Posts filed under ‘Business Strategy’

Updates

A few months ago, we ran this post about toddlers and their interactions with technology. For those of you who liked it, here’s a really detailed article about how toddlers use the ipad, and their parents’ reactions and concerns towards the same.

A few weeks ago, we ran this post about the innovative offers from auto manufacturers trying to lure customers to purchase. For those interested in the auto industry, yesterday’s issue of the Mint had this article about Japanese car manufacturers tweaking strategies to suit Indian markets.

  • Escape Velocity Team

April 2, 2013 at 7:03 am Leave a comment

Some implications of the distribution of our ‘demographic dividend’

A Unicef report titled ‘The Situation of Children in India : A Profile’ tells us that India is home to 20 per cent of the 0-4 years’ child population of the world, which is significantly larger than the number in China even. The number of live births in our country is estimated to be 27 million, which again constitutes 20 per cent of the total number of live births in the world. Reason enough for this to be a really important market for any business that sells products or services to babies, toddlers or kids, whether in the mass segment or premium.


changes in India's popn pyramid A comparison of the change in the population pyramids of various countries – we looked at these in this post  a few weeks back – tells us that India will continue to be an attractive destination for such firms at least another 15-20 years. Though the decline in fertility levels means that the base of India’s population pyramid in 2026 will be narrower than that in 2001, it will continue to be larger than that of other countries for some time still.

The Census of India’s Population Projection Report has some interesting data on the composition of this increase in population. You can access the entire report here, some points from the same below (in blue font) :

  • 22% of the total population increase in India of 371 million during 2001-26 is anticipated to occur in Uttar Pradesh alone. 

Percentage share of states in total projected population increase during 2001-26

  • In fact, nearly 50% of India’s demographic growth during this period of twenty five years, is projected to take place in the seven erstwhile BIMARU states (Bihar, Chhattisgarh, Jharkhand,Madhya Pradesh, Rajasthan, Uttar Pradesh and Uttaranchal); i.e. of the projected increase in population  of 371 million in India during 2001-26,187 million will occur in these seven states.
  • In contrast, the contribution of the four southern states, namely Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, to the total increase in population size of the country during 2001-2026 is expected to be 47 million -13% of total demographic growth of the country.

This raises a few points relevant to companies selling age or life-stage related products. Those selling products for babies, toddlers or kids would do well to keep in mind that a large chunk of their market in 2026 will be in the erstwhile BIMARU states. They need to plan for building a good distribution infrastructure in those regions and for generating demand after understanding those customers, their sociocultural backgrounds, lifestyles and needs etc. This will be especially critical for companies aiming at scale and large revenues.

If however, they are strong in the southern states and intend to remain geographically focussed, they need to think about where growth will come from once the penetration reaches saturation level. The selected strategy could be in the domain of brand extensions / new products to existing consumer and customer segments, or targeting new consumer segments, but neither option has easy quick-fix solutions.

With due apologies to those that object to the idea of education as a business, another point to ponder over is the supply (or lack therein) of good quality education at every level. This is a service that has been in short supply all over India, more so in the BIMARU states, is this changing at all ? There is some anecdotal evidence I’ve heard of the student mix in colleges in the south changing as the percentage of those from the North increased. But for those at primary and secondary level, studying outside the state (and away from parents) is not an option. What options do they have ? But this runs into the topic for the next post on the topic, which will look at some of the sociocultural implications of this demographic shift.

  •  Zenobia Driver

January 24, 2013 at 8:14 am 3 comments

Moving with the times – Tag Heuer

I often wonder about the longevity of watches as a category and whether they will eventually suffer the same fate as the humble typewriter, either in a few years or a few decades. Two close friends of mine have already stopped wearing a watch on a regular basis – their logic is that they carry a phone all the time and can see the time on their phone. What’s worse – for the global watch industry, that is – they find the watch doubly redundant when at their desk in office where they can also see the time on their laptop.

Undoubtedly, the trend towards wearing a watch as an accessory will extend the category’s life-span, but for how long ? And does the watch industry have any other tricks up its sleeve or will it fall prey to marketing myopia in a decade or two ?

