Monday, August 31, 2009

Helicopter 'Ben' is back:

The reappointment of Ben Bernanke, six months ahead of his term end has significant importance. Not just for his appointment but for the time of announcement. Doing it ahead of time shows that the Obama Administration is not getting into the politics of it all. He has not appointed a Democrat.

This decision has been welcomed and hailed by a many a economists and central bankers, the world over. He has had his share of critics which isn’t a surprise considering the type of decisions he has had to make. But by and large everyone seems to understand the importance of continuation especially at a time when things are looking up and sooner some hard steps would need to be taken. Who better than the person who initiated the steps in the first place. Following are the reasons why I think this is a good decision:

1. As mentioned earlier, continuation plays a crucial role when large stakes are involved. And in this case, it is the US economy, the largest in the world and it has a direct impact on the rest of the world economy.

2. He is a student of the Great Depression of 1930s. He would never have thought that he would be the person steering the world economy through a similar crisis or rather I should say, a collapse. There cannot be a better person, atleast academically to continue the process further.

3. He was on the Board of Directors of the Federal Reserve under the then Fed Chairman Alan Greenspan. He has seen from close quarters the things that have gone wrong. Thus he knows the exact way to get out of this rut.

4. This is his plan of action. The plan for massive fiscal stimulus which he convinced the US Congress for, the monetary easing through unconventional means such as quantitative easing and the buy back of US treasuries. He has openly talked about the reasons for him doing what he did and the results he expects from the decisions. These are unprecedented times which call for unprecedented ways of communication for which Ben Bernanke has succeeded.

5. He knows the time when recovery has reached a level from where the actions have to be withdrawn i.e. the fiscal and monetary actions. The slush liquidity has to be absorbed and let the real economy take over.

6. He is a stable person intellectually without getting swayed by short term gains. He thinks long term. His possible replacement could have been Larry Summers, economic advisor to President Obama who is outstanding economist but a bit temperamental and volatile. His elevation could have increased political interference in the working of the fed. This decision to retain Ben Bernanke has clearly avoided this situation.

Lastly, it is better to be a bit conservative in the approach to appoint such an important designation rather than being experimental. A new person brings a new thought process with a new way of doing things. Present conditions require more pragmatism than experimenting. Thus this is the best that could have been done.

Sunday, August 30, 2009

Recession may be Hayekian:

Everyone is upbeat about the revival of the economies the world over. India post-general election 2009 is feeling better with its stock markets almost on the verge of a bull rally if not a bull market. Ben Bernanke, the Federal Reserve Chairman whose term has been extended for another 4 years by President Obama last week, sees the “green shoots”. Japan posted a slight growth in its GDP numbers. France and Germany are officially out of recession with modest growth.

This is all the good news. But the underlying question is: is this growth sustainable? Nouriel Roubini, Economics Professor, Stern school of business, New York, who predicted the collapse feels that this could be a W-shaped curve. He says that the growth is due to the massive fiscal stimulus and the loose monetary polices by governments and central banks respectively, the world over. It isn’t based on fundamentals of the economies. Thus he feels that when the stimulus is reduced and the tightening of monetary policies is done, it should result in a recession again. This growth is catalyzed by fertilizer and performance enhancing drugs i.e. low interest rates and the slush liquidity with quantitative easing. In short, all actions are being taken with the recession being thought of as one which has a solution in Keynesian policies.

But is this a Keynesian recession? Political parties and businessmen the world over like it to be Keynesian since it can immediately be stimulated and the political bosses are in the executioners’ position. This recession though seems like a Hayekian one where there is wide misallocation of resources.

Hayekian recession is of the type when there is gross misalignment of resources i.e. structural changes in the economy and they take more time to recover. A fundamental issue is affected and merely pumping in money will not change the situation.

The current recession, as mentioned earlier, seems to be a structural one. Cheap money from Asian and OPEC countries entered US. These countries tried to keep their currency under-valued to gain cost-advantage. China has kept its Renminbi and Yuan low and has most of its foreign reserves in US treasuries. This money sent long –term interest rates in the US tumbling. Thus people bought houses and invested in stocks, commodities resulting in a bubble in assets, stocks and commodities. It was exaggerated by financial innovation but based on unsound economic fundamentals. The Keynesian stimulus being used is re-fuelling those bubbles again due to slush liquidity. This could also result in inflation rearing this ugly head if timely withdrawal of the stimulus is not done. Political will, will stop the withdrawal but the central bankers have to do it, for long term good.

The resulting collapse now is Hayekian which will take more time to recover. The US will need to save more and the rest of the world needs to spend more. The early this happens, the early the imbalance will be restored for sustainable growth.

Wednesday, August 19, 2009

Battle for water purifier:

The rainy season from June to September in India brings with it a host of water –borne diseases. During these months only, people wake up to the dangers of the deadly water –borne diseases. Thus it is an ideal time for water purifiers to promote their products since they will find maximum takers. This is what has happened with two water purifier companies, Hindustan Unilever and Eureka Forbes, aggressively promoting their products.

