CHAPTER 1

INTRODUCTION

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1.1 Theoretical Foundation of Subject

Retailing – Product & Brand Planning The product assortment and procurement decision is probably one of the most important decisions faced by retailers. There are several aspects to this decision. Retailers have to decide on the breadth of assortment across the store (narrow or wide) and the depth of the assortment within each category (deep or shallow). In addition, retailers have to decide the quality of the items stocked within the assortment - high or low, national brands or store brands. Related to this, retailers need to decide on their pricing policies, across categories and within. Finally, retailers have to decide whether assortments should generally be stable over time or whether there should be surprise, specials, or customization in their assortments.

Shelf space is one of the scarcest resources in a retail environment. So, Retailers need to decide how much space to allocate to a category, how much space to allocate to each brand within the category, and where that brand should be placed on the shelf within the category from a profit maximization perspective.

Brand – A Promise A brand is a name, sign, symbol, slogan or anything that is used to identify and distinguish a specific product, service, or business. It can be viewed as an implied promise that the level of quality people have come to expect from a brand will continue with future purchases of the same product. This may increase sales by making a comparison with competing products more favorable. It may also enable the manufacturer to charge more for the product.

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Functions of brand For consumers Identification of source of product, Assignment of responsibility to product maker, Risk reducer, Search cost reducer, Symbolic device, Signal of quality. For Manufacturer Means of identification to simplify handling or tracing; Means of legally protecting unique features, Signal of quality level to satisfied customers, Means of endowing products with unique associations, Source of competitive advantage, Source of financial returns.

Brand Equity Brand equity refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name. And, at the root of these marketing effects is consumers' knowledge. In other words, consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand. Strong brand equity provides the following benefits: Facilitates a more predictable income stream. Increases cash flow by increasing market share, reducing promotional costs, and allowing premium pricing. Brand equity is an asset that can be sold or leased. The marketing mix should focus on building and protecting brand equity. For example, if the brand is positioned as a premium product, the product quality should be consistent 3

with what consumers expect of the brand, low sale prices should not be used compete, the distribution channels should be consistent with what is expected of a premium brand, and the promotional campaign should build consistent associations. Multi-Brand vs. Mono (Single) Brand Retail Stores Multi-Brand Advantages Multi-brand means more footfalls because the public gets a wider choice. When a customer visits a multi-brand store it satisfies his hunger for choice on both the time and space parameters. The customer gets to choose from a host of brands and products in a single visit to a single outlet, thus allowing him to make a real-time product comparison, save on time, and even the cost of purchase. In the case of multi-brand stores, retailers can easily lower their losses because they can distribute their costs among multiple brands. But in exclusive stores, if a vendor suffers a fall in market share or suffers losses, the retailer is unable to reduce his own losses and so he suffers along with the vendor. Retailers often prefer the multi-brand option because they have more freedom to make decisions. With exclusivity, retailers often lose out on the freedom to make decisions because they have to abide by the guidelines that the vendor has set for them. For instance, vendors usually have a fixed set of promotions and events that a retailer can conduct through the year. If this is the case, and if a retailer wants to conduct a particular event beyond the decided set of events, he will have to get the vendor’s permission to conduct the same. Multi-Brand Disadvantages The multi-brand retail model comes with its own set of disadvantages. Offering multiple choices often leaves the buyer confused. In a multi-brand setup it’s also difficult for a retailer to recommend a brand to the customer because that would amount to underselling the other brands. 4

Another disadvantage of multi-brand retail is that not only do retailers face tough competition if other retailers start their own stores in the neighborhood, but they also receive fewer benefits from vendors. While exclusive retailers often get territory protection from the vendors, in the multi-brand model we frequently have to face tough competition from other retailers because they might just start another multi-brand store in the same area and give better schemes and discounts than us. As a result, in order to retain their customers, retailers have to be on our toes and keep on holding events and promotions in our stores. Earlier, there were times when vendors would not allow an exclusive partner to start his own multi-brand outlet. If a retail partner wanted to venture into multi-brand retail he would have to start the store with a different name. But with Large Format Retail (LFR) stores coming into the picture, vendors have become more lenient and allow their partners to start their own chains of multi-brand retail outlets. Mono-Brand Advantages The exclusive or mono-brand retail concept is a vendor-centric model. Here, a retailer has deep commitments in terms of investments, sales targets and marketing. The benefits that a retailer can derive from exclusive retail are territory protection, better margins, manpower subsidy, demo subsidy, backend rebates, brand marketing rights, lead generation support and marketing support from the vendor. The exclusivity status also places a retailer higher on the vendor’s priority list. The vendor provides lead generation support, involves him in special marketing campaigns, and even helps chalk out business roadmaps aligned to the vendor’s own long-term vision. One of the biggest benefits that an exclusive franchisee retailer can get from a vendor is the payout scheme. Vendors often buy back the stocks that the retailer wasn’t able to sell at the end of the day, but this is often not possible in multi-brand stores. The vendor tends to give retailer more importance than it gives to a multi-brand partner. Exclusive retailers get more discounts and incentives, in addition to branding and marketing support. For example, if a multi-brand partner gets a 5 percent discount on the 5

vendor’s products, an exclusive retailer may get around 10 percent. Other than generating leads and giving MDFs, vendors may give an additional 1 percent incentive on the overall sales done by the retailer during a month. In an exclusive store, uniformity in terms of store design, store interiors, store size, products, prices, promotions and events are strictly maintained. This method prevents competition among the vendor’s exclusive retailers, and gives all the retailers a fair chance to earn profits. Vendors also work more closely with exclusive retailers to conduct events and promotional schemes, and provide, along with the retailers, region- or city-specific advertisements. Mono-brand outlets are the always the best option for partners because they provide longterm benefits, and save cost, time and energy. Being the partner of just one vendor, a retailer has to work with only one supplier. By contrast, in multi-brand retail, a retailer has to work with numerous suppliers and will therefore spend more time and energy running after the suppliers than concentrating on achieving the sales target. Mono-brand disadvantages Exclusive retail stores certainly have their plus-points, but, like their multi-brand counterparts, they have their share of negatives. Unlike multi-brand outlets, exclusive retailers get very little footfall and lose out on every other customer. Researches show that over 80 percent of consumers today prefer to go to a store where they can see and test all the different brands and then make a decision. If a retailer has a multi-brand outlet he can keep the customer in the store by showing him different varieties of products. But if a retailer has an exclusive outlet and the customer wants to see and test the competitor’s products he can’t retain the customer. Two other disadvantages are the risk of losses if the vendor’s market share falls, and the lack of freedom to make your own decisions. Until a few years ago, the retail industry in India was mostly dominated by the monobrand model. But with the entry of Large Format Retail (LFR) stores—like Croma, Reliance Digital and E-Zone—many retailers began adopting the multi-brand retail

