Sunday, August 15, 2010
Adithya Nagarajan, Esha Arora, Kaushik Subramaian & Varshik Nimmagadda | IIM Shillong
The Rise of the Indian FMCG Company
Nearly twenty years ago the Indian government undertook a series of policies that would change the face of the country. The government opened up a tottering socialist economy to the greater world and liberalized its policies for industry. The critics to this step were numerous and one point in particular always figured in the arguments that they made. The critics were nearly unanimous that the insular Indian industry, nurtured on licences and trade quotas would soon be overwhelmed by the advent of the free market. And one industry in particular was big on this list i.e. the Indian FMCG industry. It was widely expected that the advent of global FMCG majors with their expertise, international brands and experience of competing in the world markets would sound the death knell for the nascent Indian FMCG industry.
But the Indian FMCG players seem intent on proving all these predictions wrong. For twenty years they held on even as the major markets were taken over by the likes of P&G & Coca-cola. They took the time to understand the dynamics of competition in this new era and changed their strategies and processes to be more relevant to the Indian consumer and now they seem to be intent on taking back their lost turf. From processed foods to milk products to soaps the Indian players seem to be on a comeback trail. This cover story attempts to chronicle the rise of this new brave breed of Indian FMCGs from the viewpoint of three companies that seem to be on the forefront of this revolution.
The interesting part of this entire story is that these companies have followed entirely different strategies to counter the bigger players. Players like Marico have successfully utilized the blue ocean strategy to establish a first mover advantage in fields like skin care via the Kaya skin clinics while Godrej has successfully leveraged its brand name and distribution strength to play itself into a position of strength in the rural market for soaps. One thing in common seems to be a new found understanding of the Indian consumer. The Indian companies are putting great emphasis on understanding the needs of the Indian consumers and tailoring their products to those needs. This has helped some of them to discover niches in the market that have been untapped by the MNCs and have helped them to avoid competition. For example Emami’s ayurvedic formulations for its products like Fair and Handsome have helped to stand out in the marketplace and differentiate itself.
If the avoidance of completion by finding new differentiation strategies seems to be the forte of some of the players others like GCPL and Dabur are competing with the global majors head-on. Dabur particularly is in a difficult industry with its oral care products with the market leader i.e. Colgate commanding a huge market share of 53 percent compared to Dabur’s 13 percent. It has managed to capture a significant percentage of the fast growing rural market by basing its positioning on herbal strategy.
These are exciting times in the FMCG industry. The Indian players seem to have stolen a march over their bigger rivals with their unique understanding of the Indian consumer and different positioning but it will not be long before the bigger players react to this challenge. The next four years can prove to be a trial by fire for these Indian majors as they fight to sustain the gains they have made and capture markets that have been fortresses of the multinationals.
The uncommon sense that Marico believes in, has brought about radical results for the company. Led by Harish Mariwala, the Company enjoys leadership positions in most of the markets it is present in- viz. Coconut Oil, Hair Oils, Anti-lice Treatment, Premium Refined Edible Oils, Fabric Care etc.
Be it the convenient packaging for Parachute from the erstwhile tin cans of coconut oil, the introduction of heart care with Saffola in the edible oil market, or the starching process branded and eased by Revive, Marico’s innovation has helped it be the pioneer, stay consumer centric and sustain a firm hold in the market space.
Hair Oil market:
With Parachute and Nihar, Marico holds more than 50% market share in the branded hair oil segment. It enjoys over 21% share of the 3000 crore hair oil segment (composed of coconut hair oil, amla, light, cooling and tonics and gels). In the coconut oil market, Parachute itself controls about 50% share of the market.
In the coconut hair oil market they have capitalised on the fact that consumers test quality based on the oil’s aroma. From showing the concept of handpicking coconuts from Kerala, to their ‘gorgeous hamesha’ concept of celebrating womanhood, the brand has taken numerous leaps. The innovative packaging helps the brand address changing consumer needs.
Edible Oil market:
In the premium refined edible oil market, Marico’s Saffola faces fierce competition from Sundrop in terms of volume, with the former holding close to 50% share.
Safolla’s message has been clear. By showcasing mild fear, its commercials aim to introduce heart care through the edible oil. Its approach is preventive. The ‘kal se’ campaign brought a quantum leap in sales while the ‘thief’ ad, and ‘dil ka haal’ reinforced the same idea to slightly varying targets- ranging from heart patients to the 30 year old man, who is likely to face heart problems with the kind of lifestyle he is leading. The ‘Prayaschit’/repent ad (guilt after indulgence in food) directly targets the housewife who is, most often, the buyer in this case.
Having established Saffola as a healthcare product, Marico continues to leverage its positioning into segments like packaged wheat flour, rice, and breakfast cereals with a strong health quotient.
