Samsung EDGE | North Zone Finals | January 2017

Leadership Strategy in Modern RetailConsumer Electronics Modern Retail: Gearing up for 2017

Team: The Three StarsMDI, Gurgaon

Ayan [email protected]

Siddhi [email protected]

Kamalika [email protected]

1 Team: The Three Stars

Executive Summary Situation Analyses Strategies Recommendations Appendix

Objectives

• Identifying the threats and key challenges to Modern Retail channel and recommending ways of countering them

• Chalking out a master plan comprising overall and regional strategy for Samsung to achieve 20% growth in 2017

Research Methodology

Qualitative• Interviewed Retail Executives of Modern Retail, RR and BS and Distys • Discussion with Sales and Distribution Professors at MDI Gurgaon• Secondary Research from internet – IBEF, CRISIL, Statista, Forrester,

KearneyQuantitative• Primary Research through questionnaire – 362 respondents comprising students, teachers, neighbors, friends, relatives and shoppers at stores• Market Sizing Guesstimates Insights

• Retails Stores are still relevant87% of the respondents to the survey said that they plan to shop in stores as often as in the previous year

• Penetration of Modern Retail is not uniformThe eastern region of the country is less developed and penetrated by MR than the other regions

• Customer Retention is importantIt costs 6 times more to attract a new customer than to retain one

• Digital World has Significant ImpactIn store digital interactions influence 36 paise of every rupee spent in the store

• MR will face competition from other MRs in urban and growth-expansion related challenges in rurban areasDue to geographical barriers growth of MR is limited in some regions where only regional retailers and distributors will succeed

• However, MR potential is highMetros like Mumbai, NCR and Bangalore to reach 50% penetration in 10-20 years

Recommendations

Strategy North East West South

Primary Focus on MR

Leverage RR/Disty

Focus on MR

Focus on MR

Secondary RR/Disty Online/MR Online/B2B Online/B2B

Overall• Target reduction of cost – Highest focus on MR stores to be on North

and West zones, recruit manpower from more literate regions, lower rental cost in favor of future profit sharing

• Retain partners with high store count and growth, phase out those with low store count and growth for RR/Disty in rurban and online/enterprise in urban

• Add low cost products to the portfolio and target exports to minimize the risk of competition for domestic consumption

• Optimize region specific sales of products• Identify new growth centers and newer varieties of retail –

Omnichannel, Cross-Selling, Network Service Providers, etc.• Improve customer experience by use of technologyRegional

Situation Analyses



Consumer Durables market in India to become the world’s 5th largest by 2025 from the current position of 12th

Currently at USD 12.5 billion, to grow to USD 20.6 billion by 2020 (10.5% CAGR)By 2020, Electronics market in India will increase to USD 400 billion from the current value of USD 94.2 billion (33.5% CAGR)

Organized retail forms 9% of India’s retailBetween 2016-2020, retail will grow at 10.8% CAGR in India, while Modern Retail will grow faster at 24.2% CAGR

Share of Consumer Electronics in Retail

Share of Consumer Electronics in MR

5% 12%19%

Penetration of MR in India

2015 20200

200

400

600

800

1000

1200

600

1000

525

750

60

180

1570

Retail Traditional Retail Modern Retail

2015 20200

5

10

15

20

25

12.5

20.6

Consumer Durables Linear (Consumer Durables)

Indian Consumer Durables market in billion USD

10.5% CAGR

Figures in billion USD

24.2% CAGR

5th

9%

Consumer Durables and Electronics Market Modern Retail in India

Team: The Three Stars3


Rivalry among

Existing FirmsHIGH

Threat of New

EntrantsLOW to

MODERATE

Bargaining Power of

ConsumersHIGH

Threat of Substitutes

LOW to MODERATE

Bargaining Power of SuppliersLOW to

MODERATE

Porter’s Five ForcesSWOT

Strengths• Premium shopping destination

critical for brand equity and imagery

• Showcase premium product to compare

• Multi brand Retail experience addresses the Super Premium Customers

• Quality manpower to engage with the customers for demo, sale of hi-tech products

