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VOLUME 03BEACON ISSUE 06JUNE 2015

ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

COMPANY ANALYSIS

BRAND ANALYSIS

CONCEPT OF THE MONTH:EXPERIENCE CURVE

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OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

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OUR TEAM

SANANDAN DESHPANDE

NIKHIL RAO

AMEYA MAHABAL

CHITRA WANI

deepesh jethwani

krishna nain

prathamesh indani

Sushil Gurav

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AUTOMOBILE INDUSTRYINDUSTRY ANALYSIS

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Motorcycles sales have been stagnant in the past few years & grew by 2.65% as compared to FY13. Scooter segment has been seeing good growth in the past few years & this segment grew by a 20.75% in FY14. The high growth rate in the scooter segment has resulted in companies increasing their attention in their scooter lineup. Out of the total two wheeler sales in FY14, 25% constituted of scooters.

Passenger VehiclesThe passenger vehicles segment comprises of passenger cars, utility vehicles & multipurpose vehicles. The total passenger vehicle sales increased by 3.90% in FY15 to 2,601,111 units, up from 2,503,509 in FY14. Domestic passenger car sales in FY15 increased to 1,876,017 units from 1,786,826 units in FY14, an increase of 4.99%. The passenger cars segment showed a positive growth for the first time in the last three years, where high fuel costs, economic slowdown & high interest costs had dented sales. The sales of utility vehicles grew by 5.3% to 553,699 units while the sales of vans declined by 10.195 to 171,395 units.

Others

Royal Enfield

Mahindra Two Wheelers

Suzuki Motorcycles India

Yamaha India

TVS Motor Company

Bajaj Auto

HMSI

Hero MotoCorp

Market Share

41.75%11.75%

0.25%

1.30%

3.23%2.47%

23.43%

14.47%

1.35%

A total of 23,366,246 vehicles including, two wheelers, three wheelers, passenger vehicles & commercial vehicles, were produced in April 14-March 15 as against 21,500,165 vehicles that were produced in April 13-March 14, registering a growth of 8.68% in FY15.

Two Wheeler SegmentThe two wheeler segment accounts for the largest share in terms of volume sales in the automobile segment. This segment is further divided into two main segments – scooters & motorcycles. The market share of various companies in this segment in FY14 was as follows –

0

200000

400000

600000

800000

1000000

1200000

FordTata MotorsToyotaHondaMahindra & Mahindra

Hyundai Motors

Maruti Suzuki

Sales Figures For FY15 & FY14

FY14FY15

Commercial Vehicle SegmentThe commercial vehicle segment comprises of two sub segments –

• Light Commercial Vehicles

• Medium & Heavy Commercial Vehicles

The total sales in the commercial vehicle segment, which is a key indicator of economic activity, declined by 2.83% in FY15. In FY15, the total sales in this segment were 614,961 units, compared to 632,851

IntroductionThe automobile sector in India has emerged as Indian economy’s ‘sunrise sector’. India is one of the fastest growing passenger car markets & the second largest market for two wheelers. India is set to be the 4th largest automotive market by volume by the end of 2015 & by 2020, 6 million vehicles are expected to be sold annually. It is expected that this upward trend will be sustained in the coming future in the backdrop of increased thrust on exports and a strong domestic market. The automobile industry accounts for almost 7% of India’s GDP & employs around 19 million people directly as well as indirectly.

Industry Composition & PerformanceThe automobile industry comprises of the following four segments –

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units in FY14. The gradual improvement in the infrastructure sector is expected to drive the growth of Medium & Heavy Commercial Vehicles segment this year as well. [Source]Domestic sales for various companies in the medium and heavy commercial vehicles (M&HCV) segment during the period April 14 – February 15 & April 13 - March14 were as follows – Company Market Share

(%)Domestic Shares (units)

FY14 FY15 FY14 FY15Tata Motors 55.17 54.98 97,769 1,12,133Ashok Leyland 25.08 28.07 45,273 57,260VECV Eicher 12.27 10.81 21,745 22,063SML Isuzu 2.66 2.45 4,715 5,005M&M 1.54 1.84 2,730 3,771AMW Motors 2.35 1.38 4,181 2,815VECV Volvo 0.43 0.47 772 879

Three Wheeler SegmentThe Three wheeler segment can be further divided into the passenger segment & cargo segment. Three wheeler sales rose to 531,927 units in FY15, up from 480,085 in FY14, registering a growth of by 10.80%. This segment had seen a decline of 10.9% in FY14. While Piaggio is the market leader in the cargo segment, Bajaj leads in the passenger segment. Overall market share of Bajaj is 39% while that of Piaggio is 33.1%, as of FY14. Other major players in this segment are Mahindra & Mahindra and Atul Motors.

