Fall+2008+Section+07-SS+Week+8

=Class Discussion For Week 8=

Fast Moving Consumer Goods (FMCG) Population of India is target market; Provides FMCG, for, personal products, beverages and foods, //Benefits //: hygiene, __distribution channels are a key in this case__, convenience, education, reliability, brand  Segments: Urban, Rural-accessible (retail), Rural-inaccessible (accessible is a relative term – roads are there but less passable, big trucks can’t get there, non-mechanized)
 * UNILEVER, HLL India **

//Benefits for urban//: · size is large, hygiene, distribution, brand (first in India) – generates a certain amount of reliability / urban areas have gotten competitive / dist channels: BASIC

//Benefits and issues for Rural accessible:// · Distribution, hygiene, built their own distribution channel/infrastructure – depots (infrastructure) – HLL has lower variable cost, Stockists (people); P&G can’t do this because there is no infrastructure – roads – this is huge. STREAMLINE · If they were thinking about it, they would make big dist centers for accessibility and leverage it into the inaccessible areas. They have people and know how they work. · Rural areas, labor and land cost drop dramatically. ½ revenues and profits come from urban, so rural is built up nicely.

//Benefits and issues for Rural inaccessible:// · A ccessibility, convenience, reliability (education), distribution – Shakti, go door to door, village to village to sell hygiene, and what they think are the best products. · Product line is limited (door to door in ox carts) smaller quantity - sachets, priced at reasonable but higher per volume than urban. · Distribution channel is lowering the cost. · In urban 1000 products, rural down to 140 SKUs. Sold 4 of 56 product categories.
 * Rural: culture and belief system play a big role in the life of a rural inhabitant. Therefore, use more local media, less mass media
 * The literacy rate in rural areas is low, so display symbols, visuals, and audio and video campaigns
 * Mass media in rural areas is not available, so there is a need to brand using temple festivals, film shows, and other events that bring the village together.

If you have limited product, you can still get economies of scale for different packaging. They take advantage of their size. Economies of Scale – if they have to buy ingredients (outside of packaging) ingredients are still the same. They are doing what we teach; they understand what they are doing and what needs to be done. Slower and better than not getting anything. As people move into urban areas, they will already know the brand and at a low cost, so HLL benefits.

Why do traditional ads not work? There is no mass media reach in por rural areas without electricity, and no money for electronics or newspapers or magazines.

Promotion looks like: Shakti, and Vani (communicator- educator) plus Shakti trainer (RSPs developed for rural accessible market)

If you look at product price distribution and promotion, it all fits together – benefit profile: reliability, distribution, convenience, accessibility (it comes to me) Prices at competition price – to distinguish themselves on a reliability standpoint. HLL is not competing on price.

The developing world has most opportunities; at the bottom of the pyramid, if you compete on price ONLY the low cost producer wins and you lose profitability. If it’s price sensitive, a monopoly may develop for the company with the low cost advantate. Otherwise, if competing solely on price price wars occur. When price wars occur, margins suffer.HLL found a way to compete on more than jsut price in a price sensitive market.
 * __FIRST LESSON FROM THE CASE__** is even though you are competing in price sensitive markets, competing on price //only// causes problems (You can only compete on cost, not price.). You must differentiate beyond that.

HLL is saying we’re going to be the bank and lend to the locals, Shakti 12,500 Shakti (at time of case), in terms of profitability to Unilever = break-even. – 50,405 villages, 300 districts, 12 states What problem are they confronting: get more product out, without more people. Scale-up without adding a lot of variable cost.

Solutions: Double Shaktis without doubling management (associated cost to add Shaktis) Should they be able to do this? Geography is against them, rural, dispersed, transportation is slow. Can they leverage the depots more? Yes. Can we leverage the stockists? Maybe RSPs – can they generate more training from the existing RSPs? Likely.

Put numbers behind it: (Exhibit 1) Gross margin for HLL is 49% SG&A cost 28% Net mktg .contrib. 21% NMC is where I want to look for new marketing initiatives. Is it worth looking at? How big is the opportunity? Huge. Current sales= $2.324Billion. Rural = 20% of revenue and currently tapping only 16% of total rural mkt (p8) (P14, 250million new consumers.) If current rural sales of $460Million/0.16 =$ 2.9billion (this is the market opportunity) What NMC will I settle for – lets use 15% - target. Gross margin is less than urban. Pkging cost and distribution cost are higher. We can live with 45% gross margin. Stockists take 5%, retailer takes 8%, star sellers take 2%. This leaves 30%. This leaves 15% for additional SG&A cost (because NMC is 15%) Marketers: 3% to retailer and 11% to customer – 50/50 = average 7%. Put the 8% into RSPs, maybe some in Vanis. You get the most bang for buck at RSPs

Build the biz and get the sellers efficient - 25000 productive sellers. Once they are up and running the RSPs are done. They are freed up to work on more sellers. Quickly turnover.

