MARKETING MANAGEMENT III SEMESTER

Sobha Developers Part II Submitted to

Prof. Ramya Neelamegham th on 15 January 2011 Pavan Cheruvu David Raju Kolakaluri Sudeep Kumar SK Vedula Ravi Phanindra Venkatesan Sundaram 1012017 1012018 1012064 1012071 1012072

Marketing Management
CONTENTS

Sobha Developers

CONTENTS ................................................................................................................................................ 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. KEY CHALLENGE ............................................................................................................................ 2 SEGMENATION ............................................................................................................................ 2 TARGETING ................................................................................................................................... 3 POSITIONING ................................................................................................................................ 4 INTERVIEW WITH DLF ............................................................................................................ 5 PRODUCT ........................................................................................................................................ 5 PRICING ........................................................................................................................................... 6 PROMOTION .................................................................................................................................. 7 PRODUCT MIX .............................................................................................................................. 9 CONCLUSION .......................................................................................................................... 11 REFERENCES.............................................................................................................................. 11

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Marketing Management
1. KEY CHALLENGE

Sobha Developers

As part of Part I of the project we did a situational analysis for Sobha covering the 3Cs (Company, Customer, Competition) and came up with a list of major challenges that Sobha faces. In this report, we kept our focus is in doing a STP (Segmentation, Targeting and Positioning) analysis for Sobha and come up with a list of recommendations that Sobha can consider to effectively handle those challenges. Though the real estate sector in general experiences several common challenges like spiraling input costs, shortage of labor, global liquidity crunch etc. Sobha's marketing-specific challenges are the following in our view 1. Get recognized as a major pan India player in the real estate segment 2. Competing with established all-India players like DLF, Unitech etc In this paper we discuss on how Sobha can leverage its unique differentiating factors like full backward integration, reputation on quality etc and effective marketing mix to address the above challenges.

2. SEGMENATION The real-estate industry can be segmented broadly under the following heads 1. Individual a. Affluent b. Upper middle-class c. Middle-class d. Low income group 2. Corporate a. Office space b. Retail c. Industrial d. Hotel e. Resorts 3. Location of individuals and company a. Tier 1, 2 & 3 cities b. SEZ (Special Economic Zones) Further segmentation (sub-segmenting) can be done by combinations of above like housing for individuals at tier-1 Cities, office space at Special Economic Zones etc Currently Sobhas target segment is in tier 1 and tier 2 south-Indian cities like Bangalore, Cochin, Chennai, Coimbatore etc and it specializes in building residential and commercial projects (office spaces / retail)

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Marketing Management

Sobha Developers

A quick segmentation of people by salary in India across a wide variety of businesses is presented below

The segments in descending order of their salary range are Financial, Information technology, Engineering, Consumer and Auto. Generally, as a rule-of-thumb, the affordability for housing is calculated as five times the annual salary and hence we can arrive at the below chart for targeting people working under various segments Housing Affordability Senior Level Middle Level $425 K $140 K $375 K $120 K $ 270 K $ 210 K $ 175 K $ 75 K $ 72.5 K $ 65 K

Industry Type Financial Information technology Engineering Consumer Auto

Junior Level $ 47.5 K $ 35 K $ 23 K $ 23 K $ 23 K

The above computation shows that there is a market in India for houses starting as high as Rs. 2 Crores from people cutting across various professions. This is in addition to the real estate market needs from self employed people

3. TARGETING

Though there are a wider number of segments in place for any construction company to focus on, our recommendation for Sobha is to expand its presence across India in premium housing segment by establishing itself well in all major tier 1 cities and fast growing tier 2 cities across India rather than getting branded as a south-India player. Need for pan-India presence Urbanization is a pan-India phenomenon these years with Indias GDP growing steadily at the rate of 8 9% year on year across all Industries. If Sobha intends to grab a significant market share in this, it has to ensure that it expands its presence across India at the earliest. The chart below gives an idea on the rising urbanization across India

