06 May, 2013

Royal Enfield rears into new realms...

Siddhartha Lal


The last few years have seen Royal Enfield rediscover speed, with the sales of its premium bikes rising quickly. Overwhelmed by increasing demand, the waiting period for some of the company’s models has risen to nearly 10 months. The Eicher group firm, which recently kick-started production at its second plant in Chennai, is looking to grow further in the ‘mid-sized motorcycle space’. As a custodian of this iconic brand, Siddhartha Lal, Managing Director of Eicher Motors, is determined to retain the best of the old while still pushing the envelope in terms of new products. In an interview to The Hindu, Mr. Lal talks on the journey so far, the road ahead, and the attributes that make Royal Enfield click with India’s urban youth. Excerpts:

Is your transformation plan going on schedule?
Absolutely. It has been many years in the making. Our inflexion happened with the ‘Classic’ bike in 2008, but a bike in itself can never make an inflexion. It happened because we had put in everything before that — the dealers, the service infrastructure, and so on. All of that went in, and then came the new engine platform.

The bike got us into an inflexion on our volumes. For the last 20 years, we sold between 20,000 and 30,000 units. It was flat at best. And then we hit the ramp. In the last few years, we have been growing rapidly. Our growth started from 2008, and it has been great since then. Since our product and distribution fronts are now up to speed, the market is on a positive cycle for us. The visibility of the brand is at a high point right now. We hope we will be able to stretch this type of growth for the next two years.

How much of your revenue or sales is linked to the overall market, which is performing poorly? Or, are you de-linked completely?
Well, clearly at this point, you can say we are de-linked. We are growing at 50 per cent. The two-wheeler industry, however, is not. That is because we are still a very small player in the overall motorcycle industry. If we were a 50 per cent player in the motorcycle industry, we would have a limitation of growth. Since we are a tiny player right now, we can still grow much faster than the industry and not be constrained by the overall industry pace.

Is being a niche player a blessing in disguise during downturn?
Our growth is really dependent on us. For 20 years from the mid-1980s till 2008, we were hardly growing. Meanwhile, the motorcycle industry went from a few lakh units a year to nearly 13 million.

We never grew during that time. What has happened now is that we are firing on all cylinders. We are able to create a value proposition for customers, and that is fuelling our growth. The main point here is that we were able to create a real desirability among the urban youth.

Are you only riding on the urban market though?
We always had a traditional and rural market, and that is still there. But it is the urban youth who mainly ride commuter bikes. After five and eight years into their jobs, they want something better. So, they have an option to go for a larger commuter bike or they look at us, and say this is also an interesting option. This happened because we removed a lot of barriers in the minds of the urban youth. What were these barriers? A lot of people were confused over the whole shifting from the wrong foot; everyone was worried about what would happen if they pressed the gear instead of the brake. So, we fixed that. Second was that the bike was too heavy, so we went and made the stand much easier. And then, of course, the finish and the paint job — they weren’t very great.
Fixing all of this has driven demand for us.

You have had a supply-demand mismatch over the last three years. Has this helped boost demand by creating scarcity or has it dampened sales?
Well, I believe we have actually lost sales because of that. Honestly, there is always a little aura around a product that makes you wait. People feel that there is something about the product, a lot of people are buying it, and, therefore, it must be good.

So, there is that element. However, on the other hand, we have discovered that at least 20 per cent of our customers are falling out because they don’t want to wait for a year. So, they move onto some other bikes. Net-net, if you put both these conditions together, we have definitely lost out. Our first objective is to reduce that waiting period now.

What is the brand message of Royal Enfield now, compared to 20 years ago?
Originally, it was about being big, and was about power. That has subtly changed now. The ‘Bullet’ still carries a lot of the values of what originally we had. But now that is restricted only to a particular model. Overall, the message now is what we call a pure motorcycle. Other bikes are really fast, or really heavy, and or really excess in one aspect. On the other hand, our’s is about simplicity. When you see our bike, there is nothing superfluous about it. Royal Enfield is about harmonising the rider, the bike and the terrain. When you go on the highways, you enjoy going at a medium pace on our bikes. The rider is able to enjoy thoroughly.

Do you intend to have a brand ambassador?
We will never have a brand ambassador! We don’t pay people to be seen on our bike. Every movie that uses our bike is because they want to use our bike. We don’t spend one rupee on all that. Our bikes still contain that genuine feel. We believe we have created a brand which is very strong. So, it is a pull strategy rather than a push strategy. We have stayed the course. Over 15 to 20 years, when we were struggling, we never said let’s bring about a commuter bike or do something that isn’t serious.

