London Business School Case Studies

How bayt.com emerged as top job portal in West Asia

This case study looks at how bayt.com, a West Asian job portal, emerged as the leading job portal of the region. EXECUTIVE SUMMARY: Failure stared the founders of bayt.com, a West Asian job portal, in the face following the dotcom bust of 2000. They had neither a strong presence nor deep pockets. Yet today, bayt.com is the leading job portal of the region. Its traffic, revenue, job postings and profitability are higher than all its competitors combined. This case study looks at how the portal managed this transformation. The founders of job portal bayt.com had a vision - to be a globally recognised and admired institution. That vision was at stake when the dotcom bubble burst in 2000. At the time, Internet penetration in West Asia was less than one per cent and there were about a dozen Internet companies in the region that had been launched with financing in excess of $20 million each. Bayt.com did not have the kind of access to capital that its peer start-ups did and faced a dilemma on what it should do. Its founders knew they had to do something radical to succeed. They made two changes to their marketing strategy that proved to be the tipping point in their journey. The first was to launch the site with as much fanfare as they could afford. They went aggressive with a television advertising campaign, a novel idea as far as Internet companies in the region were concerned. TV advertising was both expensive and inefficient, but it gave both customers and jobseekers the impression that bayt.com was a lot bigger than it really was and enabled the company to open doors it couldn't previously.

The company used this newly found respect to negotiate relationships whereby it became the job site for various partners. The partners were primarily portals interested in driving and maintaining traffic to sell online advertising. On the other hand, bayt.com was primarily interested in getting as many rsums as possible so it could monetise them from employers. The portal approached its partners with the argument that having a job section on their sites would drive more traffic to them and, therefore, more page impressions they could monetise through advertising. For bayt.com, it ensured that every time a jobseeker visited any of West Asia's leading sites he/she was exposed to the job portal. It encouraged people to build a rsum on it. The strategy worked wonderfully. At practically no cost, a significant amount of registrations came onto the portal. The initial hurdle of establishing credibility had been overcome and now bayt.com moved on to establishing itself as the leading job site in West Asia, winning several industry awards along the way. In just13 years, it has grown exponentially and is ranked as the number one job site in West Asia and North Africa. It has expanded to provide end-to-end employment solutions, career planning tools and is now available in three languages. Until bayt.com was created, employers and candidates used recruitment agencies and word of mouth references for soliciting and selection. But traditional recruitment agencies were not able to connect candidates with top employers without paying hefty fees and passing them on to the employer, thus creating a need for an online platform. Bayt.com initially served two strategic segments - cost-conscious employers and jobseekers. After the site gained traffic, it added another segment - the advertisers. The company's value proposition for its recruiting services consists of three elements: Choice: The sheer size of the database gives employers a choice they never got before in the region. Rabea Ataya, CEO and co-founder of bayt.com, compared the company's model to a shopping mall where the shoppers are the jobseekers and the renters are the employers. The more shops there are, the more shoppers you get and vice versa. Today, bayt.com has over 12 million rsums and it gets some 5,000 rsums per day. Speed and ease: The technology is so efficient and convenient that human resources departments do not have to filter rsums anymore. Earlier, they had to go through reams of rsums to shortlist candidates. Employers can now search through candidates' profiles, gauge their knowledge on relevant topics, and evaluate specific skills and the fit for the position. The traditional method of hiring through a recruitment agency could take 90 days or even longer. This has been considerably reduced with bayt.com's customised search options for employers and jobseekers. Additionally, jobseekers can pay

extra to feature their profiles for a specific organisation, thereby shortening the hiring process timeline for both segments. The speed and ease with which employers and jobseekers are able to navigate the site has led to seven million visitors per month on bayt.com. Cost efficiency: As organisations have become more cost-conscious, the online recruiting model has become even more attractive. For example, an ad for a single position in Gulf News, the most popular daily in the region, costs about $600 for a day while a job posting with just as much information on bayt.com costs $170 for 60 days. Clearly, bayt.com has eliminated the recruitment agencies and the associated hefty fees. In addition, an organisation can get year-round access to bayt.com's extensive database for approximately $5,000, a feature that traditional media cannot provide.

Bayt.com's revenue almost doubled for its fi rst eight years of operation from 2000 to 2008. It suffered one bad year when revenue fell 30 per cent in 2009. Post-2009, it has continued on a double-digit growth track.
The company offers a strong value proposition to advertisers as well. It provides better rsum targeting than any other medium in the region. Any company advertising with bayt.com can monitor and adjust its ad campaign in almost real time. The portal also offers a more cost-effective solution when compared with traditional and other online media. Compared to traditional recruitment agencies, Gulf News, other online platforms such as monster.com, gulftalent.com and naukrigulf.com, and the word of mouth medium, bayt.com certainly ranks highest on cost efficiency, ease of use and local knowledge, which is reflected in its value network. The portal's centralised and sophisticated technology enables it to provide real-time information on statistics for both employers and jobseekers. This is quite an achievement for a company that was born in West Asia, with competitors such as monstergulf.com (part of monster.com) which are international players. Call centres in Jordan and Dubai cater to most customers in the region, while sales offices in the United Arab Emirates, Kuwait, Qatar, Saudi Arabia, Bahrain, Lebanon, Egypt, Morocco, Pakistan and Sri Lanka provide the localisation that is critical to its success. Jobseekers and employers get local knowledge and news on specific sectors, companies, candidates, research reports on local and regional trends and customised reports for their profiles. In addition, bayt.com has built customised social media features into its platform that allow users to make their profile public and have followers.

Marketing strategy Bayt.com looks at its marketing in four steps: brand building, encouraging users to try out the site, driving purchases, and guaranteeing repeat customers. For brand building, it uses social media (more than 200,000 likes on Facebook and 35,000 followers on Twitter) as well as traditional media, with ads in newspapers such as the Gulf News. However, CEO Ataya says he is yet to see social media sites like Facebook drive traffic on bayt.com. For encouraging users to try out the portal, it uses search engine optimisation, search engine marketing, affiliate networks, and various partnerships in what it calls "white labelling". Driving purchases and guaranteeing repeat customers are seen as efforts carried out by its sales force. Most of its postings are sold through relationship managers in its 12 regional offices and its technology headquarters in Jordan. Jobseekers can access most services through the Internet and a few premium paid services through regional offices. Most general inquiries are handled through the call centres. Distribution plan The traditional recruitment agency model is not employed. Direct sales are done over the phone and the Internet, where each account manager has 30 to 60 accounts, on which they earn commission. In this model, employing staff on a salary plus commission basis when compared with the traditional model minimises fixed costs. Further, the sales staff is much more productive as they are handling 30 to 60 accounts at a time due to less personalised time with the customer but more on the phone and Internet. Also, many variable cost factors have been converted into revenue generators such as premium services for jobseekers and 'white label' services for employers. Most employers at some point need to decide whether they should build an in-house recruitment platform or partner with technology providers such as bayt.com and host a co-

branded and integrated careers portal with a back-end platform hosted by the technology provider. Bayt.com calls this a 'white label' strategy. It offers its recruitment platform under the title "Careers Sites" and is used by many private and government organisations. This allows jobseekers to access the employer platform, which is in turn routed to bayt.com. Additionally, it helps employers to upscale their image as a modern company with a professional and user-friendly online career portal to attract and retain top talent. The benefits of this strategy include converting visitors into potential candidates at much lower costs and minimal time by filtering rsums and interacting with only relevant candidates. The additional benefit of the 'white label' strategy is in the saving of development costs, faster availability of the service and an expert partner who is responsible for updating the technology and features. Bayt.com competes with the likes of SAP and Oracle for the 'white label' software-as-asolution provider. However, they don't see them as competitors in West Asia because bayt.com's platform has many more bells and whistles which make it far superior to its competitors. Bayt.com compares favourably with its direct competitors such as monstergulf.com, naukrigulf.com and gulftalent.com, which provide more or less the same kind of products and services targeting the same geographical segment. Bayt.com is more successful than any other in this category. It has a much more meaningful global traffic ranking than those companies. This ranking is not limited to recruitment portals and is across all websites on the Internet. It is also more successful in terms of job placements, popularity as a website, and standing in the market. Bayt.com has enjoyed robust revenue growth since its inception. Its revenue almost doubled for its first eight years of operation from 2000 to 2008. It then suffered one bad year when revenue dropped 30 per cent. Post-2009, it has continued on a double-digit growth trajectory till date. The company has a net profit margin of 25 per cent. Monster.com, the largest online recruitment company in the world, had an annual turnover of about $1 billion in 2012 and earned $212 million in the first quarter of 2013, with fairly low operating profit margin of four per cent, which is comparable with the results of the several preceding quarters. Against this backdrop, it is remarkable that bayt.com has fared so well and is maintaining such growth and hefty net income margins. On the cautious side though, it must be noted that the dynamics, economies of scale and bayt.com's specific focus on one region make the comparison limited at best. Monster.com's difficult situation denotes a difficult environment for big, diversified players in this field, hinting that bayt.com's expansion plans may be challenging, facing difficulties in moving to markets that it is not as familiar with as well as struggling with negative pressure on earnings in the wake of increasing costs and a burgeoning operation. 'THE CHALLENGE IS TO EVOLVE AND GROW BEYOND WEST ASIA'

NAUFEL J. VILCASSIM, Professor of Marketing, London Business School

This case study raises three interesting questions. First, why did bayt.com succeed? Second, why did it succeed in relation to its competitors, especially a globally successful one like monstor. com? And, what are the challenges for the company? The value proposition of bayt.com was simple and attractive. Essentially, it was to reduce the cost of and the time taken to match a potential employee with a firm looking for the set of skills that potential employees possess. Traditional approaches were costly, limited in scope and time consuming. While the idea is simple, pulling it off is not. Why? Firms want to go where there are large numbers of potential employees and jobseekers want to go where there are a large number of firms looking to hire. How did bayt.com solve this problem? By making the service free for potential employees and charging the firms for facilitating the matching process. The cost comparison with traditional media was appealing and unquestionable, as was access to jobseekers across the Gulf and the speed of the process. Bayt.com's TV advertising campaign was innovative for an Internet company. It gave the impression of an already successful company and so attracted traffic to its site. The company also had a clear business model and kept the focus on potential employers and employees before bringing in advertisers. Many Internet-based firms that relied on advertising revenue to drive business failed because advertisers would participate only if there was a large enough audience on the platform. The challenge for bayt.com now is to evolve and grow beyond West Asia. The region has a significant expatriate population in managerial jobs and most of these people move on after some time there. Access to a global professional network becomes important for them and so there is a threat from networks such as LinkedIn. Changing a successful business model is not easy but firms that fail to do so often pay a heavy price. "It had a clear business model and kept the focus on potential employers employees before bringing in advertisers" NAUFEL J. VILCASSIM Professor of Marketing, London Business School

'STICK TO THE BASICS - YOU CANNOT GO WRONG'

R. RAMARAJ, Advisor, Sequoia Capital

Necessity continues to be the change agent even in the dotcom age. The founders of bayt.com had almost everything going against them at the start. The dotcom bust, a crowded market and well-funded competitors. They had to innovate or perish. Innovation need not necessarily be a new way of doing things. It could very well be, as bayt.com has shown, the application of traditional methods in a new context. Sticking to the basics but in an untried arena. The first, basic requirement for bayt.com was to get noticed in a crowded environment. Bayt.com's use of the TV as a pioneer in the dotcom world was truly brilliant. TV also brought credibility to bayt.com at the time of the dotcom bubble burst. There is an important lesson here. While the amount of money spent on TV by bayt.com was high, what the job portal has highlighted is the necessity of deploying critical resources where these can create the maximum impact and provide the necessary impetus for survival and thereafter, success. Many start-ups hesitate to partner. Often the fear of sharing knowledge and revenue holds them back. Bayt.com highlights the power of right partnering. It was a win-win arrangement for both sides - traffic for the dotcom sites and CVs for bayt.com. This helped bayt.com scale rapidly and gain the threshold size needed for recognition as a serious player. It doesn't matter whether you are a pioneer or a late entrant. Stick to the basics - you cannot go wrong. "Innovation need not necessarily be a new way of doing things. It could well be, as bayt.com has shown, the application of traditional methods in a new context" R. RAMARAJ Advisor, Sequoia Capital

Playing the social tune

This case study looks at how Spotify evolved its use of marketing tools in keeping with the evolution of the music industry, as well as changes in the way companies and customers now communicate with one another.

Executive Summary: Spotify is a rising technology venture which, since its public launch in 2008, has disrupted the way music is distributed. It allows users to listen to music online and share playlists with friends. It also provides an offline service. What differentiates Spotify is not just its product but also its social media marketing strategy. This case study looks at how Spotify evolved its use of marketing tools in keeping with the evolution of the music industry, as well as changes in the way companies and customers now communicate with one another. The Internet has been disrupting and revolutionising the global music industry all through the past two decades, The traditional pre-recorded forms of music distribution have been heavily substituted by illegal file sharing, downloadable tracks and, more recently, cloudbased streaming. These changes have significantly reduced the music industry's revenues, which in turn has forced industry players to drastically rethink their strategies and come up with a mass of innovative business models. The revolution began with the development of the .mp3 format in the mid-1990s. It provided a means to store audio in a compressed format that was far smaller than uncompressed audio. With the relatively small hard drives of the time, this enabled people to store their music collection on their personal computers, and create their own compact discs of mixed compilations.

