Sometimes business just does not seem to be going anywhere, thanks to competition from larger players and thin margins. What should a company in such a situation do?

Corporate Simulation is a platform that businessgyan has created to facilitate industry and student interaction. Managers face many practical problems in the course of their work. The issues may be interesting or mundane, but have enormous bearing on the manager’s work as well as the company’s performance. Since most issues do not have a straight answer, fresh student minds could probably provide the solution. The following is the caselette sent to MBA colleges across Bangalore:

Anand’s family has been making Ruby Hawai slippers for the last 15years. The business has brought them respect in a small town in Kerala, where traditionally they had rubber plantations. The brand is recognized in the hometown, and is distributed throughout India. In all the markets, Ruby has a marginal share of less than 5%. It is priced on par with the leading brand but gives a premium margin to the distributors. The Hawai slipper industry is crowded with players and Ruby at best is chugging along. An analysis shows that most of the sales happen in semi-urban and rural markets, and even here there is constant threat from lower priced slippers. Ruby has copied the complete range of what the leading brand offers. In all, Ruby has eight sub-brands, but only two of them actually make positive contribution. At the end of the day, Anand and his family have just enough to clear the interest on the loans they have taken for the factory and meet their living expenses. The world is changing and Anand knows he needs to make changes, but does not know in which direction to go. He needs an outsider’s perspective on what his options are. Anand has a 15-minute chat with you: what will you tell him?

Some very interesting answers came from students for this caselette. One view point shared by most is best put in the words of Amit Rane and Mukund Rao, (Rai Business School): “Discard the six non- profitable sub-brands. Concentrate on the two profitable ones. This will help in diverting the resources towards the latter’s production and sales, thereby eliminating losses.”

Nikhilesh Agrawal (IIM, Bangalore) expands on the idea of rationalization and suggests generating more resources like: “Reduce the advertising expenditure, since pull measures like advertising will not make a major difference in the sales volumes.” Building on his concept of how Ruby gets sold, he suggests, “Retain the higher margins currently given to distributors and retailers asking them to market and sell Ruby slippers to the consumers who don’t perceive any tangible difference between different brands.” On the distribution front, he suggests: “Increase the reach of the slippers by increasing the number of distributors in remote areas.”

Gaurav Sinha (IIM, Bangalore) however has a contrary approach and suggests focus in another sense. He says, “First establish the brand as a strong regional player. This would also lower its distribution costs. For better brand awareness, it should spend more on advertising, with primary focus on semi-urban and rural markets. It should be priced somewhat lower than the leading brand, so that the customer is coaxed to buy it.”

Abhishek Gupta (IIM, Bangalore) sums up well when he says, “The company needs to create brand differentiation for its products, and should have fewer and profitable sub-brands on which it can focus well. Since, most
of its market comprises of semi-urban and rural areas, the company should focus on durability, comfort, and quality of its products. It can expand its consumer base by exporting its slippers and tying up with big retail chains like Big Bazaar and West Side. These tie-ups will lead to volume sales that will offset the lower margins.”

Editor’s note: This caselette was inspired from a real life situation. The key elements brought out by the students are rationalizing non-performing sub brands and focusing on the areas of strength, and looking at newer opportunities where Anand’s strengths can be better utilized.

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