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Marketing Management

Sobha Developers

The percentage of urbanization is on rise across India and Sobhas exclusivity only in South India doesnt seem to be a good choice due to below reasons Sobha is not able to grab the share of Pan India phenomenon of urbanization Other players are getting into South market making Sobhas position tougher to lead in this market It is going to be more difficult for Sobha to establish itself in other regions as other players are slowly consolidating their positions

4. POSITIONING Though Sobha is well positioned in its segments of Premium residential housing & office space buildings in south-Indian cities, we are of the opinion that it may not be difficult for Sobha to get into the newly identified segments of pan-India presence in premium housing due to the below points of parity and points of difference The key Points of Difference for Sobha to get into any new segments are below 1. Sobhas well established reputation as Quality builder by leveraging its core competency of being the only fully backward integrated construction company in India. 2. Presence across a wide range of premium housing markets like 3/4-bedroom Semi-Luxury, Luxury, Super Luxury apartments, Luxury Row Houses, Super Luxury Villas in the price range of Rs. 50 lakhs to Rs. 4 crores. On Points of Parity, Sobha matches on most of the aspects against other premium builders in terms of variety and quality.

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Marketing Management
5. INTERVIEW WITH DLF

Sobha Developers

Find below the key points (Competitor stand point) on interview with Chief Marketing Officer (Bangalore) of Sobhas new competitor in Bangalore real estate market We understand DLF specializes in building large scale projects of more than 1000 units unlike competitors like Sobha (100 to 500 flats). What are the pros and cons of doing projects on such a large scale? 1. Primary advantage is less per-square-foot cost in large projects when compared to smaller ones 2. Primary disadvantage is the ability to manage large complex projects Some of your competitors like Sobha specialize in doing backward integration. What do you think are the pros and cons of doing Backward Integration? 1. Ability to maintain / control quality is a key advantage 2. Cost control might be difficult, may lose focus on your core competitive advantage and there are many established players capable of handling most of the jobs like interior design, brick manufacturing etc What are the Differentiating factors of DLF when compared to other competitors like Sobha? 1. 2. 3. 4. 5. Pan-India brand presence Building townships which changes the entire landscape and brings value to consumers Provision to customize individual apartment as per the flat-buyers needs Public Private Partnership Post-construction, maintenance of apartments to maintain brand image of DLF

What are the key Sales Challenges DLF faces? For any project to succeed and move forward, booking at least 30 40% of the planned inventory is crucial for viability of the project; so selling that initial 30 40% is a major challenge for any new project. The challenge is typically addressed by pre-launch offers at Cost-Focus, Cost-Plus and Cost-Minus pricing strategies depending on the prevailing demand pattern. Are you worried about competition from other established players? 1. Competition in neighboring location is a win-win situation as it helps to increase the valuation of the location 2. If a competitor comes in a different location as product is distinct (Location), it is not a major issue. 3. Small time builders are never a worry for us 6. PRODUCT For a residential apartment product, Customer Value Hierarchy can be understood as follows

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Marketing Management

Sobha Developers

Expected product features include RCC framed structure, Common basement, Covered car park in the basement, Balconies/Utilities, Security kiosk, Common areas, Proximity to schools, hospitals, shopping centers etc. and basic amenities such as a play area for children Being a premium builder, Sobhas products meet all features of the expected product There are many augmented product features in housing. Sobha provides most of the standard augmented features. The augmented features are categorized under broader areas of Services & High end amenities. Services includes Convenience store, Visitor car parks, CCTV Security, Rainwater harvesting system, Sewage treatment plant etc and High-end amenities includes fully equipped club-house, Jogging track, Swimming pool, Cardio and weight training gymnasium, Meditation room, rappelling wall, sports facilities etc

