Case Game: The Case Of Competitive Response

CASE GAME
The Case Of Competitive Response
Contd.

Can Total Build New Barriers?

THE DISCUSSION

M. VENKATESHWARLU
Professor, NITIE

Total would be able to dictate terms as a market leader only if Kumar and his team are proactive. They should formulate a strategy focusing on four elements: strengthening the dealer base and supply-chain; using their core engineering skills and product-design capabilities to make the products innovative and superior; collaborating with selective competitors for providing contract manufacturing facilities; and entering the global markets if the capacity and the margins permit such an endeavour.

Total should simultaneously consider mutually exclusive options such as: liberal incentives, relaxing credit norms, and revenue-sharing methods. Of course, such initiatives will increase the marketing expenses of the company. However, the expense must be incurred as market conditions have changed and entry barriers need to be strengthened.

Total should use its product-design capabilities and core engineering skills as a platform from which to launch premium products. It will enlarge the marketing space for Total by creating new niche markets. Kumar should introduce a variety of products at short intervals on a regular basis. Adding new product features and providing additional facilities to consumers will always strengthen the brand and create barriers for new entrants.

Advertising is an effective brand-building method, but it can't solve all the problems. Strengthening the supply chain is perhaps the safest and the most productive internal move. The focus should be on improving vendor-confidence and optimising the sourcing and manufacturing skills. The company may also negotiate with the suppliers for liberal credit, incentives, and trade discounts.

One of the defensive strategies would be to sign collaborative manufacturing contracts with potential competitors. This would also enable Total's managers to understand competitors' moves on their pricing mechanism and supply-side equation.

Going global should be the last point in Total's agenda. If Total wants to make its mark on the global markets, it need not necessarily be at the cost of the domestic market. Value-added new capacity or a portion of it could be used for international sales. But till such time when Total adds new capacities, it should look at the export option to first establish a market presence and gain a first-hand experience of local nuances. Only then should it consider overseas manufacturing.

RAJESH KAUSHIK
Consultant, Renaissance Consulting

The risks facing Total Industries are many. Its resources are spread thin across multiple Lines Of Business (lobs), not all of them necessarily are areas of core competence. Erecting barriers would be easier with a better defined business mix. Total should look to the Balanced Scorecard methodology for strategy formulation and deployment. The illustrative strategic objectives for Total can be defined in the Balanced Scorecard framework as follows:

Financial: Total needs to consolidate lobs and commit resources around the three largest ones: switchgear, refrigerators, and CTVs. It understands these businesses the best and should build revenue-streams around them. Additional revenue-streams can be built by expanding internationally. At the same time, Kumar and his team should start looking at divesting non-core lobs. The turnaround of the soaps lob can be an opportunity to add value and divest a profit-making entity. In the longer term, the batteries business needs to be evaluated similarly as it may lose focus in the overall portfolio.

Customer: Total needs to offer superior and innovative product propositions to maintain leadership in the durables business. Its engineering skills must be leveraged to the maximum towards innovating along the three key product lines. The dealer network is important for Total, but given the opportunities in the e-business space, Total should expand the reach of its sales and service through strong e-channels.

Internal: Total should re-look at critical business processes against best-in-class benchmarks. Advertising and promotion should be seen in conjunction with growth targets. The answer may not be to reduce one at the expense of the other, but allocate on a micro-level in the over-all marketing plan so that key SKUs and product lines get optimum customer exposure. Internally, a detailed Activity Based Costing (ABC) exercise can help understand cost components better and hence stretch cost savings potential that much more. The management needs to exploit alliances in the marketplace to extend reach and sales potential.

Learning & Growth: In a dynamic, competitive environment, continuous development of skills, retraining, and appropriate recruitment for managing the new challenges are critical. Total should also look at building robust knowledge bases across the LOBs to enhance cross-sell opportunities.

Entry barriers need to be erected, beginning with a redefined strategy. The Scorecard framework offers Total an effective way to align the entire organisation. That, in the end, would be the best entry barrier.

M.N. GOPALAKRISHNAN
V-P, Business Consulting Group

Total faces an alarming situation. By its own admission, Total cannot grow its topline without diluting profit margin. With the prospect of aggressive competitors like Koolit, the top-line as well as the bottom-line of Total stands threatened. In fact, if Koolit succeeds in weaning away Total's dealers, vendors and key employees, it can result in sudden death for Total. Hence Kumar and his team have to quickly get their act together to save their business from annihilation.

Although there is an immediate threat visible only in refrigerator and CTV businesses, it may just be a matter of time before other businesses come under attack. In any case, all businesses of Total are in a low-growth phase. Hence, it may make sense for Kumar to review the strategies for all business units of Total.

Although Total claims low-cost manufacturing skills as a key strength, in none of the businesses can it adequately leverage them to improve margins (See Total's Skills Matrix). In fact, in most of these businesses, the industry trend is to outsource manufacturing.

In marketing, Total has to consider two issues-dealer franchise and brand equity. The crucial question with regard to dealers is whether their loyalty can be bought and retained with credit or incentives. Probably the answer is 'no'.

If current profit margin is 10 per cent, a 2.5 per cent increase in cost due to higher credit (as suggested by CFO Vikas Singh), is not a cheap price, since the impact on profit margin would be a 25 per cent drop! Hence Total cannot afford to increase dealer credit even as a tactical measure.

Kumar should consider divesting the brands while there is still a good value in them. The alternative to this strategy, i.e., defending the brand shares, would be a costly option. If Total can realise good value from its brands, the cash could be very useful in building the other two SBUs.

Essentially the above strategy would change Total's SBU perspective from that of 'products' to 'processes'. The objective is to refocus its energies to build on the company's strengths in 'design & engineering SBU' and 'manufacturing SBU'. The larger aim should be that of converting these SBUs into world-class business units. This may probably be the only way of retaining vendors and employees.