SOCIETY: Mega Sporting Events, Poor Sporting Spirit!

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Sporting events come heavily on the marginalised population

The upcoming FIFA World cup 2010 in South Africa is seen as a major breakthrough in sporting history. Not only because it’s after a long struggle that an African nation succeeded in grabbing the opportunity of hosting such a mega sporting event, but also as it is expected to refurbish South Africa’s economy. Amidst South Africa’s preparation to make this event a major success, the poorest citizens of the country are being largely neglected. In order to bring up world standard stadiums, the government has ordered massive eviction. In simple words, to make space for stadium and games infrastructure, the South African government has evicted low income housing areas and informal traders. More than 70,000 workers employed on World Cup projects have raised their voices for better wages and conditions. In contrast to 500,000 jobs promises, only 22,000 jobs have been created with occupational health and safety survey giving negative rating to 52 per cent of World Cup construction sites.

The construction of N2 Gateway housing project (construction of rental housing for the 2010 World Cup) led to the removal of over 20,000 residents from the Joe Slovo settlement. The government has also came up with the Elimination & Prevention of Re-Emergence of Slums Act to eliminate slums and put homeless shack dwellers in transit camps during the games. Without any apprehension, this mega sporting event would not only will help the country to upgrade their infrastructure but would also help them tap economic gains. But then, the major pie of the profit will eventually go to big business houses and to FIFA.

This is not for the first time that a mega sporting event would create major hurdles for the underprivileged population of the nation. During 1988 Olympic Games, more than 15 per cent of the population of Seoul, Republic of Korea, was evicted and 48,000 buildings were reduced to ruins to accommodate game’s infrastructure. Similarly in 1996 Olympic, around 1,500 social housing units for the poor were destroyed in Atlanta, in 1992 in Barcelona, 200 families were evicted, in Beijing mass evictions were executed, 6000 were made homeless in Sydney in the run-up to the Olympics and similar eviction is predicted to happen in Rio de Janeiro for the 2016 Olympic Games.

Besides direct impact such as mass eviction and trade bans, indirect displacement due to gentrification and escalating housing costs can also be led to social crisis. After Olympics, prices of houses rose by 28 per cent in Seoul, by 131 per cent in Barcelona, by 500 per cent in Sydney — to name a few incidents. Many governments went to an extent of criminalising the homeless and marginalised pockets of populations. In Seoul, local authorities created a list of places where homeless people were banned and in Atlanta, homelessness was made illegal. Recently, to address such inhuman issue and rush to the rescue of marganised people, the UN has asked the games organiser to properly scrutinise the host cities and introduce housing provisions in hosting agreements. These nations and host countries should learn from their counterparts like Los Angeles, who uplifted the local economy and permanent housing and an Olympic village.

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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A multi-billion dollar question – does the Indian consumer really care about the ‘brand value’ of the four wheeler the family so desires?

Brand valuation experts Millward Brown was quick to make its claim in a report titled, “Brand-driven shareholder value creation’ which proved empirically how “Brands with greater market presence and a superior ability to convert customers from brand awareness to strong relationships significantly outperform the market, producing annual average total shareholder returns of 10% to 20% in the period 1998 to 2006. In comparison, the market on average yielded a mere 4% return to shareholders annually.” A paper by McKinsey & Company titled, ‘The New Rules of Branding’ also proves how “companies with strong brands have shareholder returns of 1.9 points more than their industries’ average.” This was doubled up by another McKinsey product titled, ‘The Power of Brand Delivery’, that interestingly put forward its proposal of an emotional connect. “Strong brands create value for shareholders by building emotional bonds with customers,” is what it claims. But who better to talk about emotional bonding and emotional attachment than the Indian consumers. It is therefore surprising then that the global automakers’ claims of great intangible brand value score low on Indian frontiers when it comes to performance in the market. Value-for-money is what the Indian middle-class consumer generally looks out for in everyday consumption, from the time she makes her choice of detergent to choosing the ‘right’ kind of four-wheeler. The Maruti 800s, the Altos, the Zens, the i10s, the Swifts, the Santros, the Indicas – these are of the ilk that made great headway into the Indian market, having sold millions of units till date. But ask an ordinary consumer what characteristic he associates with these abovementioned brands between being ‘performance-based’ and ‘goodwill-based’, and the answer would be nothing but the obvious – these are value-for-money performers and not brands which command billion dollar goodwill in the market (compare them to the BMWs, the Audis, the Mercs and the Land Rovers and you’d understand our point here)!