First it was Hindustan Unilever’s PureIt coming up with the 1 crore safety challenge. And then Eureka Forbes launching its ‘agar isse advanced purifier mile toh paise wapas”. Let us analyse each challenge individually.

Hindustan Unilever’s PureIt has so many caveats that no one will be able to win the challenge. The challenge consists of proving three things in any other water purifier. First, meet USA’s tough germkill criteria; second, having advanced switch off facility; third, needs no electricity and no running water. These issues are very difficult to prove for any person living in India. Moreover, the challenge is for a period of just one month, till 31st August only. There isn’t enough time for anyone to prove the claim. Thus it is a very good marketing gimmick where people will believe them for the simple reason that they are comparing themselves to the strict US norms.

Eureka Forbes' challenge about ‘isse advanced’. They have not mentioned about the conditions which make it advanced. At least PureIt has mentioned about the factors.

The claim by PureIt is much more eye catching. ‘Paise wapas’ technique has been used before but ‘one crore’ challenge is a first-timer. This is sure to grab more eye balls than the ‘paise wapas’ challenge.

Ethically speaking, both challenges are not right. It is a con game played by these products. Legally there is nothing wrong but ethically there is. But ethics has never been a necessary criteria for corporate, be it abroad or in India. The ill-informed consumer is always a taken for a ride. The only succour in this battle is that, whatever be the claim, a water purifier is indeed necessary.

Monday, August 17, 2009

Reebok- It’s you vs. everyone"

The footwear industry in India had not been promoting their stuff on the television scene. The premium brands such as Nike, Reebok, and Adidas were spending less on television and more on billboards, print, internet and other forms of media. Nike and Adidas have been concentrating on team sponsorship for cricket teams and tournaments along with kits sponsorship, logos on bats, pads, helmet and other cricketing accessories.

Puma which is coming to India very soon has resulted in atleast one brand, Reebok upping the ante. The latest TV commercial to have hit the idiot box shows girls locking up all the houses of the locality so that they are the only one to get their hands, or rather their legs in the Reebok shoes. One of the girls gets the 40% off poster which she intelligently hides from the prying eyes of her competitors.

Following are a few of the things of note in the ad:

1. With a discount of 40%, a premium brand has gone for massive sales promotion. This is complemented by television ads mentioning about the sales promotion. It seems a first time where a sales promotion has been promoted through Television in a campaign style inspite of television being the costliest medium. How this affects the brand equity of Reebok remains to be seen.

2. The ad tagline “Its you vs. everyone” is an attempt to put the usual way of informing the customer about the sale is an unusual way i.e. through exclusivity or the offer i.e. unlimited stocks. This is a better and much effective way.

3. It tries to show the ‘envy’ factor where the customer is shown to do everything and anything possible to grab that brand.

Reebok also did the Mahendra Singh Dhoni/ Bipasha Basu campaign which although was ‘hot’ on the celebrity quotient, fell cold because of no creativeness in the ad and no clutter breaking copy.

The results for the Reebok campaign are awaited, not just on sales but also on the brand equity for Reebok

Friday, August 14, 2009

NTT DoCoMo- A world leader has arrived in India:

Last week saw the world leader of technology entering Indian telecom space. NTT DoCoMo Inc, a Japanese telecom giant joined hands with Tata Teleservices Ltd (TTSL). and has been given the license to launch GSM services in 19 of the 22 circles.

This will provide expertise to TTSL in the GSM Segment which will herald a new beginning for India. A true world leader in 3G technology has indeed arrived in India and this is sure to give sleepless nights to some of the executives at other telecom companies in India.

The 3G strength of DoCoMo which is readying itself for 4G in their Home country will help TTSL in its GSM endeavour and give a Philip to its under performing CDMA segment. With the spectrum allocation for 3G more than 3 months away due to the matter being transferred to the empowered group of ministers (eGoM), the time delay is inevitable. The formalities itself will take up this time. Then you have the base auction price to be decided and the allocation of how much spectrum to whom. Spectrum is a national asset and can be used only once. Thus arriving at the right valuation is most necessary and critical for Indian treasury.

When the spectrum is finally allotted, TTSL will surely get a head start over other telecom service providers in terms of technology, content and speed which are most essential for delivery of good Value-Added Services. It can also help in terms of promotional campaign to take on Vodafone which is aggressively pursuing the VAS segment. People would believe the promotion since they appreciate and are in awe of the technology expertise of Japanese companies.

The recession in the last10-22 months has not affected the growth of the telecom sector. The prime reason being the vast potential present. Only the metros and some major towns are congested with majority of players operating and virtually all people having a cell phone. The tier II cities and towns and rural areas are yet to be penetrated intensively. Thus the telecom sector has continued to grow with Bharti Airtel leading the pack with 100 million cutovers touched last month.

The entry of DoCoMo isn’t at all surprising. More players will enter India as the foreign direct investment (FDI) restrictions are relaxed in due course of time. There is talk of Etisalat (UAE giant), and AT&T (the US giant) entering India soon. Even Indian business houses are applying for spectrum to jump on this bandwagon such as DLF, Videocon, Shyam telecom, and some yet to be announced names.

With the increase in players vying for the same pie, naturally the competition would increase resulting in price wars. This augurs well for the Indian customer.

