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Marketing & Sales

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1. E-selling of rebar: How should TATA Tiscon go about it?

Introduction

Established in 1907, TATA Steel is a pioneer in branded steel retailing in the country. The company embarked on this

journey way back in 2000-‘01 – branding steel for the first time & setting up professional distribution network to

service small individual retail consumers. The largest brand of TATA Steel, TATA Tiscon is a leader in reinforcement

bar (“sariya” or construction rod) category with a market share of 13% in FY’15.

Background

The rebar industry is dominated by local/secondary players who account for more than 60% of the domestic

demand, the rest being catered by Integrated Steel Producers (ISP) such as TATA Steel, SAIL etc. Since inception, the

focus of TATA Tiscon was on people constructing their own houses called individual house builders (IHB). Driven by

consumer insights, TATA Tiscon had brought in many industry changing practices such as selling by pieces,

Recommended Consumer Price, doorstep delivery, Retail Identity Program shops in the past and is the only

Superbrand in its category (FY’15). TATA Tiscon commands a premium of almost 20% over and above competition

from consumers in retail market (FY’15).

Channel overview

TATA Tiscon has got the largest network in the country with presence in 95% of the districts. The channel follows a

structured 2-tier model - comprising of 40 distributors who in turn service around 5500 dealers (FY’15).

Most of its distributors are old timers with business relationship of more than three decades. All distributors

exclusively deal in TATA Tiscon & have grown with the brand over the years. Steel industry is cyclical in nature &

distributors have gone through these ups & downs. The distributors are considered as an extended arm of company

by company officials. Every year their achievements are celebrated in Annual Parivaar Meet – wherein the Managing

Director of TATA Steel, himself joins in.

Out of its dealer base, 1100 dealers are exclusive – accounting for 40% of total TATA Tiscon sales. The others are

non-exclusive. Following trend of shifting IHB base to smaller Tier II/III cities, TATA Tiscon has expanded its channel

network from 3500 dealers (FY’12) to 5500 dealers (FY’15). The new dealers account for almost 15% of total sales

(FY’15). Currently, 78% of total sales come from Tier III & below cities.

Changing Consumer trends

E-commerce is changing the business landscape very fast in India. Consumers prefer to shop sitting at their homes

nowadays. Online retailers such as Flipkart & Amazon are cashing on this opportunity offering convenience to

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consumers in various product categories. Virtual stores are slowly replacing physical stores. Traditional retailers such

as Big Bazaar have launched Big Bazaar Direct & global players such as amazon.com are investing heavily in India.

With this changing consumer behaviour, TATA Tiscon is also planning to start E-selling. However, steel rebar is a

bulky item unlike apparels & electronics and logistics play a crucial role. Credit given by dealers to IHBs also plays a

crucial role in retail. There is also 2% extra cost for using online payment gateway – which will be difficult to pass on

immediately to consumers. The reaction of existing channel to this initiative is also vital for TATA Tiscon. And, the

marketing team strongly feels that under-pricing on online medium will be detrimental to the channel – biggest

strength of Tata Tiscon. In view of this how do we get consumers to buy online despite prices being either same or

higher than in store prices?

Critical case question:

1. Can TATA Tiscon afford to ignore E-commerce for the time being given the fact that its major target segment

is in Tier III & below cities where IHBs may not be net savvy?

a. If yes, won’t it be against its pioneering spirit? Isn’t it like real option which the brand will miss in

future if not exercised today?

b. If no, what should be the milestones in determining it’s success in medium term (3 years)? Will it

succeed? What do you think?

2. Should TATA Tiscon include existing channel partners in this initiative wherein orders will be fulfilled by them?

a. If yes, how do we make the business model economical? What should be the communication to

channel?

b. If no, what should be the communication to channel? How do we sustain their motivation level given

the long standing relationship?

