PRE-SESSION ASSIGNMENT

2010

Submitted By:

Ishita Sharma

MBA (FT) Batch 2010-12

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Table of contents

Question 1: The HUL Problem……………………………………..1

Part 1 (STP and 4P analysis of major bubble gum brands)….1

Part 2 (Findings and conclusions from survey on bubble …...9

gum brands)

Part 3 (Product Cost analysis)………………………………..18

Part 4 (Bubble gum and trade outlets)……………………….21

Part 5 (Marketing Bubble gum)………………………………25

Part 6 (Media as a promotional tool)…………………………30

Question 2: Global and Indian Economy……………………………34

Part A………………………………………………………….34

Part B………………………………………………………….45

Question 3…………………………………………………………….52

Part A…………………………………………………………..52

Part B…………………………………………………………..60

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QUESTION 1: THE HUL PROBLEM

Part 1

STP and 4P analysis of major Bubble Gum Brands

The major bubble gum brands in India are:

Bubbaloo

Big Babol

Boomer

Loco Poco

The STP and 4P analysis for the same is given below:

Bubbaloo:

Cadbury India launched "Bubbaloo" its bubblegum brand in India in July 2007. At the time

of the launch Cadbury announced its goal of reaching a double digit market share in the

bubblegum market in two years. Today, Bubbaloo seems close to this goal with a market

share of 9.5% and with the launch of another new flavor Bubbaloo cool mint in 2010

STP Analysis:

Segmentation: Bubbaloo has segmented the market in terms of age.

Targeting: Bubbaloo was launched for a market of preteens and with the launch of

their new variant Bubbaloo cool mint the target market has been extended to teens

as well

Positioning: Bubbaloo has positioned itself as a bubblegum with a Liquid center

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4P’s Analysis:

Product: Bubbaloo is available in four flavors: strawberry, mixed fruit blueberry

and cool mint.

Price: All the variants are priced at Rs 1 per unit

Place: Cadbury has used the company’s ready distribution network (in place for

its confectionary products) for Bubbaloo. This network is well spread in urban

and semi urban areas and rural areas.

Promotion: Bubbaloo uses advertisements featuring the international mascot for

Bubbaloo,”Bubba the cat” and preteens. They have recently come up with an

advertisement targeting teens for Bubbaloo cool mint. Apart from this they have

tied up with children magazines like Chandamama and Bal Bhaskar with contests

like “Go blue with Bubbaloo”

Big Babol

Big Babol is a brand owned by Perfetti Van Melle India Ltd. It was introduced in the year

1994 and is one of the first chewing gum brands to be launched in India.

STP Analysis

Segmentation: Big Babol has segmented the market in terms of age.

Targeting: Big Babol has a target market of children in the age group of about 8-

13

Positioning: Big Babol has positioned itself as a bubble gum that produces a big

bubble as reflected also in the name. Besides this it has positioned itself as the

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tagline “bade kaam ki cheez” (very useful thing).This idea has been reinforced

with every advertisement

4P’s Analysis

Product: Big Babol is available in two forms : regular Big Babol and liquid filled

gum Big Babol Sploosh

Price: all the product variants are priced at Rs 1

Place: Perfetti Van melle has the largest confectionary distribution network in

India .Additionally three Perfetti wholesalers visit the retailer thrice every week

so that retailers stock all the brands. This distribution network reaches out to both

urban and rural areas

Promotion: Big Babol has been using advertising that reflects the tagline idea

“bade kaam ki cheez”(very useful thing). They have used a animated character of

a turtle twice in two widely popular animated advertisements. Apart from this

there have been print media advertisements for Big Babol Sploosh as shown.

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Boomer

Boomer has been bubble gum brand in India for the last 13 years. As per a market share

analysis by ACNielsen 2008 it was the number one brand in the bubble gum category.

STP Analysis

Segmentation: Boomer has segmented the market in terms of age.

Targeting: Boomer has a target market of children in the age group of about 8-13

Positioning: Boomer has positioned itself as a friendly bubble gum for children

whether it be in the form of their mascot Boomer man coming to the rescue of

children in a variety of situations or an advertisement where the jelly center of the

gum cheers up a child who has been grounded or how Boomer Gumlairs gives a

child the strength to stand up to bullies.

4P’s Analysis

Product: Boomer has many flavors and product formats.

The largest selling product is the Standard Boomer that comes in a

juicy strawberry flavor.

Boomer Jelly in five flavors of orange, watermelon, mixed berry,

juicy mango and grape.

Boomer Splash, in strawberry, mint .Kaccha Aam flavours.

Boomer Duet which is a combination of bubble gum and chocolate

Boomer Gumlairs- a combination of a bubble gum and éclairs.

Boomer Krunch

Price: All products are priced at Rs.1

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Place: Boomer is available in all urban areas and semi urban areas with some

presence in rural areas as well.

Promotion: Boomer has used a variety of advertisements to promote different

product formats and flavors. They have used their mascot Boomer Man as a

superhero figure who can stretch, morph and transform which gives him the

power to save kids from tricky situations. Recently Boomer became the official

bubble gum for the IPL teams and started several promotional activities during the

T20 season, such as launch of a website, special edition packs, jars and trading

cards that were available for a limited period and also gave cricket fans an

opportunity to win tickets. There have also been tie ups with children magazines

like Chandamama. For the launch of juicy mango flavor of Boomer jelly a

website with Chandamama was launched. Apart from this Boomer has had tie ups

with Cartoon Network for contests like Ben 10 Boomer Mania

Loco Poco

The brand Loco Poco is owned by Candico Ltd. Candico is a confectionery multinational

headquartered out of India with operations in 12 countries.Candico began operations in the

year 1997. By the year 2002 it grew to become the second largest Indian confectionery

company.

STP Analysis

Segmentation: Loco Poco has segmented the market in terms of age.

Targeting: Loco Poco has a target market of children in the age group of about 8-

13

Positioning: Loco Poco has positioned itself as a juicy bubble gum for preteens.

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4Ps Analysis

Product: Loco Poco is available in three flavors : banana, strawberry and mint

Price: Loco Poco is available in price of Rs. 1 per unit

Place: With 24 depots, 1500 authorised dealers and a 250 people strong sales

force, Candico’s distribution network in India has a direct or indirect reach in

most towns and cities with a population of over 25,000..

Promotion: Loco Poco provides temporary tattoos of animated characters

alongside the main product to capture the target market of kids. Apart from this

Candico has opened specialty confectionary stores and plans to open 200 stores

by 2010.

These stores shall have a national foot print & cover all major urban centers in

India.

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Part 2

Findings and conclusions from Survey on Bubble Gum Brands

Part 2 (a)

Number of consumers interviewed: 15

Survey based on lifestyle

The following set of questions was asked:

Name:

Age:

City:

Father’s Occupation (F.O.):

Number of hours spent watching TV daily (TV):

Pocket money per month (PM):

What do you spend most of your money on (SPM)(please specify one or more of the

following)

1. Eating out

2. Games/toys

3. Packaged eatables (chips/namkeen/biscuits/wafers/cakes)

4. Saving money to buy something special

5. Confectionary items

6. Others (please specify)

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Amount of parental supervision exerted on your spending (please specify one)

1. Zero

2. Low

3. High

How many times do you go eating out with your family(EOF) (please specify one)

1. More than once a week

2. Once a week

3. 1-3 times a month

4. Once a month

5. Once in more than a month.

What do you want to become when you grow up?

What do you like doing for fun?

Observations:

SNO. Age F.O. TV Number of

times eating out

with family

Aspirations What you do for

Fun

1 15 Govt. S 1.5 4 Engineer TV

2 16 Army 3 3 Engineer. Net

3 13 Business 1.5 2 Astronaut Playing

4 13 Army 1 5 Doctor Playing

5 13 Doctor 1 5 Doctor TV

6 17 Govt. S 3 4 Designer Outings

7 17 Engineer 3.5 4 Business Outings

8 17 Jal Board 2.5 3 Undecided Playing

SNO. Age F.O. TV Number of

times eating out

with family

Aspirations What do you do for

fun

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9 17 ITBP 2.5 3 Engineer Playing

10 17 Business 3 4 Undecided Outings

11 17 Govt. S 2.5 3 Undecided Outings

12 15 Business 0 3 Banker Video games

13 15 Business 1.5 4 Doctor Playing

14 15 Pvt. Sec. 1 3 Teacher TV

15 15 Farming 1 5 CA Comp games

Zero

Low

High

Amount of parental supervision on spending habits

100 150 200 250 300 4000

1

2

3

4

5

6

Number of children with particular pocket money/month

Distribution of Consumers according to Pocket money

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Eating out

Games/toys

Packaged eatables

Saving money to buy something special

Confectionery items

Spending habits with respect to Pocket Money

Survey based on confectionary items:

The following sets of question were asked

Out of the following which do you like the best (please specify one)

1. Chocolates

2. Candy/toffees

3. Chewing gum/bubble gum

4. Jelly

5. Mints

How many times do u buy confectionary items (please specify one)

1. More than 5 times a week

2. 1-5 times a week

3. 1-3 times a month

4. Once in more than a month

Where do you buy these products from?

