titan
... of 7 percent. This achievement was impressive, because the workforce consisted mostly of local youth, who had never before worked in a factory. Design and manufacturing of jewellery differed significantly from that of watches. A large part of watch production involved the assembly of dozens of intricate parts into a tiny mechanical/electronic piece of machinery. Millions of nearly identical movements were produced in a continuous process, some parts of which were eventually automated. Although jewellery manufacture also involved metal finishing and, for some pieces, small parts, production processes were much more individualized than in case of watch manufacture. By the early 2000s, Titan’s manufacturing facilities for watches and jewellery were among the world’s most modern, incorporating equipment from leading machinery makers. The company fabricated a variety of parts for watch movements, metal straps, cases, and jewellery. It assembled virtually all the watches it sold. Some components, such as leather straps and watch faces, were purchased from nearby vendors, but for the most part, Titan’s facilities were fully integrated. Titan believed integration was necessary to respond quickly to market changes and to produce new models in response to market demand. Table I Revenue break up by division Division Sales Revenue (Rs.Crore) Growth over previous year Time Products 453 -1% Jewellery 345 29% Total 798 10% Source: Annual Report 2002-03. In the early 2000s, as competition intensified, Titan had taken various steps to cut costs. In 2002, Titan outsourced 50 per cent of steel manufacturing, 100 per cent of the leather straps and 100 per cent of the dials. The quality of outsourced materials was overseen by the vendor development cell, which worked closely with the suppliers. The movements which were the most crucial part of the watch, were mostly manufactured in-house. However, complicated movements for chronographs, etc were imported. Titan took full advantage of the price war among the global movements manufacturers. With the increase in outsourcing, manpower requirements dropped. A separation scheme in 2002 saw 606 employees opting to leave, mostly from the Hosur factory. In early 2003, there was worker unrest leading to a partial lockout in Hosur. Despite improving supplies from other facilities, the shortfall in production of 0.5 million watches could not be made up. 5 Marketing Watches The quartz analog watch was an entirely new product for India in 1987. Titan decided it would radically change the way watches were marketed throughout the country. Titan’s marketing strategy had five planks: a product of international quality, Indian designs, competitive prices, intensive advertising and promotion, and specialized retail shops to control the presentation. Figure I PBIT Margin Trend Source: www.equitymaster.com Titan’s ambitious marketing program aimed at positioning its watches as high-quality, fashionable products, available in clean and comfortable surroundings, priced higher than other watches then available in the market but affordable to millions of potential purchasers. Titan decided not to compete directly with mechanical watches from HMT. Titan put in place an integrated marketing mix consisting of attractive designs, highquality products, sufficient inventory, a logistical support system and a well-timed promotional campaign. Table II Segment Information (Rs m) 4QFY03 4QFY04 Change FY03 FY04 Change Revenues - watches 1,467 1,842 25.5% 4,539 5,345 17.8% PBIT margin 12.1% 21.9% 8.3% 10.4% Revenues - jewellery 1,124 1,040 -7.5% 3,451 4,257 23.3% PBIT margin 6.6% 2.9% 4.0% 4.8% Overall EBIT margin 9.7% 15.1% 6.5% 7.9% Source:www.equitymaster.com Distribution Titan’s first specialty shop opened in 1987 in Bangalore. This shop was followed by others in major cities throughout India. By the late 1990s, Titan’s watches were sold in thousands of stores, including company showrooms and exclusive stores. In addition, the company opened hundreds of service centers to repair watches, replace batteries, or change straps. 6 Most analysts agreed Titan’s approach to watch distribution, marked a paradigm shift. Titan opted to bypass wholesalers, reaching out to the retail channels directly. While launching its watches, Titan held a national conference, to which even the smallest retailer was invited. Sales people called on retailers, regardless of whether or not they stocked the brand, to persuade them to sell Titan. To maximise its reach, Titan converted non-conventional outlets like jewellery stores, departmental stores and even auto dealers into its retail outlets. In December 1987, nine months after the launch, Titan opened its own retail showroom, which became a phenomenal success due to the shopping ambience. Following the success of its first