What will you do to ensure that your product stays its course of differentiation?
Our strategy, for me, is to continue to push the envelope of making products that are even more differentiated. People don’t buy our bikes on specifications.

Obviously, we have to invest in new products. We will have many more bikes coming on the line soon. There will be more players coming, no doubt. But, I think, there is enough market for everybody. As more players come in, the market will keep growing.

So, Royal Enfield will continue to dig more deep into its niche play? Can it not become a product for the masses at any point?
Well, we can grow five-fold. But that will still never make it a mass product! I guess we are going in for much more depth in what we call the mid-sized motorcycle space. Look at our next product, the Continental GT, which is extremely differentiated and attracts a totally different segment of customers. We will have more models that have that type of differentiation. Beyond that, our ambitions are global in nature. In emerging markets, which already have a commuter market, we see a vacant space between the commuter market and the big bikes. We will provide a compelling option there.

However, in developed markets such as the U.S., we see that people are trading down from big bikes due to the current economic conditions. Therefore, we believe we will be in a sweet spot for both emerging and developed markets. That is our strategy. We want to be a global player.

What are the external factors that could prove to be limiting for Royal Enfield? Why did you decide to locate your second plant too in Chennai?
The only limiting factor for us is our own imagination. We aren’t constrained by economic numbers or the market size. With this new plant, we have the ability to expand very quickly. Of course there are risks in having both plants in the same city, but we like Chennai! We did a very detailed study, and we looked across India. But we came to the conclusion that a second plant in Chennai would be better because our entire supplier base is here. I have no intention of developing a new supplier base right now! Chennai has a very strong ecosystem of every form. Right from a paint shop to vehicle assembly and measurement equipment—everything is here! We know this area very well. If you go to an out-of-Chennai market, we have to learn everything from scratch.

Right now, we have no intention of setting up a plant elsewhere. Of course, if taxation demands, we could think of a plant elsewhere to deliver on our global ambitions. Our effort to consolidate here is our growth strategy. We will stretch this place forever, like we did in our old plant.

How was it to completely overhaul the Eicher product portfolio over the last twenty years? Do you have any regrets now?
When we were doing a review of our portfolio in 2004, we had many big businesses. But we had a multitude of smaller businesses. We had got into the garments business, tools, merchant trading, agriculture product trading - all sorts of stuff! We did a full portfolio rehash. We should focus only on a few. So, we wanted to move from being mediocre to being great.

Let us be very clear about that. We were very middling in all of these businesses, including motorcycles. But for motorcycles, we did a leap of faith, as I was sure it would grow.
So we shut down the rest of the businesses, the most visible one being the tractor business which we sold. We have no regrets.
 
Article Credit:
 

30 April, 2013

The Third Place just got costlier!

 

Eatery 1

On Monday, 29th April 2013, The Tamil Nadu Hotels Association (TNHA) observed a one-day strike to protest against the Central Government’s decision to impose Service Tax on their businesses. Speaking to the media, TNHA President M. Venkadasubbu said, “The TNHA had taken the lead to organise similar associations in all states in this regard and a federation, the Federation of Hotel Associations, had also been formed for the first time in the country.The announcement of Service Tax was made by India’s Union Finance Minister Mr. P Chidambaram in the Union budget and had already come into effect, beginning this month… (April 2013). The Service Tax of 12.36 per cent levied out of the 40 per cent of the sales proceeds is illegal and a big burden on consumers who are already forced to bear the brunt of price escalation due to inflation. While the hotels and restaurants were already paying VAT ranging from 2 to 14 per cent, the new Service Tax levied by the Central government would amount to double taxation,” he said. ‘This problem of double taxation was discussed at a meeting organised by the Federation of Hotel Associations (comprising office bearers and representatives of hotel associations from all states) in Mumbai last week and a unanimous decision was taken to launch a nationwide bandh if the Central government did not roll back the Service Tax.’

