The Battle for Indian Retail

Ostensibly, Mukesh Ambani, Chairman, Reliance Industries, and the world's richest man, Jeff
Bezos, CEO of Amazon, are engaged in a court battle over ownership of the Rs 26,000 crore
debt-laden Future Group. But at the core of the fight is the struggle for supremacy in the $850
billion (Rs 62.8 lakh crore) Indian retail industry. Having been pushed into a corner by Alibaba,
not only in China but also in South East Asia, Amazon sees India as its only hope of achieving
scale outside the US. Bezos is doing all he can to ensure that the opportunity to buy India's
second-largest retailer does not go out of his hand easily.

But this isn't a two-way fight. There's a third, perhaps, even a fourth, player vying for leadership
of what is projected to be a $1.3 trillion (Rs 96 lakh crore) industry by as early as 2025. The
Walmart-Flipkart combination, led by global CEO Doug McMillon, acquired minority stakes in
Arvind Brands and Aditya Birla Fashion Retail in quick succession. And one of India's oldest
and largest business houses, the Tata Group, is prepping to up its retail ante by bidding for Indias
biggest online grocery retailer Big Basket.

Big money is being committed for leadership of that lip-smacking trillion dollar pie. The top
three have cumulatively invested $33.3 billion (Rs 2.46 lakh crore). The world's largest retailer
Walmart invested $16 billion to buy e-commerce giant Flipkart and recently announced an
additional $2 billion (Rs 14,478 crore) investment. Reliance has invested Rs 30,000 crore and is
spending another Rs 24,713 crore to buy Future Group's retail assets. Amazon has pumped in
$6.5 billion and is neck-and-neck with Flipkart in India's e-tail landscape.

In January, Bezos announced an additional $1 billion investment to bring 10 million traders and
micro, small, and medium enterprises (MSMEs) online and promised to create one million jobs.
"We are investing to create a million new jobs here in India over the next five years," he said.
Readying More Firepower

That's just the beginning. Each of the contenders is aware that this corpus is not going to be
enough in the tough battle that lies ahead. They are readying fresh arsenal. The Walmart-Flipkart
combo is believed to be looking at an overseas IPO with projected valuation of $40-50 billion
(the homegrown e-commerce giant is currently valued at $24.9 billion).

"India is at a unique inflection point. The country's vision is to be a $5 trillion economy fueling
consumption and a $1 trillion digital economy powered by the world's largest and youngest
mobile internet base. Additionally, millions of small and medium businesses will embrace
technology and become digital. With online retail penetration at barely low single-digit levels,
the long-term online opportunity is massive," says Amit Agarwal, SVP and Country Head,
Amazon India

Sweeping Brands For Heft

With such large war chests, it's hardly surprising that the majors are vying with each other to
pick up anything and everything that is on sale to gain heft. This year, so far, Reliance has
acquired five companies and brands worth Rs 2,917 crore; Walmart bought Flipkart in 2018 and
is now consolidating its 28-store strong cash and carry business under Flipkart Wholesale to
create a formidable omni-channel wholesale play. Flipkart has also invested in fresh produce
supply start-up Ninjacart.

Indian FDI rules don't allow foreign retailers to own physical stores. However, Amazon has
found a way to invest in physical stores through its investment arm. Its latest attempt is the
contested Rs 1,500 crore investment in Future Retail through Future Coupons. In 2018, in
partnership with Samara Capital, Amazon bought the Aditya Birla group's grocery retail arm,
More, for Rs 4,200 crore. It also bought a 5 per cent stake in Shoppers Stop in 2017. "In the long
term, there will be space for at least three large players and one small player. Whether it will be
the Tatas, D'Mart or even Swiggy, you never know," says Manpreet Ratia, Partner, Jungle
Ventures, a venture capital firm.

Interestingly, modern retail is just 10 per cent of India's $850 billion retail industry. If the Future
Group judgement goes in favour of Reliance, it would gain an additional revenue of Rs 26,000-
odd crore. However, if Amazon wins, it will be a distant number two player with 1,700 stores
over 12 million sq.ft. It has another 500-odd 'More' stores which it acquired from Aditya Birla
Retail. Walmart owns 28 cash and carry stores, while the Tata Group has 344 stores across
Westside, Landmark, Zudio, Star and Croma brands.

But they will have to cope with the formidable Reliance Retail. With 27 million sq.ft. space
across 6,700 towns and cities, Reliance Retail is by far the biggest retailer. Online platform
JioMart gives it a distinct advantage of robust multi-channel presence. "If modern retail is just 10
per cent and Reliance has 30 per cent of that, its share of the total retail market will be quite
small, and hence there is no dominance," says Arvind Singhal, Chairman of retail consultancy
Technopak. This gives Amazon and Walmart-Flipkart enough room to battle it out in India.
This has pushed the likes of Amazon to burn crores on getting the grocery business right. While
the US and the UK have a largely homogeneous population, Indians have diverse habits. This
makes the grocery business complicated. The market has to grow city by city to cater to diverse
needs, which makes it a slow process.

Amazon wants the largest wallet share for grocery purchases. That was the idea behind investing
in Future Retail. The plan was to use Future Group grocery stores as fulfilment centres and last-
mile delivery points. Apart from regular grocery service, Amazon Pantry, it expanded Amazon
Fresh (earlier available in NCR, Bengaluru and Mumbai) service to Kolkata, Ahmedabad, Pune
and Chennai. Amazon Fresh, with 5,000-odd SKUs that include fresh food products such as
vegetables, dairy products, meat and staples, promises same-day delivery.

Flipkart is slightly conservative about its grocery strategy. The Flipkart spokesperson says they
are in the process of identifying what the consumer needs in each city. Reliance, on the other
hand, is bullish on its online grocery retail business. However, experts believe that over 60 per
cent of Reliance's grocery growth will continue to come from offline stores. "The fight is getting
into all three levels. Earlier, it was about getting into pure online or pure brick and mortar, now
the fight is online, offline as well as B2B," says Govind Shrikhande, Former MD, Shoppers Stop.

