Apr
9
My interest in the stock market arose at the time of Reliance Power IPO. That was the first time that I commented on the stock market. At that time, I started reading Udayan Mukherjee’s column in HT. I liked his writing style.
Anyway, a few days back he wrote that India is being punished for being an outperformer. He mentions in his article that India had gone up by 106% during the 18 month period June 2006 to January 2008 while US went up just 16 percent. On the other hand, Indian market went down 25% as compared to US which went down just 5%. He thinks that this was unfair. I don’t know why. The fantastic rise in the Sensex was just baseless. You can take the case of Reliance Petroleum whose share prices had risen to astronomical level with no basis. I had heard that it hardly does any business. What about the Reliance Power valuations before the buble burst? Look at the illiogical behaviour of all the parties involved in the Reliance IPO. The owner wants to sell at Rs. 450/share. The market wants to buy at Rs. 900. The share floats at Rs. 250-300/share. Anil Ambani turns generous and wants to return the extra money. With behaviour like this, I would like to know who expected this high growth to be sustainable.
I would like to say to Udayan that whatever goes up fast will not be sustainable.
Avinash Narula
www.management-talk.com
Apr
7
Can somebody flank Coke & Pepsi?
Filed Under Marketing, Positioning, Branding | Leave a Comment
Red Bull is trying to give Coke and Pepsi a run for their money. It seems that Red Bull seems to have the right and the wrong idea. First, what’s right about the idea. It seems that Red Bull is launching a premium cola in the US at $1.49 for a 12 ounce can which is expensive than Coke or Pepsi. There is no premium price cola and they have certainly found a gap in the market. One cannot fight with Pepsi and Coke head on. They have to be attacked from the side, in other words flanked.
But whats wrong with the idea? First, they have gone in for brand extension, that is, they are branding it as “Red Bull” cola. I am not sure if this is a good idea. Red Bull is associated with energy drinks and it should remain in that positioning. By launching a cola drink with the same name, they are going to dilute the Red Bull brand. Brand extensions seldom work. They can work if you are the first in the market. With strong brands as Coke and Pepsi, brand extension will have no chance. Second, the the new soda will come oin a slender blue, red and silver can similar to the energy drink. There needs to be differentiation between the two products. Imagine if Maruti 800 and Mercedes Benz are from the same company and they look alike. Do you think Mercedes Benz will remain a status symbol?
Two reasons convince companies to go for brand extension. One is that they feel that they can piggy back on the brand recognition. Two, they see economies of scale in advertising etc. Red Bull executives are forgetting the high level of brand recognition is for the energy drink. In fact, they will have to spend more money to convince the audience that Red Bull is not just an energy drink but also a cola. My above explanation also answers the second misception that they have with respect to economies of scale.
So lets see if Red Bull is able to make a dent in the Cola market.
Mar
7
Top 3 or out
Filed Under Marketing, Positioning, Strategy | Leave a Comment
In an interview in Economic Times (7/3/2008), Aditya Birla stated his criteria for being involved in an industry. He said that he will only participate in an industry only if they have 1,2 or 3 position otherwise they will quit. Well this is nothing new. Actually, its a criteria borrowed from Ex GE’s chairman (I am forgetting his name. Sure sign that I am getting old) who built GE based on the same criteria. However, I do not think this makes sense.
Why? Logically speaking if you are serving a niche market in an industry, one can have a number of profitable players. Lets take it a step forward. You could have “n” number of profitable players in an industry, all with a different viable positionings and still be profitable. The issue of profitability only comes up when you don’t have distinquishing positioning.
Let me explain this with the example of the radio industry in India. Apart from one, MEOW radio and a couple more, all the other players numbering to nearly 140 do not have a distinquishing positioning. Let’s say, Radio Mirchi has the positioning of radio station for all. Add to this, a couple radio stations which are local language based. If we take Aditya Birla’s criteria, then nearly 140 radio stations should get out of the radio business because they cannot attain 1, 2, or 3 position. However, I can think of a number of radio station who can actually prosper provided with a distinquishing positioning. For instance, sports radio station, a cricket radio station, a bollywood radio station, political radio station, a headline news radio station, a ghazal radio station just to name a few. I feel that all these radio stations will make money.
On the other hand, 7-8 years back you could have been a leader in the telecom business but you would have been losing money. So I think the criteria for staying in a particular business should be financial (return on investment) and whether you have the core competencies to stay competitive in that business and not whether you are 1, 2 o3.
Yes, I have heard of the PIMS database. But remember, it also talks about the market share of the “served market.”
Avinash Narula
www.management-talk.com
Feb
11
Corporate Social Responsibility - Where should it start?
