Tuesday, September 15, 2009

Umbrella Branding : A Marketers Dillema


Gunasekhar A, IIFT Delhi

Umbrella branding sends a common signal to consumer, conveying credible information about unobservable product quality. Further it saves the firm a lot of money in new brand building. But, the degree to which a brand’s signal is bonded is a function of not only the amount of money at stake (either in terms of sunk costs or future profits), but also the degree to which this money is vulnerable to future consumer sanctions.

Most often Customers are informed imperfectly about product attributes. Bad news travels fast. This lethal combination can pull down the sales and future revenues of all the products under the same brand on a single mishap.

A company that gets into using a single brand across diverse categories aimed at diverse target groups, it may on paper have economies, but it can’t do an efficient selling job. Transferring brand value and emotional appeal of a product for a set of customers to another product for a different set of customers in a different category is a difficult and costly job with low success rate. It has to find the fit and an overlap not only with its products but also with customers.

Moving up a value chain with an umbrella brand is almost impossible. You cannot convince a customer that all of a sudden, this brand on this product alone is more than what it is used to be, while it stands same for all other products. He wouldn’t have convinced but confused.

Independent brands can be better processed, more robust and better positioned. Umbrella brands can be a hindrance, when the firms want to diversify or move-up the value chain.


Abha Sinha, IIM Shillong

In this era of recession, when companies are worried about their advertisement budget, umbrella marketing offers them a solution. Brands like Videocon, Johnson & Johnson and Kellogg’s use the same name for the entire range of their products. It provides a cost effective and intelligent option to explore. The consumer is exposed to the same brand name repeatedly, so it has a much better brand recall. Asian Paints despite having several diverse sub-brands prefers umbrella marketing. Whenever a company comes up with a new product, a lot of money goes into marketing of the product. But if it comes with a familiar name, it can always lead consumers to trial purchase and has a product acceptance advantage. It is likely that a successful umbrella brand will enable a company to spend only a quarter of advertising budget in their campaigns as compared to others. For instance, after having rolled out Amul Milk in pouch form in Delhi in 2003, GCMMF was able to tap 5,000 retail outlets in just five to seven days without even spending a single penny on advertisement. Now-a-days brands want to have an intense ethical image. Any ethical practice or CSR practice adopted by a brand will have a positive effect on all the products. In case of individual brand marketing, it may be difficult to build ethical image for each brand of a company. In case of brands like Amway and Ayush which prefer direct marketing, companies always prefer to use sole brand name to connect better with the consumers.

Therefore, when a product line stands for the same values and has the same emotional link attached, umbrella marketing is the way to go. It however, poses a collective responsibility among the brands to maintain the quality of standard.

Pantaloons Retail (India) Ltd - Strategy in the Face of Economic Downturn

Saishree D | Tapmi, Manipal

When Kishore Biyani started Pantaloons Retail (India) Ltd.(PRIL), he must have hardly expected to hit in such a manner in the short time frame. What started off as India’s first brand for formal trousers back in 1987, transitioned into what is now the country’s largest retail giant with its footfall in every arena the modern-day consumer believes to be part of his/her lifestyle. How has retailing helped shape the needs of the modern-day consumer and direct his/her quest in fulfilling these needs?
PRIL, the flagship company of the Future Group, operates through a large number of formats that target different aspects of consumerism. These largely centre on:-
  • Sports and Fashion - Pantaloons, Central, Brand Factory etc.
  • Food – Food Bazaar, Fair price etc.
  • Home products – e-Zone, Staples, Home Town etc.
  • Leisure and Entertainment – F123, Bowling Co. etc.

Assessing the damage
To ascertain the strategic moves PRIL has adopted given the current economic scenario, we must first examine the environment it operates in as a result of this slowdown. We will then be able to understand the necessity for these strategic steps. This has been explained using the Five Forces Model prescribed by Michael Porter.

Threat of Entry – MODERATE
PRIL’s rivals Shopper’s Stop and Vishal Retail only grew by 3.3% and 17.8%, with operating margins falling over last year‘s. This hardly seems a lucrative opportunity to any big names scanning the horizon. In addition to this, the latest budget did nothing to spur growth when it
made no mention of the relaxation in FDI norms for the retail sector – a longstanding demand by the major players in the sector, along with recognition as an industry. However, considering AT Kearney’s predictions of the potential in the Indian retail market, the threat of foreign entrants looms large in the near future with the first Wal-Mart in India opening just a few weeks ago.

