On 11th Feb 2005, FMCG major Hindustan Level Ltd, reported its fourth quarter and full year

profits. The net profit

for the fourth quarter fell to Rs 333.67 crore (Rs 3.33 billion) from Rs 494.72 crore (Rs 4.94 billion) last year. The net profit for the full year fell to Rs 1,197.36 crore (Rs 11.97 billion) from Rs1771.79 (Rs 17.71 billion) last year. The management has attributed the fall in profit to initiatives taken by the company to counter competitive moves in laundry and hair care segments, supply chain restructuring in the foods division and increased advertising and promotional spend. This the management felt drove down profitability. In this article I will try and look at the reasons for the drop in the financial performance of HLL [ Get Quote ] in the last few years. The Price Game Sometime in the middle of March last year, Procter and Gamble decided to abandon its premium positioning strategy through which it extracted a price premium for what it thought was a superior product. P&G decided to cut prices of Ariel and Tide, its detergent brands.Within two days, HLL followed suit and cut prices for Surf Excel. This sudden cut in prices shocked the industry. P&G's decision to cut prices and HLL's decision to follow it, hit HLL's profit margins. HLL's strategy over the years has constantly been to jack up margins. The management graduates who run the company probably forgot a basic lesson in economics. When a company makes 'abnormal profits', new competitors enter the arena and drive away margins. Over the last few years, sales of HLL have stagnated and the company has been maintaining its margins through cost cuts. Cost cuts can be taken only till a certain level, beyond, which the quality of the product starts to suffer. HLL may already have reached that level. Several lower priced brands have started attacking HLL on the price front. The first among them was of course Nirma. Kanpur Trading Corporation's Ghadi detergent is the biggest brand in UP and adjoining markets. Ghadi is one of the fastest growing brands in the detergent sector. Cavin Care in south India [ Images ] is also giving HLL a run for its money. AMUL has forced HLL to limit its presence to the bigger cities in the ice cream market. (Amul ice cream on the other hand is sold in more than 1000 towns and cities across India). A big reason for the success of these brands has been their ability to build their presence through the regional television channels in a cost effective way. A decade and a half back these brands could not think of advertising on television. Counterfeiting

Another major problem facing FMCG companies in India is counterfeiting. Counterfeiting of branded goods is nothing new to India, (Lifebuoy has more than hundred fakes in the market) but in the recent years it has achieved huge proportions. An AC Nielsen study a few years back put losses to the FMCG industry because of counterfeiting at Rs.1700 crore, per annum. Over the last few years this figure would have definitely gone up. Other than pulling down the profits of the FMCG companies, a counterfeit product of lesser quality gives a "bad name" to the brand. But the question to be asked here is, " How can a counterfeit product reach kirana stores until someone has managed to infiltrate the distribution chain itself ". And that's precisely how it works. The wholesalers are the people who manufacture the counterfeits and sell it to the retailers. For retailers it's the higher margin on the counterfeit that does the trick. The company is to be blamed to a certain extent if somebody has been able to infiltrate its distribution channel. The Federation of Indian Chambers of Commerce and Industry has set up the Brand Protection Committee a few years back to tackle this problem. Power Brands In mid-2000 after M.S. Banga took over the reins at HLL, the company decided that it would focus on 30 odd 'Power Brands' and carefully plan its entry into new businesses. Intuitively this made sense, instead of spreading your resources all over the place concentrate on a few brands. But what it meant was that power brands had to grow at higher rates to compensate for the loss of sales from other brands. Unfortunately, the other brands have shrunk faster vis--vis the rate at which the power brands have grown. This has hit the top line of the company. The company's Vanasapti brand, Dalda, is a case in point. HLL felt that the brand had no potential in a scenario where consumers were getting "health conscious". The company that bought it, the $22 billion, US based, Bunge Ltd, obviously saw some potential in it. The 'power brand' strategy prompted HLL to withdraw from a large number of small markets. This has given an opportunity to many small players in the market. Once these new companies establish themselves in these smaller markets, using this as a base, they may want to move into the big league. Innovation is the key If stock markets are a barometer for the future of a company, HLL is definitely in a spot. The stock price of the company has fallen from Rs 250 in May 2000 (when Banga took over as the chairman of the company) to Rs 155.45 on 11th February 2005, the day the fourth quarter and annual results were announced.

