Analysis on

Brand Extension for Reynolds

Presented to

Ms. Asha Nataraj

Product Development Manager
Reynolds Inc.

By:

Group No: 14, Section: D

Praveen C H PGP26226
Sonali Dekate PGP26244
Ravi Makwana PGP26236
Soumik Pal PGP26245

October 25, 2010

 Letter of Transmittal
From,
Marketing Strategy Cell of IIM Lucknow
Phone: +91-522-1001234
Email: mktcell@iiml.ac.in

Date: Oct 25th, 2010

To,
Ms Asha Nataraj
Product Manager
Reynolds Inc

Dear Madam ,

Enclosed is a copy of “Final Report on Reynolds Brand Expansion Strategy.” This report is a summary of
our findings and proposals for the brand expansion plan of Reynolds. As per our last discussions we
decided to expand in the related product line. We completed the report on schedule and met all our
proposed objectives as per our design and promise.

As promised in our proposal, this report includes information on the new product and its marketing and
implementation strategies. This report also includes the evaluation of the hypotheses through the help
of the primary and secondary research. The research is very much exhaustive and data analysis is also
very much accurate based on the input taken. This report suggests the possible market gap in the
notebook sector. It also suggests that Reynolds being a big player in the writing instrument sector
should utilize its expertise to penetrate the maximum possible market. This report also outlines
recommendations and strategies and how to implement them to be in the state of sustained long term
growth.

If you have any questions and/or comments regarding the interpretation of this report please feel free
to contact us.

Sincerely,

Marketing Strategy Cell of IIM Lucknow

(On behalf of Prof. Suman)

Enclosure: Final Report on Reynolds Brand Expansion Strategy

IIM Lucknow
 Acknowledgements

First and foremost we would like to thank our Professor Suman at IIM Lucknow not only for the help and
support rendered by him during the course of the project but also for his constant encouragement,
invaluable guidance and genuine zeal to help us complete our undertaking successfully. Working under
him has been one of the most enjoyable and enriching experience.

We would like to thank Miss Asha Nataraj, Product Manager, Reynolds for cooperating with us
throughout the project. We are grateful that she could take some time out of her busy schedule to
answer our queries and give us feedback at times. Moreover we are grateful to all the retailers and the
customers who helped us directly or indirectly in carrying out this project successfully.

We are also thankful to our institute, IIM Lucknow for allowing us to use the library and other
infrastructure necessary for the completion of the project.

This project gave us a wonderful opportunity to work as a team and we feel immensely satisfied that we
emerged as intellectually stimulated and a co-operative lot during this endeavor.

IIM Lucknow
Table of Content

List of illustrations...........................................................................................................................1

Executive summary.........................................................................................................................2

1. Introduction..............................................................................................................................2

1.1 Brand Extension of Reynolds in same product line..........................................................2

1.2 Reynolds-SWOT analysis.................................................................................................3

1.3 Inference............................................................................................................................5

2. Methodology................................................................................................................................6

2.1 Objective of research........................................................................................................6

2.2 Sample Detail....................................................................................................................6

2.3 Research Technique..........................................................................................................6

2.3.1 Market Segmentation..........................................................................................................6

2.3.2 Primary Survey.....................................................................................................................7
2.3.3 Secondary Survey.................................................................................................................7
Major findings.................................................................................................................................9

Conclusion and Recommendations..................................................................................................9

Appendix........................................................................................................................................10

A. Survey Detail.........................................................................................................................10

B. Limitations of the Survey......................................................................................................13

Index..............................................................................................................................................13

Bibliography..................................................................................................................................14

IIM Lucknow
List of illustrations

Fig 1: Payoff Matrix for new Reynolds’ notebooks………………………………………………………………………………….

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Executive summary

Reynolds, the writing instrument pioneer in India, wants to expand its brand. The most profitable and
potential market is the related product line in form of notebooks. Being already a big player in the pen
selling sector, Reynolds can leverage its brand power to enter into this segment, where not much of
competition is there. Though brands like Sundaram, ITC etc. dominate the market but with proper
strategy and implementation Reynolds can create its own niche market in this segment. While
formulating the strategy the available options are many when considered to be in the inline related or
unrelated product line. But the amount of impact it can create and can maintain a long lasting business
is in the sector of notebooks. Primary and the secondary survey also seem to underpin this strategy.