showroom, Titan rapidly expanded its showroom network. By 1995, the company had more than 70 executive showrooms (bulk of them franchised) in over 50 cities. Titan paid the franchisees higher margins to compensate for opportunity losses. Until the emergence of Titan showrooms, watch outlets in India had traditionally been dreary places, small and dark, usually located in the general market area of a town. Most consumers would not walk into such shops for a casual look. Titan showrooms were easily recognisable and located in the most fashionable shopping centres. External show windows attempted to lure the consumer into the showroom. Research indicated that most people, on entering an unfamiliar place, tended to walk closer to the left. So most of the showrooms had doors opening to the left. The customer walked past a long display stand of Titan watches. The Titan showrooms prompted traditional watch dealers to upgrade their outlets. Titan then started a scheme of converting some of these outlets into Titan shops. These shops acted primarily as Titan dealers, though they also stocked other brands. Segmentation, Targeting & Positioning In March 1987, Titan launched its quartz range with heavy advertising. The first advertisement described the Titan quartz as the international watch one could pay for in rupees. Later campaigns emphasised that to find such watches it was not necessary to go to Europe, Japan, America or a duty free shop. The campaign also positioned the watch as a gift item, with ads saying: The next time your husband wants to buy a saree, ask him for a Titan watch. The campaign was an enormous success, giving the company a great deal of visibility. Music became an integral part of Titan’s advertisements. Typical ads featured two or more people – parents, spouses, siblings - coming together for some special occasion. The atmosphere would be awkward or emotional. Then suddenly one person cut through the tension by giving the other a wrapped box. Once the box opened, a Titan watch came out and Mozart started playing. In the early 2000s, with a flood of electronic and other desirable products of all kinds, there were too many gift options. So the gift appeal of watches reduced. Titan realised it 7 would have to use other ways to motivate people to buy watches. Segmentation also became an important issue as Titan’s operations expanded. Titan believed that different brands had to be created for different segments. FasTrack was positioned as a youth brand. Young Indian racing car driver Narain Karthikeyan acted as the brand ambassador. The company used focused distribution, supplementing its usual watch outlets with youth focused outlets like music stores and Internet cafes for FasTrack. Titan targeted its Raga watches at women. The company realised that more women were wearing watches for functional reasons. So it offered slimmed down and sleeker watches for women. The Raga range remained for more special occasions, like marriages or parties. Titan’s CEO Bhaskar Bhat1 explained: "FasTrack, Raga and Dash are sub-brands within Titan specifically targeted at youth, style conscious women and children. The role of Titan in these sub-brands is that of a manufacturer providing confidence to the customer as regards the quality of the product and its heredity. Titan Edge and Titan Steel are the mainstream Titan products which enhance the mother brand's image of leadership, innovation and pride. Therefore, while FasTrack, Raga and Dash are sub-brands, Titan Edge and Titan Steel are collections/ranges of Titan.” Another strategy, Titan had tried was to create dissonance in consumers about their current watches. One campaign showed a group of women first admiring a man, and then rejecting him because his watch wasn’t good enough! “You are being judged,” said the sign off line. “Get a New Titan”. Offering more product features was a strategy used by most marketers to expand the market. But in case of watches, more features often meant more weight, resulting in strain on the wrist. Titan had tied up with the Indian Institute of Science to research new applications that would go well with watches, for example like blood pressure monitoring (already offered by some manufacturers like Casio). Titan realised it had a major opportunity to introduce new but related product lines that could be sold through the same distribution channels. Clocks were an obvious choice. A line of plastic clocks was introduced in 1995, followed by table clocks. Sold under the Titan brand in company stores and elsewhere at attractive prices, they received an enthusiastic market reception. By 1997, nearly 400,000 units had been manufactured and sold. Consumers saw the new clocks as a natural complement to the company’s other products. In 2004, the Indian industry was sharply divided into two main price segments, above and below Rs 1000. Sonata was placed in lower price band and Titan in the higher. The Swiss watches were mostly priced above Rs. 5000 and the Japanese between Rs. 2000 1 “Titan and Philips India,” Businessworld, 27 January 2003. 