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Observations:

Answer to 14 and 16 were unanimous: chocolate and general store.

1-5 times/week

> 5 times/week

1-3 times/month

Number of times confectionary items are bought

Survey based on Bubble gum subcategory

The following set of questions was asked:

How often do you consume bubble gum? (BGC)(Please specify one)

1. Daily

2. 4-6 times a week

3. 1-3 times a week

4. 1-3 times a month

5. Once in more than a month.

Where do you buy bubble gum from?

. Which brand of bubble gum do you like best? And why?

Which brand of bubble gum do you dislike and why?

. What do you think of the following characters and the ads featuring them?

1. Boomer man

2. Bubba the cat

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. What do you think of this particular ad?

And the new Big Babol ad featuring a clever kid and naughty crow?

Sometimes Gum companies come up with variants like Center Shock (which has a very

sour flavor) or Bubbaloo blueberry that colors your tongue blue etc

1. Will you be interested in trying such flavors?

2. If you have indeed tried them, did you continue to buy them?

. What flavor do you like best?

. What feature is most important in a bubble gum (please specify one)

1. Flavor

2. How easy it is to blow bubbles with

3. Freshness

4. Good for gums and teeth

5. Other (please specify)

Would you still buy the same amount of gum if it was priced at

1. Rs. 5 (Y/N):

2. Rs. 3 (Y/N):

. Why would you switch to a new bubble gum brand (please specify one)

1. Better flavor

2. More juicy

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3. More fresh-tasting

4. Better bubble

5. A new innovation/feature

Observations:

1. All respondents bought bubble gum from general stores

2. The reason for liking or disliking a brand was unanimously flavor

3. Respondents in the age group of 13-15 thought favorably of the animated mascots Boomer

Man and Bubba the cat while the older ones showed either dislike or disinterest.

4. The first Big Babol ad in the survey was really liked by all while the second while generally

liked didn’t elicit a response like the first

5. Most of the respondents think of Center fresh and Center Fruit as bubble gum with some

considering it the only bubble gum they like. Because of this Center Fruit and Center Fresh have

been included in the observations.

6. Most consumers in the group barring said that price increase will affect their purchases

7. Most of the consumers had tried different products like Center shock and further continuance

depended on flavor.

The rest of the results are shown in graphs as below in terms of number of responses by

consumer

Daily

4-6 times/week

1-3 times/week

1-3 times/month

Once in more than a month

Number of times bubble gum is bought

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Flavor

Bubble

Freshness

Good for gums and teeth

Most important Feature in Bubble gum

Better Flavor

A new feature

More juicy

Greater Freshnes

Better Bubble

Reason to switch to a new brand

Center Fresh

Center Fruit Boomer Big Babol Bubbaloo Undecided0

1

2

3

4

5

6

7

Best Brand

Disliked Brands

Responses to Best and disliked Brands

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Regular Blueberry Watermelon Mixed Fruit Kachha Aam

0

1

2

3

4

5

6

7

Favorite flavor

Favorite Flavor

Part 2 (b)

The following points should be incorporated in the product:

(a)Liquid Center: This feature has been well received in India and has worked well for Center

Fresh, Center Fruit and Bubbaloo. Following the launch of Bubbaloo both Wrigley and Perfetti

also introduced the liquid center format. HUL too should go with this feature as this makes the

gum juicy which is desirable.

(b)Long lasting Flavor: Flavor is clearly a very important feature. The flavor should be long

lasting while not being too sweet.

(c)New features: Excluding jelly or liquid centers, there are some innovations in Bubble gum

that haven’t been tried in Indian Market. One such feature can be bubble gum that produces

cooling or warming sensations in the mouth. This feature has been tried by some gums abroad

and if HUL can develop a product on these lines it would give the brand an edge.

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Part 3

Product Cost Analysis

Part 3 (a)

The following factors would contribute to the price of a unit of HUL’s bubble gum brand:

Prices of competitors: The confectionary market is a highly competitive one where the

prices of products have remained in the 50 paise/ Rs 1/Rs. 2 categories for a long time.

During interviews with target group (Q2(a)) it was found that consumers found prices up

to Rs 2 favorable while an increase to the Rs 3-Rs 5 segment would affect purchase and

they would switch. Thus this becomes an important factor.

Initial Cost of plant and machinery (Part of Fixed Cost): Bubble gum requires special

equipment for its manufacture as well as a facility with high standards of quality. The

cost of plant and machinery is a fixed cost which will be recovered in due course

Cost of Raw materials: Bubble gum has five main ingredients: gum base, sugar,

softeners, flavorings, and colors. When considering product formats such as gum having

liquid centers or jelly additional ingredients may be required.

Packaging Material: The packaging material needed to wrap the bubble gum unit would

be supplied to HUL. Other than this HUL may decide to package the units of gum in jars

or cartons. Apart from this HUL may decide on specially designed display stands for

confectionary stores or supermarkets. All this will contribute to per unit cost

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Advertising costs: This would include the costs incurred on TV advertisements, celebrity

endorsements (if any), radio, internet and print advertising etc.

Positioning of brand: HUL may decide to position the brand as a low priced high quality

product in which case price will be lower than that of competitors .On the other hand

HUL may launch the product at the same prices as the competitors and try to gain

advantage through innovation or bringing something new to market.

Profit margin: The price will be affected by the profit margin HUL wants to have. Of

course for this to come into play, a very good estimate of per unit cost will be needed

Part 3 (b)

i) Confectionary items are mostly impulse buys and usually bought by kids. Bubble gums apart

from competing with chewing gum category also compete with sugar boiled confectionery, hard-

boiled candies, toffees and other sugar-based candies. All of these products are priced in the Rs.1

–Rs.2 category. Bubble gum brands entered the market only in the 90’s and even then the market

for them has gone up only in the past few years due to innovations and better promotion

strategies If bubble gums are priced above the range of Rs.1-2 they would loose consumers who

treat bubble gums primarily as sweet treats. This was also the response of most consumers

questioned in Q2(a)

(ii) All the major players in the bubble gum market today are selling their product at Rs.1 per

unit. On talking to shopkeepers at Kirana/General stores, it was found that no brand was priced

in the 50 paise category though they expressed that some local brands in the unorganized sector

sell bubble gums at 50 paise per unit. The major brands namely big babol, boomer and bubbaloo

entered the market with Rs 1 as the per unit price

(iii)There is a psychological component in pricing based on the theory that when retail prices are

expressed as "odd prices": a little less than a round number, e.g. Rs.19.99, this drives demand

greater than would be expected if consumers were perfectly rational. Though the theory is

controversial, it finds widespread use in the market and is encountered while buying clothes,

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cars, mobile recharge coupons etc. I think the psychological pricing angle only applies to bubble

gums in the respect that the consumer feels that he is getting the product for the minimum

possible price.

 (iv) If the per unit price of bubble gum becomes Rs 5 or Rs. 3 there would be a significant drop

in demand. The above was an observation made by talking to the target group of consumers.

Most consumers said that while an increase of about Rs. 1 was acceptable and wouldn’t effect

them much, an increase upto Rs 3 or Rs.5 would lead them to limit purchases

Rs 5/Rs.3: Significant drop in demand

Rs 1.99: Some drop in demand

50 paise: Demand would increase though the amount by which it increases will depend on the

brand’s inherent quality.

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Part 4

Bubble gum Brands and trade outlets

Part 4(a)

By talking to shopkeepers of traditional trade stores the following observations were made:

Bubbaloo: Cadbury Bubbaloo is sold in specially made jars for the flavors: blueberry, strawberry

and mixed fruit. These plastic jars stand out as they are not transparent but in the color of the

flavor that they hold and are shaped in the manner of an hourglass featuring the mascot Bubba

the cat prominently. Apart from this Cadbury has also come up with a specially designed display

shelf that has slots for all of Cadbury’s confectionary brands like Gems, Dairy Milk,5 star, Perk

alongside jars of Bubbaloo gum.

Big Babol: Big Babol is also sold in plastic jars. Big Babol has an extensive distribution network

with Perfetti’s wholesalers visiting retailers twice a week so that all Perfetti brands, Big Babol

included get stocked by the retailers

Boomer: Boomer appeared to be the most popular brand with every store stocking at least two

variants of the brand. Each of its product variants has a distinctly designed jar for the same.

Boomer also has a special display shelf that holds jars of Boomer’s various product formats and

flavors.

Loco Poco: This brand was available at only one shop. Loco Poco is packaged in tall jars holding

150 units.

General Observations:

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Most Major Bubble gum brands provide the retailer margins in the interval of 10-12%.

Some other players provide greater margins but as their products are not established in

the market, sales are low and retailers prefer known brands over them.

If a bubble gum brand is providing any free gifts alongside the gum then this effects sales

significantly

Retailers try to position jars containing confectionary items at such a height so that they

are visible to children.

Part 4 (b)

The following modern trade outlets were visited

Vishal Mega Mart

Big Bazaar

Hyper City

In modern retail stores the following observations were made:

Dedicated shelf space: Confectionary items usually had an entire display shelf reserved

for them. This display was mostly stocked with chocolates. Usually chewing gum and

bubble gum were given a small subsection of this. Mostly chewing gum was stocked with

only one or two brands of Bubble gum present

Large portions: The most striking difference between traditional and modern trade outlets

was in the size of the confectionary products’ packaging. Chocolates were more than

twice the helping sold at traditional stores. Similarly for Bubble gum the products’

contained about 10-15 units in one pack.

