Which products have reached maturity stage in audio industry Do you think that product bundling can be effectively used for promoting sale of these products
Which products have reached maturity stage in audio industry Do you think that product bundling can be effectively used for promoting sale of these products
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Managerial Economic
Attempt Any Four Case Study
CASE – 1 Dabur India Limited: Growing Big and Global
Dabur is among the top five FMCG
companies in India and is positioned successfully on the specialist herbal
platform. Dabur has proven its expertise in the fields of health care, personal
care, homecare and foods. The company was founded by Dr. S. K. Burman in 1884
as small pharmacy in Calcutta (now Kolkata), India. And is now led by his great
grandson Vivek C. Burman, who is the Chairman of Dabur India Limited and the
senior most representative of the Burman family in the company. The company headquarters
are in Ghaziabad, India, near the Indian capital New Delhi, where it is
registered. The company has over 12 manufacturing units in India and abroad.
The international facilities are located in Nepal, Dubai, Bangladesh, Egypt and
Nigeria.
S.K. Burman, the founder of
Dabur, was trained as a physician. His mission was to provide effective and
affordable cure for ordinary people in far-flung villages. Soon, he started
preparing natural remedies based on Ayurved for diseases such as Cholera,
Plague and Malaria. Due to his cheap and effective remedies, he became to be known
as ‘Daktar’ (Indianised version of ‘doctor’). And that is how his venture Dabur
got its name—derived from Daktar Burman.
The company faces stiff
competition from many multi national and domestic companies. In the Branded and
Packaged Food and Beverages segment major companies that are active include
Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and
products, the major competitors are Baidyanath, Vicco, Jhandu, Himani and other
pharmaceutical companies.
Vision,
Mission and Objectives
Vision statement of Dabur says that the
company is “dedicated to the health and
well being of every household”. The objective is to “significantly accelerate profitable growth by providing comfort to
others”. For achieving this objective Dabur aims to:
·
Focus
on growing core brands across categories, reaching out to new geographies,
within and outside India, and improve operational efficiencies by leveraging
technology.
·
Be
the preferred company to meet the health and personal grooming needs of target
consumers with safe, efficacious, natural solutions by synthesising deep
knowledge of ayurveda and herbs with modern science.
·
Be a
professionally managed employer of choice, attracting, developing and retaining
quality personnel.
·
Be
responsible citizens with a commitment to environmental protection.
·
Provide
superior returns, relative to our peer group, to our shareholders.
Chairman
of the company
Vivek C. Burman joined Dabur in 1954
after completing his graduation in Business Administration from the USA. In
1986 he was appointed Managing Director of Dabur and in 1998 he took over as
Chairman of the Company.
Under Vivek Burman’s
leadership, Dabur has grown and evolved as a multi-crore business house with a
diverse product portfolio and a marketing network that traverses the whole of
India and more than 50 countries across the world. As a strong and positive
leader, Vivek C. Burman has motivated employees of Dabur to “do better than
their best”—a credo that gives Dabur its status as India’s most trusted
nature-based products company.
Leading
brands
More than 300 diverse products in the
FMCG, Healthcare and Ayurveda segments are in the product line of Dabur. List
of products of the company include very successful brands like Vatika, Anmol,
Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover
of Rs.100 crores each.
Strategic positioning of
Dabur Honey as food product, lead to market leadership with over 40% market
share in branded honey market; Dabur Chyawanprash is the largest selling
Ayurvedic medicine with over 65% market share. Dabur is a leader in herbal
digestives with 90% market share. Hajmola tablets are in command with 75%
market share of digestive tablets category. Dabur Lal Tail tops baby massage
oil market with 35% of total share.
CHD (Consumer Health
Division), dealing with classical Ayurvedic medicines has more than 250
products sold through prescription as well as over the counter. Proprietary
Ayurvedic medicines developed by Dabur include Nature Care Isabgol, Madhuvaani
and Trifgol.
