Abstract:



Abstract:

|The case 'Market expansion strategies of Maruti Udyog' examines | |

|the market expansion strategies adopted by Maruti Udyog Limited | |

|(MUL), India's biggest carmaker, in response to intense | |

|competition and a decline in sales of its bread-and-butter model -| |

|the Maruti 800. MUL enjoyed a near-monopoly status, until the | |

|Government of India liberalized the economy in 1991. | |

| | |

|This led to the entry of foreign players like Hyundai, Fiat, | |

|Mitsubishi, and Toyota. Even Indian auto players like Tata Motors | |

|and Mahindra and Mahindra entered the fray to give MUL tough | |

|challenges. MUL began to introduce new models, and upgrade its | |

|existing models in response to market demand. | |

For instance, the company introduced the hatchback 'Swift' to shed its image of being a manufacturer of low-cost staid cars. The case study looks into how MUL came back from the crunch to retain its place as the top carmaker in India. It also deals with the tussle between Suzuki Motor Corporation and the Government of India over ownership issues.

The case highlights the promotional offers undertaken by MUL in its quest for market dominance and examines how the company was able to mould itself according to the market requirements, by entering new domains and reaching out to potential customers through its 'True Value' and other promotional offers.

Issues:

The case is designed to help students:

• Gain an overview of the Indian automobile Industry, especially the passenger car market.

• Study the rise of MUL, and its measures to tackle competition successfully.

• Analyze the impact of macroeconomic variables like government regulations and environmental guidelines (Euro norms) on the functioning of an automobile manufacturer in India.

• Show how promotional offers can work wonders for a company in expanding the market and overcoming competition.

• Provide an overview of the pre-owned/used car market in India.

Contents:

|  |Page No. |

|Introduction |1 |

|Indian Automobile Industry |2 |

|Maruti Udyog Limited |4 |

|Maruti Strikes Back |6 |

|Conclusion |10 |

|Exhibits |12 |

Keywords:

Maruti 800, Suzuki Swift, Hyundai Santro, Daewoo Matiz, Suzuki Motor Corporation (SMC), Tata Motors, Market leadership, Market expansion, Marketing communications, Sales promotion, In-program placements, Customer satisfaction, Car finance, Society of Indian Automobile Manufacturers (SIAM) and Maruti True Value pre-owned cars.

"Let's take on the world and show them what we are all about."

- Rohtas Mal, Chief General Manager, Marketing & Sales, MUL, in 1999.1

"I believe in Dr. C. K. Prahlad's concept of finding value at the bottom of the pyramid. We are trying to increase market penetration through several innovative schemes. There is still a very large segment of our population which cannot afford a car."

- Jagdish Khattar, Managing Director, MUL, in 2004.2

Introduction

|Maruti Udyog Limited's (MUL) share of the Indian passenger vehicle| |

|market dropped to below 50% in 2004-05 (Refer to Exhibit I for the| |

|performance of the Indian passenger vehicle industry and MUL | |

|between April 2003 and March 2005). The future of MUL's low-cost | |

|model - the Maruti 800 (M-800) - was at stake due to the entry of | |

|global automakers into India. | |

| | |

|M-800 had dominated the Indian car market since it was launched in| |

|1984. The introduction of new cars by competitors made the M-800 | |

|look obsolete as it had not been changed in any major way for over| |

|two decades. Apart from the increased competition, MUL also had a | |

|few other problems on its plate. | |

There was a delay in setting up of a plant in India for manufacturing diesel engines and transmission systems for cars. The engines for its diesel variants were imported from other countries, and there were limits on the quantities it could import. In the market, MUL's models like the Zen, Alto, WagonR, and Baleno were showing mixed results.

|Introduction Contd... |While Zen, Alto and WagonR were successful, Baleno failed to live |

|MUL hoped this model would help the company shed its low-cost|up to MUL's expectations. Its utility vehicle 'Versa' met with a |

|and simple look. The move expressed the company's intent to |disastrous response from the Indian consumer. In addition, rising |

|move up the value pyramid (by upgrading Alto-WagonR-Santro |incomes, the growth in the used-car market, and availability of |

|customers to the new model) while simultaneously increasing |easier finance options, led customers to shift their allegiance to|

|market penetration at the bottom of the value pyramid by |other models from competitors. To reduce its excessive dependence |

|making the M-800 more affordable. |on a single model (M-800), the company had restructured the |

|Indian Automobile Industry |strategy for the M-800, and planned for product upgrades and new |

|The Indian automobile industry has four major segments -- |product development. In tune with changing customer preferences, |

|commercial vehicles (CVs), passenger vehicles, three |the company launched its hatch-back model, 'Swift' in May 2005, to|

|wheelers, and two wheelers. The market share for each of |compete with Hyundai3 Getz and Fiat4 Palio. |

|these segments of the Indian automobile industry, for the | |

|year 2003-04, is shown in Figure I. | |

| | |

|According to the Society of Indian Automobile Manufacturers | |

|(SIAM) , the Indian passenger vehicle market has three | |

|categories -- passenger cars, multi-purpose vehicles (MPVs), | |

|and utility vehicles (UVs). | |

| | |

| | |

|The passenger car market is further divided into various | |

|segments based on the length of the car (Refer to Exhibit II | |

|for a detailed description of the lengthwise classification | |

|of passenger cars. | |

| | |

|The Indian automobile industry was a highly protected | |

|slow-growth industry with very few players till the opening | |

|up of the Indian economy in 1991. Low manufacturing costs, | |

|availability of skilled labor, an organized component | |

|industry, and the capability to supply in large volumes | |

|attracted global auto majors to set up their operations in | |

|India after the opening up of the sector. | |

| | |

|For example, Fiat and DaimlerChrysler started outsourcing | |

|their component requirements to India. 100 percent Indian | |

|subsidiaries of global players, like Delphi Automotive | |

|Systems and Visteon , exported components to other parts of | |

|the world. | |

| | |

|Macroeconomic factors like government regulations, low | |

|interest rates, and availability of retail finance played an | |

|important role in the rapid development of the automobile | |

|industry in India during the late nineties (Refer to Exhibit | |

|III for an understanding of the impact of the Union Budget on| |

|the Indian automobile industry over the years)... | |

Excerpts

Maruti Udyog Limited

MUL's M-800 was ideally suitable for Indian customers as it was reasonably priced, fuel efficient and was sleek and easy to drive when compared to the models then available. With the success of its M-800, MUL soon replaced Hindustan Motors as the leader in the passenger car market...

|Government of India - Suzuki tussle | |

| | |

|In August 1997, there was a major difference of opinion between | |

|the GoI and SMC regarding the appointment of the Managing Director| |

|(MD) for MUL. SMC did not support the appointment of R. S. S. L. | |

|N. Bhaskarudu (Bhaskarudu), holding that he was incompetent to | |

|hold the post... | |

| | |

|Decline in market share | |

| | |

|There was a gradual decline in the market share of MUL over the | |

|years from 1999 to 2004. This happened even though MUL had slashed| |

|prices of certain models on a couple of occasions... | |

Maruti Strikes Back

Launch of new variants and models

Despite analysts predicting that the M-800, the bread and butter model of MUL, would be phased out, the company asserted that it would take necessary steps to maintain its leadership position. MUL had three compact car models -- Alto, WagonR, and Zen -- competing with Hyundai Santro, Tata Indica, and Fiat Palio...

| |Increasing dealer profitability |

| | |

| |During 2003 and 2004, MUL visualized and implemented a strategy |

| |for its dealers to increase their profitability levels in view of |

| |increased competition. According to the strategy, the 300-odd |

| |dealers of the company were asked to strengthen their manpower, |

| |increase the salaries of their sales agents, and offer them better|

| |incentives... |

| | |

| |Promotional offers |

| | |

| |Faced with stiff competition and declining market shares, MUL |

| |focused its promotions strategy on targeting two-wheeler owners...|

'Change Your Life' campaign

In 2003, MUL launched novel offers like "Change Your Life" campaign and also offered vehicle insurance 'for Rupee One only', to attract customers...