The numbers are there. They may require managerial decisions and/or assumptions. Managerial decisions don’t require sensitivity analysis (best, worst, middle case). Assumptions do. Determine the Variance in the analysis. What does it mean in terms of the decision(s)? This allows me to evaluate the risk.
 * __SECOND THING TO REMEMBER__** – ESPECIALLY IN THE MIDTERM.

This case has another element- corporate social responsibility. From a pure profitability standpoint, the choice is clear. What about the bigger picture. · One take on social responsibility is we do good things to enhance our brand. · Another thing is that we want to raise the standard of living. · How do we do this? How do I raise the standard of living? Educate them. Leverage their product – through hygiene. Consciously do this through detergents and personal products – rather than beverages for example. · Third capability to leverage is distribution; they are good at it, · Fourth, they became the bank – leverage the $$

CSR that is often done “out there”, doesn’t usually think like this. What does Nike bring to the table that makes them think they can reduce cancer rates? They did it to sell shoes and it ‘looks’ good.

Strategic corporate resp. is to leverage your //core competencies// to enhance society. It’s more efficient and it helps more overall. If you are doing it more efficiently than others (govt, non profit, etc) because of your capability, it’s an efficient use of societal resources. Long term market is expanded and it improves brand.

Wal-mart leverages distribution to take co-pays from $12 to $4 for generic drugs. They caused their competition to do the same. Yes, it helps their profitability, but they are using a core competency. · If they are using their core competency, they are being socially responsibility. · If they are not, they are not.

Willamette University – social responsibility – education generates more information about green. (just bought Zena forest). Other projects that can be built into the educational process – can be strategic. Not everyone agrees · Buy-in from CLA is not necessarily available. · Not unto ourselves alone are we born. Culture is a core competency.

Grameen Bank ("Grameen" means "of the village") started in 1977 by professor Muhammad Yunus in Bangladesh with a mere $27, where prople couldn’t get loans. As of May 2008, there were 7.5-million borrowers, 97% of which are women. So, he started micro-financing. ID entrepreneurs who need low loan - $100, low interest. Train them, and help them and see if they pay it back. Default, 1%. Started the village program – pool the $ and who are the businesses you want to start. With more authority, they grew more and started loaning to their own people. Used in US now too.

Target market: tourists and businesses Benefits: Unique experiences; center of commerce; access to capital; culture; Capability: brand, name, fixed assets (They say NY is safe and affordable)
 * New York City **

Value proposition? (see P18 exhibit 5, brand attributes) What does NY stand for? **//Not sure! too many things, pick one or a combination of a few which are unique to New York//** This data is not helpful because it doesn’t tell us who we are – but it does show us what we can become.

Tourists: Unique experience, culture, (safe and affordable?) Capability: shopping

Business: Events. Physical assets, intangibles, Rights that the city grants: regulatory apparatus to leverage

We monetize the assets. Thru licensing (fdny logos etc), advertising, sponsorship, Think about assets, how you will monetize them and Target industry: jobs and tourists: income Tourism is not an asset of the city.

Generate and income through self funding marketing organization

//Exhibit 4:// Culture buffs: return group, target repeat customer 62% likely to return, $738 per trip. Looking at tourism income, not a lot of cost, but not a lot of $$

Two other groups: Indulgers: 16% and repeat 47%, But spend $2000 Explorers: 19% and 48% likely to return, spend $755

Culture buffs: Focus on a marketing campaign to push culture History channel works for culture buffs and explorers Indulgers: push shopping, restaurants

Snapple is a funding option for the agency, but it doesn’t do much more than bring in short term funds. Profiles industry SLIGHTLY. Vending opportunities, label promo (co-branding)

Street furniture $1billion. Funding. Presentation-overload is the risk from this. Something’s going on between funding mechanisms and the NYC brand.


 * First thing:** Build the brand on the market you want to attract – think before taking on any of the funding opportunities; ask, “who am I trying to build relationships with?” For example, “If I take $ for street furniture, who will it influence and what influence will it have?” Consider all funding opportunities for this.