Offers: On talking with store employees, it was found that usually discount was offered

on buying more. But at the time of the visit no such offers were on.

Shelves at checkout counters: Here shelves stacked with confectionary items were placed

right next to the checkout counter. Confectionary purchases are usually impulsive and to

have customers (usually with children) stand next to these shelves while the billing

happens gives time for such a impulse purchase to happen.

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Promotion by company representative: For a new product or a new product format the

company may send a salesperson to do in-store promotions by conducting contests,

offering discounts, giving free samples etc.

Contests: A lottery based contest was on at one of the stores where on purchase of a

certain amount of a product gave them a lotto number. The winner was to get a bicycle.

The first thing that was on display in the store was the bicycle and board displaying

contest details

Shrinkage: Shrinkage means loss of products between point of manufacture or purchase

from supplier and point of sale. At one store there was no shelf display next to check out

counter as there had been instances of shrinkage when people had consumed the products

and not paid thereafter

Observations regarding the following brands:

Bubbaloo: Bubbaloo was not found on display at any of the outlets even though other

Cadbury products were very visible

Boomer: Boomer was found in big packs of about 10 units in one pack. The product

format found was the standard boomer gum

Big Babol: Big Babol was found in big packs of about 10 units in one pack. The product

format found was the standard Big Babol gum

Loco Poco : This brand wasn’t available at any outlet

Part 4 (c)

Recommendations for traditional trade outlets:

Differentiated jars: The jars for HUL’s brand should be sufficiently differentiated from

that of other brands. This could be achieved by shaping it as a cuboid, an hourglass etc.

The jar should be either transparent or semi transparent tinged with the main color of the

brand’s packaging

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Display shelves: HUL should design special display shelves of a height higher than the

usual jars so as to attract attention. HUL can provide greater margin on this or some

bundling offer with their other FMCG products to make retailers buy these shelves

Contests: HUL is targeting teens where small free gifts will not have the pull that contests

will. So HUL should introduce contests such as finding lucky numbers on the back of the

gum etc.

Recommendations for modern trade outlets:

Packaging: The packaging for modern retail stores should be in bigger packets. Attractive

packaging should be used here to give the brand a sophisticated look.

Shelves next to checkout counters: Here in order to reduce shrinkage the brand should be

available in large enough packs so as not to be consumed unpaid for while the customer

waits for billing to take place or waits in the queue for his turn to come

Promotional activities: HUL can have their own salespersons conduct promotional

activities at modern trade outlets. This can include games, contests, free samples, mascots

interacting with customers etc.

HUL can promote new formats and flavors by providing special display shelves for the

same alongside big cardboard displays of advertisements designed for promoting the

same.

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Part 5

Marketing Bubble gum brands

Part 5 (a)

Analysis of communication of current Bubble gums:

Boomer:

Creating an Image/character: Boomer has the positioning of a friendly bubble gum. This

is reflected in all advertisements in a variety of ways:

Boomer Man acts as a friendly superhero to kids in many ads. These include

saving them from Electro man, helping them out of chocolate quicksand etc.

Boomer jelly advertisement where the jelly cheers up a child who is grounded

Boomer Gumlairs advertisement where Boomer gives a child strength to stand up

to bullies

Advertisement for Boomer Splash’s Kachha Aam flavor where a child has fun

with this flavor.

Tagline: “Boom Boom Boomer” is synonymous with the brand

Mascot: Boomer has used Boomer man as their mascot who is a superhero who can

stretch, morph and transform into different shapes and sizes. He is instantly recognizable

as Boomer’s Mascot and appears on all packaging and in all ads.

Use of animation/special effects: The advertisements have often used animation or

special effects in their ads to attract children.

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Comic book/Cartoon feel to advertisements: Advertisements featuring Boomer man have

a cartoon or comic book feel with each featuring a new adventure and a new villain/bad

guy for Boomer man to beat.

Free gifts: when boomer became the official gum for the IPL teams, it launched a

promotional program which included contests and free gifts. An advertisement promoting

these as cool IPL goodies was launched.

Big Babol:

Creating an Image/character: Big Babol represents its product as more than a gum

through its tagline “Bade kaam ki cheez”(very useful thing). This idea is reinforced in

every ad

For example:

Big Babol helps a turtle to fly with his family

Big Babol Sploosh helps the jungle animals by freshening up the lion who

refuses to take a bath.

This same image finds use in their print and outdoor ads as well.The following Big Babol

Ad is for print and outdoor advertising and saves a woman from a crash.

Use of animation/special effects: The TV advertisements have often used animation or

special effects in their ads to attract children

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Use of traditional storytelling: Their famous ad with the turtle was a hit due to the

traditional storytelling by method of song was incorporated. This ad is intrinsically Indian

and used the vernacular as well as dialects to give it an Indian feel. A second ad was

made for Big Babol Sploosh and this too contained the story in song format with a

Panchtantra like feel to the storyline.

Exaggeration: Here exaggeration of product attributes has been used. Most TV

commercials show Big Babol to produce big bubbles that come to the user’s aid.

The print ad shown above is another example.

Free gifts: There were a series of ads launched to promote Giga cards that were given as

free gift with Big Babol

Bubbaloo:

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Creating an Image/Character: The image of Bubbaloo is as per its slogan “Juicy masti”.

All the advertisements reinforce this idea whether its through showing the liquid center

flood a river or through the exaggerated heights of freshness that Bubbaloo Cool mint

takes them to

Mascot: Bubbaloo has used its international mascot “Bubba the cat “in India..Bubba is

usually shown as a mischievous friend to a group of kids

Use of animation/special effects: The TV advertisements have often used animation or

special effects in their ads to attract children

Exaggeration: Here the following two product attributes are exaggerated. One being the

liquid center flooding a river and the other being the freshness that Bubbaloo Cool mint

brings in with the typhoons freshening up the teens as shown in the clip from the latest

advertisement

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Free Gifts: Bubbaloo provides pirate themed tattoos as free gifts and launched

advertisements for the same.

Part 5 (b)

Advertising tools for HUL’s brand:

Innovative Advertising: Teenagers were not affected by use of mascots, animation or

special effects unless and until the basic idea behind the advertisement appealed to them.

For this reason they preferred Big Babol’s tortoise ad to the repetitive superhero

adventures tune of the Boomer ads. For this reason advertisements need to be innovative

and provide a new interpretation of the same values each time.

Use of animation/special effects: Almost all bubble gum companies have used

exaggeration of product attributes to their advantage. HUL can do the same.

Exaggeration: Here product attributes could be highlighted by means of dramatic

exaggeration

Creating an Image/Character : The brand should adapt an image that appeals to teenagers.

This image could be that of a brand that you have fun with or a brand that is trendy or

superior etc.

Celebrity Endorsements: Celebrity endorsement can be used to highlight the brand

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Part 6

Use of media as a promotional tool

Media sources used for promotions:

Television: Television commercials are one of the most important ways to ensure brand

recall. Television commercials should firstly be designed to appeal to the target audience.

Following this it must be broadcast with programming that the target group is likely to

watch. For example: Boomer tied up with Cartoon network for a contest named Ben 10

Boomer mania thus getting their TVC seen by children.

Print advertisements: Even a simple picture can be worth a thousand words. Both Boomer

and Big Babol have used print advertisements like the one shown below to great

advantage.

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Outdoor Advertising: Outdoor advertising could be used for launch of HUL’S brand and

various product formats later. Apart from the conventional Billboard advertising other

advertising techniques have been used as shown. This Boomer car exercise was seen to

significantly increase brand recall in the area

Advertising on Social Networking sites: Social networking sites have become a daily

online stop for many urban teens and advertising here will help them connect with their

market. Apart from a website the brand can have a presence on the main networking sites

and use this to communicate any promotional activities going on

Online and mobile advertising: Online advertising is set to explode in India. According to

a Lintas Media Report, internet advertising stood at Rs 215 crore in 2007(a 43 per cent

growth over 2006), but is estimated to grow more than ten-fold (to Rs 2,500 crore) by

2011. HUL already has a website for itself. A separate website for the bubble gum could

be linked back to this. The website can contain blogs, testimonials, games, downloads,

ringtones etc.

Mobile advertising is also set to grow to a Rs 500 crore market in 2011 from a Rs 40

crore market in 2008.  A study conducted by Nokia in partnership with TNS India shows

increasing patterns of the use of mobile Internet. The research highlighted that mobile

web users are using their mobile to access the Internet almost as much as the traditional

web (2.4 days per week versus 2.7 days.) More users are finding out about new product

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information via the mobile web (28 per cent) than the traditional web (26 per cent).Thus

partnership with sites like 160by2.com could be effectively used to promote product

launches, contests etc.

Contests and tie-ups: Contests highlight the brand. All the major bubble gum brands have

come up with contests and tie-ups from time to time. Boomer recently organized a

contest through which a child was chosen to star in Boomer’s TV commercial that saw

nationwide participation. The brand could tie-up with popular magazines, websites or TV

channels.

