Prof M.

Sahni

How to Operate--Seeking New Cheese

Faced with decreasing revenues from traditional voice services, can ''Internet service operation''
be the new cheese that telecom carriers are looking for to revive their vitality?
As new technologies and IP broadband networks continuously develop, voice services will be
provided in diversified modes and by multiple providers. The previous integrated market is
currently being fractionalized and divided on a regular basis. Hence, Internet service operators
providing similar services have been trying to expand user groups by promotions. In the face of
such stiff competition, voice services are increasingly having to lower their prices in order to stay
competitive, and thus, are seeing their profits shrink significantly.
In terms of Internet service operation, the major profit of telecom carriers comes from providing
broadband access channel, and only come from providing the channels. Profits generated from
value-added services on the Internet are mostly owned by Internet service operators such as SPs
and CPs, which means, at present, that it is virtually impossible for telecom carriers to grab a
share of these profits. Hence, as the broadband access market gradually becomes more and more
saturated, how can telecom carriers expect to see a continuous increase in profits?
Who's Consuming Carriers' Cheese?
According to Global Internet Trends, a research report released by Morgan Stanley in April 2006,
the market value of Internet companies operating in the United States represents 82% of the value
of the overall Internet market. Companies with leading market values include such well-known
names as, Microsoft, Google, AOL Time Warner, eBay and Yahoo!. Other companies with a
lesser value share of the market should not be ignored: Tencent, Apple, Real Networks, Amazon
and MySpace.
Marked by enormous developments and successes, the Internet service operation industry is
having a tremendous impact on traditional telecom business. Moreover, in the coming years, it is
expected that the industry will continue to rapidly development. It is forecasted that over the next
3-5 years, the Internet service operation industry will see a 10-15% increase in subscribers, 20-
30% application increase and experience a profit increase of over 30% each year. Impacts that are
already being felt, or that will possibly be felt by telecom services, which originate from Internet
service operations, are as follows:
In basic services: Lower priced Internet voice and video communication services, like those
carried by Skype, will quickly gain popularity and will be distributed and finally replace fixed
voice services. These services will have an impact on the mobile voice market in a similar way.
In terms of internet access services, in the short term, the popularity of such services as,
metrowide, nationwide WiFi and WiMAX networks, will erode the traditional Internet access
service incomes of telecom carriers. In the long run, wireless networks under civil engineering
constructions will make Internet access available to every citizen. Once this occurs, then
traditional telecom carriers will lose basic connection providing incomes in hotspots.
In value-added services: Many Internet service operators such as, Apple, Microsoft, Sony,
Newwise, Tencent, Netease and Shanda, are now entering the traditional telecom field, bringing
with them a rich variety of advanced Internet services and fashionable terminals. Some Internet
service operators, including Google, Yahoo!, Microsoft and Intel, are expanding their business
and are now entering the integrated marketing field. Hence, the marketing services of telecom
carriers might be gradually replaced and integrated in the near future.
In operation modes: The Internet has subverted telecom carriers' traffic operation mode.
Monthly rent or free services supported by advertisements will gradually become the mainstream.
The correlations between subscriber increase and equipment investment, operation costs and
service revenues (as the costs for subscriber increase in Internet services are very low) will also
change. Even in terms of charging, which was previously an advantage that telecom carriers and
traditional mobile carriers exclusively enjoyed, will now face sever challenges from Internet
services such as, eBay and Paypal online payment services, as they begin entering the mobile
operation field and offer their charging services at bigger discounts.
Prof M.Sahni

Assignment
1. What should be the defense & breakthrough strategic direction of telecom carriers?
2. How should fixed line carriers act in terms of service strategies & service development?
3. How should mobile carriers act in terms of service strategies & service development?
Prof M.Sahni

COMPETITION POLICY IN TELECOMMUNICATIONS: THE CASE OF INDIA

The National Telecom Policy of 1994 announced a series of specific targets to be achieved by
1997. It recognized that government financial resources would be inadequate to achieve these
targets and concluded that private investment was required to bridge the resource gap. The
Government invited private sector participation in a phased manner from the early nineties,
initially for value added services such as paging services and cellular mobile telephone services
and thereafter for fixed telephone services.
However, the results of the privatization were not entirely satisfactory. Private sector entry was
slower than what was envisaged in NTP 1994. The government viewed these developments with
concern and recognized the need to take a fresh look at the policy framework for this sector. This
resulted in the New Telecommunications Policy 1999. NTP 1999 clearly stated as one of its
objective to "Transform in a time bound manner, the telecommunications sector to a greater
competitive environment in both urban and rural areas providing equal opportunities and level
playing field for all players". Prior to NTP 99 this did not appear to be an explicit objective of the
reform process. Private sector entry was to be tolerated only in order to add to the government's
investment in the telecom sector. This is apparent from the fact that the liberalization of the
telecom sector in India was initiated with several restrictions on entry. Initially, the government
auctioned only two cellular and one basic service license for each circle/metro. The private
investors bid such high amounts that the business was rendered unviable and for a while it
seemed the entire attempt to attract private investment would be a major failure. Following this
experience, the government has generally followed an approach of unlimited entry with payment
of entry fee and a revenue share. With the exception of cellular services, all other service licenses
are unlimited. Cellular licenses are limited because of spectrum availability. The other major
licenses – basic, national and international long distance, and Internet service provider (ISP) - are
unlimited.
The TRAI has recently completed a review of cellular tariffs and has released a consultation
paper on basic services tariffs. These documents provide TRAI's assessment of the current and
expected levels of competition in these sectors.
With respect to the cellular market, the TRAI has concluded that "a stage has been reached, when
market forces can effectively regulate cellular tariff and the Regulator has to step aside except for
a broad supervision in the interest of the consumer. " In the light of this assessment the TRAI has
decided to 'forbear' from regulating tariffs in the cellular sector and has left the tariffs to be
determined by market forces.
In the case of basic services the TRAI's recent consultation paper on 'Tariffs for Basic Services'
notes that the share of BSNL and MTNL in basic services continues to be over 98% of the total
market. Moreover, "the projections available from the new entrants (i.e. the private sector
operators) indicate that BSNL and MTNL will remain the dominant operators in terms of market
share in the near future and will continue to be so for some time to come." With respect to the
long distance market, both NLD and ILD, the TRAI's view is that it "is likely to evolve towards a
multipolistic market structure sooner than later." However, at present since the private NLD
operator has established POPs in only 18 LDCAs out of 321 and is in a position to pick up
traffic from less than 10% of the SDCAs, "the incumbent will continue to dictate NLD tariff for
quite some time". The TRAI perceives the competitive trends more pronounced in the ILD sector,
with the entry of two new operators. In addition IP telephony is expected to exert competitive
pressures in this segment.
Overall the TRAI concludes that "while the market for access is heavily skewed towards the
incumbent and is likely to remain so in the near and mid-term, the trends are different in both the
NLD and ILD segments. In these segments competition would be more vibrant, and this would
need to be factored in for regulatory policy formulations."
In spite of the avowed policy of unlimited entry there are several restrictions and disincentives on
entry.
Prof M.Sahni

