"Packing" is not just packing

Friends,

For laymen, packing is just a mechanism to protect the product being sold. Something that helps one to keep the product intact for carrying. But it is much more than that for a marketing manager. They see in, packing, an opportunity to raise their sales. Examples afoot.

We know how kurkure is a leading brand, thanks to its eye-catching packing. The success of calcium sandoz, timoto ketchup, haldiram, even the audio cassette of Kannada movie YEKAANGI (the audio cassette was kept in a heart-shaped casing) is well known. A new entrant to this list is the success of Central Arecanut Cocoa Marketing and Processing Cooperative Ltd (CAMPCO).

Six months ago, the demand for white arecanut was grim in Gujarat. In its attempt to raise sales, CAMPCO relaunched its product with attractive packing. Surprising. The demand has gone up from two truckloads a month to fifteen truckloads a month. This is despite the ban on ghutka in Gujarat!!!!!!!!!

Political Environment - An example

Dear Friends,
 As we study in the literature of managing business, one of the foremost responsibility of the manager is to manage his external environment successfully and better than competitors. One such environment is Political Environment. It covers the policies of the government and other related aspects.
I came across a news item which illustrates the impact of Political environment on business decisions. Sharing the same with esteemed readers,

"The chairman of EIH Group, the flagship company  of Oberoi Hotels, PRS Oberoi has said that the company is rethinking over setting up a jungle lodge in Karnataka following the temporary ban on tourism in Tiger reserves by Supreme Court."

The very prospect of the business of jungle lodge, if set up, could be jeopardized if the ban is made permanent by Supreme Court in its next hearing. So the company is cautious not to make any big ticket investment on the jungle lodge whose business prospect hinges on the further order of Supreme Court.

Kingfisher flying down……

Indian airlines industry is in red. Almost all airlines except one have clocked losses. Even though increased taxes on fuel in India and other such generic causes could be attributed to the failure of Kingfisher, there are a few specific reasons that drove Kingfisher into losses. An irrelevant business model and a few faulty decisions at Kingfisher not only present a very interesting reading to the students of management but also offer enriching learning insights.

Trouble at KingfisherAirlines (KFA)

KFA has accumulated losses to the tune of Rs. 6,524 crore and accumulated loans totaling Rs. 7057.8 crore. It has not paid to the government Rs.410 crore collected by way of taxes deducted from the employees' salaries. It has defaulted on the payment of salaries and taxi, airport landing and parking, catering and aviation turbine fuel bills. A consortium of banks, including state-owned banks did bail out KFA last year when they converted loans totaling Rs. 1303 crore into shares. This gave banks about 23.37% stake in KFA. However, banks are now not ready to repeat their old mistake. Banks have already classified their loans to KFA as NPAs. This precarious financial situation has forced SBI, one of the prime lenders to KFA to state that it will not consider any fresh loans until fresh equity is infused into KFA.

Possible reasons

KFA committed a few glaring mistakes in crucial decisions and its business model is also faulty, as said by Capt. Gopinath, who sold his Deccan airways to KFA. The failure to sense the fortune at the bottom of pyramid and giving up of the philosophy low-cost carrier can be the possible reasons specific to KFA for its downfall.

In December 2007, KFA took over Air deccan, a low-cost carrier. Mallya initially was not enthusiastic about the deal since, he felt, the business philosophy of low-cost carrier does not go with his. At the time of deal, the understanding was that both Kingfisher and Air Deccan would run as separate brands. Kingfisher and Air Deccan had a very different set of customers. The idea was to operate low-cost carrier to domestic flights and Kingfisher full service to international flights. It was reasoned that low-cost arm could feed Kingfisher full service and thereby reduce the costs. Mallya never looked at the bottom of the pyramid. He always wanted to cater to the needs of top-class people. He could not ever imagine offering no-frills service on his airline. So he started offering free water, food and newspapers on board deccan flights, thereby going against the philosophy of no-frills low-cost service. The low-cost arm offered almost the same facilities which Kingfisher full service offered. This blurred the distinction between the two brands. Passengers started shifting from Kingfisher full service to its low-cost arm. This led to the cannibalization of own brand.

According to Gopinath, another mistake, in retrospect, was Kingfisher's decision to do away with Kingfisher Red's early morning slots, which were scheduled around the same time as Kingfisher full-service's flights. This did not mean that customers started travelling on Kingfisher full service; they merely migrated to rival LCCs in the same time slot. Another reason for the crisis was Mallya's decision to go international even before his domestic operations became profitable.

Keeping brand awareness in positive light

The companies across the globe spend astronomical sums of money to create the awareness and recognition of their brands. The companies are always conscious to always keep their brand in positive light. The companies want their brand to be discussed only for positive reasons. So they employ a reverse strategy of reducing brand promotion activities when the brand is associated with a negative event so that people do not talk much about it. Here is an example to illustrate this strategy of companies.

When Princess Diana dies in a car accident, Mercedes-Benz immediately pulled off all its ads. It was because the car of Diana which met with accident taking toll of her life was a Mercedes car.

It did not want people to think of Diana’s death whenever they see Mercedes ads. So they pulled off the ads for sometime and reintroduced the ads once they are convinced that the public memory has forgotten diana’a death

FDI in Retail Sector

UPA government has indeed taken a bold step in deciding to open up Indian retail sector to foreign players. This bold move has come in the wake of need for economic reforms to safeguard the falling rupee. The decision assumes importance since it has been taken in the atmosphere marked by vociferous opposition voiced by not just oppostion parties but also by the allies of congress in UPA government. Here, a sincere attempt has been made to concisely discuss the issue.

