The Case Of Market Consolidation
In a stagnant consumer durables market, Total Industries finds its margins shrinking. B.M. Ghodeswar of NITIE, S. Motwani of Godrej-GE, and A. Srinivasa of TSM suggest consolidation strategies.
By R. Chandrasekhar
Our next stop,'' announced Srikant Suresh, ''is Bright Electronics.'' Seated with Suresh in the rear of a symphonic silver Lancer was Abhinav Kumar, the 30-something CEO of the family-owned Total Industries. Suresh was president of one of Total's four divisions, consumer durables (the other divisions; switchgears, batteries, and soaps).
In the three hours since they had left their Nariman Point office, Kumar and Suresh had met two of Total's refrigerators and television dealers. They had saved Bright for the noon session not only because it was one of Total's largest dealers: Total was also Bright's single biggest supplier. Besides, Arun Jain-Kumar's classmate from Wharton-had insisted on Kumar and Suresh having lunch with him.
Jain was coming out of the small stockyard when Kumar and Suresh showed up. After the usual pleasantries were exchanged, the trio retreated to Jain's office located on the first floor. ''Arun, as you might be aware, Total's competitive position in the durables segment is under threat,'' said Kumar, making no attempt to hide his concern.
''Yes, Srikant did share the findings with me,'' said Jain.
''Now, I am not saying that we are scared,'' Kumar quickly added. ''We are simply getting our facts in place. As the survey reveals, we still are the market leader in both refrigerators and CTVs. We have built both businesses from modest beginnings into high-growth, high-marketshare ventures. But the 'stars' in our portfolio are facing the risk of slipping into question marks.''
''The reason,'' Suresh explained, ''is that our low-end competitors are growing faster than we are. For instance, BG Electronics, which had an 8 per cent share in CTVs last year, now has a 12 per cent share; Kooltas has muscled its way into the refrigerator market, raising its share from 9 per cent to 12 per cent. Total's share has grown by less than 1 per cent.''
''That's certainly a cause for concern,'' noted Jain.
''The issue is further compounded by a more immediate problem,'' said Kumar. ''The overall demand for both categories is not growing at the rate we expected it to. There is a brand glut. The number of models in both categories has doubled in the last two years alone.''
''Don't I know,'' chuckled Jain. ''In fact, we are already facing a bad supply overhang in refrigerators.''
''That's a passing phase,'' reassured Kumar. ''But what is of greater concern in a competitive market is that differentiation is becoming difficult. Technology no longer provides the cutting edge. Products, and even the elements of after-sales service that we thought were unique to Total, are increasingly becoming duplicable.''
''Even Total's value-for-money platform?'' asked Jain.
''Yes,'' replied Kumar. ''Let me explain. The success of our durables division is due to two factors: smart positioning right from the initial years, and product-line development in the latter years. The advertising lines-'Life-like Images' (for TV sets) and 'Freshness Forever' (in the case of refrigerators)-became synonymous with Total. But over time, almost all brands in the market have come to be equally placed in terms of any marketing parameter that one can think of: positioning, the range of models being offered and, of course, after-sales service.''
''I know that I-as a dealer-shouldn't be saying this,'' Jain said, ''but some of the findings came as a surprise to me. For instance, I didn't know buyers could visit as many as six dealers and touch-and-feel all the brands, and that they spend more time examining brands that go in for intensive advertising (See Pre-purchase Behaviour). ''
''Believe me, we too were surprised,'' said Suresh.
''More than 70 per cent of those who had bought a Total refrigerator or TV had no problem so far,'' said Kumar. ''But soberingly, only 15 per cent responded positively to a specific question on whether they were satisfied with Total's performance (See Post-Purchase Behaviour).''
''For a company with around 2,100 dealers, including 20 exclusive ones, the results are rather surprising,'' noted Jain.
''Yes and also considering the fact that we have the strongest distribution network in the country, and that we managed to develop a multi-branding strategy in both the product lines,'' said Kumar.
''I think there's a pressing need to address two specific issues: one, formulate a strategy to address the buying behaviour of consumers towards CTVs and refrigerators in general, and two, enhance the brand image of Total among consumers who have already subscribed to the brand.''
''Wasn't this bit of the brainstorming supposed to be done back at Total with the others?'' Kumar asked, suddenly looking at his watch. ''Gosh, it's going to be three. We'd better rush,'' he said.
By the time Kumar and Suresh got to the conference room, the other executives were already gathered, and sipping coffee and tea.
''Sorry folks,'' Kumar said, settling into his chair. He quickly brought the team to speed on his and Suresh's meeting with Jain. ''Jain is fully prepared to back whatever re-bound strategy we come up with. The question is, how exactly should we interpret the research data and implement corrective strategies.''
''Before we get into that, I have a suggestion to make,'' piped up Ratika Sahai, the young president of the batteries division. ''Instead of just worrying about declining market shares in the domestic segment, we should be looking at exports.''
''Well, that's an angle we haven't looked at from the point of view of consolidation,'' admitted Kumar.
Encouraged, Sahai continued. ''An export focus has to be there because no single brand in a market as competitive as this can hope to get more than 20 per cent share without having to compromise on margins. Beyond, say, 25 per cent, the law of diminishing return sets in,'' she said.
''I couldn't agree more,'' quipped Suresh. ''And I say this not out of bravado, but out of belief, which is based on facts. I think there are three major strengths that the durables division has. One, our tool room and engineering skills. The tool room provides much of the highly sophisticated precision engineering for injection-moulding of plastic parts required for CTVs and refrigerators. For us, this strength reduces the time required and the cost involved in bringing new models from the drawing board into the market.''
''What about the other two strengths?'' asked Manoj Kohli, the president of Total Industries' switchgears business.
''The second strength,'' pointed out Suresh, ''lies in our state-of-the-art design studio. We can programme any digital features the consumers want because we are good at programming microcontrollers-the chip that is the brain of all modern appliances. And third, our chassis-design faculty would help us order components from any vendor.
"In contrast, some of our competitors necessarily have to depend on a Japanese or Korean company to provide the chassis, forcing them to buy the entire range of components from the vendors decided by the original designer. That invariably drives up the costs.''
''Our immediate concern,'' Kumar said, refocussing the discussion, ''is to look for clues in this particular market research report so as to consolidate our existing presence in the domestic market.''
''The question as I see it,'' noted Suresh, ''is what kind of an innovative marketing strategy do we adopt keeping in mind the feedback? How should we try to influence customer perception in our favour?''
''And finally,'' Kumar added, ''how can our division buck the trend of diminishing margins that accompanies volume growth?''
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