MARKETING CLUB Gspume APR'19 WHAT THE HECK IS THAT Shashank Pillai, PGDM 2018-20 The Boomerang Effect Millions of households in China & India are on the verge of entering the new middle class. Number of people in this class will be increasing at a very high rate over the next decade. Greater quantities of everything necessary for the ‘good life’ will be demanded by this class. These things include food, cars, electronics, high-quality health care and clean & safe water. In both coun- tries people are changing their diet. They are including more dairy, fresh vegetables, nuts and in China high pro- tein foods including chicken, fish, pork and beef. This huge surge in the con- sumption will present new economic prospects but it will also invite signifi- cant consequences. By the year 2020, per capita income in China and India will nearly triple and these countries will boast around 2 bil- lion economically able consumers. There is an estimate that a child born in China in 2009 will consume on average 38 times more over his or her lifetime than one born in 1960. In India, a child who came into the world in 2009 will consume on average 13 times more than one born in 1960. Consumers in two countries will collectively spend at least $10 trillion per year by 2020. The wave of consumption will offer vari- ous business opportunities across vari- ous industries and product categories. But, this wave will also bring some con- sequences with it not just in India and China but worldwide. This wave will generate huge demand for globally traded commodities like corn, fertilizer, steel, cotton, cement, oil, gas and elec- tricity. This Y-o-Y increasing demand will boomerang across the globe. This demand will also drive demand for commodities which are supply con- strained and will push up the prices of these commodities. But this demand would be very volatile in nature as Chi- nese and Indian consumers purchase more-and then less-of various goods requiring specific commodities. This volatility in demand and in turn con- sumption will heavily affect the fate of Western producers of these commodi- ties. In supply-constrained markets, prices will swing wildly as M-oM import changes, inventory fluctuations and new production capacity. This effect on western producers is known as Boomer- ang Effect. Companies that use these commodities will need to improve their skill sets. They will have to learn to use a range of substitute materials and develop an ability to change prices accordingly to maintain margins. They will have to learn how and when to stockpile inven- tories. Vol.1 No. 1 mars@spjimr.org Page 1MARKETING CLUB Gspume APR'19 io Shashank Pillai, PGDM 2018-20 The Boomerang Effect If a middle-class U.S. family of four is having a Sunday dinner of roast beef with vegetables, salad, milk and but- ter-pecan ice cream for dessert. If four servings of each item currently cost a total of $27 ($9 for the roast beef, $4 for the vegetables, $4 for the salad, $4 for the milk, and $6 for the butter-pe- can ice cream), the very same meal, in 2020 could very well cost upwards of $52. Specifically, if the demand and in turn consumption of chicken, pork pecans continues to accelerate in China and India then middle- class house- holds in the U.S. and Europe will face a major problem: in real terms food prices will be higher. On average, incomes of families in U.S. have stagnated during the past decade, and prediction between now and 2020 is that, real income in the U.S. will grow at a compound annual rate of only about 0.4%. It is very difficult for a family who hardly pays $27 for a dinner, can afford spending $52 in just four years. Consumption of Crops: The supply of most crops, including corn, is inelastic in season—the crop planted is the crop available. The agri- culture industry can supply any crops only to the extent that it is able to pro- duce. Productivity is largely a function of rainfall and other weather condi- tions. The demand in China and India, for these and other such crops will create problems. By the end of the cur- rent decade, the percentage of global GDP by China will grow by 4% and that by India will grow by 1%. This growth will be driven by capital investment, education, and expanding worker skills in China and India. On the contrary, during the same period, the U.S. share of global GDP will shrink by 3%. Global GDP Real GoP. 2011 oo growth’ (%) United states 4 1s China 10 9a India 3 75 Rest of the world? 6 26 Global 100 27 Globalreal GDP? 65,714 (billions) ——— Global GoP. Real GP. 2020 3) growth’ (%) United states a 28 China 4 80 India 4 80 Rest of the world® a 30 Global 100 32 GlobalrealGDP? 91,026 billions) By 2020, the economically able in China and india will total 2 billion Conclusion: The boomerang effect is real. Over this current decade, we will see how the growth in demand from Chinese and Indian consumers will lead to higher demand for commodities and an associ- ated squeeze on energy, water, and food supplies. The shortages will have many adverse effects that will mean higher prices for everything from cars, Vol.1 No. 1 motors, and appliances to jeans, T-shirts, and leather shoes. These global trends may lead to food riots worldwide. mars@spjimr.org Page 2MARKETING CLUB Gspuime APR’19 KNOW YOUR BRAND Aditya Kadrolkar, PGDM 2018-20 DOLLAR SHAVE CLUB SHAVE TIME. SHAVE MONEY. In an industry where brands like Gillette and Schick operate hearing a start-up wres- tling away market share so fast is of sur- prise. Dollar Shave Club started in 2011 when its founder Michael Dubin met his friend’s father in law and discussed on a rather bizarre issue of warehouse full of pending razor blades. Micheal remembered the inconvenience he had to access them in stores and thought if they could be deliv- ered ectly to his home. Michael’s sole aim was to provide low price good quali razor blade at your doorstep witho| unnecessary features. Dubin, a comedian himself, create larious advertising campaign ta ly on Gillette and other major b their highly priced products. The ing campaign focused on creating ness among its target audience aboutlth unique value proposition providing lo cost razor blade delivered at home. The campaign moved away from showing the protagonist turn into chiselled model after shaving but focused on appealing to irrita- tion of customers of shopping replacement razor blades at much higher costs. The video cost $4500 and attracted huge amount of traffic on company’s website crashing the server. DSC received orders for 12000 units in next 48 hours and video campaign since then has received 24 mil- lion views. DSC reached revenues of $100 million by 2015. This extraordinary growth was possi- ble due to targeted and humorous media campaign and a disruptive supply chain to back up the demand created. Dollar Shave Club’s supply model is also highly cost-ef- fective. The company sources its blades and other men’s grooming products from China and South Korea, and manages inventory from a central distribution centre. Their in-built demand forecast is dictated by demand from subscribers, which means the changing number of subscribers is the only source of variability. DSC enjoys one huge advantage over most e-tailers as it handles only a small number of SKUs. While many online companies compete by offering a t selection of products, Dollar Shave has chosen a different route: selling a number of quality products. Shave Club became number one ‘azor company with a 53% market ompared with Gillette’s share of ect to Consumer model has helped rge in revenues over years. Dollar e Club was acquired by Unilever in in uly 2016 for $1 billion. The brand has since then expanded its reach to get 3.2 million subscribers across United States, the UK, Canada and Australia. It is expect- ed to launched across Asia and Europe in near future challenging Gillette globally. With P&G and HUL into foray the razor market is expected to get interesting. fo} 8]; BLADES F**KING Vol.1 No. 1 mars @spjimr.org