However, some of the
subsidiary units of Dabur have proved to be low margin business; like Dabur
Finance Limited. The international units are also operating on low profit
margin. The company also produces several “me – too” products. At the same time
the company is very popular in the rural segment.
Questions
1.
What
is the objective of Dabur? Is it profit maximisation or growth maximisation?
Discuss.
2.
Do
you think the growth of Dabur from a small pharmacy to a large multinational
company is an indicator of the advantages of joint stock company against
proprietorship form? Elaborate.
CASE – 2
IT Industry: Checkered Growth
IT industry is now considered as vital
for the development of any economy. Developing countries value the importance
of this industry due to its capacity to provide much needed export earnings and
support in the development of other industries. Especially in Indian context,
this industry has assumed a significant position in the overall economy, due to
its exemplary potentials in creating high value jobs, enhancing business
efficiency and earning export revenues. The IT revolution has brought
unexpected opportunities for India, which is emerging as an increasingly
preferred location for customised software development. Experts are estimating
the global IT industry to grow to US$1.6 million over the coming six years and
exports to reach Rs. 2000 billion by 2008. It is envisaged that Indian IT industry,
though a very small portion of the global IT pie, has tremendous growth
prospects.
Stock
Taking
The decade of 1970 may be taken as the
stage of introduction of the Indian IT industry. The early years were marked by
75 per cent of software development taking place overseas and the rest 25 per
cent in India. Exports of Indian software until the mid-1970s was mainly
Eastern Europe, followed by US. Tata Consultancy Services (TCS) was among the
pioneers in selling its services outside India, by working for IBM Labs in the
US. The hardware segment lagged behind its software counterpart. With instances
of exports worth US$ 4 million in 1980, the software segment of the industry
has shown an uneven profile. It was not until 1980s that vigorous and sustained
growth in software exports begun, as MNCs like Texas Instruments started to
take serious interest in India as a centre of software production. Destinations
of export also underwent changes, with US dominating the main export market
with 75 per cent of the exports. The IT Enabled Services (ITeS) segment,
however, had not emerged at this stage.
It was also during the mid to
late 1980s that computer firms shifted focus from mainframe computers (the
mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp
installed the first ever PC at CSI, Delhi; this changed the entire industry for
good. With the entry of networking and applications like CAD/CAM, PC sales
soared in 1987-88, touching 50,000 units.
From a modest growth in the
mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92. Since then,
it grew at an incredible rate, up to 115 per cent in 1993. The hardware could
also register an annual growth of 40 per cent in this period, backed by a
surging demand for PCs and networking. Growth of the industry was also driven
by the emergence and rapid growth of the ITeS segment.
IT sector’s share of GDP rose
steadily in this period, rate of increase being the highest at 44.91 per cent
in 2000-01. It was in the same year that the size of the total IT market was
the biggest in the decade, at Rs. 56,592 crore. The overall IT market was also
found to increase till 2000-01. The overall IT market was also found to
increase till 2000-01, with the only exception of 1998-99. The domestic market
also showed an overall increase till 2000-01, registering a spectacular CAGR of
50.39 per cent. Aggregate output of software and services also increased in
this period, though at an uneven rate. Of approximately $1 billion worth of
sales in 1991-1992, domestic hardware sales constituted 37.2 per cent (13.4 per
cent growth over the previous year), exports of hardware 6.6 per cent.
During 2000-01 the growth in
the hardware segment was driven mainly by PCs, which contributed about 58 per
cent of the total hardware market. This period also witnessed the phenomenon of
increasing share of Tier 2 and cities in PC sales, thereby indicating PC
penetration into the hinterland. PC shipments had increased by 35 per cent
every year from 1997 till 2000-01 when it reached 1.8 million PCs. The
commercial PC market saw a growth of 23.5 per cent mainly due to slashing of
prices by major vendors.