Amazon and Flipkart are heavily investing in creating vernacular interfaces. They have
introduced interfaces in South Indian languages also apart from Hindi. "We have enabled a
voice-powered search experience which eases the customer shopping journey on the platform,"
explains the Flipkart spokesperson.

It remains to be seen who will win or lose. As Reliance, Amazon and Walmart are surging ahead,
one wonders what the Tata Group's game-plan would be. The Tatas are already late to the party.
Then there is the extremely profitable D'Mart, a drop in the ocean compared to Reliance,
Amazon or Walmart. It's anybody's guess if the low-profile founder of D'Mart, Radhakrishna
Damani, will want to burn cash and spread wings across India or partner with one of the
platforms. The industry is anxiously awaiting the outcome of the Reliance-Amazon court battle.
Indian retail is getting increasingly complex.

1. Analise Indian Retail Market

2. What is so unique about Indian consumer.
3. Analyse the strategies of major players.
2.Siddhartha Lal helps Royal Enfield dominate mid-sized bikes segment

It is not usual for the CEO of a company that has 2.7 per cent market share in its home market to
draw up plans to dominate the world in its business. Far from being usual, it would actually be
laughable. But when Siddhartha Lal, 41, says much the same thing, it doesn't seem quite so
absurd.

About Siddhartha Lal

Here's why. The Rs 1,758-crore Eicher Motors, maker of the iconic Royal Enfield bike and of
which Lal is Managing Director and CEO, is a blip on the overall Indian motorcycle map, but it
dominates the market for mid-sized motorcycles between 250cc and 800cc. And Lal wants to
take this strength overseas. "There is still an opportunity in 350cc-600cc single-cylinder bikes
globally," says Deepesh Rathore, Director at Emerging Markets Automotive Advisors or
EMMAAA. "Not many global brands are present in the segment." The global market size is
estimated to be 700,000 motorcycles, which is puny. Even in India, it is a small segment. But the
point is that the motorcycles are bigger, pricier and bring heftier margins, making the business
profitable enough to attract the likes of Harley-Davidson, Triumph and Indian.

Is Royal Enfield strong enough to make a global foray? It isn't improbable. Numbers from the
Society of Indian Automobile Manufacturers, or SIAM, show that in the early 2000s, Royal
Enfield grew at low single digit while the industry grew close to 20 per cent per annum, but
today the company is sprinting - from sales of 20,000 motorcycles a year in the early 2000s, to
50,000 at the turn of the decade to 200,000 last year. The Classic 500 and 350, launched in
November 2009, drove the rise, and now comprise more than 50 per cent of Royal Enfield's
sales. This year, it will likely hit 300,000. Then, the company has sound financials - its top line is
climbing, it is hugely profitable, it has no debt, lots of cash in the bank, no pledged shares.
Throughout the downturn in the automobile market, its balance sheet showed no signs of strain.

In almost every way, Royal Enfield's balance sheet and bikes mirror Siddhartha Lal as a person
and leader. The motorcycles are not ultra-powerful sports bikes or inexpensive commuter bikes,
but mid-sized, simple yet classy machines that are leisurely, unhurried, fun. Like Lal. His motto
in life is to remove distractions and focus on the core. "It's not only about business and this and
that, you've got to enjoy yourself, have fun, everyone should have fun," he says. Which is why
his company doesn't borrow money, and doesn't engage in "funny things" like forex
management: "We do only spot trading; anything else is speculation." He says he's a "sporadic"
leader. "I'm more project-oriented than a true manager who's on top of everything." He gives it
his all when it comes to the bikes, though. He can be fiercely focused, but at the same time, he
loves his frequent breaks - to Paris, to the Himalayas, for inspiration. He knows what he and his
company are good at. So, even when he draws up a global expansion plan, he sticks to the core -
mid-sized, simple, classy motorcycles. And he believes he can sell them worldwide.

Becoming strong in India is the first step. "We've got good traction in India, we have a strong
brand, business model, very good capability in our manufacturing, engineering, sourcing?," he
says, between mouthfuls of roast chicken as we meet over lunch at a prominent hotel in Gurgaon.
Having flown down from Bangalore, Lal looks the relaxed, assured, unhurried leader, at ease in a
white checked shirt, sleeves rolled up, slightly unkempt hair and beard, ever smiling. "We now
have the muscle and the appetite to make a strategic entry into international markets," he
declares. The UK, US, Europe, Latin America, Southeast Asia and other emerging markets are
all in his sights. He won't be alone - other notable Indian firms will give him company, albeit the
segments would be different.

he new global push began, appropriately, in England, where Royal Enfield, originally a British
company, packed up in 1967. Last September, the company launched the new Continental
GT535, built in India with inputs from around the world, first in the UK, then in India in
November, and in the US in February this year.

But why developed markets? "Motorcycling in those markets has become quite extreme - there
are the extremely heavy cruisers, or extremely fast 200-hp sports motorcycles, or extremely
expensive motorcycles," points out Lal. "We feel that there's a position in the non-extreme part
of the market, for people who don't want something which is intimidating, but something which
is still evocative."

The strategy is showing initial signs of promise. Last year, Royal Enfield sold 450 motorcycles
in the US - Bullets and Classics. This (calendar) year, the company has already sold more than
1,000 units, and company sources say the GT is a big contributor.

"Even in developed markets, there will always be demand for mid-sized bikes," says Bharat
Gianani, Senior Research Analyst with Angel Broking in Mumbai. But he points out the biggest
constraint as well. "As of now, (production) capacity is not there to fulfill the demands of even
the domestic market. Royal Enfield is still one to two years away from targeting the US s

In India, the concern is that Royal Enfield is not able to make enough motorcycles to meet
demand. A new plant at Oragadam near Chennai, its second - the first, legacy plant is in
Thiruvottiyur - has doubled production capacity and reduced customer waiting time by half to
five months. The company plans to increase capacity to 600,000 by 2016. (Comparatively,
market leader Hero's current annual capacity is 7.65 million.) Royal Enfield has also bought a
50-acre plot near its Oragadam factory for a third plant. Is there enough demand? Angel
Broking's Gianani says leisure biking has picked up in the country, and that will help maintain
demand for Royal Enfield motorcycles.eriously."