There are serious and binding roll-out obligations in the case of basic services and national long
distance. The main purpose of these obligations is to prevent “cherry picking” and ensure
coverage of remote and rural areas. However, the roll-out obligations impose a cost on the
operator and act as an entry deterrent. With the setting up of the Universal Service Fund, which
will provide subsidies for rural and remote area coverage, there is little rationale for these roll-out
obligations. The roll-out obligation for the NLD operator effectively mandates a national NLD
network and rules out the possibility of regional networks interconnecting with each other to
create a national NLD network. Such an alternative may be attractive given that a large
proportion of the NLD traffic is regional.
Both cellular and basic operators pay a revenue share at 12% of adjusted gross revenues (AGR)
in
metropolitan areas and category A circles, 10% in category B circles and 8% in category C
circles.
International and national long distance service providers are required to pay an annual revenue
share, at the rate of 15% of the adjusted gross revenue. These revenue shares include the
contribution to the Universal Service Fund. ISPs do not pay any revenue share and this is also
extended to their provision of Internet Telephony services. The revenue shares are in addition to
fixed entry fees ranging from Rs.10 million to Rs.1.15 billion depending on the circle for basic
services and a Rs.1 billion entry fee for a national long distance license. The entry fee for the
fourth cellular license has been determined through a bidding process and ranges from Rs.175
million to over Rs.2 billion. As a part of the migration package for the initial licensees, revenue
shares were meant to replace the high bids of the initial auctions. Therefore, the rationale of such
revenue shares disappears if licenses are unlimited and there is no bidding. Revenue shares could
have a rationale in the case of cellular services where limited licenses are still bid out. In this case
the bid amount and the percentage revenue share together represent the value of the limited
spectrum which comes bundled with the license. For example, a higher revenue share percent
should result in lower bids, given everything else. However, in all other cases revenue shares may
be considered as raising the cost of entry by raising prices and limiting the market. The licenses
place artificial and inefficient boundaries across services. These restrictions generally prevent the
licensees from reaping economies of scale and scope. The main rationale for not allowing
national long distance service providers to carry intra-circle long distance traffic is to preserve,
for the basic services operator, the cross-subsidy element in the long-distance tariff. The concept
of WLL with limited mobility, with lower license fees compared to cellular operators, has also
been presented as a means of extending the network to rural and remote areas using 'cheap'
wireless networks. However, given that the technology is capable of full mobility, limited
mobility represents an artificial and unnecessary restriction. The TRAI has also justified allowing
the cellular operator to retain only 5% of the long distance revenue, as opposed to 60% for the
basic operators, in order to enable the latter to cross subsidize rentals and fulfill roll-out
obligations, especially with respect to Village Public Telephones. However, basic service
operators can only retain 5% of the revenues from WLL calls. This is a complicated attempt to
establish a 'level playing field'. The restriction on Internet telephony, disallowing domestic PC to
phone calls while allowing the same for international calls, is once again to protect the basic and
national long distance licensees from competition. In accordance with the generally accepted
principle that regulation should be limited to bottleneck facilities and not the services, these
restrictions on services are unnecessary.
Assignment
1. A new operator ‘Godtel’ wants to enter the Indian market. Discuss the entry level strategy it
must follow, keeping in mind the current market structure and regulations.
2. Critically examine the current regulatory policy on Telecom competition. What are the
objectives India is trying to achieve? Is it the right strategic approach for India?
Prof M.Sahni