Filed Under General Management, CSR | 5 Comments
I have been hearing a lot about Corporate Social Responsibility (CSR), that is, a company’s responsibility towards the society. In simple terms it means that a company must manage its role in society as a producer, employer, customer and citizen. I think most of the discussion on the subject centers around a corporations involvement in supporting social causes. Every corporation adopts some social causes and thinks that this is the best way of implementing CSR.
What prompted me to write about this topic was an article I read about ICICI Bank, the largest private Indian bank. It was reported that ICICI was going to establish a ICICI Foundation and fund it with 1% of its profits. Even one of its very senior executive was going to head this foundation. But let us try to reconcile what ICICI does in actual practice. Various cases have been reported where ICICI Bank has been involved in causing pain and suffering to its customers who had taken loan from it because of its illegal practice of hiring goons to recover money. If I am not mistaken, one of thier customers even committed suicide because of the threats of recovery agents hired by ICICI.
Now I find the above very illogical. First, ICICI Bank wants to make more money and adopts aggressive selling tactics to palm off loans. When they can’t pay the monthly instalments, ICICI sends recovery goons to collect the dues. The illegal methods adopted by these recovery agency results in pain and suffering to its customers. On the other side, ICICI decides that it needs to donate money for social causes. Now as a producer, doesn’t the bank have a responsibility towards its customers?
Lets also consider what Airtel does. It bills its customers for services not ordered by the customer and then donates the money for social causes through its foundation. This is how they exercise their responsibility as a producer.
Lets look at how comapnies are discharging their responsibility as an employer. Today, companies are putting so much pressure on their employees that practically everybody I know of is working late. Employees of companies that have 5 day working week are also working of Saturdays. This is creating health problems for employees. Why are companies putting so much pressure on their employees? Simple, they want to make more money. So first they create health problems and then they donate money to build hospitals through their foundations. I read an email of a senior Infosys executive telling employees that they should not work late. My suggestion to this gentlemen is that he should make sure that the offices are closed on time so that nobody can work late and the problem will be solved. He should know that the employees have no choice but to work late because of work pressures. Will he close office at 5pm. Will he walk his talk. I doubt it. Reasons are obvious.
What about the Times of India Group? It runs a rich foundation to support social causes. But how does it make money? It passes off “bias-paid-for-news” as “unbiased news” thereby deceiving all its readers. It sells news through its subsidiary MediaNet. Recently, there have been a number of articles about TOI buying stakes in various small companies and then using its publications to promote these companies without disclosing its vested interest. It is almost a certainty that some people may invest in these companies based on articles printed in Times Group Publication and end up losing money as well as their mential well-being.
Why do they want to do such a thing? Of course, to make more and more money (as if they don’t have enough already)and then donate money through their foundation, maybe to build mental hospitals for those who turn mental when they lose money in the stock market.
It is obvious that the business world has misunderstood what CSR means and where it should start. I think if every business takes care of its immediate stakeholders like customers, employees and vendors, I doubt if they would need to need to establish foundations.
I will explain the above with my example. I run a small company. First, as a producer I try very hard to keep my customers happy. I do not bill them for anything that they have not asked for. I make sure that they get “value for money” and sometimes even more. As a customer, I pay my vendors on time. I do not put unnecessary pressure on my vendors. If they mistake, I even work with them to resolve the same in a fair manner. What about as an employer? As far as my employees are concerned, I truly believe that charity begins at home. I have never refused anybody leave. We do not work very late to make more money but we do work late sometimes to complete customer’s work. I also take care of my employees in times of difficulty without their even asking for it.
So if everybody takes care of its immediate direct stakeholders like employees, customers and vendors, I think the need for CSR will almost disappear. This could have a domino’s effect. Every employee, customer and vendor has a family. In addition, some of your customers and practically every vendors would have employees, vendors and customers and the chain reaction could emcompass the whole society. Also, I am sure you will agree that this is better way to implement CSR than causing pain to your employees, customers and vendors so as to make more money and then donating a part of this money for social causes.
Hey, am I thinking logically?
Jan
29
World Class
Filed Under Public Interest | 1 Comment
I don’t know about you but I am sick and tired to hearing people say we are building “world class” this or the other and that we will take over the world shortly. If you have heard about the sorry state of affair at the Gurgaon Tollway, then you can understand why I have started hating the words “world class.” How can we lead the world if we can’t organize a simple toll operation. And its not that we have discovered or invented something new. All we have to do is to just copy what others are successfully doing all over the world. I grew up listening to the Ludhiana joke which implied that we can copy anything but it seems that we are even lousy at that.
Last month, I visited Oman to conduct a training program. The ride from Airport to the hotel got me depressed. That small country seemed so organized that I was amazed. I was there for 3 days and I didn’t see a cop. The lanscaping all along the highway was what we see at a 5-star hotel. I was depressed because I felt that we are so far behind and also because I didn’t see any light at the end of the tunnel.
