December 14, 2010

Case Study for MBA- Marketing Management: Leopard Bath Fittings

Some twenty years ago a group of professional with diverse backgrounds working in different companies in Bath & Kitchen fittings industry segment decided to set up a venture. There were number of small units in the area around Chandigarh engaged in manufacturing taps and showers. They would sell their products to the local traders at a wafer thin margin and would also do job work for the leading players in the trade.  So some professionals and few small manufacturers decided to come together and project their newly acquired critical mass into the market.  Consequently a new company by the name of Leopard Aqua was born.

Leopard Company was thus a mainly marketing company with a minimal production capacity. Its corporate office was set up in a 5 canals plot in the industrial area at Chandigarh.  Besides serving as HQs it had a well appointed showroom for selling the products from the premises.  The company was jointly owned by the eight directors having equal number of shares. However their responsibilities were defined but some overlaps remained as more than one director were engaged in the same function. One of the directors was appointed as the Managing director and other assumed responsibilities of accounts & finance, production and other important tasks. In fact three directors choose to be sleeping partners leaving the management to the remaining five. After 6-7 years two directors left the company but the management remained unchanged. It has been incorporated as a closely held limited company.

In the FY 2006-2007 the Leopard Company had a gross turnover of over INR 200 Million (Annexure 1). The company produced several lines of bath & kitchen fittings from low to high price/quality segment at different plants owned by different directors. It is usual for revenue based target driven sales force to push the fast moving low price products in the market. Such products by their nature have very thin margins.  This would result in low sales of quality high end products having good margins.  The Leopard sales team despite repeated reminders kept pushing the low price middle quality products into the market without giving a significant push to the high quality good margin items. Therefore there developed an imbalance in the market.  

The sales team that joined Leopard 20 years ago remained with the company as the growth in sales resulted in consequent growth in their commission earned. Subsequently the company started hiring sales people on salary basis as they needed to employ MBAs and other professionally qualified people. Like many other SMEs in India the top level sales team at Leopard remained less educationally qualified as compared to the new recruitments.  It was felt that people who worked on commission basis would stop pushing the sales once they had attained their personal financial goals. 

A company is known more by the quality of its products than by the tall claims in its advertisements and promotion messages. Hence despite having top quality products in its portfolio the Leopard Company suffered from the lack of proper positioning of the brand. Till late 90s such companies did not take to mass media advertising seriously and kept to Word of Mouth promotion only.   There was a general thinking in the industry that since end user buys taps (faucet) & shower only once or twice in a lifetime therefore it would be a waste to convince them through mass media.   Moreover consumers largely depend on the advice of architects and masons in purchase of such products.

The Leopard Company kept a reasonable amount as promotion budget every year since its inception following the all you can afford approach.  But even then it did spend 2-3 percent of its turnover yoy since first year. The company engaged a marketing expert and repositioned the brand from rational to emotional appeal with a shade of Indian nationalism. It was felt that rational appeal does not seem to lead to any unique positioning as most brands in that domain had similar appeal to the customers. Moreover since most of the sales came from domestic market it was proper to appeal to the local sentiments.

The Leopard Company has a national direct sales force of 30 people working at various levels reporting to the MD and other indirect sales force of 20 feet on street people. It has national distribution network across India comprising 250 dealers. The company has robust sales and marketing systems. There is no significant amount of credit outstanding as the goods are cleared through bank only. The leopard’s inflexibility in extending accredit to trade buyers speaks volumes for its brand loyalty and product quality.  It has achieved leadership position in Gujrat and has significant market share in remaining southern states, it does not enjoy significant market share in the north India where its head office is located.

The Directors in the company have reached their middle ages and their children have taken different career paths. Till recently no director asked the board to appoint his child in the company. In the year 2007 one director got his appointed in the company against the wishes of the majority.  And also some directors also have lost the enthusiasm to keep working with the same energy.  The situation has been complicated by two directors complaining that products manufactured at their plants are not being sold in good numbers leaving them mired in problems regarding working capital management and high inventories.  Though Leopard can raise capital from debt or equity route but there is no mechanism to route it to the independently incorporated pvt limited company owned by the indebted directors. As those organizations has already been leveraged. 
The recent entry of international players like Kohler, Roca and American Standard has increased the competition in the market at the high end. The lower stratum of the market has been invaded by numerous small players as the technology barriers are too low. Most companies in India in bath & kitchen fittings segment use very basic technology in the casting and mould making. Therefore there are no significant entry barriers for new players to make inroads into the market. The new players having lean infrastructure have the capacity to compete on very thin margins can drive out an established product from the middle to low segment.

Due to multiplicity of challenges the Leopard Company has decided to look for alternatives such as partial or complete divestment of equity.  In your opinion should the company go for full divestment mode in 2011? What would be a reasonable price to ask for such company in case of full divestment? What would be the brand value of its Leopard brand?

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