Any market space is characterized by consumer behavior and this varies widely between urban

and rural markets.This is why HUL should go for a different promotional strategy for Rural

India. The strategy for promoting the brand in rural India should include:

Television commercials: In 2006, 42% of rural households had television. In the past four

years this number has only grown. Thus HUL must create advertisements that appeal

both to urban and rural populations. For this they may use characters that consumers in

rural India can connect to or through use of traditional storytelling etc.

Haats and Melas: In order to promote their product,HUL can promote the brand at

various haats and melas.

Using HUL’s presence in Rural India effectively : One of HUL’s key initiatives in rural

India is the Shakti initiative. Shakti was initiated to reach the massive un-served and

under-served markets that cannot be economically and effectively serviced through

traditional methods. HUL identifies underprivileged women in villages and these women

are trained to become Shakti Entrepreneurs (SEs) i.e. distributors of HUL products in

villages to earn a sustainable income through this business.”Shakti ammas“as the women

are called can promote this brand alongside the other FMCG products.

32

References

1. Cadbury India enters bubblegum market, targets 5% total revenues. Indiantelevision.com. [Online] July 4, 2007. 2. Press releases. Cadburyindia.com. [Online] 3. chatterjee, Purvita. Gum's the word! thehindubusinessline.com. [Online] 4. Bubbaloo tattoo,Bubbaloo pirate ad,Boomer ads. Youtube.com. [Online] 5. Boomer T20 Cricket. boomerfunzone.com. [Online] 6. Tally solutions case study : Joyco. antraweb.com. [Online] 7. Majji, Jayashree. Wrigley is official chewing gum for IPL. mydigitalfc.com. [Online] april 14, 2009. 8. Boomer. Chandamama.com. [Online] 9. Bakery and Confectionary. mofpi.nic.in. [Online] 10. Boomer Bubble gum: Bubble. advertolog.com. [Online] 11. perfettivanmelle.in. [Online] 12. Big Babol New TVC - "Big Babol Bade kaam ki cheez" . merinews.com. [Online] 13. The secret behind Perfetti's success in India. rediff.com. [Online] august 18, 2009. 14. brand yatra. exchange4media.com. [Online] 15. candico.com. [Online]

33

QUESTION TWO: GLOBAL AND INDIAN ECONOMY

Part A

Part A (1.a.)

The major global financial crises are ordered chronologically as below:

The Post World War I recession (1918-1920’s):

The recession affected most of the world.

Causes:

Demobilization of troops created a sudden upsurge in civilian labor force

reducing wages, production costs and then prices

In USA there were other causes like tighter Monetary Policy and deflationary

expectations.

Germany’s economy suffered further due to pressure to pay reparations

Measures taken

The German currency stabilized in 1923 through introduction of Rentenmark

In USA bank interest rates were reduced sharply

The Great Depression (1929-late 1930’s)

The Great Depression was a severe worldwide economic depression in the decade

preceding World War II

Origin: The Wall Street crash of 1929, USA

Causes:

Overproduction with respect to demand

Debt Deflation: Massive bank runs occurred as loans were defaulted upon

Inadequate financial structures: The Federal Reserve bank did not timely respond

to the recession and it deepened to depression.

The recession spread to most of the world UK, Australia, chile, France, Germany, Japan,

South Africa etc.

34

The causes for spread:

Breakdown of international trade that hurt all export oriented countries

Rigidity of Gold standard currency

USA stopped loaning money

Measures taken:

WWII government spending

Increased Governmental regulation, fiscal stimulus, devaluation

Mid 1970’s Recession

The Mid 1970’s recession affected the western world and was a period of stagflation.

Causes:

Costly War time spending by US

The 1973 Oil Crisis: Oil embargo announced by OPEC and Quadrupling of oil

prices

The Devaluation of the dollar and closing of Bretton Woods system

The 1973-74 market crash

The recession spread to western world and to countries with no oil production capability.

Measures taken

Development of energy efficient systems and energy rationing

Expansionary monetary policies to improve production

Early 1980’s recession

35

The early 1980’s recession affected USA and Europe. This was also the time that the

Latin American debt crisis started

Causes:

Increase in Oil prices due to Iranian Revolution

Deregulation of banks in USA

Deflationary fiscal and monetary policies

Effects on Latin America: As interest rates increased, debt payments also increased

making it hard for borrowing countries to pay. The exchange rate w.r.t. dollar

deteriorated making the debt larger. In Latin American countries growth stagnated,

incomes fell and inflation grew

Measures:

By 1985 UK left its strict deflationary tactics and economic recovery took place

USA lowered interest rates slowly and employed deficit spending

Early 1990’s Recession

The recession affected USA, UK, Canada, Finland, New Zealand, Australia and to some

extent countries in Europe and Japan.

Causes:

Stock market crash

Savings and loan crisis in USA

Increase in oil prices and the Gulf War

Finland was affected due to poor financial deregulation of banks.

Canada was affected due to restrictive monetary policy, constraints on fiscal

policy due to federal debt

Measures taken:

36

Monetary easing measures

Lowering of oil prices

Recovery in Canada and Finland was export driven. Finland saw government

intervention to stabilize financial sector

Japan’s asset bubble

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991, in

which real estate and stock prices greatly inflated. The bubble's collapse has lasted for

more than a decade from 1989-present

Causes:

High savings and appreciating yen lead to making it easy and cheap to get loans

Massive Borrowing and speculation

Measures taken:

Sharp increase in interest rates to burst bubble.

Bailing out Banks in debt crisis once the bubble burst

Export oriented growth

The 1997-98 Asian Crisis

The Asian Financial Crisis was a period of financial crisis that gripped much of Asia

beginning in July 1997.

Causes:

Global investors began to sell south-Asian currencies leading to currency and

stock markets tumbling

A shortage of foreign reserves in Thailand, Indonesia and other Asian countries

Questionable borrowing and lending practices of banks and finance companies 

37

Measures taken:

The IMF created a series of bailouts ("rescue packages") for the most affected

economies to enable affected nations to avoid default, tying the packages to

reforms.

The 2007-10 Recession

The late-2000s recession is an economic recession that began in the United States in

December 2007 and spread to most of the industrialized and leading to a pronounced

economic downturn

Causes:

Sub prime lending in USA

Governmental deregulation in USA

Liquidity crisis in the United States banking system and caused by the

overvaluation of assets

Collapse of Large financial structures globally

Measures taken

Large fiscal stimulus packages to offset reduction in private sector demand

Liquidity injection and greatest monetary policy action in world history

The European debt crisis (2009-10)

In early 2010 fears of a sovereign debt crisis developed concerning some countries in

Europe including: Greece, Spain, and Portugal. This led to a crisis of confidence as well

as the widening of bond yield spreads and risk insurance on credit default swaps between

these countries and other EU members, most importantly Germany

Causes:

Sovereign debt crisis in Greece

38

Measures taken:

European governments and the International Monetary Fund (IMF) have come up

with a 750bn-euro package of standby funds designed to see off financial

meltdown.

Part A (1.b.)

Similarities:

Rise in oil prices significantly contributed to recessions of both the 70’s and 90’s

Deregulation of banks and consequent high risk lending created problems in the 2007

recession, mid 1970’s recession and in Finland in 1990’s

Both the Japan asset bubble and 2007 recession share similarities on causes although

Japan had the advantage of surplus savings and zero government debt at the time of start

of Recession.

When the US economy went into recession it pulled other economies into it due to either

reducing imports(Isolationism,1930) or by calling back loans (Germany,1930)

Cause and Effect Relationships:

Expansionary Monetary measures taken to fight mid 70’s stagflation led to high inflation

that were dealt with deflationary measures in 1980’s leading to Recession.

Pent up demand from WWI led to the a period of economic prosperity in 1920’s but the

consumption patterns were misjudged or could not be sustained leading to

overproduction, a cause of Great depression.

The Gold standard proved unsustainable after WWII after which it was replaced with

Bretton woods system. In 1970’s USA ended convertibility of dollar to gold to stabilize

economy and handle inflation. The consequent monetary volatility followed by

unregulated financialization has been traced as a cause for the 2007 recession.

39

Part A (2)

The main financial crisis of the last 15 years

The 1997-98 Asian Recession

The triggering event: In May 1997, Japan hints that it might raise interest rates to defend

the yen. The threat never materializes, but it shifts the perceptions of global investors

who begin to sell Southeast Asian currencies and sets off a tumble both in currencies and

local stock markets

Chain of events:

Precipitous drop in the value of the Thai baht, Malaysian ringgit, Philippine peso,

and Indonesian rupiah. Thailand announces managed float of Thai baht

Downward pressures hit the Taiwan dollar, South Korean won, Brazilian real,

Singaporean dollar, and Hong Kong dollar. The Hong Kong stock market falls

with effects felt around the globe.

Causes:

Questionable borrowing and lending practices of banks and finance companies

Pegged exchange rates not allowed to adjust sufficiently in response to changing

economic conditions

Measures:

Governments sell dollars from Forex reserves, buy their own currency, raise

interest rates to foil speculators and attract foreign investors

The IMF created a series of bailouts for the most affected economies to enable

affected nations to avoid default, tying the packages to reforms.

