A golden opportunity

Titan is reaching down to the mass market for both jewellery and watches.

Swarna Ganesh has attended over 100 weddings in his hometown Erode in Tamil Nadu in the past year. He is a little anxious about the weight he has gained, but Ganesh isn't really complaining.

As the franchisee of Titan Industries' Gold Plus chain of jewellery stores, the weddings have meant brisk business "" the Erode store earned Rs 25 crore last year with every sign of doing as well this year, too.

So much so that the Bangalore-based Titan has stepped up its focus on the lower-end jewellery brand: it has rolled out eight Gold Plus showrooms in the past six months, with another 18 slated to open later this year.

That's an indication of the new focus at the Rs 1,483-crore (2005-06 sales) Titan. Managing Director Bhaskar Bhat sums it up: "If one can be smart at managing costs, the opportunity to make money at the lower end is huge."

Accordingly, for the next few years, Titan will be setting its sights firmly on the lower end of the market, both in jewellery and watches. Over the next five years, Gold Plus will account for a third of Titan's jewellery sales, from less than 5 per cent currently.

Jewellery sales, coming almost entirely from the Tanishq brand, are tipped to touch Rs 1,200 crore in 2006-07 and should grow to Rs around Rs 3,500 crore by 2011-12. The contribution from low-end watches to total revenues from watches, too, is tipped to go up to 40 per cent, from around 25 per cent at present.

The purity plank

Of course, that's easier said than done. Consumers from the B and C income groups react to different triggers, have different tastes and need to be communicated with differently.

Then, a significant chunk of Gold Plus's target customer group comprises people who are investing in the yellow metal rather than buying it for immediate use "" this includes people saving for their weddings, or those putting aside a little something for their daughters' trousseaus.

As L R Natarajan, vice president in charge of the Gold Plus business, points out, "There are customers who start buying for their daughters' marriages even if the child is barely six." Over 40 per cent of the estimated annual gold purchases of Rs 70,000 crore (industry-wide) is accounted for by this group.

For such customers, purity of the gold is more important than the variety of designs and quality of workmanship (important issues with the SEC A).

Which is why Gold Plus is continuously educating would-be buyers on the need to buy the real thing "" it has even installed carat meters in all its outlets. Purity is the dominant theme of its media campaigns and also the audio-visual shows and question-answer sessions that it organises at street corners.

Equally important is the Tata tag. Gold Plus and Tanishq are two distinct entities "" there are no obvious signs to connect the lower-end range with the older, more upscale jewellery brand. Instead, the Tata name is flaunted conspicuously on all Gold Plus hoardings and shopfronts "" research by the company showed this was more widely recognised and trusted, in any case.

Bonding with the buyer

To make customers feel comfortable, the Gold Plus stores have been designed to look traditional "" either homelike or resembling temples. Explains R Sharad, head, retail and marketing, Gold Plus, "Many of these buyers are accustomed to buying jewellery from local goldsmiths or family jewellers, so we need to make them feel at home."

The price points are low so as to bring in the footfalls: customers can buy as little as one gramme of gold. Exchange of old gold for new "" a popular practice in South India "" is permitted at just 2 per cent charge, compared with the market rate of 6-8 per cent.

"We also make sure that we constantly bring in new designs because customers are demanding and preferences vary from community to community," observes Sharad.

Unlike the Tanishq stores, which are a mix of company-owned and franchises, the Gold Plus chain is entirely franchisee-driven. The logic: jewellery is a localised business and in smaller towns especially, the store manager needs to have local contacts and be a trusted individual so as to be able to inspire confidence in customers.

"The franchisee is the face of the brand in every town and is key to the success of the model," declares Natarajan. Potential franchisees "" typically, the most prominent jewellers in the area "" are decided on the basis of their network and their potential business worth. (They also have to be capable of investing Rs 50 lakh in the new venture).

Even the options Gold Plus extends to its customers "" programmes like chit funds and savings schemes (where money saved with the company earns interest, which is later used to buy jewellery) "" are more typical of traditional jewellers than corporate organisations.

The emphasis on local involvement is also why Titan is convinced that the direct approach in marketing will benefit Gold Plus the most. The store manager keeps track of weddings and other social events by networking with local priests.

