VOLUME 03BEACONAPRIL 2015 i ISSUE 04

VOLUME 03BEACON ISSUE 04APRIL 2015

ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

COMPANY ANALYSIS

BRAND ANALYSIS

CONCEPT OF THE MONTH:PLANNED OBSOLESCENCE

VOLUME 03BEACONAPRIL 2015 1 ISSUE 04

OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

VOLUME 03BEACONAPRIL 2015 2 ISSUE 04

OUR TEAM

SANANDAN DESHPANDE

NIKHIL RAO

AMEYA MAHABAL

CHITRA WANI

deepesh jethwani

krishna nain

prathamesh indani

Sushil Gurav

VOLUME 03BEACONAPRIL 2015 3 ISSUE 04

TOURISM & HOSPITALITY INDUSTRYINDUSTRY ANALYSIS

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IntroductionIndia hosts 32 World Heritage Sites and 10 bio-geographic zones. Given that India is a coastal country, it has a number of attractive beaches. As a result of this, India is a preferred tourist destination for foreign travelers. As the name suggests, the tourism and hospitality industry is broadly categorized in two segments:• The Tourism sector comprises of heritage tourism, medical & healthcare tourism, ecotourism, adventure tourism, rural tourism, wildlife tourism and pilgrimage tourism.• The Hospitality sector comprises of business hotels, resort hotels, suite hotels, convention & conference centers, airport hotels, extended stay hotels, apartment hotels, timeshare hotels and casino hotelsOver 6.8 million foreign tourist arrivals were reported in 2013. Foreign tourist arrivals in the country have grown at a compound annual growth rate of 7.2 % over the period of 2005-2013. By 2024, these arrivals are expected to increase to 13.42 million. Net foreign exchange earnings from tourism were USD18.1 billion in 2013. These earnings have increased at a compound annual growth rate of 11.7 % over the period 2005-2013.

The hospitality industry is a vast, diverse and highly competitive industry. Right from single sandwich shops to coffee shops & restaurants; from pizza, burger and other quick-service restaurant chains to luxury fine-dining restaurant chains; the customer is spoilt for choice.

Market Size:

0

10

20

30

40

50

60

70

80

FY24EFY14EFY13FY12FY11FY10FY09FY08FY07FY06

18

Tourism & Hospitality Contribution to GDP (CAGR of 10% b/w ‘06-’14) ($ Bn)

25 24 26

31 31

36 37 38

71

0

1

2

3

4

5

6

7

8

FY13FY12FY11FY10FY09FY08FY07FY06FY05

Foreign Tourists Arriving In India (CAGR 7.2%) (Mn)

3.9

4.4

5.1 5.3 5.2

5.8

6.36.6 6.8

0

5

10

15

20

FY13FY12FY11FY10FY09FY08FY07FY06FY05

Foreign Exchange Earned from Tourism In India(CAGR 11.7%) ($ Bn)

7.5

8.6

10.711.7 11.4

14.2

16.617.7 18.1

Expected Share Of Tourists by Expenditure

Foreign Visitor Spending

Domestic Spending

84.7%

15.3%

(Source for Graphs : IBEF)

Porter’s Five Forces Analysis:The Suppliers:Hospitality industry – Property Owners, Developers, Real Estate companies, Companies providing services related to Interior Design, Marketing, Basic staff in hotels/motelsTourism industry – Airlines, Companies providing car rentals, buses, etc.The Consumers: For ease of analysis, we will divide consumers into two categories for travel as well as hospitality sector.1) Luxury customer2) Budget customerThe Competitors:Hospitality sector: Luxury segment prefer hotel chains like: ITC, Taj, Oberoi, Leela, The Lalit, Hyatt, Westin and Sheraton. A lot of local hotels in the unorganized format cater to budget segment.Tourism sector: Companies like SOTC, Thomas Cook & Cox & Kings compete strongly in the travel industry space. Also, apart from small time retail tourist operators in the unorganized space, online websites like MakeMyTrip, GoIbibo, Redbus, Yatra have come up with packages and services.The New Entrants:Apart from the Indian chains, a lot of foreign companies are intending to scale up their operations by offering their services in India in the tourism and hospitality sector.Also, entrepreneurs are coming up with innovative services in the tourism and hospitality sector given the amount of scope for growth in the future.

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The Substitutes:While there isn’t something which can be categorized as a direct substitute to the travel and hospitality industry as such, the entertainment industry is something which people tend to spend their money on.However, the overlap between the two industries is very little.

Threat of New EntrantsMedium because there are low barriers to entry and exit but scaling up is tough. Capital requirement is high for the hospitality industry but Online is an increasingly attractive option to tap into new customers.

Threat of SubstitutesLow because there isn’t a direct competition to the travel and hospitality sector. Increasing disposable incomes of the Indian population has ensured that the spending in this sector by the average consumer has increased.

