CASE OF "RHINO" ALMIRAHS On an otherwise fine day of December 1982, Mr. P.

Basu, 48, promoter of a Small scale Industrial unit manufacturing steel almirahs was staring at forty gleaming almirahs lying in his factory shed about 20 km away from Calcutta and felt like crying aloud in agony. Since June 1973, when his unit was established, he had sold only 15 almirahs. Mr. Basu carries a debt burden of Rs.9 lakhs. The bank is practically unwilling to release funds for continuing production till these forty almirahs are sold. Mr. Basu does not know how to pay wages to 19 workers of the factory tomorrow, as he does not know how he would feed his family. Quality of those almirahs are not poor. In fact, to any knowledgeable buyer their quality would seem as good as Godrej's or Steelage's - the two premier brands in Calcutta. Their colours are perhaps even more attractive than reputed brands, their fittings and interior designs offer more than five alternatives to suit the uses of housewives and yet the price is lower by Rs.400-500 than the reputed brands. Mr. Basu, AMIE, started his manufacturing unit in 1975 leaving his job in the R&D section of a defence factory, near Calcutta. Research minded, as he always was, he reasoned that if almirahs can be made of quality equivalent or close to that of Godrej and Steelage but at a lower price, why would people not go for them? This reasoning appeared fairly straight to a leading public sector bank that sanctioned a term loan of Rs.0.70 lakh for plant and machinery and, Rs.0.60 lakh for expenses and Rs.0.50 lakh for working capital needs. He set up a 3,000 sq. ft. factory shed on rented land. As the first 5 almirahs came out of the factory in 1976, their quality showed a close resemblance to that of Godrej. Mr. Basu attributed to his superior method of production with: i. ii. iii. iv. v. Use of flat bending machine for uniform bending of steel sheets. Spot welding machine to join the sheets as is done in Godrej. Pickling and Phosphating as the chemical treatments for preventing rust on sheets. Stove painting, instead of spray painting, for superior paint quality. Use of better quality paints and sheets.

There were scores of small scale industrial units making steel almirahs specially located in Ultadanga and Bagmari areas of North Calcutta. But, none had the above facilities nor were they aware of the know-how and interested in making quality products. Basu's almirahs, however, had one disadvantage. Labour cost per unit of almirah was high as man-hours required to produce one almirah was more than double than in any other Ultadanga type almirah. Factory overhead cost was also high due to investment in the above mentioned facilities. Basu felt that both labour and factory overhead cost could be reduced with increase in the scale of operation.

What shocked Basu was that no dealer was interested in selling his production. In 1976, a standard Godrej almirah was sold at Rs. 1200, an Ultadanga type of almirah at Rs. 700 - 800 whereas Basu could offer his product at Rs. 900 - 1000 inclusive of all costs, margin and dealer's margin of Rs. 100/-. Customers, the dealers informed, were either going for reputed brands or buying the cheaper products but were unwilling to pay an intermediate price for much better quality. The brand "Godrej", reasoned the dealers, is known to all purchasers as a symbol of quality even prestigious whereas Basu's brand "Rhino" was hitherto unknown in the market. When Basu demonstrated his improved method of production to some dealers who visited his factory, the dealers accepted the superiority of quality but were not convinced about how the production cost was so high. They advised him to produce cheaper varieties of almirahs as is commonly made by Ultadanga units. Basu declined as he had strong adherence to quality. The dealers, Basu found, could be classified into three categories: a. Selling only one reputed brand of Almirah like Godrej, Steelage or Chandan, b. c. Selling only cheaper varieties of unbranded or unknown brands, Selling one reputed brand and cheaper varieties as well.