Consequences:

40

IMF’s reforms of “fast track capitalism” led to complete political and financial

restructuring of the countries that were most involved

The Asian crisis acted as a trigger to the Russian financial crisis of 1998.

Lessons learnt:

Sound monetary and fiscal policies are essential for rapid economic growth as

well as sustaining this growth

Debt management and flexible exchange rates contribute to sustainability

The dot com bubble

The "dot-com bubble" was a speculative bubble covering roughly 1995–2000 during

which stock markets in industrialized nations saw their equity value rise rapidly from

growth in the more recent Internet sector and related fields

Trigger: Huge market confidence created for internet based companies

Causes:

The stocks of internet based companies rapidly increased with record setting rises

Venture firms and investment banks followed by large investors like mutual funds

altered their decision rules to exploit a growing public enthusiasm.

Bubble burst occurred in 2000 due to U.S. Federal Reserve increasing interest rates six

times and massive, multi-billion dollar sell orders for major high tech stocks

(Cisco, IBM, Dell, etc.) that triggered a chain reaction of selling that fed on itself as

investors, funds, and institutions liquidated positions.

Consequences:

41

The Dot-com bubble crash wiped out $5 trillion in market value of technology

companies from March 2000 to October 2002.

Several communication companies, burdened wit huge debts sold their assets for

cash or filed for bankruptcy.

Many Dot-coms ran out of capital and were acquired or liquidated.

50% of Dot-coms survived

Lessons learnt:

There weren’t credible business models in place for the companies that claimed to

be profitable in the future. Before investing ,the fundamentals of the actual

business need to be strong in order to deliver

The Late 2000s Recession

The late-2000s recession is an economic recession that began in the United States in

December 2007 and spread to much of the industrialized world causing a massive

economic downturn.

The triggering event: The collapse of a global housing bubble caused the values of

securities tied to real estate pricing to plummet thereafter, leading to a liquidity crisis in

USA banking system

Causes:

Housing bubble and sub-prime lending in USA and consequent bubble burst when

interest rates increased

Increase in oil prices

Excessive financial leverage

Complexity of financial products

Lack of effective risk management at large institutions

Inadequate appreciation/regulation of derivatives risk

Securitization of mortgages, sold to unwary buyers as highly rated

Conflicts of interest at rating agencies

Poor corporate governance and governmental deregulation

42

Causes for spread to other countries

Dependence on USA as a consumer of exports (for e.g.: China, Russia)

Crisis in global financial markets and banking world

Measures taken:

Large fiscal stimulus

Greatest liquidity injection in global economy

Temporary bans on short selling

Proposals for reforms on lending practices,derivatives, regulations for financial

and non-financial firms.

Consequences:

Led to the European debt crisis

Lessons Learnt:

Greater regulation of banks, financial firms and secondary investment vehicles

like credit default swaps (CDSs) and collateralized debt obligations (CDOs) is

required

Don’t let financial firms get “too big to fail” where their economic and political

influence acts as a safeguard against irresponsible behavior

Banks need to write secure loans

The Euro zone debt crisis

In early 2010 fears of a sovereign debt crisis developed concerning some countries in

Europe including: Greece, Spain, and Portugal. Greek debt/GDP ratio has reached 113%

and there seems a danger of Greece defaulting on its loans. This situation threatens the

43

Euro as a default by Greece would make investors lose faith in other high debt euro zone

countries like Spain and Portugal

Trigger: The financial crisis of 2007

Causes:

Greece’s years of unrestrained spending, cheap lending and failure to implement

financial reforms

To keep within the monetary union guidelines, the government of Greece

consistently misreported the country's official economic statistics.

In late 2009, eroding public finances, misreported statistics, and inadequate

follow-through on reforms prompted major credit rating agencies to downgrade

Greece’s international debt rating, which has led to increased financial instability

and a debt crisis.

Measures:

The Greek Government has adopted a three-year reform program that includes

cutting government spending, reducing the size of the public sector, tackling tax

evasion, reforming the health care and pension systems, and improving

competitiveness through structural reforms to the labor and product markets

European governments and the International Monetary Fund (IMF) have come up

with a 750bn-euro package of standby funds designed to see off financial

meltdown.

call for "absolutely necessary" deficit cuts by the heavily indebted countries of

Spain and Portugal

Consequences:

Contagion effect: Global investors are becoming wary of investing in countries

with similar finances. Countries like Spain and Portugal affected

Slower recovery to the financial crisis

Austerity package imposed on Greece prompted massive protests and public

unrest throughout May 2010

Lessons learnt

44

Governments need to realize the importance of sustainable public finances and

the need of credible, growth-friendly measures, to deliver fiscal sustainability

Part B

Part B (1)

CRR

CRR means Cash Reserve Ratio.  Banks in India are required to hold a certain proportion

of their deposits in the form of cash.  However, actually Banks don’t hold these as cash

with themselves, but deposit such case with Reserve Bank of India (RBI) / currency

chests, which is considered as equivalent to holding cash with themselves.. This

minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the

RBI and is known as the CRR or Cash Reserve Ratio. 

When CRR reduces, the banks have more money for lending with themselves

SLR

SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the

minimum percentage of deposits that the bank has to maintain in form of gold, cash or

other approved securities (Liquid securities which can easily be converted into cash). 

Thus, we can say that it is ratio of cash and some other approved securities to liabilities

(deposits) it regulates the credit growth in India

When SLR reduces,

Repo rate

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks.

When the repo rate reduces borrowing from RBI becomes cheap.  Therefore, we can

say that in case,  RBI wants to make it more expensive for the banks to borrow money, it increases

the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the

repo rate

When Repo rate reduces, it becomes cheaper for banks to

45

Reverse Repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. 

The RBI uses this tool when it feels there is too much money floating in the banking system. 

An decrease in the reverse repo rate means that the RBI will borrow money from the banks at a

lower rate  of interest. As a result, banks would not prefer to keep their money with the RBI

RBI MONETARY POLICY

A macroeconomic policy tool used to influence interest rates, inflation, and credit availability

through changes in the supply of money available in the economy. It aims at

Speeding up economic development in the country to raise national income and standard of living.

preventing heavy depreciation of the rupee.

Maintaining the momentum of economic growth.

Responding to evolving circumstances to stabilize inflationary expectations.

TOOLS OF MONETARY POLICY

There are two kinds of tools:

Quantitative tools –control the volume of credit and inflation, indirectly.

Qualitative tools –they control the supply of money in selective sectors of the economy.

Part B (2)

Fiscal Policy

Fiscal policy involves the Government changing the levels of Taxation and Government Spending in order to influence Aggregate Demand (AD) and therefore the level of economic activity.

AD is the aggregate demand(AD = C+ I + G + X – M) where C is consumer spending

I is Income

46

G is Govt. spending

X-M is export-Import

The purpose of Fiscal Policy:

Reduce the rate of inflation Stimulate economic growth in a period of a recession. Basically, fiscal policy aims to stabilize economic growth, avoiding the boom and bust

economic cycle.

Expansionary (or loose) Fiscal Policy.

The government will increase spending (G) and cut taxes. Lower taxes will increase consumers spending because they have more disposable income(C)

This will worsen the government budget deficit

Deflationary (or tight) Fiscal Policy

The government will cut government spending (G) And or increase taxes. Higher taxes will reduce consumer spending (C).This will lead to

an improvement in the government budget deficit.

Role of RBI in Fiscal Reform

As a central bank, RBI is sensitive to the fiscal situation. RBI’s primary objective is to

Monetary stability. Fiscal is decided and determined by the sovereign, it is central bank’s

responsibility to ensure that monetary stability is maintained and government’s

borrowing programme is managed with minimum disruptions, in terms of stability. 

Accommodating the fiscal pressure through monetary action is like a soft-budget

constraint.

Part B (3)

An open economy is an economy in which there are economic activities between domestic community

and outside, e.g. people, including businesses, can trade in good and services with other people and

businesses in the international community, and flow of funds as investment across the border. This

47

contrasts with a closed economy in which international trade and finance cannot take place.

There are a number of advantages for citizens of a country with an open economy. One primary advantage

is that the citizen consumers have a much larger variety of goods and services from which to choose.

Additionally, consumers have an opportunity to invest their savings outside of the country.

In an open economy, a country's spending in any given year need not to equal its output of goods and

services. A country can spend more money than it produces by borrowing from abroad, or it can spend

less than it produces and lend the difference to foreigners.

The basic economic model of an open economy is the same as that of a closed economy model except

two new terms are added: Exports (EX) and Imports (IM):

Y = Cd + Id + Gd + EX

Y = C + I + G + (EX-IM)

With Y being Gross domestic product / national income, Cd is consumer consumption of domestic goods

and services , Id is investment in domestic goods and services, Gd is government expenditures on domestic

goods and services. The term (EX − IM) is usually called net exports and is sometimes designated with

the term NX.

In closed economy: National savings= Investment. Closed economy countries can increase its wealth

only by accumulating new capital.

