Aviation Industry Woes Continue

Much has already been said about the suffering aviation industry. It seems that it is flooded with a whole new set of worries and issues to ponder about. Firstly I don’t think airlines in India are going to call it a truce, when it comes to ATF prices, which are soaring sky high. A recent presentation was made to the Union Cabinet in which Civil Aviation Minister; Praful Patel addressed issues facing the industry. He said that Indian airline companies are being charged way higher ATF prices than their global counterparts. A total of 40 percent to operating costs is just not acceptable.

To add to these woes, is the ever increasing sales tax, large scale layoffs, overcapacity and large debts which are major causes of concerns for Indian airline companies. Jet Airways Debt Equity ratio was 9.1 as recorded in March 2009, which is a steep rise over last year’s figures which were 4.57.

Grappled with high interest rates for payout of debts and stiff competition leading to price cuts, the picture for Indian aviation Industry is far from being rosy. The cumulative losses of airlines all around the world, this year mount to a whooping 9 billion dollars. Airlines in India have suffered a loss of around 10,000 crores, which is a major concern for the industry.

Praful Patel also brought up the point of infusion of capital into the state run airlines Air India, which has its own set of problems, including painful management issues and large debt due to new orders of air jets, which totals the outstanding debt to around 50,000 crores.

The recent strikes by Airlines did not do any good for the industry either, and just added to the inconvenience of the Indian passenger. There has been a slump in passengers too, who have undergone a change in their travel habits lately, much due to the recessionary effects. Some have migrated to the less expensive train travel, and business class passengers, who are the cornerstone of revenue contribution, are increasingly choosing cheaper air tickets.

The industry is also fighting hard to reduce taxes, which are as high as 29% in Mumbai and 33% in Delhi. Airline companies want ATF to be included in the declared goods category, which attracts a 4 percent uniform tax rate across states. One of the major concerns facing Indian Aviation today is the challenge to keep operational costs at a minimum. In their frenzy to reduce costs, the brunt has been on the workforce where more than 28,000 pilots, flight attendants, gate agents, sales representatives, and office workers have lost their jobs. Increasing number of airlines has made it a crowded market, however low cost airlines like IndiGo are looking to co-operate with the ministry to find out a mutual solution regarding the problems faced by the industry.

In spite of the gloomy picture, International Air Transport Association (IATA) has a vision to improve infrastructure and achieve global standards. In this regard the airports authority of India (AAI) are set to raise funds worth Rs. 5000 crores, by issuing infrastructure bonds. The AAI is currently involved in modernizing a large number of airports, with a focus on metro airports.

The picture is as bad in the global aviation scenario, with airlines like AMR Corp. and Continental Airlines in America showing losses, where Continental Airlines touched a loss figure of $ 18 million. One of the primary reasons for surmounting losses is the drastic cutback of flights taken by business executives, due to the recessionary environment. Most of the airline companies in the United States are relying on recapturing the high-paying customers, as premium business travellers form a large chunk of the revenue.

The lifeline for the aviation industry in the near future would be to control the escalated costs, and the return of premium customers which would add impetus to the industry and its future. Countries like United States are focussing on innovations to drive growth and profitability in the near future. With plans to deploy a new air traffic management technology NextGen, it aims to eliminate Radars and improve air traffic by controlling it from satellites instead of ground based technologies. This would largely reduce flight delays and concerns over flight safety.

With countries like China, looking to embrace this technology in the near future, the scenario for aviation technology looks bright. How far this percolates into revenue and sustainable profits in the long run would be something which needs some guessing into.

Exploring proactive and reactive market orientation strategies and their implications on businesses

A company that takes too much time to respond to a change in the business environment is susceptible to a shortfall of profits. Sometimes it may result in loss of market share due to a competitor already in the process of implementing the strategy which was being planned by the company. It may also happen that the company may have to shut down or prune some of its business lines due to the inability to oversee changes in market behaviour or a breakthrough in technology leading to the current technology capabilities becoming obsolete.

Companies following stringent procedures, in terms of having a strong research capability, a strategic planning system in place, proper business intelligence tools to help make key decisions and employing specialists, for example marketing co-ordinators and analysts to predict changes in consumer patterns and the environment, have a competitive edge over their competitors.

A proactive company is the one who foresees these changes and has the action plans ready to face them. These companies are well prepared and have information from various sources, to counter any discrepancies in the business environment. A reactive company on the other hand responds after the event has taken place and has little preparation or anticipation of such changes.

However, no company can rely on being either completely proactive or reactive in its orientation. Ideally, a company must use both strategies to respond effectively with a minimum response rate. A reactive company uses market surveys and questionnaires to gauge customer insight and satisfaction levels.