Television campaigns

In 2003, MUL came out with a toy car advertisement that became popular for its simplicity and straightforward message. The advertisement depicted a child playing with a toy car. When reprimanded by his father the child replies, 'Kya karoon papa petrol khatam hi nahin hota' (What should I do? The petrol never finishes)...

Excerpts Contd...

'2599' offer

In 2004, MUL introduced the '2599' offer under which a consumer could buy an M-800 by paying an EMI of Rs 2,599 only, for a period of seven years. The down payment was fixed at Rs 40,000. MUL entered into an agreement with the State Bank of India (SBI), the largest bank in India, to promote this scheme...

|'Teacher Plus' scheme | |

| | |

|To further penetrate into the market, MUL continued to focus its | |

|efforts on the rural markets and specific target groups. In 2004, | |

|it introduced the 'Teacher plus' scheme, in a tie-up with SBI, | |

|aimed at teachers who were interested in buying a new car... | |

| | |

|Maruti 'True Value' | |

| | |

|There was a gradual decline in the market share of MUL over the | |

|years from 1999 to 2004. This happened even though MUL had slashed| |

|prices of certain models on a couple of occasions... | |

Conclusion

The company's change in strategy and emphasis on developing effective marketing communications began to yield results. In the J.D. Power Asia Pacific 2004 India APEAL study, WagonR and Zen were ranked first and third in the premium compact segment; Esteem was picked as the best entry level car in the mid-size category.

| |MUL also topped the J.D. Power Asia Pacific 2005 India Sales |

| |Satisfaction Index in terms of customer satisfaction with the new |

| |vehicle sales process. |

| | |

| |As per the J.D. Power Asia Pacific 2005 India Customer |

| |Satisfaction study , MUL ranked highest in customer satisfaction |

| |with after-sales service for the sixth consecutive year. |

| | |

| |"Maruti's consistent performance in the study over the past |

| |several years has resulted in a steady increase in the percentage |

| |of its customers who say they intend to remain loyal to the |

| |brand," said Mohit Arora, India director, J.D. Power Asia |

| |Pacific... |

Exhibits

Abstract:

|The case, "Reebok's Game Plan in India" gives an overview of the | |

|entry of Reebok, the international sports shoe giant, into India, | |

|the entry of its global competitors, Nike and Adidas into India | |

|and the strategies adopted by the three players to build up their | |

|market shares. | |

| | |

|The case specifically deals with the strategies adopted by Reebok | |

|in India to deal with the competition from Nike and Adidas. | |

| | |

|The case gives insights into Reebok's venture into the kids market| |

|and its emphasis on fitness. The challenges that the company could| |

|face in India have also been discussed. | |

The case deals with the market conditions that prevailed in India during the entry of these players, the competition among the domestic players and the changes that the multinational companies brought about in their strategies to increase their market shares.

Issues:

• Understand the positioning of Reebok, Adidas and Nike in India

Contents:

|  |Page No. |

|Introduction |1 |

|Background Note |2 |

|Competition |3 |

|How Fit is Reebok's Fitness Platform? |4 |

|Targeting The Kids |5 |

|Adidas & Nike: Selling Lifestyle |5 |

|The Challenges Ahead for Reebok |7 |

|Exhibits |8 |

Keywords:

Reebok's Game Plan in India, Reebok, international sports, shoe giant, India, global competitors, Nike, Adidas , India, market shares, strategies, Reebok, kids market, fitness, market conditions, multinational companies

The creation of a motivating and relevant brand position in India will widen the gap and help us gain volumes."

- Siddharth Varma, Managing Director, Reebok India.

"Our main global competitor (Nike) is already behind us here. The other one (Reebok) we will catch up with."

- Herbert Hainer, CEO & Chairman, Adidas-Salomon AG, commenting on Adidas' performance in India.

"We will maintain Nike's global reputation of being an aggressive marketer."

- G.K.Nayar, CEO, Sierra Industrial Enterprises, Nike's licensee in India.

Introduction

|With 50 percent market share of the Indian sports shoe market in | |

|2001, Reebok India (Reebok), the Rs.950 million Indian arm of the | |

|Boston (USA)-based $3 billion fitness and sportswear giant Reebok | |

|International Ltd. had left competitors Adidas and Nike behind. | |

|Being the first of its kind to enter India, Reebok had an edge | |

|over its competitors. In 2001, its business had grown by 18 | |

|percent. The firm was confident of a 35 percent growth, by | |

|December 2002 by achieving a sales target of Rs.1.3 billion. The | |

|average growth of the industry was less than 15 percent at that | |

|time. In 2001, the three global brands, Reebok, Adidas and Nike, | |

|together sold sportswear worth less than Rs.1.8 billion in India. | |

According to Siddharth Varma (Varma), managing director, Reebok India, creating a motivating and relevant brand position in India would increase the sales volumes.

|Introduction Contd... | |

|However, the parent company had issued a mandate that its Indian | |

|subsidiary should stick to the company's vision of instilling | |

|fitness consciousness among people and, at the same time stay | |

|focused on maintaining its leadership position in India. | |

| | |

|Reebok underwent several changes in order to increase its | |

|visibility in the Indian market. It forayed into the kids footwear| |

|market where the sales volumes were higher. However, Reebok did | |

|not want to lose sight of what it originally was - a fitness | |

|brand. | |

The company felt that its fitness platform would fit well in the Indian market as it was better understood than sports. However analysts felt that the fitness footwear and apparel market in India were at a nascent stage, and had limited scope.

While Reebok made some adjustments in its marketing strategy in India, Nike and Adidas were very cautious while entering the Indian market. Both Nike and Adidas positioned themselves as lifestyle products.

Background Note

The liberalization of the Indian economy in 1991 led to an increase in the buying capacity of the country's middle class. This created optimism among industry players regarding sales in the premium segment (Rs. 700 - Rs. 1,200) of footwear.

During the same period, many Indian manufacturers also came up with a wide range of sports shoes (Phoenix's Power Range, Liberty's Force 10 and Geosport, Action)1. They catered to the middle class sports lovers with shoes priced between Rs.500 and Rs.750...

Excerpts >>

Excerpts

|Competition | |

|Reebok India | |

| | |

|The major activities of Reebok International Ltd. included | |

|designing and marketing of sports and fitness products including | |

|footwear and apparel. In October 1995, Reebok International Ltd. | |

|entered into a 80:20 joint venture with the Delhi-based Phoenix | |

|Overseas (Reebok India Co.). | |

| | |

|Initially, Reebok offered 65 varieties of sports shoes and sports | |

|clothing such as T-shirts, shorts and sweatshirts in 5 exclusive | |

|stores in Delhi and Mumbai... | |

Nike India

Based in Oregon, USA, Nike Inc. was one of the world's leading sports footwear and apparel. The company sold its products through independent distributors, licensees and subsidiaries in numerous countries around the world...

| |Adidas Salomon AG |

| | |

| |In 1948, Adolf (Adi) Dassler founded Adidas in Schienfield, |

| |Germany. In 1956 Adidas started manufacturing sports apparel, |

| |balls and other sports accessories. |

| | |

| |In 1997 the company acquired the French Salomon Group, the global |

| |leader in the manufacture of winter sports equipment. |

| | |

| |The newly formed company was named Adidas-Salomon AG and was |

| |headquartered in Herzogenaurach, Germany. The company marketed its|

| |products in more than 160 countries... |

Excerpts Contd...