The cargo segment has been negatively impacted in recent times due to the onslaught from four wheeler small trucks (operating in the Small Commercial Vehicle segment) like Tata Motors’s Ace & Ashok Leyland’s Dost.

Porter’s 5 Forces1. Threat of New Entrant – Low• The automobile sector is a highly competitive

market & it is difficult for a new entrant to make an impact

• Moreover, this is a very capital extensive industry & companies have to wait for many years before they start making profits. This can deter companies from opening business in India.

2. Threat of Substitutes – Low to Medium• The major substitutes to automobiles are public

transport systems like metros, tube trains etc.

• However, India is a highly under penetrated market & automakers still have huge opportunity

here. India has just 18 cars per 1000 people, which is amongst the lowest in the world.

• Thus, good public transport system might not have a significant impact on the sales of automobiles.

3. Bargaining Power of Buyers - High• The automobile sector has fierce competition

among the companies and most of the companies have atleast one product in each of the sub categories in their respective segments.

• The customers are spoilt for choices & since the customer has multiple options with each one as good as the other in terms of performance & features, price plays an important role in the buying decision.

• Hence there is a lot of pressure on the companies to price their product competitively.

4. Bargaining Power of Suppliers – Low• Most of the suppliers manufacture components

specifically for a client & are dependent on them.

• Hence the bargaining power of suppliers is low.

5. Competigive Rivalry – High• The Indian automobile market is fiercely

competitive with a high number of companies eying to increase their market share.

• Many a times there is little to differentiate between the quality of the products of different companies and thus making it imperative for them to come up with innovative strategies to garner the attention of customer & stand out.

Growth Drivers for the Automobile IndustryGrowing demand• The increasing population coupled with rising

income among the working population augers well for this industry.

• Greater availability of credit & financing options will help in increasing the demand.

Policy support• The Government has tried to promote India as the

auto manufacturing hub through its policy sops & relaxation of FDI norms.

• This has further received thrust due to the Make in India initiative.

Focus on R&D• GoI has started National Automotive Testing and

R&D Infrastructure Project (NATRiP) to create global competencies in the automotive sector in

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India which will help position India prominently on the global automotive map.

• Under this project, seven R&D centres of excellence will provide low cost manufacturing & product development solutions.

• The government has also taken initiative to boost R&D in the auto component sector through various initiatives.

Low Penetration Levels• In India, the car penetration level is only 18 per

1000 people.

• This provides a huge opportunity of automakers due to the vast untapped market.

Recent Trends & DevelopmentsFuel Efficiency Guidelines to Change April 17 Onwards • Under the new guidelines that will be applicable

from April 2017, cars & utility vehicles will have to deliver a mileage of atleast 18.2 KM/Lt, which is an increase of 15% from the current average mileage.

• This means that automakers can still sell cars with fuel efficiency of less than 18.2 Km/Lt but they will have to ensure that they sell other vehicles which have fuel efficiency of more than 18.2 Km/Lt so that the average (i.e. the mean) of the fuel efficiencies of all the models is 18.2 Km/Lt.

Rise in the Sales of Petrol Cars• The demand of diesel car, which was at an upward

swing for the past few years due to the rising difference in the prices of petrol & diesel, is tapering off.

• Reduction in the prices of petrol & diesel was expected after the government decided to fully deregulate the fuel prices to match it market linked.

• Petrol cars constituted almost 63% of the total cars sold in FY15, the highest in the last 4 years, and it further increased to 67% for sales in the April 2015.

• Moreover, the National Green Tribunal recently ordered a ban on all Diesel vehicles older than 10 years from plying in the Delhi region in order to curb pollution.

• This has lead to weakened sentiment among diesel cars because people are vary to buy diesel cars as they will have lesser resale value which has resulted in a drop in sales.

Launch of Bajaj Quadricycle Hits a Roadblock• More than three years after Bajaj Auto first displayed

the prototype of its low speed & lightweight four wheeler for intra city transport, Public interest litigations (PIL) has stalled the launch in India.