Sobha lags on Potential product features which are being provided by some of the competitors like DLF, TATA Housing etc. Some of the potential product features are High-end security technology, Innovative Green design concepts such as Organic Waste Converter, solar-powered lighting etc.. Consumer specific customization, Wi-Fi connectivity, Home Automation Sobha is leading in all the expected product features as well as augmented features. Hence, it is well positioned in all aspects to compete across India with any pan-India/established local players. Focus on Potential features can help Sobha to lead the game Sobhas unique differentiation in the form of complete backward integration by providing all kinds of facilities like architectural expertise, interior design studio, wood work and legal support would help in long term 7. PRICING Broadly, real estate pricing is driven by the following macroeconomic factors Interest rates and Inflation, GDP growth rate, Per capita income (employment rate) etc The ability to price at a premium depends upon the location, class of properties and the sellers brand. Sobha, known for its best quality and good landscaping has positioned itself as a market leader in quality and commands premium pricing compared to its competitors in south-India. It bases its price on the Customers perceived value. Perceived value is based upon several factors such as the property location, complete solution with backward integration model, quality of construction, aesthetic design, green concepts and robust engineering. Find below a quick comparison of quotes that we obtained from Sobha, its closest competitor DLF and a second tier builder Windsor Manner. The properties are located in similar localities and hence comparable DLF New Town Saleable Area (Square feet) Rate per Square feet 1690 3000 Sobha Forest View 1686 3850 Windsor Four Seasons (Tier 2 Builder) 1696 3240

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Marketing Management
(Rs./sft) Basic Price (Rs.) Total PLC charges (Rs.) Car Park Charges (Rs.) Club Membership charges (Rs.) Total Price (Rs.) 5070000 169000 225000 60000 5524000 6491100 0 300000 200000 6991100

Sobha Developers

5495040 0 200000 50000 5745040

Our Observations and recommendations Sobha is able to command a price premium when compared to a tier-2 builder like Windsor Properties and the main reason for it is attributed to Sobhas brand power in south-India and product features (covered under product mix) offered by Sobha when compared to tier-2 builders. Sobha may have to cut down its premium pricing to compete effectively against established players when it enters into other tier-1 and tier-2 cities where Sobha doesnt have a presence now DLF being a premium builder like Sobha and a new entrant to Bangalore has priced around 20% lesser that Sobha. We feel the main reason to this is attributed to the scale of economics. DLF property is a mini township in Bangalore with more than 3000 flats with around 18 floors in each apartment tower. Hence it is able to pass on the benefits on shared land cost to the consumers by reducing the per-square-foot rate. This would be a serious issue to Sobha to expand to other cities in India where DLF is present unless Sobha increases its scale of operation from the current 200 300 flats per project to compete effectively with DLF Sobhas charges towards some of the augmented product features like car parking, club membership etc is very high when compared to both DLF and tier-2 builders. This may not attract price / value focused buyers. Sobha may have to relook into the pricing strategy of augmented features Premium residential apartments can work well in an economy that is fast growing but there could be serious issues in case there is an economic down turn. Though it is not an area to worry about in the present economic conditions, Sobha can think about getting into the area of Affordable Housing which is fast picking up in India.

8. PROMOTION The primary medium of promotion for Sobha Developers is the print media and outdoor advertising campaigns. Sobha uses direct marketing via a customer support centre to provide clarifications and information on current and ongoing projects to those customers who call directly for information. Generic information is made available on the web-site for price comparison. Specific details of the product offerings are provided in face-to-face meetings with the sales team who are co-located in the project office. Model flats are made available in each project site to provide the prospective customers with a look and feel of the quality differentiators in the construction of Sobha properties. All Sobha print-media advertisements give a prominent place to the Sobha Logo which helps to create and sustain the brand identity. The Sobha Logo is described as below on the company website.