He then sends a congratulatory card and token gift well in advance to the families concerned. Should they then shop for appropriately large sums at the Gold Plus outlet, the company sponsors banners at the wedding, and another round of gifts follows. And since the manager is invited to the wedding, it gives him an opportunity to network further with potential buyers.

Of course, more conventional approaches are being followed as well, including hoardings, wall paintings and event sponsorships. Titan is also stepping up its advertising and promotion activities; apart from advertising on local cable channels, it is also experimenting with FM radio channels. But Sharad believes that here too, the local flavour "" rangoli and cooking competitions "" work best.

Watch this space

If Titan is trying to cash in on the craze for jewellery, it is equally determined not to miss out on the opportunity in the lower end of the watches space.

Consider some numbers first. The total watches market is about 36 million units and is worth Rs 2,200 crore (industry estimates). Of this, the Rs 300-1,000 price band is noteworthy. It accounts for 45 per cent value share and 16 million units in terms of volume, and is growing at 6-7 per cent a year.

Now, Titan is already a significant player in this segment. With 600 models, Titan's Sonata is already India's biggest watch brand, selling around 4.6 million units a year. But Titan believes it should now tap the potential for bringing in new buyers "" primarily, people who don't already own watches.

Says Sonata Business Head C Srinivasan, "In the next two to three years, we will focus on the sub-Rs 500 category by launching a range of products." At present, there are 40 variants in this category.

Srinivasan believes that total Sonata volumes could more than double to 10 million units in three years, which will also help increase the company's share of the Rs 300-1,000 segment.

The pull factor

Most of this volume growth will come from the lower price points. Come April and a watch priced Rs 275-295 will be on storeshelves, which is about Rs 100 less than the present Titan starting price point. A sizeable chunk of the market (around 30 per cent) is accounted for by watches under Rs 250 "" mostly Chinese imports or smuggled ware.

The Rs 275 pricing, then, is significant "" it is just a small leap from a grey market product to a genuine branded watch, complete with guarantee. "As aspirations grow, there are many buyers, especially those on the borderline, whom we can draw in on the strength of the Sonata brand and the Tata pedigree," agrees Srinivasan.

Batting for the brand

Like Gold Plus, Sonata's marketing needs are quite distinct from its parent brand. Hence the company's choice of cricketer Mahendra Singh Dhoni as mascot, a present-day icon of small town boy made big. (Compare that with the brand ambassadors of Titan's premium range xylys: international celebrities like Carlos Moya and Saira Mohan.)

Titan believes bringing Dhoni on board has paid off: in the past year, sales have increase 13-14 per cent, even as the category has grown at a slower pace.

Cost side story

The key to operating profitably at the lower end of the market is, of course, keeping costs under control. Which is why Titan plans to outsource 75-80 per cent of its production, from virtually nothing at present.

Srinivasan says the biggest savings in costs will come from outsourcing, re-engineering products and through better prices from vendors as volumes rise. Besides, the company doesn't intend to add too much to distribution: 12,000 outlets in 2,600 cities is sufficient, it believes.

Instead, money will be spent on improving in-store visibility for the Sonata brand "" better shelves, lighting and more point of sale displays.

"Although we will be selling incrementally more volumes at the lower end, we hope to sustain margins at current levels of 20 per cent at the operating level, because we expect costs to stay flat," says Srinivasan.

Growing the market

In the short to medium term, Titan's game plan is to gain share from the competition, both from branded players like Maxima, as also the regional players. Maxima's volumes are less than half of that of Titan (according to Titan management estimates), but it is nonetheless a competitor.

In the long term the plan is to get in new buyers, which is possible because penetration of watches in India is still low at around 20 per cent. But that would call for a fair amount of investment. Explains Srinivasan, "We need to educate people about the usefulness of a watch and convince them that they need one."

Srinivasan has been touring the countryside and has initiated pilot projects in places like Aligarh in Uttar Pradesh and Vellore in Tamil Nadu. His learnings: aspirations of rural folk are high; they are aware of the benefits of education and are willing to spend on it. So they will spend on watches, too, if it is within their reach.

Swarna Ganesh would say this is time well spent.