How Fit is Reebok's Fitness Platform?

Globally, Reebok was positioned as a complete fitness brand. The Indian subsidiary's stated vision was to enhance fitness consciousness, while staying ahead of its competitors. Reebok believed that this vision would do well in India, as this concept was more popular here than sports...

|Targeting The Kids | |

|Another area where Reebok India was trying to make its presence | |

|felt was the kids' line of apparel, footwear and accessories. The | |

|kids apparel market was estimated to be Rs. 4.8 billion, and the | |

|kids footwear market was estimated to be Rs.10 billion. | |

| | |

|The company realized the need to identify a segment in the kids' | |

|market where sales volumes could be high and prices would be | |

|acceptable to the parents. So, in 2001, Reebok launched its new | |

|footwear range called 'Reebok Kids', targeted at schoolgoing | |

|kids... | |

Adidas & Nike: Selling Lifestyle

In India, Adidas decided to stick to its basic image as a performance brand, while potentially entering into the lifestyle market. To do this, the company divided its products into three categories: sports performance, sports heritage and sports lifestyle...

The Challenges Ahead for Reebok

Reebok was the first multinational footwear company to enter India after the liberalization of the country's economy and post profits. It set up India's third largest chain of exclusive brand stores with about 100 stores across the country...

Exhibits

Exhibit I: Reebok's Product Range

Exhibit II: Nike's Product Range

Exhibit III: Product Range of Adidas

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Abstract:

|The case, 'Kellogg's Indian Experience' analyzes the causes that | |

|led to the failure of the Kellogg breakfast cereal brand in the | |

|Indian market. The case examines the measures the company adopted | |

|on the marketing front to rectify its mistakes and at the efficacy| |

|of these measures. | |

Issues:

» Enable students to see how mistakes on the pricing, positioning and distribution fronts led to Kellogg's poor performance in the initial stages

Contents:

|  |Page No. |

|A Failed Launch |1 |

|The Mistakes |1 |

|Setting Things Right |3 |

|The Results |4 |

Keywords:

Kellogg's Indian Experience, Kellogg, breakfast, cereal brand, Indian market, marketing, mistakes

"Our only rivals are traditional Indian foods like idlis and vadas."

- Denis Avronsart, Managing Director, Kellogg India.

A Failed Launch

|In April 1995, Kellogg India Ltd. (Kellogg) received unsettling | |

|reports of a gradual drop in sales from its distributors in | |

|Mumbai. | |

| | |

|There was a 25% decline in countrywide sales since March1995, the | |

|month Kellogg products had been made available nationally. Kellogg| |

|was the wholly-owned Indian subsidiary of the Kellogg Company | |

|based in Battle Creek, Michigan. | |

| | |

|Kellogg Company was the world's leading producer of cereals and | |

|convenience foods, including cookies, crackers, cereal bars, | |

|frozen waffles, meat alternatives, piecrusts, and ice cream cones.| |

Founded in 1906, Kellogg Company had manufacturing facilities in 19 countries and marketed its products in more than 160 countries. The company's turnover in 1999-00 was $ 7 billion. Kellogg Company had set up its 30th manufacturing facility in India, with a total investment of $ 30 million.

| |The Indian market held great significance for the Kellogg Company |

| |because its US sales were stagnating and only regular price |

| |increases had helped boost the revenues in the 1990s. |

| | |

| |Launched in September 1994, Kellogg's initial offerings in India |

| |included cornflakes, wheat flakes and Basmati rice flakes. |

| | |

| |Despite offering good quality products and being supported by the |

| |technical, managerial and financial resources of its parent, |

| |Kellogg's products failed in the Indian market. Even a |

| |high-profile launch backed by hectic media activity failed to make|

| |an impact in the marketplace... |

The Mistakes

Kellogg realized that it was going to be tough to get the Indian consumers to accept its products. Kellogg banked heavily on the quality of its crispy flakes. But pouring hot milk on the flakes made them soggy. Indians always boiled their milk unlike in the West and consumed it warm or lukewarm. They also liked to add sugar to their milk or lukewarm...

|Setting Things Right | |

|Disappointed with the poor performance, Kellogg decided to launch | |

|two of its highly successful brands - Chocos (September 1996) and | |

|Frosties (April 1997) in India. The company hoped to repeat the | |

|global success of these brands in the Indian market. | |

| | |

|Chocos were wheat scoops coated with chocolate, while Frosties had| |

|sugar frosting on individual flakes. The success of these variants| |

|took even Kellogg by surprise and sales picked up significantly. | |

|(It was even reported that Indian consumers were consuming the | |

|products as snacks.) | |

This was followed by the launch of Chocos Breakfast Cereal Biscuits. The success of Chocos and Frosties also led to Kellogg's decision to focus on totally indianising its flavors in the future. This resulted in the launch of the Mazza series in August 1998 - a crunchy, almond-shaped corn breakfast cereal in three local flavors -'Mango Elaichi,''Coconut Kesar'and 'Rose.'...

| |The Results |

| |In 1995, Kellogg had a 53% share of the Rs 150 million breakfast |

| |cereal market, which had been growing at 4-5% per annum till then.|

| | |

| |By 2000, the market size was Rs 600 million, and Kellogg's share |

| |had increased to 65%. Analysts claimed that Kellogg' entry was |

| |responsible for this growth. |

| | |

| |The company's improved prospects were clearly attributed to the |

| |shift in positioning, increased consumer promotions and an |

| |enhanced media budget... |

Abstract:

|The case discusses the localization strategies adopted by the | |

|multinational fast food chains - McDonald's, Domino's and KFC in | |

|India. Initially, these fast food chains found it tough to cater | |

|to Indian tastes. Soon, they customized their menu, positioned | |

|their products and advertised to appeal to Indian customers. | |

|McDonald's and Domino's succeeded to a certain extent, while KFC | |

|still had a long way to go. The case is intended to enable | |

|students understand the localization strategies adopted by the | |

|multinational fast food chains. They should also be able to | |

|appreciate the factors that forced the fast food chains to | |

|understand the local market and modify their strategies to suit | |

|local requirements. | |

Issues:

» Localization strategies adopted by fast food chains, customization of menus, positioning of their product

Contents:

|  |Page No. |

|Introduction |1 |

|Joining The Fray |1 |

|The Indian Coming |2 |

|Indianizing All The Mcdonald's Way |2 |

|How others did it? |4 |

|The KFC Way |4 |

|Improving Prospects |5 |

|Mounting Losses |5 |

Keywords:

Localization, strategies, multinational, fast food chains, McDonald's, Domino's, KFC, India, fast food chains, Indian tastes, customized, menu, positioned, products, advertised, Indian customers, McDonald's, Domino's, KFC, multinational, local requirements

"Even though the Indian outfit stuck to its core taste that grew on consumers from 'bland' to 'unique' in three years, with no change factored in by the fast-food chain, McDonald's menu still was about 75% different from its global menu."

- Vikram Bakshi, MD, McDonald's Delhi.

"The Indian palate is very definitive -people are extremely finicky and choosy, not too willing to experiment. Food tastes vary from region to region. To capture the market, we had to localize flavors."

- Gautam Advani, Chief of Marketing, Domino's Pizza

"People didn't know about the menu and as a result, KFC was regarded as a restaurant serving chicken. All this was simply because of the word chicken."