Given an established channel of delivery is already in place the distribution becomes also very easy for
Reynolds if it goes to related inline product. After the supply chain management here comes its
marketing strategy as well as its action plans for its implementation. Here the implications are many.
While capturing the market it’s difficult for Reynolds to tap the already existing market of the
competitors. Depending upon the age or category of the students (of school or college) or the public or
private institutions the target segment will vary. Moreover it’s even more difficult to ink deal with the
government institutions as they are already having a good deal in place. Therefore different marketing
strategies have to be adopted for different segments. As far as outlets or distribution partners are
concerned new strategies will have to be adopted to beef up the sales for initial period of time.

1. Introduction

For Brand extension of Reynolds the major area of concern was to decide whether to go with the same,
related or unrelated product line. We did a thorough market research on the existing product line and
the new potential market segments. We also took into account the customer perception, their needs,
gap in their needs, scope in the existing market, scope of new products in the market, demand for the
products, profitability etc. After conducting an exhaustive survey and focused group discussion we came
up with the product through which Reynolds’ brand extension will be most profitable according to our
strategy.

1.1 Brand Extension of Reynolds in same product line

Reynolds marketed under G.M. Pens India is currently a market leader in markers. However, Reynolds
stands second to Cello India in ball pen and gel pen category. Reynolds current product lines extend to
the following:

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 1) Ball pens
2) Gel pens
3) Gifts (Pen-set)
4) Retractable pen
5) Specialty pen
6) Pencil, eraser and sharpener
7) Coloring

For brand extension in the same product line, we analyzed the current pen industry and perception of
Reynolds as a brand. We also did a survey to find the demand and value forecast for a new pen.

1.2 Reynolds-SWOT analysis

Reynolds has now become synonymous with pen in India. The distribution network and its strategic
pricing as well as the product mix have given it a competitive advantage. However, Reynolds is losing its
strategic position because of the entrants of new players in the market.

Strengths:
• Well-established distribution network extending to rural market
• Strong brands in portfolio
•Diversified in the related line category
 Exclusive showroom ‘Write site’

Weaknesses:
• Low exports as China provides better substitutes
• Most of the domestic players have strategic alliances with global players

 Low price margins

 Low on product innovations
 Fierce competition from domestic and international players

Opportunities:
• Large untapped domestic market
 Leverage of ‘Write Site’ to increase urban area sales

Threats:

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• Imports from China affecting the domestic market
• New entrants placing competitive products at competitive price

 No Brand loyalty in pen industry

Ease of duplicity
• Slowdown in urban demand due to increased competition

SECONDARY DATA ANALYSIS

Current players:

Cello is the market leader in ball point pen having range of brands under its hood. Reynolds come a close
second owing to early entry in the market. Luxor has a wide variety of brands and is the market leader in
the global market. Today’s has a significant market share and is growing the gel pen category. Linc and
Lexi have eaten up a considerable market share with their low priced pens. Parker Beta has a
considerable market in the urban and tier 1 cities.

Alliances:

Most of the domestic players have strategic alliances with global players. The alliances are for strategic
reasons like Marketing arrangements (Luxor India –Sanford group –Parker, Waterman), technology
transfer (Rotomac India with Mitsubishi Japan) and tapping export markets. This has created cheaper
substitutes for Reynolds pen even giving a better quality.

Pricing and Margins:

Traditionally, pen industry experts say that mass-based pens have profit margin 10% to 15%. The low
profit margin and the eating up of Market share by other players have led to a decrease in the revenue
for Reynolds.

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Distribution Channels:

Mass products under the Rs. 10 /- price are sold through the distributors’ route. These distributors can
cater to the requirement of the outlets. Reynolds has an advantage here with its wide distribution
network.

Product innovation

Gel pens market- The market is estimated at Rs.350 crore, and the main players are Add Gel, Montex
and Flair brands. Demand Drivers for this segment has been college going students. The gel pen market
stands only 28% today but has a higher margin than the ball point pen. Reynolds has a variety of
products in this segment; however, no single brand has been able to create an impact on the consumer
and market.

Promotion

The pen market is marked by a fierce bout of competition among brands like Jetter, Reynolds, Cello,
Today’s, Add Gel, Rotomac, Flair, Stic and hundreds of small-scale players. As such, expenditure on
media, promotions and celebrity endorsements — pen brands are endorsed by the likes of Amitabh
Bachan (Parker) Javed Akhtar, Salman Khan, and Hrithik Roshan (ADD Pens) — is among the highest in
the ad industry. Reynolds endorsement of Sachin saw an initial growth in sales, however, the growth
died over the period owing to less brand loyalty in the pen segment.