• In December 2013, the ministry of road transport & highways had created a new category of vehicles called ‘quadricycles’ which was followed by a notification by the law ministry that allowed the use of quadricycle on Indian roads, thus paving way to for the ambitious project of Bajaj Auto.

India as an Export Hub• A lot of companies in the automobile sector have

made India as their manufacturing & export hub and since 2000, the number of cars, utility vehicles, two wheelers & commercial vehicles has grown every year.

• In FY15, Indian automobile companies exported a record 3.5 Million vehicles, which was 15% more than the number of vehicles exported in FY14.

Impact of Union Budget • Support of Rs 75 Crore was announced for electric

vehicles, under the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme for FY16.

• Fully built imports of commercial vehicles will now attract an increased custom duty of 20%.

• For small cars, two wheelers, commercial vehicles & three wheelers, excise duty went up to 12.5% from the earlier 12% whereas education cess was removed.

Effects of Poor Monsoon Forecast• The forecast of poor monsoon could spell trouble

for the automobile industry, which is slowly limping back to life

• Poor monsoons will impact the sales of entry level hatchbacks, economy motorcycles, SUVs, tractors & light commercial vehicles in particular

ReferencesPassenger Cars Sales Up 4.99% - Business Standard, Maruti Boosts Passenger Vehicle Market Share – Business Standard, Piaggio Eyes 40 Pie – Business Standard, The Hindu, Livemint, Roland Berger

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TATA MOTORSCOMPANY ANALYSIS

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Company OverviewTata Motors Limited is an Indian multinational automotive manufacturing company. Formerly known as TELCO (Tata Engineering and Locomotive Company), it is headquartered in Mumbai and is a subsidiary of the Tata Group - one of the biggest business houses in India.

Its product portfolio covers passenger cars, trucks, vans, coaches, buses, military vehicles and construction equipment. In terms of volume, it is the world’s 17th largest motor vehicle manufacturing company, 4th largest truck manufacturer and 2nd largest bus manufacturer.

Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad and Pune in India; and also in Argentina, South Africa, Thailand, and the United Kingdom. It has R&D centers in multiple locations across India along with those in South Korea, Spain and the United Kingdom.

Tata Motors is listed on the Bombay Stock Exchange (BSE), where it is a constituent of the BSE SENSEX index, the National Stock Exchange of India (NSE) and the New York Stock Exchange (NYSE). Tata Motors is ranked 287th in the 2014 Fortune Global 500 ranking of the world’s biggest corporations.

ManagementName DesignationMr. Cyrus P. Mistry

Non-Executive Director and Chairman

Mr. Nusli N. Wadia

Non-Executive, Independent Director

Dr. Raghunath A. Mashelkar

Non-Executive, Independent Director

Mr. Nasser Munjee

Non-Executive, Independent Director

Mr. Subodh Bhargava

Non-Executive, Independent Director

Mr. Vinesh K. Jairath

Non-Executive, Independent Director

Dr. Ralf Speth Non-Executive DirectorMs. Falguni S. Nayar

Non-Executive, Independent Director

Mr. Ravindra Pisharody

Executive Director (Commercial Vehicles)

Mr. Satish B. Borwankar

Executive Director (Quality)

2014

2010

2009

2008

2007

2006

2005

2004

1998

1991

1984

1954

Entered the commercial vehicle sector after forming a joint venture with Daimler-Benz of Germany. (This joint venture ended in 1969)

Entered into a technical collaboration with Hitachi Construction Machinery for manufacturing hydraulic excavator

Entered the passenger vehicle market by launching Tata Sierra (Multi Utility Vehicle – MUV).

Launched Tata Sumo, Tata Safari and Indica which went on to become one of the best-selling cars ever in the Indian automobile industry.

Acquired Daewoo’s. Rang the opening bell at the New York Stock Exchange to mark the listing of Tata Motors.

Added buses such as Starbus & Globus and trucks such as Novus to its portfolio.

Formed a joint venture with the Brazil-based Marcopolo, Tata Marcopolo Bus, to manufacture fully built buses and coaches.

Joint venture for providing distribution, sales and after-sales to Fiat (ended in 2012)

Acquired British car maker Jaguar Land Rover from Ford Motor Company. Launched Tata Nano – branded as the world’s cheapest car.

Unveiled the Tata World Truck range jointly developed with Tata Daewoo. Acquired full ownership of Hispano Carrocera.