2015 will see a major push into smaller towns. Currently, the top 20 cities account for more than
50 per cent of its sales. "Today, in a C or D-class town we're able to sell 20-25 motorcycles a
month, which makes it really interesting business for a small businessperson," says Lal. The
small-town push may reap rich dividends for Royal Enfield, given its powerful brand following
there. This November, 500 owners of Royal Enfield, part of the All Meghalaya Royal Enfield
Owners Association, came together at Imphal for cultural and riding sessions. But Royal
Enfield's followers are not blind worshippers - they bring in the critical element too. Take Rajesh
Swarnakar, a Shillong-based wine and spirit trainer and entrepreneur, who owns a black
Thunderbird 500cc cruiser. "The height should be reduced. Harley-Davidson cruisers are low,
anyone can ride them and balance the bike with both their feet. You can't do that with the
Thunderbird," says Swarnakar, himself a not-so-short 5-feet 8 inches. Plus, "cruisers entail long-
distance travel, so mobile chargers are a must", inbuilt GPS, in-built fog lights, more advanced
oil-cooled engine, the list goes on.

1. How did Bullet rebuild it s market?

2. Analyse its marketing strategies.
3. To which category of consumers it caters to? Why?
4. What suggestions do you give to the brand?
3.Winning Recipe

In the second quarter of FY20, Nestle India was a clear outlier in consumer goods. While peers
such as Hindustan Unilever, Britannia and others reported a tepid single-digit growth in
revenues, Nestle grew revenues by 10.5 per cent and profits by 33.5 per cent.

The company has come a long way from the Maggi crisis days. The Chairman and MD, Suresh
Narayanan, sounds spiritual when he says, "The Maggi crisis reinforced my belief that if you do
good karma, good karma happens to you. Numerous instances during the course of the crisis
would show that there was a superior hand ensuring that we found the strength to come out of it."
He says the goodwill the brand had generated over decades helped it the most then.

Maggi Noodles was unceremoniously ousted from the market in May 2015 when an official of
the Food Safety and Drug Administration UP declared that it contained monosodium glutamate
(a taste enhancer, better known as ajinomoto) beyond accepted levels. Brand Maggi was virtually
dead for six months and the crisis pushed down Nestle India's 2015 revenue to Rs 8,175 crore
from Rs 9,855 crore in 2014. The net profit dipped by 53 per cent. Five out of its eight
manufacturing facilities had to be shut down. Narayanan was hastily brought in as Chairman and
MD in July to save the then 104-year-old company from the crisis which threatened its very
existence. The 59-year-old played not just the role of a saviour and pulled Nestle India out of the
crisis but also ensured that the company emerged as one of the top valuable consumer goods
companies. The Rs 12,000 crore company's share prices have trebled in the last four years.

The crisis gave Narayanan a purpose - to reinvent Nestle India. While Maggi may have been the
immediate reason Narayanan was given charge, the problem was more deep-rooted. The food
majors market share had halved to 15 per cent over the years and it was being written off as a
company that had missed out on the Indian consumption story. "Globally, we are known for
2,000 brands; we have the largest number of consumer goods brands. But our footprint in India
was much less than that," says Narayanan.

Reinventing Nestle

To bring Nestle back on track, he reinforced the basic principles of consumer goods business:
increase penetration and grow volumes. He also strengthened the innovation pipeline. "The idea
was to move from a regime of having a few brands and offerings to trying to increase salience
with them, because that is the way the consumer is evolving," he says. The company has
launched more than 60 new products since 2016; about 4 per cent of its revenues come from
these new products.

Largely perceived as a company that mostly caters to urban India, in the last few years, Nestle
India has also deepened its rural penetration. According to a report by ICICI Direct, the company
directly distributes to over 52,000 villages. It has 29 centres through which it serves 1,700
distributors in 8,000 urban towns. The company currently distributes to 4.6 million outlets. The
aim is to reach out to six million stores in the next few years.
Cluster Approach

One of the biggest mistakes that most global consumer goods companies make in India is to
follow a single strategy for the entire country. Nestle India made the same mistake. But in the
last four years, Narayanan has divided Nestle's operating model into 15 clusters. "This is to look
at the country from the lens of the consumer rather than geography. Earlier, geography was
defining the category, the brand and, finally, you touched upon the consumer somewhere. It was
painting the country with one single plan. There was a Nescafe plan, a KitKat plan or a Maggi
plan and those would get disaggregated into local plans," he explains. The idea now is to be
identify needs and preferences of consumers in each geography and offer solutions accordingly.
After all, consumption habits of Indians change every few kilometres.

Nestles instant coffee strategy in the South, for instance, was centred around Tamil Nadu. It used
the same strategy for adjoining markets such as Andhra Pradesh and Karnataka, which are also
coffee consuming markets, but that didn't work. By applying the cluster strategy, it adopted a
different route to market, sampling and distribution strategies which were relevant to these
markets. "My strategies now are more targeted and focused and that works," says Narayanan.

Peoples Person

Narayan says the 7,200 employees of Nestle are his greatest strength. He says through the Maggi
crisis all he did was support his people. "Each person in Nestle is unique and what this crisis
afforded to them was an opportunity to put their best foot forward." He says corporates don't
necessarily fail because of bad strategy or infrastructure, they fail because of poor leadership,
less than adequate governance and not leveraging the power of the people. Narayanan calls
himself an orchestra conductor. "I know the music but I dont make a sound, my people are
making the right kind of music everyday to make the company successful."

1. What are the reasons for the turbulence of Nestle in India.

2. Discuss the problem with Maggi.
3. How was the brand changed in its perception?
 4. The Indian Male- As we know

The idea of an Indian male survey was conceived by Business Today and Monitoring and
Research Systems (MaRS), promoted by former ORG-MARG President Raghu Roy, back in
June, 2007.