Eating out has become extremely expensive over the past decade. I remember, when I was in Graduate School, with pocket money of less than Rs. 300/- per month, we could meet most of our out-of-home expenses including filling fuel for our bikes. Not so these days. The purpose of having a meal outside home, The Third Place as it is called is not just eating. It’s all about building camaraderie and relationship/bonding with family and friends. Ray Oldenberg defined the third place as an alternative to Home and Workplace in his research paper in 1991. Oldenburg calls one's "first place" the home and those that one lives with. The "second place" is the workplace — where people may actually spend most of their time. Third places, then, are "anchors" of community life and facilitate and foster broader, more creative interaction.There were already numerous such spaces all over the world. Cafes, Restaurants and other Eating Spots are among the most sought after third-places. In India, cafes and eateries have burgeoned all over the country in the past few years. Café Coffee Day, India’s largest café chain has over 1,400 cafes across the country. Starbucks, Costa, Coffee Bean and Tea Leaf, Gloria Jeans, Mocha and many other such international and domestic café chains have their outlets spread across major cities, providing an opportunity to people to hang around and discuss everything under the sun – from personal banters to professional meetings to matrimonial discussions, one can find all of those out there. Apart from Coffee Shops, there are over half a million eateries of various shapes and sizes across the country which provide Food & Beverage options. For nuclear families, eating out is one of the biggest entertainment these days, what with very little time to spend with the family!

IMG_0139

With the proposed new tax, food bills are expected to go up significantly to consumers. For example, on a bill of say, Rs. 1,000/- for a family of four, the Value Added Tax ranges from 2-14%, so lets assume its on an average of 8%. So, the bill goes up to Rs. 1,080/-. The service tax of 12.36% is applicable on 40% of the Sales, so that works out to Rs. 49.44, rounded off to Rs. 50/-. Hence the total bill to consumer now is Rs. 1,130/- just because this family chose to eat in an air-conditioned restaurant…where such a tax is applicable. The definition is quite clear – whether serving F&B in an air-conditioned area is a sale or a service. As per the recent amendment in the Law, its both. While food is cooked and sold, it is also served (by waiters) and hence considered a service. Also, the a/c facility is meant for seating and consumption, thereby making it amply clear that it is indeed a service. While this rule will bring about encouraging revenues to the Government, those that are meant to suffer are the middle-class consumers. For students and youngsters, visiting their favourite coffee shop or a fast food joint would get more expensive, thereby creating a dent on their pocket money. However, for the affluent and well to do, the proposed hike may not mean much, given that their spending power is relatively higher. In most cases, such individuals / families don’t even check the bill – probably pay (usually by a credit card) and sign-off.

While inflation and cost of consumption have gone up significantly, the income rates haven’t gone up proportionately. This has left the middle-class with fewer options for recreation. And Eating joints may not be the most preferred Third-Places anymore! For F&B Retailers, it means reduced number of visitors. And business too.

29 March, 2013

How Nokia lost connection!

Nika - connecting people

“The problem with you is that you are atleast 5 years ahead in your thinking as far as Retail trends in India are concerned”, a former colleague of mine whom I don’t wish to name quipped many years ago when I was setting up the Retail business at Bangalore International Airport. This is a forum that records Retail thoughts and not meant for self-propaganda, but when I look back, it seems so true of what he had said. Even now, I am working on certain concepts and ideas which are years ahead of what others in the business are doing, much to the annoyance sometimes of my colleagues and business partners. Those who have worked with me / have known me for quite some time would certainly agree to what I am saying. And Nokia is a case in point.

Nokia,which enjoyed an over 70% market share around 2004 in India had experimented with various retail formats such as Nokia Distributors cum Retailers, Nokia preferred Retailers, Nokia Priority Centers and exclusive Nokia dealers. In 2004, they opened a new format called the Nokia Concept Store at Church Street in Bangalore. This was the time that call rates had dropped to low single digit rupees and consumers were lapping up mobile handsets like never before. The beauty of this Concept stores was for the first time, Nokia models that were kept on display were not dummies. They were real ones which the user could actually touch and feel, they way it would be when they owned it. The store was a super-hit. I upgraded from a 7780 to N72 at this particular store. Although it was a franchisee managed store, service was excellent with staff explaining the little nuances and details of the various models to customers. The staff would transfer contact details from one handset to another when you buy a new phone from the shop, a sort of value added service which no other Retailer provided then. The store was located in a mall which had very few footfalls but to its grand signage and visibility coupled with positive word of mouth, it attracted thousands of people thronging its stores each month.