Bargaining Power of SuppliersLow because of multiple suppliers available in both travel as well as hospitality space. Also, quality/experience is of prime importance and suppliers not catering to industry standards stand risk of being switched.

Bargaining Power of ConsumersHigh because of low switching cost for the fragmented buyer set Also, brand loyalty isn’t easy because of the plethora of options that a consumer can chose from. Price sensitivity plays an important role too when consumers make their choices.

Degree of RivalryHigh because of low switching cost for the fragmented buyer set .Also, brand loyalty isn’t easy because of the plethora of options that a consumer can chose from. Price sensitivity plays an important role too when consumers make their choices.

Factors Responsible for Growth:• Increase in disposable income of households• Developments in niche forms of tourism like eco-tourism, luxury tourism and medical tourism• High FDI – USD 3.2 billion – attracted by the Indian tourism and hospitality sector in 2013• Geographic as well as cultural diversity of the country

Employment Opportunities:As per the Planning Commission in India, the tourism and hospitality industry creates more jobs per million rupees of investment than any other industry in our economy. This shows the scope of growth when efforts are invested to scale it up. The sector’s potential for employment generation has also been highlighted by the ‘World Travel & Tourism Council’, which expects India’s travel and tourism sector is to be the second-largest employer in the world, employing approximately 5 million people by 2019. Thus, the tourism and hospitality industry plays a key role in the overall growth of the country and accounts for around 12.4% of the total employment in India. Given that India has a large concentration of English speaking population, they act as a catalyst in the advancement and prosperity of this industry. Apart from the regular jobs like travel agent, tour guide, chef, waiter, cashier, air hostess and at management level, there are a plethora of opportunities for those who look forward to taking up a job in this sector.

Impact on GDP:India is ranked 13th out of 184 countries in terms of travel and tourism's total contribution to GDP in 2013. Its direct contribution to GDP is expected to grow at 6.4% year-on-year during the period of 2014-2024 as against the world average of

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4.2 %.

Government Initiatives:Some of the policy measures, tax incentives and support (in terms of infrastructure) provided is as follows:• Promotion of rural tourism by Ministry of Tourism in collaboration with the UN Development Programme• Branding of the country via ‘Incredible India’ campaign• Availability of ‘Medical Visa’ for tourists arriving in India for medical treatment• 100 % FDI allowed in hotel and tourism sector• Insurance of visa on arrival for tourists from countries like Japan, New Zealand & Finland• Capital subsidy programmes for budget hotels• Elimination of customs duty for import of raw materials, equipment & liquor• Five-year income tax holidays for 2-4 star hotels located in specified districts having UNESCO-declared 'World Heritage Sites'The Government has also set up a Hospitality Development and Promotion Board, whose function is to monitor and facilitate hotel project clearances/approvals. It has also approved an investment of the order of USD 2.8 billion under the 12th Five-Year Plan for the development of tourism infrastructure projects, rural tourism and HRD projects.Recently, the Government launched the Tourist Visa on Arrival (TVoA) facility coupled with the Electronic Travel Authorization (ETA) Scheme. This facility will be available at 9 international airports in the country and will facilitate nationals of 43 countries across the globe.

The ‘ONLINE’ factor:Given the impact that ‘Online’ has made in our lives, the tourism and hospitality industry was bound to be impacted by it. Instead of approaching the travel agent to make a booking in the traditional way, bookings for travel itinerary packages now are made online. Websites like Makemytrip.com, goibibo.com, yatra.com and many more facilitate this demand. While this dents the revenues of the travel agent, what it brings to the table is the variety in options that a customer can chose from; just by the click of a button. This convenience on offer definitely attracts more customers who can plan their travel itinerary well in advance. Also, given that there are so many airline seats available via ‘Flash sales’ in lean periods at cheap rates, the Indian traveller is gradually changing his mode of travel.

Challenges in the Industry:• Tough to groom and develop suitable human resources due to Inadequate supply of quality talent from relevant institutes• Very high attrition rates; especially in the front office and Food & Beverages sector• Difficult to measure employee productivity as it is qualitative and depends on customer feedback

• Increased cost of developing property due to rising land prices; which means higher gestation periods• Multiple approvals required from various government bodies and hence getting initial license is tough• Questions on safety and security of foreign tourists have popped up following the recent negative news about India being an unsafe country following some of the reported crimes on tourists

Investments:With increasing global tourists and realizing India’s potential, various companies have invested in the tourism and hospitality sector. Some of the recent investments in this sector are as follows:• Seeking to tap the opportunity, global hospitality major Carlson Rezidor Hotel Group announced that it would have over 50 operational Park Inn by Radisson properties in India by 2024.• Starwood Hotels & Resorts has announced plans to have up to 65 operational properties by end of 2015 in India. It currently operates 39 hotels in India under six brands, including Luxury Collection, Westin, Sheraton, Le Meridien, Four Points by Sheraton and Aloft• Luxury hotels chain Kempinski has also announced plans to operate three new hotels in India by 2020 in Kolkata, Mumbai and Kerala if the ongoing negotiations were successful.• InterGlobe Hotels has announced the opening of ibis brand hotel in Delhi with plans to have 19 ibis hotels operational in India by 2016.• Lemon Tree Hotel Company has also announced plans to invest around INR 4,500 crore (USD 730.51 million) to add 5,200 rooms across India in the next four years.