8 and Rs. 500. The lower end of the market was estimated at around 20 million units. The main competition came from the grey market operators and the Chinese. Jewellery Jewellery appeared to be an attractive business if not for anything, at least for its size. At about Rs. 40,000 crores, it was 20 times the size of the watch market. Titan’s normal marketing channels for watches were unsuitable for distributing designer-quality jewellery (except, perhaps, jewellery watches). The main competition came from the traditional local jewellers. Tanishq aimed at breaking into the local markets by positioning itself as a jeweller with a nationwide name, a presence in 30 states and cities. Titan expected the fragmented Indian market to consolidate under branded names like it had happened in the west. The company decided to get involved in designing, manufacturing, and selling gold-based jewellery, including jewellery watches. Jewellery had traditionally been sold in India through small shops where quality and material standards were often compromised. Partly on account of the organized and fragmented nature of the market and partly on account of poor statutory controls, many unethical practices were prevalent in the industry. These included lack of certification procedures, extensive under – karataging of gold jewellery, overtaking the quality of diamonds, widespread evasion of sales tax and other stability levies and exploitation of artisans. Titan believed it could bring about a paradigm shift by offering jewellery mostly through exclusive, fashionable shops. Important purchasing considerations, such as gold content or quality, were guaranteed by Titan. Table III Cost Break-up (Rs m) 3QFY03 3QFY04 Change 9mFY02 9mFY03 Change Raw material 1,384 1,964 41.9% 2,988 3,887 30.1% % sales 65.0% 68.1% 60.6% 62.2% Staff cost 194 224 15.7% 583 620 6.5% % sales 9.1% 7.8% 11.8% 9.9% Advertising expenses 134 217 62.2% 314 485 54.5% % sales 6.3% 7.5% 6.4% 7.8% Others 125 237 90.0% 478 672 40.4% % sales 5.9% 8.2% 9.7% 10.7% Source:www.equitymaster.com Even more than in case of watches, design and presentation were the key to success in case of jewellery. Close coordination among functions such as design, engineering, manufacturing, and marketing was also vital. Stores needed to be sited and built at the same time that sufficient pieces for display were being designed and manufactured. Production began in 1994, in a specially built factory near Titan’s watch making facility. 9 Not everything went smoothly at first. Titan chose, for example, to use the international standard, 18-karat gold, in its original jewellery collection. But many Indians were accustomed to 22-karat gold. While they generally liked Titan’s designs, they were resistant to buying items of lower weight in gold. The company responded by introducing a line of 22-karat gold jewellery in addition to the 18-karat designs. The change in strategy had a visible impact and sales expanded very rapidly. In a bid to get people to come to the stores and buy, Tanishq's team spoke to a crosssection of friends, neighbours and wives to get valuable feedback. The interaction helped in gaining insights into customer needs and dispelling misconceptions (eg: that Tanishq sold only jewelled watches, or high cost jewellery). Tanishq’s core proposition consisted of trust, purity, exquisite designs, superb craftsmanship and finish and a classy, enjoyable shopping experience. Titan identified two types of customers: one looking for new and trendy items, and the other a habitual buyer, building up personal collections or buying for weddings. Jewellery selections launched for the first group included Aria, which offered contemporary Indian designs, Diva which was based on international trends such as marrying diamonds with pearls, and Collection G, which offered working women contemporary pure gold jewellery. The second type of customer was wooed with promotions such as ‘Impure diamonds to pure gold exchange’ and so on. By 1998, only four years after beginning production, Titan had its new plant running smoothly. The company had opened more than 14 exclusive boutiques in 12 Indian cities. Annual sales exceeded 80,000 pieces. Titan continued to open more stores. The company also targeted new export markets. In fiscal 1998, jewellery exports totaled 26,000 pieces in Europe and the Middle East, and plans were under way to enter other markets in the future. In FY 2003-2004, the jewellery division accounted for retail sales of Rs. 416 crores Tanishq was available in 67 outlets spread over 52 cities. It