Based on the recorded feedback and analysing consumer trends, the company works on improving their services and products and focuses on the key improvement areas highlighted by the consumers. For instance a Fortune 500 food company gathers continual customer and employee feedback from e-mails, submitted survey forms and other documents. This feedback is collected from thousands of disparate sources on a real time basis. This feedback is then analysed using sophisticated tools, and thereafter strategies and process improvements are designed based upon the observations.

This is an example of an effective reactive strategy used to improve customer satisfaction. It includes understanding and meeting customer’s expressed needs. In fact companies like Mindshare Technologies assist large corporations in implementing comprehensive feedback mechanisms by deploying Enterprise Feedback Management Solutions, which captures customer feedback from disparate sources on a real time basis and has powerful reporting tools for intelligent decision making and reporting.

Although this is very important and companies must use this strategy to gain insight and feedback on their products and services, sometimes companies tend to rely too much on this data and hence innovation takes a backseat. Most critics argue that reactive companies tend to lag behind when it comes to high speed innovation and satisfying the latent needs of consumers.

This is where companies following a proactive orientation have a distinct edge over their counterparts. They use extensive methodology like brainstorming, anticipating market trends, analyzing customer demand patterns, using sophisticated planning, and encouraging innovation at all levels in the organization. These firms are constantly finding new ways of providing customer delight by fulfilling the latent needs of consumers and hence creating a differentiating factor, which in turn harness the company’s brand image and improves customer equity.

Organizations like 3M, HP and Motorola have made it a practise to research and fulfil latent needs of consumers by adopting the ‘probe and learn’ philosophy and encouraging innovation at all levels within the company. Technology firms tend to be more inclined towards a proactive orientation, since there is a high scope for innovation and design of value added features and solutions. Consider industries like biotechnology, whose core focus is research and development and hence it is primarily proactive in nature. However due to the large influence of marketing in today’s business environment, a large number of biotechnology firms are using a market oriented approach and they do keep this in mind while moving forward.

A research was conducted to find out which approach was more effective in case of new product development. A sample of technologically diverse companies was taken, and the relationship of new product success with both proactive and reactive orientations was recorded. It was seen that to create and sustain new product success, only reactive market orientation was not sufficient and a proactive market orientation plays an important role in the success of a new product offering.

A company solely relying on customer responses is one step behind and carries a risk of losing both market share and brand equity from a competitor who provides value added latent features at competitive prices. The company following reactive orientation is taking a risk of solely relying on customer expectations and stated needs, which are not necessarily static and are always changing. It also provides little opportunity for consumers to experience ‘delight’ and hence loses out on customer loyalty and brand equity.

However every coin has two sides and so has both proactive and reactive orientations. There is another risk of customer acceptance of these latent features. Many times it may happen that a customer is not willing to pay the premium for these features or does not see it as a significant benefit or a differentiating factor. In this case the company may lose out on profits due to additional costs of rolling out the value additions and loss of customers. A strong research capability reduces this risk and increases the probability of market acceptance of these latent features.

It is important for companies to adopt both strategies and follow a total market orientation by strengthening both its proactive and reactive capabilities. Such companies are well prepared to face changes in the business environment, and are even pioneers and innovators, who eventually revolutionize the way people use a certain product or technology.

Cisco continues its inorganic growth strategy with its recent $2.9 billion acquisition of Starent

Cisco systems, which is a well know brand in the networking and communications space, is on a major expansion spree with its recent acquisition of Starent Networks. The $2.9 billion deal aims to leverage Starent’s mobile infrastructure capability by enabling Cisco to provide a strong architecture for rich, quality multimedia experiences to mobile subscribers.

Starent has an extended expertise in delivering high quality content such as video, mobile TV and gaming to mobile subscribers. With the rapid explosion of content downloads from mobile phones, especially video transfer, mobile data traffic has seen an exponential growth in recent times. A recent forecast conducted by Cisco, the Visual Networking Index (VNI) forecasts mobile data traffic to reach one Exabyte or one billion gigabytes per month.

Cisco went further to research the changing behaviour of mobile consumers, with an ever increasing trend to access high speed multimedia services on their phones ranging from IPTV, to videoconferencing, to Video-on-demand. In order to gain a stronghold on this huge growth potential Cisco is building its technology capabilities to serve this demand, and the recent acquisition of Tandberg, was a definite step in this regard.