Acquired an 80% stake in the Italian design and engineering company Trilix to enhance company’s styling and design capabilities.

Introduced ‘T1 Prima Truck Racing Championship’ – India’s first Truck Racing championship.

Mr. C Ramakrishnan

President and Chief Financial Officer

Dr. Timothy Leverton

President and Head, Advanced and Product Engineering

Mr. Mayank Pareek

President (Passenger Vehicle Business Unit)

Mr. Gajendra Chandel

Chief Human Resources Officer

Evolution Of Tata Motors Over The Years

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New Product Offerings1. Tata Motors has launched its new models Manza,

Zest, Bolt & GenX Nano in the Passenger Vehicles segment over the last one year. This is in addition to what Jaguar (acquired by Tata Motors) has added in its luxury-segment portfolio.

2. It has launched Super Ace Mint in the Light Commercial Vehicle segment in the same time period.

It has also launched its ‘ULTRA’ range of trucks to cater to the Intermediate and Light Commercial Vehicle (ILCV) segment.

3. The New Safari Storme & Tata Movus are its new models launched over the last 12 months in the SUV segment.

Land Rover (acquired by Tata Motors) has also launched its latest model ‘Discovery Sport’ in the SUV segment

Shareholding Pattern

SWOT Analysis

Shares held by Custodians and against which Depository Receipts have been issued

Insurance Companies

Others

State/Central Govt(s)

Financial Institutions

Mutual Funds / UTI

General Public

Foreign Institutional Investors

Promoter & Promoter Group

34.33%

1.34%

0.07%0.17%

8.54%

21.25%

24.76%7.31%

2.22%

Competitor AnalysisName Market

Cap.Sales Turnover

Net Profit

Total Assets

Tata Motors

147,371.89 34,288.11 334.52 33,459.27

Eicher Motors

53,060.64 3,031.22 558.92 1,225.06

Mahindra & Mahindra

81,269.94 40,508.50 2,783.00 19,960.75

Ashok Leyland

19,935.37 13,562.18 81.69 7,382.32

F o r c e Motors

2,019.92 2,791.31 77.69 1,244.52

SML Isuzu 1,632.40 881.27 17.40 274.92(All values are in Rs Crore)

Key Financials in Rs Crore in Rs CroreParticulars FY14 FY13 GrowthSales Turnover 232,833.66 188,817.63 19%Operating Profit 34,837.70 24,547.30 26%Profit Before Tax 18,868.97 13,633.48 28%Reported Net Profit

14,104.18 9,862.49 30%

0

10

20

30

40

50

ROCERONW

FY14FY13FY12FY11FY10

31.30

48.37

40.77

26.28

21.32

Profitability (%)

9.37

25.4124.14

21.8620.39

The consolidated Return on Net Worth and Capital Employed have been decreasing gradually over the last four years; and Tata Motors would definitely be keen on arresting this trend.

• Market Leader in Commer-cial Vehicles segment and among the top in Passenger Vehicles segment• Increasing profitability from international sales since Jaguar & Landrover acquisition• Increased expenditure on R&D (Revotron 1.2T engine a case in point)

• Limited coverage of the ruralmarket • Slow reaction to market sentiment (reference segment: SUV)• Perception problem among new car buyers as it is famous in taxi and car rental space• Fewer upgrades available of existing models

• Rising per-capita income of the middle class which will boost the demand• Customizing product offer-ings for the rural markets• Mergers and Acquisitions to acquire new technology• Demand for Electric cars will increase as people adopt eco-friendly techniques.

• Increasing cost of fuel• Intense competition in the automobile sector• Frugal engineering and dis-ruptive innovation in product design by competitors• Increase in raw material costs• Increase in interest rates leading to deferred purchases

Strengths Weaknesses

Opportunities Threats

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The Profit Margin (%) graph shows that consolidated Operating Profit Margin has remained fairly constant over the last four years. However, the stand-alone Operating Profit Margin has been decreasing consistently over the last four years – from 11.4% in FY’10 to -2.65% FY’14. Similarly, the Net Profit Margin has decreased from 6.26% to 0.97% from FY’10 to FY’14.

Barring FY’11, the consolidated Earnings per Share have not varied a lot and Tata Motors would like to increase the EPS, if possible, to enhance shareholder interest.