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Gyanendera Kashyap of 4Ps B&M analyses the ifs and buts of the deal...

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Is it the futuristic upturn in the auto industry or merely a ploy to eliminate competitors that is guiding the merger negotiation between GM and Chrysler? Gyanendera Kashyap of 4Ps B&M analyses the ifs and buts of the deal...

Centenary celebrations for General Motors, indeed glorious for the long-heritage American carmaker; but what did it receive as its 100th birthday gift? An accumulated jaw-dropping $58.41 billion in net losses for the bygone quarters! And then there was the uninvited Wall Street devil, doing all in its might to break the backbone of all Detroit four-wheeled giants. So what’s it like for GM today? The firm, arguably is currently in the leanest phase in its history, so much so that some critics believe that filing for bankruptcy would be the best hope pill to cure the fatal disease of extinction.

Over the last five years, it has invariably been in the red and on a cumulative basis has suffered losses to the tune of a pathetic $44.57 billion. The reasons: sales and profits have declined in the past many quarters for all three; manufacturing units are being closed down, again by all three; and most importantly, while the entire American auto industry is reeling under pressure, two of them (GM & Chrysler) are discussing a possible merger (Christ!!!). David Wyss, Chief Economist, Standard & Poor, attempts an explanation of the turbulent environment as he points out, “Sales of new vehicles are hurt by the recessionary economic environment and the increasing difficulty of financing for US buyers.” Very true for US, but the current situation as a result of the ongoing dislocation in the credit markets and deteriorating economies in Asia and Europe are no different for global automakers alike. Amid this turbulence, consolidation cannot be ruled out. And this is exactly what GM and Chrysler are talking about. Negotiations in the power corridors of Detroit are reflective of the competition from Japanese automakers and the need for restructuring. But what is worth pondering over is the fact that a year earlier, GM (which had lost out the bid to merge Chrysler with itself to Cerberus Capital Management) had concluded Chrysler wasn’t a good fit. A year later, and suddenly so, it thinks that it has found a saviour and is discussing a possible merger?!

Usually mergers account for more job losses rather than additions, and this is what is the worrying fact. At a time when behemoths are filing for bankruptcies and seeking for Fed assistance, downsizing in the name of corporate restructuring would amount to an absolute catastrophe. Skepticism prevails over the merger or a tie-up between GM and privately-held Chrysler, as it would not do much to address either company’s financial issues in terms of reducing structural costs. As a matter of fact, over the bygone four quarters, GM has posted terrifying losses and its sales of $38.1 billion during Q2, 2008 represent a fall of 18.2% as compared to the same period a year back. On the other hand, Chrysler lost $510 million during the first quarter of 2008 and its sales declined by over 25% as compared to the previous quarter. (This also raises questions over the logic behind the valuation of Chrysler at $7.4 billion which was bought by the PE firm Cerberus Capital Management last year.) Moreover, given the fact that GM is trying to free up $15 billion by 2009 and Chrysler’s admittance that it won’t be in a position to post profit in 2008, the merger is clearly not a ‘natural and healthy’ fit for the two ailing bigwigs! Instead a partnership or expanding existing ties would be more financially viable.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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The scramble is on in Africa

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Africa has certainly captured the world’s at­tention. In fact, global leaders – both business and political – are making regular and long stopovers at a land once called ‘The Dark Continent.’ Raison d’être: Africa is on the verge of an economic rebirth. Statistically, many of the fastest growing economies in the world are in Africa, providing global brands an opportunity to invest and reap returns. “After Africa there will be no ‘there’. The landscape has its challenges but there are large returns to be made,” agrees Dr. Aditya Dev Sood, Founder, Center for Knowledge Societies, which recently came up with a report on the Tata-fication of Africa. And that’s the reason why every sane country or brand in the world is busy making plans for its Africa sojourn, if not already there. The most desperate of the lot seem to be the two Asian giants – China and India – who not only have flooded the continent with their wares but are also gearing up for a war which will result in the next colonisation of Africa, but this time in terms of brands. Jindal Steel, Kirloskar, TCS, Tata Motors, Aptech, Satyam, SBI, Bank of Baroda, Exim Bank, Ranbaxy, Cipla, HCL, NIIT, Dabur, Tata Coffee, BHEL, Tata Power, Suzlon, Essar, OVL, Havells India, Videocon, UB group… the brand list from India goes on and on! Even those who seemed to have lost their past glory in the continent because of the colonial preeminence are once again making strategic investments across the continent. For instance, Tata Motors was a well known truck brand in Africa well into the 1960s, when it was finally supplanted by European competitors (once the colonial powers in the continent). Now, the resurgent Tata Group has been making strategic investments in Africa to regain its supremacy. In fact, the Group wants to launch its much hyped people’s car – Nano – in Africa much before its official launch in India.

