PRE-SESSION ASSIGNMENT 2010

Submitted By: Ishita Sharma MBA (FT) Batch 2010-12

Table of contents

y 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 y Question 2: Global and Indian Economy34  Part A.34  Part B.45 y Question 3.52  Part A..52  Part B..60

QUESTION 1: THE HUL PROBLEM Part 1 STP and 4P analysis of major Bubble Gum Brands
The major bubble gum brands in India are: y y y y 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

4Ps 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 companys 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 813

 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 4

tagline bade kaam ki cheez (very useful thing).This idea has been reinforced with every advertisement 4Ps 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.

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.

4Ps 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 clairs. Boomer Krunch

 Price: All products are priced at Rs.1 6

 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 y 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 813

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

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, Candicos 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.

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: y Name:

Age:

City:

Fathers 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) 9

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 2 3 4 5 6 7

15 16 13 13 13 17 17

Govt. S Army Business Army Doctor Govt. S Engineer

1.5 3 1.5 1 1 3 3.5

4 3 2 5 5 4 4

Engineer Engineer. Astronaut Doctor Doctor Designer Business

TV Net Playing Playing TV Outings Outings

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8 SNO.

17 Age

Jal Board F.O.

2.5 TV

3 Number of times eating out with family

Undecided Aspirations

Playing What do you do for fun

9 10 11 12 13 14 15

17 17 17 15 15 15 15

ITBP Business Govt. S Business Business Pvt. Sec. Farming

2.5 3 2.5 0 1.5 1 1

3 4 3 3 4 3 5

Engineer Undecided Undecided Banker Doctor Teacher CA

Playing Outings Outings Video games Playing TV Comp games

Zero Low High

Amount of parental supervision on spending habits

6 5 4 3 2 1 0 100 150 200 250 300 400
Number of children with particular pocket money/month

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Distribution of Consumers according to Pocket money

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 13

2. Bubba the cat

. 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):

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. Why would you switch to a new bubble gum brand (please specify one) 1. Better flavor 2. More juicy 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 didnt 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

Number of times bubble gum is bought 15

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

7 6 5 4 3 2 1 0 Center Center FruitBoomer Big Babol BubbalooUndecided Fresh

Best Brand Disliked Brands

Responses to Best and disliked Brands

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7 6 5 4 3 2 1 0 Regular Blueberry Watermelon Mixed Fruit Kachha Aam

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 havent 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 HULs bubble gum brand: y 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

Advertising costs: This would include the costs incurred on TV advertisements, celebrity endorsements (if any), radio, internet and print advertising etc. 18

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, hardboiled 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 90s 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, cars, mobile recharge coupons etc. I think the psychological pricing angle only applies to bubble

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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 wouldnt 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 brands 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 Cadburys 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 Perfettis 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 Boomers 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:

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. 21

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 y y y 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 wasnt available at any outlet

Part 4 (c)
Recommendations for traditional trade outlets: y Differentiated jars: The jars for HULs 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 brands 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: y 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. y 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 y 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. y 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 Splashs 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 Boomers 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 26

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 users 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 HULs 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 Babols 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 HULS 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 31

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. y 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 Boomers 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 HULs presence in Rural India effectively : One of HULs 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 ammasas the women are called can promote this brand alongside the other FMCG products.

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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]

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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 (1918-1920s): 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.  Germanys 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 1930s) 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 1970s Recession

The Mid 1970s 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 1980s recession

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The early 1980s 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 1990s 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

Japans 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

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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:

y y

Rise in oil prices significantly contributed to recessions of both the 70s and 90s Deregulation of banks and consequent high risk lending created problems in the 2007 recession, mid 1970s recession and in Finland in 1990s

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 70s stagflation led to high inflation that were dealt with deflationary measures in 1980s leading to Recession.

Pent up demand from WWI led to the a period of economic prosperity in 1920s 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 1970s 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.

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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:

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 IMFs 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 19952000 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:

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 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 werent 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 42

 Securitization of mortgages, sold to unwary buyers as highly rated  Conflicts of interest at rating agencies  Poor corporate governance and governmental deregulation

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  Dont 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 43

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 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:  Greeces 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 Greeces 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 44

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  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 dont 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).

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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

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. 46

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.
y

AD is the aggregate demand(AD = C+ I + G + X M) where C is consumer spending I is Income G is Govt. spending X-M is export-Import

The purpose of Fiscal Policy:

y y y

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.

y

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

y y

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.