- Pankaj Batra, Kentucky Fried Chicken's Marketing Manager

Introduction

|In the mid 1990s, a spate of global fast food chains entered India| |

|hoping to capture a part of Indian fast food segment. But they | |

|found it difficult to establish themselves. Gaining acceptance | |

|locally and blending into the Indian culture proved difficult. In | |

|1997, McDonald's was facing several problems. Most Indians thought| |

|McDonald's was expensive, and many didn't like the fact that it | |

|served only non-vegetarian meals. The 'bland' taste of its | |

|preparations didn't go down well with the Indian palate. In 1998, | |

|the company faced intense competition from domestic food chains. | |

|Globally, McDonald's success had been built on its commitment to | |

|the QSCV (quality, service, cleanliness and value) principle. | |

However, Indian customers viewed the product sold by McDonalds not as burgers per se but as fast service in a clean setting. This notion of value was something that could not remain unique. Other fast food chains began to adopt the same 'fast and clean service' formula, and soon it wasn't a distinguishing feature of McDonald's anymore.

| |Joining The Fray |

| |While McDonald's was establishing itself Domino's faced tough |

| |competition when it entered India, with homegrown players like |

| |Niruala's and Pizza Corner and MNCs like Pizza Hut and Wimpy's |

| |already having established themselves in the market. |

| | |

| |The home delivery concept that the company introduced1 had not yet|

| |caught on. Besides, Domino's was in a dilemma about how it should |

| |position pizza -as a meal or a snack? How far should they go in |

| |indianising the pizza so that it had mass appeal, and yet did not |

| |lose its identity?... |

The Indian Coming

McDonald's began to look at the Indian market sometime in 1990, when its executives started making exploratory trips. By 1994, some international suppliers of McDonald's had visited India to identify local partners. Meetings with agriculturists were conducted with a view to set up a supply chain...

|Indianizing All The Mcdonald's Way | |

|It gain acceptance locally, McDonald's had to modify its menu | |

|-substituting mutton for beef in the burgers, (something it had | |

|never done in any other market), choosing names like McAloo and | |

|Maharaja Mac, and introducing variations and dishes that were not | |

|available at any McDonald's outlet anywhere in the world. From the| |

|meticulous sourcing of raw materials and the elimination of beef | |

|and pork from its 'desi' menus to even segregating the vegetarian | |

|and non-vegetarian workers, McDonald's seemed to be extremely | |

|orthodox in its approach... | |

How others did it?

To establish its presence in the Indian market, Domino's too made efforts to give its products a local flavour. It even offered special products in different regions. In the south Indian segment, the company offered Chettinad Chicken and Mutton Ghongoor, while for North India it offered Butter Chicken and Paneer Makhani...

| |The KFC Way |

| |While Domino's did all it could to give its offerings an Indian |

| |flavour, KFC initially preferred to retain its international |

| |taste. But this had few takers in India. Research revealed that |

| |Indian consumers did not relish "chicken with skin,"offered by |

| |KFC... |

| |Improving Prospects |

| |In 2000, McDonald's announced that over the next three years it |

| |would invest Rs 3.5 billion to increase the number of restaurants |

| |from 25 restaurants to 80... |

Mounting Losses

In a bid to salvage its Indian venture, KFC had indianized its menu to a great extent. Despite its efforts, however, it soon became clear that it would be difficult for it to become a major player in the Indian fast food arena...

Abstract:

|The case describes the customer relationship management (CRM) | |

|initiatives undertaken by Tesco, the number one retailing company | |

|in the United Kingdom (UK), since the mid-1990s. The company's | |

|growth and its numerous customer service efforts are discussed. | |

|The case then studies the loyalty card scheme launched by the | |

|company in 1995. | |

| | |

|It examines how the data generated through this scheme was used to| |

|modify the company's marketing strategies and explores the role | |

|played by the scheme in making Tesco the market leader. The case | |

|also takes a look at the various other ways in which Tesco tried | |

|to offer its customers the best possible service. | |

Finally, the company's future prospects are commented on in light of changing market dynamics, the company's new strategic game plan, and criticism of loyalty card schemes.

Issues:

• Examine how the information gathered through CRM tools can be used to modify marketing strategies and the benefits that can be reaped through them.

Contents:

|  |Page No. |

|A Master at CRM |1 |

|Background Note |2 |

|CRM - The Tesco Way |4 |

|Reaping the Benefits |7 |

|From Customer Service to Customer Delight |9 |

|An Invincible Company? Not Exactly... |11 |

|Exhibits |13 |

Keywords:

Customer relationship management, CRM, Tesco, retailing company, United Kingdom, UK, mid-1990, customer service efforts, loyalty card scheme, 1995, data generated, scheme, marketing strategies, possible service, changing market dynamics, game plan, loyalty card, schemes

"Our mission is to earn and grow the lifetime loyalty of our customers."

- Sir Terry Leahy, Chief Executive Officer (Tesco), quoted in Tesco's 1998 Annual Report.

"They (Tesco) know more than any firm I have ever dealt with how their customers actually think, what will impress and upset them, and how they feel about grocery shopping."1

- Jim Barnes, Executive Vice President of Bristol Group, a Canada-based Marketing Communications and Information firm, and a CRM expert.

"The whole philosophy is in balancing the business in favor of the customer. That comes down to a mixture of company culture and customer insight."2

- Crawford Davidson, Director (Clubcard Loyalty Program), Tesco.

A Master at CRM

|Every three months, millions of people in the United Kingdom (UK) | |

|receive a magazine from the country's number one retailing | |

|company, Tesco. Nothing exceptional about the concept - almost all| |

|leading retailing companies across the world send out | |

|mailers/magazines to their customers. | |

| | |

|These initiatives promote the store's products, introduce | |

|promotional schemes and contain discount coupons. However, what | |

|set Tesco apart from such run-of-the-mill initiatives was the fact| |

|that it mass-customized these magazines. Every magazine had a | |

|unique combination of articles, advertisements related to Tesco's | |

|offerings, and third-party advertisements. | |

A Master at CRM Contd...

|Tesco ensured that all its customers received magazines that | |

|contained material suited to their lifestyles. The company had | |

|worked out a mechanism for determining the advertisements and | |

|promotional coupons that would go in each of the over 150,000 | |

|variants of the magazine. This had been made possible by its | |

|world-renowned customer relationship management (CRM) strategy | |

|framework (Refer Exhibit I for a brief note on CRM). | |

| | |

|The loyalty card3 scheme (launched in 1995) laid the foundations | |

|of a CRM framework that made Tesco post growth figures in an | |

|industry that had been stagnating for a long time. | |

The data collected through these cards formed the basis for formulating strategies that offered customers personalized services in a cost-effective manner.

| |Each and every one of the over 8 million transactions made every |

| |week at the company's stores was individually linked to |

| |customer-profile information. |

| | |

| |And each of these transactions had the potential to be used for |

| |modifying the company's strategies. According to Tesco sources, |

| |the company's CRM initiative was not limited to the loyalty card |

| |scheme; it was more of a company wide philosophy. |

| | |

| |Industry observers felt that Tesco's CRM initiatives enabled it to|

| |develop highly focused marketing strategies... |

Excerpts

|Background Note | |

|The Tesco story dates back to 1919 when Jack Cohen (Cohen), an | |

|ex-army man, set up a grocery business in London's East End. In | |

|1924, Cohen purchased a shipment of tea from a company named T E | |

|Stockwell. | |

| | |

|He used the first three letters of this company's name, added the | |

|'Co' from his name and branded the tea 'Tesco.' | |

| | |

|Reportedly, he was so enamored of the name that he named his | |

|entire business sco. The first store under the Tesco name was | |

|opened in 1929 in Burnt Oak, Edgware... | |

CRM - The Tesco Way

Tesco's efforts towards offering better services to its customers and meeting their needs can be traced back to the days when it positioned itself as a company that offered good quality products at extremely competitive prices...

| |Reaping the Benefits |

| |Commenting on the way the data generated was used, sources at |

| |Dunnhumby said that the data allowed Tesco to target individual |

| |customers (the rifle shot approach), instead of targeting them as |

| |a group (the carpet bombing approach). |

| | |

| |Since the customers received coupons that matched their buying |

| |patterns, over 20% of Tesco's coupons were redeemed - as against |

| |the industry average of 0.5%. |

| | |

| |The number of loyal customers increased manifold since the loyalty|

| |card scheme was launched (Refer Figure I)... |

|From Customer Service to Customer Delight | |

|To sustain the growth achieved through the launch of Clubcards, | |

|Tesco decided to adopt a four pronged approach: launch better, | |

|bigger stores on a frequent basis; offer competitive prices (e.g. | |

|offering everyday low prices in the staples business); increase | |

|the number of products offered in the Value range; and focus on | |

|remote shopping services (this included the online shopping | |

|venture). To make sure that its prices were the lowest among all | |

|retailers, Tesco employed a dedicated team of employees, called | |

|'price checkers.'... | |

An Invincible Company? Not Exactly...