The spirit of innovation coupled with the ‘uncommon sense’ in Marico is evident in its unique product designs. This covers the product idea, the packaging as well as the product delivery. Innovation and uniqueness encompasses Saffola’s range of functional foods, Parachute Therapie (hair fall reduction through hair oil), their Kaya product range, Parachute Advansed Night Repair Crème, a bottle heater for Parachute Hot Champi, Parachute massager for the working woman.
In addition to its presence in the domestic market, Marico has been strategic in acquiring some international brands and leveraging its presence in foreign countries in two ways- it not only taps newer markets but also strengthens its existing portfolios.
For instance, in January 2010, the Malaysian unit of Marico bought the hair styling brand ‘Code 10’ from Colgate Palmolive Company marking Marico’s entry in Malaysian hair styling market, at the same time growing its strengths in hair creams and hair gels market.
In May 2010, Kaya acquired the aesthetics business of the Singapore based Derma Rx. The deal, while stitching together an additional turnover of about 50 crores and 37000 customers, brings with itself access to an advanced range of skin care products for Kaya. This is complemented by access a network of suppliers of beauty products from the developed nations.
In a similar case, the South Africa subsidiary of Marico acquired the healthcare brand Ingwe in August 2010. First, the brand goes well with Marico SA portfolio. Second, the acquisition strengthens the company's distribution reach, particularly with independent trade and step up its growth momentum.
Marico’s international business has shown healthy contribution to its revenues- 23% of the group's turnover in 2009-10. Moreover, thanks to such smart buys, the international business witnessed a 29% sales growth during the June’10 quarter, when its Indian sales posted a relatively meagre 6.8% rise over the same period a year ago.
While a brand like Saffola may be priced for slightly higher income groups, Parachute cuts across different income groups and yet has a premium appeal. In the hair oil segment, the company has attempted to tackle the unorganized segment through low-cost and small-unit packs.
It also plans to make it bigger in the cool oil segment (over 500 crore market) through its recent launches- Parachute Advanced Cooling Oil and Nihar Naturals Cooling Oil.
In near future, Marico plans to enter rural markets to tap their potential in a much bigger way. It has already started adding to its distribution in areas of Madhya Pradesh, Maharashtra and Karnataka. It continues to foray beyond the prominent towns and districts, not only in terms of its distribution but also to understand the rural needs and tune its portfolio to the same.
On the international front, considering the recent developments in terms of acquisitions, it can be noted that the company is attempting to streamline its manufacturing base and at the same time market its Indian brands through the newly acquired distribution system. Marico is likely to continue with similar strategic acquisitions adding to its revenue base simultaneously.
In terms of revenues, Marico aims to clock in Rs 2500 crore turnover for the financial year 2010. This shall be a 9% rise on its last year’s returns, inspite of food inflation and weak monsoons.
Picture this: Just about a decade earlier you set aside your hard earned money to invest in FMCG stocks. After examining the nitty gritties on the Dalal street, you decide to stay clear of the High fliers, Hindustan Unilever(HUL) and Procter and Gamble(P&G) and decide to bet on GCPL(Godrej Consumer Products Limited). A decade later; you laugh all the way to the bank. What was ` 10 in 2001 amounts to ` 378 today. GCPL , the consumer products wing of the $2.1 billion Godrej group is well and truly making it big in the FMCG space. The Adi Godrej headed company operates primarily in the Home care and personal hygiene categories.
GCPL’s efficient penetration of the Indian Market, especially the rural consumer base deserves special mention. Hair dyes and Hennas which were once considered luxuries in rural households are everyday products now. And GCPL has been instrumental in bringing about this metamorphosis through its ambitious rural expansion project Dharti, which was launched in early 2009. Beefing up an enviable distribution network that spans 50,000 plus villages and 8000 small towns, the company has ensured that almost half its revenues come from the rural areas of the country.
GCPL is second only to Hindustan Unilever (HUL) in manufacturing bath soaps. Its Godrej No:1 brand is the best selling soap in the Grade-1 category. Apart from this, it’s impressive array of Brands also include Cinthol and a host of exciting Hair care products. The Core competency of Godrej has been its ability to successfully create, communicate and deliver a portfolio of value brands to the huge segment of cost conscious customers. Even in times of recession the company decided not to raise prices and successfully managed rising commodity prices through efficient cost management and squeezing out efficiencies from its supply chain. It tailored the size of the offering and not the product as such, and introduced them at price points that the customers could afford.
GCPL innovated and customized its Communication and promotional strategies in accordance with its goal. Shunning satellite channels, GCPL decided to promote its offerings on Doordarshan, All India Radio, local publications and regional TV channels. For its hair colour products, GCPL depended more on word of mouth publicity. It engaged around 50,000 barbers spread across 9 states in a Co-branding exercise. GCPL provided them with grooming kits in exchange for prominent display of its logos in the saloons. Since most people turn to their hair dresser for advice, it made perfect sense to influence the influencer.