In the short term, there are both upside and downside risks to the inflation impact of

globalization. Over the medium term, the central bank’s policy determines inflation.The impact

of globalization on inflation will be temporary unless it changes the overarching objectives of

monetary policy.Based on external global forces inflation rate and monetary policies the interest

rates would adjust in the country. Higher the inflation higher would be the interest rates. If the

world economy is booming and so are our exports then it will have positive effect on the

exchange rate and employment rate. Unemployment rate would come down.

Part B (4)

India cannot be called a completely open economy as restrictions still exist to protect the country. This is

also seen in capital account convertibility. Convertibility of a currency implies that a currency can be

48

transferred into another currency without any limitations or any control. A currency is said to be fully

convertible, if it can be converted into some other currency at the market price of .In India, the foreign

exchange transactions (transactions in dollars, pounds, or any other currency) are broadly classified into

two accounts: current account transactions and capital account transactions. If an Indian

citizen needs foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational

purposes, she/he can obtain the same from a bank or a money-changer. This is a “current account

transaction”. But, if someone wants to import plant and machinery or invest abroad, and needs a large

amount of foreign exchange, say $1 million, the importer will have to first obtain the permission of the

Reserve Bank of India (RBI). If approved, this becomes a capital account transaction”. This means that any

domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before

carrying out any financial transactions or change of ownership of assets that comes under the capital

account Of course there are a whole range of financial transactions on the capital account that may be

freed from such restrictions, as is the case in India today. But this is still not the same as full CAC.

In a bid to attract foreign investment, many developing countries went in for CAC in the 80s not

realizing that free mobility of capital leaves countries open to both sudden and huge inflows as

well as outflows, both of which can be potentially destabilizing. More important, that unless you

have the institutions, particularly financial institutions, capable of dealing with such huge flows

countries may just not be able to cope as was demonstrated by the East Asian crisis of the late

nineties.

Following the East Asian crisis, even the most ardent votaries of CAC in the World Bank and the

IMF realized that the dangers of going in for CAC without adequate preparation could be

catastrophic. Since then the received wisdom has been to move slowly but cautiously towards

CAC with priority being accorded to fiscal consolidation and financial sector reform. This is the

path India has taken as well.

49

References

1. allbankingsolutions.com. [Online] 2. late 2000's recession. Wikipedia.com. [Online] 3. 1973-75 recession. Wikipedia.com. [Online] 4. Great recession in the united states. wikipedia.com. [Online] 5. CRS Report for the congress. fas.org. [Online] 6. 5 lessons we have learned from the recession. cbsnews.com. [Online] july 28, 2009. 7. Banking Pros Impart Lessons From the Financial Crisis. insuranceday.com. [Online] april 11, 2010. 8. Greek Debt Threatens the Euro. Businessnews.com. [Online] december 8, 2009. 9. 2010 euro debt. wikipedia.com. [Online] 10. dot-com bubble. wikipedia.com. [Online] 11. The Great Depression to the Great Recession Lessons Learned or Forgotten. larsonallen.com. [Online]

50

QUESTION 3

Part A

Industry analysis of the pharmaceutical sector

Industry Overview:

The Indian pharmaceutical industry is the world's third-largest by volume and is likely to

lead the manufacturing sector of India.India's bio-tech industry clocked a 17 in the 2009-

10 financial year over the previous fiscal and had a turnover of $ 21.26 billion. The

industry is moving towards basic research-driven, export-oriented global presence

Historical Background in India:

The first pharmaceutical company was Bengal Chemicals and Pharmaceutical

Works that appeared in 1930.

For the next 30 years, most of the drugs in India were imported by multinationals.

51

The government started to encourage the growth of drug manufacturing by Indian

companies in the early 1960s, and with the Patents Act in 1970 removing patent

protection leading to exit of MNCs

Indian companies started to take their places and carved a niche in both the Indian

and world markets with their expertise in reverse-engineering new processes for

manufacturing drugs at low costs.

Current trends and scenarios

Surge in mega Merger and acquisitions due to economic downturn and resulting

credit crunch and also to gain access to novel products in a cost effective way by

acquisitions and licensing agreements rather than carrying out extensive in-house

R&D

The Indian pharmaceutical industry is expected to grow at a rate of 10.2 % in

2010

Large number of drugs going off-patent in Europe and USA during 2005 - 2009

has offered a big opportunity for the Indian companies to capture this market

through generic drugs.

The European and US pharmaceutical markets are heading toward generics due to

pressure to reduce healthcare costs and this move is expected to offer enormous

benefits to India

Porter’s Framework

Threat of new entrant: The major barriers to entry are

The presence of economies of scale

Gaining plant approval and license from regulatory authority

Distribution network would take time to set up as well as gaining trust

of doctors/pharmacists

Bargaining power of buyers:

End customers do not have any bargaining power

Bargaining Power of Suppliers:

Supplier can forward integrate

Switching cost is low

Raw material cost constitutes major portion of total expense

52

Threat of substitution:

Biotechnology is threat to Pharmaceuticals products

Level of Competition:

Highly competitive

Low fixed cost and high working capital

Regulatory implications/hindrances

Weighed tax deductions at 200% of in house R&D

Exemption of excise duty at 8% and reduction of custom duty on life saving drugs

Price regulation: The National Pharmaceutical Pricing Authority, which is the

authority to decide the various pricing parameters, sets prices of different drugs,

which leads to lower profitability for the companies. 

Major Players and market share:

As per ORG -IMS report on Indian Pharmaceutical Market (June 2009) the major players

and their market shares are given as:

Here IPM stands for Indian Pharmaceutical market

53

Level and nature of competition

Level of competition is very high with

270 large R&D-based pharmaceutical companies in India, including

multinationals, government-owned and private companies

5,600 smaller licensed generics manufacturers

Size of market and growth rate

Market size (2009) was Rs 365 billion

Growth rate for 2010 is 10.2%

Best practices:

The domestic Pharma Industry has recently achieved some historic milestones

through a leadership position and global presence as a world class cost effective

generic drugs' manufacturer of AIDS medicines.

Many Indian companies maintain highest standards in Purity, Stability and

International Safety, Health and Environmental (SHE) protection in production

and supply of bulk drugs 

Latest Developments:

Budget 2009-10 aims to increase in-house R&D by providing tax deduction of

200%

View of sector’s development:

Development in the sector will be spurred by increasing demand for generic drugs

due to

Western countries switching to generic drugs

Increased healthcare spending in India

Some of the leading Indian companies are now seeking Abbreviated New Drug

Approvals (ANDAs) in USA in specialized segments like anti infective,

cardiovascular and central nervous system groups which will further boost their

sales in this segment.

Entry of foreign players:

The sector has been able to attract FDI amounting to $1.4 billion from April 2000

to December 2008 and is one of the top sectors in FDI

54

The threat is that foreign players will control a large percentage of the market

through buyouts by firms like Daiichi Sankyo (Ranbaxy), Abbot (Piramal

Healthcare), etc

Recommendations:

Sustain competitive advantage by consistently focusing on reducing costs and

moving up the value chain

Increasing foothold in new fields like Biologics

Focus on innovation to develop New Chemical Entities/ New Molecular Entities

(NCEs/NMEs) which offer sustainable revenues going forward.

Industry analysis of the Hospitality sector

Industry Overview:

The Indian hospitality industry, which includes hotels and restaurant chains, is valued at

$23 billion. Hotels comprise 75 per cent of the total market size. Hotel Industry in India

has witnessed tremendous boom in recent years due to growth in tourism industry and in

business travel. The hotel market is expected to double in size by 2018.

Historical background in India:

Before 1980s, the Indian hotel industry was a slow-growing industry, consisting

primarily of relatively static, single-hotel companies.

Asiad games ,1982 and liberalization in early 1990’s generated tourism interest in

India

2000’s: Thriving economy and tourism industry lead to high growth

Current trends and Scenarios:

Currently, there are only about 1.2 lakh guest rooms and a shortage of 1.5 lakh

guest rooms needs to be bridged.

55

In 2009, 5.5 million tourists visited India and this number is projected to reach 10

million by 2010 due to the added footfall that commonwealth games are expected

to bring.

India ranked 11th within the Asia-Pacific region according to the Travel and

Tourism Competitiveness Report 2009 (World Economic Forum)

The tourism industry in India contributed 2.2% to the GDP in 2008-09 and is

expected to grow at a CAGR of 7.6% for the next 10 years

Emergence of mixed land usage

Porter’s framework:

Threat of new entrant: Barriers to entry are:

Land costs accounting for 30-50% of the total development cost, while

the same equates to about 15-20% internationally

Lengthy cumbersome process of obtaining licenses and permits

Brand loyalty of customers affects the new entrants.

High taxes that can inflate hotel bills by 30%

Bargaining power of customers:

Higher in metro cities due to increasing room supply

Bargaining power of suppliers:

Limited due to higher competition, especially in metros

Threat of substitutes:

The hotel relationship with customer and costs could be reasons for

switching.

The price variation of same class hotel services

Competition:

Intense competition in metros amongst same class of hotel services

Regulatory implications/hindrances:

Hospitality sector exempt from commercial real estate (CRE) category leading

to lower interest rates

Demand for infrastructure status for hotel industry

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Demand for exemption in excise duty for some items and increase in

depreciation costs to 20%

A Five-Year Tax Holiday for new hotels of two, three and four star category

hotels and Convention Centres in 2007-08 in Delhi and NCR.