• Rub off effect on rest of the channels

• High revenue generated per unit area

Threats• Online retailers which offer discounts,

broader availability and doorstep delivery of products to the customers

• Customer preference to shop from the smaller specialty stores

• New entrants due to opening up of FDI – increased contractual costs and competition

• New growth to be seen from rurban regions where MR cannot succeed due to dispersed nature of such regions

Weaknesses• High real estate costs and rentals• High manpower training costs,

especially in regions with lower literacy rates

• High cost of operations

Opportunities• Organized retail is the future of retail –

growing faster than traditional retail• Rising disposable income of middle

class Indian consumers• Changing aspirations of Indian shoppers

– desire of a better customer experience

• Growth from rural markets with the government pushing for rural electrification

• Government support through EHTP, SRZ, M-SIPS, and skilling 500 million labors by 2022

SWOT and Porter’s Five Forces Analysis of Modern Retail in Consumer Durables in India



PESTEL Analysis of the Indian Consumer Electronics and Appliances Market

Weaknesses• High real estate costs and rentals• High man power training costs,

especially in regions with lower literacy rates• High cost of operations

Economic SocialPolitical

Technological LegalEnvironmental

No. of Smart Cities8-124-72-3

1

Governance Ranking1-89-16

25-2917-24

> 25002000 - 25001500 - 2000< 1500

GDP per capita in USD> 85%80-85%70-80%< 70%

Literacy Rate

Ease of Doing Business

70-80%40-70%< 40%

> 80%Population Density

< 200200 - 500500 - 800> 800

Political

Technological

Economic

Social

• 51% FDI in multi-brand retail may lead to competition

• Different parties at center and states disrupt smooth functioning of retail

• Increased broadband penetration has led to faster growth of the online channel

• Availability of reliable and cheap energy at all districts in India

• Change in aspiration of Indian consumers, desiring a better customer experience

• Increasing nuclear families leads to greater demand for non-essentials like TVs

• Increasing disposable incomes of both rural and urban consumers

• Negotiation power of a retailer depends on the strength of its distribution network

Environmental Legal• Topological

challenges which affect population density

• Natural and man-made disasters

• Changing laws by the apex courts

• New Acts and amendments


Strategies Recommendations AppendixExecutive Summary Situation Analyses

Partner CY15 CY16 Str. Gr. 2017* Str. Gr. % Biz. Contr.

P1 302 308 2% 305 -1% 45%

P2 102 107 5% 107 0% 30%

P3 79 82 4% 82 0% 11%

P4 106 83 -22% 83 0% 8%

P5 25 19 -24% 15 -21% 1%

P6 23 26 13% 26 0% 2%

P7 25 25 0% 26 4% 2%

Total 662 650 -2% 644 -1%

0%20%40%60%80%100%120%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Relative Store Share

Stor

e Gr

owthP1

P2 P3

P4P5

P6

P7

Cash Cows: P1, P2, P3, P4 | Question Marks: P6 | Dogs: P5, P7

Growth-Share Matrix

P1 – Largest partner High store countP2 – High store count Moderate growthP3 – Relatively high store count Moderate growth

P4 – High store count high negative growthP5 – Few stores negative growthP6 – Few stores, positive growthP7 – Few stores, stagnant growth

• MR Partners with lower store count will struggle• P5 and P7 - these will face scaling difficulties• Phase them out in favor of RR/Disty• Focus on P1, P2, P3, P4• Monitor P6

