Pepsi’s Wrong move?

Recently, I read an article about diversification of Pepsi in New York Times. (http://www.nytimes.com/2012/03/13/business/pepsico-executives-line-up-behind-ceo.html?ref=pepsicoinc). I think diversification of brand Pepsi into nutritious segment is not a right strategy.

Pepsi is a brand well known for refreshment. Even their advertisements prove this; they are always clubbed with sports like Cricket, Football etc. The other brands in Pepsi portfolio are Frito-Lay, Tropicana, Quaker, and Gatorade. The brands like Quaker, Frito-Lay and Tropicana are unrelated to their core business. This shows, they are moving away from the core competence of the brand.

I accept that people are becoming more health conscious and hence the non-carbonated beverage segment has one of the fastest growing businesses. But adding non- carbonated brands in their portfolio is not right, since it is against their core product Pepsi. These brands will kill their own market share, because the customers for both the carbonated and non-carbonated segments are almost the same. Customers will get confused when single company advertises to take both carbonated and non–carbonated drinks. This will surely dilute their brand image. Even the non-carbonated beverage segment is more competitive with players like Parle, Nestle, Dabur, etc. who have strongly established their brands.

Why Pepsi wants to get into nutritious segment?

In global soft drink industry, there is not much competition; only two players like Pepsi and Coco Cola are enjoying the market share. But in oats and chips segment, the market is too crowded.  In this industry, entry and exit of the market is easy. Take the case of chips market- after the entry of Lays in India, companies like ITC (Bingo), Parle (Hippo) and Perfetti (Stop Not) have entered into the market and started killing market share of Lays. Like this in oats market, there is tight competition from Horlicks and some other regional players.

I think, Pepsi believed that they can easily sell whatever products they include in their portfolio due to their strong distribution network. But the case is not like that; due to addition of more products in same distribution channels, conflict among the products is created.

This case is not like ITC, compelled to get out of cigarette business and that’s why they had to get into biscuit and other businesses. Even ITC won’t mind if their cigarette business stops giving revenue. If Pepsi would want to be like ITC then this might be a right strategy!

In developed countries like the US the market of soft drink is almost saturated. Because of this, getting into nutritious segment is not a wise idea. Pepsi has to innovate products like diet Pepsi and has to create new market. I think creating new market in existing industry is much easier than competing with more players in new industry.

Recently in the US market, Pepsi lost their market share by 4%, but at the same time Coco-Cola market share increased by 20%.

This point clearly proves that current strategies of Pepsi are not doing well. I strongly believe over a period of time customers would forget the refreshing image of Pepsi, if it continuously added nutritious products in their portfolio.

Beware of Goldman Sachs

Now, there is a heavy discussion in Wall Street about financial holding company Goldman Sachs, after Greg Smith’s, a London-based executive director of equity derivatives at Goldman, wrote a scathing Op-Ed column in The New York Times called “Why I Am Leaving Goldman Sachs.” (http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=2&_r=1) The reason he stated for his resignation is that Goldman Sachs culture is changing.

They are not Customer centric; rather they focus on companies’ profit. He also stated that he was able to hear his manager calling their customers as “Muppets”. He feels that he doesn’t want to continue with this organisation and he is pretty much clear that people who are focusing on profits will not help to sustain the firm. So, he advised the top management to get the culture right again.

What has happened to Goldman Sachs? Is Greg Smith right about Sachs group? I think he is right. Around 2002, Goldman Sachs’ role in Greece Scandal itself had exposed their importance on customers. Greece wanted to enter the European Union. For that, their deficit should be 3% of their GDP. They were not able to do so. Only Sachs group has helped Greece to cook the books by devising a special kind of swap with fictional exchange rates. Now, this problem was magnified in the form of European Sovereign debt crisis.

In 2007, when the housing bust began to take its toll on Wall Street, Goldman Sachs was the first to ask for bailout from the Federal Reserve and approached them to change their status to bank holding companies. Is it the right strategy of Sachs to portray them as a Commercial banker after diluting the savings of huge customers around the world?

During this time, American International Group, an insurance giant facing collapse due to its exposure to the mortgage crisis, was Goldman’s largest trading partner. A.I.G. received an emergency $85 billion bailout from the federal government. Apart from this, SEC has filed a suit against Goldman Sachs stating that they had wrongly structured a security called Abacus 2007-AC1 and generated billions of losses for Abacus investors. Under the settlement, Goldman paid back the profit made from the Abacus deal and also paid a civil penalty.

All these incidents clearly state the importance Goldman Sachs gives to profits and depict the culture of the organisation. I feel Greg Smith is clear about the future of Goldman Sachs in his Op-Ed column.

