The showrooms were located in larger cities and had an annual operating expense of Rs 100,000 each. The sales from the showrooms only made five percent of the total sales in the state. All ten showrooms have a total operating expense of Rs 1 million and bring in Rs 23 million (5% of the Orissa sales) in revenue. The company showrooms are operating as cost centers and this can be defined as a weakness. Showrooms are intended to operate as the second channel. In reality they are functioning as more of an expensive promotional facility rather than a sales facility. Therefore it can be considered as a high expense unit and deemed to be disadvantageous. On the other hand, it seems that the consumers are using the showroom as a source of information about Konarks products. The Konark showrooms are operating as an excellent promotional tool and it can be considered as a strength.
The dealers are appointed under strict conditions. They are expected to carry Konark products only and expected to sell within the specified areas. The average margin for Konark a product for a dealer is Rs 100 for a small Black-and-White and Rs 900 for a large color Televisions sets. The overall average as of 1990 was around Rs 320 per unit. Distribution activity costs Konark Rs 100 million annually. Konark has implemented a new dealer incentive scheme that is picking up after some initial setbacks and a lukewarm reception from the dealers.
Current Situation
Konark’s market share has shrunk to 60% from an initial 80% in the Orissa market. Demand for Television sets is slowing down due to high taxes and rupee devaluation. In addition to this the tax shelter revocation leaves Konark in a situation of facing bigger companies without the price advantage it had till now. Therefore Konark’s products will be in the same price range with competitors’ products, thus nullifying the competitive advantage held by Konark.
The recent activities of many of the dealers has been damaging to Konark’s reputation. The dealers have been quoting different prices to different customers, and have been playing with the assigned price margin. They have also been selling the products to unauthorized dealers in neighboring districts. Even though the number of dealers who are involved in these activities is small, they make up 40% percent of Konark’s sales revenue. This identifies two opportunities, the market opportunity in the neighboring districts and the prevailing market need for a differentiated price strategy. The above mentioned prevailing economic situation, coupled with the dealer issues and poor performance of the showrooms puts Konark in a dire need to revamp tis distribution network and its promotional/advertising activities.
Competitive analysis on Indian TV Manufacturing Industry
The Industry
The television industry is considered to be a luxury industry by the Indian government. Therefore high import duties are charged on foreign manufactured parts and a heavy excise tax is levied on all TV sets. In addition to this federal tax, the state governments taxed consumers a sales tax that ranged from 1%-17%. This resulted in half of the price of a color TV set and one-third of the price of a Black-and-White set being tax levies. This led to the consumer price for a TV set in India to be double that of the current world prices. The number of estimated Televisions in use as of 1990 is 25 million. The demand for TV sets is expected to grow only at 10% annually, which is significantly lower than the 40% growth of the last 2 years. Increase in taxes and devaluation of the rupee were the primary causes of the slowdown. The average price for a Black-and-White TV set is around Rs 2,600 and for a color TV set it is around Rs 12,000. Even though there were distinguishable differences in the picture quality and chassis reliability in the Black-and-White TV sets, consumers evaluated the TV on product features and price. The color TV sets too, were evaluated on the style and feature differentiation rather than the picture quality and performance. The differences between brands were more pronounced in color TV’s.
The Competition
Currently 140 different manufacturers serve the Indian TV industry. Most of these organizations are small scale (less than 1000 units/year), regional Black-and-White TV manufacturers. The trend in the industry will result in 30-40 larger firms. The industry is dominated by Videocon and Onida, the larger competitors and by a string of 3-4 smaller companies. All the top competitors have high brand recognition and strong dealer network. Among these bigger companies, Videocon provides attractive dealer incentives, and has an excellent price range for their products. Oneida has sealer margins that are less than the industry average and a high price range, but it carries on an aggressive advertisement campaign. Some of the smaller competitors are thriving under various state tax shelters. All companies follow product feature and quality based advertisement themes. The big guns are speculated to spend a substantial amount of their sales revenue on promotion. Cooperative advertising with dealers is also a common practice among the manufacturers.
The Target Market: The Indian Consumer
The total population of India is 850 million. The size of the Indian middle and upper social class, which form the target market for the industry, range from a low estimate of 102 million to the high estimate of 213 million. Most of this population is centered in urban India. The consumers of this target population exhibit the same traits and preferences of their American middleclass and professional counterparts. A typical purchase of a Television set involved the husband and wife and the cost was more than one months salary. Within the Rs 10,000 to Rs 14,000 price range, the market showed price inelastic tendencies. The purchase was based more on the aesthetic values rather than the image/picture quality and reliability. The consumers also showed a tendency to do comparative shopping. The dealer incentives and services also played a major part in the buying process. The consumers also tend to bargain for a better price advantage.