The Road Ahead:The Indian economy, under the new Government, is opening up its horizons as it continues to integrate with the world economy. The advantages of opting for business with and in India are many. This has led to the development of a variety of jobs in India, because of the arrivals of transit travellers, holiday seekers and business travellers due to various business meets.Statistically, India is the 9th largest civil aviation market in the world as of 2014; and is projected to be the 3rd largest aviation market globally by 2020. The tourism industry will also look to leverage the E-visa scheme, which in all probability, will double the tourist inflow to India. The Electronic Travel Authorization will also facilitate in increasing those numbers.Thus, the travel and tourism industry in India has a very high growth potential for the future.

References:Info Shine , Statista , IBEF , Indian Business . DNB , Make In India

VOLUME 03BEACONAPRIL 2015 7 ISSUE 04

THOMAS COOK INDIACOMPANY ANALYSIS

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Company Overview

Thomas Cook India Ltd, is the market leader in travel and travel related financial services such as foreign exchange. The company set up its first branch in Mumbai in 1881. The company has steadily expanded its reach in the country; and now extends to over 230 branches across the Indian subcontinent. The company offers holidays in India, cruises and holidays abroad. Thomas Cook offers a multitude of services related to travel, and travel finance. These include: visa assistance, passport assistance, attestation of documents, and translation of documents, foreign exchange, flight and hotel booking, as well as insurance. Thomas Cook commands a dominant 37% market share amongst the listed travel and tourism companies on the BSE. A recent development was Thomas Cook acquiring near 75% in IKYA, a human resources solutions company in 2013 for Rs. 256 Crore.

Timeline of Major Events- Thomas Cook India

Management

Officers & Directors DesignationDebasis Nandy President, Chief Financial

OfficerRambhau R. Kenkare Compliance Officer,

Company Secretary, President & Head - Legal

Madhavan Menon Managing Director, Executive Director

Mahendra Kumar Sharma Non-Executive Independent Chairman of the Board

Harsha Raghavan Non-Executive DirectorChandran Ratnaswami Non-Executive DirectorUday Chander Khanna Non-Executive Independent

DirectorKishori J. Udeshi Non-Executive Independent

Director

 

Key Business Areas

Shareholding PatternAn extremely high percentage of the shares are owned by Fairfax Financial Holdings Limited, a Canadian conglomerate, through its subsidiary Fairbridge Capital. This percentage was diluted in 2013, in keeping with SEBI regulations. Another interesting fact regarding the shareholding pattern is that 83% of the share capital is with foreign holdings. Individual investors own a mere 9% of the equity share capital. In addition to this, Thomas Cook has a strong ESOP plan in place, wherein top performing managements are rewarded with shares.

2005 100% acquisition by Dubai Financial (LLC) of TCIM2007 Merger of LKP Forex with Thomas Cook (India)

Limited2008 Acquisition of 74.9% stake by Thomas Cook UK and

TCIM in Thomas Cook (India) Limited2012 Acquisition of 76.81% stake by Fairbridge in Thomas

Cook (India) Limited from Thomas Cook UK and TCIM and subsequent announcement of open offer

2013 Acquisition of 74.85% stake by Thomas Cook (India) Limited in IKYA Human Capital Solutions, a human resources solutions company

Major M&A Activity

Shareholding Pattern(as of Dec’14)

Directors & others

TrustsIndividual Shareholders

Corporate Bodies

Foreign Institutional InvestorsInsurance Companies

Financial Institutions / Banks

Mutual Funds / UTI

Promoter and Promoter Group

73.058%

.84%.01%2.01%

10.74%

4.16%9.14%

.004% 0.39%

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Competitor Analysis

Company Name

Mkt Cap (Rs. Bn)

Mkt Cap

Net Profit

Margin (%)

Revenue (Rs.

