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IRS Special: The losing focus of marketers

By Suresh Nimbalkar , Hansa Research Group, New Delhi | In Media | December 30, 2009
Most marketers are caught up so much with managing brand shares that sometimes they tend to lose focus of the consumer. That is where corporate franchising helps

This article uses IRS (conducted jointly by MRUC and Hansa Research), the single source survey that represents the entire population, to elaborate on the concept of corporate franchise and how to benefit from it. Corporate franchise refers to the number of consumers using or owning brands across product categories marketed by the corporate. It represents the breadth (number of consumers) and depth (number of products used or owned) of consumption.

Terms such as brand awareness and share of market (SOM) are part of brand health barometer for the corporate. It needs to adopt the corporate franchise approach and include corporate awareness and share of consumers for the corporate as a whole. With this, parameters such as acquiring new customers (growth in customer base of the corporate), up-selling (increasing share of high-end brands) and cross-selling (increasing average number of products used or owned) need to be included in the corporate barometer.

Acquiring new customers


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As an example of growth in customer base, let us consider LG. Of the durable considered for this article, LG operates in four, namely, television, refrigerator, washing machine and music systems. Over the last two years, it has increased the total number of unique customers across these product categories by 61.8 per cent. At 2 per cent per annum, the Indian population grew by approximately 4 per cent in two years. This means the share of population for the company has also increased. Further, using IRS data we can compare the growth in customer base for LG to the total growth of unique customers across these four categories, and evaluate the company's share of categories.

Up-selling

One way to classify a brand into categories like premium, popular or economical is to sort all important brands in a category on price, add their market shares (cumulative total) and classify the top 20 per cent, the next 40 per cent and the bottom 40 per cent brands as premium, popular and economical brands (whichever percentage you are comfortable with, just be consistent). Once the brand classification is over, quantify the change in the company's consumers in premium, popular and economical segments (don't worry about the overlap across segments). The higher the proportion of customers in premium brackets, the better is the up-selling achieved and, hopefully, the profits realised.

Cross-selling

 

A company's performance in cross-selling can be assessed by adding up number of customers of each brand and dividing it by unique customers of the company. This provides us the average number of brands of the corporate used or owned by a customer.

Databases such as IRS help us identify complimentary products or brands that could be used for brand promotions. For example, Colgate could look at its gel toothpaste consumers (by markets) who also consume medicated soaps and offer them promotional offers (sample packs, combo offers) for Palmolive soap. Thus, companies catering to a common set of customers can benefit from leveraging its corporate brand equity, besides optimising warehousing and distribution costs.

This article attempts to showcase these concepts for select companies in fast moving consumer goods (FMCG) and durables. As many as 26 FMCG product categories spanning personal care, food and beverages and household care and 11 categories in durables have been included in this analysis.

Twenty three of the 26 companies in the franchise CAGR column (Table: Acquiring New Customers) managed to grow their customer base higher than the category growth. Similarly, 21 companies in the category share column managed to grow their category share.

The largest FMCG company, HUL, grew 4.4 per cent - thus was higher than the population growth rate of 2 per cent and higher than the categories (in which HUL operates) growth rate of 2.4 per cent. Its category share (number of households using HUL products) grew from 87.1 per cent to 90.6 per cent. Colgate Palmolive has been able to grow its customer base at 5.1 per cent and category share increased by 2.2 per cent.

Of the 26 companies considered for this analysis, 17 have shown annual growth rates in excess of 10 per cent. Nirma is the only one in the list that has shown a negative growth rate. The fact that a majority of the companies posted growth better than overall category growth possibly indicates that either the market is consolidating (partly due to growth in organised retail) or that the unorganised market is losing ground to the organised sector.

In durables, Videocon has the highest household reach. It grew at 6.3 per cent (CAGR) to increase its category share by 1.1 per cent. The two Korean companies, LG and Samsung, showed annual growth rate of 20 per cent plus during these two years. The other established Indian company, Godrej, showed a growth of 6 per cent. Philips, BPL, Sony, Kelvinator and Panasonic have lost part of their customer base.

Most of the durables categories grew by more than 3 per cent per annum, higher than the population growth rate. This suggests that the average quality of life is going up. But of the 11 corporates considered, five have shown a fall. This could be due to one of the following reasons - higher growth rate achieved by LG, Samsung and Whirlpool and proliferation of other foreign brands such as Mitashi or Koryo.

Overall, there has been a marginal increase in cross-selling across companies. Between 2007 and 2009, LG, Samsung, Whirlpool and Godrej managed to increase cross-selling. Videocon and BPL have experienced lower cross-selling across their products. It is important that a corporate undertakes evaluation on a periodic basis in-house rather than delegating it to an outside agency.

(The author is vice-president, Hansa Research Group)