Tesco's customer base and the frequency with which each customer visited its stores had increased significantly over the years. However, according to reports, the average purchase per visit had not gone up as much as it would have liked to see.

| |Analysts said that this was not a very positive sign. They also |

| |said that while it was true that Tesco was the market leader by a |

| |wide margin, it was also true that Asda and Morrison were growing |

| |rapidly (Refer Exhibit II). Given the fact that the company was |

| |moving away from its core business within UK (thrust on non-food, |

| |utility services, online travel services) and was globalizing |

| |rapidly (reportedly, it was exploring the possibilities of |

| |entering China and Japan), industry observers were rather |

| |skeptical of its ability to maintain the growth it had been |

| |posting since the late-1900s. The Economist stated that the UK |

| |retailing industry seemed to have become saturated and that |

| |Tesco's growth could be sustained only if it ventured overseas... |

Abstract:

|The case focuses on the rural marketing initiatives undertaken by | |

|the cola major - Coca Cola in India. | |

| | |

|The case discusses in detail the changes brought about by Coca | |

|Cola in distribution, pricing and advertising to make inroads into| |

|rural India. | |

| | |

|The case also discusses the concept of rural marketing and its | |

|characteristics in a developing country like India. | |

| | |

|Further, it also provides details about PepsiCo's rural marketing | |

|initiatives. | |

Issues:

• The reasons behind CCI entering the rural market

• The strategy adopted by CCI to penetrate the rural market

• The role of advertising in the rural market

Contents:

|  |Page No. |

|'Thanda' Goes Rural |1 |

|CCI's Rural Marketing Strategy |2 |

|Future Prospects |5 |

|Exhibits |6 |

Keywords:

Rural marketing, cola major, Coca Cola, India, distribution, pricing, advertising, rural India, rural marketing, characteristics, developing country, India, PepsiCo, rural marketing

We want to be the Hindustan Lever1 of the Indian beverage business."

- Sanjeev Gupta, Deputy President - Coca-Cola India in May 2002.2

"The rural market is a significant part of our marketing strategy which enables us to help the consumer link with our product."

- Sanjeev Gupta, Marketing Director - Cola-Cola India, in August 1995.3

'Thanda' Goes Rural

|In early 2002, Coca-Cola India (CCI) (Refer Exhibit I for | |

|information about CCI) launched a new advertisement campaign | |

|featuring leading bollywood actor - Aamir Khan. | |

| | |

|The advertisement with the tag line - 'Thanda Matlab | |

|Coca-Cola4' was targeted at rural and semi-urban consumers. | |

|According to company sources, the idea was to position Coca-Cola | |

|as a generic brand for cold drinks. | |

| | |

|The campaign was launched to support CCI's rural marketing | |

|initiatives. CCI began focusing on the rural market in the early | |

|2000s in order to increase volumes. | |

This decision was not surprising, given the huge size of the untapped rural market in India (Refer Exhibit II to learn about the rural market in India). With flat sales in the urban areas, it was clear that CCI would have to shift its focus to the rural market. Nantoo Banerjee, spokeswoman - CCI, said, "The real market in India is in the rural areas.

| |If you can crack it, there is tremendous potential."5 |

| | |

| |However, the poor rural infrastructure and consumption habits that|

| |are very different from those of urban people were two major |

| |obstacles to cracking the rural market for CCI. |

| | |

| |Because of the erratic power supply most grocers in rural areas |

| |did not stock cold drinks. Also, people in rural areas had a |

| |preference for traditional cold beverages such as 'lassi'6 and |

| |lemon juice. |

| | |

| |Further, the price of the beverage was also a major factor for the|

| |rural consumer. |

CCI's Rural Marketing Strategy

CCI's rural marketing strategy was based on three A's - Availability, Affordability and Acceptability. The first 'A' - Availability emphasized on the availability of the product to the customer; the second 'A' - Affordability focused on product pricing, and the third 'A'- Acceptability focused on convincing the customer to buy the product.

|Availability | |

| | |

|Once CCI entered the rural market, it focused on strengthening its| |

|distribution network there. It realized that the centralized | |

|distribution system used by the company in the urban areas would | |

|not be suitable for rural areas. | |

| | |

|In the centralized distribution system, the product was | |

|transported directly from the bottling plants to retailers (Refer | |

|Figure I). However, CCI realized that this distribution system | |

|would not work in rural markets, as taking stock directly from | |

|bottling plants to retail stores would be very costly due to the | |

|long distances to be covered. | |

The company instead opted for a hub and spoke distribution system (Refer Figure II). Under the hub and spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the stock was transported to spokes which were situated in small towns. These spokes fed the retailers catering to the demand in rural areas.

| |CCI not only changed its distribution model, it also changed the |

| |type of vehicles used for transportation. The company used large |

| |trucks for transporting stock from bottling plants to hubs and |

| |medium commercial vehicles transported the stock from the hubs to |

| |spokes. |

| | |

| |For transporting stock from spokes to village retailers the |

| |company utilized auto rickshaws and cycles. Commenting on the |

| |transportation of stock in rural markets, a company spokesperson |

| |said, "We use all possible means of transport that range from |

| |trucks, auto rickshaws, cycle rickshaws and hand carts to even |

| |camel carts in Rajasthan and mules in the hilly areas, to cart our|

| |products from the nearest hub."7 |

In late 2002, CCI made an additional investment of Rs 7 million (Rs 5 million from the company and Rs 2 million from the company's bottlers) to meet rural demand. By March 2003, the company had added 25 production lines and doubled its glass and PET bottle capacity.8...

Excerpts

Affordability

A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-urban residents where two persons often shared a 300 ml bottle. It was also found that the price of Rs10/- per bottle was considered too high by rural consumers...

|Acceptability | |

| | |

|The initiatives of CCI in distribution and pricing were supported | |

|by extensive marketing in the mass media as well as through | |

|outdoor advertising. | |

| | |

|The company put up hoardings in villages and painted the name Coca| |

|Cola on the compounds of the residences in the villages. | |

| | |

|Further, CCI also participated in the weekly mandies by setting up| |

|temporary retail outlets, and also took part in the annual haats | |

|and fairs - major sources of business activity and entertainment | |

|in rural India... | |

Future Prospects

CCI claimed all its marketing initiatives were very successful, and as a result, its rural penetration increased from 9% in 2001 to 25% in 2003. CCI also said that volumes from rural markets had increased to 35% in 2003.

| |The company said that it would focus on adding more villages to |

| |its distribution network. For the year 2003, CCI had a target of |

| |reaching 0.1 million more villages. |

| | |

| |Analysts pointed out that stiff competition from archrival PepsiCo|

| |would make it increasingly difficult for CCI to garner more market|

| |share. |

| | |

| |PepsiCo too had started focusing on the rural market, due to the |

| |flat volumes in urban areas. |

| | |

| |Like CCI, PepsiCo too launched 200 ml bottles priced at Rs. 5. |

| |Going one step ahead, PepsiCo slashed the price of its 300 ml |

| |bottles to Rs 6/- to boost volumes in urban areas. |

When most people hear “GILLETTE”, one thing comes to mind—Razors. That’s to be expected, since safety razors were invented by King C. Gillette in 1903, and the product in various forms has been the core of the company’s business ever since. Few firms have dominated an industry  so completely and for so long. Wet-razor shaving (as distinct from electric razors) is a $900 million market. Gillette’s share is 62 percent, with the remainder divided among SCHICK—15 per cent, BIC—11  percent, WILKINSON sword—2 percent, and a number of private brands.