Another striking aspect of GCPL’s success story has been its aggressive acquisition drive. In the past few months, GCPL has announced 5 acquisitions: Indonesia-based Megasari Makmur group and its subsidiary, the remaining shares of Godrej Sara Lee, Nigeria-based Tura Group, and the Latin American based groups Issue and Argencos. It has envisioned a three-by-three strategy for its international operations: targeting the three continents of the developing world - Africa, Asia and Latin America - and in three categories - personal wash, home care and hair care. The decision to target emerging markets stems from the fact that they have demographic and behavioural profiles that are similar to that of India.
These three continents are now on a growth trajectory and the opportunities that they provide for the consumer products business are too lucrative to be missed. An additional incentive to invest in these markets can also be traced down to the fact that multinationals like Unilever, L’Oreal and Procter & Gamble don’t have a domineering presence which provides ample scope for the regional brands to grow. Also the acquisitions provide GCPL an opportunity to indulge in cross pollination of brands; bringing some brands into India and taking some brands to these markets.
The Road Ahead
The emerging market centric acquisition focus has strengthened GCPL’s brand portfolio by roping in strong brands like Good Knight and HIT which are among the fastest growing FMCG categories. Also by bringing in GCPL, Godrej Hershey and Godrej Sara Lee operationally into a single fold they can expect to achieve distribution synergies and develop pioneering supply chain solutions.
The increased scale of operations would fuel the pace of innovation in the existing portfolio and help leverage branding opportunities. The strong commitment that GCPL has to the Godrej Group's core values, ethics, employees and consumers will be instrumental for its success. Even though concerns may arise with regards to GCPL’s exposure to currency risk and its ability to ensure an appropriate cultural fit of acquired brands, it is well positioned to ride the growth wave. GCPL’s decision to venture into emerging markets may be a small step for the company, but it may well provide the fodder for Indian FMCG companies to take a giant leap in the near future.
Wipro Consumer Care Lighting Ltd.
Wipro Consumer Care and Lighting (WCCLG), a business unit of Wipro Limited, started with vegetable oil production in 1947 and has since then come a long way and established a profitable presence in the branded retail market. With a vast variety of products spanning soaps, baby care products, health and wellness, Wipro's products have bettered the lives of millions of consumers across India and global markets. It has been one of the fastest growing FMCG companies, both organically and through acquisitions.
They have just announced sales revenue of Rs 6410 million, which is 9% of the total revenues of Wipro Ltd. They reported an EBIT of Rs 807 million for the quarter ending 31st M arch 2010, which was an increase of 16% compared to the previous year’s same quarter. In addition to these impressive facts, WCCL plans to invest Rs. 800 million to augment its production capacity for products such as Glucovita, CFL’s, toilet soap etc.
What is WCCL doing right that they are coming off age in a splendid manner and standing their own against the much bigger and well entrenched FMCG companies.
A mentioned earlier WCCL has grown through organic & inorganic ways. In 2007, WCCL acquired Unza Holdings Ltd, South East Asia’s leading Personal Care Company for Rs. 1010 crores. This was the largest acquisition in personal care segment by an Indian company and was expected to double Wipro’s FMCG revenue. Earlier Santoor became the third largest soap brand in India after Lux and Lifebuoy with a value of Rs 500 crores. Wipro had previously acquired Chandrika Soaps for Rs.31 crores and Glucovita for Rs.5 crores to expand its FMCG basket. This deal with Unza gave WCCL the expertise to sell products through big retail chains.
As a next step WCCL wished to leverage Unza’s presence in Nigeria and Egypt and tried to understand & exploit the potential of markets in East & West African countries.
Following the success of the Unza acquisition, in November 2009 acquired the personal care business of Yardley in the Asia, Middle East, Australasia and some African markets from Britain-based Lornamead group. The acquisition was worth Rs. 214 crores approximately. The 239-year-old Yardley provided offerings of personal care products including fragrances, bath and shower products and skin care.
Subsequently in July 2010, Wipro Yardley unveiled luxury soaps in India. They were launched in 5 fragrances namely Red Rose, English Rose, Jasmine, Sandalwood & English Lavender.By doing this WCCL was looking to introduce the world class heritage brand to Indian consumers and build up a brand loyalty.
Domestic Game Plan
Wipro Yardley’s 5 new fragrances performed extremely well and contributed 6% to WCCL’s quarterly revenue. And as a result of this, now WCCL has decided to enter tier-II cities with Wipro Yardley.
WCCL is also planning to expand the portfolio of its ayurvedic brand Chandrika. WCCL President Vineet Agarwal said the brand had done reasonably well during the quarter ended June 2010. “Under the Chandrika portfolio we are looking to introduce a bigger range of face washes which along with deodorants are sunrise categories,” he said.