However, let us also listen to Lloyd Blankfein, “In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people. Everyone is entitled to his or her opinion. But, it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments.” (http://www.valuewalk.com/2012/03/lloyd-blankfein-goldman-sachs-oped/)

I think, as an MBA student, it is for us to take a call on how we want our employer to behave! Let me know your thoughts on this.

HINDU Vs TOI

When the topic Ad war is brought up, the first few examples which strike the mind are brands like Sprite and Dew, Rin and Tide, Pepsi and Coke. But recently, it is the newspaper brands i.e. The Hindu and Times of India hitting each other through print and Television commercials that have became famous. It was initially started by Times of India. In a recent advertisement campaign it depicted The Hindu as paper that puts readers to sleep compared to its own brand. Then Hindu came up with the advertisement attacking on The Times of India saying that “Stay ahead of times,".

Here is the commercial!

After this ad it will be the turn for Times of India to respond. Let’s wait for that.

But here I have a doubt as to why companies get into these kind of marketing battle?

Is this the strategy to create a conflict and to boost the market share for both companies and to gain the competitive advantage or really trying to kill the competitor brand?

I personally believe that it will not kill the competitor brand, rather it would indirectly create the awareness for the brand among the people and influence the brand recall. I guess it would be the creative move of Times of India to provoke the leader inorder to get the attention among the people and to be noticed by other players. The reason could also be like TOI would have thought   that Hindu was enjoying the monopoly market and started a war. But in general everyone believes that Hindu has its own brand image among people and it is perceived as most respected brand in the newspaper industry because of its heritage. But Hindu is trying to upset its brand image while contradicting and making fun of other brands. The brand image may get diluted and the differentiating factor from TOI will not get noticed by customers because of this issue. Even though customers enjoy watching these kind of ad war the brand may be diluted.

Do you think, this kind of practise will dilute the brand image, and is ad war unethical?

Diversification Strategy for Piramal Healthcare

The cover story of Outlook Business (March 14, 2012) on diversification strategy of Indian Conglomerates influenced me to write this post. The article talks about failure of Indian conglomerates in their substantially new business. Some of such conglomerates are Reliance which is  facing a huge loss in their retail and communication business, Birla who are not doing good in their retail business . Why diversification has been a painful task for Indian Conglomerates? My thought extended to the Piramal Healthcare, the company created the empire through diversification. The textile player extended its footprints to healthcare through acquisition of  Nicholas Laboratories from its foreign parent in 1988 and created a huge  empire  within a period of 23 years. In May 2010, Ajay Piramal, Chairman of Piramal Healthcare stunned the business world by announcing that he has sold part of Piramal Healthcare’s business, constituting about half the company’s revenues, for a staggering $3.8 billion, or about Rs 17,140 crores, to Abbott Labs of the USA.

Now, Ajay Piramal is working on a plan to convert the pharma-centric player to a much more diversified conglomerate. Piramal’s latest foray is into the unrelated business of mobile telephony, that of investing close to Rs 6,000 crore in Vodafone India. In fact, the Vodafone deal, where Piramal bought a total of 11 per cent in the Indian arm of the telecom major Vodafone is a very interesting move.

In an interview with Business Standard, Piramal explained his twin philosophy: that of transforming his group from a pharma-centric one to a diversified one.

What is your opinion about the twin philosophy of Piramal group by entering into unrelated business? Will they sustain in the new areas?  What are the new opportunities for Piramal Group?

Merchandising in Cafés

I went through an article on Café Coffee Day partnership with Proline (http://www.thehindubusinessline.com/todays-paper/tp-corporate/article2999910.ece). It made me to think about the reason behind the introduction and the future of this venture. There are many coffee brands in our country like Barista, Lavaza, Costa Coffee, etc. The coffee major Starbucks has also announced their entry into the Indian markets.

Rather than coffee related products, Café Coffee Day is selling products like T-shirts, Mugs, Coffee Makers, Gift cards etc. It’s a sort of merchandising. I think this partnership with Proline will help them in generating more revenue as well as developing a good brand image. Launching T-shirts can attract more customers for Café Coffee Day which will help them to interact with more customers. Coffee Day has already introduced their T-shirts in foreign markets and it was a great success. Earlier, even companies like King Fisher, Fly Emirates and Starbucks have seen a grand success in merchandising. I think it’s a kind of their brand extension strategy and I also feel that merchandising is a branding tool. India’s leading Café chain “Café Coffee Day” earns 10% of its revenue from sale of merchandise.