Gillette would like to achieve a similar position in the men’s toiletries with a new line of products called the GILLETTE Series. However, its record that market is spotty at best.

[pic]

One Gillette success, Right Guard Deodorant, was market leader in the 1960’s. Right Guard was one of the first Aerosols, and it became a family product which was used both by men and women. However, the product has not changed although the deodorant market  has become fragmented with the introduction of antiperspirants, various product forms and applicators, and many different scents. As a result, Gillette slipped to third position in deodorant sales behind P & G and Colgate—Palmolive.

An even more embarrassing situation is Gillette’s foamy shaving cream, a natural fit with the razor business. S. C Johnson and Sons Edge Gel have supplanted that brand as the leading seller. These experiences created frustration at Gillette. Despite its preeminence in razors and blades, the company has been unable to sustain a leading position across the full range of toiletries.

Gillette is using its most recent success, the sensor razor, as a springboard for its new toiletries. The Sensor story provides the background necessary to understand the marketing of the Gillette Series, and also offers some insight into Gillette’s marketing prowess.

Sensor- a high technology cartridge razor- was a gamble for Gillette because it ran counter to consumers’ buying preferences. Disposable razors, which were produced by the French firm BIC in 1974, had gained control in nearly 80 % of the razor market by 1990. Gillette’s analysis showed that disposables provide a worse shave than a cartridge blade, cost more to make than a blade and are sold at a lower profit margin. Despite its disdain for the product, competitive pressure forced Gillette to introduce its own disposable, Good News

As concern about the squeeze that disposables were putting on profit margins grew, Gillette began looking for a way to displace them. The company spent $ 300 million to develop a technology to significantly improve on the three attributes desired in shaving- closeness, comfort and safety. They came up with the Sensor, a razor with independently moving twin blades. The Sensor produces a superior shave, but it is also more expensive to produce than a disposable. So Gillette’s gamble was that a better shave would be enough to justify a premium price, and in the process, displace the successful but not a very comfortable disposable razor. In addition to the R & D investment, Gillette spent     $ 110 in the first year to advertise Sensor. The strategy paid off. Estimated 1992 sales for the brand was $ 390 million, and equally important, the share of the market held by the disposables has gone down to 42%.

Gillette then moved to capitalize on the success of Sensor. The company had a line of toiletries in development, and the decision was made to tie them closely to sensor. The line consists of 14 items:

1. two shaving gels for sensitive and regular skin

2. two shaving creams

3. two concentrated shaving gels

4. a clear gel anti- perspirant

5. a clear gel deodorant

6. an anti- perspirant stick

7. a deodorant stick

8. An after- shave gel

9. An after-shave lotion

10. An anti- perspirant aerosol and a deodorant body spray available only in Europe.

The products in the Gillette series were developed over a three year period at a cost of $ 75 million. They were tested on 70000 consumers. An indication of their newness is the fact that Gillette has 20 patents pending with them. Consideration had been given to introducing the line in 1992, but the introduction was cancelled by Gillette’s CEO, Alfred Zeien. He insisted that the line not be launched until consumer tests showed that each of the 14 products was preferred to the best- performing brand in its category.

All the products have a common fragrance that Gillette calls Cool Wave. They come in silver and blue packages like the Sensor, and the black lines on the packages match the grooved sides of the Sensor Razor handle.

The items retail at $ 2.69 each, 10- 20 % higher than the prices of major competing items. As was the case with Sensor, Gillette hopes that the products’ innovation will convince men to switch brands and pay the higher prices.

During the Gillette Series first year, the company spent $ 60 million on a joint advertising campaign with Sensor. Just like Sensor, the line was to introduce in January with ads on the Super Bowl. The campaign uses the same theme as Sensor. “ The Best a man can get”. Initial TV commercials were one minute in length. They started with 15 seconds on shaving gels, and cream, followed by 30 seconds on Sensor and 15 seconds on aftershaves. The deodorants are advertised separately.

The Gillette series faces two major problems:

• Convincing consumers that the line is actually better and the higher price justified will be more difficult than with SENSOR. With the razor, Gillette had name recognition as the dominant firm in the industry. In addition, the design differences the sensor were visible, and a consumer can directly enjoy a closer shave. With the toiletries, Gillette does not have a strong position in the consumers’ minds, nor are the benefits provided by the products obvious. Furthermore, the men’s toiletries market is extremely competitive. Powerful firms with proven marketing skills have taken a greater interest un this category. P & G has acquired Old Spice and Noxzema; Colgate owns Mennen, and Unilever purchased Brut. It’s unlikely the rest of the firms in the market will sit back and ignore Gillette’s activity.

• Gillette is tying, the new product line to the Sensor but using a different brand name. If consumers do not associate the Gillette Series with the innovativeness and success of Sensor, the new line may just be another brand in an already cluttered market.

According to a Gillette Vice President, one of the most compelling aspects of the Gillette series is its synergy with the company’s core business—razors. If the new line is successful, Gillette anticipates adding other men’s grooming products such as hair sprays and shampoos. The firm’s CEO, Zeien says, “ we’re already the worldwide leader in blades, Will we be the world leader in other (toiletries) or not? That’s our goal.”

QUESTIONS:

1. How is the Gillette Series being positioned with respect to (a) competitors, (b) the target market, (c) the product class, (d) price and quality? What other positioning possibilities are there?

2. Is Gillette making the best use of the brand equity that has been created with Sensor?

3. What strategies do you propose to Gillette? Address the entire marketing mix

Role of Reserve Bank of India (RBI) in Indian Economy

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Recommended reading: India’s apex bank: The Reserve Bank of India(RBI), it’s objectives and functions

Bank Issue:

Under Section 22 of the Reserve Bank of India Act, the bank has the sole sight to issue bank notes of all denominations. The notice issued by the Reserve bank has the following advantages:

• It brings uniformity to note issue.

• It is easier to control credit when there is a single agency of note issue.

• It keeps the public faith in the paper currency alive.

• It helps in the stabilization of the internal and external value of the currency and

• Credit can be regulated according to the needs of the business.

The system of note issue as it exists today is known as the minimum reserve system. The currency notes issued by the Bank arid legal tender everywhere in India without any limit. At present, the Bank issues notes in the following denominations: Rs. 2, 5, 10, 20, 50 100, and 500. The responsibility of the Bank is not only to put currency into, or withdraw it from, the circulation but also to exchange notes and coins of one denomination into those of other denominations as demanded by the public. All affairs of the Bank relating to note issue are conducted through its Issue Department.

Banker, Agent and Financial Advisor to the State:

As a banker agent and financial advisor to the State, the Reserve Bank performs the following functions:

• It keeps the banking accounts of the government.

• It advances short-term loans to the government and raises loans from the public.

• It purchases and sells through bills and currencies on behalf to the government.

• It receives and makes payment on behalf of the government.

• It manages public debt and

• It advises the government on economic matters like deficit financing price stability, management of public debts. etc.

