Case Game: The Case For Managing The VFM Proposition

CASE GAME
The Case For Managing The
VFM Proposition

How can Total leverage its VFM platform to reach its target markets? N. Gupta of Raymond, R. Jain of UB Group, and B.M. Ghodeswar of NITIE suggest various ways of doing so.

By R. Chandrasekhar

We fell short of target,'' snapped the youngish-looking man seated in a high-back leather chair, not making any effort to hide his displeasure. About a dozen executives seated around a big, oval oak table, squirmed in their seats. ''We had targeted 10 per cent growth, but what we've achieved is just 8 per cent. Can I know why?''

Abhinav Kumar, the young CEO of the diversified Total Industries, had reasons to be upset. Under discussion was the company's performance in the colour television (CTV) market. Apart from consumer durables, of which CTV was a part, Total had three divisions-batteries, switchgears, and soaps. But durables was the most high-profile, and Kumar knew that any slack here would adversely impact the other divisions, too. Kumar's question, then, was directed at Srikant Suresh, the president of durables division.

''A detailed breakdown of sales is revealing,'' said Suresh. ''The urban demand is up by just 3 per cent, which means that the real spurt has come in from the countryside.''

''That's news,'' observed Kumar. ''I always had this feeling that we were underestimating the potential of rural markets. But the fact that expensive CTVs are finding buyers there is certainly surprising.''

''My analysis points to two trends,'' continued Suresh. ''There is a huge demand in villages and small towns for a larger screen that all premium models provide. The reason, as we found out, is that unlike in cities, the number of viewers per set is in excess of 10. The joint family is still not only the norm, but it is considered perfectly in order for friendly neighbours to come in and watch your TV.''

''I think we'd do well to pay attention to user habits,'' noted Kumar.

''Here's the second interesting trend,'' offered Suresh. ''Almost all of our rural buyers made cash-down payments. Those who opted for installment schemes were almost negligible.''

But farmers get cash-rich only after harvesting, right?'' queried Kumar.

''I thought so, too,'' admitted Suresh. ''But apparently the rural consumer is credit-shy. It is only in urban markets that financing options are in great demand.''

Ever since Total had set up its first manufacturing facility in 1973 for making black and white (B&W) sets, it had consistently taken the value-for-money (VFM) platform to become a market leader. In fact, the success of its durables division was due to smart positioning in what Total thought was the popular end of the market. But now that seemed to be getting turned upside down.

''My sense is that the dynamics in the durables market are changing,'' opined Guneen Roy, head of the soaps division. "In fact, the change is happening across product segments."

''I agree,'' said Ratika Sahai, the young chief of the batteries division. ''Pricing based on income levels is yielding place to pricing based on the offer of specific and tangible consumer benefits. What is driving the market today is the functional, and not the lifestyle, factor.''

''Besides,'' interjected Manoj Kohli, the head of Total's switchgears business, ''an approach that slices the market according to income levels is dangerous. It runs the risk of missing large pockets of latent demand like the rural market. I am sure Srikant and you, Abhinav, will agree with me that the time has now come for us to rework our positioning platform for CTVs.''

''Absolutely, Manoj,'' Suresh agreed. ''The repositioning will also help us address the problem with Total's brand perception versus its Japanese and Korean rivals. Foreign brands are perceived to be technologically superior to Indian brands, although we know that in terms of technology there is near-parity. Yet, Korean brands that did not exist as recently as five years ago, have significant marketshares now. And no prizes for guessing who the losers in the marketplace are.''

''I think the time is ripe to consolidate our 17 per cent marketshare and aim to shoot past CPL, which is the market leader. I know it sounds way too ambitious, but let us target a 25 per cent share.''

''It is ambitious alright,'' agreed Roy.

''We aren't the only ones worried,'' pointed out Suresh. ''I believe that CPL is also reworking its strategy." But unlike Total, which worked its way up from the volume-driven, low end of the market to become the No. 2, CPL had taken the contrarian route right from 1983, when it was set up. Being a later entrant, it targeted the upper end of the market.

