Wednesday, July 15, 2009
K. Shriram | IIM Bangalore
The analysis is based upon the value chain mentioned below:-
Choose the value
- Product development
- Service development
- Sales force
- Sales Promotion
Choose the value
The target segment for Asian Paints has changed over a period of time in response to the changing demographics and strategies of its competitors. When it entered the market in the 1940s the space was dominated by multinational companies like Jenson & Nicholson. The foreign companies appointed a few traders as their wholesale distributors and allowed them to perpetuate a situation of monopoly. These distributors had neither the compulsion nor the motivation to invest in distribution infrastructure and expand into semi-urban and rural areas. As a result, paint dealers concentrated on big cities where they could make the sales without much investment in distribution infrastructure and market development. Seeing that this bulk buyer segment although huge at that point of time was stagnating, Asian Paints decided to ignore this segment for the present and go to individual consumers. Asian Paints positioned itself to serve the rural markets with small pack sizes, allowing it to reach the remote parts of the country.
After successfully capturing the rural markets, Asian paints successfully expanded to target the mid-tier and premium segment over the course of the next few decades. The strategy of creating sub-brands with a distinct promise for each segment allowed it cover the entire market. So while the Utsav and Tractor Acrylic in the economy segment offered protection and adhesion, the Royale Play offered superior finish, color range and special effect finish.
Provide the value
Asian Paints has been at the forefront of innovation, reaching the markets with new products before its competitors. At the time of Asian Paint’s entry, paint companies were supplying paints in containers of 500 ml or larger. Asian Paints saw that there was a felt need in the market for paints in smaller packs and harnessed the business opportunity by supplying paints in small packs sizes of 200 ml, 100 ml and 50 ml. This proliferation in pack sizes contributed immensely to its success in rural markets.
In the early 90s, Asian Paints was the first to offer 150 shades to consumers, this soon expanded to over 1500 shades in the mid 90s. This was made possible through a tinting mechanism that allowed it to offer innumerable shades to the customer with only a limited set of bases and colorants that were manufactured and transported throughout the supply chain. Being in the business of ‘colors’, Asian Paints utilized color to achieve differentiation.
Asian Paints also innovated to offer services such as “HOME SOLUTIONS” that offer painting services in select cities. It carries out intensive research with interior designers, architects and the fashion community to arrive at trend movements in color. This study has gone a long way in helping various industries decide their color combinations for a range of products ranging from furnishings, floorings to home accessories, while also ensuring that Asian Paints is in-tune with the latest trends.
Along with product launches, Asian Paints focused on distribution, as it realized that distribution and service were the keys to success in the paints industry. Right from the start, apart from the urban markets, it also focused on small towns with population of up to 10,000, and on rural markets. Unlike other companies, field officers dealt directly with the dealers in small towns. With 22,000 dealers, Asian Paints has the largest network of distributors among the paint companies. It has a service level of more than 85 per cent whereas that of other large paint companies falls between 50 and 60 per cent. Asian Paints has been able to keep costs low while maintaining the high service levels through a strong commitment to manage inventory and dealer credit.
Communicate the Value
Asian Paints has managed to garner a huge mindshare of the consumer in an industry that has been traditionally commoditized. It has done this by remaining consistent to its core purpose of continuously rejuvenating the living and working space of people and bringing joy to their lives, even while the message might have evolved over a period of time.
The communication from Asian Paints centered on festivity and joy till the early 90s. This was born from the observation that demand for paints was highly seasonal and peaked around Diwali. However, by the mid 90s, the consumers had changed with festivals losing importance in the overall scheme of things and demand for paint itself becoming less seasonal.
In the year 1999, Asian Paints revamped the brand when it was found that it currently lacked some of the values like contemporariness and global outlook. The old mascot ‘Gattu’ was discarded to adopt a more contemporary brand personality. A revamp was undertaken in the entire packaging and visual identity of the brand to be attractive to the growing middle-class in urban markets.
Asian Paints has always been more successful in striking a chord with the consumer and clearly conveying the functional and self-expressive benefits. It consistently remained a step ahead of the competition in its communication, such as the ‘Mera waala cream..’ campaign to covey the wide color range , and while its competitors were busy talking about the color range, Asian Paints saw the increasing involvement in home making to come up with the ‘Har ghar yeh kehta hai….’ campaign.