The natural progression from the.mp3 was the development of Internet-based file sharing platforms. Beginning with Napster, launched in 1999, many large-scale file sharing applications proliferated, all designed to help the illegal sharing of .mp3 files. They cannibalised sales in the traditional music distribution platforms. Many artists and record labels filed lawsuits against the offending companies, and also against individual users exploiting the platforms. Although some progress was made in curbing the use of these sites, there are still today an estimated 16 million Americans who download pirated music.

One of the first companies to try to legitimise downloading of individual tracks was Apple, which opened its iTunes music store in 2002 to complement its iPod device. The store was an immediate success, with more than five million songs downloaded in the first two months. This provided an attractive proposition to consumers as they could legally obtain access to preferred songs with no need to buy an entire album. The rapid rise in broadband speed and penetration in recent years has opened up the possibility of cloud computing, which allows access to files without the need for local storage. Access to the cloud has spawned a number of start-ups such as Spotify and Grooveshark. These providers allow access to an almost endless database of music to users, which can be pushed to computers and other devices connected to the Internet. These sites have a range of revenue models which tend to revolve around subscription services and advertising while a user listens, which enables them to pay royalties to artists. But this continues to be criticised as the royalties paid are said to be miniscule. For instance, Spotify reportedly paid Lady Gaga only $167 for one million streams of her single

Poker Face. Development of the Spotify technology began in 2006 at Spotify AB, the founding company based in Stockholm, Sweden. In October 2008, the founding team launched the technology for public access, launching the paid subscription model at the same time. The initial public access was by invitation only. The company also announced licensing deals with a number of major record labels at the time. In February 2009 Spotify launched free registration without an invitation in the UK. It also launched its mobile technology offering in 2009. This resulted in a surge in users, leading to a suspension of free registration for the remainder of 2009. The mobile technology remains a "premium" paid-for service, but Spotify returned to free registrations without invitation by 2010. The parent company moved from Stockholm to London, and is now called Spotify Ltd. The development and research work is still undertaken in Sweden. By September 2010, Spotify had about 10 million users. Its growing popularity highlighted the need for further investment in research and development. Spotify received $21.6 million in its first round of funding in 2008, prior to the launch of the public access service. The first round was funded by Creandum Northzone Ventures, a technology-focused Nordic venture capital (VC) firm, and Li Ka-Shing, an angel investor and the 11th richest man in the world as estimated by Forbes 2011. The second round of funding for $50 million came in 2009. Li took part again in this round, along with VC firm Wellington Partners. Sean Parker and Founder's Fund, where Parker is a board member and one of six partners, participated in the third round of funding for $11.6 million in early 2010. The final funding round took place in 2011, for $100 million, between Accel Partners, Digital Sky Technologies, which funded Facebook and Groupon, and Kleiner Perkins Caufield and Byers, who were early investors in Amazon and Google. These funding rounds, along with the rapid user addition globally, meant the company was valued at $1 billion in June 2011. In 2009, Spotify's founding team of CEO Daniel Ek and Martin Lorentzon expanded the company's board to include Frank Meehan from Horizon Ventures and Sean Parker, the serial entrepreneur linked to Facebook and Napster, among other social media start-ups. In 2011, Spotify added the position of Developer Community manager, hiring Andrew Mager, another serial entrepreneur and blogger with prominence in social media networks.

One reason Spotify has been adding users rapidly is its tie-ups with social media sites. An active Facebook account is needed to register, unless the user had a Spotify account prior to September 2011. With its Facebook page and Twitter stream, Spotify communicates with users the same way many firms use social media to promote their products and gain feedback. Beyond these established forms of social media marketing, Spotify has introduced several innovations. It has incorporated social media extensively into its product, relying heavily on Facebook in particular to enhance the user experience. Spotify adopts a traditional approach to managing its own social media feeds. Says Andre Sehr Spotify's Head of Social Media: "[Facebook and Twitter] both provide us with a platform to promote new artists and albums, talk about great new Spotify features and get valuable feedback to improve our product." In addition, Spotify tries to drive social media users to its premium service by promoting on Facebook and Twitter before releases unique content and competitions that only premium Spotify users can access. Spotify's Facebook page has 2.4 million "likes" and an average of one post per day, primarily about bands who played or visited Spotify offices, and curated playlists for bands performing at festivals and award shows that can be listened to via Spotify. On Twitter, Spotify's stream has 264,000 followers and an average of four to five tweets per day. There is a much higher level of engagement than on Facebook. On Twitter, Spotify answers users' questions, retweets music-related tweets by both regular and celebrity users such as Ashton Kutcher, and even sends users playlists made for them. Spotify has used social media feeds to generate buzz among users. When Spotify launched in the US in 2011, it was by invitation only. As demand for Spotify in the US was high, following its success in Europe, it used scarce invitations as a carrot for social media users to hype up the launch. It also teamed up with Klout, a site that rates peoples' influence within Twitter, Facebook and LinkedIn, to provide 100,000 invites to US users. Klout users could get an invite if they had a high enough Klout score, ensuring Spotify reached users who were most likely to share thoughts through social media with communities that value their opinion. Interest in securing Spotify invites was so high that the Klout website crashed due to user overload. Spotify has deeply integrated its service with Facebook. It has adapted its

business model to ensure that this integration attracts users. Spotify and Facebook are now embedded in each others' platforms, enhancing the value of both. Music can be shared seamlessly between friends. Ahead of the launch of its integration with Facebook, Spotify changed its core pricing model. Spotify had initially been adopted mostly by music fans who valued the ability to listen to a wide variety of music on demand. As usage of Spotify began to appear in Facebook users' news feeds, Spotify gained exposure to a much larger audience than would have previously been aware of the product. Previously, users with free, or ad-supported, accounts were restricted to 10 hours listening per month and five plays of any song. To attract new users and prevent any time or song limit issues when users clicked on songs appearing on Facebook news feeds, Spotify began to allow six months of unlimited listening on free accounts. Spotify's innovations in social media are driven by the belief that music is social. Indeed, music has become truly social.
Convincing users to pay for music, any music, has been a growing challenge since the introduction of the cassette tape: Isaac Dinner, Assistant Professor of Marketing, Kenan-Flagler Business School, UNC-Chapel Hill

'Spotify Must Move Customers From Free Use To Subscription' Spotify, Deezer and other leading digital music companies have more similarities than their large catalogues of music and incredible user growth. All these companies also have a split customer base. The first group is that of subscription users who pay for high-quality services like unlimited listening and higher audio quality. These customers are extremely valuable because they are profitable and are often champions of the company. The second set is of free users who are either testing the service or simply taking it for granted. These free customers are frequently supported by advertising revenue, but are still a financial drain. One of the main challenges for Spotify is moving users from free to subscription. Convincing users to pay for music, any music, has been a growing challenge since the introduction of the cassette tape. Early reports had Spotify converting only seven per cent of consumers to the paid model, although recent estimates have placed them in the 20 to 25 per cent range. Spotify needs to provide value that a free music sharing service can't deliver. There are a few ways that Spotify can shift users to the paid model. First, it needs to provide a strong level of user engagement. Here, Spotify has been very successful. Its Facebook integration, social music sharing and artist integration has created a tightly knit feeling and produces highly embedded users. Second, it needs to provide value that isn't easily

replicated. A successful example is its mobile integration. While Pandora needs a stable Internet connection, Spotify has "offline" options that allow users to take their music on the go across multiple platforms. Third, Spotify needs to make sure free users don't take advantage of its products. While in some countries there is a restrictive time cap on free users, Americans are only constrained by an occasional ad, which creates an attractive free service. Isaac Dinner, Assistant Professor of Marketing, Kenan-Flagler Business School, UNCChapel Hill
Spotify is accused of... not paying artists their due share of revenue and is often in the midst of poor publicity in social media: Jayaram K. Iyer, Chief Strategy Officer, Matrimony.com

Spotify Is Overdependent On Facebook And Twitter Spotify is using social media for several marketing functions - to identify trending new music, create awareness, distribute music, etc. But it fails in brand building and publicity disaster management. Spotify is accused of 'killing the golden goose' by not paying artists their due share of revenue and is often in the midst of poor publicity in social media. Artists are pulling off Spotify and tweeting negative messages. The company dismisses such allegations and claims it shares more than 70 per cent of revenue with artists' agents. Unlike Napster, Spotify owns music rights (albeit through agents) and this is perhaps one of its competitive advantages. But the business model itself is not unique, as it is trying to make money from popular music which is also available in pirated form. Spotify is overdependent on Facebook and Twitter. Whether it is intended (probably Spotify will be a great buy for Facebook eventually) is a question. Perhaps there is value in exploring other social media or make its own website a social media platform. Of course, there are not many successful examples of private and brand-specific social media such as gangofgirls. com of Unilever or beinggirl.com of Procter & Gamble. The other probable area for improvement is whether it is using social media for other marketing functions, such as to build brand equity; it appears to be more to create awareness than brand stickiness. Also, mobile phones have become an integral part of life for today's youth. Perhaps, Spotify should reduce its reliance on Facebook/Twitter and move to other social media tools on the mobile. What is also unclear is how Spotify uses social media data to its advantage.

Jayaram K. Iyer, Chief Strategy Officer, Matrimony.com

Case study: Branding strategies at London Olympics

Hijacker Brands win the Socialympics

The case study examines the branding strategies deployed at the 2012 Games in London and highlights how unorthodox approaches of non-sponsor brands managed to steal the show through innovative use of social media and public relation campaigns.

Executive Summary: How is it possible that Nike is thought to be an official sponsor of the London Olympics by more Americans than those who believe it was Adidas? Why are there armies of athletes wearing Beats by Dr Dre headphones on the track (and tweeting about it), despite the brand not being a sponsor? And why did some large sponsors run into trouble? McDonald's, for example, was publicly criticised and had to justify the appropriateness of a high-calorie brand sponsoring the Olympics. This case study examines the branding strategies deployed at the 2012 Games in London and highlights how often unorthodox approaches of non-sponsor brands managed to steal the show through innovative use of social media and public relations campaigns. Historically, the Olympic Games have been an ideal forum for brands looking to strengthen their global presence. Companies have paid hefty sums for the privilege of being associated with the Games, convinced that no other event in the world offers the unique combination of mass worldwide exposure and fostering of positive values. However, this

golden rule of marketing seems to have been turned upside down at the last Olympic Games held in London in 2012. There is evidence that, in spite of the financial effort, not all corporate sponsorships were as beneficial as expected. Moreover, beyond the heavy investments, brands from the fast-food industry or those adopting monopolistic practices landed in hot water after they failed to justify their association with an event synonymous with health and fair play. And often, it was non-sponsor brands that made headlines, thanks to their innovative campaigns. To some extent, it is a story about numbers: in 2012, Facebook had 10 times more accounts than in 2008, while Twitter was 300 times bigger than it was at the time of the Beijing Olympics. But, more importantly, social media usage at the 2012 Olympics was at the heart of the Games, a place to comment, share, buy, complain and much more. In an unexpected turn of events, some of the most visible endorsements of the 2012 Olympics were not delivered by official sponsors. More than a handful of brands managed to attain high levels of global exposure without paying large sponsorship fees through unofficial links with the event.

The success of non-sponsor campaigns is more surprising with London setting strict rules to protect sponsors and prevent ambush tactics. Brands that were not official sponsors could not use ads featuring Olympians during the event, could not mention the London Games explicitly or use imagery related to the Olympic rings. Amongst the forbidden combinations of words were even generic ones such as 'London 2012', 'summer 2012', 'medals 2012' or 'games 2012. Moreover, Olympics staff were not allowed to wear T-shirts with non-official sponsors. In some cases, nonetheless, the punishment was not clear. Athletes were prohibited from taking part in advertising campaigns during the Games; however, it appeared unlikely a social media offender would suffer severe consequences, as stripping winners of their medals or blocking someone from

competing would have been regarded as excessive punishment for tweeting. If Social Media Olympics had been in place, the medal winners would have likely been: Gold Medal: Nike Nike ran an independent campaign called 'Find your greatness' which featured ordinary people and former Olympians engaged in various sport activities in a number of cities around the world, all called London. The Olympic Games host was not included. Nike broadcast videos with heartstrings-pulling personal greatness stories, and continued the conversation on social media. Nike smartly ensured that more than 3,000 athletes wore Nike footwear, with viral social media presence amplifying its benefits. Although Adidas was the key sportswear sponsor, Nike managed to not break strict Olympic rules by cleverly getting athletes to put on and take off the logo when off /on the tracks. Nike gear was primarily worn around the village and during medal ceremonies. Silver Medal: Beats by Dr Dre Beats by Dr Dre used a different strategy and distributed headphones to star athletes for free. The brand tapped into an established habit, with athletes often using headphones to help stay focused and protect them from the noise of cheering crowds. As the brand had gained fame for its coolness, Olympians were quick to adopt them, with many prominent athletes walking out wearing the Dr Dre headphones. Athletes engaged in Twitter conversations not only promoting the brand but also criticising the Olympic Committee for its harsh rules on the branding of the Games. This unusual move generated much hype that boosted the fortunes of the brand. During the Olympics, retailer John Lewis reported a 116 per cent increase in sales for Dr Dre while competitor headphone sales improved by just 19 per cent. Crucially, this marketing tactic gave Beats by Dr Dre access to a much broader market than its core American youngsters. It cleverly managed not to violate the rules by first giving out the headphones for free. Additionally, it made the Olympic Committee's own rules work for the brand: IOC does not interfere with athletes' warm-ups, making it inappropriate for them to force Olympians to remove headphones. Bronze Medal: Subway The Subway chain had an exclusive fast-food endorsement with swimmer Michael Phelps since 2008 and heavily advertised the association before the Olympics. The perseverance paid off for Subway: it made an early connection with sport and that over time helped position the brand as a healthier alternative to competitor McDonald's. Subway was also one of the few companies to stand by Phelps after the publication of a photo of the swimmer smoking marijuana, showing a forgiveness that was appreciated in social media. Kellogg's stopped featuring Phelps on its cereal packs after the incident. Following IOC guidelines, Subway featured its association with Phelps before and after the Games, but not during. Thanks to the long-standing campaign, by the time the Games started, Subway was already profoundly associated with the Olympics. Additionally, its absence during the actual Games meant it was McDonald's that had to defend the fast-food