It was in 2001-02 that the
industry had a sharp fall in rate of growth of its share of GDP to 5.90 per
cent, from 44.91 per cent in the previous year. The total IT market also showed
a fall in growth rate from 56.42 per cent in 2000-01 to a mere 16.24 per cent
in the next year, growing further at the rate of 16.25 per cent in the next
year. Software export was also affected, registering a low growth of 28.74 per
cent and failed to maintain its growth rate of 65.30 per cent in the previous
year. It got further lowered to 26.30 per cent in 2002-03. CAGR of total output
of software and services (in Rs. crore) came down to 25.61 in 2001-02 and
further to 25.11 in 2002-03. The domestic market showed a steep decline in
growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in 2000-01.
It could, however, recover by growing at 4.11 per cent in the next year.
Table
1: Indian IT Industry: 1996-97 to 2002-03
|
Year
|
A*
|
B*
|
C*
|
D*
|
E*
|
||
|
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
|
1.22
1.45
1.87
2.71
2.87
3.09
|
18,641
25,307
36,179
56,592
65,788
76,482
|
3,900
6,530
10,940
17,150
28,350
36,500
46,100
|
6,594
10,899
16,879
23,980
37,350
47,532
59,472
|
9,438
12,055
14,227
18,837
28,330
29,181
30,382
|
||
|
*A: share of GDP of the Indian IT market,
B: size of the Indian IT market (in Rs. crore), C: software and services
exports (in Rs. crore), D: size of software and services (in Rs. crore), E:
size of the domestic market (in Rs. crore)
Questions
1.
Try
to identify various stages of growth of IT industry on basis of information
given in the case and present a scenario for the future.
2.
Study
the table given. Apply trend projection method on the figures and comment on
the trend.
3.
Compute
a 3 year moving average forecast for the years 1997-98 through 2003-04.
CASE – 3 Outsourcing to India: Way to Fast Track
By almost any measure,
David Galbenski’s company Contract Counsel was a success. It was a company
Galbenski and a law school buddy, Mark Adams, started in 1993; it helps
companies find lawyers on a temporary contract basis. The growth over the
past five years had been furious. Revenue went from less than $200,000 to
some $6.5 million at the end of 2003, and the company was placing thousands
of lawyers a year.
At then the revenue growth
began to flatten; the company grew just 8% in 2004 despite a robust market
for legal services estimated at about $250 billion in the United States
alone. Frustrated and concerned, Galbenski stepped back and began taking a
hard look at his business. Could he get it back on the fast track? “Most
business books say that the hardest threshold to cross is that $10 million
sales mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We
needed to blow right through that number.”
For that to happen, Galbenski
knew he had to expand his customer base beyond the Midwest into large legal
supermarkets such as Boston, New York, and Washington, D.C. He also knew that
in doing so, he could run into stiff competition from larger publicly traded
rivals. Contract Counsel’s edge has always been its low price, Clients called
when dealing with large-scale litigation or complicated merger and
acquisition deals, either of which can require as many as 100 lawyers to
manage the discovery process and the piles of documents associated with it.
Contract Counsel’s temps cost about $75 an hour, roughly half of what a law
firm would charge, which allowed the company to be competitive despite its
relatively small size. Galbenski was counting on using the same strategy as
he expanded into new cities. But would that be enough to spur the hyper
growth that he craved for?
At that time, Galbenski had
been reading quite a bit about the growing use of offshore employees. He knew
companies like General Electric, Microsoft and Cisco were saving bundles by
setting up call and data centers in India. Could law firms offshore their
work? Galbenski’s mind raced with possibilities. He imagined tapping into an
army of discount-priced legal minds that would mesh with his existing talent
pool in the U.S. The two work forces could collaborate over the Web and be
productive on a 24-7 basis. And the cost could be massive.