Tandberg, which is a leader in video communications, would enable Cisco to expand its collaborations portfolio, and would bring it a step closer on revolutionizing communication, and the way people interact and share knowledge. In fact Fredrick Halvorsen, the CEO of Tandberg said that there was indeed a fit between the two companies, not only in terms of their solution offerings but also a people and culture fit. Adding to that he also said that the companies share a common vision, of transforming the way people communicate, and the acquisition would lead to faster decision making and innovations in this regard.

The recent acquisitions of Starent and Tandberg make Cisco’s strategies very clear, and it also hints the company would soon diversify as a Smartphone provider. Current Smart phones are limited in terms of their multimedia interaction and still have some way to go, when it comes to two way wireless interaction. Cisco aims at leveraging its IP infrastructure capabilities, with that of its recently acquired companies to be a provider that would enable fast, streaming video and multimedia interactions through a wide range of access points.

However mobile phone providers like Apple, RIMM and Nokia would provide stiff competition. It is a crowded market and Cisco is yet to establish itself as a strong brand in the consumer electronics market. It is no wonder therefore, that Cisco is focusing on its brand building campaigns through extensive advertising to create a higher level of brand awareness in this space.

How far this strategy of concentric diversification and rapid inorganic expansion is profitable to the company in the long run is still to be seen. However, in this stiff competitive market, the resulting winner will be the consumer, who would benefit from a revolutionized means of communication in the near future.

How to design an effective Strategic Planning System

Any planning process has two key objectives. One is to understand the long term objectives of the organisation, and the other is to devise an organized action plan to meet these objectives. Any company that uses a formal planning process has a better chance of achieving higher profits and growth. It also helps the company to set objectives and monitor results.

Though planning is an essential part of a firm's strategy, most firms find it difficult to implement the plan successfully. This may be due to the largely complex process of planning and not adhering to certain generic guidelines, which are quintessential to the success of any planning system. Some of the basic guidelines suggested by the Boston Consulting Group are that planning is a collaborative effort and not merely the tool for a Vice President or a Line Manager. The key to a successful planning system is to be simple, achievable in terms of its goals and flexible to accommodate changes in the environment.

Difference between a Strategic and Tactical Plan

A strategic plan is different from a tactical plan or an operational plan. Most companies are so focused on their business plan to achieve their revenue targets that they tend to ignore the significance of strategic planning. A strategic plan should never be confused with a business plan or even an operational plan. A business plan would give the company a fair idea on the company's product features, marketing tactics, promotion, pricing, sales channels and other parameters which would help the company to assess its short term performance goals and profits.

A strategic plan is a tool devised to achieve long term objectives. The implementation of this plan would determine the long term direction of a business. Such decisions are strategic in nature and transform the entire business operation. For a company to chart out an effective strategic plan, it must focus on three distinct aspects.

1. Managing a company's business as an investment portfolio.

2. Assessing each business's strength by comparing the market potential with its relative market position.

3. Devise a strategy for each business, keeping the long term objectives in mind.

For example, a large conglomerate like Philips, which is a part of the elite Forbes list of best managed big companies in America, communicated a "Vision 2010" Strategic Plan. This plan charts out a strategy for the company to foray into the areas of Healthcare, Lighting and Consumer Lifestyle. This plan aims to position Philips as a market-driven and people centric company. The plan was in line with the vision of the company, and in congruence with its long term objectives.

Be it a large conglomerate like Philips or even a small company; charting out a strategic plan is extremely essential for not just growth, but also for survival in the long run. Strategic planning is hence crucial and would change the entire course of business. Strategic planning not only ensures growth of the organization, but also safeguards it in tough times like that of a global recession. It is a tool which needs to be used very carefully and with utmost precision.

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Strategies to delight and retain the changing Retail Consumer

Retailing has undergone a huge transformation over the years. From Baby boomers to Gen X to Gen Y buyers, everyone has seen a change in buying behaviour, and the mass appeals, tastes and choices of these buyers are evolving every second, thanks to the global culture transformation.

What seems to work as a store format, a couple of years ago have seen paradigm shifts in terms of competition as newer non-store formats are constantly probing the retail consumer. Even according to Kotler’s Black Box Model, the environmental stimuli keeps influencing the buyer to probe into different products and look for different, unexpected value additions which would not only satisfy, but also delight the retail buyer and provide him with an experience.

So what does the retail consumer do? He is suddenly bombarded with so many choices. A person wanting to shop, to enjoy the entire shopping experience would demand a little extra from the mall or store he shops from. On the other hand the consumer, who wants maximum value at least possible prices, would prefer a wider assortment of goods and a wide plethora of choices to suit his everyday needs.

A retail consumer may even want to sit back and relax at home and do all the shopping for the months groceries. A working professional does not have the time to buy a digital camera, so he orders it through the internet.