Comparison of Marketing of Television: India in 1990 and US in 2002
The marketing of the TV manufacturing industry of the US in the year 2002 and India in 1990 portrays a picture of stark contrast. The US TV manufacturing industry shows signs of being in the maturity stage and moving towards the early stages of the next generation products and features. The current trend in the US industry is flat screen televisions and large home entertainment sets. The marketing for these items are based on already established brand identity and reputation of technological know-how. The respective manufacturers do the advertisement and promotion for the next generation products. The promotional materials carry a message of their technological superiority and advanced features such as picture quality. These promotions generally do not indicate the price or offer any discounts for their products. The advertisement for older products is done by the dealers such as Bestbuy and Sears as a part of their overall entertainment and appliance promotion. These promotions show the price advantages and offer discounts. Manufacturer promotions are placed in Televisions and selective magazines, while the dealer promotions are placed as weekend inserts of newspapers and their store catalogs. Dealers conduct television advertising as well.
The Indian marketing for TV sets is conducted mainly by the manufacturers themselves. The main medium of promotion appears to be newspapers and the main theme of these advertisements is to attract users through celebrity endorsements. They provide product features and quality information in great detail. Some of these advertisements are cooperative advertisements, and the manufactures shoulder most of the cost. The main differentiation among the brands seems to be in the additional equipments that complement the television.
Recommendations
Market share and future growth
The loss of market shares can be attributed to unclear product positioning, non-standardized distributing strategy and non-uniform pricing. Different kinds of people have different tastes and different expectations. Targeting these different markets with the same product line is not advisable. Konark is trying to maintain a contradicting brand image, with a quality and low-price strategy for the same product. It is hard to maintain higher quality while projecting a cheaper image. Konark should segment the market according to the wants and needs of the consumers and develop product categories to fit each targeted segment.
With the tax shelter ending soon, low price positioning is also questionable. Given that their product is considered high quality, Konark should consider differentiating their product based on their higher quality. They should also consider improving the look and feel of their products to differentiate it from their competitors as well as to differentiate within it’s own product line. Konark should use their manufacturing experience to minimize costs. They should also consider conducting an aggressive promotional undertaking, especially to the national market. The biggest strength of most of the competitors is their strong brand awareness, Konark needs to increase its national brand awareness and improve upon its product image. Another area of improvement is cutting operating costs of its branch offices.
Distribution
Konark needs to completely revamp it distribution strategy and reorganize its channel. The company showroom should be turned into a smaller informational center or converted into a full-scale retail outlet that offers various Koanrk products at a variety of prices. In addition, the showrooms can function as a market research facility, and gauge the customer expectations and needs. One of the reasons for which many customers used the showroom is to gather firsthand information about the products, but they chose to purchase at other locations because of better incentives. To counter this situation, Konark should crackdown on the offending dealers. While monitoring and enforcing the strict pricing policy, Konark should provide the dealers with incentives to stick to the price and to sell more Konark products. Dealers’ authorizations should be immediately revoked for any and all violations of the agreement. Overall, quick decisions on distribution management and market positioning should be made along with efforts to reduce costs and increase promotional activities.
The branch offices of Konark should be streamlined or consolidated to reduce operating costs. Until Konark is able to establish a national presence and strong brand recognition it should not open any new branches. All the branches should be given set goals to increase the number of dealers carrying Konark products within their area, and invest more on cooperative advertisements to promote the dealers.
It should attempt to renegotiate with the Orissa state government to gets tax-exempt status back. Another option is to merge or form a joint venture with other regional manufacturers whose products are equally high in quality. Investing in supplementary goods and accessories for their core product is another avenue for growth. Most of its competitors do offer variety of consumer electronic and home appliances. It should be incurred that the Indian consumer (within Konark’s target market) will soon follow the trend in US; purchasing complete entertainment system. Therefore, just having one component of the whole system will put Konark in a competitive disadvantage. The long-term survival of Konark will depend on its sales growth and tightly controlled distribution channel. If these suggestions are followed Konark has a good chance to survive and produce positive revenue.
