization of reading habits, which is steering them towards Noddy, Archies, Enid Blyton rather than Suppandi and Shikari Shambhu. Majority of the children who are still passionate about Tinkle and Amar Chitra Katha will probably belong to a class that might not be the target population for the web/mobile ventures, animations and especially theme parks that ACK is planning to launch.

In this background, how successful would web ventures, animation or an entertainment park based on Tinkle or Amar Chitra Katha be? It is all right for Samir Patil to aspire to be the Walt Disney of India, but is that a possibility with his current brand portfolio? To be fair to ACK, they have followed a very structured process - they have tried to revamp the brand by adding newer titles, by reaching out to the end consumer via a revamped and much improved distribution network, by generating online content to increase reach etc. All these are attempts to revive the comic books market and create a market demand for ACK/Tinkle characters and stories. ACK is assuming that by the time they launch animations and theme parks, this market would have undergone a complete revival, thus creating a pull for the brand.

But whether a successful revival is possible in this era of Archie’s, Noddy, Tin Tin, Nancy Drew etc., remains to be seen. Only time will tell!

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Strategy Digest Vol. 4 (October)

Kellogg enters hot breakfast market

With Indians striving for hot breakfasts in the mornings, Kellogg has decided to enter the hot breakfasts market with the launch of Heart to Heart Oats. Kellogg claims that these oats can be prepared in three minutes and should be consumed with hot milk.

This will give Kellogg access to more Indian families where hot breakfast is a tradition. This product will potentially not only increase the sales of Kellogg in India but also reinforce their positioning of a healthy product since oats is considered to be good for the heart.

Maggi becomes healthier

In a move to strengthen its brand image and market leadership position, Nestle has launched another variant of Maggi. The variant is called Maggi Multigrainz, which has healthy ingredients like corn, wheat and millets.

This comes on the back of Maggi Atta noodles which was launched a few years back. Research has showed that consumers today are more aware of health food and this move by Maggi is an effort to attract such customers. Maggi currently has an 85 % market share in the instant noodles market and this should fortify their market position. Also, with competitors like HUL, Knorr and ITC trying to enter the market, Maggi is trying to innovate to fend off competition.

Pfizer acquires King Pharma

In yet another deal in the pharmaceutical industry, the world's largest drugmaker has decided to acquire Kind Pharmaceuticals, a pharma company focusing on pain medications.

Pfizer would be paying $3.6 billion for the deal. The deal is an all-cash deal. After acquiring Wyeth for a massive $68 billion last year, this will be Pfizer's biggest deal.

The deal will help Pfizer expand its product portfolio. Currently, its two primary products for pain remedy are Celebrex for arthritis and Lyrica for nerve pain. Moreover, this acquisition should increase its profits since many of its existing products now have generic counterparts.

Price war likely in small car segment

With the festive season kicking in, companies are aggressively cutting prices to promote their product. Skoda recently reduced the prices of its Fabia hatchback by Rs. 67,000 for the petrol variant and Rs. 1.1 lakh for the diesel variant. This comes on the back of Hyundai reducing prices of i20 by Rs. 40,000 earlier this year and recently launching a new version of i10 with minimal price increase.

Fabia, which was launched in 2008, has not managed to make an impact in India with other competing cars such as Ritz, WagonR, Hyundai i20 etc. having a higher market-share. Even Volkswagen, the parent company of Skoda, priced Polo below Fabia. This decision to reduce prices is expected to increase the market-share of Fabia in the small car segment, which has the highest volumes.

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Strategy Digest Vol. 3 (Oct)

Indian Hotels Company does a Tata Motors

The Indian Hotels Company recently announced the launch of Vivanta by Taj, hotels in the upper upscale segment.

Taj has thus positioned itself in the hospitality space similar to what Tata Motors has done in the automotive space. Taj is positioned in the luxury space, Vivanta by Taj in the upper upscale segment, Gateway in upscale and Ginger in the economy segment. Tata Motors, on the other hand, has positioned The Nano at the entry level, Indigo at the upscale segment, Safari and Jaguar or Land Rover at the upper upscale and luxury segments.