Banker to the Banks:

It acts as a guardian for the commercial banks. Commercial banks are required to keep a certain proportion of cash reserves with the Reserve bank. In lieu of this, the Reserve bank provide them various facilities like advancing loans, underwriting securities etc. The RBI controls the volume of reserves of commercial banks and thereby determines the deposits/credit creating ability of the banks. The banks hold a part or all of their reserves with the RBI. Similarly, in times of their needs, the banks borrow funds from the RBI. It is, therefore, called the bank of last resort or the lender of last resort.

Custodian of Foreign Exchange Reserves:

It is the responsibility of the Reserve bank to stabilize the external value of the national currency. The Reserve Bank keeps golds and foreign currencies as reserves against note issue and also meets adverse balance of payments with other counties. It also manages foreign currency in accordance with the controls imposed by the government.

As far as the external sector is concerned, the task of the RBI has the following dimensions:

• To administer the foreign Exchange Control;

• To choose ,the exchange rate system and fix or manages the exchange rate between the rupee and other currencies;

• To manage exchange reserves;

• To interact or negotiate with the monetary authorities of the Sterling Area, Asian Clearing Union, and other countries, and with International financial institutions such as the IMF, World Bank, and Asian Development Bank.

The RBI is the custodian of the country’s foreign exchange reserves, id it is vested with the responsibility of managing the investment and utilization of the reserves in the most advantageous manner. The RBI achieves this through buying and selling of foreign exchange market, from and to schedule banks, which, are the authorized dealers in the Indian, foreign exchange market. The Bank manages the investment of reserves in gold counts abroad’ and the shares and securities issued by foreign governments and international banks or financial institutions.

Lender of the Last Resort:

At one time, it was supposed to be the most important function of the Reserve Bank. When Commercial banks fail to meet obligations of their depositors the Reserve Bank comes to their rescue as the lender of the last resort, the Reserve Bank assumes the responsibility of meeting directly or indirectly all legitimate demands for accommodation by the Commercial Banks under emergency conditions.

Banks of Central Clearance, Settlement and Transfer:

The commercial banks are not required to settle the payments of their mutual transactions in cash, It is easier to effect clearance and settlement of claims among them by making entries in their accounts maintained with the Reserve Bank, The Reserve Bank also provides the facility for transfer to money free of charge to member banks.

Controller of Credit:

In modern times credit control is considered as the most crucial and important functional of a Reserve Bank. The Reserve Bank regulates and controls the volume and direction of credit by using quantitative and qualitative controls. Quantitative controls include the bank rate policy, the open market operations, and the variable reserve ratio. Qualitative or selective credit control, on the other hand includes rationing of credit, margin requirements, direct action, moral suasion publicity, etc. Besides the above mentioned traditional functions, the Reserve Bank also performs some promotional and supervisory functions. The Reserve Bank promotes the development of agriculture and industry promotes rural credit, etc. The Reserve Bank also acts as an agent for the international institutions as I.M.F., I.B.R.D., etc.

Supervisory Functions:

In addition to its traditional central banking functions, the Reserve Bank has certain non- monetary functions of the nature of supervision of banks and promotion of sound banking in India. The supervisory functions of the RBI have helped a great deal in improving the methods of their operation. The Reserve Bank Act, 1934, and Banking Regulation Act, 1949 have given the RBI wide powers of:

• Supervision and control over commercial and cooperative banks, relating to licensing and establishments.

• Branch expansion.

• Liquidity of their assets.

• Management and methods of working, amalgamation reconstruction and liquidations.

The RBI is authorized to carry out periodical inspections off the banks and to call for returns and necessary information from them.

Promotional Role

A striking feature of the Reserve Bank of India Act was that it made agricultural credit the Bank’s special responsibility. This reflected the realisation that the country’s central bank should make special efforts to develop, under its direction and guidance, a system of institutional credit for a major sector of the economy, namely, agriculture, which then accounted for more than 50 per cent of the national income. However, major advances in agricultural finance materialised only after India’s independence. Over the years, the Reserve Bank has helped to evolve a suitable institutional infrastructure for providing credit in rural areas.

Another important function of the Bank is the regulation of banking. All the scheduled banks are required to keep with the Reserve Bank a consolidated 3 per cent of their total deposits, and the Reserve Bank has power to increase this percentage up to 15. These banks must have capital and reserves of not less than Rs.5 lakhs. The accumulation of these balances with the Reserve Bank places it in a position to use them freely in emergencies to support the scheduled banks themselves in times of need as the lender of last resort. To a certain extent, it is also possible for the Reserve Bank to influence the credit policy of scheduled banks by means of an open market operations policy, that is, by the purchase and sale of securities or bills in the market. The Reserve bank has another instrument of control in the form of the bank rate, which it publishes from time to time.

Further, the Bank has been given the following special powers to control banking companies under the Banking Companies Act, 1949:

• The power to issue licenses to banks operating in India.

• The power to have supervision and inspection of banks.

• The power to control the opening of new branches.

• The power to examine and sanction schemes of arrangement and amalgamation.

• The power to recommend the liquidation of weak banking companies.

• The power to receive and scrutinize prescribed returns, and to call for any other information relating to the banking business.

• The power to caution or prohibit banking companies generally or any banking company in particular from entering into any particular transaction or transactions.

• The power to control the lending policy of, and advances by banking companies or any particular bank in the public interest and to give directions as to the purpose for which advances mayor may not be made, the margins to be maintained in respect of secured advances and the interest to be charged on advances.

Case Study: Project management improves Lenovo’s strategy execution and core competitiveness

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I. Background

In recent years, the personal computer (PC) industry has been developing by leaps and bounds. Global sales of PCs totaled 230 million units in 2006, representing a 9 percent increase over the previous year. Lenovo has a product line that includes everything from servers and storage devices to printers, printer supplies, projectors, digital products, computing accessories, computing services and mobile handsets, all in addition to its primary PC business, which made up 96 percent of the company’s turnover as of the second quarter of 2007.

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Since its acquisition of IBM’s Personal Computing Division in May 2005, Lenovo has been accelerating its business expansion into overseas markets. The company transferred its corporate headquarters from Beijing, China to Raleigh, North Carolina, USA. Today, the group has branch offices in 66 countries around the globe. It conducts business in 166 countries and employs over 25,000 people worldwide. Lenovo is organized into four geographical units: Greater China, America, Asia-Pacific, Europe, and the Middle East and Africa (EMEA). Within each unit there are functional departments that include production, transportation, supply chain management, marketing and sales. Sales outside of Greater China compromised 59 percent of the company’s total turnover in the second quarter of 2007.

II. Challenges

Before 2004, multinational PC makers like Dell and HP were experiencing difficulties localizing their business in the Chinese market and thus did not pose a serious competitive threat to Lenovo. However, their operations began to have a major impact on Lenovo market share in 2004, particularly among key accounts—mandating better execution and core competitiveness in order to increase market share and improve business performance.

III. Solutions

In order to address these challenges, Lenovo proposed substantial changes to its business model and strategy in 2004, employing a project-focused approach to develop its corporate strategy. Specific steps taken were:

Implementing project management as the tool for executing corporate strategy

1. After confirming the company’s overall corporate strategy, Lenovo set about organizing priority tasks that required multi-department cooperation into projects, referred to as strategic projects. Strategic projects differ from R&D projects in that time and cost cannot be used as yardsticks for success. Such projects may be about expanding into new markets, solving underlying problems, enhancing organizational efficiency, integrating strategic resources or improving employee satisfaction or capabilities. In the past, some strategic planning had not been followed up on sufficiently but the application of strategic project management solved this problem; strategic projects began to actually be executed and generated results.

