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The proposed project as discussed above tends to put light on the current situation in the pen industry with the help of the case study of Cello Pens and Stationery Pvt Ltd. The chosen company is commonly called by their brand name "Cello". Mr G. D. Rathod the founder and present chairman of the company were in the business of manufacturing plastic bangles and plastic PVC slippers. He got inspired with the celluloid film used in making bangles and incorporated the brand name Cello. Now the company is headed by his sons Mr Pradeep Rathod (Managing Director) and Mr Pankaj Rathod (Deputy Managing Director).
According to Sayanti Banerjee (2008), Mr G D Rathod started with a small factory in 1986 with seven machines and a workforce of sixty people. He started with the manufacturing of casseroles, which was a very new concept at that time for the Indian consumers.
Later this product was named as hotpot in the market. As the time passed, they learned the art of manufacturing hotpots very efficiently and achieved market leadership. In the initial period, to educate consumers about the product, aggressive marketing strategy was adopted. Different forms of media were used for the purpose of communicating the benefits, uses and uniqueness of the product. Their ad campaign "Say Hello to Cello" is still very famous amongst consumers. The strategy used by Mr G D Rathod, helped him gain focus from consumers in a huge proportion which gave a head start to his new concept and business. The proverb "Well started is half done" suits this situation very well, but after all its business which is bundled with variability's which has changed the destiny of many businesses. A very good example would be the case of Gerald Ratner, whose famous media gaffe forced him to resign from the chairmanship of the company (Ratner Group) founded by him. Then after several attempts he came with the idea of online jewellery selling which helped him gain success again (geraldonline.com). So in this case we can see that his one mistake made him loose his own business.
Coming back to Cello, with time they gained expertise in the art of manufacturing plastic moulded products, which helped them gain market leadership. They developed a range of products, like serving trays, plastic containers, plastic moulded furniture, buckets, etc. Mr G D Rathod, knew that just having a big range of products and a good manufacturing facility would not give a long term sustainability to his business. He had also developed a nationwide distribution network which helped them distribute their products to every corner of the country. Their distribution network was not restricted to the Indian boundaries; they have regular exports to countries in Middle East, Europe, USA, etc.
Following are the factors, which aided Cello in developing and maintaining a huge nationwide distribution network:
- Coupled with aggressive advertising they maintained good demand - supply equilibrium.
- Their products were a symbol of quality and reliability. So the products were in a good demand. This gave a good volume business to the distributors also.
- Other reasons are as follows
- It's a cash rich company which made payment structure very easy for distributors.
- They developed new models and products very quickly, which would give distributors a very good scope of doing business.
Increasing the range of products under the same brand had been the strategy of the Cello group. But in the year 1996, they started with a venture of manufacturing ball point pens. Unlike the available brands in the market, Cello pens were installed with a rubber grip which made writing easier. Fingers would get a cushion and thus continuous writing would not be painful. According to www.cellopens.com (2009), they use a Swiss machine called Mikron for manufacturing tips of the pen. This machine provides the best quality and reliable tips required in a pen. The inks they use in their pen are made from Japanese technology which enables light handed and pressure free writing.
Similar to their strategy for household products, they adopted the aggressive marketing system to educate people about their new concept. In all their ad campaigns rubber gripping, Swiss tip and Japanese ink were used as highlighting factors to attract customers. The large scale companies at that time in the pen market were Reynolds, Montex, Rotomac, Parker, Linc, etc. Mass advertising was not a very commonly used concept. A company used to get in advertising, but was considered as a part of regular business. One of the key factors that lead to their success in the pen market was that all the products they launched initially were accepted by customers. A question would arise, how Cello could penetrate the pen market so easily. Following are a few of the main reasons:
- Development of a new concept which would be different from current market trends and was actually benefiting the end consumers.
- Aggressively marketing that concept to educate the consumers, for which they gave their adverts in all forms of media. Their TV advertising had its focus on the benefits of using a gripper pen which really attracted a lot of consumers.
