When The Coca-Cola Company began looking into expanding operations into India, the initial marketing data showed great opportunities. After all, India’s economy is the thirteenth largest in the world when adjusted for purchasing power parity, and it is growing at 6% a year. The country has a vibrant stock market – the market cap as a percentage of GDP has grown from 12% in 1990 to 41% in 2001.  There are also 180 million households and 290 million economically active consumers – defined as monthly households with income greater than $60 per month.

 

Encouraged by this and other research, the soft-drink giant entered India and soon found itself in a battle for market share and survival.  Recently, Stan Sthanunathan, vice president of Knowledge & Insights with The Coca-Cola Company, spoke to MBA students in a global business environments course at Emory University’s Goizueta Business School about the challenges of doing business in India.

 

According to Sthanunathan, succeeding in India meant scrapping the business model that had worked well in other locales and shifting its initial focus more toward the customer and away from business operations.  “Only by really understanding the Indian consumer and taking into account data and knowledge from the country’s soft drink industry, culture, consumer behavior, languages, geography, was Coca-Cola able to finally find the insight it needed to put into place a plan of action to successfully compete in the market,” explains Sthanunathan.

 

A country of opportunities and challenges

Coca-Cola’s challenge was formidable: the company’s business in India was ailing, with severe competition from a local beverage company.  The first plan of action was to focus on consumer behavior: why weren’t people buying Coca-Cola?

 

Closer examination of the country and consumer behavior enabled executives to better define the problem and eventually, find the seeds of a solution. “The country has poor infrastructure, is very complex and has a fragmented retail landscape,” observes Sthanunathan. “India has only 5 million retail outlets, which are mostly ‘mom and pop’ stores – 2 million in urban areas and 3 million in rural areas.   Organized retail, like supermarkets, account for only 2% of total sales, and 40% of urban outlets have daily turnover of less than $20.”

 

More importantly, India has historically modest consumption habits, with low consumption of goods considered to be “non-essentials,” such as chocolate (34 million consumers), ketchup (25 million) and ice cream (81 million).  This meant that drinking Coca-Cola was viewed as a luxury.  Value is also important to the Indian consumer, as 90% of volume products sold fall in the low price segments.  “They are willing to pay a bit more for a product if they gain a lot more in volume,” says Sthanunathan. “The companies that are doing well in India are high volume and high growth with low margin.”

 

To complicate matters, Sthanunathan says that there really is not just one India that Coca-Cola needed to consider in its marketing strategy.  Sthanunathan’s native land is exceedingly diverse and complex, with 29 states, 6 Union territories, 4,000 cities, 650,000 villages, 16 official languages and over 1,650 dialects.  Indians also represents all major religions, including Hindus, Muslims, Christians, and Sikhs. 

 

In addition, India has diverse ideologies, cultures, clothing and food preferences that vary by regions (East, West, North, South and Andhra).  There is also a stark contrast between urban and rural India, with more than 70% of Indians living in rural areas and just 4% of the population living in the top six cities.  “This 4% of consumers, however, accounts for 27% of India’s purchasing power, and a third of Indians – many of them in rural areas - live below the poverty line.  The disposable income index for urban is 100 versus 52 for rural,” says Sthanunathan, who provided strategic guidance to the Coca-Cola team executing the turnaround.

 

From data to knowledge:  finding common ground

Despite India’s complexity, the company soon discovered there was common ground on which to build a strategy. Two major points helped solidify the wealth of knowledge company officials had gleaned and provided insight that created the foundation of its action plan.

 

First, throughout India there is a love for cricket and movies.  Corporate India spends $50 to $75 million annually on soccer tournament endorsements and shelled out $100 million on the 2003 World Cup.  It also boasts the largest film industry in the world with 13,000 theaters and 700 movies and 900 short films shown annually.  Some 13 million Indians watch movies every day.

 

Second, Coca-Cola officials learned that soft drinks were seen as a luxury item, only consumed for special occasions. Coffee, tea and water outpaced soft drink consumption at home. Another significant fact about the country’s soft drink industry showed that the price value equation is tenuous, with growth stalling with any price increase.  To complicate matters, some retailers were charging more than the standard 5 rupees for the product.

 

Coupled with this was the discovery that there was low brand specification at the time of purchase, meaning many consumers simply asked for a “cold drink” and did not specify a particular brand.   “Cold drinks” also were not nearly as available in India as in the United States, with soft drinks available in only 15% of retail outlets.  Furthermore, soft drinks have a highly seasonal demand with more than 50% of the volume occurring from March to June.

 

Armed with this insight, Coca-Cola launched a marketing campaign to leverage “Thanda” or “cold” and link it with the culture’s passion for movies. The soft-drink giant hired one of the biggest movie star’s in India to do a series of television advertisements that branded Coca-Cola the “cold drink.”  The star was seen in languages and costumes native to each region of the country ordering “Thanda.”  The commercials humorously depicted the star’s frustration with receiving anything but Coca-Cola, and ended with the tag line “Cold Means Coca-Cola.”

 

Using the same movie star, Coca-Cola communicated directly to the consumer, noting that they should only expect to pay 5 rupees for the product, and that they should reinforce this with any retailer who tries to sell Coca-Cola for a different price. 

 

With the television commercials a huge success, Coca-Cola turned its sights to re-engineering its systems to make cold Coca-Cola products available throughout the country.  The company partnered with the nation’s leading appliance manufacturers to offer refrigerators to retailers at negotiated rates (60% of market value) and used its relationship with Citibank to finance the appliances for retailers.  The move resulted in a win-win situation for all parties –the retailer, Citibank, and Coca-Cola.  “The stature of the retailer grew in the neighborhood since it became one of a few or the only one store in an area to have a refrigerator and offer cold drinks, while Citibank gained access to smaller towns,” Sthanunathan told students.  Coca-Cola supplemented the refrigerators with low cost ice-boxes for rural areas that experience frequent power shortages. 

 

Another part of the re-engineering effort for Coca-Cola resulted in lowering the weight of its bottles by 10%, yielding a savings in shipping and transportation.

 

Finally, Coca-Cola targeted the distribution and transportation issues in the rural areas by employing the use of a “Jugaad,” a makeshift/alternative arrangement for tractors used in rural areas.  The Jugaads were low cost and maintenance free, offering excellent stability on undulated roads where autos might overturn.

 

“It worked like magic,” Sthanunathan says, with consumption increasing dramatically.  Coca-Cola turned the corner in profits only 2 years after implementing the new model. 

 

Preparing students for the intricacies of global markets is Adjunct Professor Kenneth Cutshaw’s goal for the global business environments class. “This core course provides the Evening MBA students with a broad perspective to the many challenges of doing business globally,” says Cutshaw, an international attorney and partner with Holland & Knight LLP.  Personal observations and insights from successful business representatives, like Sthanunathan, are vital to the course and offer “students exposure to many of the fundamental subjects that one will confront in a global transaction.”