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Marketing Management

Sobha Developers

The ratio of the golden rectangle in mathematics is one of the most desired proportions in the construction arena. The background of the Sobha logo is designed to come very close to the golden rectangle ratio. The elegant rectangle represents balance reflection of the solid foundation and durability that our creations offer. The yellow background signifies energy and optimism, traits well engrained in every Sobhaite. The black dots represent the state-of-the-art technology we employ in all our operations. The red dot at the top is symbolic of being auspicious and represents the pinnacle of success a sign of our continuing quest for perfection. The promotion strategy of Sobha Developers is designed to meet the twin objectives of a. Informing prospective buyers of the expected product features like location, quality and price. b. Stress the differentiation from competition by highlighting the augmented product features like ambience, comfort and luxury. Given below are examples of recent print advertisements which Sobha has used to promote the Super Luxury and Super Luxury Plus category of offerings.

Emergent Promotion/Advertising Strategy of Sobha [W]e intend to have a record year. How? In a downturn, everyone cuts advertising. So if you just maintain advertising, you stand out. And we are going to increase our advertising. Jack Kahl, president and CEO, Manco Inc. A comparative analysis of the advertising, sales and other promotional expenses of Sobha and some of its competitors over the years suggests that Sobha adopted the Counter-cyclical advertising strategy. The recessionary years of 2008 and 2009 saw Sobha spend more on promoting its brand than DLF. Some conclusions that we drew from the table below a. The promotion expense, as a percentage of sales or revenue, is (weakly) inversely related to revenue i.e., smaller players like Puravankara have to spend more on promotion. b. In absolute terms, the smaller players may end up spending more on promotion expenses than the next segment. For instance, Puravankara spent more on promotion in years 2007 to 2009 than Sobha even though its revenue was between one-third and one-half of the revenue of Sobha. It spent almost the same amount in 2010 as Sobha for about half the revenue. c. The largest of the players dont leverage the counter-cyclical advertising opportunity.

*All amounts in Rs. Million

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Yr. 2010

Perc.

Yr. 2009

Perc.

Yr. 2008

Perc.

Yr. 2007

Perc.

Marketing Management Revenue Sobha Promotion expenses Revenue Promotion expenses Revenue Promotion expenses 11,139 123 32,204 364 4,784 111 100 1.10 100 1.13 100 2.31 9,747 158 38,390 394 4,449 161 100 1.62 100 1.03 100 3.62 14,291 143 60,585 309 5,658 183

Sobha Developers 100 1.00 100 0.51 100 3.23 11,864 50 14,295 279 4,169 156 100 0.40 100 1.95 100 3.75

DLF

Puravankara

Though in net Sobha seems to do well on Promotion aspects, some of the below recommendations can definitely help Sobha to create a Pan India Brand impact in line with other players like DLF Sobha can make additional investment in event sponsorship. DLF became a household name for real estate sector in India after its sponsorship of IPL cricket matches which are viewed across India by millions of cricket fans Even if not in well established South India market, Sobha can consider special Pre-launch offers at Cost-Focus, Cost-Plus and Cost-Minus pricing strategies in new markets It can consider going for corporate schemes / referral schemes in new segments Sobhas web presence is very minimal as there is nothing significant other than its own website. Sobha should leverage Social marketing by expanding its presence in web through advertisements, presence in facebook kind of channels, providing rich informational content to people looking for residential housing related information. These pull marketing strategies that Sobha can consider to attract quality leads Sobha can focus on Cause Marketing by helping poor & needy which in turn would help to improve its brand image

9. PRODUCT MIX

Sobha caters to different sub-segments of the premium segment of residential customers. We visited the new ventures of Sobha in the Sarjapura area of Bangalore to understand more about the differentiation in promotion to the sub-segments. Given below is an overview for comparison

Factor SBA Flooring DG Backup Bathroom Servant Room

Luxury ~ 1500 sft. Vitrified tile 1 KW Premium fittings Not available

Super-Lux 1700 - 1900 sft. Premium vitrified tile 3 KW Granite counter tops 75 sft with attached BR

Super-Lux + 1950 - 2400 sft. Premium tiling + wooden flooring 6 KW Luxury fittings and larger size 100 sft. with attached BR and Kitchennette