industry and its relationship with a sporting event. Subway has utilised Phelps to help create a positive buzz about the brand in social media. Before the Olympics, Phelps had close to 300,000 followers on Twitter. By simply sending out a punchy, 140-character tweet saying he was enjoying a Subway sandwich, he helped the brand's image and sales. At the 2012 Olympics, some brands made it while others didn't. So how is it possible that some brands start with a tweet and become very popular, while others spend millions only to be overwhelmed by criticism? What makes social media attractive also makes it dangerous: everyone is invited but nobody is in control. Social media offers ordinary people the ability to own discussions, shape a vision, and be an active part of defining and spreading a message. At the 2012 Games, brands that successfully navigated the young rules of social media achieved one or more of the following: Resonate: With Find Your Greatness, Nike told the story of normal people, allowed them to have a central role in the initiative and offered them a platform to construct and deliver their message. Surprise: For Adidas, it was not the well-constructed TV ad that drove most views on YouTube, but David Beckham's appearance at Westfield that took fans at the Adidas Olympics photo booth by surprise. Help: Beats by Dr Dre appealed to athletes' need for cool headphones. It fuelled a conversation on the ground, showing its understanding of the fact that the most powerful messages are bred by people's presence and involvement. Delight: With 86,000 people engaged with its Home Advantage hashtag on Twitter, British Airways managed one of the highest sponsorship awareness levels among top sponsors. Experiential projects like Park Live and Great Britons pop-up in Shoreditch in east London, aptly amplified in social media, helped the airline reach a broader, younger audience during the Olympics. It is not just the success stories that provide guidance for future sponsorships, there is also a lot to be learnt from tactics that did not fare particularly well. Social media participants have no qualms about rejecting propositions that are considered inappropriate, lack value or are too commercial. The broader learning points, therefore, are: Make sure you belong: McDonald's, Coca-Cola and Cadbury's were high-paying companies, but had to spend time justifying their role as the appropriateness of high-calorie brands sponsoring the Olympics was challenged by several British organisations. Be generous, not selfish: Ethical principles and behaviour are now heavily scrutinised. In social media, and even more so in the context of the Olympics values, brands are expected to be fair and at least accept, if not promote, healthy competition. Highly visible sponsor Visa received unfavourable media coverage, with the brand considered 'cynical' for banning

rival cards from the Olympics. Visa had to invest a lot of resources on a damage-limitation exercise. Money is not everything (anymore): It is now common knowledge that communication is no longer about pushing a message down people's throats. Controlling advertising space with significant financial means is unlikely to be as effective as it was in previous decades. Stories of small David-type brands winning in social media in the face of large budget Goliath-type organisations are becoming ubiquitous.
Social media are a lot cheaper than sponsoring sports events but the downside is that nobody owns them: Jan-Benedict E.M. Steenkamp

One-off events can be easily "hijacked" Managers often wonder whether the huge amounts of money spent on sports sponsoring is worth it. On the one hand, sports events reach audiences unheard of in todays fragmented media landscape. Brands also gain prestige through their psychological association with a sports event or team. Undeniably, Emirates Airlines has benefitted tremendously from its long-time association with the famous football club Arsenal FC and Samsung from being the shirt sponsor of Chelsea FC. The benefits from events like the Olympic Games are less clear. Sponsorship of such events may sometimes backfire (who associates a Big Mac with athletic achievement?), and even benefit competing brands. The case shows that one-off events can be easily hijacked while Singapore Airlines cannot hijack Arsenal. What lessons does this present to global brands? How should they treat the unique opportunities offered by global events like the Olympic Games and the FIFA World Championship? First, you do not necessarily have to spend more, just spend it more cleverly. Set up a hijack team and develop a strategy for each event, starting with the 2014 FIFA World Championship and the 2016 Olympic Games. Build and leverage associations with globally recognised stars. Second, help these sports stars build likes and followers. Third, work on improving the transparency of your brand. Social media are a lot cheaper than sponsoring sports events but the downside is that nobody owns them. Fourth, hijacking sports events is not only for Western brands with deep pockets. They can also be used by emerging market companies to push their brands in their home markets and the global market at large. Jan-Benedict E.M. Steenkamp, C. Knox Massey Distinguished Professor of Marketing & Marketing Area Chair, Kenan-Flagler Business School, University of North Carolina at Chapel Hill
Sponsorship can no longer be a one-off attempt to associate with an event or brand for a halo effect: Nina Bibby

'Power of brands comes from their authenticity'

The London 2012 Olympics were dubbed the first social Olympics because of the power of social media channels surrounding the Games. In many cases, social media provided the means for the so-called hijacker brands to steal the show from actual sponsors. From Danny Boyle's opening ceremony, the view of the 2012 Olympics was micro versus macro: England was portrayed not in a broad sweep, but through a mosaic of touchstones which together add up to national history and pride. As such, the power of brands such as Nike and Beats by Dre came from their authenticity. They connected with people not in spite of being non-sponsors, but almost because they were non-sponsors. People appreciated that behind these brands were leading products which did not require the high cost of sponsorship for their value to shine through. Does this mean we need to reconsider the entire role of sponsorship as a marketing medium? Not necessarily, but consumers are increasingly aware of the potential for brands to manufacture associations which may not be consistent. Subway's consistent support for Phelps before the Games, even through his difficult period, shone through as an authentic relationship, one which consumers recognised. All these examples demonstrate that with the advent of social media, sponsorship can no longer be a one-off attempt to associate with an event or brand for a halo effect. Instead, to be successful, the relationship must appear authentic, consistent and real. Nina Bibby, Chief Marketing Officer at Barclaycard

How IKEA adapted its strategies to expand in China

Couching tiger tames the dragon

This case study analyses how IKEA adapted its strategies to expand and become profitable in China. It also assesses some lessons the company learnt in China that might be useful in India.

Executive Summary: IKEA is known globally for its low prices and innovatively designed furniture. In China, however, it faced peculiar problems. Its low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs. This case study analyses how IKEA adapted its strategies to expand and become profitable in China. It also assesses some lessons the company learnt in China that might be useful in India, where it plans to open its first store by 2014 and 25 stores in 10 to 15 years. Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943. He began by selling pens, wallets and watches by going door to door to his customers. When he started selling his low-priced furniture, his rivals did everything to stop him. Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. What did IKEA do? It innovated to stay in business. It learnt how to design its own furniture, bought raw material from suppliers in Poland, and created its own exhibitions. Today, IKEA is the world's largest furniture retail chain and has more than 300 stores globally. In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. It understood early on that Chinese apartments were

small and customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs. The store layouts reflected the typical sizes of apartments and also included a balcony. IKEA had faced similar problems previously when it entered the United States. The company initially tried to replicate its existing business model and products in the US. But it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US. The challenges it faced in China, however, were far bigger than the ones in the US. As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly. In 2004, for instance, its China revenue jumped 40 per cent from the year before. But there was a problem - its local stores were not profitable.

IKEA identified the strategic challenges and made attempts to overcome them. One of the main problems for IKEA was that its prices, considered low in Europe and North America,

were higher than the average in China. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil. IKEA built a number of factories in China and increased local sourcing of materials. While globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume sales in the country come from local sourcing. These local factories resolved the problem of high import taxes in China. The company also started performing local quality inspections closer to manufacturing to save on repair costs. Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs. High prices were one of the biggest barriers in China for people to purchase IKEA products. IKEA's global branding that promises low prices did not work in China also because western products are seen as aspirational in Asian markets. In this regard, IKEA's low-price strategy seemed to create confusion among Chinese consumers.
The main problem for IKEA was that its prices, considered low in Europe and the US, were higher than the average in China

The company realised this and started targeting the young middle-class population. This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. IKEA also had to tweak its marketing strategy. In most markets, the company uses its product catalogue as a major marketing tool. In China, however, the catalogue provided opportunities for competitors to imitate the company's products. Indeed, local competitors copied IKEA's designs and then offered similar products at lower prices. IKEA decided not to react, as it realised Chinese laws were not strong enough to deter such activities. Instead, the company is using Chinese social media and micro-blogging website Weibo to target the urban youth. IKEA also adjusted its store location strategy. In Europe and the US, where most customers use personal vehicles, IKEA stores are usually located in the suburbs. In China, however, most customers use public transportation. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks. The China expansion came at a cost. Since 1999, IKEA has been working on becoming more eco-friendly. It has been charging for plastic bags, asking suppliers for green products, and increasing the use of renewable energy in its stores. All this proved difficult to implement in China. Price-sensitive Chinese consumers seem to be annoyed when asked to pay extra for plastic bags and they did not want to bring their own shopping bags. Also, a majority of suppliers in China did not have the necessary technologies to provide green

products that met IKEA's standards. Helping them adopt new technologies meant higher cost, which would hurt business. IKEA decided to stick with low prices to remain in business. As IKEA prepares to enter India, its China experiences will come in handy. It understood that in emerging markets, global brands may not replicate their success using a low-price strategy. There always will be local manufacturers who will have a lower cost structure.
Chinese competitors copied IKEA's designs from its catalogue and then offered similar products at lower prices

It is more important what customers think about the company rather than the other way around. IKEA wanted to be known as a low-price provider of durable furniture, while Chinese consumers looked at IKEA as an aspirational brand. It is likely that Indian consumers will also look at IKEA in a similar way. The company also learnt that emerging economies are not ready for environment-friendly practices, especially if they result in higher prices. IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, realised that understanding the local culture is important - Chinese people hate the do-ityourself concept and Indians likely do so even more. IKEA may face some India-specific challenges such as varying laws in different states ruled by different political parties. This could make its operations, especially distribution and logistics, a bit challenging. IKEA already has had to wait a long time to get permission to open stores in India. The delay in policy-making at the state level could be even longer. Indian customer preferences and economic environment are similar to the Chinese market. IKEA will likely have hopes of attracting India's urban middle-class buyers who are keen on decorating their homes with stylish international brands. The company has learnt that doing business in emerging markets is a different ball game for a multinational company. IKEA did well to adapt in China, although it took numerous changes to its strategies and more than 12 years for the company to become profitable in the Asian nation.
FDI in retail in India has been a non-starter, hopelessly mired in special-interest politics:Prof Nirmalya Kumar

Ikea's India rollout will be slow: Prof Nirmalya Kumar The success of IKEA in China is an interesting adaptation example by a global retailer. Yet, it may not be much of a predictor of IKEA's fortunes in India. This may have less to do with IKEA and more to do with the economic policies of India.

A well-designed foreign direct investment (FDI) policy should have resulted in a rush of muchneeded foreign investment to India, upgrading of the supply chain, modernisation of the retail sector, as well as more choices for consumers with lower prices. Instead, FDI in retail, like in higher education, has been a non-starter, hopelessly mired in special-interest politics. The rules are so onerous that a mass retailer such as IKEA will find it hard to meet them without penalising customers with higher prices and lower choice. Also, it will be difficult for IKEA to find the type of location (size, off a highway, with great links to a major metropolis) that is crucial to the success of its business model. This will mean the first store will take much longer to open than Indians expect and the rollout will be painfully slow. Fortunately, as a privately held company with a longterm orientation, IKEA will persevere where more impatient publicly held firms may have given up. For India to kick its economy back to the growth rates necessary for meeting the aspirations of its citizens, we need to roll out the red carpet for foreign investors instead of red tape. Competition law and trade policies are supposed to ensure that a free competitive marketplace exists, with easy entry and exit, not protect existing competitors from new entrants. Capitalism without failure is like religion without sin. Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

It's essential for successful marketing campaigns to take into consideration the local approach: Yelena Zubareva

The main challenge is to adapt: Yelena Zubareva There is no formula for success that fits all marketing strategies when a global brand decides to try a new market, except perhaps unconditional acceptance and responsiveness to changes. The greatest challenge is to adapt constantly. It's essential for successful marketing campaigns to take into consideration the local approach versus the global/regional desire for standardisation. A onesize-fits-all approach is a rare reality. A consistent global brand promise is a desirable asset but what makes a real difference is to be brave and ready to change the target audience and build a differentiating promise. IKEA made all necessary adjustments to make sure there was no mismatch in its growth ambitions and brand promise. Becoming an aspirational brand which is blogging with the

Chinese middle-class youth is an unexpected twist in its brand proposition. IKEA demonstrated courage to get the most relevant changes. By courage I mean all big corporations are ready to shift production, work with local sources, overcome legal requirements but not too many of them are ready to adapt a brand proposition that suits the level of development the market and consumer perception require. IKEA is a strong brand that understands that growing globally requires sacrifices and innovation from global teams, and they are ready to listen, respect and learn from the local environment. The European headquarters' excitement to enter new markets with proven best practices is something of the past, proving that the real shift in the global mindset is to recognise that local versus global can bring optimum results. Yelena Zubareva, Regional Marketing Manager, FWS/OEM SHELL

How adapting to a local market helped 7-Eleven

Hangout Haven
This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market.

