Low-cost peg loses its appeal

Some brands are distancing themselves from their low-cost origins in various ways, while others continue

The latest marketing campaign of Kishore Biyani-led hypermarket Big Bazaar says 'Making India Beautiful'. The same retailer which had its first tagline as 'Isse Sasta or Accha Kahin Nahin' (you don't get anything cheaper or better elsewhere) is spending no less than Rs 100 crore on a campaign that underlines not low cost but fashion. Big Bazaar is the latest in brands that have changed lanes from overt low-cost promises to something more aspirational.

Brands such as Tata Nano, IndiGo too have modified their promise. Indigenous handset makers like Micromax have gradually shifted from price-deals to phone features.

India's many consumers segments are moving upwards in aspirations. But across the segments, cost sensitivity remains intact, affecting both B2C and B2B businesses. However, brands are increasingly ditching the peg of low-cost. Some, though, have stuck to their guns such as the modern retailer in the west, D-Mart and telecom operator Uninor in limited circles.

• Big Bazaar is underlining fashion rather than pricing
• The Tata Nano has been repositioned as a city car, not as the cheapest  
• IndiGo has stood for punctual services for years
• D Mart is known to offer 6% less than neighbourhood competition
• Uninor unabashedly says it is ‘sabse sasta’ in both its basic and Internet service

Low-cost a drag?
"One has to be smart about the branding and not hang one's hat on the price advantage. If a brand has nothing to talk about but low price, then there is no other experience for the consumer to find as special. There should be other things such as delivery, after-sales," says Lulu Raghavan, MD of Landor Associates in India.

"Low cost does not mean low quality," is something Aditya Ghosh, president, IndiGo, has been heard saying repeatedly. IndiGo had started off as one of the many low-cost airlines. But today, its branding and recall are not so much about how low its ticket prices are but its on-time performance. At a recent forum, Ghosh had said, "Market share does not put food on table. A simple way of increasing market share is by dropping fares by Rs 500. All of India will be flying tomorrow and there will be one less airline in the next three months…My challenge is to be consistent with our goals - on time performance and to have least number of flight cancellations."

Raghavan points out that the e-commerce sites have fallen into the trap of low-cost positioning that has made consumers search for the best deal rather than stick with one site.

By its own admission, the 160-store Big Bazaar, one of the oldest organised retailers, has moved ahead to be in tune with shoppers' changing needs. Big Bazaar refurbished its stores to include more cash tills, wider isles, a bakery and mini grain mills. "We have got rid of unviable stores and rebooted existing ones to make those more relevant to customers," Future Group CEO Kishore Biyani had said earlier.

"Good experience pushes up brand equity and bad experience brings it down. If Big Bazaar has increased shopping experience," says Nabankur Gupta, Founder CEO, Nobby Brand Architects & Strategic Marketing Consultants. Gupta also believes that Big Bazaar has taken a cue from Mukesh Ambani's Reliance Fresh which has redone stores to improve customer experience.

Madhukar Sabnavis, vice-chairman and country head, discovery and planning, Ogilvy & Mather India says, "Brands cannot trade off imagery and quality for their low-cost positioning." The aspirations of the consumer, who might not want to be associated with a low-cost brand has plagued Tata Nano, which had been billed as the cheapest car in the world. Ratan Tata, chairman emeritus of the Tata group, had earlier admitted that it was unfortunate that Nano got termed as the cheapest car. Nano's affordable price tag (less than half of that of its nearest rival, Maruti 800) made it undesirable to customers looking to upgrade from two-wheelers.

Another Tata business, which started as low-cost, Tata Housing, has since hived off its value arm as another brand - Tata Value Homes - while Tata Housing would pursue premium housing. "With low-cost, you need to still attract aspirations. Indigo and Big Bazaar have done it, and we are doing it," says Pawan Sarda, head of marketing, Tata Value Homes. Its property in Chennai has a Mediterranean theme, from Rs 25 lakh upwards.

Strings pulled backstage
"In order to offer low cost to customers, operations need to be extremely tight, with no flab. Doing it profitably is the challenge. Wal-mart when promising lowest prices of the day is able to stick with it because of its scale and negotiation power," says Raghavan. Sabnavis says, "Only if the supply chain is in place, would low-cost positioning work. One cannot hope for just volumes with low-cost, hoping for efficiency later on."

IndiGo has been known to stick to a tight operation, spending more revenue-earning time on air than the industry average.

The case not yet lost
"The relevance of being low cost is still valid going by what we hear from clients both in B2C and B2B businesses. Indian consumers are the most price-conscious, that has stumped a lot of foreign companies," says Raghavan.

Mumbai-based retailer, D Mart, owned by stock-market maven R K Damani, has a vision statement that says: "…best value than anybody else". Competitors say its strategy is to price its items 6-7 per cent lower than others in any neighbourhood.

"Value does not mean selling cheap, substandard products. Everybody like a bargain," says Neville Noronha, chief executive, D Mart. Noronha insists: "We are delivering value, yet making our margins".

D Mart, which posted a sales of Rs 3,350 crore last year from over 70 stores, adds no-frills stores and pays vendors early to reduce costs and increase margins, respectively. Sanjay Badhe, former head of marketing at Aditya Birla Retail and an independent retail analyst, says that while Big Bazaar sells more of private labels and general merchandise with higher margins, D Mart "makes money on volumes by selling more FMCG products."

Uninor, the Delhi-based telecom operator has made its business in all its six circles profitable by being 'sabse sasta' (the cheapest) in basic, and now, internet services. It is also known to have a sassy distribution, reaching auto-rickshaws and horse-carts in rural markets and high efficiency (an operating model that costs 30 per cent less than peers).

Even Big Bazaar and Indigo have not completely abandoned their low-cost vestiges. Indigo still has a no-frills service, rather than a full-service model, on the world's current best-selling single-aisle aircraft (Airbus A320). Officials at Big Bazaar maintain that the pricing would remain competitive.

It could be that a smaller scale, such as that of D Mart and Uninor, helps be just low-cost, while larger players need to offer something else as the peg.