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TRENDS: LEADER Bells And Whistles Faced with sluggish demand, desperate marketers are wooing consumers with innovative product design and features. Will the strategy work?
Across product categories, companies are putting that belief to test. Sansui recently launched a ''Combi TV'' that has an in-built audio-video CD player. Rs 12,000 (it was launched in 14 inch size), which is a 25 per cent bargain over discrete purchases. Hard-pressed for time and can't wait for your food to cool down before you shove it into the refrigerator? Videocon may have come up with a solution for you. Its ''Sensiflow'' senses temperature inside the refrigerator and steps up cooling when hot food is stored. When the food cools, the refrigerator automatically cuts back on power. Maybe not an earth-shattering innovation, but it's neat. Marketers say such ''innovations'' aren't just a nifty way of luring consumers, but also a means of reaping long-term benefits. For instance, in an imitator market like the durables', even a modest novelty helps differentiate the brand and the product. Then, there's the technology image that rubs on to the brand. The ultimate objective, however, is to make the consumer perceive better value for money in the new product. Nowhere is this rat race more apparent than in the sluggish colour television market. In just the last one month alone, market leader BPL has launched two new CTV models. One, called Studio Line, comes with a monstrous (for a television, that is) 1,000-watt, 7-speaker set. The other, named Matrix, offers picture-in-picture screen with twin soundtrack and twin tuning facility. Not to be outdone, LG launched ''Maestro'' and ''Flatron'' (while Maestro has the 'golden eye' facility, which adjusts the brightness and sharpness of the picture according to ambient light, Flatron has perfectly flat picture tube) and a digital TV capable of displaying more than 2 million pixels per square inch for some stunning clarity. Says Anand Narasimha, Head, Corporate Brand Management at BPL: ''When the market is dull one must keep up the excitement with new launches.'' Adds Pradip Dhoot, Deputy Managing Director, Videocon: ''Recession is a temporary phenomenon and part of a business cycle. You need to keep telling the consumers that you are alive and kicking, through new launches.'' Where novelty is harder to peddle, companies are coming up with ''value'' offerings (meaning, variously, cheaper or more for less). The Pune-based scooterette major, Kinetic Engineering, has just launched Zoom, a 110-cc step-thru scooter that is promising 50 kilometers to a litre of petrol, besides good pick up. Explains Sulajja Motwani, Joint Managing Director of Kinetic Engineering: ''In this jungle (of competitive market) you must keep running all the time. Only those companies who stay ahead of the technology curve will survive.'' It may not be technology for technology's sake, but in a crowded market a washing machine that also ''thinks'' would find it easier to stand apart. Or so thinks Kenstar, a home appliance maker, which recently rolled out a ''top-loading tumble wash'' washing machine, believed to be the first of its kind in the local market. (All other machines with tumble wash facility are said to be front-loading.) Its USP: easier use and detergent economy. Says Rahul Sethi, CEO of Kenstar: ''Our aim is to provide international quality a price affordable to Indian consumers.'' But what about the numbers? Do new-fangled products boost sales and profits? There are no clear answers. For example, Kinetic Engineering, which sales only step-thru scooters, sold 15 per cent more scooters in the first quarter of the current financial year when the industry as a whole witnessed a 25 per cent drop in scooter sales. But it is equally easy to misread the market. TVS-Suzuki had to withdraw Spectra-a four-stroke scooter-within two years of its launch because consumers found it too expensive, without any material benefit. But as any marketer would tell you, it's better to have tried and lost than not having tried at all. By Dilip Maitra INTERVIEW Laurence J. Brahm should know. As one of the foremost experts on China, Brahm has advised dozens of American Corporations on their China strategy, served the Chinese government as a consultant for restructuring state-owned enterprises, and written more than 20 books on China. His Re-engineering China, China's Century-The Awakening of a New Economic Powerhouse have been best-sellers. Fluent in Mandarin and Cantonese, Brahm-who also holds a black belt in karate-spoke online to BT's Ashish Gupta on China's economic reforms and competitiveness. Excerpts:
The development of the ''macro-control'' policy (largely accredited to Premier Zhu Rongji), which involves combining market economics with state guidance and sometimes intervention. Basically they are fully releasing the entrepreneurial spirit of the Chinese people, while continuing to guide the economy without losing sight of social welfare concerns. They are not too concerned with ideology any more. Level-headed pragmatism has been, and continues to be the guiding principle underlying their formula for success. Do you think that the often-talked-about hidden subsidies given by the government are primarily responsible for making Chinese products so fiercely price competitive? No, the subsidies apply mostly to critical products in the agricultural sector, primarily grain and rice. In short, China's system of subsidies is focused on sectors which have not kept up with reforms and in the provision of support to the rural areas where sharp income gaps still remain a critical problem. In fact, some 98 per cent of all products have been released from price controls, which at one time dominated the economy. That is only 2 per cent are subject still to price support and these are again mostly agricultural staples, oil and gas. Autos have just been released from price controls. It is also worth noting that 49 per cent of all exported products coming from China are produced by foreign investment enterprises most of which are majorly controlled by the foreign investor. Subsidies do not affect these enterprises, which are competing based on market conditions. What are the sectors where China is internationally competitive and will it continue remain so in the near future, and if yes, why? Currently, China excels in all electronics, light industrial products, and labour-intensive consumer goods. This is, obviously, due to the low labour costs relative to international standards, and an incredibly adept ability