Nokia Storefront

In India, the mobile evolution probably has had four phases – from 1999 – 2002 was the time when it was a novelty. Wealthy businessmen and Corporate Executives had expensive bulky handsets to prove a point. From 2001 – 2005 was the time when affordability of handsets became the prime focus, with Reliance Communications launching their Rs. 500 scheme which was an overnight success. And from 2005 – 2009 when Style quotient became prevalent, what with various sizes, models and colors ruling the roost. From 2009 onwards, it was the turn of smartphones – handsets that went beyond texting and calling, the revolution led by Apple, quickly followed by Samsung and also by Blackberry to an extent. Nokia interestingly was the leader in the first two phases. They were still in Phase two when the third phase was on. And this probably led to customers dumping them to alternate brands and models. Nokia had as its brand ambassador the biggest showman of India in the 21st Century, the one and only Badshaah of Bollywood, actor Shah Rukh Khan. He was shown as using various Nokia handsets in public appearances, innumerous advertisements and commercials and so many Brand campaigns. Nokia was also the Chief Sponsor of the IPL Team owned by the actor, Kolkata Knight Riders. The team’s dismal performance in the first three seasons didn’t help the brand either.

In 2008, I was trying to create various new concepts at the Bangalore Aiprort and I had proposed an exclusively lounge / store to showcase the premium models of Nokia. This was the time when Blackberry phones were slowly sneaking into the corporate sector. During a chance meeting with their then India CEO Mr. D. Shivkumar, I shared this idea who immediately asked his colleagues to evaluate the proposal. The Regional Manager called me promptly and asked what was the rent for the proposed space, to which I replied that it would be ideal for him to come over to the airport so we could discuss in detail since the concept was not about a rental Retail space but rather a holistic Brand promotion approach. He informed me that the airport was about 50km one-way from his office and hence would be too far an affair to meet me in person and insisted I explain to him on the phone which I did. Sadly, he never called back.

Shivkumar

D. Shivkumar, Senior Vice President of Nokia – Emerging Markets India, West Asia and Africa made headlines on Good Friday, 29th March 2013 with news of his resignation. The media went abuzz just the previous day that the company has been slapped a fine of Rs. 2,000 Crores (USD 400 million) for alleged violation of taxes. And all this amidst losing market share, (presently about 25%) to premium rivals such as Apple, Blackberry, Samsung, LG, HTC and other low-cost manufacturers of mobiles in India such as Karbonn and MicroMax. His exit comes at a time when Nokia is under siege globally struggling to combat the onslaught of smartphone makers led by South Korea's Samuang and US-based Apple. From over 40% market share globally in 2008, Nokia now commands less than a fifth of the total handset volumes as it products have of late struggled to capture customer imagination. "When I joined Nokia, India had about 80 million mobile phone subscribers. Today it is over 900 million. I believe that Nokia too had a role to play in this along with mobile operators. Over the last eight years, the major changes in the market is that it is driven by youth, style and technology," Shivakumar said.

Nokia’s Retail Strategy was a strong one. They appointed hundreds of Priority Stores, Distributors and Dealers including large format Retail Stores across the country such as Big Bazaar, Central Malls, Croma, EZone, Landmark Stores and also across ECommerce players such as Indiaplaza, Flipkart, etc. to name a few but somewhere the Brand failed to deliver with upgraded technology. This is a clear case where the front end of Retail is very strong but the business crumbles due to lack of product innovation & positioning and keeping up with times and competition. Around 2005-08, Nokia was focused on targeting the high-end customers with a new model every couple of weeks. Around the same time, Blackberry phones stormed the market. Emails, which were still new and a recent phenomenon of connectivity was an important aspect while choosing a mobile handset for consumers. Facebook, Twitter and Social Media overall where slowly gaining prominence and Nokia was floundering badly with their models. So they decided to shift focus to lower-end phones priced below Rs. 5,000 (USD 100). And today, that is indeed the market where they have highest share.

Retail penetration is foremost for any consumer brand. But then, it has to be backed by a strong line-up of models and technological innovation. I guess this is precisely why consumers disconnected with Nokia. Is there a chance to connect once again? Of course, there is hope. The mobile market in India is still nascent and there is so much that Nokia could do. I guess it is just a matter of time. Wishing them luck in times to come .