With its superior performance in all aspects of the value delivery process, it is not difficult to see why it has been a success. More important however is the lesson in the success of Asian Paints for all companies to constantly rejuvenate themselves in the face of changing environment while remaining loyal to their core purpose.
PROF. DOUGLAS MICHELE TURCO, ANUBHAV GHOSH, PMW SSAWANTTH | IIM Shillong
The competition during an Olympic Games or FIFA World Cup can be fierce, passionate, and dramatic, with archrivals stopping at nothing to gain an edge. This may seem to be a description of the elite athletic contests at these mega-events but rather it is applicable to the world of sport sponsorship!
Sponsorship has emerged as a marketing phenomenon worldwide, with corporate tie-ups ranging from the Olympic Games and Formula 1 to U2 tours and the Renoir exhibition. Globally, companies are expected to spend $US 44.4 billion on sponsorship in 2009 up 3.1% over 2008. Even in the current recession, European firms are projected to spend $12.1 billion in 2009 while there Asian counterparts are slated to infuse $10.1 billion into the sponsorship, an increase of 6.3 percent over last year.
Sponsorship is defined as the relationship between a sponsor and a property in which the sponsor pays cash or in-kind fee in return for access to the exploitable commercial potential associated with the property (IEG, Inc. 2003). Sponsorship is not a donation. A donation involves resources freely given with no expectation of anything in return. Sponsorship is a strategic marketing activity requiring resource allocation (usually cash) with expectation of return on investment.
Global giants- Anheuser-Busch, Coca-Cola, McDonald’s, and Miller although not directly linked to sports industry, are the top in terms of corporate sponsorship spending. This shows how corporate leverage sports sponsorship as one of the most potent promotional tool.
Among the most common reasons why corporations sponsor sport are:
- Increase brand loyalty
- Through sport, corporate sponsors seek to build brand loyalty by tying their products and services to the athletes, events and venues their customers care about.
- Create awareness & visibility
- The exposure sport properties receive in electronic and print media provides sponsors with vast array of publicity opportunities.
- Change/reinforce image
- Sponsorship can create, change or reinforce a brand image. For example, Volvo changed its boxy, conservative image by sponsoring the Volvo Ocean Race and introducing its new sleeker styled vehicles at harbors along the race route.
- Drive retail traffic
- Companies use the assets of their sponsorships to create traffic-building promotions. For example, F1 sponsors bring show cars and top drivers to retail outlets. Some fast food restaurants sponsor basketball tournaments and when the home team scores a certain point total, the game ticket stub can be redeemed for a free food item, which inevitably leads to additional store purchases.
- Showcase community responsibility
- Corporate social responsibility has become the prime factor that influences a person’s impression of a company – more even than brand quality.
- Drive sales
- Companies use sponsorship as a hook to drive sales.
- Sample/display brand attributes
- Sponsorship allows companies to showcase product benefits. On-site sponsor kiosks permit spectators to see, touch, taste, smell, and hear sponsor products.
- Entertain clients
- Hospitality services at sport venues are relevant to companies that value the opportunity to spend a few hours with clients and prospects and solidify business relationships.
- Sponsorship allows companies to hone in on a niche market without any waste.
Issues in Sport Sponsorship
There are several issues associated with corporate sponsorship of sport including ambush marketing, tobacco company tie-ups, and sponsorship during bleak economic times – each are briefly addressed in the following section:
Ambush marketing refers to the intentional efforts by a non-sponsor to counteract or disrupt the effectiveness of a rival company’s official event sponsorship platform. Official sponsors and sport property managers consider ambush marketing to be unethical and poor form. In a highly competitive, profit motivated marketplace, others argue that ambush marketing is a necessary business strategy. Sport properties have gone to extreme lengths to protect their sponsors from ambush marketing tactics, including removal of billboard advertising of non-sponsors near sport venues, and prohibiting spectators from wearing clothing or other items that bear the name of non-sponsors.
There is a mismatch between the addictive nature of nicotine and other negative health risks of tobacco products and the positive benefits of sport participation, yet sport has been the most popular sponsorship forum for tobacco companies prior to 2005.Governments in Europe and North America
issued the “red card” to tobacco companies in 2005:Formula 1 severed ties with tobacco sponsors in 2004 (i.e., Marlboro Racing Team); NASCAR ended its association with the Phillip Morris Company (i.e., Winston Cup Series) and women’s professional tennis found a new title sponsor, dropping Virginia Slims for Kraft. Tobacco advertising is now banned in and near sport stadia in the U.S. and most countries around the world including India.