New Developments1. Tata Motors has outlined three priorities for the

business: put winning and cost-effective products to the market fast, institutionalize a culture of collaborative and disciplined product development and improve quality and customer experience. 

2. Tata Motors has been working on a voluntary retirement scheme (VRS) for workmen across its plants and managerial staff aged above 40 as part of a drive to improve competitiveness and cut costs.

3. Tata Motors appointed former Maruti Suzuki Chief Operating Officer (Marketing & Sales) Mayank Pareek as President of its Passenger Vehicle Business Unit (PVBU) last year. He has brought about a strategic shift. After focusing on selling to fleets and taxis, Tata Motors is now targeting a new set of customers — the young consumers and professionals. Hence dealers have started recruiting a new sales force; training them on soft skills to attract the new target customer base.

4. Tata Motors recently announced its association with tyre manufacturer CEAT Ltd. and mobile commerce platform Paytm who would be new partners in Tata Motors Loyalty Programs - Tata Delight and Tata Emperor. These programs are designed to offer loyalty benefits for their members from across multiple product segments.

ConclusionTata Motors is one of the undisputed market leaders in the commercial vehicles industry in India and is gradually emerging as one of the key players internationally. It has been surging ahead on a number of fronts in an attempt to further entrench its position as a market leader. However, sustaining and increasing this success is far from easy. Apart from product reliability, the most important determinant of future success would be the company’s ability to enhance its support framework. The future presents challenges and opportunities for the company in equal measure, both domestic as well as overseas. Given its renewed focus, Tata Motors looks well positioned to capitalize on these opportunities and take on the world.

ReferencesTata Motors, Press Releases – Tata Motors, TAMO Key Developments - Thomson Reuters, Tata Jaguar – Thomson Reuters, MoneyControl

0

3

6

9

12

15

Net Profit Margin Operating Profit Margin

FY14FY13FY12FY11FY10

7.38

13.7713.46

13.00

14.96

Profit Margin (%)

2.76

7.568.12

5.21

5.98

0.0

0.2

0.4

0.6

0.8

1.0

Current Ratio

FY14FY13FY12FY11FY10

0.59

0.70

0.83 0.81

0.94

The consolidated current ratio has been consistently below 1 which indicates that company could face difficulties in future meeting its short term financial obligations. However, its overall increasing trend is an encouraging sign.

0

30

60

90

120

150

EPS

FY14FY13FY12FY11FY10

44.11

145.3

42.77

30.92

43.82

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GILLETTEBRAND ANALYSIS

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GILLETTE RAZOR

Gillette introduces Gillette Blue Blade. One of the first few commercials to showcase their blue blades

Gillette introduces Gillette Thin Blade

Gillette introduces its first blade dispenser – Blue Blade Dispenser. This eliminated the need to unwarp the blades

1938

1932

Gillette introduces an adjustable razor with three settings – for light, medium and heavy beards. It came up with a commercial to show their unique product and its functioning. Click here to watch.

1946

1957

1971Gillette introduces Trac II, the first twin-blade shaving system. Click here to watch.

1990

Gillette as a brand is known for men’s safety razors. Its name bears the name of its previous parent company – The Gillette Company. It was later merged with P&G and hence now falls under the umbrella of P&G Company. In 1901, King C. Gillette changed the way shaving was done by inventing the first safety razor. It was granted patent on November 15th, 1904. With the new shaving razor, a man didn’t need to send his shaving blade to the barber for sharpening. King C. Gillette founded a company on a time-honoured credo- ‘There is a better way to shave and we will find it’.

Gillette introduces MACH3 shaving system, first triple blade shaving system with a tag line – “breaks the performance barrier”. Click here to watch.

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Brand PortfolioGillette brand holds a diverse range of products including shaving razors, shaving creams, foams, deodorants.

Gillette Kiss and Tell CampaignThis campaign focused on the line- Is the stubble killing the kiss? This campaign was run worldwide and one of the findings of the campaign was that 2 out of 3 women like clean shaven men.