26 March, 2013

Alternate ECommerce–Auction Sites

There was a cover story about Alibaba.com, China’s largest ECommerce company in recent issue of The Economist. Quite a few facts. That it is turning out to be one of the largest ecommerce companies in the world, with sales of over $170 billion, which is Amazon and eBay put together. That it has a financing division, viz., AliFinance which provides micro credit to small firms and consumers; and that it has 6 million vendors registered on its site. What was started in 1999 by the firm’s founder, Mr. Jack Ma, an English Teacher as a B-2-B portal connecting small Chinese manufacturers to overseas buyers has now transformed into an internet behemoth. “EBay may be a shark in the ocean,” Mr Ma once said, “but I am a crocodile in the Yangzi river. If we fight in the ocean, we lose; but if we fight in the river, we win.”Taobao, a consumer-to-consumer portal not unlike eBay, features nearly a billion products and is one of the 20 most-visited websites globally. Tmall, a newish business-to-consumer portal that is a bit like Amazon, helps global brands such as Disney and Levi’s reach China’s middle classes.

Indiaplaza, which was also founded in 1999 back home in India is unfortunately facing its toughest time yet. With over 80% of its 150+ workforce having quit over the past six months, the company which pioneered ecommerce in India has no takers today. With a weak b-2-c model based on product listing by various partners, the company has just not been able to scale up over the last few years, thus allowing late entrants like flipkart, myntra, jabong and coupon sites like snapdeal and groupon to surge ahead. To be fair to Indiaplaza, most of the Ecommerce sites in India are on deathbed, awaiting Angels to come and save them. The top three players, Flipkart, Jabong & Myntra with sales of over USD 600 million collectively are only making losses and there no signs of any profitability in the immediate future. Offline Retailers have had a slow start without much success in this arena. Croma, part of the Tata Group’s Trent Ltd., Crossword, India’s largest book store chain along with Landmark and Shoppers Stop,  India’s largest Department Store chain are the only few large Retailers who have attempted an Ecommerce entry over the past years. With FDI in Retail not included for Ecommerce businesses, the Government’s backing has been minimal in this regard.

AA025042

Even as I was thinking so, I came across an article which mentioned about an auction site named QuiBids (spelt as KweeBids). More out of curiosity, I set-up an account to know how this works. Registration was simple.GBP 0.40 is the value of each bid (for the UK Site) and can be bought online at the store in bundles that the user can choose, which in turn can be used while placing bids or while buying an item on the site after discounts and offers. The joining fee will be refunded in full or part thereof if bids are not placed for the said value. They have listed hundreds of items and all of them are on auction. The products are genuine and the processes are audited by Grant Thornton, one of the top audit companies in the world (I have personally seen the audit assurance report which is published on their website). One can bid an item only 5 minutes before the bid time comes to an end. Which means, users keep track of all those items on bid and are probably hooked on to the site all through, if they want to participate in the bidding process. Each time a bidder places a bid, the time slot for the auction increases by 20, 15 and 10 seconds in that order. If the number of bids the user holds is over, then he/she cannot participate in the bid anymore but the value in their account can be used against purchases. Also, the value of the product is discounted to the extent the bids are placed by users. Which means, if a product is priced at, say GBP 100, and the auction ends at GBP 32, with a discount of GBP 9, then the user can buy the product for GBP 91 (less the value that is already in the account). Shipping is charged depending on the size and weight of the product. All in all, it is a win-win for the company and the user. The company makes a thin margin on sale of such products while the loss on bid money is usually written off against a publicity fee paid by the brand to feature their products. And on top of it, users also buy the product which is at a discount for them but which fetches a margin for the company. In addition to this, users may also buy “bids” for set values, so as to keep on bidding. At the end of the day, a user will only gain from the tremendous discount that he gets out of the product even after buying bids.

The prose above may not be fully convincing, so do log on to www.quibids.com to explore.

Auctioneer

According to their website,

“QuiBids was started in July 2009 as an attempt to improve the Internet auction model by making it more exciting, safer, and more reliable. We're based out of Oklahoma City, Oklahoma and our goal as a business is simple: To provide an exciting online auction model with better deals for the consumer than any other website in existence."

You can win all sorts of popular products at incredibly low prices. Look at our homepage to see what products are up for auction right now, and if one catches your eye, buy some bids for a low price! When you place a bid, we add a maximum of 10-20 seconds to the timer - to give someone else the chance to bid if they're interested. This is similar to the "Going Once...Twice...SOLD" approach of auctions.

If no one else bids and the timer reaches zero, you’ve won a sweet deal on QuiBids! If you don't win the auction, you never have to go away empty handed. Any time after you've placed your first bid in an auction, you can choose to buy the product for a discount using the Buy Now feature. This will help limit your losses so you don’t have to leave all your bids on the table. You’ll never have to pay more than the Value Price for any products on QuiBids.