The survey objectives were manifold: In a country changing rapidly, how were its men, who
account for 52 per cent of the population, changing along different dimensions?

Chiefly, we wanted to examine the Indian male’s attitudes towards consumption, work, society,
and his own future.

This being the first survey of its kind, we have no baseline figures that we could use to assess
how the Indian male has changed.

 The survey examines the Indian male’s attitudes towards consumption, work, society, and
his own future. This being the first survey of its kind, we have no baseline figures that we
could use to assess how the Indian male has changed.

 Single and ambitious

They are brash, confident and are aiming for the skies. And they’ll think of marriage only
after they achieve, or are close to achieving, their goals. The bottom line: they want to get
more out of their lives before they settle down.

 It's today that counts

India's GeNext male may still have conservative social values, but when it comes to
spending money, he's as avant garde as they come.

 Young and restless

Quite a few Indian men are showing signs of restlessness. This is resulting in increased
job hopping and rising intra-national migration.

 All work and no play

Indian men seem to be more obsessed about their careers, money and success than their
global counterparts.

 The male mall crawl

You’ll see them combing the shop shelves—often unaccompanied— piling up their carts
with items that range from apparel and accessories to shampoo and skin cream.
 In the grey zone

Indian men over 45 seem to be facing many dilemmas. With the traditional social
structures breaking down and new support systems still not in place, uncertainties are
piling up for men as retirement years edge closer.

 Swingin' in the south

The image of the moustachetwirling, pot-bellied man from the South who tilts perilously
at the nearest nine yards of fabric he can espy is slowly but surely fading away. Say hello
to the trendy, brandconscious southern male who’s raring to go on a bender.

Never too old to rock'n'roll

They spent their youth scrounging for stray scraps of the good life in the wilderness of
the pre-liberalisation days. But that’s okay: Today, a chunk of this generation is older,
wiser, richer—and furiously catching up with life as it should have been

1. How does gender influence a marketer?

2. Why demography is important in marketing decisions?
3. Analyse how Indian male has changed.
 5. Case Study: Juicy Fruit Gum

Discovering Why They Chew

Back in the nineties, Juicy Fruit Gum, the oldest brand of the Wm. Wrigley Jr. Company, was
not chewing up the teen market, gum’s top demographic. In 1997, the company found itself
under pressure from competitors. Sales and market share were down. How could Wrigley
get more kids to go for their famous gum?

Wrigley went to the source to find out. Marketing researchers approached teens who chewed five
or more sticks of Juicy Fruit each week and gave them a homework assignment: Find pictures
that remind you of Juicy Fruit gum and write a short story about it. When the kids shared their
stories, Wrigley learned that they chew Juicy Fruit because it’s sweet. They said it refreshed and
energized them.

Wrigley’s ad agency, BBDO, confirmed what the teens were saying. Conducting survey
research, BBDO asked more than four hundred heavy gum chewers to rate various brands by
attributes that best represented them. For Juicy Fruit, respondents picked phrases such as “has the
right amount of sweetness” and “is made with natural sweetness.”

Another of BBDO’s studies investigated why teens in particular chew gum. Was it to cope with
stress? Or because they forgot to brush their teeth before going to school? Nearly three out of
four teens reported popping a stick of gum into their mouth when they craved something sweet.
And Juicy Fruit was the top brand they picked to fulfill that need. (Rival chewing-gum brand Big
Red was a distant second.)
Chewing on the Results

Although the marketing research conducted by the Wrigley Co. was fairly simple, it provided a
new direction for the company’s marketing strategy to capture more of the essential teen market.
BBDO developed four TV commercials with the “Gotta Have Sweet” theme. Roughly 70 percent
of respondents voluntarily recalled the Juicy Fruit name after watching the commercial (the
average recall for a brand of sugar gum is 57 percent). Sales of 100-stick boxes of Juicy Fruit
rose 5 percent after the start of the ad campaign, reversing a 2 percent decline prior to it. Juicy
Fruit’s market share also increased from 4.9 percent to 5.3 percent—the biggest gain of any
established chewing-gum brand during the year following the campaign.

In this case, marketing research paid off with better customer insights that marketers translated
into improved product positioning, messaging, advertising and ultimately market share.

1. Discuss how the brand could attract more kids into market.
2. Explain the market features of Chewing gum.
3. What do you suggest the company?
6.
7. FORD CARS GO IN FOR A SERVICE

To many people, cars come pretty close to the goods-dominant extreme of a goods–services
continuum. They are produced in factories from the combination of thousands of components,
and to most people the physical properties of a car can readily be assessed. But recent experience
from the car sector suggests that car manufacturers may be rather more enthusiastic to describe
themselves as service-oriented companies.

The days are long gone when a car manufacturer would sell a car on the strength of its design
features, and then forget about the customer until the time came to replace the car three years
later. Car manufacturers have realized that car buyers seek more than the tangible offering—
important though that is. Over time, they have moved increasingly into services in an attempt to
gain a larger share of car buyers' wallets.

In the UK, Ford has led the way in many aspects of this increasing service orientation. It saw an
opportunity in the 1970s with the liberalization of consumer credit regulations to offer car buyers
loan facilities with which to make their car purchase. Not only did this make it easier for
middle-income groups to buy its cars, it also allowed Ford to retain the margins which would
otherwise have gone to banks who were the main alternative source of car loan finance. Ford
Motor Credit has become a licensed credit broker and a major profit centre within the company.

The next major attempt to gain a greater share of car buyers' wallets came through offering
extended warranties on the cars it sold. Traditionally, new cars had come with just twelve
months warranty, but Ford realized that many buyers wanted to buy peace of mind that they were
not going to faceunexpected repair bills after their initial warranty had expired. Increased
competition from Japanese importers, and the improving reliability of its new cars encouraged
this development.