Gillette’s kiss and tell campaign uses the established theory of – people buy based on emotions and justify that with logic. Now Gillette’s most important market segment was the young generation who thought it is cool to be unshaven. So it wanted to establish an emotional connection with the youth which conveys the message that they really care about. So after a lot of research it was found that the reason has to be women. So Gillette presented some facts which could catch any teenagers’ eye and let him ponder over his decision of being unshaven-

• 85% of the women prefer to kiss a clean-shaven man

• 2 out of 3 women said men will have a better luck with them if they were clean-shaven

• 76% of the women would give a more passionate kiss to a clean-shaven man

Gillette Marketing CampaignsSince early days Gillette has given a lot of importance to sports marketing to convey its message of being a performance brand. So be it the partnership with baseball greats like Pittsburgh Pirates’ infielder, Honus Wagner or footballs greats like Messi. But it was its association with boxing which gave it most payback on its advertising dollar. Slowly it started to collaborate with the top players of all sports to advertise for its brand. From Roger Federer of lawn tennis to Rahul Dravid of Indian cricket team to Tiger Woods of Golf, all became the face of their products.

How does Superman Shave?Just after Warner Bros realised their film – Man of Steel to reboot their Superman franchise, Gillette rolled out a big promotional campaign of ‘How does Superman shave?’ The campaign was cleverly designed on the storyline of the movie.

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In the movie we see a full bearded Clark Kent wandering the earth in search of his destiny. Along the way he must find not only his journey but also his razor as we all know that he comes back as this clean shaven Superman. This brings back us to the question of How does Superman shave?So here are some videos where different people explain their theories of how Superman shaves his facial hair. Bill Nye, Kevin Smith’s Theory, Jamie and Adam’s Theory

Shave India MovementAlthough Gillette was successful in capturing the market for its double-edged razors, its new flagship product – Gillette Mach 3; a three-blade razor; was a big flop in the market. There were several reasons for the 400 million market to be reluctant to try the new razor –

a. 80% of the Indian men had the habit of shaving with the double-edged razor and were so habituated with the cuts that they thought its normal to be cut or burn

b. Men in India actually like the stubble look inspired from Bollywood

c. Pricing of Mach 3 was 50 times more than the double-edged razor

d. Gillette products were sold through licenced retailers and hence distribution was also limited and a major concern

To address these problems Gillette needed to come up with some new marketing techniques as traditional marketing was suddenly inadequate. A unique marketing campaign- Shave India Movement was designed to catch the attention of rich and poor alike. The campaign caught eye because of its infomercials, social media and stunts such like world record for shaving.The tagline for the campaign was – ‘No more excuses for men not to shave’. Gillette also conducted a survey with Indian women as to what kind of men they preferred to kiss- clean shaven or stubble. 77% of the women responded that they prefer men with clean shaven looks. This was further communicated to the public with the help of Bollywood celebrities communicating about their choices. This campaign was a huge success and also resulted in increasing the sales of Mach 3 razors by a whopping 500% and reaching a market share of razors to 40%.

Here are some interesting advertisements of their razors: First Girlfriend vs. First Real Girlfriend, First Suit vs. First Real Suit, First Razor vs. First Real Razor‘Use Your And’ CampaignIn 2012, Gillette launched its first ever women product- Gillette Venus, a shaving razor for women. To enter into this market it used social media platforms to spread the word. Its ‘Use Your And’ campaign encouraged women to move beyond the labels. Click here to watch the commercial.You are warmth and wisdom. And grace and guts. No ‘ifs’ or ‘buts’, just ‘ands’. This is the message in the commercials. The campaign #UseYourAnd encourages women to move beyond labels. The campaign also talks about gender based equality and conveys the message to break through that mentality.

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STPSegmentationGillette has a varied range of products in India. Its Mach 3 is targeted at high income group of people while its TRAC II is targeted at low income group. Hence in the razor category, it spans the entire male population. Other products like deodorants, shaving cream/ gels are targeted at medium to high income group. Also after the success of Gillette Mach 3 Turbo, it decided to launch a similar product called Venus Power for women, thus creating gender segmentation.

TargettingGillette’s market segment has been proved to be extremely profitable. The razor market has highest market share in India and America. The segment is also very attractive because very less competition from

any such strong players in the market. Substitutes like shaving machines are also not the exact substitutes for the product.

PositioningGillette products are positioned as everyday use and available for all products. The huge variety and range of razors position them for people from all classes. Other products like batteries are also positioned the same way.

But some products like foams and shaving gels, deodorants are positioned as premium products.