I have never come across such an exciting business model which I can comfortably say is an alternate Ecommerce model. There is hardly any publicity that I see for this company or for this form of Ecommerce and yet there are hundreds of dedicated users who are constantly bidding to win their favorite products at rock bottom prices. I guess the typical profile of the customer would be in their 20s and this is almost like a contest for them! Internet penetration is quite important for the success of this model and I presume the success of this model in western countries, which is not so the case in India where most of the internet consumption still happens at workplace with curious onlookers peeping into each others’ desktops and laptops. With Wifi (at home) using the iPad and other tablets and 3G on mobiles such as the iPhones by Apple and Blackberry gaining popularity coupled with the deeper penetration of Android smartphones starting at $ 100 (Rs. 5,500), chances are more young ones in India will appreciate and participate in such promotions in times to come.

Indian Ecommerce players need to reinvent themselves to stay ahead in the game. Afterall, everyone remembers who is the biggest of ‘em all, and not really the one who started. Such is life.

22 March, 2013

Free Wifi will be a crowd puller for Retailers

IMG_0492

I was at the Starbucks (SBUX) outlet in South Mumbai a few days ago. SBUX, in a JV with the Tata Group  opened their first outlet in India in South Mumbai a couple of months ago. We had a long day ahead and decided to start our first meeting at this location for the sheer purpose of convenience. And ofcourse, some good coffee. Not awesome coffee, atleast for me. For which I would go back to Café Coffee Day, India’s largest café chain with over 1,400 outlets across the country which in my opinion still brews the best coffee in town despite lapses in service levels here and there once in a while. I was pleasantly surprised that the SBUX outlet offers complimentary wifi to those who wish to have a sip or grab a bite and spend time around at their cafe. Ofcourse, for me it wasn’t the reason why I chose my meeting venue there. But then, anything complimentary is welcome in this mean world, I say. So there I was, connecting all my three devices – the laptop, the iPadmini and the iPhone on wifi sponsored by Tata Communications (I felt it was a great marketing opportunity for them although they didn’t seem to use it as well as they could). I was online for over half an hour, finished my emails for the morning and was all ready to step out for my next meeting. The staff at SBUX, as friendly as they were, cheered every customer who walked in or walked out with a customary welcome or thank you respectively. Even as I was walking out, I wondered how happy I was as a customer using complimentary wifi at the café. I have a USB Data Card for my laptop, 3G for my iPadmini and iPhone. But then, its sheer convenience and speed to use wifi.

I have been extensively travelling since Aug. 2012, ever since I joined Royal Enfield where I am responsible for Dealer Development and expansion of other key pet projects for the company. I book my hotels myself, mostly on my Make My Trip Mobile App for the iPhone or on their website although the former is quicker and handy. While most of the hotels provide complimentary wifi in their rooms, only a few work seamlessly. It is usually patchy and the front office staff are usually unable to resolve the connectivity issue blaming it either on the service provider or sometimes on my device! (Yes, at a Delhi hotel, the staff claimed my iPadmini was faulty). These days I look for reviews on sites like Trip Advisor while choosing a hotel that provides complimentary wifi. And most reviews are correct and genuine, as I have experienced.

free wifi

That set me thinking, what if other Retailers provide Wifi to their customers. Would it bring additional walk-ins? Would it increase the stickiness? Would shoppers be showrooming – a term used for browsing the store for products and buying them simultaneously online, thereby increasing ECommerce? If so, would it help Retailers like Shoppers Stop and Landmark Book Stores which have a strong offline/online connect? I guess there are no immediate answers. Large Department Stores in the West have a café within their store so bored husbands and boyfriends could have a cup of coffee or a mug of beer while their wives/girlfriends are shopping. These days, my friends who live in the West tell me that Wifi is almost free everywhere around, which prompts them to choose a location for their need – be it a restaurant, a café , a book store or any other format of Retail. In India, unlike in the West internet bandwidth is minimal and the speed is not all that great. Cost wise too, it isn’t worthy for most Retailers to offer it free especially for those shoppers who just pass by and not really spend at their stores. Bangalore International Airport, where I worked many years ago was the first airport in India to offer free wifi for one hour to passengers passing through the airport. And most airports in India follow the trend albeit for a shorter duration. Atleast, large Indian Retailers should try this concept. With increased penetration of smartphones and tablets, there is abundance usage of data these days. Lousy 3G speeds by most Indian mobile networks mean an alternative connectivity which is what wifi is all about. Facebook and Twitter updates by the minute are not uncommon for those who are hooked on to their devices.

