RESEARCH PROJECT

WHAT CAN INDIAN COMPANIES LEARN FROM BIG BAZAAR

Submitted By Praveen Dhawan India

SYNOPSIS:
Indian retail sector is witnessing one of the most hectic marketing activities of all times. The companies are fighting for mind share and heart share which can finally be converted to market share. There is always a first mover advantage in an upcoming sector. In India, that advantage goes to Big Bazaar. It has brought about many changes in the buying habits of people. It has created formats which provide all items under one roof at low rates, or so it claims. In this project, we will study its marketing strategies and customer response. Big Bazaars main competitors are other business houses which are planning to enter the market as well as long established Kirana stores which feel threatened by huge retail chains. Kirana stores are indispensible part of everyday life which provide major necessities just around the corner of the street. So we will study the customer preferences as well as their buying patterns. The conclusion would include recommendations of best marketing practices which should be followed by new entrants in the Indian retail sector.

RESEARCH OBJECTIVE:
Big Bazaar has been the pioneer of retail revolution. Its first fight was against local Kirana stores. The task was to change the mindset of consumer to bring about changes in their shopping patterns. It wanted people to do bulk shopping for their monthly ration instead of going to the shop each week. The research objective is to Compare the position of Big Bazaar vis-a-vis kirana shops with respect to o Porters 5 Forces Model o 4Ps of Marketing Comparison of their profitability with respect to revenues earned and profits made out of it Recommendations for a new entrant in the retail space, using the findings of the survey and comparisons done above.

Indian Institute of Foreign Trade, Kolkata

RESEARCH TECHNIQUE:
Data was collected using two approaches: 1. Observational research Observations were made in the Big Bazaar store regarding the customer groups present there, retail formats adopted by the store, various verticals inside the store for each category of product, ambience, services provided to buyers and discount techniques 2. Survey research Questionnaire was prepared for the customers at Big Bazaar which included several open-ended and close-ended questions aimed at knowing the following: Why Big Bazaar Loyalty level Effect of 4Ps of marketing Short questionnaire was prepared for Kirana store owners to obtain some facts like revenue, area of shop and their response to marketing mix.

BIG BAZAAR
FOR THE GREAT INDIAN MIDDLE CLASS
It is a unit of Pantaloon Retail (India) Ltd and caters to the Great Indian Middle Class. It was started as a hypermarket format in Mumbai with approx. 50,000 sqft of space. Its values and missions are to be the best in Value Retailing by providing the cheapest prices and hence goes the tagline Is se sasta aur achcha kahin nahin It sells variety of merchandise at affordable rates, the prices of which it claims are lowest in the city but the level of services offered is also very low. Usually the items are clubbed together for offers as on the lines of Wal-mart and Carrefour and it also offers weekend discounts. It currently operates out of 64 stores and top 15 stores register a cumulative footfall of 27 lakh a month on an average.
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The following graph shows the retail life cycle and we can say that Big Bazaar is currently at the Growth Stage.

Cash flow Flows

Maturity

Growth

Decline

Introduction

Time

OBSERVATION:
There were various observations made from the time I entered the store. They can be summed up as follows: Verticals inside the store relates to each category of product o Food Bazaar o Depot- books o M-bazaar o Electronic Bazaar o Furniture Bazaar o Footwear Bazaar Trolleys are not easily available, especially on other than ground floor. Little attention to cleanliness. Dust on shelves as well as some product items. In-house packaging not efficiently done. Crowded store interiors. Items are arranged in a cluttered way. Tried to stock maximum number in limited area. Sign boards are not prominent. Lack of direction creates confusion.
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Family crowd is evident. Youth comprises of only around 10% of the crowd. Food Bazaar very efficiently managed. It is a bit over-staffed but layout is very good. Shelf space is used very well to stock products with clear distinction.

POSITIONING STRATEGY

BIG BAZAAR vs. KIRANA STORES

Both the retail formats can be studied on the basis of the marketing techniques that are used to attract customers. But first we will compare their standing in the industry using Porters 5 Forces model.