The reason for this segmentation is not to dilute the Taj brand by operating every kind of hotel under the same brand. Also, it is an effort towards retaining their market share in the face of many new hotel brands entering India.

Homegrown mobile phone companies sign big stars

While we may not realize, homegrown mobile phone companies have captured more than 20 percent of the market share. And they are definitely hungry for more!

Companies like Zen, Micromax, Spice etc. are displaying their ambitions by signing big stars to promote their products, especially in the tier-II and tier-III towns of India. Micromax has Akshay Kumar as its brand ambassador while Spice Mobile has signed on Sonam Kapoor.

The latest to join the bandwagon is Zen Mobile which has signed on the biggest superstar Amitabh Bacchan as its brand ambassador. It is to be seen whether these companies will be successful in penetrating the urban markets as well.

Fortis to buy key subsidiaries of Quality Healthcare Asia

Fortis Healthcare will buy key subsidiaries of quality Healthcare Asia (QHA) for about Rs. 882 crore. The firms to be acquired by Fortis Healthcare include Quality Healthcare Medical Services, Quality Healthcare Services, Quality HealthCare, Quality HealthCare Medical Holdings, and Portex.

QHA is the largest private healthcare provider in Hong Kong and this acquisition would provide Fortis with a footprint in Hong Kong.

Fortis has been keen to have a presence in South-East Asia for some time now as was evident when it tried to acquire the Singapore-based hospital chain Parkway Holdings.

Microsoft launches smartphones

Smartphones are touted to be the next big thing in tomorrow's world. Microsoft clearly does not want to let go of this opportunity considering there are firms which have already this market.

The smartphone by Microsoft is supposed to look like the iPhone but with a more interactive interface and superior functionalities. It’s also got the Xbox which should appeal to the younger generation.

This is probably Microsoft's last and only attempt at gaining a hold in the smartphone industry since many players have launched their smartphones before Microsoft did.

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Strategy Digest Vol 1 (Oct)

Bharti Retail to enter western India, follow its cluster strategy

After the north, Bharti Retail will soon enter western India with its first hypermarket in Mumbai followed by 20 more stores in cities such as Mumbai, Pune and Nanded. The retailer is also planning to set up a mother distribution centre on the Mumbai-Pune highway.

Unlike other retailers such as Reliance Retail, which set up stores across the country in one go, Bharti is focusing on creating a cluster in one region before entering another. This consolidation before further geographic expansion results in efficiencies in supply chain and logistics, which require significant investment.

SpiceJet to double fleet by end-2013; add more routes

Gurgaon-based low-cost carrier SpiceJet said today it would double its current 22-plane fleet by the end of 2013 which will be utilised on the 12 new domestic routes being planned. The company is also starting an international service. It already has rights to fly to Dhaka and Male and they feel the expansion will be easy given the similar demographic profile in these destinations. These routes are being based on a hub-and-spoke model so that the additional costs are minimised. Colombo, for example, will be a spoke from the Chennai airport, which acts as the hub.

More players looking at premium personal care market

The high-end or premium segment of the personal care market in India has been growing at about 35 per cent per annum. This segment, pegged at over Rs 1,000 crore, has a small base but is growing fast. Major companies such as HUL, P&G are already devoting their attention to the premium end of the market. J&J has jumped in, too with its skin care product, Neutrogena, last year. Some of this focus also comes from the fact that the customers have been moving up the value chain in terms of their needs.

Elder Healthcare, the FMCG Company which has brands such as Tiger Balm, AMPM Mouthwash and FairOne fairness cream in its portfolio, is a new entrant. It plans to focus its attention on the premium end of the personal care market, with in-licensed products. It has tied up with companies such as Uriage Laboratories of France and POLA Chemicals of Japan already.

Coffee Day may buy logistics company

There is a buzz that Coffee Day Holdings is trying to acquire a logistics company. Analysts believe there could be a merit in doing so as the group has close to 1,000 CCD outlets spread across the country, most of which are supported by a centralized kitchen in Koramangala, Bangalore, hence requiring a periodic replenishment of coffee beans, raw materials and other consumables. There is also the need to carry furniture for existing and new outlets from its furniture factory in Chikmagalur. The firm also exports coffee abroad. Hence, acquiring logistics assets with a retail connect , not one that involves huge cargo movement, might be on the cards.