- Making full use of the expertise they held in the manufacturing field.
- Their available widespread distribution network at the national and international level.
- Developing new range in a very short time. Their main strategy in both household and pen market was to develop a huge range of products for both national and international markets. Their range was not restricted to ball point pens; they started manufacturing gel pens, micro tip pens, highlighters, permanent markets, sketch pens etc.
The above were the competences Cello had when they entered the pen market. Pen was a very new product for Cello, but they still didn't change the distributors and on the other hand distributors gave them a very good and big support in developing the new market. Distributors considered it an opportunity to explore new market and thus would also help them in widening their scope of business.
But now the situation has changed. Presently situation in the pen market is very competitive. All big brands have started with aggressive marketing and developing new ranges and models according to the market trends. Currently the latest trends in the pen market are metallic body pens and it was introduced by a company called ADD. It not like before that only plastic body pens were available.
In the present situation Cello is the market leader in pen industry with a stake of 36 - 37%. The annual turnover of the nearest competitor is half of Cello's annual turnover. Ambitions of the Cello group are not restricted to being the market leaders in the Indian Pen market. They aimed at expanding their company at the global level. According to their company website www.celloworld.net, they export their pens to Canada, USA, Belgium, Uganda, Kenya, Cambodia, Malaysia, Ghana, Guinea, Bangladesh, Jamaica, Conakary, Congo, Saudi Arabia, Cyprus and many other places.
The above was a brief discussion of Cello's past and present company profile and activities.
2 Organisational Analysis
For the purpose of understanding the environment the author will make use of the PEST. PEST stands for political, economical, social, technological and legal.
PEST model was applied for analysing the macro environment.
Political / Legal:
According to Groucutt (2002), following elements form part of the political environment:
"Expropriation, confiscation, domestication, civil unrest and terrorism."
Indian economy is at a developing stage and is growing with leaps and bounds. Moreover the government is stable and except terrorism there is not much unrest in the country.
The government is in a constant attempt to help small and big scale organizations to grow. Any organization which is growing at a good rate is highly appreciated and is considered as the drivers of the economy. Moreover Cello is involved in exports, which helps the economy grow much faster. Thus they are a positive contributor towards Balance of Trade. So politically there are not many constraints that might act as threats to the organization. The manufacturing infrastructure of Cello is in the state of Gujarat which is considered as the most vibrant state in terms of development in India. So politically it could be said that Cello has a lot of opportunities for growth.
Following are the elements which form the economic environment:
- "Business and economic cycles like Depression, recovery, steady growth, stagnation and recession.
- Interest rates
- Taxation systems
- Income levels
- Poverty - developing nations" (Groucutt, 2002)
India is in the growth stage and even in the present situation of recession the annual growth is of 7% - 8%. Multinational companies from all over the world are doing outsourcing from India (not only call centres but products also). Thus it has increased the availability of jobs and has also pumped huge amount funds in the economy. Moreover India at present is considered the IT hub of the world. On the other hand Indian companies have started going global and this has had a huge effect on the economy. Thus if Cello intends to promote expensive products or want to go with their ongoing products in the market there wouldn't be much problem.
On the other hand the global recession has started having its impact on the India economy. Organizations like Tata, are feeling the burns after they bought companies like Jaguar and Corus. Even they had to cut jobs because of the recession. Thus eventually the overall effect would make the Indian economy weak. The proposed research the product in discussion is a normal ball point pen. In a normal situation, individuals might go for a pen which would be good in quality and writing. But to avoid any resistance in the market, Cello must try and introduce a few products which would be cheap in term of price. This would help them not be a victim of the recession.
In terms of poverty, still a huge number of people in India are living under poverty line. In order to attract those masses they must have products affordable to them.
From the above, the researcher would like to suggest that Cello can make the growing economy as an opportunity to introduce luxury pens and on the same hand they would also have to concentrate on low end pens because of poverty and recession.