Basic services
One key issue for viability of entry into basic services is the level of rentals. In the first tariff
order the TRAI decided to keep rentals below its estimated cost ‘with the objective of making
them affordable’. The new rentals were obtained by increasing the levels of rental prevailing in
1993 to account for the rate of inflation and ‘some of the real income increase since then’. In
addition to the existing classification of rural/urban and exchange capacity, the TRAI introduced
three sub-classifications – low user, general and commercial.
At the end of the first year of the three-year period TRAI withdrew the planned increases for the
general user category. In addition BSNL/MTNL never implemented the commercial category
tariffs. The net result is that as of April 2002 there is only one set of rentals for all subscribers,
rural as well as urban. The only difference is a lower rental for rural subscribers, in exchanges
with a capacity of less than 1,000 lines.
The major lesson of the first tariff order is that the entire exercise of working out fully allocated
costs of access, local calls and long distance calls is neither necessary nor possible at this point of
time. It is not possible because of BSNL’s inability to provide appropriate data. For example,
according to the BSNL’s first annual report for the year ending March 31, 2002, " the Company
presently does not have a system of identifying the National Long Distance Revenue and has
provisionally assessed 30% of the total revenue as NLD revenue and has used the same for
calculation of license fee on NLD." It is not necessary because tariffs are unlikely to be based on
costs worked out through a Fully Allocated Cost Method. In the first tariff order, rentals are based
on some undefined notion of ‘affordability’, and other tariffs are set so as to effectively enable the
operator to recover total costs and earn a reasonable rate of return.
The TRAI is committed to reducing cross-subsidies in tariffs and has attempted to achieve this
through its phased out first tariff order. Interestingly, the latter phase of its tariff order was
overtaken by the entry of competitors in both the national and international long distance markets.
However, the TRAI has been ambivalent about increasing rentals in the interest of affordability.
The government operator BSNL has also been reluctant to increase rentals, partly out of political
compulsions. TRAI’s attempts to target the rental subsidy by creating separate categories of
commercial and non-commercial subscribers has not been successful. BSNL has also not adopted
the strategy of offering price packages, which seek to increase revenues through price
discrimination, as is being done by cellular operators.
The vanishing cross-subsidy from international and national long distance tariffs as a result of
competition is supposed to be replaced by the Universal Service Fund (USF). However, the USF
is only meant for extending the network to unviable areas. It does not make up for the below cost
rentals. In such a situation, below-cost rentals are unsustainable and will act as a “constraint” on
entry of private operators. One suggested solution is to continue with the long distance cross-
subsidy through access charges. However, this may introduce a new set of distortions in the form
of "inefficient bypass".
There is a need to formally recognize the use of a price cap arrangement for the entire basket of
basic services. In the presence of political and other obstacles to increasing rentals there is little
danger of TRAI cross-subsidizing its competitive long distance services with rentals and local
call charges, where it has market power. This should give BSNL/MTNL the flexibility to develop
alternate tariff packages, as is happening in the cellular sector, and which was envisaged in the
first tariff order. Such alternate tariff packages may do a better job of targeting different
categories of consumers.
Prof M.Sahni

Rs pr mth Low User General

Xchange system capacity Prior Order Actual Order Actual
Upto 999 (first figure for 50/75 70/120 70/120 120/160 70/120
rural and second for urban)
1000 to 29999 100 120 120 160 120
30000 to 99999 137.5 180 180 220 180
100000 to 300000 180 250 250 310 250
Above 300000 190 250 250 310 250
Table : Monthly rentals for basic services

Assignment
1. Do a SWOT on basic services.
2. Identify the segment/s for basic service.
3. What strategy will you follow in the current scenario for basic services.
Prof M.Sahni

Kelloggs
When preparing a strategy for success, a business needs to be clear about what it wants to
achieve. It needs to know how it is going to turn its desires into reality in the face of intense
competition. Setting clear and specific aims and objectives is vital for a business to compete.
However, a business must also be aware of why it is different to others in the same market.
This case study looks at the combination of these elements and shows how Kellogg prepared
a successful strategy by setting aims and objectives linked to its unique brand.
One of the most powerful tools that organisations use is branding. A brand is a name,
design, symbol or major feature that helps to identify one or more products from a business
or organisation. The reason that branding is powerful is that the moment a consumer
recognises a brand, the brand itself instantly provides a lot of information to that consumer.
This helps them to make quicker and better decisions about what products or services to buy.
Managing a brand is part of a process called product positioning. The positioning of a
product is a process where the various attributes and qualities of a brand are emphasised to
consumers. When consumers see the brand, they distinguish the brand from other products
and brands because of these attributes and qualities. Focused on Kellogg, this case study
looks at how aims and objectives have been used to create a strategy which gives Kellogg
a unique position in the minds of its consumers.
The market
The value of the UK cereals market is around £1.1 billion per year. Kellogg has a 42% market
share of the value of the UK’s breakfast cereal market. The company has developed a range of
products for the segments within this market, targeted at all age groups over three years old.
This includes 39 brands of cereals as well as different types of cereal bars. Consumers of cereal
products perceive Kellogg to be a high quality manufacturer. As the market leader, Kellogg
has a distinct premium position within the market. This means that it has the confidence of its
consumers.
Developing an aim for a business
Today, making the decision to eat a healthy balanced diet is very important for many consumers.
More than ever before people want a lifestyle in which the food they eat and the activities they
take part in contribute equally to keeping them healthy. Research undertaken for Kellogg, as well
as comprehensive news coverage and growing public awareness, helped its decision-takers to
understand the concerns of its consumers. In order to meet these concerns, managers realised it
was essential that Kellogg was part of the debate about health and lifestyle. It needed to promote
the message 'Get the Balance Right'.
Decision-takers also wanted to demonstrate Corporate Responsibility (CR). This means
that they wanted to develop the business responsibly and in a way that was sensitive to all of
Kellogg’s consumers’ needs, particularly with regard to health issues. This is more than the
law relating to food issues requires. It shows how Kellogg informs and supports its consumers
fully about lifestyle issues.
Any action within a large organisation needs to support a business direction. This direction is
shown in the form of a broad statement of intent or aim, which everybody in the organisation
can follow. An aim also helps those outside the organisation to understand the beliefs and
principles of that business. Kellogg’s aim was to reinforce the importance of a balanced lifestyle
so its consumers understand how a balanced diet and exercise can improve their lives.
Creating business objectives
Having set an aim, managers make plans which include the right actions. These ensure that
the aim is met. For an aim to be successful, it must be supported by specific business
objectives that can be measured. Each of the objectives set for Kellogg was designed to
contribute to a specified aim. Kellogg’s objectives were to:
• encourage and support physical activity among all sectors of the population
Prof M.Sahni