"In retrospect," Suresh continued, "it was their advertising and purposeful marketing that won over the opinion-making class and helped create the Image-Leader brand. This was, then, used to target consumers in the median range for volumes. As a result, CPL has both margins from the top-end and volumes from the mid-range.''

''That's an enviable situation to be in,'' said Kohli.

''CPL is now talking to several overseas CTV makers to market their brands in India,'' revealed Suresh. ''For good reason. Every unit sale brings in royalty with no costs attached. Besides, the product portfolio is expanded without the burden of manufacturing or marketing costs.''

''Aren't they running a huge risk?'' asked Kumar. ''What if the foreign brand wanted to opt out? That would blow a hole overnight in CPL's portfolio. Even if CPL sourced new CTV models from an unbranded supplier, there would be nothing unique to its value proposition.''

''No doubt, there are risks involved,'' admitted Suresh. ''Which is why we are wary of similar enquiries we've received.''

''Srikant already knows this,'' Kumar said, ''but let me tell you all: I don't want Total to become a conduit for others. And I don't want Total's brand equity to get diluted in any way.''

''I think all of us agree on that count,'' said Kohli.

''Good,'' said Kumar. ''But enlarging the product portfolio is clearly worth our while. We will first have to identify specific niches. Just because rural buyers have made cash-down payments, we can't assume this trend will snowball and flood the market with expensive sets.''

''But going by what Srikant has been saying,'' Sahai pointed out, ''there seems to be a definite slot for large-screen TVs in rural markets.''

''Yes,'' agreed Kumar. ''We should come up with a lower-end TV with a large screen, perhaps in B&W.''

''If we concentrate on low-priced models, we will not win margins,'' said Suresh. ''I think our approach should be based on these three strategic needs: one, how do we corner the mindspace of the consumer? Two, how do we rejuvenate the Total brandname and, three, how do we develop a long-term communication platform which we can be used to acquire the leadership position?''

''If we were to segment the market based on functional needs across price brands, wouldn't several niches emerge?'' asked Kumar.

''Yes,'' replied Suresh. ''There is the first-time buyer. What appeals to him is not only the novelty factor, but also the sense of pride in owning a TV. Then, there is the upgrader, who owns a B&W TV but wants to move up to colour; or the one who has a CTV but wants a feature-rich set. There is also the teenager who prefers to have her own set. A niche for super-slim, flat-screened sets is already developing. The techno-savvy office-goer wants an internet facility, built-in modem, and a remote keyboard with his TV set.''

''Convergence is changing the rules of the game completely,'' said Kohli.

''The question is,'' said Kumar refocusing the discussion, ''how do we position the new offerings? Do we position them individually and separately-each with its own unique differentiation? Or do we position them as part of an umbrella brand with a common core proposition running through all?''

''Given the changing consumer attitudes, I am not sure if Total's core proposition of VFM is relevant today,'' Kohli wondered aloud.

''We must appeal to different emotions at different levels,'' suggested Roy. ''We have gone past the stage of attribute positioning in the CTV market. Consumers get used to a single benefit during the introductory stage of the product life-cycle but over a period of time, as they become familiar with the product, they demand new attributes and new benefits.''

''I think we should focus on one core proposition,'' said Kohli.

Roy pointed out that positioning each individual product offering as a brand in its own right was a risky proposition. It would draw attention away from the flagship brand. And the core proposition that it represented. ''Brand proliferation looks impressive on the shelves, but the core message may well be lost. ''We should make the choice easy and convenient for the consumer. And the best way to do so is to have a positioning that strikes a chord. And we should first get a positioning statement that is different from our competitors.''

''The VFM platform fits the bill,'' said Suresh. ''VFM is not necessarily in terms of price. It is also in terms of delivering specific benefits that the consumer is seeking. I think we should look at specific niches in terms of the core value of VFM. We have worked hard to lock that value in the mind of the consumer. There is no reason why we should abandon it now.''

What should Total do?