Value vs Volumes

asks industry veterans

B S Nagesh
Managing Director & CEO, Shoppers' Stop

"Chase wallet share, not wardrobe share"

In a land of opportunity and rapid growth, there is opportunity for one to get into every segment of the business, from class to mass and from prestige to mass-tige. Once the penetration of modern and organised retail reaches around 20 per cent in each of the catchments, customers will start making choices and show loyalty to products, brands and retailers.

In order to ensure long-term sustenance, one needs to be focused on the segment, whether it is product positioning or customer segmentation.

Although there is a lot of opportunity at the bottom of the pyramid, I would suggest looking at the top 20 per cent of the Indian market where there is maximum opportunity.

The consumer's income is growing rapidly in this segment and he/she is willing to spend to meet her aspirations, which are not local anymore but global. In such a situation the brand has to take a call between wallet shares versus wardrobe share.

We as retailers believe once the segmentation is clear, it is important to chase wallet share, keeping wardrobe share in control.

Marketers make money on the basis of value of sale achieved, compared to core manufacturers who make money ensuring factories are running to capacity. When you are chasing consumers' wallets, you are moving up the ladder with your focused consumer segment and, therefore, profitability is ensured.

In retail, where profitability comes from productivity of the space (hangers for garments), brands catering to the top 20 cities should chase value because the same hanger can hold either a Rs 1,000 garment or a Rs 200 garment. Brands that have sustenance power should look at the volume game.

In both cases, the brand-building exercise has become expensive; so, having deeper pockets to build and manage brands suggests playing the mid- to high-end value game, rather than chasing numbers.

Last, we are all in a boom cycle and, therefore, all scenarios businesses create are bullish. But when you create a bearish scenario, you realise that customers at the higher end can sustain recessionary situations more than those at the lower end.

If I had to enter the Indian market now, I would start with a few regions and cater to the middle and higher income groups and try capturing share of the wallet and mind, rather than volume share.

Hemant Sachdeva
Corporate Director, marketing, Bharti Enterprises

"Growing companies drive volumes to achieve economies of scale"

There is no single universal truth for the marketshare debate. But in the Indian context, consider some facts first. It is the world's largest untapped market place.

A middle class population of 350 million, a youth population of over 600 million, small and medium enterprises population of 6.7 million and so forth. These are large numbers. (Forget focusing on just the bottom of the classical pyramid; these are individual, large pyramids by themselves.) The conclusion from these numbers is obvious: India is a mass, high volumes market.

The Indian market offers a unique option to drive volumes, but only if it delivers value to stakeholders. But, can an organisation build value and sustainable leadership by playing a pure volumes or value game? Organisations of the future will need to dominate each segment of the market. Each segment will be a significant driver of value.

In the growth phase of a company, you may drive volumes to achieve economies of scale, but sustainable leadership is about driving volumes and marketshare only if it delivers value. This can be achieved with a five-pronged approach.

Build and deliver an enduring brand: It must have the ability to stretch across segments, building relationships at every touch point.

Build an efficient cost model: An efficient cost model delivers more for consumers and stakeholders.

Innovate and deliver experiences: Excite and surprise beyond the functional. Innovation can be a huge volume driver by itself (in addition to the obvious value it is driving).

Drive affordability: Affordability is not only about making products and services cheaper. It is about giving consumers the comfort to buy and consume more. It is about delivering true freedom.

Make people, process and technology enable change: Man, machine and manner need to move seamlessly and relentlessly to consistently deliver growth.

India's size and economic growth will deliver unique opportunities to organisations and consumers: it is a mass, high-volumes market, so scale needs to kick in. But the emphasis must remain on connecting millions across cities, towns and villages to inherent goodness, inherent value "" one that passes the test of time and lives beyond our lives.

Neeraj Chandra
Vice President, sales, marketing and innovation,
Britannia Industries Ltd

"You will not be doing justice to your corporate goals or society at large if your brand does not earn profits"

Business decisions such as the high profitability/low volume or vice versa conundrum are a frequent challenge, but do not really fit into a classic either/or framework.

Essentially, companies determine choices to maximise the quantum of absolute profits generated, subject to a predetermined threshold return on resources. Importantly, the key driver is not profitability measured as a ratio (say, as a percentage of sales).

Of course, profits and share of market are linked inextricably: even a seemingly niche business actually has a high share in the consumers' definition of the "market", which is essential for its profitability.

On another plane, a large-volume business that does not generate profits does not have a right to be in that market. Losses may be acceptable in the short term, but in the long term, you will not be doing justice to your corporate goals or to society at large if your brand does not earn.