It’s just a matter of time that free wifi would become the thing of the day. Even now, I am sitting at another airport lounge while transiting from one city to another. And yes, this article would be published using the free wifi. Stickiness, I would say that I visit the lounge as often as I could, and just because of the complimentary boring food. If only the Lounge was more exciting with various marketing promotions other than the TV which is blaring music and bollywood gossip from one leading Indian channel just because they probably provide free Televisions!

17 March, 2013

EMIs are a way of living for the nextgen

I am not too surprised to see the two main distributors for Apple in India, namely Ingram and Redington jointly releasing full page Ads to promote the iPhone 4S and iPhone 5 in daily newspapers. There has been a huge Marketing blitzkrieg in this regard since Jan. 2013. No wonder, sales of Apple’s latest smartphones have seen a jump of over 100% across various Retailers such as Croma, EZone, etc. Until the launch of iPhone 5, Apple used to bundle their newest smartphones exclusively with mobile operators such as Vodafone, Airtel, Aircel, etc.Which means if a customer is not on one of the networks that has been bundled with, then he cannot buy the phone (one has to buy it with a particular network and then use the number portability option). All these changed with the launch of the iPhone 5 in India. During this time, Apple decided to release their phones to the broad trade channel through its two national authorised distributors mentioned above. Which meant that the iPhone 5 was readily available across major retail stores in the country right from its day of launch. Although there was an initial demand-supply mismatch, this was corrected soon. Apple executed the same flawlessly once again with the launch of its iPad Mini. What was more attractive is that these smartphones are available at attractive EMIs, for as low as Rs. 2,376 per month for 12 months along with a down payment of just Rs. 16,990/- The recent newspaper ads have drawn thousands of footfalls to Retail stores that stock and sell the iPhones. Although Samsung started this trend in 2012 for its Galaxy range of smartphones, the scheme has become more popular thanks to Apple’s initiative.

 iPhone5

Recently, India’s top car maker Tata Motors launched a marketing promotion for its Nano range of cars. The Tata Nano which was launched with much fanfare a few years ago remains to be the cheapest car in the world with its base model touted to cost less than USD 3,000 (Rs. 1.50 lakh). The car didn’t take off well initially due to its stripped-down features but a prolonged grim economy forced fence-sitters to downgrade their purchases and this car seemed to fit the bill as far as a comfortable city drive was concerned. However, sales had come down still more over the past months. From 9,000 – 10,000 units a month in its hay days, sales have been hovering at about 2,000 units a month of late. So, the company decided to launch an EMI Scheme which is hassle free. At a equated monthly installment of Rs. 8,333 per lakh, a prospective customer can swipe his credit card from various banks such as ICICI, HSBC, Axis, Standard Chartered and Kotak Mahindra to avail this offer across dealerships. Add another Rs. 6,500 for fuel every month. Effectively for Rs. 15,000/- one can own and drive around comfortably with a family of four in the city in a small car such as the Nano. The initial market feedback seems to be good although one needs to wait and watch how things go along in the medium term. This is one of the most innovative promotions that the Indian Automobile industry has seen in recent times.

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The younger generation which lives on what they earn today rather than save boatloads for future is spending happily on such promotions. I have personally observed so many of them earning less than Rs. 6-8 lakhs pa carrying such smartphones and showing off their ability to own them to those around. After all, their cost of acquisition is as low as Rs. 3,000 per month. They are probably cutting down their spends on other discretionary spends such as travel, food, cinema etc and rather investing on a wonderful smartphone for themselves. For a large middle class that thrives on day-today commute on their two-wheelers (the size of the Indian two-wheeler market is over a million vehicles a year), it is always a dream to travel in a four-wheeled vehicle, atleast on holidays and weekends when the entire family is outing. And such promotions actually help satisfy their needs. What needs to be seen is how long these promotions could sustain. For example, the typical target customer who would buy a Nano is one who is in the lower middle class and with the car being his first four-wheeler. But would he have a credit card to buy the car? If yes, would he have a credit balance of a few lakhs in his account, given that the entire money would get blocked if he had to swipe his card for purchasing a car and may not be left with any credit for other regular expenses such as monthly grocery, fuel, dining, etc.