Indian Institute of Foreign Trade, Kolkata

BIG BAZAAR AND 5 FORCES:

RIVAL INTENSITY THREAT OF THREAT OF ENTRANTS SUBSTITUTES POWER OF BUYERS HIGH POWER OF SUPPLIERS

HIGH

HIGH

LOW

LOW

We can get an idea about how competitive this retail sector is, by looking at the degree of 5 forces. Threat of substitute is minimal and supplier bargaining power is also less, but the rest of the forces are deciding factor in the companys marketing strategy. They being high, means degree of competitiveness is also high. Big Bazaar is involved in bulk purchases so bargaining power of suppliers is low. The retail chain will not accept very low margins.

KIRANA SHOPS AND 5 FORCES:

RIVAL INTENSITY THREAT OF THREAT OF ENTRANTS SUBSTITUTES
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POWER OF BUYERS

POWER OF SUPPLIERS

HIGH

HIGH

HIGH

HIGH

HIGH

The intensity of each and every force of Porters model is high. This means that the shop owner is struggling with very less control over his own operations and his strategies are affected by external factors. Again the competitiveness in this market is very high and market share for each shop is low due to high number of stores. This gives more bargaining power to both buyers and suppliers. It is a very easy market to enter, therefore threats of entrants is high too.

4Ps OF MARKETING
Marketing mix is a deciding factor in formulating marketing techniques for the success of a particular brand, commodity or company. The components of marketing mix are: Product Price Promotion Place The survey which was conducted gives the effect of each and every component of the 4Ps on the consumers mind. These components have a huge bearing on the retail battle between Big Bazaar and Kirana stores.

PRODUCT:
Big Bazaar Big Bazaar offers the maximum variety for each category of product and this is cited by the customers as one of the main reasons why they like shopping at the hypermarket. The product is the same in every store in the city but the brand options are more in Big Bazaar. Also, the quantity for each product is not limited to large packs only. Observations also revealed that local brands of popular commodities, like diapers, sugar, wheat flour garments etc, are very popular in Big Bazaar stores. These products are never advertised but offer huge margin on sales. In this way lower middle class customers are targeted well. The commodities sold by the retail chain also Indian Institute of Foreign Trade, Kolkata 7

includes its own products which get a ready distribution network. The own products of Big Bazaar include My World fashion magazine which is not available anywhere else. So costs are low for such products. Kirana stores Products at kirana stores are limited. Actually they have very less shelf space. The store owner does not have many options regarding the range of products that can be sold because area of the shop is also not very large. There is not much variety in each product i.e. the brand choice available to customers is low. Kirana stores usually avoid keeping expensive products which cost more than Rs. 200 and they limit themselves to cheaper and daily use items. Conclusion: Big Bazaar scores high on the product part of marketing mix. Customer has more choices of brand in Big Bazaar rather than kirana store. Customers like touching the product and selecting it themselves before buying. The customers trust retail chains with quality of the product. They feel food products of Big Bazaar will have no adulteration. This quality is not assured in a kirana store. Cheap and local brands are heavily stocked in Big Bazaar which make it easier to attract lower-middle class category of customers.

PRICE:
Big Bazaar Price is the critical point in a competitive industry. Big Bazaar works on a low cost model. It considers its discounted price as its USP. There is an average discount of 7-8% on all items in respect to their MRP. Prices of products are low because it is able to secure stock directly from the manufacturer. There are huge synergies in terms of bulk purchasing, central warehousing and transportation. These all factors help the retailer to keep low prices. Survey indicated that low prices were the biggest factor in customers mind while coming to Big Bazaar. It has never focused on giving great services, but laid emphasis only on low prices to attract crowd. Kirana stores Price is a very biased issue in a kirana store. Interview with some store owners revealed that general policy regarding prices in a store is to give Indian Institute of Foreign Trade, Kolkata 8

ready discount to its regular customers but to charge the MRP from new customers. Departmental stores generally work on tight margins of 6-7%. Change in prices is directly passed on to the customers. Conclusion: Almost everything has some kind of discount in Big Bazaar. It clubs small quantities to make bigger packs and then lower prices which kirana stores are unable to do. It considers price to be the biggest attraction for all customers. Consumers accept the fact that they come from faraway places because it is cheap in Big Bazaar for bulk shopping. It is not possible for kirana stores to give hefty discounts on all items. Customers feel same price for all customers as a plus point of Big Bazaar as compared to differential price policy of kirana stores. Some customers feel cash discount is fine but bulk offer deals are of no use because you end up getting more than you want which is a waste.