Lakhs)

Th o m a s Cook India

63.62 36.96% 4.61 23,898.03

Cox & Kings Ltd

54.8 31.84% 19.46 23,075.90

M a h i n d r a H o l i d a y s and Resorts India

23.74 13.79% 10.63 8,163.71

ITDC Ltd 11.26 6.54% 1.75 4,591.61

1) Thomas Cook currently has the largest market capitalization, however it is lagging behind in terms of net profit. 2) Cox and Kings, has a marginally less revenue, however is has nearly 15 percentage points higher net profit margin. Cox and Kings is by far TCIL’s biggest competitor that is listed on any exchange. 3) Mahindra Holidays has been growing at a high rate, with their innovative packages that they offer to their customers in exotic locations, it allows the entire family to go on a vacation at a reasonable budget. This coupled with Mahindra Holidays’ unique business plan of offering customers a fixed number of yearly holidays (usually two), has further cemented its stake as a top contender for this industry’s ultra-competitive market.4) Indian Tourism Development has been on the downward turn, as its margins as well as market share have shrunk.

0

10

20

30

40

50

60

70

80

India Tourism Development Corp Ltd

Mahindra Holiday and Resorts India

Cox & Kings IndiaThomas Cook India

11.26

Competitor Market Cap ($Bn)

63.62

23.74

54.8

0

5

10

15

20

India Tourism Development Corp Ltd

Mahindra Holiday and Resorts India

Cox & Kings IndiaThomas Cook India

1.75%

Competitor Net Pro�t Margin (%)

4.61

10.63%

19.46%

Financial Analysis

1)Operating Profits have grown at a compounded rate of 17.35%. Operating profit has increased on a Year-on-year basis, however, in 2013, the growth in operating profit was a mere 4.13% vs the previous year when it was a 14.55% increase.

40

60

80

100

120

Dec '13Dec '12Dec '11Dec '10Dec '09

106.33

Operating Pro�t(Rs. Cr)

58.39

92.82

74.03

110.73

2) Net Profit: Net Profit has displayed an interesting trend over the past five years for TCIL, despite increasing sales, net profits have dipped, and the reason for this in 2012 and 2013 has been the relatively higher interest expenses.

20

30

40

50

60

Dec '13Dec '12Dec '11Dec '10Dec '09

49.21

Net Pro�t(Rs. Cr)

22.16

55.91

41.54

46.12

5

10

15

20

25

30

Gross Pro�t Margin(%)Net Pro�t Margin(%)

Operating Pro�t Margin (%)

Dec '13Dec '12Dec '11Dec '10Dec '09

Margin Comparision (%)

9.09

19.96

15.4916.78

12.73 12.02

23.35

25.01 25.0826.32

24.01

27.6828.54 28.19

29.28

As can be seen from the above graph, the margins that are increasing YoY, are being wiped out by various expenses, and this adversely affects shareholders returns, since the operations have yielded higher returns, yet the amount that they are entitled to have reduced.

Ratios Dec '09

Dec '10

Dec '11

Dec '12

Dec '13

Current Ratio

1.05 1.11 1.18 1.12 1.14

Debt Equity Ratio

0.62 0.65 0.65 0.46 0.19

Expenses as Composition of Total Sales

23.87 2.72 18.75 12.24 10.83

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Dividend Payout Ratio

Net Profit

35.9 19.12 14.21 16.24 20.13

Earning Retention

Ratio

53.74 60.8 80.11 83.76 79.87

Investments 192.54 197.41 197.42 274.01 593.29

Current Ratio has remained fairly constant over the last five years, despite the company reducing its debt, as well as its current assets. Current assets were reduced substantially, partly due to management’s long term planning and investments. Debt to equity has reduced by a large margin, the reason for this is the company has reduced its total debt by 38%, the firm has over the past three years reduced its debt by significant amounts, this indicates a shift in the financial strategy as dictated by management. Dividend Payout has surprisingly increased in 2013, while net profit was slightly lower than the previous year, this is likely management’s way of easing investor apprehension in the scrip, and a sign that the are confident of future years. Investments have been up drastically, as the firm is investing heavily to compete in the increasingly competitive industry.Expenses as a composition of total sales has been a rather volatile figure, however over the past three years the firm has managed to stabilize it, while at the same time reducing the number, this is a positive sign for investors to take note of.

SWOT Analysis

Current Events

1) Thomas Cook has recently ramped its network, by enabling its outlets to serve its customers better with a more efficient technology driven interface. This expansion was centred on 13 Tier II & Tier III cities, in order to deliver an efficient technology support for customers in these cities which usually are neglected by other major travel companies.Another major boon to these outlets is that the outlets will receive support via mobile and tablet apps, this helps them to enable an easier access to the various services which include domestic and international holidays, flights, hotels, insurance and Foreign Exchange. The company sees the Middle India market as fairly lucrative, and hence is targeting the catchment areas where the customer footfalls are maximum, TCIL will be setting up several outlets, to capture a greater market share through greater number of outlets.In addition to this, the company is focusing more of operations through mobile apps and internet.2) Thomas Cook launched “What women want” packages to augment the number of female customers that they have. Market reports estimate a significant growth potential of 891% till 2020 in terms of women customers. “What women want” packages have been specially designed keeping women’s sensibilities in mind, they include unique offerings such as Thai kick boxing class, and cooking shows in Thailand, wine sampling in Italy etc. In addition, these packages are discounted for kitty party groups.