Analysis of Samsung’s Partners for Modern Retail


Strategies Recommendations AppendixExecutive Summary Situation Analyses

North East West South Overall

Store Count 165 55 212 218 650

Biz. Contr. 21% 7% 35% 38%

ASP X1 52,100 46,700 58,000 57,100 55,500

ASP X2 39,900 34,900 38,800 34,400 37,100

ASP X3 22,400 25,100 24,500 26,600 24,900

ASP X4 13,000 14,200 14,000 14,100 13,800

ASP X5 49,000 46,700 45,200 45,100 46,000ASP

Overall 37,200 35,400 38,000 38,800 37,900 Regional Growth

X1• Lower ASP in North and East• Experiencing high growth in South• Could be a ‘cooling appliance’ X2• Pricing does not follow a geographical

pattern, but growth does – fastest growing

Product North East West South

X1 6% 3% 4% 11%

X2 20% 14% 7% 9%

X3 9% 3% 6% 7%

X4 10% 2% 4% 8%

X5 3% 1% -2% 11%

Region

X3 and X4• Lower ASP only in North possibly due to

high regional competition• Higher ASP in South possibly due to

unsaturation of the product• Relatively higher growth in the Northern

and Southern markets

X5• Higher ASP in North and East• Experiencing high growth in South• Could be a ‘heating appliance’

Region wise Analysis of Samsung’s Products

Strategies

7


Team: The Three Stars

Highest focus on MR stores to be in North and West zones

Make use of education belts to get quality human resource supply

Leverage Enterprise channel in ICT layered smart cities

Leverage RR/Disty in interior regions for increased penetration in dispersed geographies

Tap RR/Disty channels in topographically challenging regions

Phase out MR stores with low (sub 2%) or negative growth in favor of:• RR/Disty in low tier cities• Online in metros

Retain MR channel for partners with scale, and in smart cities

Target exports to bypass the competitive domestic consumption market

Develop new low cost products

Identify new growth centers through newer retail varieties

Optimize the sales of products according to the regions of their growth and market share

Overall Strategy – Focus on Modern Retail



Challenges Political and social instability in Jammu

and Kashmir and parts of Punjab Low population in the Himalayan states of

J&K and Himachal Pradesh

Opportunities Dense agricultural and industrial belt to

drive rich rurban demand Uttar Pradesh to have 13 smart cities Delhi-Mumbai industrial corridor to come

up NCR has MR potential of Rs. 7,790 crores,

to reach 50% penetration by 2028

Strategies Focus on MR mainly – especially in

states like Uttar Pradesh and NCR belt

Uttar Pradesh is very dense, will be the driver of rurban sales

Government initiatives for technological inclusion of agricultural sectors will lead to spurt of smartphone sales – target agricultural belt of UP, Punjab, Haryana

Invest in RR/Disty to support MR in the less developed parts

Focus on sales of X2 as it is fast growing

NCR and Uttarakhand are manufacturing hubs – closeness to manufacturing will reduce operation costs – set up MR here

Set up MR outlets in smart cities – UP will have 13 smart cities

Leverage Enterprise sales in smart cities and existing metros

Online sales to be thrusted in NCR

Political Favorability

Social FavorabilityEconomic Favorability

Technological FavorabilityEnvironmental Favorability

Challenge-Opportunity Analysis

NORTHNo. of Stores: 165Percentage of Total Stores (PS): 25.4%Business Contribution (BC): 21%BC/PS: 0.827No. of Smart Cities: 25

Regional Strategy – North



Challenges Poor economic development Low per capita income Low literacy levels Stunted infrastructure development Very few manufacturing centersOpportunities Government adamant about ‘Acting

East’ Renewed attention to Bengal-China-

India-Myanmar corridor that envisages MSME connectivity and infrastructure development

Strategies Focus on RR/Disty mainly –

especially in states like Bihar, Jharkhand and North Eastern states

In states like West Bengal, Odisha and Manipur, consider thrust of online sales

X3 and X4 have low growth in this region – RR/Disty required to leverage increased penetrative distribution of these products

Focus on sales of X2 as it is fast growing

Set up smaller Specialty/Express stores

Low literacy but cheap labor– recruit from more literate regions (short), set up local training program (long term)