And that’s the case with every other Indian brand. While FMCG major Dabur has recently set up a new manufacturing facility in Nigeria with an investment of about $4 million, the $5-billion durables-to-oil Videocon Group is gung-ho over its African investment plans ranging from telecom to consumer durables to oil. The Exim Bank of India has recently (in March 2008) signed a MoU with African Export-Import Bank (Afreximbank) to extend a $30 million line of credit to finance Indian exports to Africa.

Says Pawan Goenka, President, Mahindra & Mahindra, “There are a couple of important markets like Africa on our radar. Though 95% of our sales come from India at present, but we will have a separate renewed strategy for these markets soon.” There are more examples of such Africa-fication by Indian brands. In fact, CII expects India’s exports to reach $500 billion by 2013, if the past growth trend continues.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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gyanendra kashyap moves amidst the marketers this festive season and discovers that it really is the best of times and also the worst of times...

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Be it India or the US, the fun and frolic of the festive season will be far from what it used to be. Haigh offers his candid view, “This year’s festive season is most definitely going to be a less merry period for high street retailers. With consumer credit shrinking, retailers are going to feel the squeeze as consumers look to cut credit spending habits on gifts by looking for alternative, cheaper, value for money options.” However, in the case of India, experts are grasping at potential silver linings. Shushmul Maheshwari, CEO, RNCOS E -Services, spells optimism, “The recent pay hikes and arrears given to more than 5 million government employees after implementation of 6th Pay Commission report can bring back the lost momentum in the industry. Rising advertising expenditure, various promotional schemes will give further boost to industry sales.”

But while an increase in advertising and marketing spends by companies have upped sales in a majority of categories, yet the distressing fact is in the weakening rate of acceleration. Take Agro Tech Foods (Sundrop, Act II, Rath), which increased its ad spend by 70% in 2007-08. Its sales have tanked correspondingly by 2.64%. Similarly, P&G Hygiene and TTK Healthcare, which increased their ad spends by 11.44% and 5.45% respectively, saw a corresponding drop in sales by 6.14% and 6.45% and the list continues with the sorry saga.

So is advertising the pivotal point which governs sales? Maheshwari explains, “More than ad spending, consumer purchasing power plays an important role in driving sales. Although various companies have increased their ad spending by 15% to 20% in the past but high inflation, sky rocketing consumer loan rates and shrinking disposable incomes are slowing growth rates in 2008.” To overcome the tumultuous phase, Titus, Senior Creative Director, O&M, suggests, “Companies could have a meltdown budget. Keep money aside. And if there is no fall, then the money can be classified as savings.”

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Why is HUL worried?

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Predictably, for now the categories that are attracting maximum momentum in Indian retail are low-involvement ones – food (especially staples), perishables, personal care, apparels and accessories. Let’s say a Mrs. Roy goes for her monthly shopping to a Big Bazaar outlet. She assuredly picks up HUL’s Surf Excel detergent, moves on and picks up Care Mate, an in-store personal care label of the retailer, loves a Tee she bought for her 3-year old (the brand is another in-store label called Little Devils), but when she reaches the dairy products section, she can’t see her favourite brand of butter (it’s there actually – hidden in the second row). What she sees instead is Fresh-n-Pure butter. Puzzled, she asks the in-store helper for his opinion, who assures her of the quality. Even the price is lower than the usual big brand she buys. Boasts Rakesh Biyani, CEO, Future Retail: “The price that we offer is also much lower than any other player.” Result: she happily drops Fresh-n-Pure butter into her overflowing shopping bag and makes for the cash counter.