[Note : We’d mentioned marketing myopia once in an earlier post; the subject of this post is somewhat similar – an attempt made by a firm to adapt to a changing market, though in this case it’s early days yet and the market verdict is not  clear.

Marketing Myopia : The term refers to the short-sightedness that leads companies to focus on their own organisation and product – line rather than on customers’ needs and wants. It leads to reluctance to change, and a failure to adjust to a changing market environment.] 

 

In this context, I felt that the launch of the Tag Heuer Smartphones by the luxury watch brand was an interesting experiment (you can read articles about the launch here, here , here and here). Tag Heuer started retailing luxury mobile phones in India from 2008. It has since launched three such devices – first the Tag Heuer Meridiist and Link, and recently the Racer. The Tag Heuer Racer Smartphone (pics on extreme right in the image above) was the one launched a few months ago; in keeping with the Tag image, the phone looks top-end  – really sleek, it’s supposedly styled after race cars. Buyers can customize their phones’ cases in a variety of materials, from rose gold to titanium,  just as they would a TAG watch. They can even add Calfskin-leather trim, or a sprinkling of diamonds, for good measure.

One fly in the ointment could be the fact that while consumers buy a watch for a lifetime – or at least to last for many years, they tend to change their phones to the latest model fairly often; at the price tag of a Tag Smartphone, that’s a bit heavy on the pocket. Will be interesting to see how this pans out. Meanwhile, kudos to Tag for not burying their heads in the sand, trying to adapt to changing consumer habits and being bold enough to experiment. A good effort, for sure.

  • Zenobia Driver

October 31, 2012 at 9:00 am 5 comments

Updates

1. Flipkart and E-trade ads :

After reading our post “Flipkart Ads: We Like!“, our regular reader Rahul, directed us to similar ads for E-trade in the US. These ads also use children, well actually babies, in adult situations to convey their message humorously.

We’re unsure if the humor in these ads would work as well in India, but they undoubtedly cut through the clutter. Here are a couple of the ads from the series:

E-trade Baby First Class:

E-trade Baby Girlfriend:

Which ads did you prefer – the Flipkart series or the E-trade series? Do comment and let us know.

2. Frozen Yogurt :

In July 2011, we ran a post on the growing popularity of frozen yogurt in India in our post called “New Buzzword in Town – Frozen Yogurt”. We recently came across an article in Business Today that talks about new entrants in the market such as Kiwi Kiss, Yogurberry, etc., new markets being targeted and expansion plans of existing players.  This space is definitely seeing some serious activity both by Indian and foreign players.

 

3. Enhanced Water :

On our trip to Pune last weekend, we noticed banners of Danone B’lue splashed across the city. Danone Narang Beverages, a joint venture between French group Danone and Narang group, has launched B’lue, a water-based restoration beverage that is enriched with vitamins and minerals.

A month ago, we ran a post on “Enhanced Water” that particularly spoke about the brand Vitaminwater (as the name suggests – it’s vitamin enriched water) and its growing popularity especially in the US.  We’d asked then – is the Indian market ready for enhanced water yet?  Even though the per capita bottled water consumption is still quite low (estimates vary from 0.5 liters to 5 liters a year as compared to the global average of 24 liters), bottled water consumption has risen rapidly in recent times and the market is growing at the rate of 45% – perhaps enhanced water is the natural next step.

Danone has taken the first plunge into this category and it remains to be seen how this market shapes up in India.

 

By,

Escape Velocity Team

December 16, 2011 at 5:39 am 6 comments

Production Management Part 2: Efficiency (Cost Control)

High efficiencies are the “success” mantra of effective production management. Technicians in production units are always struggling for higher and higher efficiency levels. As we often read, operating closer to capacity helps units cover costs and compete effectively with other units.

Take the process of yarn twisting. It is a fairly routine process in textiles.

As a sample calculation, the raw material for a particular yarn is worth ~INR 100 per kg. Twisted material sells at ~INR 116 per kg. Consider a twisting unit where the capacity is 50 tons per month. Let’s consider two months, one when the actual production is 45 tons, and one where it drops to 30 tons.

