Value brands by Raj Nair (Avalon Consulting)

Value brands : growth unlimited:

Value brands : growth unlimited Presentation: July 17, 2010 TIE, Mumbai

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Roadmap What are Value Brands ? What does it take to build Value brands? Can we penetrate International markets with Value Brands?

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The seller’s mindset seeks big volume, low price, decent quality to feed aspirations of consumers Buyer’s mindset: maximise value without compromising on benefits Value Brands are Value for Money Benefit Price Chart 100 0 100 Benefit Index 50 Value Brands Territory Positive value “Line of indifference” Negative value 50 Perceived price index

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The situation in the mobile phone business Multi Nationals unbeatable . Nokia, Samsung, Motorola, etc. Too deeply entrenched not just in India Prices are dropping with each new model launch People looking for fancy phones with many features Cheap Chinese phones of doubtful quality Enter Micromax in 2008. Nobody gives them a ghost of a chance Micro max-the story 09/07/10 – ND/pr

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Multi Nationals unbeatable . Now Micromax has beaten Motorola and is expected to be the No 2 after Nokia by the year end!! How? Aggressive cricket focused marketing with a budget of Rs.100 crore and smart distribution channel management (90,000 outlets in B&C Class town in 500 districts) to support a Value for Money product proposition Prices are dropping with each new model launch. They launched phones across the price range up to Rs15000 but each model at much lower than the MNCs People looking for fancier phones with many features. Give high end features in low priced phones. Imagine QWERTY phones below Rs.5000! Now selling 1 million phones a month!! Cheap Chinese phones of doubtful quality. Focus on acceptable quality There is nothing Micro about Micromax 09/07/10 – ND/pr

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Launched in 1996 – Kwality Walls market leader 40% share. Its predecessor Kwality , well entrenched Aggressive Pricing 25% to 40% lower than Kwality Walls Built market shares through point-of-sale promotion, product promotions and low mass media Leveraged the strong Amul brand association with the integrated milk business Many others have failed, before and after Amul #1 in India 34% market share The Amul Ice Cream Story 09/07/10 – ND/pr

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Category and Market Share growth because Value brands address aspiration needs of the masses Value brands are “good enough”…and more attractive than private label Made possible through Proliferation of low priced channels “Insurgent” business models Price Points Time Value Brands Middle-of-the-Road Premium Why & How? Value Brands normally drive out the middle-of-the-road segment in most categories over time

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Originally produced using excess capacity in P&G, Henkel factories, etc. Now produced in 5 ‘close to consumer’ factories Extensive distribution with substantial intermediary incentives / trade marketing Priced > 30% less than major brands #1 in China 24% market share Chinese detergents– The Diao Story 09/07/10 – ND/pr

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Diao Brand Launched Chinese Detergents 09/07/10 – ND/pr Diao Market Share, 1992-2003 % Market Share Relative Share by Value, 2003 % Market Share Diao rapidly ate up everybody else’s lunch to become the leader Deja Vous ?

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Nirma (the ‘original’ value brand) , Ghadi and Fena in the detergents market Ujala fabric whitener – 65% market share, displaced Robin Blue A number of global examples ……. A number of other examples……. 09/07/10 – ND/pr Procter & Gamble is expanding their portfolio into the value-priced segment. The successful launches of Mach3 disposable razors in the U.S. Pampers Simply Dry diapers in Germany Naturella feminine care pads in the Arabian Peninsula are three recent examples of products in this category. L’Oreal ventured into the value products segment via its high-end brand The Body Shop. They launched a new line of cosmetics called The Original Collection, which includes 11 iconic Body Shop products sold at attractive prices.

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Roadmap What are Value Brands? What does it take to build Value brands? Issues involved in penetrating International markets

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9650_India Big market in the chosen category Value Brands strategy is not about winning a small prize at a low price Nano is a Value Brand. Addresses a huge 2 wheeler market which has millions of car aspirants Mayonnaise is not a category in India for a Value Brand. Niche market best addressed by a Store Label Primary condition 09/07/10 – ND/pr

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Build low-cost Business model 1 4 Grow volumes Pass margins on to retailers 2 Increase distribution 3 Value Brands Virtuous Circle is not just about branding 09/07/10 – ND/pr How are Value Brands created? Isn’t it what Micromax , Amul and Diao did?

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Large gap between Entry and Premium prices…. mobile phones, cars, garments , footwear, fashion accessories, etc. Mid-market brands have weak Brand Utility Population pregnant with aspiration….’climbers’ Access to retail space possible Independent distribution “Direct to Retailer” selling Characteristics of markets that provide opportunity for Value Brands 09/07/10 – ND/pr

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Large ‘bottom of the pyramid’ market ‘Value Seeking’ customers Large ‘Value Opportunity’ for new entrants McDonalds – The ‘Rs. 20 menu’ Pizza Hut – ‘Rs. 75 per head treat’ Reebok shoes priced at <Rs. 1000 for India Lower cost structure compared to the Western economies Is India ripe for Value brands?…….1 09/07/10 – ND/pr

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Roadmap What are Value Brands ? What does it take to build Value brands? Can we penetrate International markets with Value Brands?

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9650_India The market exists in several categories The recession has set off down-trading China is creating some global brands in consumer durables – Haier , TCL, Lenovo…. Consumers have started trusting Chinese products because many famous global brands are sourcing from China Why not Indian Products? Is there an opportunity for Indian brands in global markets? 09/07/10 – ND/pr

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Branding challenge Managing the channels Establishing after sales service Issues involved in penetrating developed markets are not trivial 09/07/10 – ND/pr Issues “You don’t get a Coke by putting four quarters in four machines. Think big.”

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9650_India Indian business plagued with the ‘Small is good enough’ mind set. Only a few like Mittals , Ambanis , Tatas , Infosys, Mahindras etc. and now young fighters like Micromax have broken away from it Branding is so different from producing as a sub contractor Creating global capacities starts with creating big capacity for the Indian market in most cases Flawless execution and sustained effort. Can we be an insurgent in export markets? 09/07/10 – ND/pr

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Branding challenge Managing the channels Establishing after sales Issues involved in penetrating developed markets are not trivial 09/07/10 – ND/pr Grass-root M&A OEM route Issues Options Think big, think smart

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For comments, views and suggestions contact me at raj.nair@consultavalon.com Avalon Consulting Casa Avalon, 61 Dr.SS Rao Rd, Parel , Mumbai 400 012 09/07/10 – ND/pr Thank You

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