ONGC ventures into shale exploration

Oil and Natural Gas Corporation (ONGC) has ventured into shale gas exploration by spudding the first shale gas well near Durgapur in Burdwan district of West Bengal. The country’s biggest energy explorer also notified two new discoveries in the KG onshore basin and Cambay Basin to upstream regulator Directorate General of Hydrocarbons.

Shale gas is a natural gas contained within shale formations. Shale gas exploration and production has witnessed a surge in activity recently and is making substantial contribution to gas production. Shale gas is often regarded as a game changer in the hydrocarbon industry. In the US, shale gas production contributes to nearly 17 per cent of their total gas production. ONGC's move seen in this light, is a move to not miss the bus as competitor's like Reliance and Bharat Petroleum Corporation have already begun exploration.

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The price is right!

For a long time in business, the pricing decision was the last cog in the wheel. The consumer needs were identified, product attributes were defined, the technology to be deployed was given consideration, production centre established, then while starting the marketing process, pricing came in as a final step.

For the most part, pricing was cost-based and hence fraught with the basic chicken-egg problem. The cost depends on the volume of the production, the volume depends on the price charged from the consumers, and yet price was being decided on the basis of cost. The logic feels a little bizarre, but in many cases such a strategy would seem to work fine. It took some years before it dawned on people that pricing could be used as a strategic vehicle - to segment, to position, to differentiate, to effectively enter the market etc. and also that pricing could have a significant effect on market share. In fact in a recent report by McKinsey, it has been stated that a one-percentage-point improvement in the average price of goods and services leads to an 8.7 percent increase in operating profits for the typical Global 1200 company (the world’s largest 1200 companies by market capitalization).

Many brands have committed pricing blunders and went down under. A good example is the direction that Indian telecom operators have taken; their continuous price wars have left the industry in danger of becoming unsustainable. Similar is the case with airlines, their price slashes have caused the airline industry to bleed badly. On the other hand, several brands have exploited innovative pricing to their advantage. In the mid 90s, Ford reduced the price of their high-end cars a little bit, to stimulate purchase but not enough to cut into their margin. This price cut led to greater sale of the high-end cars, but also led to cannibalisation of their low-end cars. But since it was in the high-end cars that they had more profit margins than the low-end cars, in spite of the market share that they lost, their profits soared. Having learnt by several such examples, many companies are now investing in pricing infrastructure, right from establishing separate pricing departments to developing and acquiring pricing systems to collect accurate current pricing data and tools to transform that data into information.

There are different kinds of pricing strategies that a firm can deploy:

Differential Pricing Strategy: This strategy is deployed in order to sell the same product at different prices to consumers. Some examples of this strategy are Second market discounting, where the products are sold cheaper at a second geography assuming that arbitrage is not possible due to transaction costs by consumers; Periodic discounting where the prices vary at different periods of time depending on utility and need of consumers (Happy Hours concept in bars); Random discounting where some search or effort by consumers will result in discovering discounts (in several foreign tourist cities, discount coupons are freely available for tourists, but need to be enquired about).

Competitive Pricing Strategy: If there is a threat of competition, the periodic discounting gives way to penetration pricing and experience curve pricing, where scale and experience economies are exploited, respectively; in these pricing mechanisms the products are priced less as compared to the competitor since the producer can take low prices better due to volume or experience.

Product line Pricing Strategy: When an organization has some related products it can try different pricing strategies like price bundling/two-part pricing where products are bundled to extract maximum value from buyer (McDonald’s Happy Meal; Entry into amusement parks and separate payment for some rides); premium pricing where one brand/product of a firm may be positioned as better in quality and hence more costly than another brand/product (Hotel rooms: Suites, Luxury, Deluxe).