Whichever way, the next-gen is hapy to live on EMIs. And Retailers should be happy!

06 March, 2013

Consumer Spend – a loot at Airports

Recently, the Chief Minister of Tamil Nadu launched a populist move in Chennai to commemorate her birthday – a Government funded canteen that serves one idly (rice patty) for Re 1 (1 USD is Rs. 53 approx.) Yes, you read that right, One Rupee for a Idly. The move is aimed to cater to the needs of those under the poverty line and the poor, the working class such as drivers of autos, taxis, trucks and so on. This was a way Amma (mother) as she is fondly known as, appeased the vote bank. It is not sure how much this scheme is going to cause to the State. Ofcourse, these so called welfare measures are out of the state’s coffers – tax payers money. It so happened that the very next day since this scheme was launched, I was travelling through the Chennai Airport which is managed by Airports Authority of India, a government body which also operates the Airport in Kolkata. These two airports faced stiff opposition by the unions when the Ministry of Aviation privatized the other major airports in India in 2005 located at Delhi, Mumbai, Bangalore and Hyderabad. These six airports contribute to over 70% or more of the total air travellers in the country which is estimated at 110 million pax per year. While the Kolkata Airport has been recently renovated at a cost of Rs. 3,000 Crores, the Chennai Airport has been renovated for aorund the same cost and was inaugurated recently although the terminal buildings havent been opened up to the public due to lack of passenger amenities, a move that the Commercial Department of AAI conveniently seemed to have forgotten while planning the terminal building.

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I was taking an early morning flight, a long one that too to Ahmedabad via Mumbai, an arduous 5 hour journey. And I was flying Spicejet, India’s most preferred low-cost airline which doesn’t offer complimentary meals on board, rather “sells” Cashews and Sandwiches at exorbitant prices. So I chose to have a quick breakfast before the Security Check for which I had quite some time. I walked up to the nearest F&B Kiosk which was serving hot food items. I ordered a plate of idly consisting two pieces and a Vada. The damage was Rs. 100/-. Yes, you read that right. Most passengers like me had no option but to pay such steep prices at airports to quench their hunger and thirst. What was more surprising is that the staff do not issue bills for every item sold on their own. Rather, the consumer needs to insist one of they really need one. I demanded one. And bingo, the staff tore a piece of paper from the manual bill book which had pre-written “Breakfast” in many of the bills. A closer look and the TIN numbers which are mandatory were indeed printed. But VAT or Value Added Tax and other charges such as Service Charge, Service Tax, etc. were not explicitly mentioned in the bill. I couldn’t blame the staff because they were just doing their job. I quietly paid the bill and proceeded to the aircraft. Afterall, this is not an isolated case at Chennai Airport. Almost all airports managed by AAI have the same issues more or less.

So, why are airport food products so expensive? To begin with, it’s the way the places are leased out by AAI. They follow an age-old practice of an out-dated tender system wherein those who qualify should propose a base price for the said location. H1, which is the highest quote gets selected. The tender period is usually for 3-5 years and doesn’t specify the architectural look and feel of the outlet. And most often, there is no seating option that is provided. This is completely contrasted by the approach taken by private Airport operators such as GVK and GMR Groups which manage Mumbai & Bangalore and Delhi & Hyderabad Airports respectively. The chosen partners need to submit and discuss schematic drawings and layouts with the airports and thereafter finalized. The design is not just contemporary but also functional and convenient. During my tenure at Bangalore Airport (BIAL) in 2006, we launched a global tender for Retail and F&B which attracted top players in the world to compete on a level playing field. The selection process was touted as one of the most transparent and efficient processes by international media which tracks Travel Retail.

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AAI’s outdated tender system is the mother of all troubles. Coupled with it is its terrible space planning with outlets spread haywire here and there. Add to it, unqualified commercial guys who have no clue of global best practices and arbitrarily follow the H1 route to choose partners. It is quite obvious that they quote higher fees in the tender and therefore over charge customers. Branded players like Café Coffee Day, Subway, Pizza Hut, McDonalds, etc who also operate at airports follow a corporate pricing policy and provide bills with all statutory requirements. Due to high entry costs and related operating costs such as complimentary snacks and beverages to airport staff, most organized players do not even venture into this arena.

A popular Indian Aviation Entrepreneur who successfully started and shut a low-cost airline often used to quip that there is a private mafia now in the form of private airport operators. But then, the government operated airports are no better.

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