Two Early Major Assignments and Insights Learnt.
Let me share the excitement of two major assignments, early in our consulting career, which gave us wide exposure to product marketing. These assignments also honed our business development efforts for our unique service model of management consulting which became a great hit with prospective clients. While we were getting small assignments with low yields per engagement till then, these two assignments brought substantial billing that matched our earning potential.
Of the two, one was a new electronics components manufacturer and the other was a medium-sized two-wheeler manufacturer based out of Hyderabad promoted by the AP state government. The lessons we learnt from these assignments stood us in good stead all through our consulting career and will be of value to readers of this blog.
Professional Grade Components Ltd. (PGCL) was a new entrant in the manufacture of Carbon Film Resistors (CFR) and Metal Film Resistors (MFR). It was set up around 1983. The company was promoted by two technocrats with manufacturing background in a large public sector electronics company based in Hyderabad along with a businessman dealing in electronics products being supplied to the electronics industry. They had appointed as Chairman of PGCL an eminent former CEO (let me call him AML) of a major consumer product company who was also, post retirement, a member of the Board of Governors of Administrative Staff College of India (ASCI). Mr GVS Murthy took me along to meet him in another company where he was associated as an adviser. AML immediately recognised me as he had been instrumental in selecting me as marketing faculty in ASCI and had received good reports about my work there. His first comment was that ASCI had lost a good professional in my leaving and he knew the reasons for my leaving which made him unhappy with the management. I saw that the meeting had started on a positive note and I explained to him my new avatar as a management consultant in association with two other associates. When he found that I had an electronics background, he asked me if I could conduct a market study for electronics components to assess demand and give recommendations for launching a product. Since I had an early background working in the electronics industry and a marketing background I immediately said yes. He arranged for me to meet the MD of PGCL and his team to get a briefing and finalise the terms of reference and a contract.
During the meeting with the PGCL MD and his team I noticed that, while all of them had a very good background in manufacturing and technology in the electronics industry, they had no one with a marketing background in the team at that stage. They had already invested in an imported plant with a huge capacity to manufacture both consumer grade CFR and professional grade MFR. CFRs were used in consumer products like radios, television, etc. and MFRs were used in industrial electronics and military and space applications. In those days, the Department of Electronics was the nodal department giving licenses and other permissions to set up new manufacturing facilities for the electronics industry. They had allowed a large number of small and medium units to manufacture these products as they were considered to be import substitutes, which was an important consideration for licensing in those License Permit Raj days. After some initial discussion, the PGCL MD agreed to my suggestion that I undertake both secondary data collection from published sources as well as primary data collection from both the end-users and the electronics market supplying these industries. We agreed on my travel to a few major cities and smaller towns across India for field work and acquiring certain government reports and other publications having information on the electronics industry in India. Keeping in mind the amount of work involved for me, and the time it would take to get all the data from both primary and secondary sources, they agreed on the substantial fee which I indicated to cover my time and travel costs. I was given 45 days to get back with my report giving my findings and recommendations for a marketing strategy to launch the product. Since I needed money to start work and travel, they also agreed to 50% advance, with the balance payable on submission and acceptance of the report and recommendations.
First, I spent a few days poring over the secondary data available and to my surprise noticed that PGCL’s installed capacity was four times the entire effective demand for these products in the Indian market as available from the published sources. At the same time, the total approved capacity for small and medium units for these products was ten times the effective demand projected in the next 5 years! I parked this information in my notes and went on my field work to get data from both end-users and dealer markets located around Bombay, Pune, Ahmednagar, and New Delhi. These field data also confirmed the huge supply against effective demand within the country, apart from some of the trade practices which indicated that these components were now sold like commodities instead of speciality technology products.
Finally, when the time came to make my report, I decided to first sensitise the client about my findings through discussions, to ensure that he understood the magnitude of the challenge the company would face to enter this market. It was clear that they had to look beyond the Indian market right from the beginning if they had to be economically viable, and they had not even thought of this when preparing their project reports!! To my mind, this project was heading for trouble from the word go; but, without saying so, I presented to them the reality, and the options available to survive initially, which would involve exploring the export market from the beginning, apart from competing in the Indian market purely on price. With hard data backing my report and recommendations, they accepted my findings and paid the balance amount. After a few years, I noticed that many component manufacturers who had set up new capacity in this industry along with PGCL folded up, and PGCL itself changed hands before it also folded up.
This assignment taught me an important lesson about how not to start a major project. Demand assessment before starting a project, and understanding competitive information and market dynamics, is essential to formulate a new project. We started using this insight while guiding anyone, particularly technocrat entrepreneurs who were encouraged by industry promotion financial institutions looking for business opportunities to start a new venture using their technical competence.
As I was completing the PGCL assignment, Mr. GVS Murthy spoke to me about AP Scooters Ltd (APSL). He had worked for them as marketing manager earlier and, after he left his job with them, they had appointed him as an adviser for marketing on a nominal monthly retainer since they had recently signed a technical collaboration agreement with Piaggio of Italy to produce the famous Vespa brand of scooters. Since Mr. Murthy was not finding enough time to APSL, after discussions with MD of APSL, they agreed to transfer the contract from him to us with Mr. Murthy available in the background.
Originally, Vespa had a collaboration with Bajaj Auto Ltd. but, due to government policies changing during the change of government in 1977, Piaggio had to leave the Indian market along with many other major foreign brands. Bajaj continued making the same products under their own brand names and improved on them using good R&D backup. In those days, they had a waiting list of 7 to10 years to supply a scooter to those customers who had booked with them. There were other manufacturers of scooters, but they did not command such huge demand as Bajaj for various reasons.