Unfavorable government for business in the populous state of West Bengal – organize social campaigns

Consolidate the sales of X5 in the colder regions requiring artificial heating





EASTNo. of Stores: 55Percentage of Total Stores (PS): 8.4%Business Contribution (BC): 7%BC/PS: 0.824No. of Smart Cities: 20

Regional Strategy – East

The Eastern region has the fewest number of electronics manufacturing centers



Challenges Increased competition due to

government promoting FDIOpportunities Well connected, developed and

dense markets Maharashtra and Gujarat to have a

combined 18 Smart Cities Mumbai has the highest potential

for MR at Rs. 10,500 crores, to reach 50% penetration by 2036


states like Mumbai Metropolitan Region, and smart cities of Maharashtra and Gujarat

Reduce costs through production and logistics – set up MR stores along the Ahmedabad-Mumbai industrial corridor

Tie up with a foreign player Invest in Enterprise sales in high-

tech cities and proposed smart cities

For those stores which have not shown significant growth, replace them with Online B2B channel

Decentralize the distribution Phase out the sales of product X5

or leverage RR/Disty’s penetrative distribution of this product





WESTNo. of Stores: 212Percentage of Total Stores (PS): 32.6%Business Contribution (BC): 35%BC/PS: 1.074No. of Smart Cities: 25

Regional Strategy – West

Maharashtra, Gujarat and MP have a combined 25 proposed smart cities



Challenges Political difference with the Centre and

the rest of the country Eastern coastal regions prone to natural

disastersOpportunities Many manufacturing hubs in Tamil Nadu Tamil Nadu to have 12 Smart Cities Most technologically advanced region

with well developed IT infrastructure in Bangalore, Hyderabad and Chennai

Bangalore has MR potential of Rs. 4,860 crores, to reach 50% penetration by 2026


states like Tamil Nadu, Karnataka and Hyderabad metropolis in AP/Telengana

In the IT rich cities, consider thrust of online sales

RR/Disty required to leverage increased penetrative distribution in the hinterlands of Andhra Pradesh

Invest in Enterprise sales in high-tech cities and proposed smart cities

Focus on the sales of fast growing X5 in hilly regions where government is developing tourism through RR/Disty

Focus on the sales of fast growing X1 in the increasingly warming metros through MR





SOUTHNo. of Stores: 218Percentage of Total Stores (PS): 33.5%Business Contribution (BC): 38%BC/PS: 1.134No. of Smart Cities: 27

Regional Strategy – South

Tamil Nadu has a high number of smart cities and electronics manufacturing centers

Recommendations



Research Findings

Retail stores are still relevant87% of the respondents to the survey plan to shop in stores as much as in the previous yearConsumers prefer to shop in store65% reported that if an item of choice is available online and in a nearby store, they prefer to shop in store

Importance of ‘touch and feel’85% reported that they like to “touch and feel” products before buying

Expert advice counts90% seek expert advice of an in-store personnel while purchasing

Customer experience is paramount63% rate superior customer experience as the most important parameter of choosing a particular store over the others

Physical stores are preferred70% would prefer shopping at brick and mortar store of a traditional e-tailer

Existing customers are easierProbability of selling to a new customer is between 5-20% while that of selling to an existing client is between 60-70%Customer acquisition is costlyIt costs 6 times more to attract a new customer than to retain one2% increase in customer retention is equivalent to decreasing cost by 10%Serving customers well is criticalIt takes 12 positive customer experiences to make up for a negative one

Relevance of Physical Retail

Importance of Customer Retention

Significance of DigitalConsumers are becoming tech savvy65% resort to ‘webrooming’, i.e., look for and research about an item online before buying it from a physical store

Need in store digital interactionsIn store digital interactions influence 36 paise of every rupee spent in the retail store

87%

65%

70%

85%

90%

63%

60%

6x

12x

65%

36%



Suggested Best Practices

Have an in-store GPS based app that guides the shopper to the areas having Samsung products – this lets them bypass competitor products.Have an app that lets shoppers view product reviews along with in-store curated deals based on their shopping behavior.