Sponsorship in a Recession
The economic recession in North America has hit motor sport sponsorship the hardest. In the midst of bankruptcy, massive employee layoffs, and federal government bailout, General Motors severed ties with Tiger Woods, withdrew its sponsorship of the 2009 Super Bowl, and scaled back its automobile racing sponsorships. Elsewhere, Bank Credit Suisse terminated its sponsorship of Formula One team BMW Sauber, having sponsored the team since 2001. ING will end its F1 sponsorship in 2010. Subaru and Suzuki withdrew from the 2009 World Rally Championship due to economic pressures. However, some companies have come off the sidelines and into the sponsorship game during the recession. Richard Branson’s Virgin has come on board as sponsor of Brawn GP.
The following section offers two vignettes illustrating the power of sport sponsorship in India. The first concerns with the Indian Premiere League (IPL) for Cricket, one of the world’s most profitable sport properties. The second vignette pertains to the Board of Control for Cricket in India (BCCI) and its rise to prominence and profitability through corporate sponsorship.
1 Indian Premier League
Sponsors’ dream; Spectators’ delight
IPL has emerged as a sports entertainment phenomenon like never witnessed before by an Indian spectator; the sheer magnitude of deals struck under the IPL Sponsorship Offerings umbrella is astounding!
All these revenues fall under the Central Pool, 40% of which will go to IPL, 54% distributed to franchisees and 6% to prize money. The money will be distributed in these proportions till 2017, after which the share of IPL will be 50%, franchisees 45% and prize money 5%.
World Sport Group (WSG) won the marketing rights from BCCI for their sporting extravaganza- the Indian Premier League by committing a whopping $1.026 billion spread over 10 years. WSG India is a part of the Singapore-based WSG, a global sports management, marketing and media company.
Venu Nair, president (South Asia), World Sport Group, said, “Ground signage’s provide continuous visibility to the sponsors throughout the match, unlike the short television commercials which come and go in a flash. We have a method whereby we can show exactly where and how the advertisers will get visibility for their brands” (Business World June 2008). According to an internal study done by WSG, an average cricket match gets a TRP (television rating point) of 5 to 6, while the IPL matches are expected to enjoy double the TRP, in the range of 7 to 10 every match. The company would achieve such a high rating by having live entertainment shows before, after and throughout the matches, produced by each of the franchisees. These shows would include performance by Bollywood stars and artist. “This would mean a perfect marriage of Bollywood and cricket, as both are the most popular forms of entertainment in India,” said Nair.
Unlike the earlier practice of allowing several sponsors in the same category to advertise on the cricket ground, these deals will allow the sponsors to have an exclusive presence in their business category. This would reduce the clutter of brands displayed on the ground. A sponsor such as Hero Honda, for example, would be the only automobile company to advertise on the ground. These deals do not include the 30-sec television commercials spots. Those would be sold by Sony Entertainment Television, which has won the rights to broadcast IPL.
WSG will also develop a special application for the mobile users. The users will be able to download thisvalue-added service (VAS) on their mobile and get live updates on the matches.
The number of brands an average Indian Consumer has been exposed to through the first two seasons of IPL has been remarkable. Moreover, the viewership which the television channels have experienced has been unprecedented as reflected by their TRP ratings. What this has meant is unparalleled exposure opportunities for a swarm of brands on board.
From Rags to Riches
Cricket is the unofficial national sport of India and the Board of Control for Cricket in India, or BCCI, is the apex governing body for cricket in the country. In the last 20 years, Indian cricket — like India itself — has been transformed. With the arrival of global television networks, mass-media coverage and multinational sponsors, cricket has become big business and India has become the economic driving force in the world game. For the first time, a developing country has become a major player in the international sports arena.
The wealth that BCCI is enjoying right now is astronomical and its income for the year 2008-09 is Rs 1000.41 crores. Things were not the same 2 decades ago. This kind of success was made possible by one man: Jagmohan Dalmiya.
It was in 1979 that Dalmiya first stepped into the corridors of power of the BCCI along with his friend-turned-foe I.S. Bindra. He became treasurer in 1983; the year the Indian cricket team won the World Cup.