Threat of Suppliers – LOW
Market share generally reflects the focal firm’s influence over its consumers, competitors and suppliers. Rather than the traditional ‘Producer-push’ format of supply-chains, large retailers enjoy the advantage of the ‘Consumer-pull’ format. The Pantaloons’ supply-chain is said to be the most cost-effective in the world.

Threat of Substitutes – LOW
Substitutes to this sector may largely come in the form of Internet, wherein direct selling of consumer goods may take place. But considering this phenomenon has not gained momentum in India, its chances of posing a major threat to the sector is fairly low.

Threat of Buyers – HIGH
The retail sector has always faced trouble retaining consumer-loyalty. The gloom of the meltdown has spread rather rapidly in the consumption segment with same-store sales in most retail chains dropping to abysmal numbers. In the current scenario most consumers prefer deferring purchases of retail items, and hence pose the largest threat.

Threat of Rivalry – LOW
PRIL’s immediate competitor, Vishal Retail is running out of cash and closing stores all over the country. Although they have no hopes of opening these outlets just as yet, they do plan on reworking their format through expansion by way of franchisee units. Many foreign ventures with domestic firms are falling out while previously established foreign retailers are looking for alternate strategies.

PRIL’s strategic moves
The growth in the retail sector has now dropped to below 7% and consumer spending has tightened. Pantaloons’ sales fell in February, and the company saw dipping consumer demand and rising costs. But despite these conditions, Edelweiss Securities expects Pantaloons Retail (India) Ltd. to survive the carnage pretty well. In fact, PRIL’s shares rose by over 60% come March. This, when PRIL’s competitors are completely pulling out of the sector! How has PRIL managed to do this?

  • Kishore Biyani’s ability to forecast the future definitely paid off for PRIL. Back in January 2008 the CEO initiated the cost-cutting campaign ‘Garv se kaho hum kanjoos hain’. Through emails to his employees, Biyani made sure to instill awareness of the dim future amongst each of his employees and to devise processes to meet the requirements within 6 months.
  • PRIL started converging back-end operations 6 months ago, and plans on continuing in the future. This exercise that primarily involves converging the back-end operations of all similar lines of businesses has proved profitable in terms of cost-saving on resources.
  • The company took steps towards strategic realignment and cost-control techniques way back in 2006. Through a series of scenario planning exercises and continuous review of business plans, it was able to bring out the best possible levels of ‘efficiency, productivity and resilience to the external environment’.

  • As per Fitch Ratings, the company is now concentrating on supply-chain efficiency, high-margin private labels, and reworking lease rentals. PRIL is one company that has always promised value and quality at lower prices.
  • Hence maintaining low prices is at the heart of all strategies they will be implementing in the future.
  • The company has also succeeded in cutting its 5-level supply-chain structure to a 2-level one.
  • A very strategic decision in terms of real estate helped the company gain considerable cost advantage over its competitors. It had acquired land for reasonable rates a few years ago, as it expected the increase in real estate prices.

  • In addition to all the above, PRIL also introduced shopping festivals, end of season sales, exchange fairs and days dedicated to low-price shopping. Through a partnership with McKinsey & Co., they were able to develop a process-driven approach towards discount planning and inventory management.

  • Future Group had plans of restructuring its flagship retail company into a holding company (under the name of Future Markets and Consumer Group) early this year, but put these plans are on hold in the hope of the new budget’s FDI norms for the retail sector. Despite the disappointment the budget posed, these plans will not be completely scrapped but pursued in the near future when the situation starts looking up for the sector.
  • The new budget has brought out incentives for consumers to get back to their old spending habits, like the abolition of Fringe Benefit Tax and the increase in income tax ceiling. PRIL hopes to exploit these opportunities to motivate consumer spending.

PRIL is currently India’s largest retail chain and continues to dominate the sector while its competitors bite the dust. An insight into this company’s immunity reveals how its restructured strategy worked to its favour.

SV - Rayban

Winner: Kunal, NITIE

Honorary Mention: Krishnakant, TAPMI