Indian handset brands have taken on their multinational rivals. Can they survive in the long run?
The unthinkable has happened. In less than two years, a clutch of Indian brands like Micromax, Spice, Karbonn, Zen and Lava have snatched 14 per cent of the mobile handset market from multinational corporations. This, mind you, has happened when the market has expanded from about 8 million handsets per month two years ago to 10 million a year ago and almost 11 million now. And their share could grow further in the days to come: In China, local brands have around 20 per cent of the market. So there is headroom for them to grow.
Some of them have begun to attract talent from top-notch institutions like the Indian Institutes of Technology, Indian Institutes of Management and Indian School of Business. Their advertising budgets run into hundreds of crores of rupees, and well-known Bollywood celebrities endorse some of these brands. Almost all of them want to replicate their success in South-East Asia, Africa, West Asia, South America and East Europe — such is their confidence. Rivals from overseas have been left with no option but to give a hard relook at their business plans for India.
Of course, there are no entry barriers in this business — one reason why private equity is not yet convinced that there is a great business model in the making here. Indeed, over 50 brands have joined the bandwagon in the last few months. Handsets can be sourced from China for as little as $16 and brought to India after paying an import duty of just 1 per cent. Even the cheapest handset offers a net profit margin of Rs 200. If you manage to sell 50,000 handsets, you could make Rs 1 crore in a month — not bad at all. No wonder, Micromax and Lava claim to be profitable already. (They refuse to disclose numbers because they are closely held.) But experts reckon increased competition could bring the profit margins of Indian brands down from 10 per cent now to below 5 per cent in a year’s time.
With the recent moves against deployment of Chinese telecommunication equipment in border areas, some have started to explore the possibility of manufacturing in India. Will they then be able to match Chinese prices? Also, there is no data on the repeat purchase of these brands, which could be a proxy for measuring consumer satisfaction. Karbonn Mobiles Director Shashin Devsare says that the warranty on Karbonn handsets is the same as that on multinational brands. It is perhaps too early to pass the verdict on quality. But unless that data in available, it is difficult to assess if consumers are satisfied with these brands. Still, their game plan seems to have delivered the goods so far.
| THE DESI WAY |
| * Source from low-cost producers in China |
| * Keep prices 50 per cent below multinationals |
| * Double the profit margins of dealers |
| * Focus on India-specific features and applications |
| * Invest heavily behind the brand, get celebrity ambassadors |
| * Catch the aspirational youngster in Tier II and III cities first |
Price pull
Their biggest USP, of course, is price — 50 per cent below comparable models of multinational corporations. Micromax (4.1 per cent market share in 2009-10, according to Voice & Data’s annual Indian Telecom Survey) sells from Rs 2,000 to Rs 5,000, Spice (3.9 per cent share) from Rs 1,500 to Rs 16,000, Karbonn (3 per cent share) from Rs 1,800 to Rs 6,000, and Lava from Rs 1,400 to Rs 6,000.
Most of their sales are bunched in the Rs 2,000 to Rs 3,000 band. All of them import from China, where almost 60 per cent of world handsets are produced. Low overheads and lean organisations ensure that not much gets added to the price. Curiously, none of the advertisements put out by these brands talks of the price. Pundits would say this is the surest sign that these are all inherently discounted brands. But the companies look at it differently.
“We purely talk about our product package and our positioning. Price happens to be the final delight that the customer gets when he buys our phone,” says Micromax Business Director Vikas Jain.
The fact remains that their prices are the biggest pull. Till Micromax came out with its Qwerty for Rs 5,000, these phones were not available for less than Rs 10,000. There’s more to come. Jain now plans to launch 3G (third-generation) phones for less than Rs 4,000.
Lava Co-Founder & Director SN Rai, who earlier worked with LG, wants to launch smart phones as well as 3G handsets with price tags of less than Rs 6,000. Instead of attacking the metros, where the market is now all about replacement and upgrade, these brands have gone to smaller towns and even villages first.