And that, my dear reader, in a nutshell, is why big brands are feeling the heat. Hindustan Unilever, P&G, Marico and ITC to Madura Garments and Arvind Mills have begun shivering in anticipation of the brand bloodshed that awaits them. As the organised retail cart gathers more momentum, and as more retailers realise that private labels not only give them better margins (they can rake in as much as 20% higher margins as opposed to outside brands), but also put them in a position of strength to negotiate betters terms with the big outside brands, the die will unflinchingly be cast in the retailer’s favour. In the US, 20% of all store sales on an average come from private labels, and the percentage zooms up to about 30% and over 50% in Canada and Europe respectively. And while some retailers have tuned in to the Marks & Spencer model a la Tata’s Westside and Trent, others like Spencers and Nilgiri have proven that even the supermarket model (a healthy mix of private labels and outside brands) can flourish in India. Explains Thomas Varghese, CEO, Aditya Birla Retail, “That private brands are slowly beginning to capture share of market in almost every category is a fact. Sales are increasing at rates faster than the national brand counterparts.”

As for the consumer, he is lured by the promise of similar quality and a cheaper price tag. A big reason why private labels are priced competitively is because they have virtually non-existent marketing and distribution budgets. Marketing is done for the store rather than for in-store brands. While this may be a point of frustration for many private label managers, yet absence of such costs enables retailers to pass on the benefit to consumers and also improve overall product quality. Walk into a Westside store, and you’ll see sneakers that look similar to a pair of shoes from Nike, just at much lower prices. Nike refuses to comment and when we asked Smeeta Neogi, Head-Marketing, Westside, she simply said: “We don’t see a reason for a brand to be threatened by another.”

But the fact is that in-store brands are winning the price war. There is also the underlying factor that the point of purchase (the retail store) is under the retailer’s control and he can choose to display his brands more favourably than outside brands. Adds R. Subramanian of Subhiksha: “We focus on in-store advertising for our brands as it influences the buying behaviour of consumers.”

However, organised retail has only just penetrated 5% of India’s total retail environment. So, clearly these private labels are missing out on a large untapped market segment. Besides, low prices cannot entice the really brand conscious consumer. Analysts feel that this is where branding comes in and global retailers like Wal-Mart and Tesco have set a classic example of positioning their private labels by deeper penetration, and by tying up with other retailers across segments. This ‘multiple availability’ format ensured that global retailer Carrefour could create successful brands in the personal care segment. Has the same begun to happen in India? “You can’t tie up with rivals to promote your private label, but you can always do that with players who are not into typical retailing business,” replies Damodar Mall, CEO, Innovation & Incubation, Future Group. Sources reveal that Future Retail is already mulling a tie-up with BPCL’s In & Out Stores. Such multiple availability of these private brands will send the signal that a new brand has arrived in the market. But that’s not enough to create brand value. Retailers are now resorting to channel blurring, and in some instances, even advertising their respective brands (Remember John Miller from Future Brands). “If food services companies bring their products on retailers’ shelves, then retailers can also sell their products through food service outlets. Such co-branding is common in Europe,” explains Jonathan Banks, Business Insight Director, The Nielsen Company, UK.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Are the heydays for American legacy brands over? Steven Philip warner wonders...

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Another arrogant American brand Tommy Hilfiger is undergoing a similar trauma. Where ‘European’ brands like Gucci, Louis Vuitton, Chanel, Cartier, Christian Dior, Fendi, H&M, Zara et al find a mention in the 2008 Milward-Brown rankings of the world’s top 100 brands, the American Tommy is nowhere in the list! Legacy, right? Tommy unlike its European counterparts refused to allow its garments’ production units to move to low-cost nations, advertised to the bare minimum, and all we have today is a shadow of what Tommy Hilfiger was! It has been plagued by what Beth Higgins of Euromonitor International states as, “Yesterday, it was a company-oriented marketplace. Today it is focused on the customer. The companies should keep innovation up.” Lack of innovation and pricing faults got better of Tommy!