Using offshore workers was
a risk, but the payoff was potentially huge. Incidentally Galbenski and his
eight-person management team were preparing to meet for their semiannual
review meeting. The purpose of the two-day event was to decide the company’s
goals for the coming year. Driving to the meeting, Galbenski struggled to
figure out exactly what he was going to say. He was still undecided about
whether to pursue an incremental and conservative national expansion or take
a big gamble on overseas contractors.
The
Decision
The next morning Galbenski kicked off
the management meeting. Galbenski laid out the facts as he saw them. Rather
than look at just the next five years of growth, look at the next 20, he
said. He cited a Forrester Research prediction that some 79,000 legal jobs,
totaling $5.8 billion in wages, would be sent offshore by 2015. He challenged
his team to be pioneers in creating a new industry, rather than stragglers
racing to catch up. His team applauded. Returning to the office after the
meeting, Galbenski announced the change in strategy to his 20 full-timers.
Then he and his team began
plotting a global action plan. The first step was to hire a company out of
Indianapolis, Analysts International, to start compiling a list of the best
legal services providers in countries where people had comparatively strong
English skills. The next phase was vetting the companies in person. In
February 2005, just three months after the meeting in Port Huron, Galbenski
found himself jetting off on a three months trip to scout potential
contractors in India, Dubai, and Sri Lanka. Traveling to cities like Bangalore,
Chennai and Hyderabad, he interviewed executives from more than a dozen
companies, investigating their day-to-day operations firsthand.
India seemed like the best
bet. With more than 500 law schools and about 200,000 law students graduating
each year, it had no shortage or attorneys. What amazed Galbenski, however,
was that thanks to the Web, lawyers in India had access to the same research
tools and case summaries as any associate in the U.S. Sure, they didn’t speak
American English. “But they were highly motivated, highly intelligent, and
extremely process-oriented,” he says. “They were also eager to tackle the
kinds of tasks that most new associated at law firms look down upon” such as
poring over and coding thousands of documents in advance of a trial. In other
words, they were perfect for the kind of document-review work he had in mind.
After a return visit to
India in August 2005, Galbenski signed a contract with two legal services
companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their
lawyers and paralegals, Galbenski figured he could cut his document-review
rates to $50 an hour. He also outsourced the maintenance of the database used
to store the contact information for his thousands of contractors. In all, he
spent about 12 months and $250,000 readying his newly global company.
Convincing U.S. based clients to take a chance on the new service hasn’t been
easy. In November, Galbenski lined up pilot programs with four clients (none
of which are ready to publicise their use of offshore resources). To help get
the word out, he launched a website (offshore-legal-services.com), which
includes a cache of white papers and case studies to serve as a resource
guide for companies interested in outsourcing.
Questions
1.
As
money costs will decrease due to decision to outsource human resource, some
real costs and opportunity costs may surface. What could these be?
2.
Elaborate
the external and internal economies of scale as occurring to Contract
Counsel.
3.
Can
you see some possibility of economies of scope from the information given in
the case? Discuss.
|
|||||||
CASE – 4 Indian Stock Market: Does it Explain Perfect
Competition?
The stock market is one of
the most important sources for corporates to raise capital. A stock exchange provides
a market place, whether real or virtual, to facilitate the exchange of
securities between buyers and sellers. It provides a real time trading
information on the listed securities, facilitating price discovery.
Participants in the stock
market range from small individual investors to large traders, who can be based
anywhere in the world. Their orders usually end up with a professional at a
stock exchange, who executes the order. Some exchanges are physical locations
where transactions are carried out on a trading floor. The other type of
exchange is of a virtual kind, composed of a network of computers and trades
are made electronically via traders.