At this stage, Mr. Basu thought advertising is the only way to establish his brand name. He found that an advertising campaign to generate a reasonable level of awareness would cost Rs. 50,000/-. When he consulted with the bank on the requirement of funds he was clearly discouraged. The bank was highly disappointed about the unit's performance. In end 1976, not a single installment of term loan was repaid and even the bank interest on the outstanding loan remained unpaid in the absence of production and selling activity. After a lot of convincing, the bank disbursed a sum of Rs. 8000/- for advertising expenses with which Basu gave a couple of small advertisements in 3 dailies of Calcutta. A few interested local customers and dealers called on his factory in response to the advertisement. But they expressed that the price was rather high. Whole of 1976 passed by leaving Basu completely resigned. Till 1977, only eight or nine almirahs could be sold to stray customers with the efforts of sympathetic friends and bank officers. During mid 1977, Basu decided to diversify into other products that could be made using his existing production facilities. In 1978, Basu procured two orders from the defence authorities, through his earlier contacts for supplying "lid-inners" "cap-ends". The total value of orders was Rs. 1.70 lakhs. He convinced the bank that these orders are profitable and if they can be executed successfully, more order would be forth-coming. Its result proved to be no less dismal. It emerged that cap-ends could not be produced by using the units existing machinery but would require preparation of dies and use of power press machine, which Basu did not have. Basu had to offload this work to some other unit at high cost. Even then the production rate was low. Basu incurred heavy loss in executing the orders for "cap-end" and had to abandon the order for "lid-inner". The bank authorities lost all hopes of rehabilitating the unit.

But interesting development took place in 1979. An influential distributor of consumer durables, M/s Western Trading Co. who had a large showroom at Ezra Street, the main market of steel furniture in Calcutta, showed keen interest in purchasing "Rhino" almirahs on regular basis at the rate of at least 50 numbers per month at a trade price of Rs. 1075/-. The terms included payment of 40% of sales price in advance and balance within 15 days. If payment were not made within 15 days, Western would pay interest @18% p.a. till the bill is paid. However, a moderate amount should be spent on advertising towards first 6 months of which Western would bear 50%. In August, 1979, on exploration it was discovered that market for steel almirahs had undergone significant changes. Due to rise in raw material prices and other factors the consumer price of Godrej, Chandan and Bombay safes moved upwards to Rs. 1, 633, Rs. 1,638 and Rs. 1,404 respectively. Godrej has stopped selling through dealers. Instead, it had appointed booking agents who in lieu of Rs. 60/- only per almirah procured orders and transferred it to Godrej who performed the job of storing and delivering the goods. Western Trading Co. and many other erstwhile Godrej dealers were disinterested in this type of arrangement and they were thinking of selling other almirahs comparable to Godrej's products. The bankers were not feeling enthusiastic about this plan as they had little faith in dealers like Western Trading Company. When they asked Western to collect the goods through bank, Western refused saying that this was not the market practice. Besides, Basu's outstanding loan of Rs. 3.30 lakh and his performance in the last 5 years created a credibility gap between Basu and the bank. Hence, there was a stalemate for a considerable period of time. The attitude of the bank softened in 1982 when the market conditions changed still further. A Godrej almirah was selling at Rs. 2,300/- and prices of Steelage, Bombay safe were around Rs. 2,000 - 2,200/-. Cheaper varieties sold at Rs. 1,400 - 1,500. But "Raj" a well known steel furniture shop was successfully advertising and selling different varieties of almirahs with their own brand name in the price range of Rs. 1,700/-. A good number of dealers of Ezra Street still dealt in cheaper varieties. The bank found Western Trading Co. still eager to sell "Rhino" almirahs as per the previous terms and conditions, but at a trade price of Rs. 1,500 - 1,600/- consumer price to be fixed up later. But this time Basu demanded from the bank an additional term loan of Rs. 3,65 lakhs to renovate the existing facilities and purchase a lot of new machineries, needed for higher scales of operation. Also included in this was an advertising budget of Rs. 60,000/-, working capital requirement was estimated at Rs. 1.70 lakhs. The bank took the risk and started disbursing funds from March 1982. July-august 1982 saw lots of activities in Basu's factory. Stoving chamber and pickling plants were renovated. A painting enclosure was constructed and using latter shaping machines, etc. Basu started producing own dies and components. 19 workers were working. Basu was purchasing imported steel sheet from the open market and was using a special paint made by another SSI unit. This time Basu tried to differentiate his product from Godrej by introducing new designs and offering a product range for different utilities. Some of the almirahs were simple in design, some had secret chambers. Some had mirrors. Some had adjustable shelves, etc. Common colour shades such as Grey and olive green. as well as some eye catching shades were developed. A