• use resources to sponsor activities and run physical activity focused community programmes
for its consumers and the public in general
• increase the association between Kellogg and physical activity
• use the cereal packs to communicate the ‘balance’ message to consumers
• introduce food labelling that would enable consumers to make decisions about the right
balance of food.
Well constructed objectives are SMART objectives. They must be:
• Specific
• Measurable
• Achievable or Agreed
• Realistic
• Time-related.
Each of the objectives set by Kellogg was clear, specific and measurable. This meant Kellogg
would know whether each objective had been achieved. The objectives were considered to be
achievable and were communicated to all staff. This made sure that all staff agreed to follow
certain actions to achieve the stated aims. The objectives were set over a realistic time-period
of three years. By setting these objectives Kellogg set a direction that would take the business
to where it wanted to be three years into the future.
Having created an aim and set objectives, Kellogg put in place a process of planning to
develop a strategy and a series of actions. These were designed to meet the stated aim and
range of business objectives.
In the area of food labelling, Kellogg introduced the Kellogg’s GDAs to its packaging,
showing the recommended Guideline Daily Amounts. These GDAs allow consumers to
understand what amount of the recommended daily levels of nutrients is in a serving of
Kellogg’s food. Working with a group of other major manufacturers, Kellogg introduced a
new format in May 2006, with GDAs clearly identified on brand products and packages.
These GDAs have been adopted by other manufacturers and retailers such as TESCO.
For many years Kellogg has been working to encourage people to take part in more physical
activity. The company started working with the Amateur Swimming Association (ASA) as far
back as 1997, with whom it set some longer term objectives. More than twelve million people
in the UK swim regularly. Swimming is inclusive as it is something that whole families can do
together and it is also a life-long skill. The ASA tries to ensure that ‘everyone has the
opportunity to enjoy swimming as part of a healthy lifestyle’. As a lead body for swimming,
the ASA has been a good organisation for Kellogg to work with, as its objectives match
closely those of the company.
Kellogg became the main sponsor of swimming in Britain. This ensured that Kellogg’s
sponsorship reached all swimming associations so that swimmers receive the best possible
support. Kellogg sponsors the ASA Awards Scheme with more than 1.8 million awards
presented to swimmers each year. This relationship with the ASA has helped Kellogg
contribute in a recognisable way to how individuals achieve an active healthy balanced
lifestyle. This reinforces its brand position.
Working with the ASA helped Kellogg set up links with a number of other bodies and
partners. For example, Sustrans is the UK’s leading sustainable transport organisation.
Sustrans looks at the different ways that individuals can meet their transport needs in a way
that reduces environmental impact. It is the co-ordinator of the National Cycle Network.
This provides more than 10,000 miles of walking and cycle routes on traffic-free paths
throughout the UK. To meet its business objective of encouraging and supporting physical
activity Kellogg is developing a promotion for a free cyclometer which will be advertised
on television in 2007.
Walking is one of the easiest ways for people to look after themselves and improve their
health. To encourage people to walk more often, Kellogg has supplied a free pedometer
Prof M.Sahni

through an offer on All-Bran so that individuals can measure their daily steps. During 2006
more than 675,000 pedometers were claimed by consumers. From a research sample of 970
consumers, around 70% said they used the pedometer to help them walk further. Kellogg’s
Corn Flakes Great Walk 2005 raised more than £1 million pounds for charity on its way from
John O'Groats, through Ireland and on to Land's End. In 2004, 630,000 people took part in
the Special K 10,000 Step Challenge.
Kellogg has also delivered a wide range of community programmes over the last 20 years.
For example, the Kellogg’s Active Living Fund encourages voluntary groups to run physical
activity projects for their members. The fund helps organisations like the St John’s Centre in
Old Trafford which runs keep-fit classes, badminton and table tennis.
Since 1998 Kellogg has invested more than £500,000 to help national learning charity
ContinYou to develop nationwide breakfast club initiatives. These include start-up grants for
new clubs, the Breakfast Club Plus website, the Kellogg’s National Breakfast Club Awards and
KELLOGG’S the Breakfast Movers essential guide. Breakfast clubs are important in schools
because they improve attendance and punctuality. They help to ensure that children are fed and
ready to learn when the bell goes. Kellogg promotes breakfast via these clubs, not Kellogg’s
breakfast cereals.
Together Kellogg and ContinYou have set up hundreds of breakfast clubs across the UK,
serving well over 500,000 breakfasts each year.
Communicating the strategy
Effective communication is vital for any strategy to be successful. Kellogg’s success is due to
how well it communicated its objectives to consumers to help them consider how to ‘Get the
Balance Right’. It developed different forms of communication to convey the message ‘eat to
be fit’ to all its customers.
External communication takes place between an organisation and the outside world. As
a large organisation, Kellogg uses many different forms of communication with its customers.
For example, it uses the cartoon characters of Jack & Aimee to communicate a message that
emphasises the need to ‘Get the Balance Right’. By using Jack & Aimee, Kellogg is able to
advise parents and children about the importance of exercise. These characters can be found
on the back of cereal packets.
The company has also produced a series of leaflets for its customers on topics such as eating
for health and calcium for strong bones. These are available on its website.
Internal communication takes place within an organisation. Kellogg uses many different
ways to communicate with its employees. For example, Kellogg produces a house
magazine which is distributed to everybody working for Kellogg. The magazine includes
articles on issues such as getting the balance of food and exercise right. It also highlights the
work that Kellogg has undertaken within sport and the community. To encourage its
employees to do more walking, Kellogg supplied each of its staff with a pedometer. Such
activities have helped Kellogg’s employees to understand the business objectives and why the
business has created them. It also shows clearly what it has done to achieve them.
Conclusion
Research undertaken by Kellogg as part of the 2005 Family Health Study emphasised that a
balanced diet as well as regular exercise were essential for good all round health and
wellbeing. Kellogg is demonstrating good corporate responsibility by promoting and
communicating this message whenever it can and by investing money in the appropriate
activities. This was the broad aim. To achieve this aim, Kellogg set out measurable objectives.
It developed a business strategy that engaged Kellogg in a series of activities and
relationships with other organisations. The key was not just to create a message about a
balanced lifestyle for its consumers. It was also to set up activities that helped them achieve
this lifestyle. This case study illustrates how consumers, given the right information, have
made informed choices about food and living healthily.
Prof M.Sahni