Executive Summary: 7-Eleven is known in the United States as a convenience store chain where customers can grab snacks, drinks and other everyday products on the go. In most parts of the world, it is a no-frills store with little emphasis on decor. But in Indonesia,7Eleven has been positioned as a trendy spot where young people spend time, surf the Internet and meet friends. This case study of 7-Eleven illustrates how a brand needs to and can benefit from adapting to a local market. It's one of the hippest places to hang out in Jakarta. And it isn't some trendy new French restaurant in a Dutch-era heritage building. Instead, thousands of people in the Indonesian capital spend their evenings sipping coffee or beer on pavement tables at their neighbourhood 7-Eleven, the international convenience store synonymous with anytime, onthe-go shopping in most parts of the world. Indonesia's 7-Elevens are, clearly, a long way from the original concept behind the world's largest convenience store chain. "At 7-Eleven, our purpose and mission is to make life a little easier for our guests by being where they need us, whenever they need us," says the company's website. And that's what it has been doing all over the world since the first convenience store was born after a Southland Ice Co employee in Dallas started selling milk, eggs and bread from an ice dock in 1927.

The 7-Eleven chain has about 49,500 stores in 16 countries across the world, over 10,000 of them in North America

Today, the chain has grown to about 49,500 stores in 16 countries, more than 10,000 in North America itself, but its core customer remains the same: people on the go who need a one-stop shop to quickly buy everyday products. Typically, most 7-Eleven stores all over the world are conveniently located in office areas and are open around the clock. Initially, 7-Eleven spread its wings slowly. In its early years, it grew strategically in suburbs in the United States and areas too small for a supermarket: by 1963, it had 1,000 stores across the country. But it began to grow at breakneck pace after it adopted a franchisee model the following year. In 1969, 7-Eleven began expanding beyond US borders and set up shop in Canada. In the 1970s and early 1980s, it expanded to Mexico, Japan and Asian markets such as Taiwan, Singapore and the Philippines. With the increasing importance of emerging Asian markets such as Thailand, the Philippines and Malaysia, 7-Eleven Corporation moved its corporate headquarters to Japan in 2001. Traditionally, 7-Eleven's entry strategy is to target urban markets and tailor stores to local tastes. For example, customers in Hong Kong can pay their phone and utility bills at a local 7-Eleven; in Taiwan, they can service their bicycles or photocopy at the convenience store; and in the US they can pick-up their online Amazon shopping there. By offering these services - often exclusively - customer traffic can be increased significantly. To achieve this customer orientation and competitive advantage, almost all stores arfe operated by franchisees, who understand the local environment.
7-Eleven in Indonesia has everything local markets offer, and more. It also has live entertainment and wireless connectivity

So, when 7-Eleven entered the Indonesian market in 2008, the question was: what was the Indonesian customer looking for and where should the retailer position itself? The Southeast Asian country was an ideal market for a retailer. It was among the world's largest growing economies with a population of 240 million and a growing class of consumers. But Indonesia had some typical traits not found in other markets. For one, just hanging out and doing nothing is so deeply embedded in Indonesian culture, the local language has a special word for it: nongkrong. People traditionally gather at street markets and share stories, eat in local markets and roadside food stalls called warungs or Western fastfood chains such as McDonalds, Dunking Donuts or coffee shops such as Starbucks which entered Southeast Asia a whi le ago. Moreover, Indonesia is highly plugged-in: the country had an estimated 20 to 30 million Internet users in 2009, a big chunk of them between the ages of 15 and 19. 7-Eleven studied the culture, habits and tastes of the Indonesian population and realised Indonesia lacked places where young people could hang out, eat, drink and follow their new passion: being online. It adopted a unique business model in the country: it blended a small supermarket with inexpensive readymade food and seating to cater to Jakarta customers looking for outdoor recreation space in a city where traffic jams often restrict mobility.

7-Eleven in Indonesia included everything local markets and street vendors offered - and more. The store is open 24 hours, has hasslefree parking, offers leisure activities such as concerts, is air-conditioned and, most importantly, has wireless connectivity. Sixty-five per cent of the Indonesian franchise's customers are less than 30 years old and love social networking. 7-Eleven also featured local artists or live bands to further attract the nongkrong-ing crowds at its stores.
The target customers

7-Eleven in Indonesia is more focused on the experience of hanging out rather than the convenience store concept itself. Its valued customer there is between 18 and 35, works in a large commercial area and is happy to pay a premium for food and drinks if he has an enjoyable place to spend some time. He/she is not bound by time and stops by throughout the day and night, which makes it worthwhile to stay open 24/7. In addition, the social network connectivity of visitors to 7-Eleven stores, who tweet and post about their experience, attracts new customers. It is "hip" to hang-out at the local 7-Eleven store. When it came to pricing strategy, the local franchise followed the company's traditional model. It leveraged the fact that its stores are open 24/7, even when other food retail competitors are closed, and priced products at the upper end. The placement strategy of 7-Eleven Indonesia was also the same as the US. The stores are located in commercial and office areas, but not public transport stations because they are not seen as premium locations. But unlike the US, the archipelago of around 17,000 islands does not have a 7-Eleven literally at every corner; instead it focuses on big hubs in Indonesia. 7-Eleven Indonesia's unique customer experience extends to popular local artists and social media websites. Local artists perform in 7-Eleven stores because their fans like to hang out in these areas and 7-Eleven provides the location at low or no costs. Although 7-Eleven has a first mover advantage and has already built up a strong brand name and large customer base, new competitors will come into this market and existing ones are likely to reposition themselves. 7-Eleven should continue to innovate its product range and offer additional services that meet local traditions and customer needs to stay ahead of the competition.

Retail is one area, especially mass merchandise retail, where global success stories are few and far between: Prof Nirmalya Kumar

How much to adapt is a classic dilemma for global brands As global brands from Western countries adapt to emerging markets, they face the challenge of different demographics and income patterns. How much to adapt while retaining the brand DNA is a classic dilemma. Adaptation needs to be limited for luxury brands as their target market tends to be the top of the pyramid, where consumption patterns are global. Similarly, for technological products, like software or smartphones, the adaptation needed is relatively small. Retail is one area, especially mass merchandise retail, where global success stories are few and far between. Even the most successful global retailers - Carrefour, Metro and Wal-Mart - have had their share of failures. Why is global mass retailing so challenging? The products/brands sold by mass retailers are not unique - and are already widely available in the country. As a later entrant, a global retailer is unlikely to find the best locations available and it is unlikely to have a lower cost of operations than local mom-and-pop stores. To succeed, the global retailer has to offer better customer experience while hoping that savings from state-of-the-art global systems will more than compensate for the higher real estate and operating cost disadvantages. The 7-Eleven case in Indonesia is an outstanding example of a global retailer having found a unique proposition with its customer experience that taps directly into the demographic differences of the country. For global firms, after China and India, Indonesia has perhaps the greatest potential. Kudos to 7-Eleven for unlocking this. Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

It shifted its core brand proposition from a convenience store in the US to a place where convenience store meets Internet cafe: Lassi Lastiani

7-Eleven Stands Out For Its Marketing Strategy 7-Eleven's success in Indonesia is an ideal case to study how a brand redefines its marketing strategy to enter a new market. While other brands are struggling to find their place

in the market, 7-Eleven stands out for its marketing strategy. The new local strategy is aligned to the growing demographic opportunity in the Indonesian market, where young people below 30 account for almost 40 per cent of the population. Capturing this important market with the right positioning - a cool, trendy place to hang out with affordable meals, drinks and fast Internet - have been the key success factors. It shifted its core brand proposition from a convenience store in the US to a place where convenience store meets Internet cafe for young people in Indonesia. Moving forward, keeping pace with changing customer needs, a fast-moving economy and a competitive environment in Indonesia are the challenges for 7-Eleven. While the entry strategy perfectly captured a strategic position, competitors are adapting their strategy to win back market share. The local 7-Eleven concept is not that hard to copy after all, especially when some competitors have been established in the country for a longer period of time. The size and design of 7-Eleven stores needed to implement its strategy also deters expansion in every corner of the country. It has to carefully chose the right corner to be spacious enough for both the store and Internet cafe, and strategically located to be viable as a 24/7 concept. Lassi Lastiani, Finance Director, Consolidated Services International, Jakarta

How Kraft Foods made Oreo a global brand

Smart cookie

Executive Summary: For most of its 100-year existence, Oreo was America's best loved cookie, but today it is a global brand. Faced with stagnation in the domestic market, Kraft Foods moved it into emerging markets where it made some mistakes, learnt from them and ultimately triumphed. This case study looks at the strategies used to win over customers in China and India. On March 6, 2012, the famous cookie brand, Oreo, celebrated its 100th birthday. From humble beginnings in a Nabisco bakery in New York City, Oreo has grown to become the bestselling cookie brand of the 21st century generating $1.5 billion in global annual revenues. Currently owned by Kraft Foods Inc, Oreo is one of the company's dozen billiondollar brands. Until the mid-1990s, Oreo largely focused on the US market - as reflected in one of its popular advertising slogans from the 1980s, "America's Best Loved Cookie". But the dominant position in the US limited growth opportunities and spurred Kraft to turn to international markets. With China and India representing possibly the jewels in the crown of international target markets due to their sheer size, Oreo was launched in China in 1996. The China launch was based on the implicit assumption that what made it successful in its home market would be a winning formula in any other market. However, after almost a decade in China, Oreo cookies were not a hit as anticipated, according to Lorna Davis, in charge of the global biscuit division at Kraft. And the team even considered pulling Oreo out of the Chinese market altogether.

In 2005, Kraft decided to research the Chinese market to understand why the Oreo cookie that was so successful in most countries had failed to resonate with the Chinese. Research showed the Chinese were not historically big cookie eaters. According to Davis, Chinese consumers liked the contrast of sweet and bitter but "they said it was a little bit too sweet and a little bit too bitter". Without the emotional attachment of American consumers who grew up with the cookie, the taste and shape could be quite alien. In addition, 72 cents for a pack of 14 Oreos was too expensive for the value-conscious Chinese. Kraft's Chinese division used this information to formulate a modified recipe, making the cookie more chocolatey and the cream less cloying. Kraft developed 20 prototypes of reduced-sugar Oreos and tested them with Chinese consumers before arriving at a formula that tasted right. They also introduced different packages, including smaller packets for just 29 cents to cater to Chinese buying habits. The changes had a positive impact on sales and prompted the company to ask some basic questions challenging the core attributes of the traditional Oreo cookie. Why does an Oreo have to be black and white? And why should an Oreo be round? This line of questioning and an ambition to capture a greater share of the Chinese biscuit market led Kraft to remake the product in 2006 and introduce an Oreo that looked almost nothing like the original. The new Chinese Oreo consisted of four layers of crispy wafers filled with vanilla and chocolate cream, coated in chocolate. The local innovations continued and Oreo products in China today include Oreo green tea ice cream and Oreo Double-Fruit. Another challenge for Kraft in China was introducing the typical twist, lick and dunk ritual used by American consumers to enjoy their Oreos. Americans traditionally twist open their Oreo cookies, lick the cream inside and then dunk it in milk. Such behaviour was considered a "strangely American habit", according to Davis. But the team noticed China's growing thirst for milk which Kraft tapped with a grassroots marketing campaign to tell Chinese consumers about the American tradition of pairing milk with cookies. A product tailored for

the Chinese market and a campaign to market the American style of pairing Oreos with milk paid off and Oreos became the bestselling cookies of that country. The lessons from the Chinese market have shaped the way Kraft has approached Oreo's launch in India. Oreo entered India through the import route and was initially priced at Rs 50 (about $1) for a pack of 14. But sales were insignificant partly because of limited availability and awareness, but also because they were prohibitively expensive for the value-conscious Indian masses. Learning from the Chinese success story, the company under global CEO Irene Rosenfeld took localisation strategies seriously from 2007 onwards. The $19.1-billion acquisition of Cadbury in 2009 provided Kraft the local foothold it needed in India. Unlike the Chinese, Indians love their biscuits. Nielsen says India is the world's biggest market for biscuits with a market share of 22 per cent in volumes compared with 13 per cent in the US. While the lion's share of this market is for low-cost glucose biscuits led by ParleG, premium creams account for a substantial chunk valued at around Rs 5,500 crore ($1.1 billion). The way to the Indian consumer's stomach is through competitive pricing, high volumes and strong distribution, especially in rural areas. Oreo developed a launch strategy around taking on existing market leaders in the cream segment - Britannia, Parle and ITC. Internally, they even have an acronym for this strategy TLD (Take Leaders Down). The focus was to target the top 10 million households which account for 70 per cent of cream biscuit consumption. Oreo launched in India in March 2011. It entered the market as Cadbury Oreos because Cadbury is a stronger brand name than Kraft, and initially focused on generating awareness and rapid trials. The product was sweetened to suit the Indian palate and Kraft exploited Cadbury's network of 1.2 million stores. The Made in India tag meant using locally-sourced ingredients, modification of the recipe to suit Indian tastes and possibly cheaper ingredients, a smaller size and competitive prices. Oreo launched its traditional chocolate cookie with vanilla cream at Rs 5 for a pack of three to drive impulse purchases and trials, Rs 10 for a pack of seven and Rs 20 for a pack of 14 for heavy usage. The cookie looks the same as its international counterpart with a motif of 12 florets and 12 dashes. The company maintained the heritage of the bitter chocolate cookie with sweet vanilla cream to stand out from me-too products and meet customer expectations of having the real thing. Kraft initially chose to outsource its manufacturing for the Indian market instead of using Cadbury factories.