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PRIMARY DATA

We conducted a survey to know about Reynolds brand perception and a possible launch of new product
in the same category by Reynolds.

The findings from the survey are:

1) In low-priced pens, Brand does not have a significant effect on purchase

2) Reynolds is seen as a brand of yesteryears with very few innovation in the area
3) Consumer sees Reynolds as a home grown brand with products only in low and medium priced
category
4) Any new pen launch will not have an impact on the market unless strategically priced and
heavily marketed
5) Consumers keep changing the product in the same brand as well- no brand loyalty

1.3 Inference

Clearly, we see that that Reynolds face a large number of threats and have more weakness in the
current pen product category. Reynolds strength lies in the fact that it’s the oldest brand to mark its
presence in the writing industry. Its revolutionary Reynolds 045 was once a market leader in the pen
industry. However, the pen industry has got very competitive over the period of time and Reynolds has
lost its top notch position.

We recommend that Reynolds should not extend its brand in the same product line owing to following
reasons:-

1) Brand loyalty plays very little role in Pen industry

For high end pen, the brand loyalty does exist. Reynolds has never ventured in the luxury pen
category. There are strong international players like Parker, Mont Blanc, Piere Cardin, Waterman,
who are already in a price war and market capturing. Considering Reynolds India low key position
and brand image, venturing in this domain would not be much profitable. Although margins are high
but initial investment, marketing and endorsement will require a seed of money.

In domestic low-priced category brand loyalty does not exist. A consumer is equally likely to buy a
Cello, Linc or Lexi instead of Reynolds. Similar quality and price are the key reasons beyond this
rationale. Thus, introducing one more product in the same line will add to the clutter in the market.

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 2) Ease of duplication
The design and quality are easily duplicated in this low margin pen industry. Chinese players have
competitive advantage over Reynolds in making a low priced pen. Reynolds 045 is already being
made by three companies. The sub-urban consumer is indifferent about these varieties. We believe
any other pen launched will face this threat even if it could gather a position in consumers mind.

3) Low export
Again the Chinese players have an advantage as China is the preferred off shoring destination for world
pen requirement. China has done Rs. 5000 Cr. exports in 2006 with India having a Rs. 200 Cr. Exports.
Clearly an international demand is unlikely for a low priced pen. A high end pen might create some
demand in the international market but will face stiff competition from existing players.

Therefore from the viewpoint of brand extension related product line is the viable option as same or
unrelated product line will not give much profitability. Our methodology and approach for that product
line is mentioned in the next sections.

2. Methodology
2.1 Objective of research

Our main objective of the research is to find the market available in the notebook segment and how to
capture that market. By leveraging the brand name and implementing the perfect marketing strategies
we need to put the quality and innovative product in the market.

2.2 Sample Detail

As per our survey design we collected a sample of 50 people and collated their responses and analyzed
them based on our criteria. We used sampling methods and error rectification techniques to avoid
biasedness and sampling errors.

2.3 Research Technique

Our research technique involves a systematic study on the target segment and thorough survey on the
same. We segmented the potential customer base based on certain conditions and then proceeded with
the primary and the secondary survey as follows.

2.3.1 Market Segmentation

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We conducted a survey to find out the people profiles visiting the retail stores. We have analyzed the
whole population and come up with the below segmentation.

1. Segment A – Age group 6 -15 (School Children)

2. Segment B – Age group 16 – 18 (College Students)
3. Segment C – Age group 19 – 25 (Graduation Students)
4. Segment D – Age group above 25
5. Segment E – Corporate Customers

From our survey, we found that out of 10 persons who were buying the note books, 5 were school going
children, 3 were college students, 1 was a graduation student and 1 was a miscellaneous purchase.

Segment A:

We analyzed that most of the notebooks in the retail stores are being bought by school going children
(Segment A). These students buying pattern is influenced by parents. Parents prefer to buy the branded
books.

Segment B:

The college students buy the books in bulk. They prefer to buy 10 – 15 note books at a time. Unlike
school going children, college students’ selection is independent. They choose books which are light
weight and do not contain any lines in it. We have noticed one interesting point for this segment of
people is that they sometimes are inclined with what their lecturers tell them in selection of note books.

Segment C:

The Graduation students buy one or two note books at a time. Their preference levels are similar to that
of college students.

Segment D:

We could not find a specific buying pattern under this age group.