By the mid-1990s, Ford came round to the view that many of its customers were buying mobility
services, rather than a car per se. So it came up with schemes where customers paid a small
deposit, followed by a fixed amount per month, in return for which they received comprehensive
finance and warranty facilities. In addition, it promised that the company would take back the car
after three years and replace it with a new one. Marketed under the ‘Options' brand name, Ford
was soon selling nearly half of its new cars to private buyers using this method. Over time the
scheme was developed to include facilities for maintaining and insuring the car.
Repairs and maintenance have always been important in the car sector, but manufacturers tended
to lose out on much of the benefits of this because of a fragmented dealership network. Separate
customer databases for maintenance and new car sales often did not meet and Ford found that it
had very little direct communication with the people who had bought its cars. By the 1990s, the
dealership network was becoming more closely integrated with Ford's operations and new
opportunities were seized for keeping new car buyers within the Ford dealership system. Recent
buyers could be alerted to new services available at local dealers, using a database managed
centrally by Ford. Numerous initiatives were launched, such as Ford's own mobile phone service.
Ford sought to make it easy for customers to get back on the road when their own car was taken
in for servicing, so the provision of car hire facilities contributed to the service ethos. In 1996 the
company linked up with Barclaycard to offer a Ford branded credit card, so Ford found itself
providing a service to its customers which was quite removed from the tangible cars that it sold
(although points accrued using the card could be used to reduce the price of a new Ford car).

By 2000, volume car manufacturers had ceased to make big profits in the UK. In 2002, Ford,
with 18 per cent of the market made just £8 millions in profits on its European operations.
Falling profit margins on selling new cars were partly offset by profits made on service-based
activities. In the same year, the company made £1.38 billions worldwide from its credit arm,
which arranged finance for about 40 per cent of all new cars that it sold. But adding services is
not a guaranteed route to increased profitability. Ford's acquisition of the KwikFit tyre fitting
chain failed to be a success and it was later sold back to its founder at a price well below what
Ford had paid for it. Could this have been a warning that Ford's core competencies lie in
engineering and design, rather than running labour intensive service operations?

CASE STUDY REVIEW QUESTIONS

1. Given the evidence of Ford, is it still appropriate to talk about the goods and services sectors
being quite distinctive?

2. What business is Ford in? What business should it be in?

3. Discuss the view that Ford should do what it is good at—designing cars—and leave services
to other companies.
8. SMOKING MAY BE BAD, BUT TOBACCO COMPANIES’ PROFITS HAVE NEVER
LOOKED SO GOOD

After the arms industry, the tobacco industry must be one of the most politically incorrect
business sectors. Yet during the late 1990s tobacco companies in the UK appeared to be very
popular with the Stock Market, outperforming the FTSE all-share index by 36% during 1998,
and continuing to hold their ground in the falling stock market conditions from 2001. This was
despite an EU directive which finally put an end to all tobacco advertising in the UK from March
2003.

Tobacco companies now place less emphasis on fighting the health lobby, and no longer pretend
that tobacco is anything other than harmful. But fortunately for the tobacco firms, nicotine is an
addictive drug. Although cigarette consumption has declined in most developed countries, it is
reported that one person in four still smokes. Moreover, among some groups, especially young
women, the rate of smoking has shown some increase in recent years. Tobacco companies also
benefit from periods of economic recession. While job cuts may be bad news for most consumer
goods and services companies, it has historically also been linked to an increase in smoking.

The tobacco companies have survived many years of attempts to control tobacco sales
throughout Europe, but the EU directive banning all tobacco advertising made it increasingly
difficult for tobacco companies to get new brands established. The big three UK companies,
BAT, Gallagher and Imperial Tobacco looked at strengthening their brands with joint ventures.
BAT linked up with the Ministry of Sound nightclub to push its Lucky Strike brand, while
Gallagher tried to promote the Benson and Hedges name through a branded coffee. One industry
expert expected to see an army of cigarette girls pushing cigarettes in pubs and corner shops,
thereby trying to get round controls on advertising.

While promoting cigarettes in Europe has been getting more difficult, tobacco companies have
been keen to exploit overseas markets where measures to protect the public are less. In the
countries of Eastern Europe, the companies have pushed their products, hoping to capitalize on
the hunger for western brands. Gallagher has a plant in Kazakhstan and has heavily promoted its
Sovereign brand in the former Soviet Union. The biggest opportunities for western tobacco
companies however are in China which is the world's biggest market in terms of volume. The
Chinese smoke 1.7 trillion cigarettes a year, making the British market of just 77 billion look
quite small. State owned brands such as Pagoda dominate the market with an estimated 98%
market share. With import duties of 240%, most foreign cigarettes enter the Chinese market
through unauthorized channels, including those smuggled by the Chinese army. Greater trade
liberalization will inevitably give freer access to the Chinese market for western tobacco
companies. These will undoubtedly pay significant levels of taxes to the authorities, so a
financially strained government may be unwilling to reduce tobacco consumption too much,
especially when smoking is so pervasive through the population.

CASE STUDY REVIEW QUESTIONS

1. How effective is an EU ban on tobacco advertising likely to be for reducing smoking?

What measures could governments take to bring about a significant reduction in
smoking?

2. What factors could explain a booming share price at the same time as Europeans'
attitudes toward smoking are becoming more hostile?

3. How would you defend a western tobacco company in its attempts to develop the Chinese
market for cigarettes?

9. .RESEARCH COMPANY TRIES TO SHOW THAT YOU CAN ONLY UNDERSTAND

CONSUMER BEHAVIOUR BY LIVING WITH THEIR BEHAVIOUR

How can any marketer get inside your mind to understand how you actually make purchase
decisions? Structured questionnaire surveys may have a role for collecting large scale factual
data, but they have major weaknesses when it comes to understanding individuals' attitudes.
Qualitative approaches, such as focus groups can get closer to the truth, but participants often
still find themselves inhibited from telling the full story. Many marketing managers, especially
those without large research budgets, inevitably end up relying on their own personal
experiences to understand how consumers behave. This may be easy for target markets which are
in the 20-40 age range (the age of typical marketers), but how do you get inside the mind of
teenagers, or elderly people?