Dalmiya, along with Bindra, can claim the credit for gaining the right to stage the World Cup in India in 1987, which brought big money into the subcontinent. Even then, BCCI books showed a deficit of Rs 81.60 lakhs in the early 1990s and things started looking bleak. It was then Dalmiya became the Secretary of BCCI and led the commercialization of the game through the ‘television rights revolution’ at that time, and recorded a profit within a year.
Since then BCCI has never looked back and the present status of this elite Cricket Board finds it to be the richest Cricket body in the world.
As discussed, sport sponsorship has evolved significantly over the years, transforming into a multi-billion dollar industry worldwide. The wave of sponsorship which has hit the Indian sporting arena in various forms – IPL, PHL and NFL etc. - taking sports to an altogether different level. In addition, athlete endorsements have also scaled new heights of late. The multi-million dollar transfer fees exchanging hands in the world of soccer is a fact well-known. This has offered marketers newer avenues to market their brands by associating with some of the more lucrative sporting personalities (and properties) that appeal to a similar consumer base as that of their products and with images aligning with that of their offering.
Although researchers around the world have done significant work in the area of sport sponsorship management, there remains much to be explored in terms of sponsorship effectiveness tools and evaluation metrics used by prospective sponsors while evaluating sponsorship proposal by a sport property. Such tools are valuable to sport properties and sponsors in determining whether a sponsorship was a “winner” or a “loser” for the parties involved.
“Markets always change faster than marketing”
Nirmalya Kumar brought a drastic change to the frame works of marketing and awakened the sleeping lions of businesses to play a greater role in their territory. Nirmalya Kumar is Professor of Marketing, Director of Centre for Marketing, and Co-Director for Aditya V. Birla India Centre at London Business School. Prior to the current assignment he has taught at Harvard Business School, IMD (Switzerland), Northwestern University, Columbia University. He is also a coach, consultant, seminar leader for fifty Fortune 500 companies in forty-five different countries.
He serves or has served on the Boards of Directors of ACC, Bata India, BP Ergo and Zensar Technologies. His book “Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation“ is sought after in the academic as well as in the corporate arena. His new book “India's Global Powerhouses: How They Are Taking on the World” is the perfect destination to savor the globalization march of India Inc. In this interview which is the very first for any B School Magazine, he talked to Markathon about the various dimensions of marketing that needs to be strengthened in these tumultuous times and also proposed a sustainable path to success for budding managers.
Markathon: In the book “Marketing as Strategy”, you have mentioned about the declining role of CMO’s on the CEO‘s desk. Do you think the practice can change, with more emphasis now given to quick-fix tactics rather than well formulated strategies and the desire to achieve quicker ROI’s?
Nirmalya Kumar: As mentioned in the book to get CEO’s attention and credibility, CMOs have to become more strategic, more bottom-line oriented and more cross functional. In the light of the current situation, the role of marketing is to get a makeover. Because in the end, one cannot cut costs fast enough. You really have to find out how you can increase revenues; find out where the revenues are! The challenge for marketing people in the recession is how to get the revenue up, that too in a short term.
Markathon: How does the proposed 3V model is applicable in case of mutually exclusive customer segments on the basis of their perceived value?
Nirmalya Kumar: Basically the 3V model is about valued customer, valued propositions and valued network. The more segments you have the more applicable the model is. Because for each segment first you have to define who is the valued customer, that’s what the target segment is. As you said, it could be innovative products Vs low cost Vs other products. So every segment has valued customer segment which is mutually exclusive. That’s how it defines the first part. The second thing is once each customer segment is identified, one has to have different value proposition for each customer. So for customers inclined towards innovation, you should have products which are innovative in features, for the low cost customers you have to strip away everything and give them a value proposition which is very much about low price and the basic stuff only.
The most interesting part of the 3V model comes, after you know about your different valued customers, and then formulate the value propositions. Then the question becomes where to cut the value network in order to serve the different segments? Because of course I can cut the value network everywhere for each segments. Suppose for each segment I have dedicated purchasing, dedicated R&D, dedicated marketing, dedicated distribution and dedicated service, I can do that. That way I can have differentiation for each of the segments, but the problem is I will lose economies of scale. So the challenge in serving mutually exclusive customer segment is to find out where to cut the value network in order to get the differentiation that the customer desires, while still having the economies of scale that we need for efficiencies. And this is an art. Try to figure out where exactly we need to absolutely cut the value network in order to provide the differentiation that the customer needs and still maintain enough commonality between the value networks of serving different customers, so that we can get the economies of scale.