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model as a way of competing with the LFRs and as a way of adding more value to their business. Porter’s Five Forces Model As explained by Michael Porter in his five forces model, in any industry there exist five forces which determine the competitive intensity and therefore attractiveness of that industry. These are: The threat of substitute products The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). Buyer propensity to substitute Relative price performance of substitutes Buyer switching costs Perceived level of product differentiation The threat of the entry of new competitors Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition). The existence of barriers to entry (patents, rights, etc.) Brand equity Switching costs or sunk costs Capital requirements Access to distribution Absolute cost advantages Government policies 7

The intensity of competitive rivalry For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. Number of competitors Rate of industry growth Exit barriers Diversity of competitors Fixed cost allocation per value added Level of advertising expense Economies of scale The bargaining power of customers It is also known as the market of outputs. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Buyer volume Buyer switching costs relative to firm switching costs Availability of existing substitute products Buyer price sensitivity The bargaining power of suppliers It is also described as market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. Supplier switching costs relative to firm switching costs 8

Presence of substitute inputs Supplier concentration to firm concentration ratio Threat of forward integration by suppliers relative to the threat of backward integration by firms Cost of inputs relative to selling price of the product.

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CHAPTER 2

REVIEW OF LITERATURE

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Review of Literature
Srivastava (2008) reveals that as the availability of space is difficult and the cost of the floor space is high, profits by retail outlets can be optimized by allocating space within a product category and across the entire store. Optimization focuses on right sizing categories, product assortments and inventories in the aisle, to enhance consumer satisfaction and maximize retail performance. Retailers consider following factors in order to maximize their profits - Product categorization (Routine, Seasonal etc.), Category assessment using Gross margins return on Investment (GMROI) etc. Retailers allocate more space to fast moving products with high profit margins; try to estimate the right demand for slow moving but high profit margins products in order to reduce the inventory cost. They also Decide whether to keep the slow moving products with low profit margins at their stores or not. They try to make tradeoff between Variety, Assortment and Product availability.

Albéniz & Roels (2007) studied that the competition for shelf space has intensified as more product/brands now compete for a retail space that has remained roughly constant. Also, since the sales is now more shelf space dependent, so a retailer optimizes its shelf space allocations among different products based on their sales and profit margins i.e. a retailer allocates more shelf space to product/brands associated with higher profit margin are granted more shelf space. Today suppliers have to offer the retailer financial incentives to obtain larger space allocations and so they set their wholesale prices so as to obtain larger shelf space allocations but at the same time keep margins as high as possible. Rennhoff (2004) examines the behavior of manufacturers and retailers in the presence of merchandising allowances. He explains that manufacturers pay retailers fee known as merchandising allowance in order to encourage them to allocate certain in-store promotional activities to the manufacturers' brand. According to estimates, retailers collect billions of dollars in these allowance payments annually. Now, Manufacturers compete with each other, using merchandising allowance payments, in order to obtain premium shelf space at retail outlets. 11

Chandon, Wansink, and Laurent (2000) distinguish between high- and low-equity brands. A brand has high customer-based brand equity if consumers react more favorably to a product when the brand is identified than when it is not, whereas a brand with low equity does not provide many benefits and is purchased mainly because of its low price. High-equity brands enjoy higher perceived quality, brand preference, and brand awareness than do low-equity brands, which enables retailers to charge a price premium for them. Consumers of high-equity brands tend to be more committed to their brand, which makes a negative reaction to a brand delisting more likely. Retailers offer both low- and high-equity brands within their product category assortment so that they can fulfill the heterogeneous needs of their customers.

Itamar Simonson (1999) reviews and synthesizes recent empirical evidence indicating that product assortments can play a key role, not only in satisfying customers' wants, but also in influencing what they want. He shows that retailers can use the "considered assortment" to change the likelihood that a consumer will make a purchase, and to affect the probability that a specific option will be chosen. He also shows that purchase patterns and preferences can change depending on how the considered options are presented (e.g., separately or next to competing items). Finally, he reviews evidence that indicates there can be an interaction between the format of the assortment and elements of the marketing mix, such as promotional offerings, on purchase.

Gartenstein (1998) explains that the process of buying shelf space for retail involves paying the retailer to put organizations product on their shelf. Retailers justify the process of charging for shelf space, or "slotting fees," by arguing that it is expensive for them to introduce new products. Marketing expenses and the cost of printing signs and shelf tags, as well as the labor involved in rearranging existing inventory to make room for new products, act as disincentives to them for bringing in new products. Slotting arrangements make it better worth their while to offer new options. Critics of slotting fees argue that the practice is monopolistic, favoring large companies that can afford the fees. Corstjens and Corstjens (1995) propose that Shelf space and mind space are linked and complementary to each other. If a product has achieved considerable mind space i.e. if it 12

is present and liked in many consumer minds, then this itself would be a powerful incentive for the distribution to stock it. On the other hand, shelf space is a powerful generator of mind space as seeing a product regularly helps increase its presence in the consumer's mind, and improves its image by suggesting it is popular." Dreze, Hoch and Purk (1994)’s field experiment on shelf management reveals that shelf location has a large impact on sales. Their studies imply that supermarkets have

considerable capability in influencing consumers’ choices. They can do that by changing consumers’ in-store search costs for different brands, or even altering consumers’ preferences among the brands. Kahn & Lehmann (1991). Larger assortments lead to stronger preferences because they allow decision makers to maintain flexibility when making a choice. However an alternative viewpoint Greenleaf & Lehmann (1995) suggested that larger assortments do not always benefit choice. It has been theorized that increasing the size of the choice set may have adverse consequences because it also increases the demand on individuals’ cognitive resources, potentially leading to a cognitive overload.