By design a stock exchange
resembles perfect competition. Large number of rational profit maximisers actively
competing with each other, trying to predict future market value of individual
securities comprises the main feature of any stock market. Important current
information is almost freely available to all participants. Price of individual
security is determined by market forces and reflects the effect of events that
have already occurred and are expected to occur. In the short run it is not
easy for a market player to either exit or enter; one cannot exit and enter for
few days in those stocks which are under no delivery. For example Tata Steel
was in no delivery from 29/10/07 to 02/11/07. Similarly one cannot enter or
exit on those stocks which are in upper or lower circuit for few regular
trading sessions. Therefore a player has to depend wholly on market price for
its profit maximizing output (in this case stock of securities). In the long
run players may exit the market if they are not able to earn profit, but at the
same time new investors are attracted by rise in market price.
As on 01/11/07 total market
capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source: Business
Standard, 1/11/2007); out of this individual investors account for only $100bn.
In spite of the fact that individual investors exist in a very large number,
their capital base is less than 7% of total market capital; rest of capital is
owned by foreign institutional investor and domestic institutional investors
(FIIs and DIIs), which are very small in number. Average capital owned by a
single large player is huge in comparison to small investor. This situation
seems to have prompted Dr Dash of BSE to comment ‘The stock market activity is
increasingly becoming more centralised, concentrated and non competitive,
serving interest of big players only.” Table 2 shows the impact of change in
FII on National Stock Exchange movement during three different time periods.
Table
2: Impact of FIIs’ Investment on NSE
|
Wave
|
Date
|
Nifty
close
|
Change in Nifty Index
|
FLLS Net Investment
(Rs.Cr.)
|
Change in Market Capitalisation
(Rs.Cr.)
|
|
Wave
1
From
To
|
17/05/04
26/10/05
|
1388.75
2408.50
|
1019.75
|
59520
|
5,40,391
|
|
Wave
2
From
To
|
27/10/05
11/05/06
|
2352.90
3701.05
|
1348.15
|
38258
|
6,20,248
|
|
Wave
3
From
To
|
12/05/06
13/06/06
|
3650.05
2663.30
|
-986.75
|
-9709
|
-4,60,149
|
By design, an Indian Stock
Market resembles perfect competition, not as a complete description (for no
markets may satisfy all requirements of the model) but as an approximation.
Questions
1.
Is
stock market a good example of perfect competition? Discuss.
2.
Identify
the characteristics of perfect competition in the stock market setting.
3.
Can
you find some basic aspect of perfect competition which is essentially absent
in stock market?
CASE – 5 The Indian Audio Market
The Indian audio market
pyramid is featured by the traditional radios forming its lower bulk. Besides
this, there are four other distinct segments: mono recorders (ranking second in
the pyramid), stereo recorders, midi systems (which offer the sound
amplification of a big system, but at a far lower price and expected to grow at
25% per year) and hi-fis (minis and micros, slotted at the top end of the
market).
Today the Indian audio market
is abound with energy and action as both national and international majors are
trying to excel themselves and elbow the others, ushering in new concepts, like
CD sound, digital tuners, full logic tape deck, etc. The main players in the
Indian audio market are Philips, BPL and Videocon. Of these, Philips is one of
the oldest and is considered at the leading national brands. In fact it was the
first company to introduce a range of international products such as CD radio
cassette recorder, stand alone CD players and CD mini hi-fi systems. With the
easing of the entry barriers, a number of new international players like
Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and Aiwa have also
entered the arena. This has led to a sea of changes in the industry and
resulted in an expanded market and a happier customer, who has access to the
latest international products at competitive prices. The rise in the disposable
income of the average Indian, especially the upper-income section, has opened
up new vistas for premium products and has provided a boost to companies to
launch audio systems priced as high as Rs. 50,000 and beyond.
Pricing
across Segments
Super
Premium Segment: This
segment of the market is largely price-insensitive, as consumers are willing to
pay a premium in order to obtain products of high quality. Sonodyne has
positioned itself in this segment by concentrating on products that are too
small for large players to operate in profitably. It has launched a range of
systems priced between Rs. 30,000 to Rs. 60,000. National Panasonic has
launched its super premium range of systems by the name of Technics.