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Role of RBI in Fiscal Reform

As a central bank, RBI is sensitive to the fiscal situation. RBIs primary objective is to Monetary stability. Fiscal is decided and determined by the sovereign, it is central banks responsibility to ensure that monetary stability is maintained and governments 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 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 48

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 banks 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 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 49

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.

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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]

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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 200910 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.  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.

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 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 y Porters 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:        y 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

 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

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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.

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 Many Indian companies maintain highest standards in Purity, Stability and International Safety, Health and Environmental (SHE) protection in production and supply of bulk drugs y Latest Developments:  Budget 2009-10 aims to increase in-house R&D by providing tax deduction of 200% y View of sectors 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. y 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  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 y 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.

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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 1990s generated tourism interest in India  2000s: 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.  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 Porters 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. 56

      y

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  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. y 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: 57

     

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:

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

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Size of market and market growth Market size= $23 billion (2009) 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 sectors 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 59

 Tie-ups of major international chains with Indian hotel chains y 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 y 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 caf culture y 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 y Income group: The group will belong to the upper middle class and high income groups. As caf 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 y 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% 60

 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 doesnt 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 Bs 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 groups We 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 y y y y Caf Coffee day Barista Costa Coffee Caf Mocha

Caf Coffee Day

Strengths: y Largest number of stores: CCD as Caf Coffee day is known, has as many as 937 stores in the country y In house sourcing of coffee beans: CCD is a division of Indias largest coffee conglomerate, the Amalgamated Bean Coffee Trading Company Limited (ABCTCL). Popularly known as Coffee Day, its a Rs. 750 crore, ISO 9002 certified company with Asias 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. y Recognition with awards: 63

 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 y Tie-ups with good companies and brand names:  Levis  Himalaya herbal healthcare  Oyster bay jewellery  Hero Honda Saregamapa ,a musical reality show  Zee English (contest based on the popular sitcom, Friends) y y 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: y y Limited target audience of around 16-29 Quality and availability of food: While the outlets in major metros dont have this problem, many in other smaller cities have faced consumer complaints on quality of food as well as availability of certain menu items y y Pricing: The prices are in the range of 60 above for all items. Sitting Arrangement: The sitting arrangement is such that it doesnt 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: y Large number of outlets in India: Barista has over 200 outlets in India and is eyeing further expansion 64

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

y y

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: y y y Limited presence in small cities and towns Self service for the customers Needs to import its product (import duty)

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Costa Coffee Strengths: y y y 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 y Has access to its good quality coffee imported from its roastery in UK

Weaknesses: y y y Caf Mocha Strengths y y y y Presence in all major cities in India (20 outlets) Theme based Cafs 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 y y Limited presence in the country Not as established as the other competitors Quality of food at certain malls has been poor Plans to open outlets only in metros Import duty on products

Strategy to compete 66

Starbucks is the worlds largest retailer of coffee and that reputation precedes them. Their launch in India should be promoted like wise to ensure maximum coverage of their launch

y y

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 cafs, newspaper and magazine stands, tie-ups with book cafes, etc.

Opportunities: y Large untapped market: The retail caf market is pegged Rs.1000 crore is growing at a rate of 40% per annum. y The upper middle class and youth are increasing recognizing Cafes as places to have informal meetings y Cafes are increasingly getting involved with book launches, book reading sessions and live band performances. Such ventures increase and sustain customer loyalty y y 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 caf chains.Starbucks can establish itself as a brand where service is paramount by placing emphasis on training caf employees Threats: y Well established competitors with customer bases and all of them have plans to expand their operations y India is soon going to see other foreign players enter the retail caf chains market. For e.g.: UKs Coffee Republic, Maltas Cafe Jubilee, and Australias Coffee Club Group etc. y Large unorganized market 67

Part B (3) 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 multirestaurant 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 68

Leverage partners 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 cant 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 licensees performance or activities. Indias 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 partners 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. McDonalds 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 Dominos 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 dont eat beef as they consider the cow sacred and Muslims dont 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 Gandhis Hindustani and the Queens English. Taglines in this form have the potential to form an instant connect with the consumer as seen with Dominos Hungry kya? and 70

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 caf where a bookshop and a coffee shop come together or music cafes where customers can burn their own CDs 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

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y y

Using live bands in cafes to attract customers 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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