PROMOTION:
Big Bazaar Big Bazaar has huge promotion budgets. The biggest idea behind all advertisements is to make people do bulk shopping. After talking to the store manager I found out that there are 2 types of promotional strategies. One is the holistic advertisement which promotes the brand and creates awareness among people. It is not targeted at promoting each store but only creates an image of Big Bazaar as low-cost shopping option. The store has advertised through TV, road shows and also started reality show-typed promotional campaign The Big Bazaar Challenge. Promotions like Sabse Sasta Din are a very successful strategy to get footfall. Other type of promotion is the particular store oriented promotion which includes speaking on the loudspeaker in nearby blocks. Leaflets are given in local newspaper. There are promotional efforts even inside the store. During the survey, it was noticed that Buy 2 Get 1 Free type of promotions are very common. Original prices are cut down and new prices are shown, of which customer takes quick notice. There are loyalty schemes which reward regular clients. Promotion is also done through co-branded credit cards with ICICI bank. Kirana Stores

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Kirana stores are involved in almost negligible promotion activity. They rely mainly on advertisement from the manufacturer of goods to pull in customers. They promote certain brands by putting names on shelves etc but they do not advertise themselves as preferred store for local people. One reason can be they work on tight budgets which have no scope for advertisements. Leaflet promotion maybe done once while inaugurating new store, but not during the course of existence. Conclusion: Retail chain Big Bazaar cannot survive without promotions on national or regional level. A big ad budget helps it to get large scale of operations. Customers accept the fact that advertisement campaign of Big Bazaar did influence them in their buying behavior. Its Buy 2 Get 1 Free strategy influences the customer mindset a lot once they enter the store. Customers feel loyalty card schemes make them come again and again to the store. Promotion of kirana store is a rare event.

PLACE:
Big Bazaar Place means the location of the business. Big Bazaar has always worked on low-cost locations. It targets semi-urban population with its placement. Its strategy is to find a cheap location and it never goes for hot spots in the city. The talk with the manager revealed that the Teghoria store was opened when it was scarcely populated. Even in Gurgaon, Big Bazaar chose Sahara Mall instead of Metropolitan or City Centre, which are more popular than Sahara Mall. It relied on promotional activities to make up for unattractive locations. The channel of place is company owned stores to have complete control. Another strategy used by Big Bazaar to overcome location disadvantage is use of internet. It has launched a merchandise retailing website www.futurebazaar.com which targets high-end customers ready to use credit cards. Therefore Big Bazaar has made headway into a potentially high-yielding sector of online trade. Internet as place has put them in a profitable position because there is minimal expense of maintaining a website. The promotion of this website is done through advertisement on Google. The website is put as sponsored link. Kirana Stores
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Kirana stores are always placed in crowded market area which is located in each block and sector. On talking to the owners, it was found that some stores were inherited by them from their father, so they had no choice of location. Otherwise it is common practice to find busy street corners to get maximum customers. Location is important because buying decision is on impetus during day-to-day life. So the customer goes on for the nearest store. The store owners are ready to pay more rent for better locations because their promotion activity is negligible. Conclusion: Location is something which is permanent. So cautious decisions are taken while selecting place. Big Bazaar refrains from high-end locations for its business. Some customers travel from far places to the store. So place factor has less influence on them. Semi-urban customers still prefer kirana shops, so location of retail chain should be near to them because they will not travel too far. Kirana shops make sure availability of goods nearest to the residential area.

PROFITABILITY
Profit is the basic motive behind the running of any business. Both retail formats have their own budgets, future projections and financial limitations. Profitability measures the efficiency of operations. It also helps us decide the better option amongst the two. Big Bazaar and local departmental stores work on different scales of operation. The deciding factor here is investment capability. Big Bazaar This retail chain is present in all major cities of the country. And this means there is huge requirement of capital. The stores generally occupy 30,000 square feet of space on an average. In the wake of rising real estate prices, place component of marketing mix becomes an increasingly important factor in deciding future strategies. The store included in the survey revealed that they have average sales of 8 lacs per day. But they do not disclose their profits for particular store. Big Bazaar is a brand under Pantaloon Retail (India) Ltd. The net worth of the company is Rs 526.88 crores. This includes all the investments made by the promoters and subsequent reserves created
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during the life of the business. The profit after tax in financial year 2005-06 was 64 crores on revenues of 1871 crores. This means a net profit ratio of 3.42%. this is very low for a national retail chain but it highlights the fact that the sector has a huge potential and will generate more profits once the government policies are in favor of opening up the sector further. Low profit can be attributed to High cost of research required to study each and every region of the country The large number of staff needed to manage all the stores Burgeoning real estate prices which leads to high rentals Huge promotional activities undertaken to ensure enough footfall