Premium
Segment: Much of the
price game is taking place in this segment, in which systems are priced around
Rs. 25,000. Even the foreign players ensure that the pricing is competitive.
Entry barriers of yester years compelled the demand by this segment to be
partially met by the grey market. With the opening up of the market, the
premium segment is witnessing a rapid growth and is currently estimated to be
worth Rs. 30 crores. Growth of this segment is also being driven by consumers
who want to upgrade their old music systems. Another major stimulating factor
is the plethora of financing options available, bringing more and more
consumers to the market.
Philips has understood the Indian
listener well enough to dictate the basic principles of segmentation. It
projects its products as high quality at medium price. In fact, Philips had
successfully spotted an opportunity in the wide price gap between portable
cassette players and hi-fi systems and pioneered the concept of a midi system
(a three-in-one containing radio, tape deck and amplifier in one unit). Philips
has also realised that there is a section of the rich consumer which values not
just power but also clarity and is willing to pay for it. The pricing strategy
of Philips was to make the most of its image as a technology leader. To this
end, it used non-price variables by launching of a range of state of art
machines like the FW series, and CD players. Moreover, it came up with the
punch line in its advertisements as, “We Invent For You”.
BPL stands second only to
Philips in the audio market and focuses on technology as its USP. Its kingpin
in the marketing mix is its high technology superior quality product. It is
thus at being the product-quality leader. BPL’s proposition of fidelity is
translated in its punchline for its audio systems as, ‘e-fi your imagination’
(d-fi stands for digital fidelity). The company follows a market skimming
strategy. When a new product was launched, it was placed in the top end of the
market, and priced accordingly. The company offers a range of products in all
price segments in the market without discounting the brand.
Another major player,
Videocon, has managed to price its products lower even in the premium segment.
The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had
prompted Videocon to launch the Select Sound range of midi stereo systems at a
slightly lower price. At the premium end, Videocon is making efforts to upgrade
its image to being “quality-driven” by associating itself with the internationally
reputed brand name of Sansui from Japan, and following a perceived value
pricing method.
Sony is another brand which
is positioning itself as a premium product and charges a higher price for the
superior quality of sound it offers. Unlike indulging into price wars, Sony’s
ad-campaigns project the message that nothing can beat Sony in the quality and
intensity of sound. National Panasonic is another player that has three
products in the top end of the market, priced in the Rs. 21,000 to Rs. 32,000
range.
Monos
and Stereos: Videocon
has 21% share I the overall audio market, but has been a major player only in
personal stereos and two-in-ones. Its history is written with instances where
it has offered products of similar quality, but at much lower prices than its
competitors. In fact, Videocon launched the Sansui brand of products with a
view to transform its image from that of being a manufacturer of cheap products
to that of being a company that primes quality, and also to obtain a share of the
hi-fi segment. Sansui is being positioned as a premium brand, targeting the
higher middle, upper income groups and also the sensitive middle class Indian
consumer.
The objective of Philips in
this segment is to achieve higher sales volumes and hence its strategy is to
expand its range and have a product in every segment of the market. The pricing
method used by Philips in this segment is providing value for money.
National Panasonic offers
products in the lower end of the market, apart from the top of the range. In
fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to
Rs. 2,400, with the logic that a forte in the lower end of the market would
help in building brand reliability across a wider customer base. The company is
also guided by the logic that operating in the price sensitive region of the
market will help it reach optimum levels of efficiency. Panasonic has also
entered the market for midis.
These apart, there also
exists a sector in the Indian audio industry, with powerful regional brands in
mono and stereo segments, having a market share of 59% in mono recorders and
36% in stereo recorders. This sector has a strong influence on price
performance.
Questions
1.
What
major pricing strategies have been discussed in the case? How effective these
strategies have been in ensuring success of the company?
2.
Is
perceived value pricing the dominant strategy of major players?
3.
Which
products have reached maturity stage in audio industry? Do you think that
product bundling can be effectively used for promoting sale of these products?
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