Assignment
1. Describe the difference between an aim and an objective.
2. Do SWOT and provide an alternate strategy for Kellogg.
Prof M.Sahni

Learning from Napoleon

To understand how business strategists used military strategies, we can look at the innovations of
Napoleon and apply then to business situations. Napoleon made four key innovations. They were
1) increase his army’s marching rate, 2) organize the army into self contained units, 3) live off the
country, and 4) attack the opponent’s lines of supply. All four provide lessons for business
strategists:
1) By increasing the speed that the army marched and fought, they created a military advantage.
They could implement their tactics faster than the enemy. Hitler used the same strategy with his
Blitzkrieg. The enemy was overrun before they were able to organize a viable resistance. But
once these innovations were used, other armies made adjustments and the nature of warfare
changed. All armies had to increase their pace of operations to be effective. Businesses, like
armies must operate at a faster pace than their competitors in order to have a competitive
advantage. They must develop and introduce products faster, implement strategies faster, and
respond to environmental factors faster. They must be proactive.
2) Napoleon returned to the cohort organization of the Greek phalanx. These were self contained
fighting units of citizens that knew each other in daily life, and had a wide variety of skills and
various skill levels. Under the Roman Empire the phalanx was replaced by specialized legions
containing 100 fighters (centurion). Each legion had a specialized skill (such as the archer legions
from Thrace). For more than 100 years, businesses have taken Adam Smith?s advice and
organized by functional specialization, just like the Roman legions did. Accountants populated
the finance department and technicians populated the operations department. According to Adam
Smith this is the most efficient way of organizing. But as the speed of business increases we need
a more flexible system. We use cross functional teams (like the Greek phalanx) that have enough
breadth of knowledge to see the big picture, are objective enough to get accurate and unbiased
perceptions of environmental factors, and are flexible enough to act quickly.
3) Napoleon?s armies lived off the country instead of bringing supplies with them. This allowed
them to march faster. The disadvantage is that stealing from the local population created
resentment. But this was a longer term problem. It could be dealt with when the time came. The
short term advantage outweighed the long term disadvantage. In business we no longer stock
inventory based on an EOQ model. We use a Just In Time model and this reduces costs
considerably. However it makes us vulnerable to our supply channel partners. Just as Napoleon
had to manage the local people that supplied him his provisions, businesses today have found
supply chain management to be a critically important part of doing business.
4) Striking at the opponents lines of supply is known as a flanking strategy. It is effective because
it eliminates the need to fight the enemy head-on. An attack on a poorly defended supply line can
render the whole enemy army unable to fight. In business today we attempt to do this with
exclusivity agreements with suppliers (if you sell Pepsi, you can’t sell Coke). If Pepsi has an
exclusivity agreement with Pizza Hut, Coke will effectively be eliminated from that part of the
market.
Assignment
Using Napoleon’s strategies, analyze and formulate strategies for Airtel.
Prof M.Sahni