Communication and advertising have been consistent across the world as the core customer remains the same. The company focused on using the togetherness concept to sell Oreos in India, with television forming the main medium of communication although other media are also being tapped. Oreo India's Facebook page is one of the fastest growing in the world. The company also went on a bus tour to push the concept of togetherness among families across nine cities and it used a smaller vehicle for a similar campaign across 450 small towns. Oreo is driving point-ofpurchase sales with store displays and in-store promotions in a bid to overtake market leader Britannia Good Day's distribution. With a strategy focused on rapid brand awareness and extensive distribution, the Oreo India launch story has been a success so far. Its market share has grown from a little over one per cent after its debut to a massive 30 per cent of the cream biscuit market. As awareness of the Oreo brand grows in India, Kraft is looking to shift from the Cadbury distribution network to a wider wholesale channel. It is also eyeing kirana stores and small towns apart from modern stores in big cities. Today, Oreo is more than just an American brand. It is present in more than 100 countries, with China occupying the No. 2 slot. Seven years ago, this was highly improbable.
The new Oreo brand proposition is richer and more elaborate while allowing for brand growth and innovation: Prof Nirmalya Kumar

BRANDS FACE AN EXISTENTIALIST DILEMMA Initially, successful brands begin with a tight core brand proposition which is often unique at the level of the product or product features. Just as McDonalds was about hamburgers and Starbucks about coffee, Oreo was about its distinctive cookie. As time goes by, consumers change and the company needs growth. Sooner or later, the brand faces an existentialist dilemma. Staying faithful to the traditional proposition would lead to brand irrelevance, while expanding it too much would lead to brand incoherence. Continued success requires the brand to redefine its core, finding in it a proposition that is still faithful to tradition, and yet encompasses modernity in a manner to keep the brand relevant, differentiated and credible. The rise of emerging markets with their different consumption patterns and greater diversity of income distribution questions the core proposition of many developed world brands. Just as McDonalds had to realise it was about clean, affordable fast food and not hamburgers, Oreo had to go through a candid self-exploration. The new Oreo brand proposition is richer and more elaborate while allowing for brand growth and innovation. Similarly, Starbucks realised that when China was going to be its second home market, coffee was not essential to the core proposition. This required a change in the logo and the word

coffee was dropped from it. In China, more than coffee, people line up at Starbucks for cold refreshments. However, brands are like rubber bands and can only be stretched so far in the short run. In the long run, they can often be more flexible than their brand managers. Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

Affordable pricing is one of the strategic value propositions Kraft is offering valued customers in India: Hiroshi Omata

AVAILABILITY, AFFORDABILITY AND ADAPTABILITY ARE KEY This is a good example of marketing excellence in three As in India: Availability, Affordability and Adaptability. The key to success in the Indian market is to pursue a balanced marketing effort in terms of the three As. Availability is a function of distribution and value networks, which generates brand awareness when it goes along with well-devised advertising campaigns. Affordable pricing is one of the strategic value propositions Kraft (Cadbury) is offering to valued consumers in India. Better or more-for-less is the mandate for the value proposition in this category. Arguably, where Oreo India made a difference in is the fact that it successfully overcame a real challenge each and every marketer faces to realise affordable pricing with profitability. Excellence in adaptability to local culture also helped Oreo capture a share of mouths and minds. One of the key success factors for Oreo in India is replicating the learning from China in terms of the intangible brand promise more than tangible benefits like taste. The notion of togetherness fits the Indian context of valuing the family and resonates with the nuclear family in the expanding middle class. Togetherness has successfully created emotional bonding not only between the brand and consumers, but also between parents and children when they experience the brand through product consumption. When Oreo enters smaller towns, it will be able to enjoy a sweet taste of the future as the case proves the existence of global or universal consumers in India. Hiroshi Omata, CEO, Dentsu Marcom

How Burberry capitalised on the social media

Entrenched in the Digital World

Executive Summary: In 2009, British luxury brand Burberry, like its competitors, was still unsure of how to build a valuable presence in social media. This case study looks at how it eventually capitalised on the new medium - without eroding the exclusive, aspirational qualities that are core to the world of luxury. In 2009, fashion house Burberry was feeling the pressure of the economic downturn, even though its financials had been strong over the past decade. Revenue growth dropped from 18 and 15 per cent in the previous two years to seven per cent that year, excluding the impact of foreign exchange rates, while operating profit margin shrank from about 15 per cent to 9.8 per cent. In this harsh retail environment, Burberry recognised the potential value of the digital media. In March 2009, with 175 million users on Facebook and 600,000 more joining it each day, Burberry began allocating marketing and public relations spend and dedicated personnel to pursue tech-age marketing. Building a social media presence seemed critical, but the question was, "how"? Burberry was founded in 1856 when 21-year-old Thomas Burberry, a former draper's apprentice, opened his own outdoor apparel store in Basingstoke, Hampshire, England. Soon after, the company introduced the gabardine, a water-resistant but breathable fabric, and started producing the trench coats that would become famous in England and around the world. By the end of the 20th century the brand was going through difficult times, as the company's strategy had not been consistent with the Burberry brand identity. In 1997, Rose Marie Bravo, former president of Saks Fifth Avenue, was named CEO. She and her team initiated a series of changes that repositioned the brand, targeting a younger and higherend audience, and raised it back to the top of the fashion world.

Burberry introduced the gabardine, a water-resistant but breathable fabric, and started producing the trench coats that would make them famous in England and around the world
In 2006, Angela Ahrendts assumed the CEO's position after Bravo retired. She and Christopher Bailey, Chief Creative Officer, focused on digital media as one of Burberry's main strategies to continue strengthening the brand. Burberry had already joined Facebook, but Bailey wanted to do something more, something distinctive and unique to the brand. Burberry's luxury sector competitors may not have yet made any major waves in digital media, but Burberry's executive team had never been too focused on its peers. Instead, it looked to other iconic brands such as Nike, Apple, and Google. These brands were hitting social media hard, and Burberry wanted to follow suit. The mandate was simple: to develop a campaign that was innovative and would engage younger consumers. The Burberry brand was democratic and fashion forward. No product better reflected this than the iconic trench, which over the course of its history had been worn by soldiers, royalty, celebrities, and the working class, each group wearing it with its own style and flair. In recognising this unique status of the trench that encompassed Burberry's brand pillars of democratic luxury, function, and modern classic style, the team was on to something. It also recognised that street style photography had become a hot trend, and worked well with the trench look. These two pieces came together in one big idea: why not leverage existing Burberry customers, who personify the brand, to generate content that appeals to them and to their peers?

In the year after the launch of the Art of the Trench in November 2009, Burberry's Facebook fan base grew to more than a million, the largest fan count in the luxury sector at the time
With that revelation, the idea for the Art of the Trench campaign was born. The team envisioned a website where existing customers could share photos of themselves wearing their Burberry trench coats, giving them their '15 minutes of fame' as models on the site, and allowing other customers to admire their sense of style. The Art of the Trench site was designed carefully to walk the fine line between appealing to Burberry's high-end customer base and also generating interest in the new youthful, aspirational future customer. For this reason, the campaign was designed as a standalone social media platform, instead of being hosted on an existing platform. This ensured Burberry had control over the look and feel of the site that existing platforms such as Facebook could not offer. The initial idea centred on the trench and the team opted to stick with this limited focus rather than include other apparel. To kick off the campaign and set the tone of the images, the team brainstormed about

getting a partner and finally chose Scott Schuman, also known as The Sartorialist, after his street style fashion blog. Schuman was a pioneer and a leader in the fashion blog world, with his site averaging around 13 million page views per month by 2011. To engage both existing and aspirational customers, the Art of the Trench offered two levels of participation. Customers could upload photos of themselves in their Burberry trenches, and customers and "aspirationals" alike could comment on them, 'like', and share the photos via Facebook, email, Twitter, or Delicious. Users could also sort photos by trench type, colour, gender of the user, weather, popularity, and the where the photo originated (user submitted, Sartorialist, fashion), and click-through to the Burberry site to make a purchase. Rather than explicitly market the Art of the Trench, Burberry opted to rely largely on public relations and word of mouth generated through The Sartorialist and users sharing their submissions on Facebook and Twitter. This tactic allowed the Art of the Trench to have an exclusive 'in -the-know' feel that appealed to the luxury consumer. Following on the launch, Burberry hosted events to continue driving excitement around the trench in diverse markets including India, France and Brazil.
A Burberry customer in her trench coat

By the end, the team had crafted a site it felt would meet its goal of engaging younger consumers in an innovative and exciting way. In the year following the launch of the Art of the Trench in November 2009, Burberry's Facebook fan base grew to more than one million, the largest fan count in the luxury sector at the time. E-commerce sales grew 50 per cent year-over-year, an increase partially attributed to higher web traffic from the Art of the Trench site and Facebook. The site had 7.5 million views from 150 countries in the first year. Conversion rates from the Art of the Trench click-throughs to the Burberry website were significantly higher than those from other sources. By all metrics, quantitative and qualitative, the campaign was a success.

The success of the Art of the Trench affirmed Burberry's strategic focus on digital. By 2012, Burberry had moved 60 per cent of its marketing budget to digital. It also had the most number of Facebook fans and Twitter followers in the luxury sector. CEO Bailey described Burberry as being "as much a media-content company as a design company". Burberry has executed many other digital innovations, setting the bar for online customer engagement. Each of these initiatives has built on the digital strategy Burberry kicked off with the Art of the Trench, and has led to the brand's pre-eminent status as a tech-savvy brand. Ahrendts and Bailey have been applauded for their pioneering moves, and Burberry has been recognised as "the industry leader when it comes to technological awareness," achieving "genius" status in the digital IQ report by Luxury Lab, a think tank on digital innovation. Financially too, the strategy seems to be paying off, with company sales more than doubling and stock growth of nearly 300 per cent since Ahrendts's arrival in 2007. Rivals have tried to keep pace with varying levels of success, but none have gone full throttle like Burberry. Despite Burberry's success, there are those who doubt the sustainability of the brand's digital strategy and wonder if letting fashion take a backseat may lead to the company's downfall. Sales, profit, and share price growth have all begun to slide this year. Growth in China, Burberry's largest market, has been hit hard. Ahrendts has defended her strategy. "I've seen what happened to brands like Kodak that did not keep up with digital change. That's a lesson in what to avoid," she has said. So, is the strategy responsible for Burberry's return to market leadership and the clear path forward? Or is it a strategy blindly, excitedly pursued that may be too great a deviation from the company's core business?
The Burberry campaign was very good at leveraging the social aspect of the new media: Nirmalya Kumar

'Enhance Experience Of Social Media Users' The case study highlights three interesting lessons. First, marketers are wary of the new social media world because, compared with traditional media such as TV, it offers relatively less control over the message and the potential target. Who knows who will share the message, with whom, and with what commentary? Further, the metrics to ascertain the success of the campaign are not as clear for the marketer. Burberry cleverly designed a campaign that overcame these two obstacles with social media. Second, many social media campaigns, especially on Facebook, are truly reminiscent of going from the horse carriage to the automobile. Since the horses were in front, the engine was placed in front of the car. Similarly, all these exposure-based ads on Facebook are

irritating for the user and ineffective for the marketer. Who cares how many likes a brand has, except perhaps to boast to other competitors? It is totally unimaginative. To be effective on Facebook, marketers must come up with campaigns that enhance the social experience of the Facebook user. For example, using your Facebook account to sign into the Amazon website so that it notifies your friends birthdays and suggest gifts based on their activity. The Burberry campaign was very good at leveraging the social aspect of the new media. Third, luxury marketers tend to be product-oriented. If one thinks of the customer, segments become quickly apparent. There is the buyer who consumes the store as part of the brand experience, though even this is changing with busy professional women. However, there are other buyers who just want to buy a gift. They simply want the purchase executed at the click of a mouse. They will exchange it if they do not like it! Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

Burberry kept 'Customer Experience' at the core of its strategy and it needs to sustain that: Rubaba Dowla

Use of Digital Technology in Fashion Will Improve Learning from iconic brands such as Nike, Apple and Google and applying that knowledge to an industry where use of digital media, and more specifically social media, is seen more as a distraction than a timely adaptation, is a bold step that has set Burberry apart. Burberry kept 'Customer Experience' at the core of its strategy and it needs to sustain that. It ensured entertainment, engagement, and interaction that appealed to both high-end and newgeneration consumers. It gave a unique experience to its customers by connecting stores digitally, providing online shopping solutions, developing social media applications in association with relevant partners (Facebook, Twitter, The Sartorialist etc). This use of co-creation has helped to drive brand awareness and the convenience of digital technology has given a new dimension to customer engagement. Time being a constant challenge in today's world, the demand for instant, accurate and exclusive fashion content, along with the convenience of digital technology, will only increase. The success of Burberry may seem easy to imitate to other fashion brands, but they might fail as Burberry's approach requires a complete transformation of the process. Using social media should not be an alternative to accessing information about the product, but an integral part

How Diageo won Kenya's price-sensitive market

Bottoms Up

Executive summary: When spirits maker Diageo faced slowing growth in developed economies, it started expanding in emerging markets. It sniffed an opportunity at the bottom of the pyramid in Kenya. Poor people in this East African nation could not afford expensive branded beer and drank illicit, homemade products instead, despite the health risks. This study looks at how Diageo developed a safe, cheap beer to win over this price-sensitive market. Diageo, the world's largest spirits company and one of the major beer and wine producers, has a powerful portfolio of brands and strong distribution networks in many developed markets. By 2004, however, many of these mature markets were becoming saturated. Emerging markets, on the other hand, were growing quickly, and the company saw an opportunity in them. But there were also difficult questions: which market should it target? What were the needs of customers in that market? And how could it deliver the right value proposition to those customers, knowing full well that tackling an emerging market would present challenges that differed greatly from those it faced in the developed world?