Note three changes:

a)      When production volumes dropped, labor charges shot up to INR 5.33/kg INR 3.55/kg; of course, this may be offset by some component of work-force being variable.

b)      Overheads per kg have also increased to INR 1 from INR 0.67 when production dropped.

c)      Therefore, one ends up making INR 2.67 per kg (~2.4% of sale price) vs. INR 4.87 per kg (~4% of sale price), a fall of 1.6%.

The above example simply illustrates a universal truth of production management. Operating close to capacity is critical for any production unit if one wants to maintain margins.

How does one do that? There are a few things one should always try to maintain in his/her unit:

1.      Minimize changeovers

In a particular textile unit in Tarapore, whenever the quality changed, the settings of the machine needed to be adjusted. This adjustment cost technicians at least 45 minutes (a loss of 3% in efficiency). Moreover, the first couple of hours the machine never ran at full speed since the quality had to be set on that machine. This cost an efficiency loss of a further 2-3%. The owner decided to run only two qualities. His conversion costs when he did that reduced by about 1-2%. He passed on part of this advantage to his customers and the cost advantage was so great that he was able to acquire new customers and off set any loss in market caused due to discontinuation of some qualities.

Changeovers in any production unit take time. To minimize this time, one needs to operate a limited number of qualities. Also, one needs to optimally build inventory so that one is able to respond to orders for different qualities and run a single quality for the longest possible period of time.

2.      Machine Spares

Never be stingy when it comes to having machine spares. “This motor is not working”, “Machine belt is not working”. Repairs take time. The machine may stay closed when this repair is being undertaken however salary and overhead costs will keep on running. The cost of spares turns out to be lesser when compared to the costs of efficiency loss.

3.      Efficiency Initiatives

The argument of carrot and stick in production units is never ending. However, consider the present situation. NREGA guarantees an income of INR 140/ day doing almost nothing in villages. Compare this to workers in production units earning about INR 240-250/ day. One would say that there is still an incentive of INR 100/ day. But, the costs of living for a laborer in production units tend to be higher in production locations than in their villages. The net advantage might not be that great. Laborers are aware of this.

The above argument is one which is widely discussed among production managers who are lamenting the lack of labor in their factories. If the stick were to be used even after this huge shortage of labor situation, resignations would follow.

The carrot seems to be a better way to tackle efficiency in the present scenario. What efficiency initiatives also end up doing is providing a greater earning to the labor per day. The unit ends up getting higher production and ends up benefitting. A “win-win”! However, these schemes need to be designed very well lest they prove to be negative.

Two laborers were running two machines close to each other in a unit. There was an incentive on efficiency. The quality on both the machines was also the same. The supervisor set the same standards for both the machines. However, the pre-processed raw material was better on one machine. Both the laborers realized this and were hell bent on running the better one. A simple solution was to change the standards and that was done.

But here, one needs a sharp supervisor who is well aware of these differences and can adjust the initiatives accordingly to achieve maximum output.


4.      Data maintenance and gathering

Log books detailing efficiency losses and reasons for the same need to be maintained. These also need to be reviewed from time to time. The review helps in arranging for better spares, identifying mechanical and/or labor situations.

Ask any unit technician about how his unit performs. His first comment would usually revolve around the efficiency of his unit. It is very important to a unit and more often than not, decides the survival of the unit in the long run.

 

Coming up next: Part 3 – Quality Control

 

By,

Vibhor Tikiya

October 3, 2011 at 10:24 am 13 comments

Production Management in Real Life – Part 1

I am writing this from my experience in textiles, feel it will be of interest even to those from other industries as I am quite sure that production management in other  fields will be only as difficult as it is in textiles if not lesser. Production management is a difficult field and the difficulties are only increasing with time. In this series of articles, I will draw on personal experiences and anecdotes from the field to elaborate on the six areas that I have come to believe are critical. 

  1. Inventory Management
  2. Efficiency (Cost Control)
  3. Quality Control
  4. Supply Chain Management
  5. People Management
  6. Regulatory Issues

A lot can be written about each of them so will cover only one topic in this post  and the remaining in follow-up posts.