Cello pens are fast moving consumer goods and they can also be called a pen for the masses. Their pens are in a very affordable range, thus there wouldn't be any social resistance unless they get involved in any anti social activities. Moreover, during the floods in Gujarat, the Cello group had financed sheds for cattle's which is socially is considered as a very good work. This would add to the goodwill of the organization.
On the other hand, Cello produces a range of products which are affordable to all classes of the society. Thus socially there is not much resistance to Cello products.
The Managing Director of Cello, he stated that they have been continuously investing in new technologies for the purpose of improving their operational efficiency.
The moulding machines they use are from one of the best known brand "Larsen & Toubro. These machines are very expensive and highly known for their efficient working. Moreover, the injection moulding dyes that they use are imported from Korea and are known for precision.
According to Cellopen.com, they also involve in R&D for developing in-house technologies. Lately they developed a Low Pressure High Volume (LPHV) technology which ensures superior writing. Thus technologically they are very sound and have been constantly investing in new technologies. Considering the macro environment opportunities of Cello exceed the threats. Thus Cello has a good scope to capitalise on the available opportunities which would help them in strengthening their market position.
2.b) Cello's internal working and it's relation to efficiency:
Value chain model is used for the purpose of analysing the internal working of Cello' and to understand its relation with efficiency. Understanding Cello's internal working and its relation with efficiency would help in analysing the competitive advantages that have helped Cello be ahead in the competitive scenario. Following is the diagrammatic representation of the value chain model:
According to the value chain, the internal activities of an organisation are divided into primary and secondary. Following is the brief discussion of primary activities in relation to Cello:
§ Inbound Logistics:
In case of inbound logistics Cello has huge warehouses, trucks and fork lifter for the purpose of handling raw material. This helps them in managing their stock efficiently and thus helps in faster production planning.
Cello is considered a very tech savvy company when it comes to their production facility. They have been known for try newly invented technologies and their machinery are always from one of the best brands. The injection moulding machines used by Cello are from Larsen and Turbro which is the leading company manufacturer of injection moulding machinery. Moreover, their raw material comes from Reliance industries, India and Sumitomo Japan. They are also considered the best in their business. According to cellopens.com, the tips of their pen are made of Nickel-Silver alloy which is considered the best alloy for making good tips. In case of quality control, they are so strict, that their rejection percentage is always at 0.1%. [cellopens.com, 2009]
§ Outbound Logistics:
In case of outbound logistics, there is nothing much cello does. Like the other manufacturers they also use truck and lorry services provided by transport companies.
§ Marketing & Sales
As discussed above Cello uses aggressive marketing strategy. This strategy had helped them to enter the pen market and also complement them in becoming the market leaders. Moreover, their aggressive strategy was supported by innovation and good quality products. Thus marketing and sales are very efficiently managed.
There is not much service that Cello can provide to its consumers because they serve the mass market. But on the backside of their packing they always mention their contact details in case of any problem with the products. Thus it can be a assurance that the company would listen in case of any grievances.
Following is the analysis of the secondary activities:
This activity is in direct relation with the inputs required for products manufacturing. Their main raw material is PP granules. They mainly buy them from Reliance Industries but in case or shortage they even buy it from Sumitomo, Japan. So the management makes it sure that they won't fall short of their basic raw material.
§ Technology Development:
Technological development is in direct relation to the operation activities. As discussed above Cello uses injection moulding machines made by Larsen and Turbro, which are considered the best in all the available brands. Moreover they have developed important technologies like crisp writing and low pressure high volume which helps them in providing good quality writing.
§ Human Resource management:
In the interview conducted with Mr Pradeep, the MD of Cello, he said that there is no specific strategy that they use. He says that it's the whole system that is in place and they manage human resource as the situation demands. Moreover he added that they maintain person to person relation with managers which acts as a source of motivation.
"The system of planning, finance, quality control, information management, etc are crucially important to an organisations performance in its primary activities." (Gerry Johnson, Kevan Scholes, 2002)
In terms of finance, Cello is a very cash rich company and they have ample fund for supporting its primary activities. Quality is an area in which Cello specialises and this can be seen because of the demand for their products.