Markathon: Which function of marketing can bring the unique value proposition to the company and to the customer, when value propositions are getting emulated in short period?
Nirmalya Kumar: Of course the company will look towards new product development, as it can create the most value for the company if it comes up with unique products that truly meet the needs of the customer. That’s what the companies are looking for. So UVP best comes from the new product development. Of course innovative pricing or distribution can create value propositions that are interesting, but they can be emulated. The one which is most difficult to emulate is the one which comes out of the new product development, because it takes time for the competitors to develop them.
Markathon: Along with product development would you also say discontinuing non profitable products should also be taken at a faster rate? Because see in this recession the companies will obviously look for cost cutting, but new product development will involve lots of investment
Nirmalya Kumar: Yes, you cannot have new product development without investment. The fact of the matter is that in the boom time’s lot of bad practices creep into the companies. There are so many products lying on the shelf and nobody took the decision to delete these products. Recession forces companies to confront products which are not selling, brands that are not performing, promotion tactics that are not working, and distribution channels that are not adding value and sales force which are not productive. And for all of these things that you confront in recession, you have no choice but to remove them to cut costs. So recession can be a very strong scenario for change management in marketing programs. You look at the automotive companies in US, they all have to restructure. Look at the banks, steel companies, and cement companies. They are closing down their plants and operations which are not profitable and working towards closing down the products which are not performing, removing sales people who are not generating sales. So, you need to prune parts of the product line in which you don’t have competitive advantage. That’s what you are seeing across the board right now.
Markathon: How can innovation in marketing help make corporate strategies sustainable?
Nirmalya Kumar: There is no such thing like sustainable strategy because obviously competitors will copy successful practices. Environment changes, competitor changes, customer evolves and technology too is changing rapidly. So there is no one strategy which is sustainable. But of course, the innovation is an engine which can drive sustainability. Even the most innovative companies are not about launching an innovation and sitting back. To make it sustainable you have to improve it constantly. So the companies, which are successful in innovation, launch a new product with radical features and continuously improve it in small steps all the time and then again launch another product and thus innovation goes on. So innovation is the game which you have to play continuously.
Markathon: India Inc is rapidly expanding abroad, but still many international marketing practices have not yet made inroads into India. What do you think the reasons behind it: whether it’s the characteristics of the Indian market, immaturity of consumers or the attitude of corporate?
Nirmalya Kumar: I am not very sure that I have agreed with what you have said. I think that many international marketing practices have made inroads into India. For example the advertising industry in India is extremely creative and quite at par with world standards. Where international marketing practices that have not made into India, most of them are happen to do with online marketing. Online marketing or internet marketing is not that developed in India, it is for good reasons as many customers are still not connected online.
That’s why a big difference between India and abroad in marketing practices is all based on customer behaviour. In India print and television advertising is very attractive. In developed world print is almost dying and effectiveness of television advertising is declining. So you have to go online, on the mobile, gaming and social networking to get most of your branding and promotions done. That’s where most of the new actions are and where marketing money is moving. This is not yet relevant in India. So that’s why it’s not a valuable investment.
There’s one other place where Indian marketing is different from the developed world’s marketing. Because of the fact that so many customers are either rural or at the bottom of the pyramid, many Indian companies are coming out with innovative products for them. We don’t see this in the developed world and even we don’t need to see them there. I think the reasons, for the differences between international marketing practices and to India; have less to do with immaturity of Indian market but more to do with its specific context. The Indian market is still very rural, poor and traditional in consumption and that is why many international marketing practices are not yet relevant in India. But when they will become relevant for India, I am sure they will be adopted. Indian marketing innovation will be in the rural market and in the bottom of the pyramid. You will see a lot of new products that are very robust, potable and low cost and that are where the innovation in India lies.
Markathon: What should be the course of action for marketers in the aftermath of recession, with market sentiments at all time low?
Nirmalya Kumar: Basically there are three actions. First course of action is to cut out all the products which are not generating any value. Look at the marketing programs which are not working and cut those out, because many programs of companies are ineffective. Second is, find ways to increase the revenue. And the third action is to look at the certain needs of the money strapped customers in this recession and find unique value proposition for that.