 

Inventory Management

“I see the amount of yarn bottoms (RM) and Finished Goods inventory left behind year-on-year and wonder whether I am making any money at all. All my earned money seems to be in this stock.” This is a standard complaint by most textile manufacturers.

A leading consulting company was hired by a government organization to determine why the textiles business was not as successful in India as it was in China. The company came out with a series of recommendations, a large number of which revolved around inventory management.

  • Yarn (Raw Material (RM)) should have an expiry date and
  • One should have exact stock and data on the same

 

I talked to one of the owners of a sister concern who met with these consultants. He said, “What do I do with the yarn (RM) which has accumulated over time?  Burn it ?!. I am trying to sell Fabric (Finished products) basis my RM but I can’t have an expiry date for it. Inventory is a necessary evil. If I don’t have it, I can’t respond to orders on time. If I have it, some of it always stays behind and over time it just keeps on increasing, eats my working capital, space and I end up paying heavy interest costs for it.”

I said, “You are obviously trying to sell Fresh fabric basis the yarn you have. What do you when your space gets full?” And he replied, “I sell dead stock (yarn with little relevance to running  and possible future orders) to lower end production units with lower production costs due to slower older machinery, who in turn make fabric and sell it to dealers across the country. But this sale of RM to these units is at a lower price and hence my realization is lower on very old RM.”

I asked him if we could figure out whom these units sell to and if we can opt for job work at any of these units and sell the fabric directly to the dealers. It has been 6 months since this incident. He has started trading lower end variants by doing job work in low cost production units and has been able to bring down his inventory to a reasonable extent. While he does not realize the purchase price of the yarn, he is able to achieve what he says is a satisfactory realization for his RM.

The sad truth about inventory is one can’t avoid it. Standard textbook techniques would suggest standardization, minimization of product variants and hence raw material needed, stronger demand forecasting techniques to minimize inventory.

But once all that is done, then what? What does one do even after all the techniques are applied, yet they still lead to inventory accumulation albeit to a lesser extent? Which techniques should one pursue to dispose “dead” stock and minimize loss?

Most markets always have lower cost variants which are outlets for Finished Goods and RM inventory. A classic example of a market of this kind is a factory outlet of brands. Factory outlets not only have quality rejected material but also material which is excess from season sale. One might choose to develop a market for oneself of these lower cost variants or sell to someone with an access to this market. The latter generally leads to a loss. On a case-to-case basis, one can evaluate the cost-benefit of accessing the lower variant market oneself.

 

A “dead” stock disposer (yarn purchaser – bhangaari) approached me for my finished stock. I told him I have quite a bit but I want hard cash against what I give him. He replied “Sir, don’t worry about cash. We lot purchasers have enough cash to purchase your factory.”

This was actually not an exaggeration, as I later realized after enquiring from the market. His purchase price from me and sale price had higher hidden margins than fresh stock in some cases. It was actually easy to get a one-stage process done via job work and sell the finished product generated.  It was a process which we adopted from then on.

Evaluate and get rid of dead stock as soon as possible. This will free you of space and working capital, both of which can be put to better use.

 

Also, over-insure your inventory. There is always some stock which is unaccounted for in units which have been operational for years while drawing estimates of “sum insured”. On 25th March, 2010, I witnessed a large fire to my unit. All stock was burnt. This spawned off a long drawn engagement with the insurers. One of the biggest things I realized in this engagement was that any underinsurance undervalues burnt stock and enhances loss. “Black Swan” events such as fire happen to the best of units and one should guard against such events.

 

To be continued…..

 

By,

Vibhor Tikiya

September 30, 2011 at 9:28 am 3 comments

The problem of ‘Need but don’t Want’ – What lies beneath

The previous post introduced the problem of ‘Physiological Need ≠ Want’, and held out the promise of delving into the underlying reasons for the behaviour. This post dives into those attitudes and beliefs.