Segment E:

This segment can be targeted using the brand image. This segment is attractive as they require the items
in bulk. This segment is analyzed in next sections through direct interviews with the corporate persons.

2.3.2 Primary Survey

Based on the questionnaire prepared by us, we conducted two thorough surveys keeping in mind the
need gap of the customer. The two surveys conducted are described in detail with all information in the
Appendix A.

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2.3.3 Secondary Survey

Entry into Market:

The notebook stationery market is expected to contribute 6000 crores. The existing brands in notebook
industry that carry a major chunk of market share are Sundaram, Navneet, Staples, Camlin and ITC. It’s
easy for any brand to capture the initial market share but cannot sustain the same success graphs as
years pass by. The biggest concern is product differentiation. Hence there will be always a threat from
the new entrant in to this industry. Reynolds is a leading brand in the pen industry. This image plays a
big role when it enters in the notebook industry.

Retail Stores:

In general scenario, for a new entrant, the setup of retail outlets and distribution channels eat up the
total budget allocated. Reynolds has set up 3,00,000 retail outlets across India covered through a
network of 2500 redistribution stockists and 27 main stockists. This is facilitated by a sales and
marketing team of over 300 professionals. These retail outlets can also be used for notebooks. Thus the
distribution costs and other transportation costs can be minimized to a maximum extent.

Place:

The distribution channel for pens is Chennai. The same place can be used for setting up the paper
manufacturing industry and can reduce the transport over heads. In case of space constraints, a new
place in and around the GM industries should be chosen. The more distance the new industry is from
the existing pen industries, the more is the transport over heads. The place where the industry is setup
plays an important role in the profits generated.

Price wars:

Reynolds has the advantage of brand image and existing retail stores. Reynolds can use this advantage in
setting up the lowest prices for best quality paper. Only the existing brands which has maximum profit
can follow this path and rest exists where they are. The lowering of prices by the existing players takes
some time. Meanwhile Reynolds can penetrate in to the market and can grab the market share. If
Reynolds reaches the people’s expectations, the lowering of prices by the existing players may not stop
further penetration.

Below matrix shows how the companies adopt the pricing policy. The table is drawn with initial
assumptions that Reynolds go in to industry with existing prices and the values in the table is profit
obtained by selling 15 books that have an MRP of Rs.35. When Reynolds comes up with same price as

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the other players have set, Reynolds would have a profit of Just Rs. 50. This is because of low
penetration in the market and hence only a few will buy the books. If Reynolds decreases the price,
people will buy more and more books and hence profit increases to Rs. 200. Meanwhile the competitors
will reduce the price and finally stabilize at a profit of Rs. 100 each. But the price reduction process takes
time and by that time Reynolds should have captured at least 10% market share (Assuming that other
companies take at least 30 days to reduce the price)

Company A low Company A

Price High Price
Reynolds
Low Price (100,100) (200,50)

Reynolds
High Price (25,175) (50,150)

Fig 1: Payoff Matrix for new Reynolds’ notebooks

Major findings

The analysis of the above results clearly shows that there is a huge potential in the notebook segment in
the market, especially in the private sector. Different types of notepads, customized and sophisticated
notebooks, scheduling diaries, calendar add-ons to keep track of the notes, to-dos, page-marker
delimited notepads catered to the specific needs of the organization are the main area to focus on.
These products will not only tap new market in these organizations but also will create a definite
customer relation by plugging their requirement gap.

Conclusion and Recommendations

Promotional Strategies and Advertisements:

Through TVs and FM Radios:

The existing “dependable” brand image should be projected for notebooks and especially for the A4 size
papers. This builds up a sentiment in the children.

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Sample books:

This strategy can be used exclusively at Reynolds retail stores. Those who have purchased pens for Rs
100 and above can be given sample books. The sample books can have not more than 20 papers. This
can be a costly campaigning, but the basic strategy is brand promotion. This helps in people to know
about the Reynolds note books and their quality.

From our market analysis, we understood that it costs less than 10 paise per page. Reynolds can incur a
maximum cost of Rs.3 Per sample book. If Reynolds come up with around 10,00,000 sample books, this
may cost around Rs.30,00,000. But more importantly this technique will help in knowing about the
Reynolds note book market to the people at a quick pace.