These were limited examples, but several more pricing strategies exist and the appropriate ones can be chosen depending on the kind of product, brand life cycle and objective of the organization. It is time to recognise that pricing plays a critical role in driving performance of an organization. Hence, organizations need to invest in appropriate pricing infrastructure and utilize pricing as a strategic tool to achieve their objectives.

References: Beyond the many faces of price: An integration of pricing strategies - Gerard J. Tellis

Building a better pricing infrastructure - McKinsey Quarterly

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Strategy Digest Volume 5

Stake in Paras up for grabs

(Expansion strategy)

Paras Pharma is the Ahmedabad-based unlisted firm which manufactures over-the-counter and personal care brands like 'Moov', 'Krack', 'D Cold', 'Set Wet' etc.

Its products are popular but have a low penetration till now, which indicates their future potential. Its two major equity holders – Actis and Sequoia Capital – are looking to sell their stake for around $700 million. Companies that would have synergies with Paras Pharma products would be FMCG firms and other pharmaceutical companies. This synergistic effect has been recognised as is evident from the nature of the companies (Marico, Dabur, Emami, Glaxosmithkline) which have expressed interest in buying a stake in Paras.

P&G reduces prices; may lead to price war

(Market competitiveness strategy)

In what could lead to a price war in the competitive FMCG market, FMCG major P&G has decided to reduce the prices of certain brands even though input costs have been increasing. It has reduced the price of Whisper Choice, a product for female hygiene, by 20% and that of Pampers Baby Active, a baby care product, by 12%.

It is usually difficult for companies to reduce prices in these categories since they have high taxation. However, following the price cut by P&G, it is likely that rivals such as Johnson & Johnson will also cut prices, leading to a price war.

Expansion of JK Tyres

(Expansion strategy)

In view of increasing demand, JK Tyres is undergoing an aggressive expansion policy with smart pricing policies. Since the prices of rubber have risen (doubled in the past one year), JK Tyres has increased its prices and passed on the increase in raw material costs to the car and commercial vehicle manufacturers.

They have also decided to explore a segment they had left 20 years back – two wheelers – after looking at the rapid growth in the segment.

Vishal Retail finds buyer

(Survival strategy)

Vishal Retail, which was under heavy debt and had been looking for a buyer, has finally succeeded in finding buyers for its business ensuring its survival. It will sell its frontend retail trading business to the Shriram Group and the back-end wholesale trading business to the Indian arm of private equity firm TPG for a total consideration of Rs 100 crore.The sale will also include all the underlying assets and liabilities of the firm.

Vishal Retail, which conducts its business under the names of ‘Vishal’, ‘Vishal Megamart’ and ‘Vishal Fashion Mart’, had declared accumulated losses of Rs 427 crore as on March 31, 2010, which exceeded the net worth of the company. It has expanded its business using the debt-heavy capital structure but its earnings fell below expectations during the economic slowdown.

Even though Vishal Retail has ensured its survival through this sale, it will lose its core business of retailing and will have to look at new business avenues.

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Integration at The Adani Group

Overview of the Adani Group

The Adani Group is a Gujarat based Indian conglomerate with the industrialist Gautam Adani as its CMD and promoter. The core businesses of the group include commodities trading, edible oil manufacturing, Mundra port operations, power generation and the distribution of natural gas. The group has more than 50 companies under its ambit; key ones being Adani Enterprises Ltd, Adani Power Ltd and Mundra Port and Special Economic Zone Ltd. It recently catapulted to the top five conglomerates in the country, going by the market capitalisation of listed companies on Indian bourses.
By the end of August 2010, the combined market capitalisation of Adani Enterprises (AEL), Adani Power ( APL) and Mundra Port & SEZ (MPSEZL) stood at Rs 1.33 lakh crore. This surge is largely due to the number of shares in AEL going up by 33 crore on account of the company's Rights Issue and the merger of MPSEZ with AEL. The restructuring exercises have brought all group businesses under one entity, Adani Enterprises Limited.