Across the world, in the wellness space, people prefer to buy products that have an immediate, tangible benefit – a light feeling in the tummy, a quick burst of energy, relief from a headache / cough / cold etc, rather than buy and consume a product whose benefit lies in the prevention space, or one in which the benefit is immediate but not discernible to the consumer.

Apart from consumer education programs, doctor / nutritionist engagement programs, PR and advertising, businesses in the wellness space often address the ‘need but don’t want’ problem by linking an intangible benefit to a tangible benefit that consumers value.

The most common example is that of low calorie foods of all kinds – ads typically highlight the tangible, short-term benefit of weight loss and a shapely figure vs. the long-term benefit of weight/ sugar/ cholesterol maintenance at healthy levels. Nestle’s NesVita, a probiotic curd that has the primary benefit of being good for digestion is also 98% fat free and the packaging hints at the benefit of weight loss, presumably for the same reason.

Also remember the ads for Safi blood purifier (the intangible promise) that promised beautiful pimple-free skin (a tangible benefit). Colgate Plax is another example, a mouthwash brand that communicates the tangible benefit of fresh breath that occurs due to the germ-killing action (intangible to the consumer).

In the healthcare space, while it’s tempting to say that there is the tangible benefit of getting better and that should matter to patients, the basic issue is that all the ill-effects of ailments such as diabetes, high cholesterol or BP are typically not evident immediately, thus, the benefit of taking medication regularly and of making other lifestyle modifications is unclear to many patients. Habit change is always hard, when the reward for it is nebulous and indeterminate, it only becomes more so.

Therefore, unless an entity in the Healthcare space – either doctor, nurse, nutritionist, hospital educator or a pharmaceutical firm – explains the long-term impact on the body to the patient, and helps the patient travel from a state of lack of awareness to understanding and acceptance, patients do not view the ailment as life-threatening, and the medication is considered nice-to-have instead of a must-have. To an extent, the fatalistic Indian mind-set also has a role to play in this seemingly nonchalant and almost irresponsible behaviour of patients – ‘jo hona hai, wohi hoga’, ‘jab hoga, tab dekha jaayegaa’ (i.e. ‘whatever will happen will happen’, ‘we’ll deal with it when it happens’, quite the Indian version of ‘Que Sera Sera’).

FMCG products such as Saffola heart healthy oil have relied on an initial scare campaign through ads on TV and print to break through the layer of indifference in people’s minds and generate awareness about the ill-effects of ignoring heart health. They continue to back it up with heavy spends on PR and initiatives such as the Saffolalife program.

Pharma firms have begun to rely on IDM (Integrated Disease Management) programs in addition to doctor engagement programs.  The chronic care model prescribes a set of activities that emphasize active monitoring of disease in a panel of patients, care delivery according to clinical guidelines, education of patients about their disease and self-care techniques, interventions to provide on-going encouragement and support to patients, a comprehensive monitoring and feedback system and proactive patient outreach to assist patients in managing their disease. These activities are often collectively referred to as disease management.

Impetus for disease management stemmed in part from the poor match between the existing health care delivery system designed for acute care and the health care needs of the chronically ill. First, the chronic care patient cannot be “cured” and thus requires on-going medical care and attention; strict adherence to guideline-recommended care slows progression of the disease. Second, the effective management of chronic disease cannot be accomplished solely by the skilled practice of a single clinician; at a minimum, the patient must be engaged and actively involved. Very often, chronic disease management will require coordination among multiple clinicians and educators with various areas of expertise, working in separate settings.

Though the number of such programs is limited, those that have been implemented have seen a significant increase in patient compliance with medically recommended protocols.

By,

Zenobia D Driver

June 23, 2011 at 5:48 am Leave a comment

Health and Wellness – Dealing with the Challenge of ‘Need, but don’t Want’

One common challenge faced by businesses of all hues : unless you can convince people about why they need the benefit a product offers, they will not want it and will not buy it, be it a brand of soap, a pressure cooker, a water purifier or a cosmetic product. In its simplest form, ‘No conviction about need = No desire to buy = No sales’, a scary prospect for any business.