Ethnographic approaches are becoming increasingly popular among marketers as a means of

getting closer to the truth about consumer behaviour. Ethnographic research is nothing new,
having been used by anthropologists in their study of the rituals of tribal people. Marketers have
been relatively recent converts to the techniques of ethnography. The advertising agency BMP
DDB has taken on board the techniques of ethnography in its "Project Keyhole" in a manner
which is reminiscent of anthropologists' practice of living with tribes in order to understand
them. Its consumer researchers live with a family for several days in order to record their every
move. The project is designed to meet the needs of client companies who are looking for more
than the data gathered using traditional quantitative and qualitative research techniques.

Participants record their views and actions on a digital video camera, in the presence of a
researcher who stays with them from 8am until 10pm for a few days. A normal project would
last four or five days and the client may be invited along for part of the time. Participants are
paid £100 for their troubles. What did they do with the direct mail when it came through the
letter box? Did they use the coupon offer which it contained? Who drinks the fresh orange juice
in the house? How long do they spend cooking dinner? How do they actually cook the ready-
prepared meals they bought earlier? Does the family eat together? These are examples of the
vital information that sponsoring companies hope to get hold of in order to position their
products more effectively.

According to the company, the advantage of this method over conventional research is that it
picks up inconsistencies between what people say they do and what they actually do. Following
them throughout the day allows the researcher to see why a person's habits might change
according to random factors such as their mood, the time of day or the weather. Crucially it
reveals the quirks in our behaviour that marketers are desperate to gain an insight into. For
example, a person's store-card data might tell you that they buy bread and margarine, but it
doesn't tell whether they eat the bread fresh, or toast it first before putting margarine on it.

In 1998, the magazine Marketing put this novel research method to the test with a guinea pig
family called the Jones’s. It then compared the results of this approach with more traditional
methods of profiling customers. In short, established systems such as CACI, Claritas and
Experian might say one thing about the buying behaviour of a family, using lifestyle and
electoral roll data, but did they bear any relation to reality?

The information that the researcher gathered in a short space of time told a lot about the Jones
family. By contrast, the database information about the Joneses, although detailed and often
accurate, could not capture the quirks and details that make up the personality of the family. For
example, it transpired that the Joneses had a keener than average eye on value for money.
Although information on them from the four database companies correctly suggested that they
enjoy luxuries like good food and foreign holidays, it didn't say anything about the real life
factors that influence their purchasing decisions. The most noticeable of these was that although
they like good food, Mrs Jones mixed her shopping between the supermarket and a local
discount store which sells cut-price brands. This means that she only bought at Tesco or
Sainsbury's what she could not get cheaper elsewhere. She showed the researcher a can of
branded plum tomatoes which she got for 10p at the discount store as an example, explaining
that it would have cost 26p in the supermarket. Mrs Jones prided herself on being able to hunt
down bargains like this and occasionally rewarded herself by buying "something luxurious",
such as smoked salmon from Marks & Spencer. The freezer had an important role to play as it
allowed Mrs Jones to buy things she sees on special offer even if she doesn't need them
immediately.

Mrs Jones's eye for an offer made her a keen scrutiniser of direct mail. She checked mailings for
'catches' in the small print and for any special offers. She collected mailers worth chasing up on
a clip on the fridge door, along with vouchers collected from magazines. Mrs Jones’s financial
nous means that she managed the family's money.

Not surprisingly, these details did not come out in database information. Of the commercial
databases, CACI's People UK and Lifecycle UK databases seemed to be most at variance with
the reality of the Jones' life. They got their ages wrong, incorrectly surmized that they took
business flights and incorrectly attributed Mr Jones with being computer literate. Nobody in the
household read the FT or the Independent as predicted - they read the Daily Mail instead. Some
of the other points made by CACI were right, but were felt to be very generalized and could
apply to anybody.
Claritas seemed to be much closer to reality. The Jones' predicted jobs were about right and the
database was correct in stating that they had credit and store cards. They managed to say that the
Joneses liked antiques, perhaps learnt as a result of them occasionally buying Homes and
Antiques magazine. They similarly were correct in stating that they like gardening, DIY, foreign
travel and eating out. The database had predicted that the family would be most likely to own a
Ford or Renault car. In fact, Mrs Jones owned a Ford, while Mr Jones had a company Renault.

CASE STUDY REVIEW QUESTIONS

1. Why is it important to study the composition of the decision making unit? To what extent do
you think this research approach will give a complete understanding of how family units make
purchases?

2. What new possibilities, if any, for market segmentation are opened up by this approach to the
study of buyer behaviour?

3. Critically assess the scope for expanding this type of research as a means of learning more
about buyer behaviour.

10 .NEW LINE IN MOBILE PHONES

One of the oldest principles of marketing is that sellers may sell features, but buyers essentially
buy benefits. This is a distinction sometimes lost on technology led organizations, and the
service sector is no exception. Recent experience of the UK’s largest telecommunications
company, Vodafone, illustrates how crucial it is to see service offers in terms of the benefits they
bring to customers. The company was aware of extensive research which had found high levels
of confusion among purchasers of mobile phones, with a seemingly infinite permutation of
features and prices. With four main networks to choose from, dozens of tariffs and hundreds of
handsets, it easy to see why buyers sought means of simplifying their buying process.
Throughout the 1990s, Vodafone had positioned its UK network as superior technically to its
competitors. Advertising focused on high coverage rates and call reliability.

Vodafone was the UK's most popular mobile phone operator, with almost eight million
customers, including 4.2 million Pay as you Talk customers. It had opened the UK's first cellular
network on 1 January 1985 and was the market leader since 1986. Vodafone's networks in the
UK - analogue and digital - between them carried over 100 million calls each week. It took
Vodafone more than 13 years to connect its first three million subscribers but only 12 months to
connect the next three million. Vodafone had the largest share of the UK cellular market with
33% and had more international roaming agreements than any other UK mobile operator. It
could offer its subscribers roaming with 220 networks in 104 countries.