There are many Coffee Chains in India largely selling Coffee related products. This kind of innovation will increase the share of merchandising. What I feel is that the merchandise needs to communicate the ethos of the brand and what it stands for. It will create impulse purchase. So Café Coffee Day must carefully design merchandise mix and they have to partner with the right players also. These are some of the key challenges for the Cafe; here they chose a right partner for introducing their T-shirts. Because, Proline is already an established brand. They have created a position in the mind of customers for the clothing like T shirts. It will help Cafe Coffee Day in strengthening their presence in the apparel segment also.

Increase the Taxes on Diesel Cars….Is it Right?

Recently, I read an article about Government of India’s (GOI) plan to increase the taxes on diesel cars in Business standard, February 29 (http://business-standard.com/india/news/mahindra-may-cut-expansion-plans-if-govt-imposes-diesel-tax/466234/). I strongly feel this is not the right time to do it.

Let me quickly give you a glimpse of the Government policies, consumer behavior and Indian automobile industry to substantiate this point. 

The main reason for raising taxes is because government is giving subsidy of Rs 5 - 6/ litre of diesel. This is a huge loss of nearly Rs. 86,000 crore every year, and also leads to environmental pollution. But in the real scenario only 10 – 12% of diesel is consumed by cars (Business Today January 14, 2012). (http://businesstoday.intoday.in/story/union-budget-2012-2012-10percent-extra-duty-to-be-imposed-on-diesel-cars/1/21630.html)

Currently the passenger car market is divided as 60% petrol cars and 40% diesel cars. This shows that there is a good market for diesel cars in the future. We all know that disposable income of Indians is increasing, everyone aspire to own a car. The buyers are too price conscious. If government increases the tax of diesel car vehicles, there would be a 10 – 20% increase in price of cars. In this situation, customer decisions may be:

1)   More Customers would withdraw the plan of buying cars.

2)   Some Customers would stick to the decision of buying diesel cars.

3)  Only few customers would turn to buy petrol cars instead of diesel cars, because price        of petrol is 60% higher than diesel.

Due to the fear of increasing tax among the customers, car sales in February grew 13.11% to 2,11,402 units. Even this is the first time ever the monthly car sales crossed 2 lakh units. Also Maruti Suzuki has got 80% of bookings in diesel cars in the month of February 2012. This clearly proves that customers are price conscious and increase of taxes would not encourage them to buy a car.

As a result, the sales of cars might come down. Foreign Companies like Ford, Nissan have pumped huge money in diesel car manufacturing plant in India. Tax raise might demotivate them to do business in India. Even Indian companies like Tata and Mahindra & Mahindra will get affected, since they are selling more diesel cars in the Indian market. As a proactive step, M & M recently stopped their expansion plan in Chakan, Pune unit. At the end of the day it may affect the Indian Economy.

Do you think it is the right time to increase the taxes on diesel cars?

Classical Conditioning

“The global business world strongly believes that Indians are highly westernised. The habitual changes among Indians like dressing, food consumption and others support this argument. So, MNCs are cashing out using this cultural change.” This is how people all around the world think. I just want to add my own views regarding this.

All the management philosophers talks about innovation as an important strategy to succeed in the minds of their customers. They think that innovation is one among the best way to sustain in the market. The reason behind this strategy is that customers will not be interested in buying products which does not have any innovation or variants. It is believed that people will lose interest in the products that don’t have anything new. But, I don’t think so.

Innovation is not what people desire. While buying a product, customers wish that it will satisfy their need. But companies come up with dissimilar variants to increase sales. For example, when you take textile industry in India, the traditional clothes are shirts and dhotis which suit the Indian climatic condition. The manufacturers are not able to come up with enough variants in shirts or dhotis. So, they come up with new models like Suits and Blazers which fit Western climatic condition. They marketed such irrelevant products in India by portraying suits as a formal wear. These suits will no way fit Indians, but, now Indians are highly attracted towards it.

How has this happened? How did the marketers attract traditional Indians towards them? This has happened through the strong development of media. Only through advertisements, companies are able to change the customers’ minds. Using Ivan Pavlov’s learning theory “Classical Conditioning”, marketers are using advertisements as conditioned stimulus to condition the customer minds towards their products. This is the point where the culture is changed without their knowledge and later they strongly believe that this is how a perfect man should be.

I think a small narration on “Vivel Soap” will help.  This advertisement portrays that “a person who does not use cosmetic products like Vivel will not be accepted by their friends”. Even Titan has transformed watch-a timekeeping device-into a fashion wear.  In the past, people have passed on watches through generations. Now, the entire dynamics of watch industry has changed. They did it with a strong advertisement base.

So, I think companies are the ones which decide how a customer should be… not the customer themselves…!!!