The company is also planning to expand its skincare range under its flagship brand Santoor. Recently Santoor has launched another brand extension - Santoor Deodorant. Now WCCL already markets deodorants, soaps and talcum powder under the brand. What we can see is that Santoor is gradually becoming a personal care brand rather than just being limited to a soap brand. This 600+ crore brand was on a roll last year becoming one of the largest selling soap brands in India. It uses only modern trade channels to market its skincare range. Also thier glucose powder Glucovita and artificial sweetener Sweet ‘n’ Healthy were rolled out nationally post a test-marketing phase.
Recently WCCL has launched LED rechargeable lanterns in 3 configurations namely, Solar, Rechargeable and Dry cell. The low power consumption of LED ensures that they give a backup of up to 25 hours. They would be initially launched in south India, U.P and Punjab.
From the above stated facts one thing is clear. WCCL are on a roll solely due to the reason that they had a vision and they made sure they stuck to it. They decided to go in for a global strategy by way of a number of international acquisitions which not only granted them to access to international markets but also helped them in learning and gaining expertise.
And at the same time they had sound strategies to face the competition in the domestic market, be it pricing or the distribution or their brand launches and as a result of which we are able to see the success of the Santoor & Yardley brands.
The future definitely looks bright and the top management of WCCL maintain that they would continue to be on the lookout for potential companies they could acquire and benefit from and at the same time they have decided to stay focussed on the emerging markets and give the MNC’s a run for their money.
Maruthi G | IIM Shillong
“FAT BOB”, “SOFTAIL”, “FAT BOY”, “SUPERLOW”….do these ring any bells with you? Hint: These are super bikes or motorcycles as they are called as. Stop cursing me! These apparently derisive adjectives are indeed for names of motorcycles. This is what happens when I drop the all important prefix to these names…HARLEY-DAVIDSON! Pat yourselves on the back magnanimously if you had guessed it right without this prefix! But if this prefix was so very significant why would BAJAJ decide to do away with it and call that their new branding strategy.
When BAJAJ hazards the move of dropping the sacred prefix once and for all from its two wheelers, it is not without foresight! Two wheelers sans BAJAJ means Pulsar and Discover sans BAJAJ as these constitute 70% of their sales. This move wasn’t meant for India at all in the first place. They must be kidding if they were to tell me or for that matter any Indian customer that we would stop seeing Pulsar and Discover as from BAJAJ. From the stats shown above it should not take you long to figure out that they sell almost every third bike to a foreign market as exports! The fact is that Pulsar and Discover are brands looming larger than what anybody could have possibly imagined. The way I see it these could very well be the first Indian two wheeler brands, especially Pulsar, which could rule foreign markets as well. And it is only but rational that BAJAJ tries to build these as global brands deprived of Indian-ness. But what indeed is surprising is the timing of their move. Considering that they started their experimentation in advertisements nearly a year ago I am only happy that they did not wait for any propitious omen!
Amlan Mitra | SIMSR Mumbai
What comes to your mind when you hear the term “Hamara Bajaj”? Your answer probably is the 90’s advertisement that sold scooters to the middle class and instilled in them a pride to own something that personified the independent, self sufficient Indian.
Bajaj has been synonymous with the two and three wheeler industry for the past sixty years. The brand equity of Bajaj is the envy of many an Indian company. So when managing director, Rajiv Bajaj’s decision to drop the name ‘Bajaj’ from their popular auto products, Pulsar and Discover hit the news, there was understandable noise.
Mr. Bajaj would need to prove how the concept of cannibalizing the name that the company has grown with will help achieve customer confidence. There are many contradictions to his claim that the dilution of the ‘Bajaj’ brand in other sectors like insurance and electricals works against mentioning it with auto products. General Electric has its footprint in finance, consumer electronics, healthcare etc. Tata is inundated in sectors including steel, motors and information technology. Although these companies have been around for decades, they are still able to project themselves as contemporary and appealing to the eyes of the 21st century consumer.
The most important asset of a company is its customers’ trust. It is important for the management to lead by example and show faith in its brand. Today’s prospective clientele for Bajaj might be westernised and not fully aware of their earlier dominance. But if marketed right, it could attract them by resurrecting its brand power with modern communication strategies. A strong Indian brand associated with an impeccable product will stand the test of time as compared to a shiny new faceless product which is yet to connect with most of the country.
Ekta, Swati Gupta | NMIMS UNIVERSITY, Mumbai
Ever wondered why you need a popcorn bucket and cold drink to enjoy a movie be it theatre or your home entertainment system. Make no mistake to believe that it’s a new trendy culture followed by us. This behavior was instilled in our sub-conscious in 1950s by Coca-cola, Morton Salt and various individual popcorn companies’ campaign in the USA movie theatres. A single frame saying “Eat Popcorn” was inserted / spliced into film reels and, you guessed it, popcorn sales went shooting up without anyone having any conscious-level sense of where the urge to eat popcorn came from. This marketing incognito is popularly known as Stealth Marketing or Undercover Marketing in which an audience is not aware that they are being marketed to.