Growth and Integration

Acquisition of Coal Mines

Adani’s next phase of growth envisions taking the group’s asset base from $6 billion to $15 billion in the next five years. To fuel his ambitious plans, Adani is acquiring coal mines and ships. These would serve to insulate the group from the price vagaries of the commodities and shipping markets. Adani Enterprises would thus offer an integrated infrastructure play with coal, power and mining under one umbrella.
The flagship company of the Adani group, Adani Enterprise (AEL) acquired the coal mines of Australia's Linc Energy in a cash and royalty deal worth A$ 2.9 billion (Rs 12,220.6 crore) early in August this year. The deal is reported to be the biggest acquisition by an Indian company in Australia. Linc said it can produce up to 60 million tonnes per year once the mine was fully operational.
The deal would give a major boost to the Rs 27,800-crore Adani group's expanding energy business and would enable Adani to source coal at $45 a tonne against an average international price last year of $76. In the pipeline are plans to invest about A$6 billion to create infrastructure — ports, railway and development of mines — Down Under over the next five years. According to the group’s chairman, Gautam Adani, the acquisition would help the company achieve self-reliance in fuel supplies for its power generation business.
Coal from the Galilee basin would support the rapid expansion of the power business of Adani Power in India as well as the expansion of AEL's coal business. It may be pointed out that the Adani group is the largest importer of thermal coal in India.
Last month, the group has also signed a preliminary agreement in Indonesia to build a railway line and coal terminal in remote southern Sumatra, Indonesia. Adani would invest $1.6bn to lay down a railway line between a major coal pit and the island’s southern port of Tanjung Api Api. The move by the Adani group is considered to be a strategic foray to tap the underexploited coal stores in Sumatra.

Expansion of Power Generation Capacity

The coal mine deals would give a significant impetus to the company's plans to increase its power generation capacity. Adani Power Limited (APL) is looking to expand aggressively, with plans to commission 1,980 MW of generation capacity by the end of fiscal 2011 and 6,600 MW by mid 2012. Currently, APL operates 990 MW of generation capacity and aims at achieving 90% plant load factor during the current quarter.
APL’s 16,500 MW capacity generation projects include Mundra (4620 MW), Tiroda (3300 MW), Kawai (1320 MW), Dahej (2640 MW), Bhadreshwar (3300 MW) and Chhindwara (1320 MW). It is also exploring the opportunities in the international market to commission power generation capacity.
The first unit of 330 MW at Mundra became operational in May, 2009. The Mundra facility will continue to commission one 660 MW super critical unit each at an interval of every three-four months, and the entire capacity of 4,620 MW will be operational by March 2011
APL’s 3,300 MW power generation facility at Tiroda in Maharashtra is in advance phase of implementation, the first unit of 660 MW will start generation by August 2011 and the entire facility of 3,300 MW will be commissioned in a phased manner by 2012. Its other projects at Dahej, Chindrwara, Kawai and Bhadreshwar have received terms of reference from the ministry of forest and environment and are in advance stage of clearance. The projects are likely to be on stream by 2013-14. All plans of Adani are based on super critical technology units of 660 MW each.
Meanwhile, APL is also setting up transmission lines for evacuating the power to the national grid. The major transmission power line projects by APL include 400 KM Mundra -Dehgam line, country’s first 1000 KM HVDC line in private sector between Mundra -Mahindragarh in Haryana, 50 KM Mahindragarh-Bhiwani and 200 KM line between Tiroda-Warora.

Strategic Positioning of Mundra Port

Another Adani Group company, Mundra Port and Special Economic Zone Limited, owns and operates one of the largest private sector commercial ports in India, a Special Economic Zone at Mundra and a railway line between Mundra and Adipur; leading to strong synergies with the company's projects being set up in close vicinity. In order to increase coal carriage capacities, Adani is doubling the 65-km rail line connecting the port of Mundra to the national rail network. This will help it carry three times more cargo. Mundra, once a sleepy town known for its date palms until just a decade ago, today handles 40 million tonnes of cargo, and will soon start handling 100 million tonnes once a coal import terminal comes up by October 2010.
The company is fast emerging as the only power generating company in the country that has a strong chain of vertical integration - from mining to ports and shipping to power generation and transmission. This integration has enabled the Adani group to achieve its meteoric growth, and will hold it in good stead as it looks to further expand its business.

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