A company may be right in driving for franchise and trading off against profits in some short-term situations, such as entry strategies where the cost of entry may be a lower return in the bid to build franchise in the market.

A brand may be willing to forego some profit as a competitive rebuttal or it may even be building a strategic advantage by becoming a loss leader. But these are exceptions. The business of a brand is to seek a higher level of absolute profit, with a threshold return on resources employed. Otherwise, it has no business to exist.

Shripad Nadkarni
Director, Market-Gate Consulting

"A sound business approach always demands an unequivocal response: both!"

This is one of those questions where the right answer is: both! In real life the choice is never purely between volume and value share; it is between volume share alone or a combination of volume and value.  However, there could be business realities and specific situations at certain points in time where tracking one of these "" volume or value share "" becomes relatively more important.  The first case depends on the choice of competitive strategy adopted by the organisation. A cost leadership strategy would dictate the need to maximise volume throughput as the singular driver in retaining the strategic competitive advantage in cost.  In such a case the emphasis is usually be on measuring volume market share as the leading indicator of performance. If, however, the competitive strength emerges from a differentiated proposition, for which the consumer is willing to pay a significant premium, value market share, becomes a critical metric.  The second case pertains to the kind of categories the company operates in. Organisations playing in the continuum from mass to mass premium usually track volume market share with missionary zeal.  Take the case of the four player two-wheeler industry. Given the broad price parity in the "entry level" and "executive" segments, the need to push volumes to absorb the high capital investment becomes paramount.  The outcome: highly visible competitive intensity, chest thumping on monthly units sold and a relentless focus on volume shares. An interesting sidelight is the reported intent of Bajaj Auto to change strategy and focus on high-end bikes "" how this eventually pans out remains to be seen.  At the other end of the spectrum are companies in the luxury and super luxury space where price points touch stratospheric levels. The need to maximise realisation per unit sold results in value share assuming disproportionate significance.  Category penetration also determines choice of metric: low penetrated categories would seek to reach a threshold volume base before focusing on value.  A third scenario depends on the business philosophy of individual organisations. There are "volume obsessed" companies where the "language" is one of tonnes, kilolitres or cases.  Very often mangers find it difficult to recall rupee value sales, let alone value share! The contra organisation is quintessentially value- and realisation-driven. I remember a senior manger in this kind of company remark that since salaries were not paid in "tonnes of product", the only metric needed was rupee sales and value share!  Market share or profit? Short term or long term? Analysis or instinct? Volume share or value share? A sound business approach always demands an unequivocal response: both! Relative emphasis may vary as a short-term response to business exigencies. In the ultimate analysis, "balance" is the essence of sustained success.  

Ravinder Zutshi
Deputy Managing Director, Samsung India

"The quest for value marketshare cannot succeed without achieving significant volumes"

The basic principle on which business works is profitability and therein lies the significance of marketshare in terms of value. The aim of all companies is to grow their marketshare and unless this growth is profitable, it is not sustainable.  However , this quest for value marketshare growth cannot succeed without achieving significant volumes. Thus, a company has to decide when it will chase volumes and the cost at which it will seek marketshare. Consider a company that wants a high share of the market in value terms and plans to achieve that by selling products at a premium, based on innovative, value-added features.  Now compare it with another company, which wants to sell huge quantities by cutting prices and, to have business sustainability, starts compromising on quality and features. The first company can sustain its marketshare with an optimum mix of mass-market and high-end products, while the other, in its quest for numbers, will sell mostly mass-market.  I believe the first company's approach will lead to its premium brand image being enhanced and will ensure a sustainable, profitable growth for it. Company II, on the other hand, because it is fighting in the market based on price and volumes, will have little scope for innovation, either in terms of the product or in terms of marketing. Company II's strategy is self-defeating in the long run because a company cannot survive on mere numbers; it needs scope for innovation.  A word of caution here. In the quest for value marketshare, companies must remember that no brand can afford either to be outpriced from the market or to sell only high-end products unless the market is ready.  Consider the Indian TV market. If Samsung were to try sustaining its share of the market (in value terms) by selling only 29" and larger televisions, the strategy would fail on two counts: one, 29" and larger TVs account for just 8-10 per cent of the total colour television market and two, the company's equity and acceptance with its channel partners and customers will be disturbed if it does not offer a range of products.  The most important lesson is that you can derive best share of value only by giving the best value products to customers. If you can get this equation right, you will get marketshare not only in terms of volume but, even better, in value terms.