What is it? Undercover marketing is a form of marketing where a consumer is unaware that he is been introduced to or marketed a product. An actor or a socially adept person is hired by a marketing agency to highlight the positive features of a product. He usually goes to a public place like a bar or a shopping mall or even a social networking site to carry out his undercover mission. People have no inclination of his intention. It could be a person at Twitter talking about the latest gadget he received. Or it could be an innocent looking outsider in a famous tourist spot asking you to take a photo from his latest camera.
A consumer has no inkling of his intention to market the product and is impressed by the new latest technology gadget he chances upon. He uses the product and moves on however the positive image of the brand still remains in his mind. It might induce him to buy the product himself or talk to ten more people about it like in case of the electronic gadget.
It’s differently productive: This form of marketing is believed to be more effective .Customers trust it more as they mostly have an one to one interaction and touch-feel the product they are raving about. Also they take it as a moral duty to spread good word about the product they were introduced to. It has better recall value too. It’s a far cry from the conventional media where the clutter of so many products makes you a prey to very short term retention.
The beginning: Stealth marketing began in media by cigarette companies in USA where its undercover agents became the high profile actors and celebrities like James Dean, Frank Sinatra, and Marilyn Monroe. They were shown puffing on a cigarette as if it were the classy, chic thing to do thereby attacking the subconscious consumer behavior of the movie fans. However the campaign later had to be curbed by the government for environment and health reasons.
• Apple has redefined modern undercover marketing with its ubiquitous product placement strategy. Which movie or TV show do you see today that does not use an Apple product be it a Mac Book Pro on the desk or an IPhone. Practically every person in a movie or television show is using an MP3 player or an Ipod. Apple products owe their popularity largely to their efficient implementation of stealth marketing through major media outlets in collaboration with effective branding of their products while attaching aspects of popular modern cultural trend to them.
• The glaring signs of undercover marketing can be seen in the lyrics and music videos of the rap music which are responsible for the promotion of variety of brands of drinks like Courvoisier, Hennessey, Crystal and many more. The alcohol is now identified with partying and good time and of course rap music.
• Undercover marketing has very low financial risk requiring lesser investment and better payoff. This form of marketing is especially useful in tobacco and alcohol industry where customers do not prefer above the line media advertising anymore. Freedom Tobacco went undercover when it wanted to market Legal, their new brand of cigarettes and did not have a big budget. The actors hired were made to sit at bars with a package of cigarettes on the table. The packets were kept open; they looked full, and attracted attention from the bystanders who would want to borrow a cigarette from the actor.
• A similar thing happened with Soulkool operatives when they went undercover on the Internet, to promote the movie “Cowboy Bebop,” an animated feature. Soulkool employees, all of them barely in their 20s, boost the promotion by flooding Internet chat rooms and message boards with rave reviews for the movie. The actors got small rewards in the form of t-shirts and posters.
• Online implementation of undercover marketing is also possible wherein a central site of the product will be created with a number of network sites all hinting towards the better features of the product of the main site. Somewhere along the lines of what Scion had done as its undercover marketing strategy. One model used to be available outside the famous events and people were allowed to test drive with no suggestion to buy the product, only its features were projected. The quality of product and word-of-mouth sells the product.
Backlash: As we have seen above, undercover marketing leads to other form of promotion like buzz marketing, viral marketing and word-of-mouth promotions which leads to a larger reach of the promotional strategy with use of very limited resources. However this form of marketing carries the high risk of backlash too. If customers find out that they have been cheated or marketed a product without their consent it often becomes an ego issue. This happened with Sony Zipatone. Zipatone engaged in a stealth marketing campaign, but it was quickly detected by the internet community. Sony immediately experienced backlash from video game enthusiasts. Their advertising campaign was perceived by the community to be shallow enough that it insulted Sony’s target audience by implying that they were shallow enough to fall for it.
Malcolm Gladwell, who wrote about such things in his book, “The Tipping Point,” thinks undercover marketing is a bit of a con game: “Well, there’s an element, obviously, of deception involved that I don’t think is the case in conventional advertising. Conventional advertising is about trying to charm us or trying to persuade us. But it’s not usually about trying to trick us. And it’s the trickery part, I think, that makes this different”
Arjun Verma, Parul, Anit Roy | IIFT, New Delhi
“I think the Sun is a very respected symbol and calling it the Baroda Sun created a sense of pride in people. In fact, we went to the extent of branding the Sun itself” These words were said by none other than Dr. Anil K Khandelwal, Chairman & Managing Director, Bank of Baroda in 2006. Since then, Bank of Baroda has positioned itself as the “India’s International Bank” with a rising sun as its logo. While, a number of the visible components of the banks promotion strategy can be easily assessed for the targeted segment and the value proposition that it wants to propose to the customer base, its marketing & branding strategies can be analysed on the basis of the following points:
1) Brand Ambassador -
It initially had India’s former cricket team captain- Rahul Dravid as its brand ambassador (2004-07). As an icon, Rahul Dravid epitomized stability, sincerity and substance which in a way complemented to the Bank of Baroda’s brand image.