Despite all of the above, Vodafone was aware that although it was recognized as an extremely
strong business in the corporate marketplace, it was not so strong in the market for personal
customers. Research indicated that personal buyers bought Vodafone for essentially rational
reasons rather than having any emotional attachment to the brand. The success of the competing
Orange network, which had developed a very strong image, was a lesson to Vodafone that many
people did not understand many of the product features on offer, but instead identified with a
brand whose values they could share. Vodafone recognized that it needed to be perceived as
adding value to a consumer’s lifestyle. Given the increasing complexity of product features,
positioning on technical features was likely to make life more confusing for personal customers.
An alternative approach was needed which focused on image and lifestyle benefits.

The company decided to hire Identica – the consultancy that originally created the One 2 One
brand – to revamp its brand communications and advertising strategy in an effort to make
Vodafone more appealing to personal customers. Identica created a new ‘visual language’ for the
Vodafone brand. Vodafone became involved in the biggest ever TV, press, poster and radio
advertising campaign in its 15 year history. Employing a completely new style, the new
advertising centred around the theme: 'You are now truly mobile. Let the world come to you' and
featured a new end-line - Vodafone ‘YOU ARE HERE’. The campaign demonstrated how
Vodafone's products and services were designed to make life easier for its customers.

The campaign, created by BMP DDB, was worth £20 million over two months alone and ran for
the whole year. Bringing meaning to the Vodafone brand and what it represented, a series of
advertisements, through a range of media, showed how Vodafone let the world come to its
customers, enabling them to be truly mobile. This portrayed how Vodafone always pioneered to
make things more possible for its customers in a wire-free world.

In press and poster executions, Vodafone used arrows photographed in various real life situations
to depict its flagship services, e.g. a weather vane was used to illustrate the Vodafone Interactive
weather service showing how weather information could be brought to customers through their
mobile. Each advertisement again had the Vodafone ‘YOU ARE HERE’ end-line. The arrows
indicated the directional approach of Vodafone, letting the world come to the customer. Other
executions illustrated cinema listing information, sports updates, share price information,
international roaming and the Vodafone Personal Roadwatch 1800 service.

The change in emphasis by Vodafone seemed to be timely. The mobile phone industry was
facing a new wave of confusing product features hitting consumers, with the development of
Wireless Access Protocol (WAP) phones and the newer “Third generation” phones due to be
launched in 2001. It seemed inevitable that all of the competing networks would be offering
confusing permutations of features with their service, so Vodafone calculated that, given similar
levels of reliability and sophistication by all networks, a favourable image and lifestyle
association would be an important source of competitive advantage. Given the right image with
existing technology, there would be a strong probability that consumers would migrate with the
brand to the new technology when it arrived..

CASE STUDY REVIEW QUESTIONS

1. Identify the principal benefits to customers which derive from a mobile phone. What
differences are likely to exist between market segments?
2. Is a strong brand identity on its own a source of sustainable competitive advantage? To
what extent must this be backed up by real product features?
3. Are goods different to services in the way that a distinction is made between features and
benefits?
 11. COMPLACENCY CAN BE THE BIGGEST ENEMY OF RETAILERS

"There's no need to ask the price - it's a penny" was the proud claim of Marks and
Spencer a hundred years ago. From the start, it had developed a unique position in its
market - an emphasis on low price, wide range and good quality. Over time, the Marks
and Spencer position has been steadily developed, along with its profitability. By the
1990s it looked unstoppable as a retailer, as it progressively expanded its product range
from clothing to food, furnishings and financial services. The world seemed to be waiting
for M&S to exploit, and despite disappointing starts in the US and Canada, it developed
steadily throughout Europe and the Far East. Then, just like any star who has been put on
a pedestal, the media began to savage the company. After a sudden drop in profits and
sales during 1998, critics claimed that the company had lost its position in the market
place. It appeared to be like a super tanker, ploughing straight ahead with a management
that had become much less adaptable to change than its nimbler competitors.

Many observers had commented on the fact that the company did not have a marketing
department until 1998. Marketing, at least in terms of advertising the brand, had become
so important to its competitors, but had never been high on Marks & Spencer's agenda.
According to Media Monitoring Services, M&S's total media spending between Dec
1997-Nov 1998 was just £4.7 million, almost a drop in the ocean compared to the
spending of Sainsburys (£42.1m); Tesco (£27.5m); and Woolworths (£21.5m). While
other retailers had worked hard on building a brand image, M&S has relied on the quality
of its stock to do the talking. The argument was that everyone knew what they were
getting with M&S underwear or shirts - good quality at fair, but not cheap, prices.
Similarly with food, M&S's offering was about quality rather than price. M&S believed
its customers knew what the brand stood for and advertising was much less important
than ensuring that it could obtain the right products at the right price.

In 1998, M&S looked to marketing to help turn around its performance, describing its new
marketing division for UK retail as "a significant development in our retailing philosophy".
Many suspected that M&S's conversion to marketing had been encouraged by the example set by
the star of modern retailing, Tesco. There are many similarities between the problems facing
M&S and those which Tesco faced a decade previously. In the early 1990s Tesco was a brand
which looked like it had seen better days. The retailer's format was tired, its stores poorly laid
out and the positioning of the company was still based on its founder's principle of 'pile it high
and sell it cheap'. Its arch-rival, Sainsbury's, was regarded as the more upmarket store for the
middle classes, who shopped for quality food in a more pleasant environment. Since then, Tesco
had innovated with improved store designs, petrol stations, coffee shops, a new fascia, the Tesco
Clubcard and 24-hour store opening. The list of Tesco's marketing initiatives seemed to be
unstoppable, in an attempt to keep one step ahead of its competitors.

In contrast, M&S had failed to keep pace with customer service. In many issues of retail
development, such as out-of-town shopping centres, Sunday opening and loyalty cards, it had
lagged behind its main competitors. While it has stood still, the likes of Tesco and Sainsbury's
marched ahead until there was no longer much that felt exceptional about the M&S shopping
experience. Analysts argued that M&S had failed to make its store layouts help shoppers bring
clothing together to make outfits. In a typical M&S store, all jackets would be located in one area
and all cardigans in another, for example. Its competitors had made much greater progress in
bringing together co-ordinated sets of clothing which would encourage shoppers to spend more.
M&S has also been criticized for making things difficult for customers by not accepting payment
by major credit cards.