Kirana Stores Kirana stores have only one source of income i.e. margins available on selling FMCG products. The store owners revealed that in earlier days, they used to enjoy margins of well over 11% on products from HUL, P&G and Marico. But now the margins have slipped to around 7%. Another thing to be noticed is that credit period given by distributors has also come down significantly, though the shop owners refused to give details on that. Average daily sales of a Salt Lake kirana shop covering 180 square feet in busy AE block market stands at Rs 6000-7000. Profits made each month are confidential information which none of the owners wanted to give. But considering the margins and overhead expenses, they might be making a daily profit of Rs 350.

A NEW BEGINNING
The survey has revealed major distinctions between Big Bazaar and local kirana stores. A new entrant would like to adopt the best of both formats to sustain in this competitive environment. We will study the best practices to be followed by an individual who wants enter the sector. An individual, when starting afresh, will not be able to gather enough resources to start a whole new retail chain. Therefore we would study the desired marketing mix of a departmental store to be opened in a market area of Salt Lake City. The major aim will be to give the Big Bazaar experience in a relatively small departmental store. The finances can be arranged through family money which will be invested in the business and subsequent loans from banking institutions.

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RECOMMENDATIONS:
PLACE The new store should have a central location in the market because customers will not prefer one store over the other. They would simply go the most accessible one. Proximity of location to places like coaching institutes, offices etc would be an added advantage. The store should be spread over an area of at least 900 square feet. The store should be such where customers can roam around and feel the products for themselves. Survey revealed that many customers consider shopping as time pass, hence they take their time in selecting items. So there should be enough walking space in between product racks. Over the counter purchase is not desired anymore. The place should be well lit and air conditioned. All the products in all sizes should be on display.

PRODUCT Product variety is a big factor in determining customer response. The owner should not limit itself to brands of few companies only. The range of items available should suit the local requirements. There should be a balance between branded goods and local products. The shelf space should be efficiently utilized to give maximum exposure of the product to the public. The store should include beauty products in its display because women are chief buyers in departmental stores. The products should be clearly categorized as high-end or low-end. The customers should be assured of quality of non-branded items like loose packs of wheat flour, pulses etc. Diversification of product type is recommended. It should stock perishable food items, instant eatables, FMCG goods like toiletries. PRICE Price of goods depends on the success of the store over a period of time. Margins are very tight. It is not possible for the owner to match the prices and discount schemes of retail chains. The store should start off with inaugural discounts to get attention. These discounts should be slowly discarded. The owner should recognize high potential customers and give some relief off the MRP mentioned to gain loyalty. This will help the store in long term. One way to offer better prices is by having local products like biscuits etc which are of assured quality. This satisfies the demands of lowend customers and local products also give better margins. The store needs to make sure that no other kirana shop is offering considerable discount compared to its own prices. PROMOTION
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A departmental store which operates in a particular locality does not need full fledged promotional campaigns. But for a start up, the store should distribute leaflets in local newspapers to create awareness among residents. The leaflet should include special features of stores with maximum emphasis on inaugural discounts on items. This should help it create a favorable word of mouth scenario. Another way is to talk to general public and ask for their suggestions on improving the layout. In this way, people will feel happy about going to the shop and shopping. The store should use in-store advertising to make best use of large floor space by putting up discount boards inside the store above a particular product as well as just outside the shop. In this way, we can make use of the marketing mix for a new venture which belongs to the unorganized retail sector. Application of the best marketing practices of organized retail stores combined with benefits of accessibility of local kirana shops helps to ensure success.

Indian Institute of Foreign Trade, Kolkata

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