2) Expansion -
Bank of Baroda has established its operations in Maldives, Sri Lanka, Singapore, UAE, Yemen, Russia, Kenya, China, Malaysia, Thailand and many other countries around the globe. Rapid integration of business with the technologies through core banking solutions, i-banking, and host of other facilities has established Bank of Baroda as the foremost PSU bank in the country.
3) Positioning –
It is the fourth largest bank in India and consists of 2.5 crore customers. Bank’s latest marketing initiatives are aimed at positioning it as a financial service provider with “value proposition” and “market-driven” being the keywords. The bank has rolled out branches far and wide across the country to distribute an impressive assortment of financial products to its heterogeneous customer base.
4) Business Lines -
The bank has divided its operations in 6 distinct business lines- Corporate Financial Services, Personal Financial Services, Business Services, Treasury, International Operations and Rural Banking and is aggressively focusing on becoming No. 1 in each of these segments
A schematic representation of the banks marketing strategy is as follows:
5) Publicity –
To build its brand equity, the bank has organized hosts of seminars nationally and internationally- latest being Basel II. Bank has actively managed its public relations through media.
6) Customer Focus –
The bank has built its brand around superior customer services and international focus which are also the point of differentiation of the bank from other PSU banks.
7) Recent Marketing Initiatives –
• Communication Campaigns : Shukriya Sau Salon Kaa and Baroda Next
• Use of Sybase 365 Marketing Information System
• Launch of Baroda Swarojgar Vikas Sansthan
• Next Gen Branch opened in Ahmedabad
• 50 city sales offices opened
8) Advertisements –
The advertising campaigns in both print and television media emphasize on the bright orange corporate colours of the bank and the ‘rising sun’. The key traits that the bank wants to highlight such as trust, competence and ease of use are reiterated in the numerous advertisements. The targeted consumer segment is clearly visible via the imagery in the advertisements like the middle-class Indian doing every-day chores, who now has numerous financial needs, not just plain and traditional banking. Another striking factor is the focus on the age segment beyond the 35-40 age bracket, people who are able easily identify with the PSU banking sector as a familiar entity. The promotion strategy of utilizing customer awareness sessions with the display of the standard corporate visuals like the bright logo and the tagline with stills from the supporting print and television advertisements is also heavily relied on. The banners around ATMs and bank branches are easily visible entities because of the corporate colors and themes chosen.
9) Promotions Abroad –
In the promotion strategy abroad, the targeted segment is clearly the Indian who is away from home. The promotion campaign for Bank of Baroda in UK centers around the target audience of expatriate Indians. The imagery associated with the campaign has the distinct feel of the Indian bank aiming to replicate the ease and trust of an Indian entity with the efficiency of a modern and global enterprise. The location of the advertisements especially outdoors, is on buses and billboards near stations and bus-stands, typically meant for the average middle-class customer used to travelling in public transport. The tag line of “India’s International Bank” also focus on the core aspect of Bank of Baroda being an Indian bank meant for the Indian community living abroad, looking for the familiarity of a known brand for a personalized service like banking.
In a short summarization, the marketing strategy of the Bank of Baroda focuses on the promotion of the values that the bank wants to portray to its customers (both prospective and current). It wants to be seen as an efficient organization meeting all the needs of the average middle-class customer in a warm and familiar setting. The accessibility of the bank in all corners and the adoption of the latest technology are some of the areas mentioned to create the feel of a bank which despite being national in origin, is up with the times and ready for the new-age customer’s demands.
An interview with Professor Sunil Gupta, Head of Marketing Department, Harvard Business School
Markathon: An engineering degree from IIT Delhi, MBA from IIM Ahmedabad and PhD in Marketing from Columbia University to Edward W. Carter Professor of Business Administration and Head of the Marketing Department at Harvard Business School. Please share with us some insights and learning’s that have played a defining role in your journey.
Sunil Gupta: The journey from IIT Delhi to Harvard Busness School has been amazing. Soon after IIT, I joined IIMA and then worked for two years at HMM marketing Horlicks and Boost. However, during these two years I felt uncomfortable with the way marketing decisions were made. My marketing director was a scholar at heart and he encoraged me to read research articles to dig deeper and try new things at my job. This encouraged me to apply for my PhD at Columbia. At that time I was not sure what a PhD was all about. I assumed it was an advanced MBA that would allow me to become a consultant and I almost ended up being one. But my advisor convinced me to try academia for a few years and I am eternally thankful to him for this suggestion.