References:Google Finance , Money Control , Thomas Cook

STRENGTHSLargest player in several of its business verticalsincluding Travel Insurance .

Brand name of Thomas Cook, rich 100+ year legacy

WEAKNESSESNot adapting at the pace required in the ever-changing hospitality industry

Cannot cut margins any further, Cox & Kings has a much higher safety margin

Online competitors are �ush with various rounds of funding from Venture Capitalists

OPPORTUNITIESOnline- can reach a substantially wider customer base- Several competitors advertise exclusively through social media

Advertise aggressively online at lower cost

Hospitality and tourism industry expected to grow at an unrivalled pace- as consumers disposable income rises, their ability to spend on vacations increase

THREATSEmergence of discount providing rival companies –TCIL cannot o�er any further discounts without taking a hit on Net Pro�t margins

Several new players that o�er tie ups with hotels, etc – customers nowadays want the entire holiday package to be booked at one go, preferably through a single portal

VOLUME 03BEACONAPRIL 2015 11 ISSUE 04

MERCEDES BENZBRAND ANALYSIS

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Mercedes Benz Origin

Mercedes Benz is a multinational division of the German Automobile manufacturer Daimler AG. It manufactures luxury automobiles, Coaches, trucks and buses. The headquarters of Mercedes Benz is in Stuttgart, Baden Wurttemberg, Germany. On 23rd June in 1902, German automaker Daimler-Motoren-Gesellschaft (DMG) first registered “Mercedes” as a brand name. Mercedes Benz has been around for more than a century and it has seen both smooth and rough times for automobile Industry. Gottlieb Daimler was responsible for making the first recognized internal combustion vehicle and was the first to incorporate a practical transmission system.

Bad cannstatt- Replica of a riding car in front of Gottlieb

Daimler Memorial

The 1886 archetype of the modern engine was a result of independent research and development of two men- Karl Benz and Gottlieb Daimler. Despite the equal contribution to the development of the four-stroke petrol engine, Gottlieb Daimler garnered more attention. Following Daimler's successful results in racing, a wealthy Austrian business man Emil Jellinek and his chief-engineer, Wilhelm Maybach approached him with a business proposal- a large number of cars would be ordered in exchange to a name change from Daimler to Mercedes (Jellinek daughter's name). Also he would have the right to alter the car's designs and the right to resell the vehicles in some European countries, including France, Austria and Belgium.During World War I, Daimler and Benz had to convert their factories to cater to Army demands. The two rivals were brought together because of series of circumstances, dictated by uncertain economic status and impossibility of self-support. Thus, in 1926 the Daimler's Motoren-gesellshaft merged with Benz & Cie, and morphed into the larger Daimler – Benz AG. In the later years, Daimler-Benz did make some questionable corporate decisions which included an ill-fated merger with American car maker Chrysler in 1998. Owing to different management cultures, different cars as well as the US company’s sinking fortunes, it led to partnership being dissolved in year 2007; Chrysler was reincorporated into Daimler AG. During this period, many insiders acknowledged that Mercedes Benz had lost the plot, product portfolio and its quality suffered. Rival Automobile manufacturer Audi and its parent Volkswagen Group had read the Chinese market well before the competition, and BMW (which had an ill-fated association with the Rover Group) was on the upswing thanks to new products such as the new Mini. Mercedes Benz was being outsold. Even in India, first BMW ate into the share of Mercedes Benz and then Audi started to eat into its share. The Stuttgart-based company was selling automobiles

for more than two decades longer than the competition in India, however it no longer had the product portfolio to compete. Globally, and in India, this is not the case anymore. Over the past few years, Mercedes has started the process of completely rejuvenating its product line-up.

Mercedes Benz Logo Evolution

The colour silver is typical of Mercedes Benz, and it dates back to its involvement in the 1st Grand Prix at the Nurburgring in 1934.When one of the Mercedes Benz cars exceeded the weight of 750 kilograms in the pre-race checks, the officials polished off the white paint so the car was back to its raw silver colour. Thereby,the car was named the “silver arrow.”