From the above it can be seen that Cello has a very good linkage between its primary and secondary activities. In each area Cello has tried to specialise which in return has resulted in efficiency which can be seen in their performance in the market.
The above was a detailed description regarding the following:
- Market position of Cello
- The pen industry in India
- Internal functioning of Cello and its linkage with the organisational objective.
From the above it can be said that Cello has created competitive advantage in a number of key sector which has enabled them to achieve market leadership. In order to show the connection of Cello's market leadership with long term sustainability the researcher would like to use the Harvard Business Reviews (HBR) theory of FIT in their article called "What is strategy?"
According to HBR initially managers considered positioning of a company in the market as a strategy. This theory was rejected because with changing time it was seen that anyone could copy a market position. Later managers considered operational efficiency as a strategy. But this theory was argued with the point that providing better value and something to consumers is also important. According to the Harvard Business Review " A company can outperform rivals only if it can establish a difference that it can preserve" (Harvard Business Review, 1996). In case of Cello, they have achieved both position and operational efficiency. This can be said because they are market leaders and have a very advanced and sound manufacturing facility. Moreover, compared to others in the market, their manufacturing capacity is considered the largest.
Sustainability in relation to unique activities was the next concept that was given importance. According to HBR "The essence of strategy is choosing to perform activities differently than the rivals do". IKEA would be a good example to understand the above concept. IKEA is happy to serve customer who would trade off service for cost. This idea was considered important but the contradiction was that an organization needs to trade off. This gave birth to a new concept which puts light on the idea that "trade-offs are essential to strategy. They create the need for choice and purposefully limit what a company offers." (Harvard Business Review, 1996) If we consider the above three concepts, Cello's strategy walks in line with the above three concepts. They have reached the position of market leadership, operational efficiency has been one of the key areas in their strategy and their style of entering the pen market was unique as they used aggressive market. In case of trade-offs, Cello has just concentrated on writing instruments in the huge horizon of the product range available in the stationery market. This has helped them in achieving market leadership. Thus it can be said that Cello has created competitive advantage and have also achieved long term sustainability for maintaining their market leadership status.
In the final stage, HBR states that long term strategy for sustainability in the market calls for achieving FIT. "Fit locks out imitators by creating a chain that is as strong as its strongest link". (Harvard Business Review, 1996) A further explanation of fit would say that when one activity would provide value to customers, it should be complemented and enhanced by other activities. From Cello's point of view, it can be seen that they have linked all the elements very well which has enabled them to achieve market leadership. These elements are: technologically advanced manufacturing facility, huge finance, huge workforce, Quality control, innovative ideas, excellent distribution system and aggressive marketing. Moreover if we see the positive sides of Cello diversification strategy, it would be clear that since they have entered the stationery market, writing instruments have been their area of concentration. This has helped them creating a niche because of their distribution network, quality control and innovative ideas. Knowing the fact that competitor's products are very similar to Cello products, it was still possible for them to create this niche. Thus it would be right to conclude that Cello has all the elements that the current market situation requires from a company to become market leaders.
Importance of Product Development and Innovation:
According to bized.co.uk "Research has indicated that the management of the new product development and innovation process is perceived by senior managers as critical to long term success (however that is defined). In today's markets, with increased access to information and rapidly decreasing product lifecycles, the management, development and marketing of a company's product are even more critical."[bized.co.uk, 2009]
The above is a very important statement which can help in understanding the link between product development and innovation. From a new entrant's perspective, entering a saturated market with regular products or services wouldn't make much difference to the market nor would help them in gaining an easy entry. The example of Gerald Ratner would be a good example. He came up with the innovative idea of online jewellery retailing which gave him an immediate entry in the market.
From Cello's perspective, innovation in context of new products development was one of the most important strategy's used by them to ensure an easy entry in the pens market. They introduced pens with rubber grip which made their products different for the current trend in the market.