ReferencesMahercomm, People, JL Watson Consulting – Typepad, Financial Times, Gillette

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COST

PER

UN

IT

TOTAL UNITS

EXPERIENCE CURVECONCEPT OF THE MONTH

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COST

PER

UN

IT

TOTAL UNITS

IntroductionIn the mid 1960s, the management consultants at Boston Consulting Group (BCG) while working with a leading manufacturer of semi-conductors, observed that a consistent relationship existed between the unit cost of production and the total volume produced. Data revealed that the company’s unit production costs would fall by an expected amount- typically 20-30% in real terms each time the ‘experience’ or accumulated production volume is doubled. This relationship was termed as the Experience Curve- the more experience a firm has in manufacturing a product, lower are its costs. It was first described by BCG consultant Bruce Henderson as one of the signature concepts of BCG and arguably best known.

The experience curve is defined by the function:Cn = C1 X-a

Where, C1: Direct cost of 1st unit of production Cn: Direct cost of nth unit of production X: Cumulative volume of production a: % experience rate (i.e. the rate at which direct costs decrease when output increases)

Types of Experience• Experience in fulfilling demandIt is the classic experience curve which refers to the ability of the firm to produce existing products at a cheaper rate and delivering them to an ever-wider

audience. It is very significant for those industries which are competitive, production-intensive, cost-sensitive and relatively stable. For example, the cost of hard disk drives declined to about 50% for each doubling of accumulated production from 1980 to 2002. The average cost per GB from $80,000 in 1984 to $6 in 2001.

• Experience in Shaping demandExperience in shaping demand when paired effectively with experience at fulfilling demand can be used as a powerful competitive weapon. It can be seen as a second order type of experience which comes from sharing experience across different areas and also includes the ability to forget past lessons when the information has become obsolete and is no longer relevant to the latest production generation. For example, Facebook overtook rival Myspace by effectively shaping demand with successful innovations like experimenting with technology and introducing features like live chat, etc.

In the graph below, experience in fulfilling demand is the straight line which shows the reduction of costs as a function of cumulative volume of product and experience in shaping demand is represented by the repeated jumps across different successive experience curve which shows the company’s ability to move from one product generation to other repeatedly and successfully.

VOLUME 03BEACONJUNE 2015

18 ISSUE 06

Experience at Shaping Demand Differs and ComplementsExperience at Fulfilling Demand

Experience at fulfilling demand is achieved through a logical deductive process- capturing the cost data, analyzing them, determining opportunities for improvement, implementing the changes and iterating whereas experience at shaping demand is achieved through an inductive process- sample consumer behaviors, formulating hypothesis on the unmet needs, testing the hypothesis with new offerings, shutting down the test or expanding it based on empirical results, formulating new hypotheses based on the latest empirical results and repeating the same.

For long term competitive advantage, neither experience type, by itself, has ever been sufficient. Both are equally necessary.

Reasons For The Experience Curve Effect• Improved Labor Productivity: As the accumulated

production of the standardized product increases, the efficiency of the labor force also increases since they become more skillful and are mentally more confident. Also less time is wasted in learning or experimenting and making mistakes.

• Increased Standardization and Specialization: Efficiency tends to increase as the production processes, products become more standardized. Employees gain more experience in their tasks and operate at a faster pace since they get specialized in those set of tasks.

• Innovation in Production Methods: With increased specialization and accumulated experience, the workers concerned with the production processes are most likely to come across innovative ways to improve them. For example, the Japanese engineering workers evolved unique jigs and fixtures that helped smooth flow of operations.

• Value Engineering & Fine Tuning: Newer ideas on value engineering can be adopted with

accumulating product experience and usage. This helps to cut down unnecessary material consumption and other underutilized inputs. For example, using lead at the core of copper conductors to cut down the total costs without affecting the overall performance.

The other reasons are better use of equipment, product redesign, changes in resource mix, etc.

The Experience Curve is a great enabler for a cost leadership strategy. A company has competitive cost advantage if it has managed to grasp a big market share in less time in a new market. It is because it can manufacture products at cheaper rates than its competitors. But this advantage is sustainable provided that the cost savings are passed on to the buyers as price decreases rather than kept as profit margin increases.

In theory, the phenomenon of ‘Experience Curve’ should make it difficult for the new entrants to challenge those firms which are already well established and have a substantial market share. But in practice, new firms enter old industries and in sometime become major players in their markets, mostly because they can leapfrog over the experience curve through innovation and invention.

ReferencesBCG Perspectives, The Economist, Management4All, Policonomics, Strategic Thinker - Wordpress