Mercedes in Formula 1

Mercedes Benz is involved in Formula One, with Mercedes AMG Petronas Formula One Team, based in Brackley, UK, and it used a German licence. Mercedes Benz competed in the pre-war European Championship and won 3 titles, and it debuted in Formula One in year 1954, running a team for 2 years.After their first win at the 1954 French Grand Prix, driver Juan Manuel Fangio won another 3 grand prix and won the 1954 drivers championship. The success was repeated in 1955 when he won the 2nd title for Mercedes Benz. Despite two championship wins, Mercedes Benz had to withdraw from motor racing in response to the 1955 Le Mans disaster.One of the most catastrophic incident in motor racing history led Mercedes Benz to exit racing for close to 5 decades. At Le Mans in year 1955, Pierre Levegh’s Mercedes 300SLR crashed into Lance Macklin’s Austin Healy. This crash took the life of Levegh

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and more than 80 spectators. Mercedes Benz was an engine supplier in a partnership with Ilmor in 1994 which is now called Mercedes AMG High Performance Powertrains. It supplied engines to Sauber for 1 season and then it switched to McLaren in year 1995. In year 2009 they also became the suppliers for Brawn GP as well as Force India. Mercedes Benz returned with a factory team in year 2010 after they bought out Brawn who were the reigning champions. Thereby they re-entered the top level of motor racing as a factory outfit. In the period in between, Mercedes Benz achieved success in the German Touring Car Championship and in the World Sportscar Championship. In the World Sportscar championship, “prototype” racers were all the rage, and during the year 1990 even hired a young race driver called Michael Schumacher.A 4th team- Williams- was added to the supplying program in 2014. The 20-year long partnership with McLaren ended in year 2015. Now Mercedes supplied engines to the Lotus F1 team.The manufacturer has collected more than 100 wins as engine supplier, and is ranked 4th in Formula One history. 2 constructors and 4 drivers championships have been won with Mercedes Benz engines.

Mercedes STP Analysis

Segmentation:• Mercedes Benz automobiles lie in the luxury automobile segment including sedans and SUVs • Mercedes Benz automobiles are used majorly by consumers living in metro cities

Targeting:• It has a very niche market targeting high class and rich people• It seems to be targeted mainly towards Middle aged and high income groups

Positioning:• It is positioned in such a way that it creates a strong connection with the customer which leads to deeper level of brand engagement• This plays pivotal role in company charging a premium for their product because consumer purchase decision also has a price dimension in it

Product Portfolio

Daimler sells its vehicles and services to all the countries of the world. It has production facilities in Asia, North and South America, Europe and Africa. Its current brand portfolio includes the premium automotive brand, Mercedes-Benz, as well as Mercedes-AMG and Mercedes-Maybach, the brands smart, Setra and Thomas Built Buses, Freightliner, Western Star, Mercedes-Benz Financial, Daimler Truck Financial, BharatBenz, Fuso, and Daimler Financial Services’ brands: Mercedes-Benz Bank, moovel and car2go.

Marketing mix

Product:Product is the strongest P of the 4Ps (Product, Place, Pricing, Promotion) in the marketing mix of Mercedes Benz. Mercedes remains as one of the leading brands in the Indian market. The company currently assembles its models — S-Class, E-Class, C-Class and the ML-Class. Other models GL-Class, CLS-Class and SLK-Class are fully imported.The company, in its manufacturing facilities, produces a wide range of advanced luxury trucks, buses, coaches and cars. The company has its origin in one of its founding fathers- Karl Benz’s creation of the first automobile that was launched in the year 1886. The car was first marketed in the year 1901. Since then, the company introduced a number of innovations that has helped them in establishing the company.

Price:Mercedes-Benz manufactures different types of convertibles, full sixed sedans, coupes and sports sedans. It has as many as 14

VOLUME 03BEACONAPRIL 2015 14 ISSUE 04

car models whose price range is from Rs 21.49 lakhs to Rs 76.8 lakhs. Mercedes is leaving no stone unturned to tap the Indian market in the premium segments. The company deals in a niche segment. The customer is more concerned with the value they are getting on the product.Therefore, the company ensures that it makes high quality cars first and foremost. Outside India, the company has a broad price structure which ranges from $30,000 to $100,000, depending on the model.

Place:The company has a broad network of dealers throughout the world to distribute its product. The company understands that their consumers are not just interested in a buying a car that moves them from one point to another.They are actually making a car that will enable them easily sell the idea about the car in the market. The company wants to change the perception and reposition the brand in such a way that it is more appealing to younger generation.

Promotion:Mercedes Benz’s marketing strategy used to focus on the luxury, safety and precision engineering of its cars. However, competition has propelled it to suit the changing consumer attitudes. So, their marketing strategy focuses on presenting a more energetic and fun loving side of Mercedes Benz.The evolution of its marketing strategy can also be attributed to its expanded market. Mercedes Benz has found it necessary to expand the market to include younger consumers. Another marketing strategy by Mercedes Benz is to slice prices and make the product affordable to consumers.In order to increase communication with its target market, it maintained accessibility to consumers through Social media, Online advertising, Offer warranty under excellent conditions, Establishing excellent customer service at its point of sales, Television advertising and Print media.Mercedes managed to build a reputation of quality and exclusivity in its products. This made it one of the most recognizable brands globally. Therefore, it enjoys a reputation of class and prestige.