PVR
On February 24, 2006, PVR Ltd. (PVR), India’s largest cinema exhibitor group,
inaugurated PVR Rivoli, a new multiplex in New Delhi. With this, the company, which
introduced the concept of multiplexes in India, had a total of 51 screens in different
Indian cities. Earlier, on February 01, 2006, PVR had launched a five-screen multiplex in
Hyderabad. In the fiscal year 2004-2005, PVR attracted 4.9 million movie-goers, while
the figure was 6.47 million for the nine months ended December 31, 2005. The company
started its operations in Delhi in 1996-97 and initially concentrated its efforts on the
National Capital Region (NCR).
However, its aim was to have a pan-India presence and it later ventured into the southern
part of the country setting up an 11-screen multiplex in Bangalore, Karnataka, in 2004.
PVR’s expansion plans included B and C grade cities like Indore (Madhya Pradesh),
Lucknow (Uttar Pradesh), Visakhapatnam (Andhra Pradesh), Aurangabad (Maharashtra),
and Latur (Maharashtra).
It planned to increase the total number of screens to 75 by the end of the fiscal 2005-06
and to 200 by 2008. The expansion would require an investment of about Rs 4 billion.
PVR raised Rs 1.5 billion through a public issue of its shares in December 2005 and the
remaining Rs 2.5 billion was to be funded through internal accruals.
PVR was credited with bringing about a major change in the cinema viewing experience
for the Indian public with the provision of comfortable seating, state-of-the-art screens
and projection systems and audio visual systems. As of 2005, Indians were spending
about US$2 billion per year on movie tickets.
This was expected to grow by 30% over the next five years. This potential in the cinema
exhibition business had attracted many big players from other sectors like real estate,
construction, and media. Companies like Adlabs, Satyam, Prasads, Funcinema, Wave
Cinemas, Inox, Shringar, etc. had already started their operations in the multiplex
business and were making huge investments in expansion. Their expansion plans were
expected to pose a serious challenge to PVR.
The origins of PVR can be traced to March 1974 when Priya Exhibitors Private Limited
(PEPL) was established. The private company operated a single-screen cinema hall called
Priya at Vasant Vihar in Delhi. The founder, Bijli Pahalwan, owned other businesses,
chief among them being the Amritsar Transport Corporation Private Limited (ATCPL), a
freight carrier company. Pahalwan’s son, Ajjay Bijli (Bijli), joined the family business
after graduating in 1988. From the beginning, Bijli felt that the cinema business was more
glamorous than the transport business, and so paid more attention to PEPL.
In the early 1990s, the cinema exhibition business in India was passing through a bad
patch because of the growing popularity of video cassette players. People were renting
video cassettes of the latest movies and watching them in the comfort of their homes.
However, good quality theaters were still in demand....
Assignment
1. Highlight the innovative strategies adopted by the company in the film exhibition industry.
Classify them as defensive or offensive.
2. What is your forecast on the future of exhibitor’s market.
Prof M.Sahni

Parker
Parker is setting up a chain of exclusive retail outlets to give itself some retail voice.
Think Parker, think Amitabh Bachchan. Thanks to all that inflight advertising, this global
brand of writing instruments has become almost synonymous in India with the man with
the baritone (few know his written voice, though).
It didn’t start that way. Parker entered India in 1997 (well, officially at least), and to a
wonderful response too. So recalls Pooja Jain, executive director, Luxor Writing
Instruments, the Indian company that brought the brand to India.
“The brand had history even before Luxor brought it in, so there already was demand for
the brand in India,” she says, “but it wasn’t available in the open market.”
Parker contributes about 40 per cent to Luxor’s total turnover now. Apart from its own
brand, Luxor, the company also markets Pilot, Waterman and Papermate products in
India.
“Today,” says Jain, “Parker is a Rs 70-crore brand, and we’re looking at taking this to Rs
100 crore within the next two years ... 18 months ideally.”
Parker’s broad strategy has been to straddle almost every imaginable usage segment
beyond the mass-market range of popular pens, from high school (with its Rs 70 pen)
through working life till the very apex of the corporate pyramid (a fancy Rs 35,000
model).
But the big boost came with the launch of Beta in 2000, a sub-brand sold as “my first
Parker” to the youngster looking for an affordable entry point (its price range: under Rs
100).
This was when Bachchan joined the effort to popularise the brand, holding forth on the
pride of Parker ownership in his own avuncular manner.
Parker now has about 14 sub-brands in India, of which Vector in the mass seller, while
Sonnet is also doing good volumes priced at Rs 1,000-2,000. At the upper-end of the
market, brands such as Mont blanc seem to have stolen ahead (at least in terms of snob
value).
While Parker continues to spend about 20 per cent of its turnover on advertising, critics
wonder just how independent an identity it has managed to carve for itself in India.
One way to establish an image on its own would be through enhanced retail presence, and
that’s just what Luxor has in mind. Exclusive stores are planned, and this would go well
with its planned launch of customized pens that go as high as Rs 10 lakh apiece.
Assignment
1. Do SWCT analysis for Luxor in writing instruments industry.
2. Give your comments on “Will the new strategy of luxor achieve the objectives”
Prof M.Sahni

Freeplay Energy
In the early 1980s Trevor Bayliss, the British inventor, developed the concept of a self-powered
radio. Electricity for the radio would be provided by an integral wind-up generator. Bayliss’s
idea was that this self-powered radio would allow people in remote villages across Africa to gain
access to news and information from around the world. In 1994 the South African based BayGen
Power company (later renamed Freeplay Energy) signed an exclusive agreement with Trevor
Bayliss to develop and commercialise the product.
Although Trevor Bayliss no longer has an active involvement with Freeplay Energy, the partners
who run the company are still driven by the desire to improve the lives of individuals in the
developing world. The company’s Cape Town factories are co-owned by local charities that
represent the disabled, single mothers and former offenders. Around one third of the company’s
employees are from these disavantaged groups.
The first commercial version of the wind-up radio was the FPR1 and this was distributed to
villages by aid agencies. Very early on, it became apparent that the radio was too heavy, too
fragile and more crucially too expensive for its intended market. Villagers appeared to be more
willing to spend £2 to £3 a month on batteries, than an initial £29 on a radio that did not require
battery replacements. The product however began to develop sales in more affluent markets. In
the UK the Design Council awarded the wind-up radio ‘Millennium Product’ status. One
national newspaper went as far as naming it the most significant invention of a generation.
Freeplay Energy began to realise that volume sales could be developed by concentrating on the
European and North American markets. Sales growth in these markets has allowed Freeplay to
invest further in the technology, and as a result develop products that are smaller, lighter, more
durable and less expensive. The FPR1 had to be wound for 20 seconds in order to produce 30
minutes of playing time. The FPR2, which Freeplay launched in 1997, weighs less, is more
compact and supplies an hour of playing time after being wound for 20 seconds. In 1999 the
company added to the radio range with the launch of a new model, the Freeplay S360. The
company also launched the 20/20 flashlight, which contains an integral energy storage unit to
generate power for instantaneous or later use.
Currently Freeplay Energy has a £30m turnover and is forecast to produce around 1.2 million
units in the year 2000. Around 70% of its sales are in the United States of America and 25% in
Europe, with Africa and the Middle East making up the balance. The company’s promotional
budget is around £3m.
Through market research the organisation has identified that the product is positioned differently
in the various overseas markets. In Germany the product appeals to the consumer’s strong
environmental consciousness. In the United States of America and Japan, where there is a strong
outdoor culture, the product is bought as a component of tornado or earthquake survival kits. In
the UK, the company’s biggest market per capita, the general public is proud of the fact that the
product was invented there.
The company still has an aspiration to create products that will bring modern forms of
communication to individuals in remote rural villages. However they believe that entering into
the European and North American markets has allowed them to develop much larger
manufacturing volumes which in turn has enabled them to gradually lower prices.
Freeplay Energy has a number of new product ideas under investigation. One initiative is the
concept of a satellite telephone that can be charged with energy provided by a ‘self-powered’
generator rather then costly disposable batteries. The company believes this product would
overcome some of the problems faced by African economies. African states cannot afford to
develop the landlines and other facilities needed for a modern telecommunications infrastructure.
This approach would allow these states to make a technology leap and allow individuals access to
the global communications network. Other product ideas include self-powered pull cord lights,
water purification systems and even foetal heartbeat monitors. The company’s philosophy is to
attempt to create a range of products that will help improve communication across the developing
Prof M.Sahni