to respond to market changes and consumer conditions. In the future, it may be expected that there will be some shift to higher-end technology products. In short, many of the software companies that have made their bases in Taiwan, Singapore, and other tiger economies of the region are moving on-shore to China to take advantage of the highly educated, creative but still relatively inexpensive labour force emerging in the coastal cities. How has the Chinese government been able to curb discontent in the country? Basically by delivering economic reforms and increasingly improving conditions across the board. While there are sharpening differences between the rich and poor, the general condition of most people is improving. China has gone from an economy of scarcity and non-materialism in the early 1980s to an economy of surplus and conspicuous consumption in the 1990s. There were 125 million people at the poverty level in 1987. Now there are only 30 million. Yes, there is still a lot of work to be done, but the improvements are quite clear and apparent. What kind of problems do you envisage for the Chinese economy in the future? Current problems that are eating at the roots of reform include corruption, which is being rallied against through a series of campaigns and crack-downs, increasing the level of skills at the implementation level where positive policy plans often fall short at execution stage, and the question of closing gaps between rural and urban areas. There is an ageing population that will increase, given the flattening of population growth with the one-child policy. In time, this will be a tremendous burden on the medicare system, hospitals, and housing programme. The government is focused on addressing many problems which are immediate and where there cannot be further delay and this is the focus of their efforts at this moment. The problem of the ageing population will need to be addressed in the future, but it remains a critical concern and will require much in the way of long-term planning. ECONOMY The huge hole in tax collections in the first quarter will be hard to plug. And pump priming the economy-harder. What's good for the economy is good for finance minister Yashwant Sinha. Unfortunately, though, this quarter things have been going horribly wrong for the bureaucrat-turned-politician. In one fell swoop, the US 64 meltdown washed out whatever little goodwill Sinha had managed to build among his constituents. Now, he's staring into government coffers that look mortally impoverished and a fiscal deficit that could be worse than projected.
While the first-quarter collection may not be a ''true'' indicator of the final takings-tax collections tend to pick up in the third and fourth quarters-the current score is quite alarming. Notes S.S. Bhandare, Advisor, Tata Group: ''While it was expected that there would be some shortfall because of the slowdown, a decline of 63 per cent is far too steep. It's a clear sign of declining profitability of corporate India, and it would be virtually impossible to make up in the latter part of this fiscal.'' The danger of poor revenue collection, however, is far bigger than just that. Since 80 per cent of India's taxes come directly or indirectly from the corporate sector, continued stagnation of industrial production-down to 1.9 per cent past quarter-could well throw the fiscal situation into a complete disarray. A quick back-of-the-envelope calculation shows that there's likely to be a shortfall of Rs 30,000 crore even if tax collection were to grow at the projected (and healthy) 7 per cent this year-almost as much as last year's rate. The arithmetic is quite simple. The revised estimates (RE) for gross tax collection in the 2000-01: Budget was kept at Rs 1,98,321 crore, which was later pared down to Rs 1,83,000 crore-not incidentally, the actual collection figure. Now to achieve the government's target of Rs 2,26,649 crore as outlined in its revised estimate for 2001-02 Budget, tax collection has to grow by a whopping 23.5 per cent. Unless the gods above lend a hand, Sinha can kiss his target goodbye. One or another, there are tough questions ahead for Sinha to answer. For instance, he needs to figure out whether to invest in infrastructure development-a sureshot way of prime pumping the economy, but which will drive his fiscal deficit target of 4.7 per cent haywire-or cut back on government expenditure (and thus keep the fiscal deficit in check), and allow the economy to suffer. Will interest rate cuts help? D.H. Pai Panandikar, Advisor, RPG group, seems to think so. ''In the US, which is also going through a similar downturn, the Federal Reserve Board has reduced interest rates six times in as many months to boost the economy,'' he says. But will similar reductions in India help put the economy back on the rails-at a time when most companies are unwilling to invest in new projects? No easy answers, but what rate cuts might do is to encourage companies to swap expensive debt with cheaper ones and thus improve their profitability. Sinha may then step forth and well claim his pound of flesh. -Ashish Gupta
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Walk into any
consumer durables shop, and you are likely to see a surfeit of slick-if a
little strange-looking products crowding racks and shelves. Their soft
contours, compact design, and orgy of functionalities are enhanced by
screaming stickers and other bright pop (point of purchase) materials.
But, hey, aren't we supposed to be caught in a downturn? Sure, and the
glut of innovatively designed products that you see on shop shelves is
because of, and not despite, the slowdown. In the marketer's point of
view, the only way to ride out of the trough is by powering new product
launches. As Craig Barrett, Intel's President and CEO, so elegantly put it
recently, ''You never 'save' your way out of a recession; you only grow
out of slowdown with new products and technologies.''
What according to you was the most
critical factor behind the success of the Chinese economic reforms?
Tax collection in the first quarter (April
to June 2001) took a sharp 13 per cent dive over the same period last
year, netting a bare Rs 32,419 crore (Rs 37,217 crore in Q1, 2000-01). A
post-mortem of the fall is alarming. The single-biggest culprit is the
corporate sector, where the mop-up was lower by a staggering 63 per cent.
Customs and Excise collections fell too, by nearly 7 per cent to Rs 24,701
crore. The only saving grace was income tax collection, which at Rs
5,894.37 crore came close to last year's bounty (of Rs 5,950.77 crore).