Sunday, August 9, 2009

Growth Drivers of the Indian Telecom Market:

  • High Disposable Income: The growth in GDP has resulted in increasing disposable income among the individual population. Therefore the young Indian population is increasingly investing more money in various entertainment and communication services thus fuelling growth of the telecom sector.
  • Mobility and Connectivity: The growing need of high mobility and staying connected is the prime driver for the entire category. This is true for people from different age groups and occupation. This innate need coupled with availability of handsets and connectivity at affordable price points has triggered the growth of telecom in India.
  • Investments in Telecom Industry: All major telecom handsets manufacturers – including Nokia, Samsung, Motorola and LG - have their presence in India, along with the leading global service companies and infrastructure majors, such as Vodafone, Singapore Telecom, AT&T, Ericsson, Alcatel and Siemens.
  • Government Initiatives: Government also has supported the growth of this sector by coming out with a number of initiatives for the low end subscribers of rural India, and Universal Service Obligation (USO) fund was one such initiatives. The USO fund was an initiative taken up by the government to increase rural tele-density.
  • Gradual Progression in Telecom Sector: There have been major regulations and events driving the extra ordinary growth of Telecom sector from the year 1999 to 2008. High level of competition has lead to price reduction and increased affordability. In order to capitalize this opportunity of meeting the consumer needs in highly competitive market the operators have reduced the tariffs to attract consumers with low purchasing power primarily in semi urban and rural India. In fact lucrative offers like being paid for incoming calls have transformed the scenario completely.

Operators are tailoring service packages for low-end users making mobile service more affordable like:

Ø Micro Prepaid Cards: Recharge options as low as INR 10 (USD 0.25)

Ø Life Time Validity: All operators offer a “lifetime prepaid” plan which maintains the phone number for life for free incoming calls if recharged every 3 or 6 months

Ø Full Value Recharge: Talk time of value equal to the recharge amount

Ø Free In-Network Calls: Some operators have started free unlimited local in-network calls

Ø Group Calls: Unlimited calls among a limited set of people at a particular cost.

Ø Bulk SMS Pack: Plans customized for bulk SMS within a specified area at a much lower cost

Sunday, August 2, 2009

Return of the Vodafone pug? What is Vodafone thinking!!!

The pug in the Vodafone advertisement became a celebrity around two years back. You had children demanding their parents for a pug. They shouldn’t be blamed because the pug was indeed so cute and adorable. Right from the first ad with that small boy running on a nature’s trail or helping out the girl with her daily chores in the ‘Happy2Help’ campaign, the pug made a place for himself in our hearts. It had a great recall value, first for Hutch and then for Vodafone and that is precisely the reason Vodafone thought of continuing with the pug after buying Hutch.

Vodafone surprised everyone with the Zoozoo campaign for Value-added Services (VAS) launched in a blitz during IPL 2009 in South Africa. There were 30 different types of ads depicting each of the Value-added services. The Zoozoos became an instant hit. They were so adorable and cute just like the pug although not real characters that everyone went ga ga over them. There were articles written on blogs, in newspapers, discussions on Radio and the Zoozoos were all over the place. Vodafone O&M (who made the concept) would have been surprised at the result, of course pleasantly. They were the talk of the town. The Zoozoo recall value has reached such high proportions that it had almost made people forget about the pug. They became synonymous with the IPL.

I thought it was a strategic move by Vodafone. One, they were moving towards post paid customers who are going to increase with time by offering them Value-added services. This would bring them bigger revenues. This seemed a long term strategy, say 10 years long. Second, they moved away from the pug which essentially was a ‘hutch’ pug.

With the Zoozoo identity, Vodafone now stood for the Zoozoos. They were successful in changing the perception of customers from pug to Zoozoo. Doing it in such a short span of time, kudos should be given to the team at O&M for conceptualising such awesome characters.

Unfortunately, much to a disappointment of many a marketing people, the pug is back again with the small girl to ‘help us’. This is totally inexplicable. After such a successful transition, why would you want to go back to the pug? It would have been understandable to go back to them had Zoozoos failed to create an impact and the transition.

Some of the reasons marketers say is that it was a temporary campaign and it was never a strategy to move away from the pug. Zoozoos were specifically for the VAS purposes. It seems O&M team thinks that whatever they do will turn to gold. This seems to be an exception though, atleast as far as I think. Return of the pug will not affect sales but it will affect Vodafone’s long term prospects and what they had set out to achieve.

This action has given a chance for the other service providers to position themselves as VAS providers. Aircel, especially, should make use of this opportunity since they have the widest range of Value-added services. There last attempt at positioning as VAS providers was overshadowed by the Zoozoos. They should go all out now to take the place which rightfully can be claimed by them, simply for the type of VAS they can provide.

Reliance Communications too can do it. They have launched there high speed internet card. This is the right time to go for VAS since with time, the internet penetration in India will increase and with 3G coming over, speeds will increase, prices will drop and more people will use internet on their phone.

Vodafone have themselves to blame. It is a cardinal sin to move from identities. Only time will tell the implications of the return of the pug.