I am absolutely convinced that life is a series of coincidences and it does not follow a fixed plan. The trick is to be open-minded and take advantage of the opportunities when they arise. Based on my personal experience I encourage my students and my children to follow their passion rather than simply following the crowd. My basic belief is that it does not matter what you do so far as you are the best in that field.
Markathon: Your concept of Customer Lifetime Value (CLV) serves as the building block of Customer based valuation of a firm. It assumes the profit margins from a customer and the retention rate of customers of the firm to be constant. How applicable this model is for companies having a wide range of product categories and decreasing customer loyalty, especially in developing markets like India?
Sunil Gupta: My interest in Customer Lifetime Value (CLV) and customer-based valuation of firm developed during the height of the dot-com days in late 1990s. At that time many new economy companies like Amazon and eBay had sky high stock prices. It was hard for finance experts to value these firms based on traditional valuation methods like discounted cash flow or P/E ratio since there was no cash flow to discount and there was no earnings or E!
My basic premise in developing this approach was that firms generate cash flow and profits from selling products to customers. So if we can estimate the value of one customer of Amazon as, say $100, and we know that Amazon has 30 million customers, we know that the value of its current customer base is $3 billion. Next, we can build a model to forecast growth of Amazon’s customer base, and we can estimate the value of its future customer base. Add these two and we have a fairly good estimate of the firm value.
As a starting point for estimating these models I assumed constant margin and constant retention rate, which implies that if a firm has a retention rate of 90% then it will have 90% of its original customer base after year 1, 0.9*0.9 or 81% by end of year 2, and so on. In other words, it assumes an exponential decay in a customer cohort. Clearly this was a simplifying assumption. We later show that it is straightforward to build complexities in the model where margins and retention rates change over time. So the basic concept with some adjustments in the model and its underlying assumptions can be used for Indian companies as well.
Markathon: In your book “Managing Customers as Investments”, you have proposed to create a business profit tree for finding the key customer objectives as a part of customer-based planning exercise. Can you please elaborate the ways in which this profit tree helps in taking decisions on investment on new & existing customers?
Sunil Gupta: A medical analogy perhaps best illustrates the fundamental idea here. A doctor does not prescribe you a medicine unless he has run tests and diagnosed the root cause of the problem. Yet, I have seen that too often companies are quick to allocate their scarce resources to a specific task or program without identifying the key bottleneck or the main problem. The business profit tree is one simple way to break down the big problem into its potential causes.
Majority of the companies today reward their sales team on the basis of new customer accounts. But, your analysis shows customer retention to have the largest impact on customer profitability. What do you think is the reason for such company practices and how do you see the same changing in near future?
Part of this is cultural. We all like to win new territories, get new clients, gain market share and launch new products. It is more fun to do this than defend existing base or tinker with old products. The other major factor is that it is easy to measure and give credit for a new account to a sales person. It is much harder to say if a current customer stays with the company due to the efforts of the sales person or some other factors.
The only way to change this behavior is to design new metrics that companies can monitor and use to reward their managers and sales teams. In the U.S. many companies have already embarked on this journey and are building more comprehensive measurement tools and compensation systems. I should note two caveats. First, complex metrics and opaque reward systems can cause confusion and send mixed messages to the sales force. So one needs to be very careful in designing them. Second, a focus on customer acquisition is not necessarily bad in some situations. For example, in new and growing markets such as the mobile phone market in India, it is important to establish a strong presence by acquiring a large customer base quickly. The CLV concept simply suggests that it is also important to focus on the quality of customers you acquire, not just the number of customers.
Markathon: In your opinion should a company facilitate customer learning? And how does customer learning help in the long term retention of the customer?
Sunil Gupta: It is certainly good for a company to encourage customers to learn about its products and services. Research studies show that when users learn and get comfortable in navigating the web site of a company, such as Amazon, they are very reluctant to switch to a competing site even if it is a mouse click away.
It is also useful for companies to help customers undertsand their own usage behavior even if it has a short-term negative impact on a firm’s profits. Mobile phone carriers in the U.S. were notorious for profiting from consumers overage fees – fees that consumers pay when they use minutes over and above the free minutes allowed under their monthly mobile plan (most U.S. customers do not use pre-paid service). These fees result from consumers not being able to estimate their own monthly usage behavior accurately. However, when consumers get their monthly bill, they are outraged and switch carriers. Over time, mobile carriers realized that the short-term benefit from these fees is small compared to the cost of losing customers and the associated cost of acquiring new customers. So many companies now help customers learn and understand their own usage behavior to avoid such fees. In the end you need to strike a balance between the value you provide to customers and the profits you generate from them. If the equation tilts too much in one direction or the other, things start going wrong.