Foreign Direct Investment (FDI) allowed in all construction development

projects including construction of hotels, resorts and recreational centers

50% of the profits earned from services provided to the foreign tourists were

exempted from tax and further 50% of the profit was also exempted if it was

invested in the tourism sector.

Major players and market share:

The major players in the hospitality sector are:

Public Sector Players:

ITDC hotels

Hotel Corporation of India

Private Sector Players:

ITC Hotels

Indian Hotels Company Ltd.(The Taj Hotels Resorts & Palaces)

Oberoi Hotels(East India Hotels)

Hotel Leela Venture

Asian Hotels Ltd.

Radisson hotels & Resorts

The hospitality industry is divided into organised and unorganised sectors with market

shares as follows:

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Level and nature of competition:

Competition in the hospitality sector exists between same class of hotel service like

luxury hotels, mid-market hotels, budget hotels etc. But due to demand-supply gap as

shown below, competition is minimized and room tariffs have skyrocketed

Size of market and market growth

Market size= $23 billion (2009)

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Market growth rate =6.6% (2009-10)

Best practices:

Increasing use of Brand.com sites in the overall sales and marketing strategy of all

hotel brands

e-CRM (Customer Relationship Management ) tools and integration of business

and e-commerce technology

Front end and back end integration.

Latest developments:

MICE: Meetings, Incentives, Conventions and Events -A new concept which

many hospitality companies including travel trade are adapting. Estimated growth

rate = 15-20%

Disintermediation and Re-Intermediation: Doing away with traditional

middleman and use of e-businesses to fill the void

View of sector’s future:

The hospitality industry will continue to grow due to continued economic growth,

increased interest in the Indian markets and improved international access,

combined with the modernization of major airports, demand-supply gap etc

Potential opportunities: Bed and breakfast model, budget hotels, eco-tourism, new

business models for restaurants

Entry of foreign players:

International chains entering India for budget and mid market hotels

100% FDI allowed for hotels

Tie-ups of major international chains with Indian hotel chains

Recommendations:

Investment in Hospitality Institutes to handle the continuing talent crunch

Demand for changing policy on high import duties

Part B (1)

The potential customers for Starbucks would belong to the following groups Age : The consumers will be of the age group of 16-33 as this is the main group in the

country that responds to the café culture

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Place: These consumers will belong to urban cities and specifically Tier-1 cities (Major cities) : Delhi, Mumbai, Chennai, Bengaluru, Kolkata,

Ahemdabad,Pune,Hyderabad Tier- 2 cities (Mainstream cities): Including 26 cities

Income group: The group will belong to the upper middle class and high income groups. As café culture applies to a certain set of behavior as well (For e.g.: Customers are well educated),instead of using income slabs ,Socio-economic classes (SEC) will be used to identify the customer. This classification is more stable than one based on income alone and being reflective of lifestyle, is more relevant to the examination of consumption behavior.

Here, ‘high’ socioeconomic classes refers to SEC A&B, ‘mid’ socioeconomic class refers to SEC C and ‘low’ socioeconomic classes refers to SEC D&E.

SEC A: The CWEs (Chief wage earners) of nearly half the SEC A households work in executive positions. The other half comprises mainly of industrialist/businessmen or shop owners. Almost all of them are either graduates or post graduates.

SEC B: CWEs of SEC B households are primarily employed at clerical or supervisory levels (46%). 29% are shopkeepers while 10% are industrialist/businessmen. Less than half are graduates or post graduates (45%). 38% are educated till the 10th or 12th grade, while 13% have had some college education. (* IRS 1998-1999 refers to IRS round, July 98-May 99)

In this estimate some figures and facts as by various agencies are used Potential Consumers in Tier-1 cities

Age distribution; Using the age distribution for India as given below (Source: Indicus Analytics)and considering it uniformly distributed in all cities and states ,we get that the percentage of people in the age group 16-33 as approximately 30%

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Population of major cities: The staistics for the population in major cities is given below(Source:Census 2001).The present population of delhi is 1.25 crore from .98 crore in 2001.Assuming this growth to be uniform

Net population in Tier-1 (2001)= 40 million (approx)Net population in Tier-1 (2010)= 40x1.25/.98 = 51 million

SEC staistics: The SEC staistics for major cities are shown below (Source: Indicus Analytics). Here data is for households and as sizes of households are smaller at higher stratae of society this doesn’t translate into percentage as per population.Assuming based on these values Population in SEC A as 22% and in SEC B as 24%

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According to the definitions of SEC A and B ,one can expect a large percentage of SEC A to be potential customers while a low percentage of SEC B to be customers. In order to determine SEC B’s percentage we take that percentage that has had some college education= 45+ 13% =58%Thus net percentage according to SEC= SEC A % + SEC B graduates

= 22 + (24x.58) = 35.92

Thus potential customers for Tier 1 cities will be= Population of Tier 1 cities x fraction that are 16-33 x fraction that are in

SEC group as shown= 51 mil x .3 x .3592 = 5.4 million (approx)

Potential customers in Tier 2 cities

Age distribution: The same age distribution as above applies of 30% Population of Tier-2 cities: We use the following data to estimate the population

of Tier-2 cities

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Assuming on an average same household sizes in both mainstream and major cities we get the population of tier 2 cities as

Population of Tier-2 cities= Population of Tier-1 Cities x Households in Tier-2 Households in tier-1

= 26 million

SEC staistics: Using staistics given above and reducing value for household size disparity amongst various groupsWe get SEC A% = 15% and SEC B% = 13%Net group % = 15 + (13x.58) = 22.54

Population in Tier-2 cities= 26 milx .3x .2254= 1.75 million

Total estimate: 8.45 million

Part B (2)

Starbucks competitors include but are not limited to

Café Coffee day

Barista

Costa Coffee

Café Mocha

Café Coffee Day

Strengths:

Largest number of stores: CCD as Café Coffee day is known, has as many as 937

stores in the country

In house sourcing of coffee beans: CCD is a division of India’s largest coffee

conglomerate, the Amalgamated Bean Coffee Trading Company Limited

(ABCTCL). Popularly known as Coffee Day, it’s a Rs. 750 crore, ISO 9002

certified company with Asia’s second-largest network of coffee estates (10,500

acres) and 11,000 small growers, Apart from the abundant supply of coffee, CCD

also has a fully equipped ISO certified roasting plant with a 70000 tonnes per

annum capacity.

Recognition with awards:

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“Most Admired F&B Retailer of the Year” 2010 and 2009 at the Coca

Cola Golden Spoon awards conducted by Food Forum India

Winner of eight awards out of ten at the Indian Barista Competition 2009

“Most admired Retailer of the Year” 2008 at the Indian Retail forum

Tie-ups with good companies and brand names:

Levi’s

Himalaya herbal healthcare

Oyster bay jewellery

Hero Honda Saregamapa ,a musical reality show

Zee English (contest based on the popular sitcom, Friends)

Customer loyalty and established Brand name

Online presence with features like Ideate (where customers give ideas and CCD

actualizes them), downloads, online stores etc.

Weaknesses:

Limited target audience of around 16-29

Quality and availability of food: While the outlets in major metros don’t have this

problem, many in other smaller cities have faced consumer complaints on quality

of food as well as availability of certain menu items

Pricing: The prices are in the range of 60 above for all items.

Sitting Arrangement: The sitting arrangement is such that it doesn’t offer too

much privacy and thus is not an environment where business meetings can be

held or people can come to just study or read.

Barista

Strengths:

Large number of outlets in India: Barista has over 200 outlets in India and is

eyeing further expansion

Large variety in Menu: Barista offers a wide variety of items on its menu which

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offers it the unique opportunity to cater as more than a coffee shop

In-house sourcing of coffee: Barista imports and serves Lavazza espresso.Lavazza

is an Italian manufacturer of  coffee products and has over 100 years of

experience with claims that  16 out of the 20 million coffee purchasing families in

Italy choose Lavazza

Experiential lifestyle brand: Barista apart from providing good service and

products have focused on developing cafes with the ambience of a typical Italian

neighborhood espresso bar so as to provide a comfortable place for people to

relax and experience “the joy of coffee”.

Recognition with awards:

Times Food Guide 2008 - Best Coffee Bar Award 

IMAGES Retail Award 2007 - 'Most admired retailer of the year: Catering

Outlets’ 

Super Brand 2006-2007 

Online presence with features like online community, games, downloads etc.

Tie up with good companies and brand names

Taj group

Lacoste

Sony music

Planet M

Elle 18

Weakness:

Limited presence in small cities and towns

Self service for the customers

Needs to import its product (import duty)

Costa Coffee

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Strengths:

Costa Coffee is a leading brand with presence in 25 countries.