Shaffer (1991) suggests that retailers will use their bargaining power to obtain slotting allowances rather than wholesale price concessions in order to avoid dissipating their gains when competing against other downstream firms; and in a model in which one upstream firm sells to multiple competing downstream firms that can make take-it-orleave-it offers.

Some authors attempted to include the assortment and shelf space allocation problems in the inventory decision-making process. Hayya (1991) stated that some inventory problems, ‘‘such as the interaction with marketing, as in the allocation of shelf space in supermarkets, remains a murky area’’. Bregman (1995) discussed the need to integrate the marketing, operations, and purchasing functions to compete in today’s marketplace. Curhan (1972) assumed that space elasticity (the ratio of relative changes in unit sales to relative change in shelf space) is a function of several product-specific variables, including physical properties, merchandizing characteristics, and use characteristics. 13

Buttle (1984) identified the principles of retail space allocation (RSA). He explained that value of RSA in sales creation, and explained the reasons how RSA is of increasing importance to the profitability of both retailers and their suppliers. He discussed that RSA is increasingly important because of following factors: 1. the continuing domination of multiple retail groups, 2. the ongoing trend towards self-service, 3. the decreasing number of retail outlets, 4. the pressure on retail margins, and 5. swings in buyer behavior. The goal of RSA is seen as the enhancement of retail performance as measured by indicators such as turnover per square foot or average outlay per shopper. The RSA specialist uses 5 variables to create optimal patronage, convert this traffic into a high average spend, and balance the requirement of profitable trading with the needs and desires of the shopper. The variables are: 1. fixture location, 2. product-category location, 3. item location within categories, 4. off-shelf display, and 5. point of sale promotional support.

Consumers show a low level of involvement with most of these in-store decisions, making choices very quickly after minimal search (Hoyer 1984) and price comparison (Dickson and Sawyer 1990). This cursory level of information processing suggests that simply increasing the salience of products through better display could have significant effects on purchase behavior.

Corstjens and Doyle (1981) developed a nonlinear programming model for the shelf space allocation model in which the demand rate is a function of shelf space allocated to the product. The model maximizes the profit subject to constraints on availably supply for each product and lower and upper bounds on the space assigned to each item. He found that allocation of shelf space between products depend on each item’s profitability, its space-elasticity of demand, and cross-elasticities between products.

Borden (1942) found that many retailers saw Private labels as a strategic weapon to build good will for their stores thereby wresting control “over the merchandise they sell” from branded manufacturers. Major chains have also recognized that if the effort is successful 14

it creates an “umbrella effect” enabling the retailer to expand his private label offerings to other categories. This expansion is highly desirable as substantial fixed costs are associated with a retailer’s private label operation, making it profitable to expand its market share into new categories, as well as in categories in which the retailer currently markets store brands. Moreover, today retailers have still another incentive to broaden their private label offerings i.e. private labels act as a primary differentiator which differentiates a retail chain from the other chains.

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CHAPTER 3

INTRODUCTION OF INDUSTRY & MAJOR PLAYERS

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Overview of India’s Consumer Durables Market The Indian consumer durables segment can be segregated into consumer electronics (TVs, VCD players and audio systems etc.) and consumer appliances (also known as white goods) like refrigerators, washing machines, air conditioners (A/Cs), microwave ovens, vacuum cleaners and dishwashers. Most of the segments in this sector are characterized by intense competition, emergence of new companies (especially MNCs) and introduction of state-of-the-art models, price discounts and exchange schemes. MNCs continue to dominate the Indian consumer durable segment, which is apparent from the fact that these companies command more than 60 per cent market share in the Microwave ovens.

In consonance with the global trend, over the years, demand for consumer durables has increased with rising income levels, double-income families, changing lifestyles, availability of credit, increasing consumer awareness and introduction of new models. Products like air conditioners are no longer perceived as luxury products. The biggest attraction for MNCs is the growing Indian middle class. This market is characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions.

One of the critical factors those influences durable demand is the government spending on infrastructure, especially the rural electrification program. Given the government's inclination to cut back spending, rural electrification program have always lagged behind schedule. This has not favored durable companies till now. Any incremental Corporate Catalyst India A report on Indian Consumer Durables Industry spending in infrastructure and electrification programmes could spur growth of the industry.

Apart from steady income gains, consumer financing has become a major driver in the consumer durables industry. In the case of more expensive consumer goods, such as 17

refrigerators, washing machines, colour televisions and personal computers, retailers are joining forces with banks and finance companies to market their goods more aggressively. Among department stores, other factors that will support rising sales include a strong emphasis on retail technology, loyalty schemes, private labels and the subletting of floor space in larger stores to smaller retailers selling a variety of products and services, such as music and coffee.

Growth Scenario Rising disposable income and declining prices of durables have resulted in increased volumes. An increase in disposable income is aided by an increase n the number of both double-income and nuclear families.

With easy availability of finance, emergence of double income families, fall in prices due to increased competition, government support, growth of media, availability of disposable incomes, improvements in technology, reduction in customs duty, rise in temperatures, growth in consumer base of rural sector, the consumer durables industry is growing at a fast pace. Given these factors, a good growth is projected in the future, too. The penetration level of consumer durables is very low in India, as compared with other countries. This translates into vast unrealized potential.

The market for consumer durables (including entertainment electronics, communitarian and IT products) is estimated at Rs 32 billion (US $7.1 billion). The market is expected to grow at 10 to 12 per cent annually and is expected to reach Rs 60 billion (US$13.3 billion) by 2011. The urban consumer durables market is growing at an annual rate of seven to 10 per cent, the rural durables market is growing at 25 per cent annually.

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Major Players in Consumer Durables Industry Samsung The Samsung Group is a multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea. It is the world's largest conglomerate by revenue with annual revenue of US $173.4 billion in 2008 and is South Korea's largest chaebol. The meaning of the Korean hanja word Samsung is "tristar" or "three stars". Samsung maneuvers in India are mainly under Samsung India Electronics Ltd. (SIEL). The SIEL was formed in 1995. Today, the sales turnover of Samsung India is over US$ 1 Bn. And it is the focal point of Samsung's South West Asia Regional Operations. Over 20 branch offices and 40 area sales offices, along with a Head Office in New Delhi, Samsung India Ltd. has set up a mass reach network. The employee power of Samsung India consists of over 1600 employees, with around 18% dedicated to the Research and Development. The Samsung Manufacturing Complex is located at Noida, near Delhi. It houses manufacturing facilities for Color televisions, Color monitors, Refrigerators and Washing machines Samsung India Products These Washing Machines, Refrigerators and Color Televisions and Monitors manufactured here are exported to Middle East, CIS and SAARC countries. These 'Made In India' Samsung Products enjoy a localization level of over 50%. The Samsung India Products are broadly classifies into five categories: Samsung Mobile Phones-GSM, CDMA Samsung Home Appliances-Washing Machines, Refrigerators, Microwave Oven, Air Conditioner Samsung TV/ Audio and Video-TV,DVD Player, Camcorder, Audio Systems, Home Theatre,MP3 Player, Digital Still Camera Information Technology Products-Monitors, Hard Disk Drive, CD/DVD ROM,CD/ DVD Writer, Laser Printers And Laser Based Multi-Function 19

Products, Fax, Global Business Products: Semiconductor, Set-Top Box, CCTV, Compressor, LCD Panel, Telecommunications System, Storage, Fibre Optics.

Samsung Service Centers The penetration of Samsung Products in the Indian market is truly emphasized by over 8,500 Retail Shops spread across the dimensions of the country. Samsung Digital Plazas, Digital World and Samsung Digital Homes have a widespread network. The details of the Samsung Dealers and Distributors along with the nearest Retail Shop can be searched on the Samsung Official Website. After Sales Service, with a motto of 'Speed, Smile and Sure', is one of the primary concerns of Samsung India. The Samsung Service Plazas - Company owned Service Centers Samsung Prestige Service Plazas - in smaller cities like Coimbatore and Ludhiana. Samsung Help Line Number - 24-Hour Service availability in all the cities having the Authorized Service Centers Free-Service Camp- organized annually throughout the country for the servicing of Samsung Products Home Appliance Service Centers - latest testing and measuring equipments for servicing only Home Appliance Products Samsung has been the world's most popular consumer electronics brand since 2005 and is the best known South Korean brand in the world. Samsung Group accounts for more than 20% of South Korea's total exports and is the leader in many domestic industries, such as the financial, chemical, retail and entertainment industries. The company's strong influence in South Korea is visible throughout the nation, which has been referred to as the "Republic of Samsung"

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LG LG Electronics India Ltd with its great technological strategy has done wonders in home appliances. Established in January 1997 in India, it is a subsidiary of LG Electronics, South Korea. It started its business with Color TV, Washing Machines, Air Conditioners and Microwave Ovens. But now it has entered into market of Mobiles, Digital TVs, Flat Panel Displays and Commercial Air Conditioners. Year 2006 had witnessed the launch of disk player that support both the blu-ray disk and HD DVD content. LG's research and development team is fully dedicated in producing products with latest technology to compete in the market. In 1998 LG set up a state-of the art-manufacturing unit at Greater Noida. The second Greenfield manufacturing unit was established at Pune in 2004. Company's profile shows that it has 75 subsidiaries throughout the world. LG India Products LG Electronic India deals in many products:
o o o o o o o o o

Air Conditioners Flat panel Displays GSM IT Products Microwave oven Refrigerators Television Vacuum Cleaners Washing machines Mobile Phones

LG has 30 research and development laboratories all over the world. LG products all over the world have voltage range of 200 to 240 volts but in India this range is 170-340 volts. LG is a leader in color TV market in India. LG's mobile phones are available in wide ranges. But it is considering discontinuing CDMA sales in India owing to the competition 21

from low-cost Chinese handsets. LG has even launched three new products in Indian market. It consists of two laptops and a 3D LCD monitors. The product reviews and rating by different consumers show that LG brand is the most preferred brand in Indian market. LG in India is a giant in Home Appliances' market. IFB IFB India Ltd. aims at providing superior quality engineering Products to enhance the daily living standards providing innovation and technology parallel to Global standards. Established in 1974 in Kolkata, IFB has become a name synonymous to quality Home Appliances. The IFB Group Of Companies includes: IFB Industries situated at Kolkata and Bangalore IFB Automotive Pvt. Ltd. situated at Bangalore, Chennai and New Delhi IFB Home Appliances at Goa Autoliv IFB India Pvt. Ltd. at Bangalore IFB Automotive R & D Centre, Bangalore IFB Agro Industries, Kolkata Being an ISO 9001-2000 certified company, customer satisfaction with high quality Products, competitive Prices and efficient after sales Service is the main priority at IFB Industries. IFB Records a competitive market share in Home Appliance market in India. The Products offered include: Washing machines Dryers Microwave ovens Dish washers Industrial dishwashing solutions

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Panasonic Panasonic India Ltd. is one of the leaders in the development and manufacture of Electronics In India. Panasonic India is a venture of the Japan based Matsushita Group. The company profile gives us an impressive picture of US$ 69 Bn. Matsushita Electric Industrial Co. with shares listings in Tokyo, Osaka, Nagoya, New York, Euro next Amsterdam and Frankfurt stock exchanges. The Company is a comprehensive worldwide Manufacturer of Electric and Electronic Products. A scan through the Website gives us the complete meaning of the company slogan 'Listening to you, Building Tomorrow'. The History of the company begins with the founder Konsuke Matsushita, who set forth the company in 1932 with the basic objective that states: "through the manufacture of highquality, high- performance products that meet the needs of our customers, we will devote ourselves to the progress and development of society and the well being of people, thereby enhancing the quality for life though out the world." Panasonic holds 70 per cent market share in Plasma Technology in Japan and 40 per cent worldwide. In India the market for the Plasma Range is in its infancy and National Panasonic India Ltd. plans to acquire around 25% market share. The Company Balance Sheets sing the success song of the company In India. Panasonic India Ltd. boasts of a wide spread network of Retail Shops and Dealers and Distributors chain covering the length and breadth of the country. Numbering upto 13 Branch Offices and sales offices along with 120 Service Centres, Panasonic has a mass reach in the Indian Electronics Market. Whirlpool Whirlpool India Ltd. or more precisely Whirlpool Of India Ltd. came into existence in 1996 as a result of the merger of Whirlpool Washing Machines Ltd. and Kelvinator India Ltd. The Company Portfolio consists of: Washing Machines 23

Refrigerators or Fridge Microwave Ovens Air Conditioners Besides this the company also manufactures state-of-art Electronic Home Appliances like 100% dryers. With a market share of 25%, Whirlpool Of India Ltd. enjoys the status of one of the most recognized Home Appliance Brands. It is the single largest Refrigerators Brand in India and prides to be the second largest of Washing Machine Brands in India. SWOT Analysis of Consumer Durables Industry Strengths Presence of established distribution network in both urban & rural areas Presence of well known brands Weaknesses Demand is seasonal and is high during festive season Demand is dependent upon good monsoons Poor government spending upon infrastructure Low purchasing power of consumers

Opportunities In India, the penetration level of white goods is lower as compared to other developing countries. Unexploited rural market Rapid urbanization Increase in income levels, i.e. increase in purchasing power of consumers Easy availability of finance

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Threats Higher import duties on raw materials imposed in the Budget 2007-08 Cheap imports from Singapore, China and other Asian countries

Indian Microwave Oven Industry - An Overview A microwave oven, or a microwave, is a kitchen appliance that cooks or heats food by dielectric heating. This is accomplished by using microwave radiation to heat water and other polarized molecules within the food. This excitation is fairly uniform, leading to food being more evenly heated throughout (except in thick objects) than generally occurs in other cooking techniques.

There are basically three types of Microwave ovens: Solo (Basic Model) Grill Model Convention Model

Even as a host of electronic products made rapids inroads into Indian homes in the last decade, the microwave oven – an essential item in every kitchen in developed countries was unable to make a large impact on minds of Indian home makers. Homemakers still prefer to utilize Gas Stoves, Tawas and Pressure Cookers for cooking and heating food. Most of households of the country still use microwave just for heating food and very few people have habit or are even aware of using microwave for cooking.

The microwave oven market, which at present is very small at 1.4 million units, is expected to grow by 30 per cent in India this year. Despite the fact that penetration of consumer electronics in India is very low to just 0.5 % but still companies are eyeing further growth in this category are increasing their spending on advertisement and other promotional tools.

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Leading players like Samsung, LG, Whirlpool and Electrolux have introduced a range of models, with prices of entry level ones coming down to below Rs 3,000. Many local players are sourcing products from China and selling it here at very attractive rates. LG, Samsung etc. are also making determined efforts to get the homemaker to see the microwave as a cooking device, rather than as a mere reheating one, by holding countrywide cookery classes and home demonstrations.

MARKET SHARE OF MICROWAVE OVEN BRANDS IN INDIAN MARKET

SL No. 1 2 3

PARTICULARS LG SAMSUNG Whirlpool

SHARE 43% 17% 5%

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CHAPTER 4

NEED, OBJECTIVES, SCOPE & METHODOLOGY

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Need It is the most important part of research, because the need of the research must be defined. We must aware from the purpose for which the study will be done. In this case there are few aspects of doing this research as given below:-

First and Foremost need of conducting this research is that being MBA (Marketing) professionals, it might be possible that we may pursue sales as a career and may get a job in channel sales in any sector. We may have to deal with various organizations in distributions like distributors, wholesalers & retailers. To deal with any potential customer, we need to understand his behavior & psychological factors influencing his decisions and choice. So this research might help us to better understand the factors, which influence the channel partners to promote a particular brand/product.

Second aspect of this research is that it would be helpful to the microwave brands to understand the behavior of retailer and what factors he consider while selecting a brand for selling, which brands would a retailer like to promote and which factors he would consider while delisting any brand. Also microwave companies would know about the attributes which retailers the most while selecting a brand for selling.

Objectives of Research To ascertain the brands currently sold by the retailer and the reasons for preferring the same brand. To ascertain the various attributes which dealers/retailers would consider while selecting a brand for selling.

Scope of Study We shall be conducting our study on dealers & retailers who sell microwave ovens in Ludhiana city. 28

Research Methodology

Research Design The study aims at observing the brand choice behavior of microwave ovens by retailers for selling. The design of the research is descriptive. It is descriptive because data will be collected through detailed interviews.

Population The population for our study is dealers/ retailers of Ludhiana city who sell microwave ovens of various companies – whether they are local, national or international brands. They include retailers dealing in white goods as well as crockery shops who deal in this product.

Sampling Technique Selection of a sampling method in a study depends upon on a number of factors like nature of the study, objectives of the study and the time and budget available. As far as the sampling design is concerned, the respondents (retailers/dealers) shall be selected as per researcher’s convenience.

Sample size We will consider a sample of 100 retailers/dealers for our research from Ludhiana city.

Data Collection Method There are two main approaches of data collection, sometimes the needed information is already present and need only to be extracted. The data extracted from these sources is called secondary data. However there are times when information must be collected, this kind of collected data is called primary data.

Primary Data 29

For the collection of primary data, a self-administered survey was conducted in Ludhiana city. The collection of data was undertaken with the help of questionnaire method. Hence, primary data will be extracted from the various retailers/dealers who deal in microwave ovens and who are the critical focus point of the study.

Secondary Data In order to study the various microwave brands available in the market, their market share, prices & various trade promotions offered by them to motivate retailers, secondary data from company’s sales reports and various websites research reports, and publications of various organizations shall be used.

Statistical Tools We have various statistical tools used for analysis which includes using Non-Parametric Tests (Chi-Square) with the help of SPSS to check the viability of data collected. Some other tools used by us are Measures of Central Tendency – Mode etc. and the graphical presentation is facilitated with the help of bar diagrams & pie charts.

Hypothesis I. H0: Retailers give equal consideration to different attributes while selecting a brand for selling

Ha: Retailers do not give equal consideration to different attributes while selecting a brand for selling

II.

H0: Retailers give equal preference to different brands for shelf space Ha: Retailers do not give equal preference to different brands for shelf space

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CHAPTER 5

ANALYSIS & INTERPRETATION

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Data Analysis & Interpretation

Total No. of Dealers/Retailers Single Brand Dealers Multi Brand Dealers

100 24 76

Research shows that around 76 % dealers sell more than one brand of microwave ovens at their store which is due to the fact that today the customer has become savvier and while making a purchase decision, he likes to choose amongst a no. of available alternatives. So, many dealers are today opting for dealership of more than one company. Also, those dealers/retailers who sell just one brand of microwaves are either the exclusive showrooms of their brand and the dealership regulations prohibits them from keeping any other brand of microwave in the showroom or the sale of microwaves of the dealer/retailer is too low, so dealers/retailers don’t like to invest much in maintaining the variety of brands.

According to field survey, around 87% of dealers sell LG microwave ovens and 50% of dealers deal in Samsung microwave ovens. This shows that LG and Microwave are two 32

major brands ruling the Indian microwave market. Also, 38 retailers deal with other microwave brands such as Kenstar, Bajaj, Inalsa, Panasonic etc. These brands form a smaller but significant portion of Indian microwave market and the dealers/retailers who deal with these brands mainly comprise of crockery retailers. The main reason for this as per the retailers is that major brands LG & Samsung focus very less on these retail outlets as they have very low volume potential whereas these other brands such as Kenstar, Bajaj, Panasonic etc. follow niche marketing and target these small fishes which are ignored by big brands.

Accrding to research 39% of retailers consider brand equity as the deciding factor while selecting a particular brand for selling because brand equity ensures low selling effort and easy and faster acceptance by the customer. Also, high brand equity results in faster stock rotation of a particular brand which ensures low investment in maintaing stock and higher return on investment for the retailer. Also, 19% retailers prefer a particular brand as it offers better promotion than other brands. These promotions might be in the form of display schemes such as unit display schemes, trade promotions (like one unit extra with every 10 units purchased within particular period) , exchange offers, freebies (microwave

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kits, cookery books etc.) or even sales promotional offers (like special festival offers or discounts). The survey reveals that 17 % retailers prefer a brand as it offers better customer service. This is due to the fact that customer repeated purchase of a particular brand largely depends upon the quality of product and quality of after sales service offered by that brand. Also, a bad customer experience due to delayed customer service by the brand might hamper the retailer customer relationship and may result in negative word of mouth for both the brand and the retailer. Various researches show that “it costs five to seven times more to make a new customer than to retain an existing one”. This is one of the reasons why do retailers prefer brands with promising or better customer service.

Other reasons for preferring a particular brand include higher margins, better distribution network, on time delivery of goods, better credit facilities and support offered by a particular distributor and on demand availability of goods with the company/distributor.

Hypothesis 1 H0: Retailers give equal consideration to different attributes while selecting a brand for selling

Ha: Retailers do not give equal consideration to different attributes while selecting a brand for selling

Criteria Better Customer Service Better Brand Equity Better Promotion Pricing Factor Others TOTAL 34

O 17 39 19 4 21 100

E 20 20 20 20 20

(O-E)2 9.00 361.00 1.00 256.00 1.00

(O-E)2/E 0.45 18.05 0.05 12.80 0.05 31.40

X2 = 31.40
Degree of Freedom = v = 5-1 = 4

The tabulated value of chi square at 5% level of significance for D.F. 4 = 9.49
2

Since the calculated value of X is greater than the table value, so we reject the null hypothesis and conclude that while selecting a brand for selling, retailers does not give equal considerations to different attributes.

Research has revealed that 43% customers consider product features, types, designs, size, colours etc. while selecting a microwave brand. This is because there is wide variety of microwave ovens available in the market and each customers requirement differs depending upon his needs, family size and the purpose for purchasing a microwave oven. For instance, Cakes can be best cooked only in a convention microwave oven. Also, 33% of dealers/retailers confirm that customers also consider brand equity while purchasing a consumer durable product as “brand is a promise of quality of product”. A reputed brand is perceived to have better customer service . 35

Many customers also consider pricing while selecting a brand. They would consider the various brands available in the market, their features and cost and would select the brand which offers them best value for their money. Usually, a customer which considers price as important factor have a limited means or requires it for gifting purpose, so they prefer microwave which are economical. Other factors include retailers influence over choice decision of customers, availabilty of financing facilities etc.

Our survey reveals that 56% of retailers view LG as the most preferred brand while 22% retailers prefer to sell Samsung. This is due to high brand equity enjoyed by these brands in indian consumer durables market. According to figures available in various publications LG enjoys a 43 % market share in Indian microwave industry followed by Samsung which presently has 17% market share. Also, 16% retailers prefer selling other brands such as Kenstar, Bajaj etc. whereas only 4% and 2% retailers prefer to sell IFB and Onida microwave ovens. Our field survey data reveals that very few dealers/retailers (only 6-7 out of sample of 100 retailers/dealers) are dealing with IFB & Onida microwave ovens which supports the above finding.

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Hypothesis 2 H0: Retailers give equal preference to different brands for shelf space Ha: Retailers do not give equal preference to different brands for shelf space

Criteria LG Samsung IFB Onida Others TOTAL

O 56 22 4 2 16 100

E 20 20 20 20 20

(O-E)2 1296.00 4.00 256.00 324.00 16.00

(O-E)2/E 64.80 0.20 12.80 16.20 0.80 94.80

X2 = 94.80
Degree of Freedom = v = 5-1 = 4

The tabulated value of chi square at 5% level of significance for D.F. 4 = 9.49
2

Since the calculated value of X is greater than the table value, so we reject the null hypothesis and conclude that retailers do not give equal preference to different brands for shelf space.

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Accrding to survey, LG enjoys the highest brand equity in the eyes of retailer. Around 50 % retailers have confirm that LG has high brand equity followed by Samsung which

was confirmed by 34% retailers. Due to high equity enjoyed by these brands in market, most customers perceive these brands as reliable and while buying a microwave oven, these brands are at top in the consideration set of customers.

As per the field survey, other brands such as Kenstar, Panasonic, Bajaj etc. offer better margins to retailers as compared to LG & Samsung. One reason for this could be that in 38

order to build high brand equity, these brands spend considerably on advertisements and brand building promotions, so their total cost tend to be high for the company but due to fierce competition in market and amongst these two brands, prices had to be kept low, so these brands provide low margins to the retailers. Another reason could be that retailers who prefer to sell other brands such as Bajaj, Kenstar etc. are very few and each such retailer prefers a different brand for variety of reasons. Since, each brand has different features and prices and is available on very limted retail stores, so dealers/retailers enjoy some degree of exclusiveness by promoting these brands. Many a times retailers manage to get attractive promotions/schemes and better bargains from these brands and so enjoy better margins selling these brands.

Accrding to field survey, dealers/retailers have ranked LG as the best when it comes to providing service support to its customers and dealers as LG is offering Prompt 2.1.1 service to its customers where LG would call back to customers within 2 hours of registering his complaint, Company’s service engineer would visit the customers place within one day and service the customers microwave oven within the promised slot of 1 hour.

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Dealers ranked Samsung as 2nd best in terms of service delivery but ratings for IFB, Onida & Other brands when it comes to service delivery are very low which shows that despite the fact many retailers prefer these brands due to better margins and various other reasons, the quality of customer service provided by these brands is very low as compared to top brands.

According to survey, LG again tops the ranking by 55% retailers supporting it when it comes to faster stock movement followed by Samsung which was supported by 34% retailers. This is mainly due to high brand equity enjoyed by these brands. Almost all the customers are aware of these two brands and have faith in their quality and service, so it reduces efforts of dealers in persuading/convincing customers.

Also, as per the retailers other brands such as bajaj, kenstar etc. have slow movement, so retailers invest very little in these brands. However better margins in these brands justify their slow movement and extra selling effort involved in promoting these brands.

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According to research, 48% retailers agree that LG microwave ovens are best in quality as compared to 30% retailers who confirm Samsung as the best in quality. In case of IFB around 12% retailers agree that this brand is best in quality which shows that there are some retailers who although perceive IFB as quality brand do not promote it. This might be due to variety of reasons – Low brand equity and low awareness amongst people about IFB microwave ovens, slow stock movement/rotation etc.

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Field survey reveals that 41% retailers agree that LG offers better promotion as compared to other brands, followed by 24% & 23% retailers agreeing Samsung & others brands respectively offering better promotion schemes for its products. This shows that some of LG dealers could be tapped by other brands if they improve their customer support service and brand image and try to enhance awareness level of their brand amongst the customers, so that customer becomes more familiar with brand which improves the stock rotation level of these brands.

According to survey, 43% retailers agree that LG offers best distribution support whereas 28% regards Samsung’s distribution support as best. Around 19% retailers view distribution support of other brands as the best. This shows that not only product and service quality but distribution support also motivates a dealer to prefer a particular brand specially in case of small retailers/dealers who might have sufficient resources or sales volume to facilitate bulk/voluminous trade.

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CHAPTER 6

MAJOR FINDINGS, CONCLUSION, RECOMMENDATIONS, & LIMITATIONS

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Major Findings: Most of the dealers/retailers offer multiple brands in their stores as today customer has become more savvy and likes to make choice between various alternatives available to him. LG & Samsung are two most preferred microwave brands. LG is No.1 microwave brand which enjoys high brand equity and market share and is available with maximum dealers/retailers. Together these both brands have captured more than 60% market share. Retailers/dealers consider a number of factors while selecting a microwave brand which are its brand image, quality, promotion, service, pricing, distribution support etc. However, Most dealers prefer to sell brands with high equity brands despite the fact that they offer lower margins. A retail customer prefers brands with better product features while buying a microwave brands as there are many type of microwaves available in the market and each type cater to different needs of the users. LG enjoys high equity in the minds of customers, so most retailers prefer to promote this brand as it is easier and more convenient to sell a well known brand to customer as compared to newer and lesser known brands. Other brands such as bajaj, panasonic, kenstar etc. follow push strategy and try to provide better margins to dealers as compared to high equity brands. Retailers feel motivated to promote these brands due to high margin available to them. Major brands LG & Samsung realise the importance of customer service in retaining customer, so they are emphasizing on provinding quick and timely service to its customers. Also, retailers prefer brand with better customer support system. Retailers also consider distribution support while selecting a brand for selling because they need credit facilites along timely and adequate supply to 44

retailers/dealers. It also facilitates trade by breaking bulk into smaller lots thereby making it convenient for small retailers to sell without investing too much in maintaing inventories. As LG & Samsung enjoy high brand equity in market, these brands have great impact on minds of indian customer. High awareness amongst the customers has resulted in faster stock movement or stock rotation as compared to other less known microwave brands. LG & Samsung offer better promotion than other brands. They use television as medium to promote their brands whereas other brands such as Kenstar, IFB, Onida etc. focus less on using televison as medium for promoting their brand. So, they mainly use promotional tools such as point of purchase displays, even paying a fee to retailer for obtaining space on their shelf known as “Slotting Fee”. Spending less on traditional media allows these other brands to offer better margins to dealers.

Conclusion: Due to customer becoming more value for money conscious, he wants to have the best deal. So, he/she prefers to choose the best amongst a No. of available alternatives and in order to provide the experience and benefit of choice to customers, No. of multi brand retailers is increasing. These retailers provide shelf space to the brand which contains the different attributes they prefer. Consumer durable companies need to understand these attributes from dealers/retailers point of view, so that they can maximize the No. of dealers and maximize the shelf space available to their brand.

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Recommendations: Awareness level of customers for brands such as IFB, Onida, Bajaj, Kenstar etc. is quite low as compared to LG & Samsung. So, these brands should focus more on creating more customer awareness. It might use exhibitions, cookery classes, outdoor demonstartions, road shows etc. as a means for increasing the awareness of their brands because a brand with better image would enjoy greater acceptance from customers. As a result, the brand will have faster stock movement and low selling effort and may earn more shelf space from dealers/retailers. Other brands can focus on better distribution support as due to larger markets, major brands LG & Samsung have focused less on low volume but good potential retailers/dealers such as small crockery retailers. If other brands provide better distribution support to these outlets, they can increase their volume as well as market share in this niche market. Major brands should also focus on low volume but high potential crockery stores as microwave is a kitchen appliance and now days the decision of purchasing a microwave oven is often initiated by women who are regular visitors to these crockery stores. The repeated exposure of women to the brands displayed in these stores may make these brands a part of consideration set for purchase of microwave oven. Quality of service is an important measure of customer retention & satisfaction , so brands such as IFB, Kenstar etc. should improve the quality of their customer service. This would ensure better customer satisfaction and positive word of mouth along with good brand image.

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Limitations of the Study 1. The sample of retailers is not proportionate to different types (on the basis of volume) of outlets in Ludhiana city. 2. The possibility of respondents being biased cannot be ruled out. 3. The region selected for the survey might not hold good as a representative for the whole of India and hence the survey is location specific.

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BIBLIOGRAPHY

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BIBLIOGRAPHY

References to Articles, Magazines & Journals Borden, N. (1942). The Economic Effects of Advertising, Chicago: Richard D. Irwin. Bregman, R.L., (1995). Integrating marketing, operations, and purchasing to create value. Omega 23, 159–172. Chandon, Pierre, Brian Wansink, and Gilles Laurent (2000), “A Benefit Congruency Framework of Sales Promotion Effectiveness,” Journal of Marketing, 64 (October), 65-81. Corstjens J. and M. Corstjens (1995). The Battle for Mind Space and Shelf Space." Editor J. Wiley & Sons, Chichester, England. Curhan, R.C., (1972). The relationship between shelf space and unit sales in supermarkets. Journal of Marketing Research IX, 406–412. Corstjens, M., Doyle, P., (1981). A model for optimizing retail space allocations. Management Science 27, 822–833. Dreze, Xavier, Stephen J. Hoch and Mary E. Purk, (1994). “Shelf Management and Space Elasticity,” Journal of Retailing, Vol. 70, No. 4, pp. 301326. Greenleaf, E. A., & Lehmann, D. R. (1995). Reasons for substantial delay in consumer decision making. Journal of Consumer Research, 22, 186–199. Hayya, J.C., (1991). Research issues: On inventory. Decision Line 22, 14–16. Kahn, B. E., & Lehmann, D. R. (1991). Modeling choice among assortments. Journal of Retailing, 67, 274–299. Martínez-de-Albéniz, V., & Roels, G. (2007). Competing for Shelf Space. UC Los Angeles: Anderson Graduate School of Management. Rennhoff, Adam D. (2004). “Paying For Shelf Space: An Investigation of Merchandising Allowances” Shaffer, G. (1991), Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices, Rand Journal of Economics, 22: 120-135.

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Simonson, Itamar (1999), "The Effect of Product Assortment on Buyer Preferences," Journal of Retailing, 75 (3), 347-70.

References to Websites:-

http://ideas.repec.org/p/ags/uconnr/25155.html http://www.business-standard.com/india/news/samsung-eyes-30-share-indomestic-microwave-oven-market/87219/on http://in.news.yahoo.com/32/20100305/1056/tnl-microwave-makers-bakea-growth-strat.html http://ideas.repec.org/p/ags/uconnr/25155.html http://proquest.umi.com/pqdweb?index=0&did=1135856&SrchMode=1&si d=4&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&T S=1271384433&clientId=129893 http://www.ehow.com/how_5753322_buy-shelf-space-retail-food.html http://www.netmba.com/marketing/brand/equity/

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APPENDIX

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Appendix Questionnaire

Dear Sir/Madam We are doing a brief survey to find out more about “Retailer/Dealers Behavior towards Choice of Microwave Brands for Shelf Space”. We would be very grateful if you could spare a few minute to participate in it. Thank you for your cooperation.

Which microwave brands do you sell currently/presently? ▭LG ▭IFB ▭Samsung ▭Onida

▭Others, Specify ……………………

Why do you sell/promote the above mentioned brand? [Rate 1 - Most Preferred and 5- Least Preferred] ▭Better Customer Service ▭Pricing Factor ▭Brand Equity ▭Better Promotion

▭ Others, Specify …………………

What are the most important attributes which a customer considers while purchasing a microwave? ▭Pricing ▭Brand Equity ▭Product Features

▭ Others, Specify ………………… Rate the following brands in order of your preference for shelf space? [Rate 1 - Most Preferred and 5- Least Preferred] ▭LG ▭IFB ▭Samsung ▭Others ▭Onida

If you were to choose between brands you currently sell for delisting, which brand would you like to delist & why? __________________________________________________________________ __________________________________________________________________ 52

Rank the following brands on basis of various attributes? [Rank from 1 to 5]

Attributes\ Brands Margins Customer Support Distribution Promotion Quality Stock Movement Brand Equity LG Samsung Onida IFB Others

Dealer Information

Name of Retailer/Dealer

_______________________________________________

Address

________________________________________________

________________________________________________

What is your average monthly sale of Microwave Ovens? ________________________________________________

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