Mercedes Marketing Strategy

Mercedes marketing strategy focuses on seamless integration between digital and physical side. Human touch is equally or sometimes more important than digital. Improving customer experience is at the core of marketing strategy. They have started taking the help of big data to achieve this objective. Mercedes through its package of innovative service “Mercedes me” allows customers to have a unique Mercedes ID. It results in a seamless integration between the smarphone of the user and the car. The data that is generated from the car helps service centers prompt an appointment for servicing to the car user. Mercedes, in achieving human touch, has built on the Apple’s idea of “product genius” and came up with a role “product concierge”. The role is to solely help customers understand the product. So any help maybe regarding the activation of Mercedes benz apps, the customer can call the product concierge and get the required explanation. In order to digitize, Mercedes pushes for connectivity as it is very important especially for younger people. It offers all kinds of services around and beyond the car in terms of look and feel of advertising, physical presentation, and stores. The “Mercedes me” showroom in Hamburg has implemented all of it. The place

has been made alive & active with the aid of multiple artists and musicians.

Mercedes pushes the emotional button across touch points in marketing very consciously. This has resulted in customers getting a feeling of sense of achievement when they buy one. It is not for nothing that the founding fathers have called it “The best or nothing”.

Social Media StrategyClick here for a video explaining how Mercedes Benz successfully uses social media strategy to engage.

Mercedes uses Facebook, Google Plus, YouTube and Twitter to reach customers. Mercedes Benz, through their social media strategy, implements 5 objectives outlined in Li and Bernoff ’s Groundswell.

The first objective that is suggested in Groundswell is listening. Mercedes Benz listened to the customers online before they

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created and implemented their social media strategy. Customers were drawn to Mercedes Benz for the image and lifestyle that it portrayed. This gave them a starting point of how to use social media to best display the Mercedes lifestyle.

The second objective Mercedes fulfills in their social media strategy is talking. They created these conversations through platforms like Facebook and Twitter. Using this, Mercedes talks to customers and customers also talk to Mercedes.

Third objective is energizing. They have annual fashion week in New York City. They added a social media element to that for 2012. Through its “Star Style Challenge”, people could answer the question “what does ultimate star style look like on the red carpet at the Academy Awards” by creating “sets” using fashions by featured fashion week designer Naeem Khan, and Mercedes-Benz cars. In addition, Mercedes launched the Mercedes Benz Tweet Race in 2010. It lead up to the 2011 Super Bowl. Mercedes created cars powered entirely by tweets in the race. The cars raced throughout the country and thereby the campaign led to thousands of tweets that were devoted to the race. The popularity of the race increased to such an extent that one of the team name hashtags actually became a trending topic on Twitter. (Vimeo)

Fourth objective is Supporting. Campaigns like the Mercedes Benz Dealer Social Media, Star Style Challenge, and Tweet Race helped Mercedes create a community among its customers and also its fans. Mercedes dealers across the country worked together for the “Community Stars” campaign, which was controlled over Facebook. This gave customers the chance to feel like they were doing something charitable and they were also getting to interact with one of their favorite brands and others who like Mercedes. This made the company look good for wanting to support positive causes.

The fifth objective is embracing. It is the ability to integrate customers into the business. Mercedes released its new mbrace2 technology. It is a service directly built into Mercedes vehicles. It allows customers to connect directly from their car to social media outlets such as Facebook, Yelp and Google. With mbrace2, customers become a Mercedes’ products.Mercedes Benz wanted to bring in younger consumers and it has been their goal for sometime. They took to social media using several platforms, including Instagram, YouTube, and Facebook, to get their new, more “youthful” messaging out.The company launched a partnership with popular filmmaker Case Neistat. He made several videos showing off his experience driving the car in exchange for CLA model. Mercedes then gathered Instagram’s 5 most popular photographers. Then Mercedes asked them to share photographs of model CLA. It was arguably one of its most successful social media campaigns. Style Pit Stop featured a series of documentary-style interviews wherein celebrity guests like Daisy Lowe and Tinie Tempah take the Mercedes-Benz A-Class for a spin. While on the ride, they talked about fashion and style with host Reggie Yates.(Click here to view the video)

According to Nathan Tan, a supervisor of advertising, the average age for CLA buyers was 46. It is 11 years younger than the typical Mercedes buyer. The company also ended up with an 82 percent conquest rate, or percentage of new buyers who had previously chosen another brand.Mercedes success does prove that social media can be a powerful tool. It helped even the most “stuffy” brands appeal to a younger

demographic.Through their social media strategy, Mercedes Benz has become a worldwide competitor in the social media market.