2. Lenovo also established a Project Management Office (PMO) to coordinate strategic projects. Beginning in 2004 and early 2005, Lenovo put in place the processes and the organizational structure for its PMO. It also formalized the relationships between strategic leaders and the PMO and budgeted resources for the office. Subsequently, all of Lenovo’s other departmental regulations needed to conform to PMO regulations, with detailed regulations being outlined by specific business departments. However, Lenovo’s PMO did not interfere with projects administratively; rather it offered training and established standardized procedures. Lenovo employees see the PMO as a kind of resource rather than an administrative facility. Designating a PMO as an administrative facility is one of several things that have doomed such offices in the past, but Lenovo’s office has thrived, winning the company’s excellent team award. The company believes that certain conditions must exist in order to successfully utilize project management: First, a company must face a challenge (i.e. an external factor that demands it to do so); second, the office must be prioritized by the company leadership; third, the office must be led by a professional team in order to guarantee that company-specific systems are developed; and finally, it must conform with the company’s organizational culture and be appreciated. Otherwise it’s hard to execute.

3. Lenovo also earmarked money for strategic implementation. Previously, completed strategic plans were not financially supported. But with the strategic shift, the leadership set aside additional money to execute projects outside of the original budget and to provide bonuses for those involved—paving the way for the successful execution of strategic plans.

Valuing project management professionals

1. Lenovo sent its top talent in project management to take the PMP® certification exam and apply project management standards. PMP® certification is developed and managed by Project Management Institute (PMI) which is the largest professional project management institute in the world. The PMP certification is the most authoritative and influential of its kind and is the only certification genuinely recognized and accepted globally within the project management discipline. PMP® certification conforms to A Guide to the Project Management Body of Knowledge (PMBOK® Guide), the standards issued by PMI. The PMBOK® Guide is also recognized and accepted internationally by premier authorities in standards. After Lenovo’s acquisition deal with IBM’s PC business, Lenovo project managers needed a shared platform to communicate with and manage teams in different countries. As the de- facto global standard for project management, the project management standards of PMI helped Lenovo standardize its processes. Starting from its functional departments (e.g. R&D, supply chain management, etc.) Lenovo selected a group of key professionals to receive training in project management and sit for the PMP® certification. The returning professionals catalyzed project management in their respective functional departments and trained other team members.

2. A hierarchy of project management positions was introduced within the company, in line with the position structure set up by the company’s human resources department. Lenovo Corporate Research & Development introduced this position structure between 2000 and 2001. Different levels for engineers included assistant engineer, deputy engineer in charge, engineer in charge, managing engineer etc. Professionals were appraised by experts annually on two fronts: First, based on their knowledge base, namely their background and relevant understanding; second, based on their performance, for example their ingenuity in R&D. In 2006, Lenovo kicked-off a global reshuffling of its positions. As an example, the company’s sales division is broken up into sequential levels such as assistant salesperson, sales manager and consultant. Positions are associated with salaries, but company regulations limit the percentage of employees at each level. For example, top-level positions can only occupy five percent of a given team. Full-time project managers can advance within the company’s project management hierarchy. There are over 100 full-time project managers in Lenovo, but nearly all staff of lenovo have participated in some projects. The hierarchy builds a professional ladder for project managers, serving as a channel for project management career development.

IV. Major Achievements

Lenovo’s experimentation in project management significantly advanced the transformation in its corporate strategy and improved its business model. The company’s project-oriented approach improved teamwork and leveled the playing field; team culture and corporate culture have been promoted; an innovative spirit has been instilled; and international integration has been improved. In terms of the market results, Lenovo’s adaptation of project management has improved the company’s core competitiveness with improved delivery and customer satisfaction. In turn, distinctive performance was delivered: In 2006, the company had a market share of seven percent in the global PC market, led only by Dell and HP. Its total turnover was USD 14.6 billion, a rise of 10 percent over the previous year.

Case Study of Walmart: Inventory Management

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Wal-Mart had developed an ability to cater to the individual needs of its stores. Stores could choose from a number of delivery plans. For instance, there was an accelerated delivery system by which stores located within a certain distance of a geographical center could receive replenishment within a day.  Wal-Mart invested heavily in IT and communications systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion of Wal-Mart stores in the US, it was essential to have a good communication system. Hence, Wal-Mart set up its own satellite communication system in 1983. Explaining the benefits of the system Walton said, “I can walk in the satellite room, where our technicians sit in front of the computer screens talking on the phone to any stores that might be having a problem with the system, and just looking over their shoulders for a minute or two will tell me a lot about how a particular day is going. On the screen, I can see the total of the day’s bank credit sales adding up as they occur. If we have something really important or urgent to communicate to the stores and distribution centers, I, or any other Wal-Mart executive can walk back to our TV studio and get on that satellite transmission and get it right out there. I can also go every Saturday morning around three, look over these printouts and know precisely what kind of work we have had.”

Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels. Wal-Mart also networked its suppliers through computers. The company entered into collaboration with P&G for maintaining the inventory in its stores and built an automated reordering system, which linked all computers between P&G and its stores and other distribution centers. The computer system at Wal-Mart stores identified an item which was low in stock and sent a signal to P&G. The system then sent a re-supply order to the nearest P&G factory through a satellite communication system. P&G then delivered the item either to the Wal-Mart distribution center or directly to the concerned stores. This collaboration between Wal-Mart and P&G was a win-win proposition for both because Wal-Mart could monitor its stock levels in the stores constantly and also identify the items that were moving fast. P&G could also lower its costs and pass on some of the savings to Wal-Mart due to better coordination.

Employees at the stores had the ‘Magic Wand,’ a hand-held computer which was linked to in-store terminals through a radio frequency network. These helped them to keep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers. The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system. Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart also made use of the sophisticated algorithm system which enabled it to forecast the exact quantities of each item to be delivered, based on the inventories in each store. Since the data was accurate, even bulk items could be broken and supplied to the stores. Wal-Mart also used a centralized inventory data system using which the personnel at the stores could find out the level of inventories and the location of each product at any given time. It also showed whether a product was being loaded in the distribution center or was in transit on a truck. Once the goods were unloaded at the store, the store was furnished with full stocks of inventories of a particular item and the inventory data system was immediately updated.

Wal-Mart also made use of bar coding and radio frequency technology to manage its inventories. Using bar codes and fixed optical readers, the goods could be directed to the appropriate dock, from where they were loaded on to the trucks for shipment. Bar coding devices enabled efficient picking, receiving and proper inventory control of the appropriate goods. It also enabled easy order packing and physical counting of the inventories.  In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system. More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories. The details of daily transactions, which approximately amounted to more than 10 million per day, were processed through this integrated system and were furnished to every Wal-Mart store by 4 a.m., the next day. In October 2001, Wal-Mart tied-up with Atlas Commerce for upgrading the system through the Internet enabled technologies.  Wal-Mart owned the largest and most sophisticated computer system in the private sector. The company used Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels. All information related to sales and inventories was passed on through an advanced satellite communication system. To provide back-up in case of a major breakdown or service interruption, the company had an extensive contingency plan.  By making effective use of computers in all its company’s operations, Wal-Mart was successful in providing uninterrupted service to its customers, suppliers, stockholders and trading partners.   

About Walmart

Wal-Mart Stores, Inc. is the largest retailer in the world, the world’s second-largest company and the nation’s largest nongovernmental employer.  Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers. Wal-Mart serves customers and members more than 200 million times per week at more than 8,416 retail units under 53 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Wal-Mart employs more than 2.1 million associates worldwide. Nearly 75% of its stores are in the United States (“Wal-Mart International Operations”, 2004), but Wal-Mart is expanding internationally.  The Group is engaged in the operations of retail stores located in all 50 states of the United States, Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, Central America, Chile, Mexico,India and China.

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