world. This is reflected in its tagline ‘Powered by You’.

The company now has to consider how it plans to develop over the next five years. There are a
number of strategic choices to be made. It could move away from making its own products or it
could carry on some manufacturing but licence out its technology to mobile phone manufacturers
such a Nokia, Ericsson and Motorola.
Assignment
Identify and evaluate the strategic options that Freeplay Energy could adopt.
Prof M.Sahni

KFC
KFC, the fast-food chain formerly known as Kentucky Fried Chicken is on a roll. At a time when
McDonald’s, the biggest player in the fast food sector, is closing restaurants, KFC is adopting an
aggressive expansion drive across the UK (Marketing, November 28).
KFC is investing more than £100m in its plan to have 850 stores by 2005, with a target of 1000
by 2008. This comes as McDonald’s is to close down 175 restaurants in ten countries. In 2001 the
US burger giant had 1184 outlets in the UK (according to Mintel).
On the KFC website its founder and brand icon Colonel Sanders speaks from beyond the grave,
saying: “You like my chicken so much that we’re growing faster than any of them other big
restaurant names – including them Burger Boys.” And it’s those ‘burger boys’ who had better
watch out as KFC proceeds to carve a chunk out of the market.
Not that KFC’s ambitions stop there. Last week the chicken chain announced it is moving its UK
advertising account out of Ogilvy and Mather and into Bartle, Bogle Hegarty, raising the
possibility of some creative sparkle in its ads.
Evolving market
But why is KFC enjoying a hike in UK sales when other fast-food brands are experiencing a dip?
And how will KFC’s marketing keep sales buoyant and sustain the chain’s expansion plans?
One reason is the shift in people’s dietary preferences as the media’s promotion of health
awareness has steered people away from fatty and red meat toward white meat. Dominik
Nosalisk, market analyst at Datamonitor , says: “People who are meat reducers are on the rise.
They are cutting back predominantly on red meat, and chicken is generally seen as a healthy
option. Whether KFC is better for you given what it is fried in, is arguable.”
The fast-food industry has historically attracted criticism. While McDonald’s is widely
acknowledged to use processed meat, KFC sells ‘real’ cuts of chicken. But as a mass-producer of
food it is still not immune to negative publicity. In January 2000 KFC was the victim of an email
hoax that originated from the University of New Hampshire in the US. The e-mail claimed KFC
used the flesh of featherless, feetless and beakless genetically mutated poultry and claimed its
chickens were kept alive by tubes inserted in them. The mailing urges consumers to contact their
local restaurants and demand the return of ‘real’ chicken. The crisis management response was
immediate and effective and the rumour was soon quashed.
KFC has adapted its menu over the years and embraced product development. It ditched
processed chicken in 1999 and introduced more convenient-to-eat products. Burgers and wraps
now account for an estimated 40% of the chain’s sales, according to Mintel.
This innovation may well continue under its Marketing Director Claire Harrison-Church, who
joined from Unilever in August 2001. As the marketer behind the launch of Lynx Barber Shops,
she is no stranger to innovation.
But with the menu in hand and the money available to expand, the next question is where?
“KFC doesn’t have as many premium locations in city centres, which is a chink in its armour,”
says Nosilik. “Perhaps it is pursuing this as an opportunity.” It is highly probable that as KFC
opens more outlets it will do so in more prominent locations. Part of people’s perception of the
brand is that it resides on the fringes of town and city centres and that it attracts a customer from
a lower demographic group.
If its growth strategy is to be successful KFC will need to broaden its target market and this is
where marketing and the BBH appointment will come into their own.
“We want to find a way to get non-users to use the brand. We are aware of the negative
perceptions, which is part of the problem,” says Harrison-Church.
Strengthening awareness
KFC clearly draws on its heritage, using Colonel Sanders to market the brand. Ogilvy & Mather’s
advertising used the US’ template of an animated Colonel, which it adapted for different markets.
Then there was a spate of live-action ads with a voiceover by Samuel L. Jackson that attempted to
shift the tone away from the US-style executions. Will that style of ad resurface?
Prof M.Sahni