Africa was an attractive target for Diageo. Its population was growing at more than 2% a year
Africa provided an attractive target. Its population had been growing at more than two per cent per year, and it had an average age of 19.7 years. The middle class was well over 250 million people in 2000, and the number was increasing rapidly. But the continent also presented its fair share of challenges.

Many existing products were too expensive for the African middle class. Others, developed for western markets, did not address the specific needs of the African population. The challenge for Diageo was to produce commercial alcoholic beverages that profitably met local needs. To achieve its targeted growth, the company needed to innovate across its entire value network. New products, manufacturing setups and distribution systems, tailored to the specific commercial needs and opportunities of the region, would have to be created. Diageo first had to decide whom it would serve to achieve that growth. The company was producing and selling a beer called Tusker in Kenya at the time through an equal partnership with a local company, East Africa Breweries Ltd (EABL). Tusker and its rivals were sold at prices well out of the reach of most Kenyans.

The company developed a process to make beer without the costly and difficult-to-source hops
This left a strategic segment underserved: those who drank but for whom branded beer was too expensive. The poor consumed homemade brews sold illegally. These illicit products were often contaminated with methanol, fertilisers or battery acid, and caused blindness and even death. This presented a big opportunity for Diageo. Providing a safe, ultra lowcost beer to compete with illegal supplies could play a crucial role in both resolving alcoholrelated health problems and in achieving the targeted growth for Diageo. The company created a new product - a beer called Senator Keg - to tap the approximately 60 per cent of consumers who drank only illegal alcohol. Senator Keg offered potential consumers not only a safe drink but also a stepping-stone to a new, aspirational drinking experience. Diageo had to rethink its entire value chain. It would have been impossible to produce beer at a profit using the company's traditional sourcing, manufacturing, marketing, and distribution mechanisms. So, virtually every part of the network was redesigned to reduce cost. First, Diageo engineered its sourcing and manufacturing operations to significantly reduce the cost of producing Senator Keg beer. Most beers are produced from two primary ingredients - barley and hops - which are combined with yeast and water to induce fermentation. The company chose to source barley from local growers and to produce the beer at its subsidiary, EABL. This took advantage of low labour costs in Africa while minimising transportation and other expenses associated with sourcing from afar. More interestingly, the company developed a process to make beer without the costly and difficult-to-source hops. This drastically reduced the beer's production cost. The pioneering process of brewing a lager from only barley was the world's first, and recognised internationally.
Senator costs a fifth of the price of Diageo's Tusker beer and is only a bit more costly than illegally brewed alcohol

Diageo also needed to distribute the product cheaply while keeping it safe. The lack of a formal distribution infrastructure - and even formal retail outlets - forced Diageo to use Kenya's

'shadow economy' to distribute its product. Diageo provided its product to a few dozen distributors, who then distributed it to the tens of thousands of small bars and roadside establishments that make up the drinking scene for some of the country's poorest citizens. The company announced a formalisation process to enable licensing of outlets that previously sold illegal alcohol, making them exclusive Senator Keg outlets. Diageo then trained the staff of its retail outlets - free of charge - how to rotate kegs and wash glasses to maintain freshness and flavour, how to serve and even how to deal with customers who had had too much. This ensured that customers got high-quality beer in hygienic conditions at outlets and prices accessible to them. By using a two-level distribution system, which involved selling to one tier (the distributors) but educating the second tier (the retail outlets) to maintain product quality and safety, Diageo was able to get its product delivered cheaply to a broad market while maintaining control over the customer experience. Finally, Diageo needed to find a way to minimise the cost of packaging. Most beers were served in bottles, which added appreciable cost to a product that was intended to sell for around 10 pence (about six rupees) per serving. A significantly cheaper approach would involve packaging the beer in kegs to eliminate the expense associated with single-serving containers. Diageo also distributed a specially-designed hand pump and plastic hardware along with the kegs to circumvent the need for expensive beer dispensing hardware. Market research done in 2003 by Diageo showed the optimal pricing for Senator Keg needed to be between 20 and 30 Kenyan shillings (Rs 13 to Rs 18) a glass (300 ml). When finally introduced, at 15 to 20 shillings a glass (around Rs 9 to Rs 13) Senator cost a fifth the price of Diageo's mainstream beer, Tusker, and was only slightly more expensive than illegal alcohol. By pricing Senator Keg at this level, Diageo offered consumers a product that was safe, and yet competitive with homemade spirits. Diageo made other significant efforts to reduce the price. It put forward a proposal to the Kenyan government to reduce taxes on Senator Keg to decrease its price and attract budget drinkers away from illicit brews. The government reduced excise duty on Senator Keg, and later was so happy with the health benefits that it waived the tax altogether. No expensive billboards were used to launch the product. Instead, live shows were held in informal settlements to dispel any misconceptions about the product and recognise the importance of this market segment. There was also substantial focus on point-of-purchase advertising. Innovative and functional offers highly relevant to the target consumer, like solar-powered mobile chargers, were used for promotion. Senator Keg has proved an enormous success by any measure. Since its launch, the brand has gained 40 per cent of the Kenyan beer market, and EABL dominates the country with a 97 per cent share. More broadly, emerging markets now contribute nearly 40 per cent of Diageo's net sales (Pound 10.76 billion in 2012), up from 20 per cent in 2005. Africa alone contributes 14 per cent of Diageo's revenue. The company expects emerging markets to make up half of its net sales by 2015.

Even the best strategies can be copied. But excellent execution is the gem of any company: Anne Gro Gulla

Senator Keg's success is hard to copy At first glance, I wonder if the Kenyan low-end beer market with its limited average income and complicated distribution model appeared attractive to the Diageo top management. This case, however, demonstrates how understanding customer needs and delivering on these throughout the value chain created a roaring success. But it took guts, determination and maybe even humility from the company. Instead of copying business models from developed markets, Diageo re-invented its entire value chain. The Senator Keg distribution system, the training of the staff of the retail outlets on how to wash glasses to secure intended product quality are examples of the company's true differentiators. Senator Keg also answered an unmet need: a safe, affordable beer to lure users away from illicit brews. I guess it is unusual to get tax benefits from the government based on health benefits of alcohol. The promotional activities also were fuelled by consumer insights. Senator Keg drinkers were actively participating in the brand experience by deciding on label design and enjoying live shows arranged by the brand. If you get in the heart of your customers, you build a reservoir of trust and liking. This leads to brand preference, sales, and the likelihood of being forgiven in the case of a breakdown or occasional failures. Even the best strategies can be copied. But excellent execution is the gem of any company. There is every reason to believe in the future success of Senator Keg. The target group is part of a growing economy; the brand is aspirational and close to the consumers. But Diageo must never stop investigating customer needs and must adapt its value chain accordingly. Real insight drives business results. Anne Gro Gulla, Vice President, Group Branding, Telenor Group
Senator Keg is an excellent example of an MNC innovating for the bottom of the pyramid: Nirmalya Kumar

Reimagine the entire value network My friend, the late C.K. Prahalad, was responsible for introducing

the concept of the bottom of the pyramid (BOP) in boardrooms of leading global companies. Inspired by Hindustan Unilever, he saw a huge opportunity to re-imagine products from multinational corporations (MNCs) for people who needed, but could not afford, them. Since his demise, Vijay Govindarajan (with Reverse Innovation) and I (with India Inside) have been working within this tradition of strategy research. We have become advocates of looking at emerging economies not just as markets but also as sources of innovation. Senator Keg is an excellent example of an MNC innovating for the BOP. Providing a safe replacement for the home brew required not only developing a new product, but an entirely new delivery concept. The best BOP examples re-imagine the entire value network, not simply the products. More interestingly, Diageo convinced important stakeholders of the benefits, which led to a tax waiver on excise duties. The Kenyan government was not collecting anything from the home brews. By converting these transactions into the accounted commercial sector, there will be enough opportunities later to consider imposing a small duty. Often companies are hesitant to introduce lower-priced products because of the fear of cannibalisation. What makes Senator Keg so interesting is that Diageo positioned it to an entirely new segment. However, for Diageo, Senator Keg will be a truly resounding success only if this idea can be taken from Kenya to other markets. Income-constrained aspirational consumers exist in large parts of the world, if not everywhere. Nirmalya Kumar, Professor of Marketing and Director of Aditya Birla India Centre at London Business School

How Havaianas transformed into a premium brand

The world at its feet

Executive Summary: Until the early 1990s, Brazil's Havaianas slippers were perceived as a poor man's product. In appearance, these slippers, made by Sao Paulo Alpargatas, are very similar to India's ubiquitous 'Hawai chappals'. A sharp drop in sales in 1993 forced the company to revamp the brand's image. Today, while it is still a product for the masses, Havaianas has come to be perceived as a premium brand as well. And Alpargatas is taking it global. This is the story of that remarkable transformation.
Photo: Illustrations by Santosh

In 1883 two immigrant Argentines, Juan Echegaray, who hailed from Spain's Basque region, and Robert Fraser, a Scotsman whose family was in the textile business, formed a partnership to manufacture lowcost footwear. Little did they know then that Alpargatas, the company they formed, would spawn a business empire and a footwear brand that would become famous worldwide. In 1907, the company set up a unit in Sao Paulo, Brazil. The subsidiary, Sao Paulo Alpargatas, was taken over by Brazilian investors in the 1980s and has become the largest public footwear company in Latin America. In 2011, its net sales rose 15.4 per cent to approximately $1.27 billion while net income, at approximately $152 million, was the highest in its history. Today, the company, renamed Alpargatas, has six manufacturing plants in Brazil and eight in Argentina. It manages a portfolio of eight major brands: Rainha, Sete Leguas, Topper, Dupe, Havaianas, Timberland, Mizuno and Meggashop. Of these, it is best known for the Havaianas brand of "flipflops" or slippers.

Launched in 1962, the Havaianas flip-flops are similar Read the full case study from in appearance to India's ubiquitous Hawai brand of London Business School here chappals. Within a year of launch, the simple and cheap sandals were selling like hot cakes, racking up sales of more than a thousand pairs a day. However, as such, there was no marketing strategy for the brand. Alpargatas had not given much consideration to customer perceptions and did not invest in the brand. In part this was because of the difficult economic conditions prevailing in Brazil during the 1980s. As a consequence, the flip-flops were sold to customers in every socio-economic category with no differentiation. To be fair, the company did not need a strategy at the time; it controlled 90 per cent of the domestic market and was selling nearly 100 million pairs of slippers each year. However, Brazil's economy began to improve in the early 1990s, and ordinary citizens started to reap the benefits of the resurgence and had more money to spend. Ironically, this improvement also saw consumers deserting the "cheap" Havaianas slippers, which were seen as something worn by maids and construction workers. This development also coincided with the entry of new unbranded competitors in the domestic market. Until the 1990s, Havaianas was perceived as a brand for the poor, worn by maids and construction workers Consequently, Havaianas's sales suffered, dropping 35 per cent in 1993 to 65 million pairs. The loss in sales forced the Alpargatas management to radically change the way it thought about the simple rubber flip-flops. It was clear that Havaianas needed a marketing push and could no longer survive as just a commodity. The company revamped the brand by introducing new colours, new packaging and displays and investing heavily in promotional campaigns. Over time, customers came to associate Havaianas with a relaxed and irreverent attitude. This perception was driven by a series of funny advertisements that depicted artistes wearing Havaianas outdoors - at the beach, while shopping, etc. Simultaneously, a media campaign was launched with celebrities endorsing the product. These advertisements caught the attention of consumers and helped reinforce the new brand associations.

The Havaianas range grew from just two models to over 25 (and many more, later), in a variety of colours. While the cheap, commoditised mass model was retained, the new ones were priced five to six times higher. The premium products were packaged in boxes similar to those of shoes. Soon, the slippers began to appear in display windows. In just six years, Sao Paulo Alpargatas managed to reverse the decline in sales. From 65 million pairs in 1993, sales rose up to 105 million pairs in 1999. Havaianas had bounced back. Today, Brazil continues to be its largest market, accounting for 72 per cent of Havaianas's total sales.