Research shows that a retail consumer is willing to pay twenty five dollars extra, if he is extremely satisfied with the shopping experience. Hence retailing giants strive hard to give that extra delight to consumers by providing innovative yet delightful experiences to the consumers. For example, according to a research conducted by Calif-based regional mall REIT Macerich, to identify what attracts more consumers, the study showed that fountains can play an important role in increasing sales.

Fountains create an atmosphere which is attractive and invites more consumers to enjoy the entire experience of shopping. There is also a huge fountain outside Las Vegas Bellagio casino which is synchronized with musical tunes and attracts hundreds of shopper’s every day.

Most retailers now understand this, and are striving hard to create a complete ‘Shopping Destination’ by adding innovative features like these to create a differentiating factor among other retailers.

Additional tips to budding retailers as well as established retailing giants:

1. Consumer delight is everything. Focus on consumer by providing him with value products at a convenient and well designed retail store.
2. Mass customization is the way of the future. Organizations like Dell, Levis Strauss have showed an example of how effective it is to provide customized offerings to its consumers.
3. Focus on differentiating with other competitors by providing a complete shopping experience.
4. Use innovative techniques and store formats like pop-up retail, to target consumers who lead hectic lives and need an outlet for high-speed retail

Retailing has been largely dominated by category killers like Wal-Mart, Home-Depot, Starbucks, however with changing consumer buying trends and using innovative retailing practices, small independent retailers can still survive in the marketplace, by differentiating their offerings and providing a unique experience to consumers.

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Bharti AXA plans on expanding its wings in the fast growing life insurance market

Bharti AXA plans on expanding its wings in the fast growing life insurance market. It has forecasted a 5 percent market share holding by the end of 2012. One of the primary reasons for this aggressive expansion strategy of the company is the huge potential and largely untapped insurance market.

India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. This impressive growth in the market has been driven by liberalization, with new player’s significantly enhancing product awareness and promoting consumer education and information.

Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by 2010-11. The current market is worth 50,000 crores. Bharti AXA Life insurance, which is a joint venture company between India's leading conglomerate, the Bharti Group and France-based financial protection and wealth management service provider-AXA, has currently a modest share of 1 percent in the market.

Bharti-Axa’s key strategy is to leverage on the wide reach of Bharti Operations by aligning with Bharti Airtel distribution points, corporate agents and brokers.Bharti Axa has set-up virtual branches to distribute policies using the retail and telecom outlets of the Bharti Group. Bharti-Axa envisions virtual branches as a key strategy and has currently 25 percent revenues from the same.

Chief actuary at Bharti AXA GLN Sarma says. “Capital constraints have prevented us from being overly aggressive. We would like to retain what we have and consolidate our position.” The company is also not planning any big advertising campaigns and instead, has chosen to communicate with customers through phone calls, text messages and emails. Sarma agrees that product distribution and building channels has been a problem for Bharti AXA because the company does not have a parent bank to fall back on. “Also, many banks have turned into insurance product manufacturers from mere insurance distributors. This makes them our competitors ruling out the possibility of a distribution deal with them,” he says.

However, despite the capital constraints, Bharti-Axa is all set to infuse another 100 Crore in the fourth quarter. Apart from this, the company is on an aggressive hiring spree with its plans to beef up the sales force to 45,000 from the present 30,000.

The current product portfolio of Bharti-Axa is that of eight life insurance products. This includes six ULIP products. The company’s CFO, V Srinivasan, commented that Bharti-Axa’s key strategy would be to focus strongly on ULIP products.

Porsche rolls out new Panamera

The German car manufacturer is keen on the Indian market with its new product launch, the Panamera sedan. A luxury four door super sedan, Porsche Panamera is all set to be launched on October 6.

It is said to have the sporting agility of 911 and the space of Cayenne. While its production was started early 2005, it would be launched globally in 2009.The Porsche Panamera would be at a price range of Rs 2 crore in India, owing to high import duties.

With a strategy to launch three variants in the Indian market, Porsche is optimistic of its sales figure of the new Panamera with a forecast of 50 Panameras in Fiscal 2009. Porsche’s sole importer has already received thirteen bookings for the car.

The Indian sports and luxury car segment seems to be the eye of many competitors with increasing number of players entering the market. For long Mercedes-Benz, BMW and Audi dominated this space.

Players like Lexus, Porsche, Jaguar and even high end sports car manufacturers like Ferrari, Lamborghini, Bugatti plan to sell exported cars in India. Because of the still nascent stage of sales in the segment, these auto giants are apprehensive of setting up assembly lines as yet, but with ever increasing competition and increasing demand of luxury cars, that seems to be a reality in the near future for these companies.