“We are not embarrassed about being a US brand. Equally we do not believe in going over the
top about it. We did move away from the animated Colonel. It was a good branding device, but
over time it didn’t work, “ Harrison-Church says. In fact, she adds, the ads were degrading the
‘real’ Colonel’s image. “We see him as the stamp of authority but not necessarily as the only
thing in the advertising.”
“We want BBH to create a stronger brand awareness, to be more assertive about our food and the
way we talk about it.” KFC will continue to advertise specific products but with a “consistent
campaign – a big idea that pulls those products together,” she concludes.
KFC is not going to overthrow the burger giants yet, as McDonald’s and Burger King have far
greater market penetration. But as consumers continue to seek fast-food alternatives to red meat,
KFC’s ambitions couldn’t come at a more opportune time.
(Source: Marketing 5 December 2002)
Assignment
Critically appraise the strategy adopted by KFC bearing in mind their position in the market, and
discuss whether you believe their competitive advantage is strong enough to achieve their plans
for expansion.
Prof M.Sahni

Domino Medical
The Domino Medical Company (DMC) produces $200 million dollars in sales from 100,000
customers in a very competitive “assisted hearing device” industry. It currently ranks number
two in overall sales in an industry that has two other direct competitors and the industry is
growing at a rate of 15% a year. Checker Company (CC) has annual sales of $500 million from
250,000 customers and Parcheesi Company (PC) has annual sales of $100 million from 50,000
customers. In order to develop a better strategic focus in this highly competitive environment,
DMC recently commissioned a study to understand customer usage, behavior, and satisfaction of
their present/potential customers (see results in table 1).
Although Checker Company has been the dominant player in the industry for the last ten years, it
recently has run into difficulty because its major production facility in Korea had burned down
and they are currently six months behind in delivering orders to their wholly owned and operated
retail stores. In addition, the company has run into organizational problems in recent months
losing a Vice President of Marketing and a highly regarded developmental engineer (the engineer
was hired by Domino). Parcheesi and Domino have been growing steadily in recent years and are
considered by analysts to possess the ability and the technological personnel to excel in the quick
paced hearing device industry. Domino is currently using quality pricing and analysts believe
that it gives the best value for the prices that they charge. The industry price for an average
"assisted hearing device" is around $1200, including examinations and fittings. Parcheesi and
Domino market their devices through high-end specialty hearing device retailers and rely on a
sales force that is organized by territory. All companies distribute nationally. All three of the
companies require hearing specialists to be available at each retail location.
After spending $2.5 million on research and development, Domino (DMC) has developed a new
revolutionary hearing aid (almost invisible, self charging, and it continuously monitors the
environment for sound changes and automatically adjusts the volume to the proper decibel level
based upon coded directions set-up and customized for the individual). Neither Checker nor
Parcheesi has a similar product. In fact, they do not have a similar model in the developmental
stages.
The company believes the total market potential for the new product to be four- (4) million units
nationally. If a decision is made to market the product, a consensus of management feels that it
would be in the best interest of the company to market the product in certain geographical regions
that when combined account for 60% of the market. It is believed that Domino will have the
most competitive punch in these areas. The direct factory labor to produce the device is $200, the
material costs are $300, and salespeople earn a 10% commission on the net wholesale to the
distributors. Most likely the advertising budget for the introduction will be $5.5 million for the
year. Administrative overhead allocated to this product is estimated to be $1.8 million for the
year.
DMC plans to maintain its current business while growing its new business. However some
executives in the company seem to think that there are two segments that should be considered
and they are mutually exclusive. In addition, DMC has a dilemma because they have never
marketed such an innovative product and are concerned about flaws in their sales/distribution
system to deal with the new venture. In addition, the company has begun efforts to expand their
Internet/Intranet/Extranet offerings to their customers. They believe that this effort will enhance
their relationship efforts with their customers and enhance their distribution efforts. Some of the
executives of the DMC Corporation are uneasy about the marketing/distribution of the new line
and their relationships with nodes in the distribution channel- so they solicit the help of the
students of Marketing 551, The University of Mississippi, Oxford, Southaven, and Tupelo, to
help them.
Prof M.Sahni

Table 1
DMC Consumer Study Results
Old Product
N=1500
Percentages refer to those customers surveyed
________________________________________________________
 75 % of DMC customers were satisfied and 25% were not satisfied.
 Satisfied customers produce an average revenue of $2000 per year and an average margin of
$800
 Dissatisfied customers who are retained produce an average revenue of $1500 per year and
an average margin of $500
 Dissatisfied customers who leave the company (don't buy anymore or shift to a competitive
product) produce an average $500 in revenue per year and an average margin of $250.
 Customers very seldom complain about the product/service. Only about 3% complain if they
are not satisfied. Of these 60% are retained and 40% shift.
 97% of DMC customers that are dissatisfied do not complain. Of these 25% are retained and
75% shift.
 New Customers generate an average revenue of $1300 and an average margin of $400 the
first year.
 DMC is actively seeking new customers to replace shifters and also to increase market share.
 The average marketing cost associated with retaining a satisfied customer is $300, of
managing a dissatisfied customer is $600, and it costs $1000 to attract a new customer.
______________________________________________________________________
Assignment
1. How would DMC's customer retention change if customer satisfaction were improved? Use
two scenarios, optimistic and pessimistic.
2. Develop a set of five important considerations that Domino could use to create a sustainable
competitive advantage in this industry. Don’t just list them. Explain them with regard to
maintaining Domino’s position in the industry now. Secondly, explain them with regards to
what you, as a decision-maker, would suggest for their marketing/positioning in the future.