In response to its current troubles, the newly created marketing department of M&S launched its
first national campaign for retail towards the end of 1998. The ads followed an initial attempt at
regional TV advertising earlier in the year, which the company was said to be very pleased with.
The newly appointed Chief Executive claimed "It's not that people don't like what we're selling,
but that we haven't got the message across. There are an awful lot of people who love us for our
knickers, but they don't love our home furnishings because they don't even know they are there."
Many critics thought the problems were much more deep-seated and blamed the store's problems
on the fact that its autumn fashions were seen as dull and uninspiring, and out of touch with
consumers' preferences. Greater authority was pledged to the marketing department when it
came to new product design.

In response to its pledge to listen to what its customers wanted, new designers were brought in to
try and give the company's ranges more sparkle. The company even thought the previously
unthinkable by proposing to stock manufacturers' own branded products, instead of relying
entirely on M&S's own label products. If customers wanted to obtain variety at M&S, the new
thinking was that the company must adapt and offer it. Another area identified for development
was direct marketing of fashion products - an area where the company had begun to lag behind
its rivals who had developed interactive web sites.

Serious questions remained about the company. How quickly could it change in response to its
changed environment? The company had not been known for speedy decision making, so
probably a major structural overhaul was essential before it could get down to the serious
business of adapting to customers' changing needs. Also, there was a great danger of changing
the company's position too far and too fast, thereby alienating its traditional customers without
gaining sufficient new ones. As a warning of how not to change, M&S's rival Laura Ashley had
repositioned itself so radically from its original format that it now failed to gain the support of
any major group. M&S had itself tried to become more fashion conscious during the mid-1980s
with similar effect, and had to make a hasty retreat to its traditional, more staid image.

CASE STUDY REVIEW QUESTIONS

1. What do you understand by positioning, and what tools are available to Marks and Spencer
to give it a positioning advantage?
2. There has been a lot of debate bout whether the existence of a marketing department can
actually be harmful to services companies because it absolves everybody else of marketing
responsibilities. What then, do you make of M&S's decision to introduce a marketing
department?
3. What are the dangers to M&S of moving its market position too far and too fast? How can
it try to alleviate these problems?
 12. FREE FLIGHTS PROMOTION ENDS IN DISASTER
The Hoover company's attempts to sell more vacuum cleaners by offering an incentive of
free flights has become a legendary disaster in the field of sales promotions. An
examination of the case is useful for highlighting some of the problems of planning,
implementing, and monitoring sales promotions.
During the early 1990s, Hoover was faced with a period of economic recession in which
discretionary expenditure on consumer durables was held back. In these conditions, most
vacuum sales were replacements for worn out machines or first-time buys for people
setting up home. The challenge was to increase the sales of machines bought to upgrade
existing equipment.
The company came up with the idea of offering free airline tickets to America for
anybody buying one of its vacuum cleaners. For many people, a holiday in the USA may
have been perceived as an unnecessary and unaffordable luxury during a period of
recession, but one that might be justified if it came free with the purchase of an 'essential'
vacuum cleaner.
The immediate result of the sales promotion was to boost the company's sales of vacuum
cleaners to more than double the level of the previous year. So far so good, but then serious
problems set in. The first problem occurred when Hoover could not satisfy demand for its
vacuum cleaners and had to resort to paying its staff overtime rates of pay in order to increase
supply. It should be remembered that the initial objective of the promotion was to utilize existing
spare capacity rather than adding to that capacity. The company had carried out insufficient
research prior to launching its incentive. Had it done so, it may have reached the conclusion that
the incentive was too generous and likely to create more demand than the company could cope
with.
A second problem occurred during subsequent periods when sales fell to below their pre-
incentive levels. Many people had simply brought forward their purchase of a vacuum cleaner.
Worse still, many people had bought their cleaner simply to get the free tickets, which at £70 for
a cleaner with a free £250 ticket made sense. These people frequently disposed of their cleaner as
they had no need for it. The classified ads of many local newspapers contained many adverts for
'nearly new, unused' vacuum cleaners at discounted prices and this further depressed sales of new
machines once the sales promotion had come to an end.
A third and more serious problem occurred when large numbers of buyers tried to use their free
flight vouchers. All sales promotions are based on an assumption of take-up rates, which can be
as low as 5-10 per cent. Anything higher and the cost of the incentives actually given away can
wipe out the benefits arising from increased sales. In this case, Hoover had carried out
insufficient pre-testing of the sales promotion in order to assess the likely take-up rate and was
surprised by the actual take-up which subsequently occurred. In an attempt to control costs, the
company became notorious for its attempts to 'suppress' take-up of free flights. Many claimants
complained that telephone lines were constantly busy and, when they did get through, they were
offered the most unattractive flights possible. It was reported that claimants from the south-east
of England were only offered flights departing from Scotland and those from Scotland only
offered flights from London, done to reduce the attractiveness of the free offer. These activities
attracted high levels of coverage in the media and left a once highly respected brand as one with
a perception of mistrust. Five years after the initial débâcle, the Hoover Holiday Pressure Group
continued to be an awkward reminder for the company.
The free flights promotion eventually cost Hoover a reported £37 million in redemption charges,
without bringing about any long-term growth in sales. With appropriate pre-testing, these costs
could have been foreseen. Worse still, the company's brand image had been tarnished in a way
that would take many years-if ever-to recover from.

CASE STUDY REVIEW QUESTIONS

1. What are the inherent problems for a company such as Hoover in assessing the
effectiveness of sales promotion activity?
2. Identify a programme of research that Hoover could have undertaken in order to avoid
the costly failure of its free flights promotion.
3. What alternative methods of promotion might have been more suitable to achieve
Hoover's objective of utilizing spare capacity during a period of economic recession?