In 1982, the government changed its policy and allowed Indian manufacturers to bring in foreign brands with only technical collaboration, to manufacture and supply four-wheelers and two-wheelers to meet the surging demand in the country.
Vespa was still a very sought-after brand and, due to the long waiting list for Bajaj scooters which were originally based on Vespa design, Piaggio felt that relaunching their products under a new collaboration would help meet the pent-up demand. Piaggio signed up with Lohia Machines Ltd. (LML) based out of Lucknow, which was entering the two-wheeler business for the first time, and AP Scooters Ltd based out of Hyderabad. Both were licensed to produce only 100 cc and below scooters, whereas Bajaj was selling 150 cc scooters, which was considered the standard for the Indian market.
By the time AP Scooters finalised their collaboration and were ready for launching the Vespa brand, LML had successfully launched its product and collected Rs. 100 crore as advance with 20 lakh bookings. This put pressure on APSL to match LML to some extent and get significant bookings to show that they were also a serious player in the two-wheeler business.
It was against this background that APSL engaged us. Soon after that, they also needed us to get more involved in the launch process, and signed up a major contract to avail our services in all aspects of marketing involving advertising, promotion, booking and allocation and appointment of distributors. It was indeed a de facto Marketing Manager’s role except that the product decision was already taken as per the collaboration agreement.
We had a major role to play initially in finalising the advertising campaign. One major decision was to give a unique brand identity differentiating their product from the Vespa 100 cc scooter which was already used by LML. At this stage, we discovered that, while Piaggio had signed two collaborations, the product they offered for APSL was a different variant from the LML one: LML had the wide body variant and APSL had the narrow body variant. The wide body variant looked very similar to the popular Bajaj brand in the market but had a 100 cc engine, whereas the narrow body variant looked totally different, though it had the same 100cc engine. However, on studying the finer technical details, we found that the load carrying capacity of the APSL version was 170 kg whereas the LML scooter had lesser capacity due to its body weight being higher. So we positioned the APSL scooter as VESPA PL170 to emphasise the load carrying capacity, using the short form for Pay Load as PL. This was a major shift in the industry since, till then, all two-wheelers were described only in terms of engine capacity.
APSL had appointed a major national advertising agency based out of Chennai for designing and executing their ad campaign which included all the major media mix available at that time, like newspapers in many major languages, magazines, cinema and in-showroom merchandising displays. We had to help approve the campaign and the timing of release of these campaigns. We noticed that, although the teaser campaign was started, the company had not imported demo models for display at their showrooms before announcing opening of bookings. So we had to slightly delay the further ad releases till all the showrooms across the country had a nice display model before going ahead with the bookings announcement. Since LML had already skimmed the market, we did not expect to match their numbers but hoped to get at least 20 to 30% of what they got. Finally, VESPA PL170 ended up with 5 lakh bookings and collected Rs 25 crore as deposit. Before the announcement of bookings, we also had to help finalise the printers for printing of the booking forms and getting them distributed across the country at their showrooms and an agency to collect the booking deposit and account for it and deposit the collections in APSL’s banks. We also had to locate a data processing agency to randomly allot the priority using a suitable computer program, and another agency to post the allotment letters to customers with their priority numbers, but without committing when the actual delivery would happen!!!
At this stage, we had too much attention from the media and most of them were trying to look for some negative news that they could carry to the public. The MD quietly made us deal with the media and I learnt how to be circumspect in answering them without giving them much to write about. Once the bookings came, there was clamour for appointing more new dealers across the country who wanted to encash the opportunity to get into the automobile dealership business. We had to guide and advise on the need to exercise proper caution while doing so, since there was also political pressure being brought about to appoint dealers in many places which were likely to be unviable in the long run.
The drama of both the LML and APSL booking stories did not end there. New problems started as soon as the allotment letters with priority numbers reached the customers. Two types of problems, in fact. In the first case, all those customers who got a very low priority number, where they felt they would not get delivery even in the next one year, started cancelling their bookings and there was a major logistical nightmare dealing with refunding of the deposits and reallotment of fresh priority numbers for the remaining bookings.
The second reason for cancellation had to do with the capacity of the 100 cc vehicles. In the case of LML’s design, the scooter had a wide body design and looked similar to the 150 cc Bajaj scooter, but its pulling capacity was perceived as poor compared with the Bajaj vehicle, leading to cancellations. In the case of the APSL scooter, the pulling capacity was better than the LML model because of its lower body weight; however, the narrow body design became an issue since scooters were treated like family vehicles where husband, wife and two or three children were carried, and the narrow body did not give enough space for that. So another set of negative feedback followed, leading to more cancellations.
Later, both LML and APSL had to indigenize their manufacture progressively as per their license approval and, when the later models hit the market using locally made components, quality problems multiplied, adding to more customer dissatisfaction and word of this eventually destroyed these new launches. In the middle of this, Piaggio decided not to renew their collaboration agreements and both companies were denied the use of VESPA as the brand name which was the last nail in their coffin!!!!
For my colleague and me, this was a major lesson in how not to take customers for granted and give them what they did not want. Over the years, the market for scooters changed and other major two-wheeler brands came up with variations of scooters to meet different customer segments. In addition, motorcycles slowly took over the scooter market to the point where today Bajaj scooters don't exist, and Bajaj has moved on to become a major player in the motorcycle market. Scooters have become a niche product and Vespa has returned to the Indian market as a premium scooter along with other major brands like Honda and TVS.
Both these assignments gave us wide exposure and showcased our business development efforts for our unique service model of management consulting, which was appreciated by prospective clients. But we never again got another assignment like these two early projects for various reasons about which I shall discuss later.
In the next post, I will share my experiences with some clients who had great appreciation of our work and had long associations spread over their lifetime and who made it a point to refer us to others.
No comments:
Post a Comment