3. Should TATA Tiscon launch its own E-commerce website or tie up with existing players in online shopping

business? What is the key controlling factor in online shopping business?

a. Should TATA Tiscon create a Market place for Construction and manage the consumer experience

while allowing other non-competitive brands to offer its products in the e-commerce platform –

Become an aggregator while in sourcing knowledge and product offerings

b. Should TATA Tiscon create its own knowledge platforms to offer the consumer a full experience

across his house building process – Own the process- back end as well as the front end

2. Taking Tiscon Readybuild to the next level

Case Background:

The construction industry in India can broadly be classified into three main segments- Infrastructure, Housing &

Construction, and Industrial (Exhibit 1). From construction majors such as L&T, Afcons, and Gammon etc. to small

and mid-size construction companies, projects under these segments are serviced with the use of TMT re-bars,

which come under fixed SKUs and standard lengths of 12 m. But, with the procurement and use of straight re-bars at

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project sites, there are problems that occur at various stages of construction (Exhibit 2) - (1) Re-bars have to be used

in specific shapes and lengths in accordance to specified designs. Hence, these straight re-bars have to processed (or

Cut & Bent) at sites, which could be more than 90%(Exhibit 3), and, (2) the processing of these re-bars is done with

the help of unskilled labour and manually operated machinery, which could result in quality defects and wastages

Customized Steel Solutions:

Tata Steel has always been at the forefront when it has come to providing cutting edge products and solutions to

ease the pressure on the construction value chain of a customer. Tiscon Readybuild is our latest offering to the

market, which means re-bars processed in the required shapes and sizes to match the consumption pattern of a

customer’s project. In a nutshell, the customer provides us with his bar bending schedule, which is fed into our

proprietary software, and customized re-bars are delivered to the customer within 7 days, which can be used for

construction without any need for further processing. It provides the following benefits- (1) Efficient space

utilization, (2) Better inventory and working capital management, (3) Assured availability and quality of material, (4)

Reduced wastage and, (5) Enhanced site productivity at site eliminating delays. The process is akin to a person asking

a reputed tailor to make a suit for him. The tailor then takes the measurements, picks quality clothing of his choice

and provides the suit in exact specifications on the promised date.

We see the evolution of Tiscon Readybuild in 3 phases. In the first phase, the concept was put in motion with the

establishment of the first Tiscon Readybuild centre by Tata Steel in July 2008 in Bangalore. In the second phase, with

our learning from the market place, and a need to support the ever increasing needs of the construction industry, we

tapped into the strength of our channel, and set up Readybuild centres at various locations across the country

through our channel partners, also known as ASPs (Authorized Service Partners). Today, we have 18 centres in total

(Annual Capacity-320 KT), and we would be taking the tally to 24 (Exhibit 4) during the year (Annual Capacity-350

KT). During the ongoing third phase, we have added new products and services to take Readybuild to the next level.

Pilot for couplers (mechanical splices to join two re-bars, which provide cost saving and better structural integrity)

are underway in select territories (Exhibit 5). We have offered to provide our customers with Bar Bending Schedule

(BBS) services, which translate a design into the required shapes and forms, and enable us to move up the value

chain (Exhibit 6).During the next wave, we will add prefabricated products such as welded mesh and pile cages in our

basket and elevate ourselves to the category of a complete solutions provider.

Performance and Concerns:

Sales in FY15 were at 84 KT against a target of 113 KT, and those from ASPs were at 62 KT (up by 11% from FY15).

Overall capacity utilization stood at 26% against a desired level of 40%. For FY16, we have assumed a target of 120

KT, with an ambition of 60 KT over and above plan and offering a bouquet of aforementioned products and services.

We would like you to dwell on the aspects that could help us grow seamlessly and generate a healthy bottom line for

Tata Steel and the possible issues that we face on our journey ahead. Some of them are as follows:

Increase capacity utilization

Enable value sharing: In the current model, we do not take back anything from the additional processing charges

(~Rs 3000/MT) that ASPs charge to customers. Going forward, we would like to plough back a fixed value for every

order processed, for lending our brand, software and business model to the ASPs. Hence, a mechanism needs to be

established

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Development of welded mesh and pile cages business in India

Exhibit 1:

Sub-segment Segment

Commercial buildings

Residential towers

Office buildings

Bungalows

Other buildings

Roads

Bridges

Flyovers

Dams

Irrigation facilities

Hydropower plants

Solar Projects

Wind power

Railways/Metro

Transmission lines

Urban infrastructure

Gas/Thermal power plants Infra/Industrial

Cooling towers

Cold storages

Mineral/Chemical plants

Maintenance

Others H&C/Infra/Industrial

Infra

Industrial

Sub-segment list defined

H&C

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Exhibit 2:

Exhibit 3:

6

Exhibit 4:

Exhibit 5:

7

Exhibit 6: