Business, Marketing, Technology

Mobile phone buyers in India – 2010 and beyond (Part 2)

(Last time, I wrote about the qualitative classification of Mobile phone buyers in India. This is a continuation of that post. )

Million households
Firstly, to give numbers to the last time’s classification – NCAER numbers of 2006 are as given in the chart above. The survey takes into account data for 209 mn households.

In the IPL, we have some interesting brandings happening already. Have you noticed the number of telecom companies + mobile phone companies advertising during the 45 day cricket extravaganza? I can count – Karbonn mobile, Micromax, Videocon, Nokia, Airtel, Vodafone, Idea, Reliance, Tata Docomo, Max mobile, Samsung, LG – basically the entire industry is present here in some or the other manner. That explains the mad scramble to get to the Indian eyeballs and grabbing some amount of market share.

So, where is this industry going ahead? If I were to identify top 3 potential game-changers in 2010, these (or a combination of these) would be my answers.

1. The mobile operator – As mobile phone buyers become more versatile and know what to expect from a mobile phone, they will make more and more informed choices- particularly, those in the Climbers class and above. In this context, the role of the operator will become increasingly important. For an aware mobile phone buyer, an attractive mobile phone package can act as an effective deterrent to the lure of the prepaid connection. That phone manufacturer+ operator combination which can crack this code the quickest will have some kind of first mover advantage in this aspect of the market.

2. Promotions – As the cost-feature mismatch between manufacturers reduces, Promotions and top-of-mind recall will be a differentiator in a major way. The huge ad-spends during IPL by every major mobile manufacturer indicate just that. Expect the bollywood and cricketing fraternity coming to your newspapers, TV screens, FM channels, roadside hoardings a lot more during the remaining quarters of 2010. Here’s another Zoozoo ad from the 2010 campaign. ( We had so many posts on the Zoozoo campaign on Strat.in last year – here’s one by Shubham )

3. 3G technology – when and if it happens! – This TOI article states that 3G auctions in India may happen in April 2010. I have been hearing about these dates for the past 18 months now, and would comment on these only when the auctions truly take place.

At the risk of digressing from the topic, I wish to quote Mr. Shyam Ponappa in an article about Spectrum management written during the budget week

India’s spectrum allocation is burdened with short-term revenue collection for the government, and a shortage mentality. There is apparently insufficient clarity on spectrum usage for ubiquitous broadband/telephony as in other countries, let alone more ambitious targets, such as developing an Indian standard.

Our policies could address the requirement for enhanced coverage/capacity at low cost to make services available everywhere at reasonable prices. Innovative approaches to spectrum management could help get these, through:

Technology-neutrality: the UK and Norway have not restricted the use of recently auctioned spectrum to any technology.

In the context of the mobile phone buyer, the 3G auction can lead to considerable changes in the buyer mindset. If the auctions of through, there can be significant shifts in the buying patterns of the feature conscious mobile buyers , particularly in the later part of the year. The auction can also be the trigger for the emergence of Apple and Android based phones to enter the Indian market in a big way.

To round it up, the market is a huge opportunity right now- the new entrants and the super-aggressive promotions happening all around are testimony to the above statement. 2010 may well be an year where (a) fragmentation can come into the market (b) mobile-buyers will increasingly become feature conscious (c) growth will come through the second time buyer.

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Business, Entrepreneurship, Finance, Strategy

About Porsche and Volkswagen

Europe’s biggest carmaker, Volkswagen, will soon takeover Porsche after the Porsche CEO, Wendelin Wiedeking, resigned from his position on Thursday. The takeover deal is supposed to be worth $11.3 Billion.

The surprising aspect in this deal is that for the past few years, it was Porsche who was steadily and strongly increasing its efforts to takeover Volkswagen even with Volkswagen being 16 times the size of Porsche.

images4Before the current mess that Porsche has ended in, the outgoing CEO, Wiedeking, was responsible for turning around Porsche’s fortunes and making it one of the most profitable automobile companies in the world. Wiedeking joined Porsche in 1983 and became its CEO in 1993. At that time Porsche was nearly bankrupt. However, Wiedeking through his business skills made the company immensely profitable. His aim was to merge VW and Porsche into a single giant automaker.

Slowly Wendelin Wiedeking and Porsche CFO Holger Härter started buying up VW stake. Around mid 2007, Porsche raised its stake in Volkswagen past 30%. According to the German law this necessitated that Porsche submit a bid to buy Volkswagen. The offer made was a bare minimum then and was rejected by Volkswagen anyway.

About a year later, Porsche raised its stake in Volkswagen from 31 percent to more than 50 percent. All the time the imagesvw1Porsche CEO and the CFO used sophisticated options-trading strategy. By late 2008, Porsche secretly raised its stake in VW to 75%. The hedge funds were however betting that the prize of VW shares would go down. When it was announced that the amount of VW shares bought by Porsche was as high as almost 75% of the total, the VW shares rallied to huge values, rising by up to 400%. For a brief period VW became the biggest company in the world by market value. Porsche ended up making huge profits while those who bet on the shares going down made immense losses.

However in the end, Porsche also amassed a debt of €10 billion ($14 billion) in its efforts to buy out Volkswagen. Under normal circumstances, Porsche would have no trouble financing that debt with all the profits it had made in hedge funds. However the credit crisis ruined Mr. Wiedeking’s plans. With the German government refusing to help, Wiedeking also tried to make a deal with a government owned company from Qatar for the much needed cash, but failed to reach any deal.

In this scene of crisis, Ferdinand Piëch, the head of Volkswagen, used the opportunity to turn the tables on Porsche and acquire the company. Pietch also wanted Mr. Wiedeking and Mr. Härter out before a final deal was settled. According to him the men were responsible for Porsche’s present financial position. VW’s labor unions also did not want the Porsche management, with Wiedeking being known as a pretty strict manager.

Now that Mr. Wiedking is out, Volkswagen will purchase a 49.9 percent stake in Porsche and at a later date acquire the rest. The Volkswagen group will now have 10 brands under it — Volkswagen, Lamborghini, Skoda, Bentley, Bugatti, Audi, Scania, Seat and Volkswagen Commercial Vehicles. With the merger, VW will raise the necessary money to pay off all the debts that Porsche had incurred over the past few years in its takeover hunt, but which ended with the hunter itself becoming the prey.

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Marketing, Strategy

Why Every Market Needs a Tight SLAP !!!

This is Shantan’s third post on strat.in . His earlier two posts have been extremely well received – Leader v/s thought leader; Federer at French open . He has now joined Strat. In team now, after contacting us from the Write a Post section.

In 2005, in my final year of undergrad, I embarked on an entrepreneurial venture with two of my college buddies. We were not too successful. It lasted a brief time. But some of the marketing and business lessons learned there…have stayed on.

One of them is what i call the SLAP theory!

I coined this acronym back then in 2005, when one of my cousins read about my work and called me up to learn more about what i was doing.

I tried to explain to her what our software application would do. Her next question to me was “So how will you make money? Will you start selling it now?” I instinctively replied to her a couple of lines which then went onto a long conversation, and finally got embossed in my head forever (and perhaps her head too!!) I told her that the software application we were building was not yet fully ready. It was just a prototype. She asked me what i meant when I said “ready” considering that so many students and folks had seen the product in our demo at the exhibition. I replied that, “ready” meant that when someone sees your product, they should readily purchase it.
They should see it, get interested. look at it and then immediately purchase it. There shouldn’t be any room for doubt in the minds of the customer.

Over the phone, I reiterated the words to her…See, Look, And Purchase………and hit upon the acronym SLAP. And I delivered the trademark killer marketing punch of my one-liners (one of my other favorite hobbies) by saying “when you build a product, it should SLAP the market!”

ooohhhhhhh!!!

That was like gold standard for my cousin. She liked the line.

And i was still wondering how i came up with SLAP!

Over the last few years, I have internalized this theory into the way i look at products, or contribute to building them. This cousin of mine keeps reminding me of it now and then…”so did you SLAP the market now????” hehe….

What exactly is SLAP theory?

Build a product..well not necessarily a product. it could even be a project..a service……it could be a book. it could be a TV show.It could be a music album. It could be anything that any of us do..But when we do it….it should be of such high quality that it just SLAPs the market away!!!

Customers should SEE the product or service:

This is important. Many great ideas don’t succeed because they are not branded well. They dont catch the eye of the customer. They just get launched. And keep groping in the darkness with a miserly market share. A great example would be Microsoft’s Zune player. They created some buzz but that was because it was Microsoft. I am not too sure if customers would have been able to spot the player if it was not Microsoft’s. Well there are better examples..there is a dollar store here in the USA where you get granola bars for just 25 cents. They are awesome quality and very good for health. But u know what? they are stacked up in one of the remotest corners of the store. No-one can possibly see them. Thats why when I showed some friends during lunch, they were like “oh gosh!! how come you spotted that”.

Customers should be LOOK at the product/service:

There are two clauses here: One, customers should be compelled to pick up the product and look at it. Ever been to Crossword, the book store? There are so many variety of books there. But I hardly get compelled to pick up the books though i know they are good ones. Well perhaps its a personal taste. Even in retail stores….there are some really exciting stuff out there. but somehow…I just don’t have the patience to check it out.

The other clause is: customers should be able to actually look at the product. This brings into scope the need for usability and convenience. Customers can be put off if they don’t “get it” when they are looking at your product and trying to understand it. Look at the ipod. There is just no way you “can’t” get it. You have to! Its so easy and convenient to use. User experience and convenience is such an important aspect. Windows Vista lost this battle….but Win7 promises to be a class apart.

If you have customers, seeing ur product, and then picking it up to look at it, you better make sure that they “get it” in the first 5 seconds of them picking up your product.

It could be any product: retail foods, groceries, electronics, books. software, cars…u name it. Not just a product..it could also be a service: choosing ur local bank, paying telephone bills, a new identification system being implemented in the office….every service needs to get a buy-in from you, the customer. You are the king!

AND
Nobel laureates in literature call this a conjunction. And is important to the look and feel of the SLAP theory. You have got to pat me on the back for this!

Customers just HAVE TO PURCHASE it now:

When your product catches the eye of the customer, and then engages him into exploring it, you better hit the nail and get him/her to buy it! Many times I check out a product and then after marvelling it for a while I keep it back on the shelf saying “Great stuff!” and go to the next shelf. Or we end up saying “hmmm..looks awesome..should buy this soon” and keep the product back where it was! Gosh! The product lost the battle there!!!!

To explain this better, take the classic case of the ipod and all of Apple’s products that came out after that. When people saw the ipod, they just couldnt resist it. This explains why the iPhone 3GS hit a sale of 1 million in just 10 days of its launch! People cant resist it. they just want it! Build a product or service like that, and you ll make millions!!

Another aspect of this is the pricing itself. If the price is way too high, then even the most loyal customer might not buy your product. Reason: he just doesnt have the money!! So the price should be competitive. good enough to make your margins. but equally good enough to get your customers to buying it…..buying it immediately!!!!

So the next time you have a great idea to create something, make sure you “SLAP the market!!!!

Shantan

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Business, Entrepreneurship, Finance, Marketing

Runup to Budget 2009: Stock market and Mango man (aam aadmi)

This is a strat.in ‘Runup to the Budget 2009’ series. Every day from now, till Monday, readers can find a finance related article uploaded at 5 pm IST . The articles will be unconventional, innovative and present a refreshing perspective. This is the first article in that series: With this article, we also welcome our new strater who wrote to us on the Write a post page, Amit Namjoshi, from Pune university. He is currently a Design Architect at Tech Mahindra.

economist_m‘An Economist’ according to a popular joke ‘is a trained professional paid to guess wrongly about the economy’. Of course this joke wouldn’t be funny hadn’t there been an element of truth in that statement! So should Mango Man (Aam Admi) rely on the predications by the Stock Pundits and Economist? In 1993 the OEDC or the Organisation for Economic development & co-operation analysed forecasts made between 1987 and 1992. Their conclusion- predictions were abysmally inaccurate so much so that they would have done a better job at prediction for inflation and gross domestic product had they simply guessed that the numbers in each year would be unchanged from last!

common_manFor Mango man (common man) yes that’s me; it is essential to understand the fundamentals of Economics before I go any further! A first step- begins with one of the core idea in economics known as the ‘Efficient Market Hypothesis’ (EMH). According to EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

In this conventional view economy is like a bath of water. At a microscopic level the individual atoms / molecules are constantly active a sight of chaotic movement. However at the surface for the commoner all of it seems to be calm where the water is still, in a state of equilibrium. Tilt the bath to the right and the water molecules will adjust their position to seek equilibrium. In terms of economy we relate that to, lowering of interest rates resulting in rise in borrowing and spending. This in turn stimulates the economy; which will quickly settle in at a new equilibrium. Therefore by this conventional view it should be impossible to outperform the overall market through expert stock selection. But there is a catch; no amount of equilibrium can explain the crash of the stock exchange of 1929 or the infamous black Monday of October 1987. Mathematical research in the past 2 decades proves this point. The 90’s saw researchers use computers to take an in depth look at these fluctuations. Gene Stanley from the Boston University investigated the fluctuations in the famous standard & poor’s 500 index (share prices of 500 large corporations of the NYSE). The study considered data from 1984 to 1996, Stanley and his team came to the conclusion that price change becomes about 16 times less likely each time you double the size.

So can we devise a pattern that can fit these fluctuations? Perhaps we can. The Power law pattern– in algebra it is any curve for which the height changes in proportion to the horizontal distance height = (distance)2. A few examples of power laws are the Gutenberg-Richter law for earthquake sizes (the Richter scale that logs the magnitude of an Earthquake), Pareto’s law of income distribution and scaling laws in biological systems (miniature models that are scaled down). To make it easy in the context of an example lets look at earthquakes. If there are two types of earthquakes type A and type B the law simply shows if type A earthquake releases twice the energy of type B, then Type A earthquake will happen 6 times less frequently. In the case of economic data studies by Stanly and team though the numbers don’t seem to add up the geometric pattern certainly does. The power law implies that there is no such thing as a typical fluctuation and therefore the large up and down swings are not at all unusual. What about volatility (calm and spike on a graph) in the market? Stanley and team found out that the market is far calmer at sometimes then others and if we look at fluctuations in volatility even that varies to a wide degree. To put in other words even volatility is volatile!

So when equilibrium seems to be the order of the world (remember the water bath) then the wild fluctuations fly in the face of efficient market hypothesis. Why is it that the orthodox economic theory falls flat when fluctuations should be more like the bell curve (as stated by Bachelier in 1900 a bell curve is a graph that looks like a bell)? But that is clearly not the case.

So what then are the causes of this mystery? For one market involves people; perhaps that has something to do with this phenomenon. Economist Thomas Lux in 1999 invented a game of stock exchange with only one kind of stock and three kind of brokers- pessimist( believing the market prices will fall), the optimist (believing the market prices will go up) and the fundamentalists (traders who stick to buying undervalued stock and sell over valued ones). However the game had one key aspect people; they can affect one another. Since humans can influence one another the division of traders was not fixed a pessimist could be influenced to be an optimist at times or the fundamentalist might just take pessimistic view of the stock on view of the strong trends as they are also highly influenced by meme (meme consists of any idea or behavior that can pass from one person to another by learning or imitation). The result – measuring the stats of the fluctuations Lux found them to match the ‘real thing’, a power law revealing a great susceptibility to fluctuations.

10978-royalty-free-clipart-illustration-of-orange-businessman-putting-a-dollar-sign-puzzle-togetherWhat does this mean for the average investor? Despite the confident predictions of the bulls and bears of the market, mathematical analysis and their indications, the existence so called ‘trends’ in the market in spite of all of this there is simply no way to predict any stock market. The power law for price fluctuations indicates that even the rough magnitude of fluctuations is unforeseeable. In a market organized to the Critical point (a critical point specifies the conditions at which a phase boundary ceases to exist. Water becomes vapor at 100 degrees Celsius is an example of its critical point) even the stock market crashes are ordinary though we should expect them infrequently. We have seen financial markets are wild at heart because opinions expectations, greed, pessimism, optimism of one investor can affect those of the other.

So what can we make of this, is there any way in which we can truly predict the market? And what if anything can the governments and governing agencies do get us as close to the world of accurate predictions? More importantly the world is now much more of a ‘global economy’. And therefore the current crisis brewing in one economic power house ‘United States’ entail a story of a global recession. Every day I wake up to the news of predictions from the who’s who of the stock market, the pundits of economics about the possible recovery however now I perceive them with a lot more skepticism and I realise I am passing a meme to you as well!

….. Mango Man (Aam Admi)

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Business, Finance, Planning, Strategy

Antitrust Laws in the wake of Intel Fine

Reading about the recent fine of $1.45 billion imposed on Intel by the European Union on TechCrunch, various thoughts came to my mind regarding the strategy of Intel. Intel is the most successful chip manufacturer in the world and it has maintained is dominance over the years. The giant must have taken many steps in this regard to keep its competitors (read AMD) behind.

Quoting from Wikipedia the competitive law or antitrust law has 3 main elements

  • prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels.
  • banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others.
  • supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing.

It has been claimed that Intel paid computer manufacturers  like Acer, Dell, HP, Lenovo and various retailers to postpone, cancel or downright avoid using AMD. By doing so it ofcourse broke the first prohibited practice on the list. Moreover it caused a lot of damage to AMD. I can’t imagine how AMD has managed to survive through such a hostile environment where no one is willing to buy your product, or with companies buying and then cancelling their orders later. AMD must be given due credit for it.

According to TechCrunch, the worldover commission for x86 CPU chip is worth Euro 22 billion per year, and worth Euro 6.6 billion per year in Europe itself. Intel controls 80% of this which means they make Euro 5.28 billion per year by selling x86 CPU chips in European Union. I believe a lot of credit must go to Intel chip technology for this but a sizable credit should also go to the strategy of manhandling their rivals like AMD. Lets give 30% credit to the prohibitive strategies and this gives us Euro 1.58 billion per year owing to the “wrong” policies of Intel that harm the industry and break the antitrust laws.

Lets try to analyze! According to the courts, Intel has been breaking the antitrust laws since many many years and has maintained an unlawful monopoly over the CPU chip market. Through this they have made billions and AMD has lost billions (Intel made Euro 1.58 billion per year according to above estimates). For breaking the rules the court have fined Intel Euro 1 billion! Yes, you read it correctly, Euro 1 billion of fine on Intel. But that means Intel will still make a profit after paying the fine even this year. So following wrong strategies and breaking competitive and antitrust laws seems profitable according to this. May be I have got it wrong but if the courts are sure than what Intel is doing is wrong then they definitely need to re-analyze the situation.

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