According to the researcher, just by innovating an idea wouldn't make any one successful in the market. Innovation has to be complemented by quality control, advertising and an efficient network of distribution. In a situation, if a company manufactures something innovative but doesn't use effective distribution would mean that they have not harvested their idea properly. In case of Cello, their gripper technology was marketed, advertised and distributed all over the country which made it possible for consumers to make use of the innovation.
The concept of branding can be referred as an effect of fierce competition. Initially branding was just a need to differentiate products of one company from another, but with time marketers saw that consumers started recognising products with their brand name. This made marketer realised the need of creating an effective brand. Now brand are indicators of the goodwill and reputation a company holds. Designing and implementing an effective branding strategy could be numerous. A very good example of product being referred as with its brand name would be Colgate in India. People are in such a habit of the products that the word toothpaste is never used. Brushing is always referred as "have you done Colgate".
Different authors have different definitions for brands. Following are a few definitions which would give an insight what brand is? Famous marketing author Philip Kotler reckons brand a factor which helps consumers recognise products of a specific seller or a groups of seller. Following is the definition of brand according to Kotler:
"A name, term, symbol or design (or combination of them) which is intended to signify the goods or services of one seller or groups of sellers and to differentiate them from those of the competitors." (Groucutt, 2005)
According to the author, the above definition talks more about the physical cues related to branding. So this means whenever a person gives a products or range of products a name, term, symbol or design it would become a brand. This doesn't really give a full insight on what exactly branding is? The definition is not backed by attributes like quality, distribution, availability of products on the market, etc.
Kevin Lane Keller, in his book Brands and Brand Management states that "Practising managers refer to brand as more than a name, logo, symbol, package, design or other attributes that identify a product and distinguishes them from others."(Kevin Lane Keller, 2003). The above statement sounds more practical because it doesn't restrict the brand to it physical attributes. In case of Cello, their brand was created over a long time. They were known for their good quality, effective distribution and ad campaigns since the time they were only in the household industry. Mr Pradeep Rathod in the conducted telephonic interview quoted "the main reason why their brand became so famous was because; of the aggressive marketing they did in the initial stage." The used all forms of media, like Television, news papers, magazines, etc. This was backed with innovative products, huge distribution network, good quality, mass scale production, etc." Aggressive marketing in the pen market was a very new concept because no one else had done that before. So it was something really new and had a very positive output for Cello. In order to sustain or strengthen their brand value, Cello should continue with innovative product development, marketing strategies, continuous advertising, etc.
In the above researcher had tried to evaluate the current position of Cello Pens and Stationery Pvt Ltd to understand their sustainability in the Indian pen market. To understand the above in - depth the author would like to say that the done analysis was on understanding the sustainability of Cello's market leadership status and the future scope of growth in the market. For this purpose the author has tried to provide a very clear view on the following:
- Cello's position in the pen market
- Indian pen market and scope for growth
- Cello's internal working and its link with the organizational objectives.
- The strategies used by Cello in relation to their market leadership and
- Competitor's strategies to acquire a bigger market share.
In the above, the researcher would like to note that market leadership formed the major topic of discussion. The main reason is that Cello is at the pinnacle in the Indian pen industry. Thus they just need to continue their growth by using strategies that would help them in being ahead of competitors. Effects of fierce competition on Cello has been discussed from two different point of views; that is, Cello might lose market leadership or they would continue to be market leaders but market share would get less. Both of the above would have a very negative effect on Cello.
From the detailed analysis of the above points the author would like to say the following:
- Market leadership in FMCG market is an expression of continuous application of different strategies and plans in the right situation. Innovation and quality improvement form the key element in the used strategies.
- Market leadership can become a long term status unless marketers don't get over shadowed by the feeling of over confidence.
- Cello is in a very strong position because of their current infrastructure in manufacturing and distributions, quality products and aggressive marketing.
- Pen market is very open and any company having good capacity to invest can enter the pen market. Thus new entrants are a threat for set players in the pen market.
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