So what is the way out? Most of the products manufactured by FMCG companies do not have high usage as compared to international standards. So the focus should be on increasing the usage of FMCG products. The reasons for this less usage, as per management guru, C.K.Prahlad are, "People at times do not know the importance of using a product more frequently, at times they do not have the requisite infrastructure for usage like availability of water and at times its just sheer cost. So a combination of education, access and affordability should be used for increasing usage". Another profit opportunity identified by HLL is outsourcing. On 20th June 2002, at the Annual General Meeting of its shareholders, Banga said, " HLL's vision is to build a billion dollar outsourcing business out of India". This can prove to be a stable earnings opportunity with extremely low marketing and inventory costs. HLL for sometime now has not launched any successful new product. A country like India presents it with huge opportunities. As Prahlad points out, " Everybody in the FMCG business has to deal with the availability of water. It is also a tremendously scarce commodity. What if I create a soap or detergent which will need only one fifth of water used of the water that is currently required." With overcapacity being the bane of most industries today, its customers who are scarce and most of the goods and services cannot be differentiated. HLL needs to innovate to tackle these problems and create profit opportunities for itself. The author is Research Scholar, ICFAI University.

Lost Opportunity: How Apple got its strategy wrong

It wasnt just the pricing that did iPhone in. Apple got everything--starting with marketing communication to the sales and distribution model--wrong IPhones launch in India has been dubbed the biggest failure of a top-notch brand from a well regarded company in recent times. Two months after the dust over the launch and the subsequent wave of disappointment has settled, its time to take an objective look at what actually went wrong with iPhone in India, given that it has been a runaway success in most other markets it was launched in. Unlike the initial argument that it was the steep price tag that queered the pitch for iPhonein India,there is more to the debacle than just the pricing.Besides a very high price tag, one main reason behind iPhones failure in India is that there was a very weak link as far as consumer confidence was concerned. Apples rivals in India, industry observers and analysts say that a flawed sales and distribution model and communication failure were the biggest reasons behind iPhones debacle.The company failed to strike a connect with Indian consumers. India not a priority market? Selling huge numbers in India was not even Apples game plan, it seems. Around the time of its launch, the company had said it hoped to sell 10 million units Not good enough: While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels,Vodafone used the envelopes of the mobile phone bills sent to its customers to apprise them of iPhones launch in India.Globally by December, whereas in India, it would ship 100,000 phones by December 2009. Clearly, Apple wasnt expecting big sales from the market. Yet, what is surprising is that the company didnt even manage to achieve this target. Apple had imported around 50,000 phones at the time of the launch but had only managed to sell around 11,000 units so far. Analysts argue that by downplaying India, the worlds second largest and fastest growing telecom and handsets market, Apple may have missed not only a big opportunity to sell one of its blockbuster brands but also to lay the ground for its future products. Around 120 million handsets are sold in India every year and, of these, almost 4% to 5% are smartphones. Nokia has around 60-70% share of this market. Clearly, Apple had a big opportunity to establish itself in this market and, if not break market leader Nokia Indias monopoly, then at least give it a tough fight. Its an opportunity that is now being assiduously chased by rivals such as Samsung Electronics Co. Ltd and Research in Motion Ltd, or RIM, the makers of BlackBerry. Its not about price IPhones comedown in India has been described as a pricing failure by most. But on the face of it, it doesnt seem logical. Priced at Rs34,999, Nokia N96 costs around Rs4,000 more than iPhones 8GB handset and Rs1,000 less than its 16GB model. IPhones other rivals, such as Samsungs Omnia and BlackBerry Bold, are priced even more steeply . More than the price, it was the pricingcommunication that hurt iPhone in India. Apple CEO Steve Jobs had made a public announcement that iPhone would be priced at