For businesses in the wellness domain in India, this challenge often has an added degree of frustration. There may be a strong physiological need for the product and a long-term quality – of – life benefit to the consumer, yet those that need it most will buy it irregularly or not at all. Examples of such products range from vitamin and mineral supplements to healthy foods and beverages such as low calorie snacks, juices with high fruit content, probiotic curd, etc.

A slightly different form of this scenario plays out in the Healthcare space too. In cases where the impact of an ailment or problem is not immediately felt – for instance, diabetes, high cholesterol or high BP, patients are less likely to spend on medication to keep it under control.

 In comparison to other chronic diseases, diabetes is relatively well understood and there is broad-based agreement in the medical profession about how to manage the disease. Despite this professional knowledge and consensus, diabetes is often poorly managed in practice. Even some patients that have been diagnosed may not want to start using the medication, or may not use it for the required duration, or may consume less than the dose recommended by their doctor. If you don’t believe this, just speak to a few diabetics and check how many of them take all their medication regularly. Or how many check their blood sugar often enough to suit their doctor. And remember that these are patients that have been diagnosed, and are aware of the ailment !

 To find the solution to this problem, we first need to understand the underlying reasons in a bit more detail, but that shall be the subject of the next post on this topic.

By,

Zenobia D. Driver

June 20, 2011 at 5:29 am 2 comments

The Business of Branded Shirts

Branded shirts are everywhere and for everyone. In a country where traditionally customers preferred buying fabric over the counter and then getting the same tailored, this is a paradigm shift. And the preference for fabric over garments has not always been about the money. “You won’t get the right fit”, “These brands are tailored for western bodies”, “There is greater variety in fabric”… have been reasons given to opt for fabric rather than readymade garments.

But all this is changing. Branded shirts are growing and growing rapidly. The apparel industry is growing at a robust 15%. Brands such as Van Heusen have grown by as much as 60% in 2011. Shirts of varying sizes, styles and fits are now available everywhere. The market is not limited to metros anymore. Brands have penetrated tier I/II cities as well. Specific Mass Brands such as Liverpool (Gandhinagar, Ahmedabad), Cotton County cater to these areas. Increasing number of channels such as malls penetrating these cities has helped make this change faster.

How do these brands work? How do they differentiate from each other? How are they segmented?

Most brands purchase fabric directly from vendors. The fabric is sourced either to garment factories owned by the brand or to garment manufacturers/vendors. Sale is generally via dealers and/or directly to their customers via franchisees/fully owned retail outlets. They don’t risk inventory. Most operate on a “Sell before Make” model. Have trade shows, call all major dealers, get yardages of potential season designs made and take bookings before fabric orders are issued. Any extra fabric manufactured is generally sold off through their own outlets.

Brands typically operate with two lines “Autumn Winter” and “Spring Summer”. The former is a collection of dark dull-colored shirts while the latter is a range of bright lighter colors. This is generally followed by an End of Season Sale. The End of Season Sale is often a separate line made by compromising on the quality of the fabric and hence the price.

A close look at the market reveals a clear segmentation of brands. Peter England, John Player (ITC) are positioned as mass brands whereas Van Heusen, Allen Solly are positioned in the premium segments.  Brands differ in the product offering. While Peter England and John Player play with polyester and cotton fibers, Van Heusen, Zodiac and Allen Solly dabble in fine expensive cotton yarns. Touch a Zodiac shirt and then a Peter England shirt. The difference in softness in the shirt is evident.  

While brands are growing rapidly, the industry is facing its share of problems. Prices of cotton yarn have soared. A commonly used “40S” cotton yarn which was available in 2010 at INR 140-150 per kg is now available in 2011 at INR 290-300 per kg. Labor is increasingly short and becoming very expensive. Daily wage demands have soared from INR 175-200 to INR 250-300 per day. The budget had another shock for them. Garments now have an excise duty levy on them affecting the MRP by about 6-7%.

Have these problems changed targets for these brands? Probably not. With income levels in India increasing and an aspiring middle class, the Indian customer increasingly wants “brands”. The need is bound to grow and so is the market.  So, which brand do you wear ?

By,

Vibhor Tikiya

May 3, 2011 at 5:08 am 3 comments


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