was also being exported to Europe, the US, the Middle East and Australia. Globalisation Titan had global ambitions almost right from the start. But its globalisation strategy had evolved over time, partly by design, partly by circumstances. France Ebauches, from whom Titan had sourced its movements technology, had, at the time of entering into the technology arrangement, agreed to buy back a part of Titan's production of watch movements. Titan commenced export of movements in 1989. However, the company was keen on selling watches. In 1991, Titan launched its watch range in the Middle East. Despite stiff competition from the global majors, Titan achieved sales of over 100,000 watches within a year of its launch. After the UAE, Kuwait, Oman, Saudi Arabia and a few key markets in Africa followed. Titan also ventured into countries like Sri Lanka, Bangladesh, Nepal, Maldives, 10 Singapore, Vietnam, Malaysia, Thailand, Fiji and Australia. But Titan realised ultimately, it would have to prove its mettle in the more sophisticated western markets. Titan turned to Europe, which the company felt was a good testing ground. The company hired leading European designers, on a time-sharing contract, to design a distinctive watch collection. Titan also set up a separate manufacturing' facility (capacity 200,000) for manufacturing 'Eurowatches'. After an extensive survey of the European market, Titan found that it was not easy for a new brand to find space in the retail stores. To create strong consumer demand, the company unleashed a massive advertising campaign. For each of the 12 European markets it entered, Titan developed a separate advertising campaign. The company also designed a completely new collection for the European market. In 1994, Titan participated in the world-renowned Basle Fair-an annual event which attracted the world's biggest watch and jewellery manufacturers. The main aim was to seek out distributors and partners rather than sell what it had. Titan unveiled its Eurowatch range at the fair. Soon thereafter, Titan roped in a French watch industry veteran and the man credited with establishing Seiko in Europe, Jacques Meyer. Meyer, who had a wealth of distribution contacts throughout the continent, helped Titan gain access to distributors and retail outlets and position the watches, which were to be priced at between $75 and $750. But these heavy investments did not yield commensurate reforms. The cumulative losses of its European operation touched £9 million in 2003. Soon Titan realised that overcoming the negatives of the Made In India tag was not easy. The company withdrew from all markets except Austria, Greece, Portugal, Spain and the UK. Bhat recalled2, “We did not have the financial wherewithal to continually invest in the market. But at the same time, I would say it was an investment worth making.” In the Middle East, Titan was much more successful. The brand had a strong appeal to the large Indian population there. The unexpected success had been in the Asia-Pacific region, where the brand had actually managed to establish its superiority vis-à-vis the Far Eastern models. "We were partly helped by the fact that the European brands have stayed away from these markets, leaving a space for a slightly more premium brand which we have occupied," says Bijou Kurien3. Marketing costs were also significantly lower in this region. This success in a market relatively untapped by international players prompted Titan to think of other such markets like Africa. In the early 2000s, Titan had a market presence in 40 countries across the globe. Titan sold watches in Western Europe, the Middle East, Southeast Asia and Australia. In the Middle East, Titan was among the top five brands. Titan believed its watches were better designed than the Japanese, cheaper than the Swiss and also rugged. Three different subsidiaries handled Titan’s overseas business, Titan International (Middle East) which took care of Africa and the Middle East generated sales of $7.86 2 Ramaswamy, Shobha , “Living in Interesting Times,” www.tata.com , February 18, 2004. 3 Doctor, Vikram, “Titan in Trouble,” The Economic Times Brand Equity, February 12, 2003. 11 million in 2002-03. Titan was the leading brand in Oman. The company had more than 1000 outlets in the Middle East. Tanishq had exclusive boutiques in Dubai. Titan Watches & Jewellery (Asia Pacific), based in Singapore, handled markets in south Asia and Southeast Asia. In 2002-03, their subsidiary generated sales of $9.04 million. Titan had a strong presence in countries like Singapore, Malaysia and Thailand. Titan International Marketing Ltd handled European operations. Titan had limited its marketing activities to Greece, Spain, Portugal and the UK. The turnover in 2002 dropped to £1.58 million and losses amounted to £1.24 mi...