This is smart. Not only do multinational corporations have lesser brand recall there, the customers too are extremely price and value conscious — just the right market for value-for-money products. “Our target audience has an annual income of Rs 36,000, and is in the age bracket of 18 to 33. He loves Bollywood and adores Mahendra Singh Dhoni,” says Rai. Lava and others plan to move to the metros once they have got the acceptance and volumes in the upcountry markets. What has also helped is that homespun brands offer their dealers profit margins of up to five per cent, which is almost double of what multinational corporations offer. This shows in their performance outside the metros. Thus, Spice claims to have a share of 18.2 per cent in Rajasthan, next only to Nokia, and 10 per cent in Madhya Pradesh. MVL, the latest entrant, plans to hold road shows in villages and sell through post offices.
Tech play
With production and distribution taken care of, the homespun brands have focused on technology (features, applications and so on) and brand-building. Most of them have got features like dual SIM-card slots, long-life batteries which suit fine Indian conditions like patchy network coverage and erratic power supply. Micromax has introduced a handset that can also work as a universal remote and another one that has an in-built mosquito repellant. Most of these features can be bought off the shelf. The companies need not reinvent the wheel. For instance, according to Jain, the technology for a universal remote control is available for as little as $4-6 (less than Rs 300). Had Micromax built the technology in-house, it would have stretched the go-to-market time. The trick is to identify the right feature and application for the Indian consumer.
Lava, on its part, has set up a team of 150 people to develop software applications. Not only does it help the company score points with consumers, it also keeps costs low. “Almost 25 per cent of the cost of the handset is the software,” says Rai. Lava is working closely with chipset manufacturers who use open-source software. “This leaves the space to write your own software in the middle,” says Rai. One application Lava introduced was currency reading, given the rising threat of fake currency in the country. “We bought this technology and integrated it into our handsets. Customisation has been the key for us to open up the market,” he adds.
But this is a low-end game that multinational corporations can perhaps play better than Indians. Indeed, features like dual SIM-card slots and long-life batteries no longer remain a USP. Whoever stays ahead of the curve will win the game. Micromax thus has 16 products under development, and the pipeline of products for the next 10 months has been finalised. Lava wants to bring down the product development cycle from five months to three months in one year.
Marketing mantra
The Indian brands have quickly realised that only two things sell in India: Bollywood and cricket. All of them have quickly latched on to the mantra. Micromax has signed on Akshay Kumar, Spice has got on board Sonam Kapoor and Zen (market share: 2.5 per cent) has got Amitabh Bachchan. Karbonn and Micromax have invested heavily in cricket - in the Indian Premier League as well as subsequent one-day and Test series. Karbonn has a budget of Rs 150 crore, Spice of Rs 120 crore, Lava of Rs 100 crore and Micromax of Rs 75 crore for brand promotion. And since they don’t have other shareholders and bosses breathing down their spine, they are nimble on their feet. “We take decisions while walking in the corridor,” says Rai.
Will this be enough? Gartner Principal Analyst (mobile devices) Anshul Gupta says that Indian brands have been able to gain visibility and differentiate themselves till now; the future could be different. “The challenge will be the distribution channel. If they track that smoothly, keeping in mind their differentiators, they will be here to stay.” KPMG Advisory Services Executive Director Jaideep Ghosh says that these brands need to build competence in smart phones because Indian consumers are moving rapidly up the value chain. “Indian brands have been successful in the lower and mid segments so far. In the long run, their success will depend on their ability to tap the smart phone segment which is still ruled by global brands.” Some have begun to upscale. Micromax, for instance, has come out with a lifestyle handset called Q55bling.
Multinational rivals are convinced that Indian brands do not have the quality or the commitment to service that is required to survive for long. Meanwhile, they have learnt the lesson. “According to feedback, the customer first looks for a feature in the Nokia range of devices. It is only when he doesn’t find it in our devices that he looks at other options,” says Nokia Director (operator channel) V Ramnath. “We are trying to provide more feature-centric devices. We are in sync with the customer’s needs.” LG, according to business head (mobile communication) Sudhin Mathur, plans to invest Rs 270 crore this year in above-the-line and below-the-line promotion to raise its stake from 5.9 per cent to 10 per cent. Indian brands are only too aware that not all 50 of them will survive — a vast majority may soon have to bite the dust. One thing is for sure: The market place just got more interesting.