Argument in opposition: Jim has grave concerns that they are not acting in the best interest of the citizenry or taking the citizens' input into account. (because they are looking outside the city – rather than inside the city for options) Things should be vetted through a construct to ensure that it benefits the citizens. Argument in favor: If you generate tourism $ you generate income (i.e. programs) for the citizens and businesses of NY. Large governmental entities – The notion of branding is not an issue, but a for-profit CEO will look for ways to move faster and short circuit the regulatory environment. There’s a tension between efficiency (primal in the for-profit world) and transparency (big in public sector).
 * This is Elliots 2nd thing: Competing imperatives.^^**

For public (large) entities, start at Value Prop level rather than Position Statement, because PS is too broad and becomes obtuse. Given Elliot’s 1 & 2, from marketing point of view, he is taking a short term view of how he’s generating funds. Can you generate better brand for tourism or jobs you are trying to generate? What industries we are trying to attract? What are Long-term strategic imperatives? Target doesn’t mean you won’t sell to others you aren’t targeting. Target is where you place your focus for marketing. For example, Apple targets people who think they are innovative and stylish, I may not think I’m that, but I have an Apple. Using segmentation data to identify benefit profiles, do a better job to **target** tourists than this guy did. Pick one or two and look at funding. Pick a couple, target, then measure. Get to 70% from culture buffs, for example, and see where it gets me, then go to the next one, and measure, and so on. If you do Five segments, what is the consistent benefit profile among the five? It’s NY – people will come. History channel, universal studios may make sense, but will the others enhance the brand?
 * 3rd thing from Elliot** – short term view of how to gather funds, “who is target” is the problem.

Is the truth a brand or a company? Brand. Stands for: Brutal honesty, uncovering untruth, shock, appeal to teens, don’t smoke Why did they build a brand? To get away from the PSA style and use a brand to stake out a place in teens' minds to build associations around (t//o prevent teen smoking).// Teens were under-focused-on key segment. Target market: Teens 12-17 Legacy Group became more associated with the Truth campaign, than who they are (at the cost of not developing their company brand). What did funding organizations tell them? You are too narrowly focused. Tobacco companies said they are going back on the agreement to not vilify tobacco companies. Not-for-profits: Funding comes from grants, donations. What did the board say about it? Set policy based on organizational goals. How does it affect funding? Wrong decision can cut off funding. Board = fund raisers: utilize contacts, access to large donors. Management team = writes grants. Small donors = users.
 * THE TRUTH CAMPAIGN **

· Board doesn’t believe management is doing the right thing. o Management can accede to the board’s wishes, or convince the board they are wrong. · How much more can you change attitudes? (Survey says 88% of teens polled say the ad is convincing) · Establish causation between (brand generated) attitude change and not starting smoking (for the board). · Once causation is established - at least do maintenance to keep the momentum, brand and attitude. The brand is not likely to transfer to different segments. (or, is it?) PSAs aren't that effective; so, if "shock" is the brand, it may transfer to other segments. Analyze using the matrix. Move to new segment. Jump the chasm – to go to new segment (quit smoking). //We don’t have to abandon, we can expand.// Can we expand Truth through shock, or do we dilute the brand. 70% already //want// to quit and it takes 8-12 tries.

12 – 17 year olds –> 18 – 24 year olds, maybe you need to hear it more. It didn’t prevent starting, but it may motivate you to quit if you hear it. For older folks, we need help (product) not promotion.

Does Legacy group have the capability to create a new product or get a product that’s out there used? · They can use their advertising competency to get the info out there. · Product association partnerships, using “truth” ads that show users what products are available.

Is the campaign actually affecting teen smoking? We don't know. We need to do multiple regression analysis to determine if price of cigarettes was primary factor. How much correlation is there between the ads and the drop in smoking. We also need to find out the point at which additional ad spending is not adding much effect (due to diminishing returns or burnout factor). When prevention advertising is no longer providing incremental gains, move on to the next segment (cessation). One prevention sale is more valuable than a cessation sale because all costs of smoking will be avoided. One cessation sale is a one in 9 to 12 chance that they will //successfully// quit. Even if they do quit, previous costs are sunk, and even future costs will be, hopefully, reduced, not eliminated. · People love a winner, and the perception is it’s a winner. · The brand needs maintenance. Don’t eliminate it totally. · If we lose ground, big tobacco will see it as opportunity. So maintenance is critical.

Funding sources are going to want to see results.
 * 1 point,** need to look at how much to extend, maintain and is it working, measuring.

The marketing is delivering improved outcomes for consumers to funding sources. · . · Which of the two is more important to your objective; funding sources want to see results.
 * 2 point is KEY,** – not-for-profit consumers are different than funders. Services go to those who aren’t paying (third party payers). Funders get intrinsic value, good feeling.

· The overall position is not as useful as a Value Proposition, unless the benefit profiles for both are consistent. · There are always at least two value propositions, one for users and one for funders.

Question asked…. Does the board have a responsibility to use the money toward the same mandate? Morally, the money can be used for anything toward the original – health proposition. Legally, they can do whatever they want.