Then there are other American brands which have just failed to give up the addiction to ‘I am legend’ tag; GM being one. Its glorified Hummer and other fuel-guzzling machines and its unwillingness to move towards making fuel-efficient cars have brought the brand close to the hangman’s noose. Ford is another example. Having been the supplier of vehicles to the US army, the ‘big-car-big-engine’ maker forgot that the consumer market is more elastic than the armed forces. Result: despite having made efforts at revamping its product mix, the company has not been able to make any ‘brand revival’ impact on consumers. Both Detroit giants were too proud about the economies of scale they had achieved. The result: Ford and GM reported the highest loss ever in their histories during 2006 & 2007 respectively; both being the global highest for those years!

Then there are instances of big business for banks becoming bad business for brands. Think about it, Citi, the world’s largest banking giant has lost value on both globally recognised branding rankings – Interbrand’s Survey 2008 and Millward Brown’s 2008 Survey. New CEO Vikram Pandit is taking bold steps, hiving off unprofitable assets and taking bolder job-cut decisions. But will it revive the once glorified and legendary Citi? Ask a broker on Wall Street, and he’d bet more on a sub-Saharan bank! But then, Citi isn’t the only one close to the grave; names like Merrill Lynch, Lehman Brothers, Bear Sterns, Freddie Mac and Fannie Mae have already kissed the dust. Guess why? Unlike their competitors, the brands had no representation in retail banking and had grown to what they were by taking huge risks! One day, the bet didn’t pay off and it was over for them. Realising this, Goldman Sachs and Morgan Stanley have even denounced their investment banking dreams having received a nod from the Fed to start off a retail banking arm on September 22, 2008. Guess you’ll soon have a Goldman Sachs bank branch opening right near your home… Would you trust your savings with it?! There are also experts who doubt the very fact that the American financial giants had strong brands, ever! One Brent Scarcliff, Creative Director, Scarcliff-Salvador Inc. feels that, “Companies like Merrill Lynch, Lehmann Brothers and Citi never had strong brands; they are commodity companies who are highly vulnerable...” Their model of existence had clearly become unsustainable, but they gave a blind eye to the warnings; they were too proud to! Experts, weren’t they? Now, encomiums would be written about them whose brands crashed faster than even the twin-towers!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Korean and Japanese clients treat agencies like ‘agents’ or ‘suppliers’

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Sprint across from telecom to consumer durables and the story is no different. In a sector dominated by just 5-8 major advertisers, the year 2007 saw 11 accounts coming under review. Insinuating at the frequent agency changes in the segment, a top-notch veteran of the ad-world, under condition of anonymity, fires: “Korean and Japanese clients treat agencies like ‘agents’ or ‘suppliers’. They believe that suppliers have to be changed every now and then... Worse, agencies are putting up with this rubbish.” Clearly, ad agencies have cause to worry. Their very raison-de-taire is under threat?

Besides, competition and media fragmentation is forcing advertisers to acknowledge that it’s really not easy to reach out to the masses with frugal budgets. If ad spends in 2007 totaled Rs.22,721 crore; estimates suggest that the sum will rise to a mind baffling Rs.36,731 crore by 2010. Rising ad spend is accompanied by an even greater weightage on accountability from the clients side. Every paisa spent on communication needs to count, be justified and superimposed with insane media costs, life is not getting any easier for marketers. “Margins are coming down. Competition is heating up. The business is getting cut-throat with cost-benefit ratio and value-for-money aspect taking on scary dimensions. Market dynamics have changed and most categories are swirling in turbulent markets,” offers Dentsu’s Gulu Sen, suggesting that the scenario is prompting (forcing?) clients to get sharper, clued-in and informed.

The perform or perish scene is adding to the already high churn-rate of CMOs in companies – average tenure of a marketing chief nowadays is at best 18-24 months in the high drama, high competition environment. Small surprise that a new CMO prefers to bring in an agency that he/ she is comfy with, so that he rakes in results quickly to please his new bosses. And here’s the biggest proof of the diminishing role of agencies. In the good old days, when agency was partner, creative hotshots had access to even the CEO, MD and Promoter of the company; now his area of influence has been reduced to just the brand’s marketing team, so the call for changing the ad agency can actually be taken at the CMO level. So while CMOs are lamenting the seeming lack of adrenalin-pumping enthusiasm from their agencies, the flustered agency guys are almost taking it as a personal insult.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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