$199 globally (about Rs9,490).This built a false hope in the minds of those consumers who wanted to buy it and turned away those who could have actually bought it.
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IPhone is being sold at $199 in the US and at similar rates in several other markets, yetApple couldnt have offered Indian consumers the same price because the market dynamics here are very different. The US is predominantly a post-paid market where consumers buy the handsets from service providers under different deals. Carriers such as AT&T Inc. can afford to sell the phone at $199 because they can recover the real cost by raising call charges or through some other options. And Apple doesnt get hit in the process because carriers give it the actual price. This, however, is not possible in India because it is mainly a pre-paid market. Here, most consumers change their handsets, and even service providers, quite frequently in favour of cheaper options. Also, handsets have never been traditionally sold by service providers. Apple had to tag the product with its real price because its licence holders in India, Bharti Airtel Ltd and Vodafone Essar Ltd, couldnt have subsidized the price. The reason why the price of an iPhoneseems so high (in India) is because it is not sold on a contract. This selling process has not yet caught on here. The two service providers, however, are providing finance options for as low as Rs2,600 a month to make it easier for those who want the product. But this hasnt helped much. Some market observers argue that Apples distribution and sales strategy in India was flawed from the word go. To begin with, the company licensed the iPhone to two service providers (Airtel and Vodafone) who didnt have any experience in the retail selling of handsets, which is a complex business in India involving different strategies for different income groups. Second, these service providers decided to sell the handset only at their outlets, thereby limiting its availability. Also, they antagonized the big organized retailers in the process (the Top 10 organized retailers are estimated to have a 50% share in total sales). Third, selling not being their core area of expertise, these companies couldnt pitch it to the potential consumers aggressively. The service providers strategy to sell it with a lock-in clause may not have gone down well with consumers. This meant iPhone buyers cannot retain their handset should they wish to switch operators despite having paid the cost of the handset upfront. This condition was a big dampener, especially because from next year, Indian consumers will have the freedom to change service providers without having to change their number or handset. The other most evident flaw was its inability to strike a connect with consumers. Unlike in the US, where a month-long marketing and advertising blitz preceded the debut of the iPhone, Appledidnt run any of its own campaigns in India. All

the marketing communication was left to the two licence holders. What consumers saw was a round of print advertisements on the launch date that announced the arrival of iPhone and a few billboards in key cities. While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels, Vodafone used the envelopes of the mobile phone bills sent to customers to tell them about iPhones entry into India. Even if youre selling a niche product, the communication needs to be there on whats on offer and to get (make) people curious. Otherwise buyers wont be enthused. People who buy high-end products buy them either for their technological advantage or to enhance their status. So, marketers promoting a high-end product must bring out the technology and exclusivity factors in a vibrant manner. Ambiguous positioning Some advertisers say iPhones positioning in the market was ambiguous. IPhone was positioned as a lifestyle product but in India, the company or its licence holders did nothing to make it seem aspirational. On the contrary, Nokia did a smart thing by positioning N96 as a convergence product. It immediately struck a connect with its target consumer for the communication was focused on its attributes. Airtel spent only around Rs3-4 crore on iPhones advertising. On average, they spend around Rs14-15 crore on their new launches. The licence holders, however, argue that they were discreet in advertising for strategic reasons. Apples strategy was not to sell a million phones in India. It only wanted to establish a presence in the country. Customers who were interested in buying iPhone were already aware about iPhones launch in India. To be sure, some of iPhones rivals also went for a low-key entry into the market at the time of their launch but now, with the market heating up, they are pulling up their socks. Its own failure notwithstanding, iPhone managed to stir the smartphone market in India quite successfully. To pre-empt its success, Nokia launched its N96 series, Samsung came out with its own version of the iPhone, and RIM is set to launch its BlackBerry Storm model soon. Google Inc. has also come out with its Android mobile phone software that can help Apples competitors better many of the iPhone features. Apple refused to share its future strategy for India. Analysts, however, say the company will have to plug many gaps in its distribution and marketing and most importantly, open a direct communication channel with consumers, if it wants a meaningful presence in India.