beautiful "Rhino" label was added on the front of the almirahs. The almirahs wore an elegant look. Western wanted 15 almirahs of different designs to be kept in his shop for display and assessing customer preference. Seven almirahs were delivered to Western in August '82 on consignment basis. In September, Western brought to Basu's factory another well known dealer "Ojha Furnitures", whom Western wanted to appoint as Sub-dealer/stockist. Mr. Ojha was impressed with the quality of products but stated that the trade price of Rs. 1,500 - 1,600 was too high. Basu did not care for Ojha's words as his contract was with Western. Just before puja season, Basu printed 1000 leaflets in Bengali and English and distributed them along with papers through local vendors. He put up 15 number festoons at important road joints in the neighbourhood of the factory. Surprisingly, Western Trading Co. seemed to be drifting away from the contract. They did not pay Basu for the 7 nos. almirahs till November' 82. Basu became apprehensive and did not send the other eight almirahs. Mr. Ojha called on Basu again and showed interest in lifting the goods provided the trade price was lowered. Basu declined. Basu was aware that another unit was making much inferior quality of almirahs and selling them through its own showroom near Basu's factory, under the brand name "Elite". Discrete enquiries revealed that they were selling 20 - 30 almirahs per month at an average consumer price of Rs. 1,400 - 1,500 per product. This unit employed 4 workers and had hardly any plant and machinery in its 300 sq. ft. shed. Basu thought of arranging his own showroom in the neighbourhood but found that the rent asked for by the landlords was beyond his reach. From December onwards, Basu started giving advertisements in newspapers and radio. The press advertisement along with a photograph of almirah highlighted 6 attributes of the almirahs such as rust-proofness, stove painting, durability and elegant design, etc. The advertisements also asked for stockist/dealership in West Bengal. This advertising campaign cost Rs. 30,000/-.

On December 9, 1982, Mr. Dhebar, senior partner of Western Trading Co. died. Mr. Dhebar had all through carried out negotiations with Basu and the Bank. Mr. Dhebar's brothers who were partners in this business informed Basu of their intention to withdraw from the sales arrangement. They promised to pay Basu for 4 almirahs which were sold from their showroom and return the remaining 3 pieces lying unsold. Basu got good response from the dealers after the advertisement. But when dialogues were initiated Basu, found that these dealers wanted a 50% share of the margin between production cost and the sales price. Basu had to pay interest on a term loan of Rs. 5 lakh as well as working capital of Rs. 4 lakhs, which he had to include in the total cost. Besides, Basu had to repay the term loan from his profits. Various cost elements for the premium and economy varieties of Rhino almirahs are given in Exhibit 1. These figures assume a production level of 50 almirahs per month. An estimate of the Elite almirah cost break-up is also given in Exhibit 1. The profit margin for special types of products such as one with secret chamber was much higher than the simpler varieties. Basu sold one such almirah at Rs. 2,400 to stray customers. Seven 'economy' almirahs were lifted by a dealer from Durgapur, four mixed types were purchased by a local dealer - all at the rate of Rs. 1,600 per almirah. But these dealers did not place any repeat orders. In December 1982, Basu converted all raw materials into finished goods and had 40 almirahs in stock. The interested dealers wanted to pay Rs. 1,400 - 1,500 per almirah at the most. At this price Basu estimated at net loss. The bank made it clear that it would not release any further funds for raw materials or expenses till the existing finished goods were sold. A tired Mr. Basu seeks help to formulate his marketing strategy that would also take care of short and long term financial problems.

Exhibit-1 Cost Break-up of "Rhino" and "Elite" Almirahs (Rs.) Cost Rhino Premium Steel (90 Kg.) Paints Hardware Consumables Subtotal Labour Factory Overheads Administrative Overheads Subtotal Bank Interest Grand Total Consumer Price 600 220 130 73 1,023 165 100 90 1,378 250 1,628 1,800-1,900 BRAND Rhino Economy 600 180 130 73 983 140 100 90 1,313 250 1,563 1,600-1,700

Elite 500 140 100 60 800 120 100 1,020 1,020 1,500

Note: "Rhino" factory is located 20 Km. away from the city. Cost of transporting single almirah from factory to the city is Rs.100/- per almirah and the cost of transporting a tempo (light truck) van full for 6 almirahs from factory to the city is Rs.150/- only.