From the research data, customer experience is a key growth driver and success indicator and 82% shoppers use their phone instore

Improving Customer Experience

Have the better rated products in the more visible rows.Have faster checkout processes through self-checkout registers.Invest in technologies like cloud based POS, beacons, wearables and augmented reality.

Provide value added services like training for efficient smartphone usage to Baby Boomers/Gen X, microwave, washing machines to homemakers and interior decoration services for placing appliances like LED TVTarget the share of the shopper’s time than his wallet. Target increased sales on days people go out.

This could be done via exclusive launch of hyped devices with some MR partners. This adds brand value of the partner and they may return the favor with aggressive push for Samsung devices.Exclusive launch with P1, P2 and P3 in Q1, Q2 and Q3.

Minimize cannibalization - Especially in malls, put some products in certain stores and the rest in the others.

Enhance Partner Relationships

Invest in data analytic deals with MRs. This helps both the parties.Do this with P4 and P6 from Q1, and observe for 2 quarters. If the results are positive extend the benefits to P1, P2 and P3 from Q3.

Miscellaneous

Omnichannel in the form of click and collect, which is known to record 25% higher than planned spending of customers.Cross Selling through car and apparel showrooms.Network Service Providers - Leverage the reach and frenzy of new network subscriptions like Jio by selling phones with sim cards.



Plan of Action - Timeline

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

R1: Discontinue partnership with P5 and

P7 in East

R2: Monitor growth of P6

R3: Exclusive launch of flagship product with P1

R4: If R3 succeeds, Exclusive launch of

flagship product with P2

R5: If R3/R4 succeed, Exclusive launch of flagship product with P3


R7: If P6 growth < 5%, replace

R8: Data Analytics partnership with P4, P6

R9: If R8 leads to 6% increase in sales, extend it to P1, P2, P3

R10: If P4 growth < 2%, replace in selected regions

R11: Replace P5 with Disty in semi-urban North R12: If R11 leads to >5% revenue growth, replace P7 with Disty in semi-urban North

R14: If P6 growth < 3%, replace with RR

Jan


R15: Promotional events and contests at MR stores during Valentines Day, Regional New Year Days, Rakshabandhan, Dussehra, Diwali, Christmas

R16: Increased sales of smartphones with Jio

R17: Cross-selling R18: If R17 leads to 1% revenue increase, continue

R19: B2B/Enterprise sales in South R20: B2B/Enterprise sales in West

R21: B2B/Enterprise sales in North

R22: Foreign Tie Up in West

Appendix



Online

B2B

DD

BS

Modern Retail

RR

Disty

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.46.00%

10.00%

4.00%

5.00%

17.00%

23.00%

35.00%

Proposed Channel Contribution towards Revenue for CY17Channel ROI

Distributors 7.01%

Regional Retailers 7.13%

Modern Retail 7.98%

Brand Stores 6.83%

Direct Dealers 6.92%

B2B 8.92%

Online 5.95%

Revenue for CY 16 (in crore Rs.) Revenue for CY 17 (in crore Rs.)Contribution Rural Urban Total Contribution Rural Urban Total

Disty 40% 8180 9998 18178 35% 9687 9687 19374RR 27% 4295 7976 12270 23% 5092 7639 12731

Modern Retail 10% 227 4317 4545 17% 1600 7810 9410BS 8% 727 2909 3636 5% 277 2491 2768DD 6% 27 2699 2727 4% 11 2203 2214B2B 6% 27 2699 2727 10% 554 4982 5535

Online 3% 136 1227 1363 6% 498 2823 3321 GrowthTotal 100 13620 31826 45446 100 17719 37635 55353 21.8%

Questions?

Thank You

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Samsung EDGE | North Zone Finals | January 2017

Education