Wrappers:

This could be the best strategy of all to reach the people at a quicker pace than sample books strategy.
“Wrappers on notebooks (like brown sheets)” is a compulsory for children. Parents feel it very difficult
to wrap the bundle of notebooks at a stretch. Reynolds can take advantage of this and provide wrappers
to the note book for free of cost or at a very cheaper price. Since wrappers are also made of paper, it
would be an easy deal for Reynolds to come up with wrappers. This strategy grabs the attention of the
children as well as parents. This takes Reynolds so close to the heart of children and parents in terms of
understanding their problems.

Campaigning at Corporate Schools:

Corporate schools have minimum strength of 1000 students per school. This could be an ideal place for
promoting the new brand. Reynolds can make students participate in some competitions and can give
away some discount coupons. The discount formula always drags the people to the stores where
Reynolds can capture up on this.

Appendix

A. Survey Detail

Survey 1:

The primary objective of this survey is to know about the buying pattern of the people visiting the retail
stores.

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Questions:

1. What is your age?

2. How many books are you going to buy?
3. How many times you visit the store?
4. Who else comes with you to the store?
5. Does anyone influence you in buying the books?
6. What are the criteria you prefer while buying the books?

Survey Results:

Question 1:

Total number of people participated in the survey is 40. Out of which 22 were below the age group of
15, 12 were in the age group of 16-18, 4 were in the age group of 19-24 and 2 were above 25.

Question 2:

Segment A bought around 10 books at a time. Segment B bought around 3 – 4 books at a time. Segment
C bought around 1 – 3 books at a time. Segment C bought one book at a time.

Question 3:

All segment visits one day a month.

Question 4:

Segment A alone brings an elder person with them and the rest come alone most of the times.

Question 5:

Only Segment A is influenced by the elder person with whom he/she has come.

Question 6:

Segment A looks for flashy colours on the book. Segment B and Segment C looks for a light weight
books.

Survey 2:

The primary objective of this survey is to know about what kind of add-ons fits which age group?

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Questions:

1. What is your age?

2. What kind of images you look for on the top of the book?
3. If we want to provide some additional information in the first page and in the last page, what
kind of information will you find interesting?
4. Do you prefer to have page numbers?
5. If we say that we are going to donate one rupee for orphanage on each book purchased, do you
trust these kind of offer?
6. If we say that we are going to donate one rupee for orphanage on each book purchased, will this
influence you?
7. Reynolds pens have the brand image of “Dependable” and you think the same for the A4 papers
from Reynolds?

Results:

Question 1:

Total number of people participated in the survey is 100. Out of which 55 were below the age group of
15, 30 were in the age group of 16-18, 9 were in the age group of 19-24 and 6 were above 25.

The survey is conducted at famous retail stores and at Reynolds outlets.

Question 2:

Segment A opted for kids pictures, cartoon pictures and animal pictures.

Segment B and C opted for pictures that depict some technology.

Segment D doesn’t look for any kind of pictures.

Question 3:

Segment A opted for information about cartoons history and something interesting topics like Guinness
world records, history of some places etc

Segment B and C opted for technical topics.

Segment D doesn’t want any of these.

Question 4:

All segments preferred for this option.

Question 5:

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Segment A has shown trust.

Only 75% in Segment B and C have shown trust.

Around 50% Segment D have shown trust.

Question 6:

Around 85% in Segment A, B and C said yes.

Around 40% in Segment D said yes.

Question 7:

Around 80% in Segment A said yes.

Around 30% said yes in Segment B and C.

This question is not applicable to Segment D.

Interview with Corporate People:

We conducted two interviews with corporate people to know about their reaction and their
expectations in bulk offers.

They were happy to know that Reynolds is expanding in to notebook industry. The most important point
is that they are expecting discounts as they place bulk orders. They may setup a contract too. The
contract period varies from 6 months to 2 years. The contract period mostly depends on the terms and
conditions. But Reynolds can negotiate on the point of Eco-Friendly concept. From their words we
understood that “The corporate are happy to be a part of Eco-Friendly initiatives.

B. Limitations of the Survey

Index

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Bibliography

1. http://www.reynolds-india.com/reynolds/corporate
2. http://www.evri.com/person/pen-reynolds-0x15e5c1
3. http://in.nielsen.com/news/20060912.shtml
4. http://timesofindia.indiatimes.com/city/bangalore/Pen-market-Writing-a-new-
chapter/articleshow/539732.cms
5. http://www.dessenceconsulting.com/pdf/pen%20industry.pdf
6. http://www.reynolds-india.com/reynolds/product/pen

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