Even as the Havaianas brand regained its dominance over the Brazilian domestic market, Alpargatas began eyeing its Latin American neighbourhood. The company's experience licensing foreign brands such as Nike and Timberland in Brazil, and representing them in other Latin American countries, helped. The proximity and cultural similarities of these markets to Brazil, combined with its knowledge of this regional market, made it logical for Alpargatas to expand Havaianas into the region. BEFORE 1994 Havaianas sandals were sold to every socio-economic class with no differentiation. They were considered practical footwear offering value for money. But this led to the sandals being perceived as a brand for the poor. AFTER 1994 The brand is still perceived as durable, hygienic and offering excellent value for money. But it has also come to be associated with the Brazilian identity - youthful, happy, relaxed and stylish. It has become an outdoors product, comfortable for the beach, heat and holidays. Today, Havaianas has more than 80 models in 60,000 colours. The next frontier is the international market. While it sells directly and indirectly in around 82 countries, revenues from international markets account for just 28 per cent per cent of Sao Paulo Alpargatas's total sales. Argentina accounts for 68 per cent of the international revenues while the rest mostly comes from the US and Europe. In 2007 and 2008, the company launched the Havaianas brand in New York and Paris, respectively. The brand was positioned at the higher end, as there was an abundance of low-cost competitors. The makeover of Havaianas in Brazil had already catapulted it into the premium segment. Besides, US consumers had greater purchasing power compared with consumers in Latin America. The company has taken great care to identify Havaianas with the Brazilian spirit. This is in

Havaianas was repositioned and transformed into a sought-after with sustained promotion and celebrity endorsements

line with what consumers love about Brazil: vibrant colours, youthfulness, sensuality, joy and fun, among other positive characteristics. Since Havaianas was being marketed as a high-end item in the US, it was restricted to chains such as Saks Fifth Avenue. As sales increased in the US, Havaianas opened its first retail shop in Huntington Beach, California. The sleek 1,250 square foot store featured the brand's largest US selection, with over 150 styles. Prices started from $16 and went up to $200 for customdesigned Swarovski crystal studded sandals and shoes. The wide price range was aimed at capturing different customer segments with different expectations - from the casual fashion seeker to the 'willbuy-at-anycost' type. But the entry price point was still $16 to differentiate Havaianas from the lower end market. The Brazilian company recently revealed plans to launch Havaianas in India and Pakistan, two highly populated countries where it has no presence, and where such slippers are very popular. It is planning to partner with local distributors, as the majority of sales in both countries still take place through traditional retail channels, as opposed to the online route popular in some countries. In June 2008, Bata India sold its Hawai brand to Alpargatas, for a reported $0.9 million. The internationalisation strategy has not diverted Alpargatas's attention from its domestic customers in Brazil. The company continues to pay special attention to its home market, which also acts as a test bed for new product launches. An example being a tote bag launched first in Brazil and elsewhere a year later. Havaianas's international recognition has also had a positive effect back home, making domestic consumers proud of its success. The result of all of this hard work is that Havaianas accounts for almost 85 per cent of the sandals sold in Brazil today. For Havaianas, the future is very much in its present. As long as it remains true to its Brazilian roots, it will continue to sell the idea that is Brazil. "Brands should be linked to a country's culture" What makes the Havaianas case so interesting is that at first sight, it has no clear advantages vis-a-vis its competitors, at least outside its Brazilian/Latin American home turf. It cannot compete on costs with Chinese manufacturers, and Brazil is not wellknown for footwear. Moreover, in markets such as the US, flip-flops have been around for ages. So, Alpargatas faced well-entrenched incumbents. Its answer was to employ cultural branding. There are several positive cultural meanings that consumers around the world associate with Brazil: vibrant colours, sensuality, youth, joy, fun, and a sense of humour. Alpargatas used this identity to gain a global advantage. It was able to transfer these cultural

associations to Havaianas with a cleverly designed marketing strategy. Havaianas has done with flip-flops what brands such as Harley-Davidson, Nike, Ray-Ban, and Levi's have done with American cultural connects to gain a unique point of differentiation in the global arena. The Brazilian brand now has an edge that cannot be copied by the Chinese. In turn, this allowed Havaianas to boldly attack the prejudice that emerging market brands sell only at a low price - Havaianas's pricing starts at $16 and extends all the way up to $200. What is the lesson here for other emerging market companies? They should look at whether there are aspects of their country's culture that can be used to culturally brand their product. By doing so, they can differentiate their brand and overcome the stigma that is often, albeit unjustly, attached to brands from emerging markets. If there is one emerging market that can put cultural branding in practice today, it is India. Its symbols and myths are known around the world. Dabur, a leader in herbal, naturebased products, is doing some of this. Its products are derivatives of ayurveda, an ancient system of medicine based on natural and holistic living. The world is waiting for more such cultural branding from India. Jan-Benedict E.M. Steenkamp C. Knox Massey Distinguished Professor of Marketing, and Area Chair of Marketing, Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Customers ask for Havaianas in much the same way a teenager asks for an iPod, not an MP3 player: Carlos Silva Lopes

"Havaianas has become a cult brand" Havaianas's clear vision and longterm perspective makes it a strong leader. Its geographical and branding expansion shows how the company understands customer benefits, channelto-market and positioning. What started as a basic functional benefit, wearing something to protect one's feet, has evolved into a very convenient flip-flop with an emotional appeal. It was widely available at a competitive price, and ultimately became a trendy fashion item that matches consumer aspirations. Havaianas has created a category - it is not only a product but a desired cult brand. Consumers ask for it in much the same way a teenager asks for an iPod, not an MP3

player. Good product technology mixed with art and science has created a strong brand that touches consumers' hearts. It shows how creativity, innovative thinking and perseverance can create a buzz that transcends one's initial territory. The success encourages other brands from rapidly developing economies such as India, China and Brazil to become global power brands built on transformative ideas. Carlos Silva Lopes, Global Marketing Director Personal, Home and Industrial Care, Dow Chemical

Cold-calling China

Executive Summary: In the mid-1990s, the Chinese were highly price-sensitive consumers with little dairy in their diet. In walked Haagen-Dazs, pitching its full-fat ice cream at prices five times higher than in the US. To anyone unfamiliar with Chinese culture, this looked like a recipe for disaster. But Haagen-Dazs had done its homework - and done it well. The name Haagen-Dazs was invented by Reuben and Rose Mattus in 1961, because they thought it looked Scandinavian, and because Denmark was known for dairy products. Fifty years on, Haagen-Dazs sells in over 80 countries. Its revenues were over $750 million in 2011. In the global ice cream market, Haagen-Dazs has only a two per cent market share, while Unilever has 18 per cent and Nestl 14 per cent. But in the premium category, Haagen-Dazs is ahead of Unilever's Ben & Jerry's brand and Nestl's Mvenpick.

Haagen-Dazs mooncakes are an example of how the brand has adapted culturally while retaining its global identity"

Haagen-Dazs created the "premium ice cream" category with its rich ice cream made with exotic ingredients such as Belgian chocolate and vanilla beans from Madagascar. It reinforces the message of indulgence through its prizewinning advertising campaigns and new flavours. For Haagen-Dazs, the temptation to expand operations to China was great. Despite the traditional lack of dairy in the Chinese diet, demand was rising as the population gained exposure to Hong Kong since 1984, but venturing on to the mainland in 1996 introduced a

Read the full case study from London Business School here

completely different set of challenges. One of the most appealing was to direct the brand at the local hunger for luxury goods that were markers of economic status. Luxury brands such as Louis Vuitton and Cartier lined the high-end shopping areas of Shanghai and Beijing. With increased buying power and a diminishing stigma on displays of wealth, upper-class Chinese appeared well situated to appreciate Haagen-Dazs's themes of indulgence and self-gratification.

Just as Starbucks was expected to fail in a nation of tea drinkers, Haagen-Dazs was expected to flop, as dessert in China was just fruit"

In carving out a brand identity specific to China, Haagen-Dazs decided not to compete with incumbent ice cream brands, and instead aligned itself with western icons of luxury. As Pedro Man, Vice President of the company's Asia-Pacific operations, told reporters in 1998: "What Rolls-Royce is to cars... Haagen-Dazs is to ice cream." Before entering China, Haagen-Dazs did extensive research to plan distribution. Its products need a constant temperature of -26C, so the company decided to handle distribution itself. It would import products from its US and European factories rather than manufacture locally, because the quality of Chinese dairy products was poor. Shipments from overseas would be brought to warehouses in Shanghai and Beijing, and then go out to retail outlets across the country in specially designed refrigerated trucks. This would ensure the quality that was crucial to the brand, though it would mean huge transport costs and import duties as high as 93 per cent. The market research also yielded other vital information. First, Haagen-Dazs observed that many Chinese stores stopped carrying frozen desserts in winter, and their refrigeration did not meet its standards. Second, unlike Europeans, who eat ice cream at home, the Chinese preferred to eat it in the retail environment. Chris O'Leary, Head of international operations at General Mills, explains: "It's not an ice cream cone they're buying; it's an occasion." So Haagen-Dazs decided to sell its ice cream in China in stand-alone shops instead of supermarkets. And, unlike the casual ice cream parlours in western countries, China's were designed as luxurious spaces. Haagen-Dazs opened its first Chinese cafe in Shanghai in 1996, with plans to invest another $40 million over 10 years to open more shops across China, starting with major eastern cities and following the spread of prosperity into the hinterland.

SPECIAL: Read more case studies from Business Today here The strategy was simple: high-end real estate and service reminiscent of a five-star hotel. Patrons were served on Wedgwood tableware by highly trained staff, in an ambience that suggested a European patisserie. The extensive all-dessert menu had the word "Indulgence" on the cover. These were intended as environments for couples and professionals. Shop managers were recruited locally, so they were familiar with the customers' culture and could ensure that their experience met expectations. Traditionally, the Chinese have been price-conscious, but the perception of quality turned this on its head: a higher price and respected brand name mean quality. This is why companies with high-quality products often find themselves in reverse price wars in China, raising prices to attract people who will only buy expensive brands. By constantly reinforcing the message of quality and luxury, Haagen-Dazs could command premiums far above those of the local competition. Prices on cafe menus were equivalent to as much as $35. Even a banana split cost $12. To put this premium in perspective: the average Chinese factory worker earns $150 a month. Alongside the perception of quality was the notion of a luxury product as a status symbol. In a country where people felt increasingly free to display their wealth, guests at a HaagenDazs cafe enjoying expensive sundaes with friends or colleagues gained instant bragging rights. Lastly, the brand took advantage of the Chinese mindset of "saving face", because of which giving only premium brands as gifts allows the giver to appear generous and the recipient to feel important. Food is a culturally sensitive business. Haagen-Dazs managed the challenge of tweaking its products to suit Chinese preferences while maintaining its global brand identity. It also spotted an opportunity in a Chinese gift-giving tradition. In 1997, it introduced mooncakes to its product range. This is a type of confection traditionally given to family, friends, and clients during the Mid-Autumn festival. Haagen-Dazs's version, which is essentially a mini ice cream cake, sells like the proverbial hot cakes - mooncake sales have grown around 25 per cent a year since they were introduced, and account for 28 per cent of Haagen-Dazs's revenues in China.

In China, Haagen-Dazs did not compete with other ice cream companies, but aligned itself with luxe brands"

Haagen-Dazs decided to retain its name, rather than translating it into Chinese. The association of the brand name with the West, and the Nordiclooking 'a' in particular, gave weight to Haagen-Dazs's claim of quality and its price premium. So the management's efforts on four fronts - product, pricing, promotion, and distribution reinforced one another to build Haagen-Dazs into a brand highly desired by affluent Chinese. It was further strengthened by celebrity endorsements. Adjusting products to suit local tastes helped the company create demand and space in the massive Chinese food market. Imports ensured quality, which justified the high price, and this in turn made the product more desirable in the culture of "saving face". The retail ambience guaranteed delivery of the expected brand value. Locating shops in prime locations meant that customers were "dressed to impress", which further enhanced the premium brand image. Haagen-Dazs has turned out to be one of the most successful global food and beverage brands in China. It is often mentioned alongside Starbucks in case studies of successful market entry in a challenging country. Like Starbucks, which many thought would fail in a tea-drinking country, Haagen-Dazs was expected to fail as people ate fruit for dessert and considered dairy products foreign. But by 2009, more than 50 per cent of Chinese had heard of Haagen-Dazs. Today, the company has more than 160 shops in China, including stores in second-tier cities. Eager to introduce pints for consumption at home, Haagen-Dazs has also installed 5,000 freezers, costing $15,000 apiece, throughout China. The company does not disclose exact figures, but revenues were estimated at over $100 million in China in 2010, with an annualised growth rate of 21 per cent over the three previous years. About 80 per cent of revenue comes from ice cream parlours as opposed to supermarket sales. The sailing hasn't all been smooth, however. In 2005, the company learned a lesson about the Chinese media's propensity to disproportionately scrutinise foreign multinationals, after a makeshift kitchen in Shenzhen producing ice cream cakes without a food hygiene licence sparked public outcry. The company publicly apologised, closed the kitchen and distributed refund vouchers, but the media continued to criticise it. However, Haagen-Dazs was able to rebound because of its strong brand. Today, it is grappling with growing competition - both foreign and local - and saturated primary cities. Another challenge is to expand in China's secondary cities while continuing to open shops in primary ones. As luxury brands look to benefit from the vast Chinese market, many struggle to find the balance between preserving their aura of exclusivity while

reaching as many customers as possible. Haagen-Dazs is no exception.