Environment- A Top Priority for Mercedes Benz

Environment has been given a top priority at Mercedes Benz. Therefore it is their aim to not only reduce vehicle emissions on the road but also reduce the impact it has on the environment during its production cycle. For reducing the vehicle emissions, they plan to make combustion engines as green as possible.Mercedes Benz has started adopting BlueEFFICIENCY technology which has a futuristic view. Their BlueEFFICIENCY concept consists of optimized processes and innovations for efficient mobility along the value chain. It measures the Mercedes Benz efficiency package that consists of comprehensive optimizations in the automobiles which puts much less burden on the environment. They have the most efficient engines with energy management and optimal aerodynamic measures. One such measure includes the ECO start/stop function. Mercedes Benz is quick at getting such sort of technologies. It had a view of having more than 140 Mercedes Benz models with BlueEFFICIENCY technology on the roads by the end of 2012 which it successfully completed.

References:Live-Mint, Ordain, Bridge Marketing,Marketing Magazine , UK Essays , Mercedez Benz India , Mercedes Benz UK , McKinsey

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PLANNED OBSOLESCENECONCEPT OF THE MONTH

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PLANNED OBSOLESCENECONCEPT OF THE MONTH

Planned Obsolescence : An Introduction

Planned obsolescence is a business strategy whereby the timing of the product becoming obsolete is planned and built into it from its conception. It works only for big companies. Entrepreneurs or new entrants cannot use this since it will lead to bad publicity. The rationale behind planned obsolescence is to reduce the time between repeat purchases and thereby generate long-term sales volume. It is also referred to as the shortening of replacement cycle. Firms pursuing this strategy believe that the additional sales creates more than it offsets the additional costs of R&D and the opportunity costs associated with the existing product line cannibalization. But the rewards are not certain and especially in today’s competitive world, this can be risky as consumers may decide to buy from competitors. Applying this strategy requires fooling the consumers on the ‘’actual cost/ use of item’’ in comparison to the competition.

Application of the concept As seen from the graph, the lifecycle of a product is divided into 3 phases-

• New commodity phase• Consumer Commodity phase and • Archaeology phase.

A company should plan its product obsolescence in such a way that it lasts at least till the completion of 2nd phase i.e. Consumer commodity phase. In this case, a new product/technology could be introduced in the 3rd phase of the product/technology obsolescence. This way a company can maximize the benefits and refrain from getting into stage where the demand for its products starts decreasing.Planned obsolescence is done by businesses which offer products that become unfashionable or obsolete too quickly. Thereby, the manufacturer does not have to spend resources coming up with more and more durable products. Instead they could divert

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their resources towards upgrading it. A classic and comprehensive example is of a mobile phone.

A Few Examples of Usage of Planned Obsolescence:

Mobile phones are designed keeping in mind only the current technologies even though the manufacturers have knowledge of future technological developments. So a mobile phone may have a USB, connections or jack plugs that fit in the current products. This does not mean that it is future proof. The manufacturer could already be working on updated phones that have different sizes of USB ports or connections. Although the current phone can be software upgraded, eventually the ‘old’ USB or jack plugs will render the product obsolete. Planned obsolescence strategy can backfire in cases where the manufacturer is coming up with newer products too often. It has occurred before in the computer Industry when consumers were not sure or convinced that the new version of replacement products was adding extra value worth switching for. Automobiles, for instance, have started having longer life cycle mainly because of the technological advancement. The greater durability of automobiles has made consumers reluctant to change their models quickly. The manufacturers now focus on shortening its fashionable life making it look outdated. This tends to persuade customers to buy new cars even though the old ones are still in working condition.Apple, for example, introduces newer operating systems and software updates in short intervals apart from introducing newer handsets. Introducing newer handsets is common across all mobile phone companies. However, Apple introduces new OS and software updates far too quickly than others. The new operating system makes the old generation phones unbearably slow. The new software update offers improving features and overall aesthetics. On installation, this has a similar impact on speed of operation as the one after installing new OS.

Environmental Impact:

The concept itself is dependent on this whole idea of making the product quickly obsolete. It leads to huge quantity of products being dumped by the consumers creating piles of waste. Some of the waste is not biodegradable like electronic appliances and components eg: washing machine and its parts, Mobile phones and its components, etc. It releases toxic chemicals in the land where they are dumped. Thereby it is harmful for the environment. The waste generated uses a lot of space in the form of dumping grounds which could otherwise be used for other productive purposes. Certain products like disposable cutlery and soft drink bottles are designed to be used just once/twice. They may be produced from biodegradable PLA (Polylactide) which can be thrown away and is yet safe for the environment. Overall, Planned Obsolescence can be good for consumers depending on their taste and how informed they are. Philip Kotler, a marketing guru, says: “Much so-called planned obsolescence is the working of the competitive and technological forces in a free society – forces that lead to ever improving goods and services.”

References:Technology Student , The Economist , Guide To Management Ideas - Tim Handle