I know some of you will say that Oman is a oil rich country and as such it can afford to be organized. Well, my question to you is what money do we need to run a toll way in an organized manner?
Sandeep, a freind of mine, was at least till he visited China recently a real optimist. He felt that we will overcome all these constraints and lead the world. But he recently visited China and he changed his tune. He was amazed at the infrastructure he found there. He told me that he visited a factory at the China Russia border and found that the whole factory was heated. They do not have any power problems there. Now he has become depressed.
Once somebody had passed on the speech of President Kalam to me in which he asked a very pertinent question. He said that when we are in Singapore, we don’t litter. When we are in US, we obey all the traffic signals. But the million dollar question he asked was “What happens when we land at Delhi airport?”
So if you find anything “world class,” do let me know? Also, if you still think we can lead the world, I would certainly like to hear about it.
Avinash Narula
Jan
28
Keeping track of Biyani
Filed Under Retail | Leave a Comment
It seems to me that Kishore Biyani announces the plan to start a new retail format everyday. The questions that come to my mind are as follows:
(a) Where will he get the money to launch so many retail formats?
(b) Does he have the management capability to handle so many different formats?
(c) What about space?
(d) The number of different brands that Future Group (FG) is planning / promoting.
So I am going to start tracking how many retail formats he announces and what is the status of these retail formats as on date.
August 2007
FG rolled out small neighbourhood KB’s Fair Price Value Stores in many parts of Northern Delhi. Stock only essential items. Non-airconditioned stores. It has plans to roll out these stores in
Mumbai also. It has plans to open 1500 stores all over the country. Currently it runs 24 of these stores in New Delhi
Jan 8, 2008
FG announces it plans to open 250 No Frills grocery stores in New Delhi region in the next two years.
Jan 18, 2008
Future Group (FG) announced the establishment of 750 new mobile stores. Investment planned of Rs. 250-300 crores alongwith its 50:50 JV partner Axiom Telecom of UAE. Two types of stores. Brand Axiom will be premium and brand Mobile Bazaar for value mobiles. By the way, it seems that KBG is already selling mobiles under 3 brands - M bazaar (a shop within shop format), M-Port (Independent brand stores) and Gen M (kiosks in malls). Do you think KBG needed more mobile retail brands?
Feb 2, 2008
Biyani is in race to buy the personal and home loan portfolio of GE.
It seems to me that the newspapers just go on printing news releases from the FG without at least once asking where is the money, space and management capability going to come from.
So if you are aware of the different retail formats of FG and their current status do let us know.
avinash narula
Jan
28
Flanking with Tata’s Nano
Filed Under Marketing, Positioning, Strategy | Leave a Comment
There is no one who has siad so far that they will be seriously affected by Tata’s Nano. I think this is the best sign that Nano will succeed as no one considers it a serious competition. What Nano is going to do is flank a number of product categories. It is going to nibble away small market share from a number of products and no one would be any wiser. By the way, the reason for the success of Nirma was that it flanked Surf. Surf didn’t feel that Nirma was a worthy competitor till it was too late. Lets see who all will Nano flank?
First, it will flank Maruti. Some folks who find Maruti expensive will shift to Nano. Second, it will flank the motocycles. nano has reduced the price gap between a car and a motocycle. So people with motorcycles who want a car but find Maruti expensive may find Nano just within their budget and the motorcycle industry may lose some customers. I feel that Nano may flank the scooter industry also, especially the women buyer. Who else? What about the 3-wheeler industry? Would you rather drive a 3-wheeler auto or a 4-wheeler taxi? Also, would you rather ride a 3-wheeler auto or a 4-wheeler taxi?
Nano is an excellent product in terms of “finding a gap in the market.” When nobody thinks you are competing with them, believe me you have found the best gap. Remember, the very purpose of “finding a gap in the market” is to avoid competition.
What can stop Nano from being a runaway success? The performance of the product and nothing else.
Avinash Narula
Jan
28
Reliance - IPO
Filed Under Finance | 2 Comments
Even though, I had finance as one of my specialization in MBA, I have been a little confused with the how heavily the Realinace Power IPO has been oversubscribed. I do nor remember exact numbers but I remember the IPO was at around Rs. 450 and the market was expecting it to be listed at Rs. 900-1000. Hence the frenzy to take part in the IPO by everybody. This suggests that either the company is stupid to sell its shares at Rs. 500 or the market is stupid to buy it at Rs. 1000 on listing. One can think of a 5-10% variation but almost 100% variation is beyond my understanding.
Is there a financial wizard out there who can explain this to me in rational logical terms or in terms of financial theory.
By the way, as suggested by some, why don’t people buy into REL instead.
Nov
11
Why are we so obsessed with targets?
Filed Under Marketing, General Management, Sales | Leave a Comment
I think we should do away with targets. Hey, don’t shoot me. Listen to my complete story.