China's luxury consumption will account for 60% of global demand by the end of the decade: Nirmalya Kumar

FLYING IN THE FACE OF TEXTBOOK ADVICE Haagen-Dazs in China is an interesting case because it is so counter-intuitive. The usual pushback from local managers in emerging markets is that multinational companies (MNCs) need to be sensitive to lower income levels and price products competitively. This advice is frequently found in marketing textbooks and followed by many MNCs, from Coca-Cola to Unilever. Yet, here is HaagenDazs, selling in China at two to three times the unit price in the United States, and China is their second most successful market. How is this possible? First, China has developed a voracious appetite for luxury brands. Its growth and the recession in developed markets have led to it displacing Japan as the "must have" luxury market. Only the US has more billionaires, and there are more than a million millionaires in China. This newly created wealth is different from "old money" in its desire for conspicuous consumption. According to some estimates, Chinese consumption of luxury brands will account for 60 per cent of global demand by the end of the decade. Second, Haagen-Dazs has pulled off an amazing feat, positioning itself as an experience luxury brand, rather than as a food product or ice cream brand. The power of this creative strategy leads some Chinese rural households to save a month's salary and trek to the city for a treat at Haagen-Dazs. So the next time you hear a local manager arguing for selling at low prices in emerging markets, and why local consumption patterns do not encompass the global product, just say: "Haagen-Dazs in China!" Nirmalya Kumar, Professor of Marketing and Co-Director of Aditya V. Birla India Centre, London Business School

The beauty of this case is the application of learnings from expensive categories to a low-priced one: Kathrine Mo

IT'S ABOUT THE CUSTOMER, NOT THE PRODUCT It can be rewarding but risky to have a narrow and segmented brand like Haagen-Dazs. It is vital to understand the core motivations of the customer. The challenge is to avoid the temptation to extend the

value proposition to new segments to increase volume and revenues. Do it wrong and you accomplish exactly the opposite! The Haagen-Dazs case demonstrates the power of premium brands. They defy convention and question the whole notion of categories. What is the logic of paying $10,000 for a bag? Or similar premiums for a pair of shoes or a car? You kid yourself if you think that a premium brand is about a product. It is about the customer and the brand that the person wants to be. It is about portraying success to the world and demonstrating status. The beauty of this case is that General Mills took learnings from very expensive categories and applied them to a relatively low-priced category. You need to understand what customer need you are satisfying. Haagen-Dazs is not competing in the ice cream category in China it is competing in the category of status symbols. And the cost of a Haagen Dazs is a relatively small price to pay to show your friends your success. It is similarly impressive to see the insights into local culture. The distribution set-up adds to the core of the brands success. Similarly, the mooncakes allow for an extended brand experience whilst increasing business results. Further success will come from finding new ways for the target segment to portray themselves stay true to the core! Kathrine Mo Vice President, Brand Management, Statoil ASA

How Karuturi Global tackles its challenges

Beyond the rosy picture

Executive Summary: Ram Karuturi, CEO of Karuturi Global, had already made his company the world's largest cut flower exporter. But he was also passionate about agriculture and wanted to make it big in the sector. In April 2008, the Ethiopian government offered him more than 300,000 hectares of land at a favourable price to grow food crops. Ethiopia, which faces huge food shortages, also has large tracts of undeveloped lands, but lacks the funds to make productive use of them. Ram Karuturi accepted. Food crops, however, were a new area for him. Huge investments were also needed. This case study, by the London School of Business, explores the problems the company faced and how it continues to tackle the challenges. In April 2008, Ram Karuturi, CEO of Bangalore-based Read the full case study from Karuturi Global, received a proposal to set up an London Business School here agriculture farm in aremote corner of western Ethiopia. The Ethiopian government was offering Karuturi more than 300,000 hectares - an area more than seven times the size of Mumbai - at favourable prices to grow food crops. Ethiopia and its neighbouring countries faced food shortages, but had an abundance of undeveloped land. However, Karuturi had no prior experience with food crops, let alone farming on such a large scale.

The land Karuturi was given was near the war-torn Sudan border

Outsized investments would also be needed to bring this land to production, and the risks were immense for the middling Rs 395-crore company Karuturi Global was then. The land offered bordered war-torn Sudan and had little infrastructure. However, success would make Karuturi one of the largest

food producers in the world in a few years. The company was not new to such growth prospects. Incorporated in 1994, Karuturi had become the world's largest cut rose producer by 2008, exporting about 1.5 million stems of 40 different rose varieties a day to Japan, Australia, South-East Asia, West Asia, Europe and North America. It was no novice in Africa either. Most of its production came from two African countries Kenya and Ethiopia. In about 15 years, the company had broken into the mature rose market dominated by European farmers, capturing about nine per cent of the European market share. The feat did not come easily. Although India liberalised its economy in 1991, it was still not an easy place to establish an export-oriented business of scale. Bangalore airport was not equipped with critical facilities such as cold storages, required for bulk export of perishables. Roads from the farm to the airport were underdeveloped, resulting in long delivery times due to traffic jams. Tax laws and bureaucratic procedures were still complicated and capital remained in short supply.
"Ethiopia offered 300,000 hectares at $245 a week"

By 2003, Karuturi had become the lowest-cost and largest single rose producer in India. But the eight million roses a year the company was producing was still a negligible fraction of the global market. Costbased inflation was also eating into its bottom line. African rose growers, while exporting to Europe, had a significant cost advantage over those in India, which when combined with a favourable tax structure, resulted in lower cost to market of over 25 per cent. Realising that he would not be able to compete for long in the global market in these circumstances, Karuturi took the bold step of shifting production to Africa, starting in Ethiopia in 2005. He chose Ethiopia over Kenya - then the established rose production centre - as it had the same favourable climate as Kenya, but being less developed had lower establishment and operational costs. Moreover, Ethiopian exports to Europe were exempt from customs duty. Karuturi's decision to move into Ethiopia was fraught with risk. The company had no prior experience of operating on foreign soil and that too in an African country about which not much was known to investors. Given this uncertainty, the company was very cautious and spent a good deal of time on due diligence.

"We decided to invest Rs 20 lakh, and I had at the back of my mind that the day I lost Rs 18 lakh, I would go home without thinking much about anything," Karuturi now says. By 2006, Karuturi Global had managed to fully operationalise its first facilities near Addis Ababa and was looking at acquiring additional sites in the area for expansion. At this stage it got a chance to acquire one of the world's largest standalone rose farms - Sher Agencies. A Dutch family-owned rose producer was offering 188 hectares of its greenhouse assets in Naivasha, Kenya, which it had set up in the 1990s. After months of due diligence and negotiations, Karuturi finally bought out the assets for $67 million in September 2007, and in a single move became the largest producer of cut roses in the world producing over 650 million stems a year. Karuturi now had about 240 hectares of greenhouses producing roses in Kenya, Ethiopia and India. Revenues had reached $100 million for the first time with overall operating profit margins of over 35 per cent. With floriculture accounting for 97 per cent of the revenues, the company was looking to diversify and was already operating a small food processing unit for gherkins near Bangalore. It was also putting in place plans for the next phase of growth in Ethopia.

"Karuturi roped in suppliers with high-tech machinery for his farms"

It was at this time the Ethiopian government offered Karuturi Global 300,000 hectares of virgin land rich in organic content on a 50-year lease at Gambela province of Western Ethiopia at an unbelievably low rate of about $245 a week. It was located on the banks of the perennial Baro river, making the entire offering very favourable for the company. The low cost of the land, however, reflected the risk inherent in the investment. It was located in the remote under-developed western corner of the country, close to the Sudan border with an uncertain security environment that required military protection. Until 2010, the area was connected to Addis Ababa by only a mud road. Gambela airport, the only port of access for investors was merely a small airstrip with a shed. With Ethiopia being landlocked, the Baro river was the only avenue available for transportation but this waterway was not developed and required travelling through areas with high security concerns. Yet amid these concerns Karuturi saw opportunity. He wanted to develop the area as an agri-economic zone with sugar factories, oil processing plants, rice mills and other food processing facilities on site. Joint ventures with established companies in each sector with specialised knowledge and organisational infrastructure would form the optimal route.

Karuturi's own contribution would be in the areas of project implementation and execution, land development, and in facilitating the joint ventures by bringing in investors and companies. Areas would be developed in phases with a mix of short cycle crops such as maize and sugarcane to generate revenues towards investments in long-cycle crops such as palm oil which has a seven-year gestation period. The power to operate the planned facilities would be generated through a mix of hydroelectric power plants and rice husk and bagasse - a byproduct of the sugar production process-based power units. Capital would be raised through a mix of equity and debt offerings to both domestic and foreign institutions. By the end of 2009, Karuturi had begun land development in Gambela and in 2011 the company planted its first crop of maize, the easiest shortcycle crop possible in the area.

Click here to Enlarge Karuturi began with a conservative approach to the development of the Gambela land. With cost control firmly at the centre of its resource strategy, the company initially intended to procure low-cost farm machinery from suppliers in India they were already familiar with and deploy these. But it soon realised that Indian farm equipment was never designed to operate large-sized farms. It was more suitable for single family farms. After spending millions on equipment that lies largely unused today, Karuturi changed strategy in 2010 and began roping in suppliers such as the US-based John Deere which already had vast experience and high technology machinery products to serve industrial farms. It placed orders for large tractors and heavy duty ploughing, seeding, watering and harvesting equipment. Though servicing issues have not yet entirely disappeared, the changed strategy led to an immense and immediate gain in efficiencies. Attracting skilled labour has been another serious challenge - while there is enough local labour available, it is largely unskilled in modern farming. Karuturi thus has to spend a good deal of time training his workers. At the managerial level, though the company has been able to find talented people willing to spend time on site in Gambela, there has been criticism that many of its current managers have no experience in industrial farming and this is leading to many incorrect decisions, lost revenues and increased costs. Karuturi now plans to hire consultants with industrial farming experience from countries such as the US and Uruguay. But even the best strategies can be brought to nought by the vagaries of nature. Since the land adjoined the Baro river, the company, to guard against floods, had spent a lot of time and money building dykes along the entire stretch prior to planting its first crop. Even so in September 2011, a few weeks before the harvest, the area experienced floods that were

stronger than in recent memory. Despite the dykes they wiped out crops that would have produced 50,000 tonnes of maize and delayed the project's first revenues. The stock market has been quick to pick on these execution risks. Karuturi Global's stock price has tanked. Says Karuturi: "I did not think the high valuations in 2010 were justified. We are a food producer, not an Internet start-up. At the same time current valuations are also unjustified." SPECIAL: Read more case studies from Business Today here Karuturi's passion to become a global food producer of scale is the driving influence of his life at this moment. And like never before in its existence of 17 years, his company now has an opportunity that very few corporates of its size get. If the Gambela project is executed well, Karuturi will be one of the 10 largest food producers in the world. It will be a major producer of sugar and have its own brand of palm oil. There have been Indian companies like the Tatas that have made strategic acquisitions to gain global scale and outreach, but there are few examples of Indian companies generating scale through such large scale greenfield developments which are seen as high risk ventures. In this context, the company faces a clear challenge: it has to operate on scale to have a good chance of recovering its large initial investments and develop a sustainable production model, but at the same time it is constrained by its lack of experience in industrial farming. Managing cost will be critical going ahead and so will be raising of funds. The company recognises its challenges and is working on reducing risk in its development plans. Says Karuturi: "A big motivation for taking up this project was the Ethiopian famine in 2008 when the project was offered to us. We believe, with this project, we can alleviate the shortage of many food crops in the country."

India is increasingly being seen as a constraint to growth by Indian entrepreneurs: Nirmalya Kumar

'Challenge is to absorb skills fast' Karuturi's is an inspirational entrepreneurial story. It demonstrates that entrepreneurs are high on imagination even if low on resources, in contrast to large corporates. They chase opportunities that large firms would find impossible to pursue. Going to Africa and that too the war-torn border of Ethiopia, in order to farm roses and later other agricultural products would seem a bridge too far for most. Whether Karuturi succeeds or not will depend on his ability to garner the capabilities needed fast enough to execute these projects, maintaining a positive cash flow. And, of course, good luck never hurts.

At present, the firm does not have the capabilities to execute this expansion. But then entrepreneurs rarely do when embarking on a new venture. For Karuturi, it is essential to map the needed capabilities in terms of assets, processes and knowledge. Next he must ascertain which of these competencies exist within his firm and which have to be built, acquired or partnered, and from where. If he can manage this fast enough to meet his financial obligations, he will succeed. Risk appetite has to be matched by the capacity to quickly learn and absorb execution skills. Previously, with his roses business in Africa, he has demonstrated the ability to do so. Finally, what is apparent from the case study is that working within India is increasingly being seen as a constraint to growth by ambitious entrepreneurs. Unlike in China, the infrastructure often puts a cost penalty on firms desiring to use India as a global platform. As a result, entrepreneurs seek overlooked, unknown destinations to realise their dreams. Nirmalya Kumar is Professor of Marketing & Co-Director, Aditya V. Birla India Centre at London Business School

Karuturi did not become the largest rose exporter by fluke but by strategy, hard work: Pradipta K.Mohapatra

'Unanswered questions, but ability undeniable' A month ago, the Ethiopian Ambassador to India was in Chennai to appoint an honorary consul as well as to seek investments for Ethiopia. Though puzzled about investment opportunities in Ethiopia, I did attend the meeting, where the Ambassador invited Ram Karuturi to narrate his experience. His gripping story electrified the audience, leaving many listeners keen to replicate his success. Karuturi came to the dais an unknown Indian and went back a hero. Will Karuturi make it or not? His earlier dream of becoming the largest cut rose exporter in the world is now a reality. There remain many unanswered questions about some of his projects, why did the previous Dutch owner agree to sell the farm to Karuturi? How did Karuturi leverage $67 million to buy it? Well, Karuturi did not become the largest rose exporter by fluke but by strategy, hard work and tenacity. He will also make it in the food farming business. Karuturi is already acknowledged as an adopted son of Ethiopia. He seem to have a clear roadmap for the new project too - a combination of growing shortcycle crops and longcycle crops as well as using technology to drive operating efficiencies. There is enough of

a market for food in Ethiopia and the western countries with which Ethiopia has preferential trade arrangements. But there are questions such as how quickly will Karuturi put together a managerial team, be it from Ethiopia or elsewhere, or how well he will leverage his learnings from the flower business into foodgrain? Karuturi is young, ambitious, yet humble. I will bet on his success. Not tomorrow, but over the next decade! Pradipta K.Mohapatra is Chairman and Co-Founder, Coaching Foundation India