The Issue

The cabinet has approved to allow FDI in multi-brand retail with a majority of 51% stake and 100% stake in single-brand retail.

First, let us understand what this FDI is. FDI stands for Foreign Direct Investment. It implies the investment of a firm in a company other than from its own country in return for a management stake.

Since foreign players are allowed FDI in retail sector, they are motivated to invest in Indian retail sector. This implies more super markets, departmental stores and retail outlets. Since these retail outlets operate on large scale, they are in a position to enjoy economies of scale (benefits arising from operating on a large scale) and hence can offer goods at a lower price in relation to Kirana shops. The advantage of finding all the requirements under a single roof induces customers to prefer these super markets to Kirana shops. This is likely to be a big blow to petty merchants. But the Government claims that it has formulated adequate provisions to safeguard small merchants. Let us now briefly examine the provisions of the proposal to opening up retail sector.

However, the opening up of retail sector is not without advantages. It is claimed that the new proposal would help farmers by offering better prices and eliminating middlemen. The advantages also encompass increased employment opportunities and reduced prices and increased choice to consumers.

• The minimum investment limit has been kept as high as $100 million(Rs 500 crore). This is to ensure that only serious players will invest in the sector and the investment shall not be withdrawn in short-run.

• It is mandated for foreign players to invest atleast 50% of investment in back-end infrastructure. This primarily means half the money will go in creating logistics, supply chain, processing of fruit-based products, development of farm produce along with farmers. The rationale behind this stipulation is that the investment will also be in physical assets. Investment in physical assets would leave behind infrastructure even when the investment is withdrawn.

• The proposal also mandates that there shall not be branding of fresh agricultural produce, fresh poultry, fishery and meat products. The idea is to offer these products at a lower price by doing away with price premium associated with branding.

• The policy also makes it compulsory for foreign retail players to source atleast 30% of manufactured goods from small and medium-scale units in India. This norm is applicable to single-brand retail as well. This is an impressive condition given the fact 60% of retail sales comes from food products which have to be procured locally and of the balance, 30% will have to be sourced from local manufacturers.

• The FDI proposal stipulates that retail sales locations can be set up in cities with more than one million population based on 2011 census data. Accordingly, only 53 cities will qualify for foreign retail stores. This provision is to insulate small merchants located in small towns.

It is too early to decide whether FDI in retail would benefit Indian economy and contributes to the well-being of its citizens. The utility of safeguards to protect petty Kirana merchants will have to be decided only by time.

Why is Inflation Unabated?????

Being a Finance Student, the phenomenon of Inflation has always been of interest to me. I ever wonder why the measures initiated by RBI to curb inflation have not been successful in bringing down the Inflation. Small research into the topic has lent me rich insights. This write-up is a sincere attempt to share those insights with you.

Inflation and Interst Rates Relationship

Inflation means a sustained raise in the prices of commodities. The raise in prices could either be due to raise in costs (Cost-push inflation) or excess of demand over supply (demand-pull inflation). The central Bank of any nation, RBI in case of India, alters the interest rates in bank to curb inflation. The rationale is that, "Increase in interest rate would discourage borrowing of loans which in turn reduces the purchasing power of people. Reduction in purchasing power reduces the demand and the prices come down".

Interest Rate- a Bane to Inflation!!!!!!!!!!

But the present scenario seems to prove this hypothesis wrong. Despite 12 times hike in the interest rate in span of 18 months, inflation has not subsided. The reasons for this anomaly could be summarized as below.

• Raising interest rates push up cost of production. The hardening of interest rate would result in higher cost of finance, resulting in higher EMI on the loans taken. This reduces the buying power of the customer. The reduced demand growth results in higher inventories leading to higher overhead cost per unit. The obvious consequence is raise in price
• Increase in interest rates lead to decline in profitability. This causes fall in stock prices. Continuously falling stock prices erode the capability of firms to raise funds at a lower rate of interest. Resort to the expensive sources of finance again spirals up the cost of production and prices in turn.

• Increased interest rates, as stated earlier, would lead to decline in demand growth for products and services. This would lead to a falling behind tax collection targets. The government, in its attempt to make good the loss in tax collection, increases tax and cess levied on petrol prices. Needless to say the result.

Other adverse effects of raising Interest Rates

• Reduction of tax revenues expand fiscal deficit. Raising prices demand higher subsides, again burden on public expenditure, more fiscal deficit.

• Higher interest rates and declined profitability leads to reduced viability for new projects and modernization of existing units. Domestic companies fall back foreign companies in technological advancement leading to further erosion of profitability.

• Increase in interest rate leads to reduction in demand for funds, both from buyers and manufacturers. Banks will have to put money in reverse repo thus reducing Net Interest Margin. Banks' profitability will automatically erode.

• In aggregate, continuous interest rates will turn Inflation into Stagflation - a state of economy characterized by both inflation and Stagnation.

Something About Financial Instruments-1.

Here is a sincere attempt to share a few interesting things about Financial Instruments.

• Samurai Bond is a yen-denominated bond issued by a foreign company in Jan.
• Sweat Equity refers to the equity shares issued to promoters, directors and employees of the company for value addition.
• Yankee Bonds are the US dollar-denominated bonds issued by a foreign borrower in US.
• The shares whose prices fall when the market is raising and rise when the market is falling are called Contrarian Shares.
• Collecting old share certificates and bond certificates as a hobby and investment is called Scripophily.
• Government Securities are called Gilt-Edged Securities.
• The process of fraudulently altering the amount for which a cheque is drawn is called Raising the cheque.