Markathon: In your opinion are differentiated pricing strategies sustainable in the long-term and do they provide a source of competitive advantage to a company?
Sunil Gupta: Absolutely. Differentiated pricing or charging different prices to different customers for the same or slightly different products requires a deep understanding of customers, their needs and their willingness to pay. Airlines is one of the prime examples of such price discrimination. One study found that the price of a Coke bottle varied by as much as 3 times in the same city on the same day depending on where it was sold. Interstingly, the price was higher at a vending machine placed at the entrance of a train station compared to a vending machine placed at the exit point of the station. Companies that design software or information products usually build full version of their product first and then deliberately disable some functions (e.g., student version of a software) to sell it at a cheaper price.
Current technology allows companies to get more and more information about customers that allows them to customize products and services to individual needs and therefore price its service differentially. The competitive advantage to firms will therefore come from a continuous and better understanding of customers.
Markathon: In your article on “A Model of Consumer Learning for Service Quality and Usage”, you argue that the customers make most of their learning in the first few service encounters and therefore these needs to be managed strategically. Could you give an example of how the first few service encounters should be managed and should they necessarily different from the later encounters?
Sunil Gupta: AT&T recently changed its pricing policy for smartphone users. Unlike its previous plan where users of iPhones or Blackberrys could use unlimited data for a fixed monthly fee of $30, consumers now have to choose between two plans: 250 MB of data for $15 per month or 2 GB of data for $25 per month. Most consumers are not sure how much data they might consume but they will learn as they start monitoring their monthly usage. Our research article shows that this learning is quite rapid and it is in the best interest of companies to help consumers in this process since this leads to a win-win situation: customers are less frustrated with unexpected charges which lead to higher retention and better long-run profits for companies. In fact AT&T is doing exactly this by providing tools to consumers to monitor their usage.
Markathon: Will privacy concerns be a major factor in the further development of online social networks and will the customer satisfaction with these networks be affected due to these concerns?
Sunil Gupta: Privacy has already become a major issue for online social networks. In November 2007, Facebook started its Beacon program to track its users’ visits to external websites. Mark Zuckerberg of Facebook argued that it would provide valuable information to its users since people could benefit from knowing if their friends bought, for example, a dress from Bloomingdales. However, Facebook never got users permission to track their website visits and the program created a huge controversy and was later retracted.
There are ongoing discussions and debates about this issue where companies claim that getting consumers’ personal information will help them provide more useful products and ads to them, while privacy experts fear that private information can be easily misused. I think this debate will continue in the future and probably intensify as technology becomes more sophisticated in tracking our location through mobile phones, or our preferences from our website visits.
Markathon: Has the growth of networks like Facebook reached a plateau? If not where are the next 400 million users going to come from?
Sunil Gupta: Currently there are almost 5 billion mobile phones used in the world. As social networks such as Facebook intensify their presence in mobile, they are likely to gain a lot of new users, especially in emerging markets, who never had access to Internet.
Markathon: How will the rise of these networks influence marketing trends and will it cause a paradigm shift in marketing principles?
Sunil Gupta: Social networks are already having a huge impact on how consumers obtain information about products and how they make decisions. Consumers use Facebook Connect to learn what their friends are buying. They use user-generated sites such as Trip Advisor to learn other users’ experiences with hotels before selecting a hotel. Marketing practices have to evolve with this changing consumer trend where word-of-mouth and viral campaigns become more important than mass marketing.
Markathon: With such an extensive academic and corporate experience, what do you think are the major differences between academic knowledge and corporate practices? Could you suggest ways to bridge these gaps?
Sunil Gupta: At the risk of making a sweeping statement, I think that academics are generally very good in creating new conceptual frameworks and coming up with broad generalizations by connecting the dots across companies and industries. However they typically lack a good understanding of the organziational complexities, specific situation or context of a company, and the people issues inherently involved in implementing any decision. Practicing managers, on the other hand, are very good in exactly those issues where academics lack knoweldge. In other words, the two complement each other very well.
At Harvard Busness School we have a strong focus on bridging this gap where faculty are encouraged to be in touch with management practice through case writing and field research. We also actively recruit leading practitioners to become Professors of Managemt Practice to encourage this dialog. There is an increasing need to bridge this gap and I hope more schools take a proactive action in this direction.
The Two sides of Customer Value
Customer-based strategy recognizes two sides of customer value:
•Value which the company provides to the customers(Value to customers) – In terms of products and services
•Value which the customer pays back to company(Value of customers) – In terms of profits over time
As shown in figure this divides customers into four sets:
•Star Customers: A true win-win situation
•Lost Cause: Company should reduce investments in this set of customers or even drop them if it can’t increase profitability from them
•Vulnerable Customers: Most loyal ones, but at the same time highly exposed to competition
•Free Riders: They exploit the relationship with the company to the maximum extent