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Marketing Management Price Example Club House Features Rs. 68 lakhs Sobha Cinnamon Phase II Standard: swimming pool, gym, kids play area, pantry, library, table tennis, pool table Rs. 94 lakhs Shobha Classic Standard + jogging track, rapelling wall, gym with weight and cardio training, separate steam facilities for men and women, billiards, meditation room, gaming room with facilities for carom, football, community space indoor & outdoor, meeting room, half basket-ball court. Woods and shrubs around the complex with pleasant views

Sobha Developers Rs. 1 Crore+ Data Not Available Data Not Available

Ambience

A walking path around the block

Data Not Available

Sobha Cinnamon (Luxury) and Sobha Classic (Super-Lux) are about 1 km apart. However, we noticed a marked difference in the promotion approach by Sobha. To elaborate, the (per square-foot) land cost and the base value of the construction is the same for both the projects (Cinnamon and Classic). What stands out is a. Sobha is able to charge a 38% premium (after adjusting for differences in super built-up area) over Luxury for the Super-Lux sub-segment as the amount towards material quality and ambience. b. Of the 38%, 21% is attributed to the higher quality of material/fittings although the few extra luxuries like granite counter tops may not justify it. c. The remaining 17% is the premium charged for the ambience and the exclusivity. To be precise, a resident of Sobha Classic pays Rs. 3852.2 per month more than a resident of Sobha Cinnamon over a 20-years period for the ambience. This is in line with the advertisements (produced on page. 9) of Sobha showing people with refined tastes (owners Victorian-era clothes with dogs of high pedigree). We do not have enough information on the Super-Lux+ sub-segment to draw any conclusions. The promotion strategy of Sobha has been successful in maintaining top-of-mind recall with consumers. Sobha Classic opened for booking six months ago (September 2010) and 143 out of the 256 flats are booked. The rate per square-foot realized is approximately Rs. 4015/sq-ft and the total cost to the consumer is over Rs. 1 Crore (delivery of the project is expected in 2014). There are no units available for sale in Sobha Cinnamon. In spite of their successes in selling luxury apartments, Sobha Developers have to factor in many challenges in the real-estate sector of high interest rates, delays and higher costs from rising input and labour costs. They do not produce on the scale of DLF but are not as small as Puravankara either. With their backward-integrated model, they can price aggressively to capture more market share in the premium/luxury segment. Some of our recommendations to Sobha on product mix are below Focus on building townships in line with DLF / Puravankara to leverage the factor of economics of scale and in turn reducing the cost of apartment units sold

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Marketing Management

Sobha Developers

Can attempt at getting into Affordable Housing segment to insulate itself from economic fluctuations Sobha doesnt seem to fare well when compared to Mantri in choosing locations. Going forward can focus more on better land acquisition strategies to come up with projects in better location Many of the competitors like DLF and Mantri focus on integrated township where facilities like Schools, Hospitals, Shopping stores etc are made available within the apartment complex bringing in value to the property. Sobha can attempt the same

10. CONCLUSION In net after the detailed analysis we feel though Sobhas challenge to get established as a leading Pan India player in real estate market looks tough, we are off opinion that Sobhas inherent competitive advantages along with suggested recommendations in the paper if executed properly can help Sobha to meet the challenge easily

11. REFERENCES

1. 2. 3.

http://www.sobhadevelopers.com/about/index.html Secondary research from other web resources http://www.indiainfoline.com/Research/LeaderSpeak/Mr.-J.C.-Sharma-Managing-Director-SobhaDevelopers-Ltd/19551378 4. http://www.merinews.com/article/indian-real-estate-opportunities-and-challenges/125283.shtml 5. http://www.hindu.com/2011/01/10/stories/2011011050320300.htm 6. http://www.property-investing.org/property-demand-segmentation.html 7. http://www.india-seminar.com/2008/586/586_mohd_sanjeer_alam.htm 8. http://www.buzzle.com/articles/growth-of-the-hotel-industry-in-india.html 9. http://www.articlealley.com/article_1054840_33.html 10. http://www.pacificbridge.com/publication.asp?id=30

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