Presence in all major cities in India (50 outlets in all)

Has formulated new strategy for expansion and aims to open 250-300 stores till

2014

Has access to its good quality coffee imported from its roastery in UK

Weaknesses:

Quality of food at certain malls has been poor

Plans to open outlets only in metros

Import duty on products

Café Mocha

Strengths

Presence in all major cities in India (20 outlets)

Theme based Cafés with strong customer loyalty

Wide variety of products offered

Clubs like “Backpackers club”,” Music club” etc introduced in cafes to create and

sustain customer loyalty

Weakness

Limited presence in the country

Not as established as the other competitors

Strategy to compete

Starbucks is the world’s largest retailer of coffee and that reputation precedes them. Their

launch in India should be promoted like wise to ensure maximum coverage of their

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launch

Competitive pricing

Starbucks should create a reputation in India wherein

Starbucks outlets always deliver on quality of their products

Starbucks has good distribution system with all menu items available

Incorporate features like Wi-Fi connectivity in their cafés, newspaper and magazine

stands, tie-ups with book cafes, etc.

Opportunities:

Large untapped market: The retail café market is pegged Rs.1000 crore is growing at a

rate of 40% per annum.

The upper middle class and youth are increasing recognizing Cafes as places to have

informal meetings

Cafes are increasingly getting involved with book launches, book reading sessions and

live band performances. Such ventures increase and sustain customer loyalty

Starbucks is a recognized brand name for retail cafes the world over.

Quality of service has been a concern at the newer outlets opened by café

chains.Starbucks can establish itself as a brand where service is paramount by placing

emphasis on training café employees

Threats:

Well established competitors with customer bases and all of them have plans to expand

their operations

India is soon going to see other foreign players enter the retail café chains market. For

e.g.: UK’s Coffee Republic, Malta’s Cafe Jubilee, and Australia’s Coffee Club Group etc.

Large unorganized market

Part B (3)

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Starbucks International owns its entire line of coffee-bar stores outright in USA ,with no

franchise investments or partnerships. However, their international operations run on the model

of partnership. This same model of joint venture is being used in India as well.

The causes for using joint venture as an entry strategy are as follows:

Shared Risk and Cost: A joint venture reduces the risk involved in setting up operations

in a new country. The risk is reduced financially by the involvement of the partner and

also due to the knowledge advantage about local traditions, tastes and values that the

partner brings with it. A joint venture can also reduce the cost of setting up operations if

the local partner can contribute in terms of infrastructure required or act as supplier. For

e.g.: When Barista Coffee Company was a joint venture between Turner Morrison and

Tata Coffee ,Tata Coffee was also the exclusive supplier of coffee blends to Barista

Knowledge acquisition: Two of the criteria which Starbucks considers for partnership

selection are that the partner knows the retail market and has experience in the multi-

restaurant business. The advantage of these two is essentially having a partner with

access to the market and thus knowledge about it that can help Starbucks in making

numerous crucial decisions like site selection, creating new products as per local tastes

(For e.g. : Traditional Chinese cookies are sold at Starbucks operations in China),

Adapting existing products to local taste (For e.g.: Indians have cream and sugar with

coffee),help with positioning the brand and formulating strategy to compete against

competition.

Protection of sustainable competitive advantage: While the quality of coffee offers a

competitive advantage the main competitive advantage that Starbucks boasts of has been

their work force. The founder of Starbucks agrees with this statement -”Our only

sustainable advantage is the quality of our work force”’. Now it seems that a joint venture

would offer little protection to this. But Starbucks has been able to use joint ventures

successfully by partnering with companies with the same goals and ideas and putting

strict guidelines in place. In Japan their compatibility with Sazaby Inc. and commitment

to the same ideas about quality of service has made the partnership successful

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Leverage partner’s skill base or technology: The partnership can help Starbucks in this

respect as well

The reasons why joint venture is the best entry strategy for Starbucks:

High domestic competition: Starbucks would face competition with many domestic

competitors once it enters India. It needs to make the right decisions about site location,

product differentiation etc. All its competitors have an advantage of knowing the market

intimately and having a loyal consumer base. At such levels of competition Starbucks

can’t afford to get its act wrong. Having a partner with experience in retail sector and the

requisite creativity to adapt Starbucks’ products to the Indian palate would help a long

way in establishing Starbucks in India.

The Indian consumer: Starbucks has wholly owned subsidiaries in Britain and has a

majority stake of 90% in Australia. In markets like this Starbucks has been successful due

to the similarity of the market to USA. The Indian market is very diverse in terms of

taste, culture and preferences. For example: To tackle this CCD introduces food items

based on local cuisine like Pindi Channa Puff in Haryana. Starbucks needs to understand

this market and target it well from the very start so as not to dilute the initial image that

Starbucks would enjoy due to its global operations. Thus a partner with an understanding

of the Indian retail scene would help.

Better than wholly owned as well as licensing: Joint venture is a better entry strategy than

wholly owned subsidiary as seen from the reasons given above. Licensing is also not as

good an option due to the fact that Starbucks will not be able exercise control over the

licensee’s performance or activities. India’s coffee retail market is growing at a rate of

40% per annum. India is estimated to have a market for 5000 cafes over the country

while only about 1200 exist. In a market with this potential ,a joint venture seems to be

the best way to go that combines both Starbucks’ expertise with that of a partner’s about

the Indian market

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Part B (4)

Ways to tailor Starbucks’ offerings to the Indian consumer

Vegetarian menu items: Many Indians are vegetarians and thus the Starbucks’ menu

should have ample amount of vegetarian food items. As vegetarians object to egg, the

desserts for them as well as sauces should be eggless. It should also be ensured that the

vegetarian items are prepared separately from the non-vegetarian items. McDonald’s

follows this policy and it helps in building their image as a brand that is conscious of and

respects the local traditions

Adapting products to the Indian palate: In the past decade many international food chains

like Domino’s pizza, Mcdonalds etc have grown in India. One key reason for their

success has been their ability to adapt their products to the Indian palate. As a result

product formats have been made using traditional spices and ingredients unique to India

have been incorporated (For e.g.: Paneer). Starbucks too needs to align its products to

Indian expectations

For e.g.: Most Indians enjoy coffee with cream and sugar.

Choice of meat: The two major religions in India are Hinduism and Islam. Hindus don’t

eat beef as they consider the cow sacred and Muslims don’t eat pork as they consider pig

unclean. Starbucks should take this into account and not serve the above. Instead their

existing products should be modelled on chicken, lamb, fish etc.

Product names: Product names for product formats specially designed for the Indian

Palate must reflect that “Indian-ness” too. This can be done be using a mixture of Hindi

and English (Hinglish) in the product name

Incorporating local cuisine: Starbucks’ can introduce traditional snacks or innovate upon

them to create new product formats that have a root in Indian cuisine. For e.g.: Starbucks

sells traditional Chinese cookies in their stores in china. CCD sells samosa and has

product formats based on local cuisine in some regions like Pindi Channa Puff in

Northern India

Hinglish taglines: The language of the youth today has become Hinglish, a mix of

Gandhi’s Hindustani and the Queen’s English. Taglines in this form have the potential to

form an instant connect with the consumer as seen with Domino’s “Hungry kya?” and

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McDonalds’ “What your bahana is?”. With the right line ,Starbucks could have a strong

promotional tool at its disposal

Part B (5)

Marketing strategy for Starbucks:

Product quality: Starbucks has always put a lot of emphasis on product quality. In order

to market this, the idea of Starbucks as the place to have a “perfect cup of coffee” has to

be established through advertising, taglines and of course the quality of the product itself.

“Third Place”: From the very beginning, the Starbucks marketing strategy has focused on

creating the “third place” for everyone to go to between home and work. In India too,

Starbucks should focus on creating a retail store experience that is attractive, comfortable,

and entertaining, designed to attract customers and keep them coming back to the stores.

For this the store should have comfortable sitting arrangements, a good selection of music

and other facilities like Wi-Fi connectivity, tie-ups with book cafes etc.

Cluster strategy: Cluster strategy of opening multiple stores in close proximity has

worked for Starbucks in many markets. In India this strategy has been successfully used

by their competitor CCD as well.

New Products: Apart from its core products, Starbucks should continue to experiment

and introduce new products in the market. These products could be a result of a tie-up

with a new brand or introduced during festival season or during say a sporting event like

Cricket or Football World Cups etc.

Tie-ups with other brands: These brands should target the same consumer groups as

Starbucks. The tie-up could be for the duration of a contest or some special offers etc.

Theme based cafes: Starbucks has always tried to create a unique coffee house

experience. One way to establish this is to create theme based cafes. These cafes could

cater to different people like a book café where a bookshop and a coffee shop come

together or music cafes where customers can burn their own CD’s and select music etc.

During sporting events like IPL existing cafes can be modified into Sport-themed cafes.

Using cafes for book launches and book readings

Using live bands in cafes to attract customers

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Radio taxi: Advertising on radio taxis that are used by the urban crowd as well as

foreigners and will thus help

Creating Starbucks community with an active presence online , Talking to

customers on twitter, answering questions, retweets, using media like Facebook,

Youtube, Website to find out reactions of customers about different products.

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References

1. starbucks.com. [Online] 2. ORG-IMS 08-09. 3. technopak. Indian hospitality industry outlook 2009. 4. indicusanalytics.com. [Online] 5. expresspharma.com. [Online] 6. pharmaceuticals.gov.in. [Online] 7. censusofindia.com. [Online] 8. Ten Trends Influencing Hospitality in India: How the Game is Changing. HVS.com. [Online] 9. barista.com. [Online] 10. rediffbusiness.com. [Online]

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