I think it is our obsession with targets and that too unreasonable targets that are responsible for many problems that a business faces. Some of these are:
(a) Loss of capable employees. For instance, recently Lenova lost a number of its key marketing and sales employees primarily because of unreasonable targets in terms of sales and market share. Quiet some time back Bajaj Auto lost is marketing head for the same reason.
(b) Unethical practices being adopted by employees to somehow reach targets. Companies end up overstating sales, profits or understating expenses. We have all heard of Enron and Sanjay Kumar of Computer Associates. I have a president of the company tell me that his sales people sold timeshare based on the fact that the resort property had two pools whereas it didn’t even have one. But the real issue is to find out why were the sales people doing what they were doing? Simple. Unreasonable high targets.
(c) Focus of the organization shifts from long-term to immediate-term which perpetuates a never ending cycle of schemes/scams to meet targets.
Recently, two sales guys in the media industry came to my office and the converstaion somehow landed on this subject. So when I told them about my thought, they gave me two examples which actually proved my point.
One of them told me that the guy who was handling the property supplement of a leading newspaper was on a high. The property business was roaring in 1994/95. Based on the past 2 years performance, he made business projections that were just astronomical. The management also bought into his story. But guess what, the property market slumped in 2006/07 and all the projections / targets went for a toss. Hey, anybody can extrapolate based on past performance.
The other guy gave the example of a guy who somewhat understood what I am talking about. He was representing the newspaper in Lucknow. Now his major client was Sahara Group. He was a smart fellow. Whenever, he made projections, he separated business from Sahara from the rest of the business. Why? Because he wanted to make sure that his management assessed him on his actions that he was taking to improve the business in general rather than on pure numbers majority of which came from the Sahara Group.
Lets look at Lenova’s case. Even though they were growing faster than the industry, still Lenova’s management was not happy. What do they think? Just by changing executives they can achieve their targets. If such was the case, there would be no company in the world which would not achieve its target because all they would need to do is change their executives. This gives me an idea. We can have a pool of executives who we giving to the various companies on a rotational basis which would help everyone to achieve targets. Lets say, that if two companies were not achieving targets, we would just exchange their executives and targets would be met.
I believe we should assess performance based on the actions that an executive takes rather than purely on achievement of numbers. For more details, please read my article on the subject in my website www.management-talk.com.
Nov
11
On 21/10/2007, I had posted “80/20 rule of marketing success - find a gap” in which I had mentioned that MEOW the radio station has found a great gap and staked its claim to this space and that according to me it will be a great success. The reason my dear is very simple. They have found a gap and positioned themselves as a radio station for women.
Now I was surprised to read in Mint that there are more than 100 radio stations and another 300 are expected to be launched in the next 18 months. The sad part is that from what I can make out there is no one except MEOW which has really positioned itself effectively. In addition, MEOW has developed its offering through distinct programming in a “talk” format. I had actually heard them once and it was definitely good. Most of the radio stations just offer music with annoying DJs who crack PJs and come up with childish schemes. In fact, after living in US and listening to radio there, I find what radio stations are doing in India a little stupid. I am surprised that with TV stations copying American programs, why can’t radio stations do the same.
In fact, I had suggested a content based program to a couple of radio stations and they just ignored the same. I think they prefer what they are doing now.
Practically, all the experts agree that the radio stations need to differentiate themselves. What they are saying is that they should find a gap in the market and claim their stake on it. What’s the hurry? Well, being the first to stake your claim to a particular is what matters the most.
Prashant Pandey, CEO of Radio Mirchi says, “We are the leaders of the market. We don’t have to change. So many people already know who we are.” Do you think what Pandey is saying seems logical? Can anyone suggest how things can change for Radio Mirchi? For instance, MEOW takes away the women. RadioYoung takes away the young (I hope you guys know that we are going to have Youth TV from Amity which is again an excellent idea). RadioManagement takes away business listeners and so on and so forth. Don’t you think that with increasing number of radio stations filling in the gaps in the market, Radio Mirchi would not be left with much of an audience. So beware Shri Pandey.
It was surprising to read that practically all the radio stations are trying to differentiate themselves based on the campaigns that they are conducting. How does having a concert with AR Rehman position the Fever104 radio station vis-a-vis others, I just fail to understand.
If the radio stations cannot seem to find a gap to stake their claim, I think we should all help them. I think it would be an interesting exercise to suggest various positioning options for the various radio stations coming up. I have done this exercise with students in my class with fantastic results. Let me get the ball rolling for you.
Positioning options based on the type of music they play
(a) Ghazals
(a) Local regional music
Positionings based on talk show format
(a) Management
(b) Health
So lets get your marketing juices flowing and come up with as many positioning options that we can.
Avinash Narula