Final Project ME Ravi

8/4/2019 Final Project ME Ravi

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A report on Consumer analysisAt Big Bazaar, Lucknow

Submitted to:

Prof. Sangeeta D. Mishra

Business Environment Group, IIM Lucknow

Date of submission: 2010

Submitted by:Group 10, Section DRajit Goyal (PGP26235)

Ravi Makwana (PGP26236)

Roushan Kumar (PGP26237)

S. Vikraman (PGP26238)

Sai Chand Chintala (PGP26239)


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Contents

Acknowledgement .................................................................................................................................. 4

Introduction ............................................................................................................................................ 5

Challenges facing Indian retail industry .............................................................................................. 5

Road Ahead ......................................................................................................................................... 5

Background ............................................................................................................................................. 6

About The Future Group ..................................................................................................................... 6

About Big Bazaar ................................................................................................................................. 6

Objectives ............................................................................................................................................... 8

Importance of Study ............................................................................................................................... 8

Details of data collection ........................................................................................................................ 8

Data collection .................................................................................................................................... 8

Questions ............................................................................................................................................ 8

Analysis ................................................................................................................................................. 10

Market Structure and competition ................................................................................................... 10

4P analysis of Big Bazaar with respect to Kirana stores ................................................................ 10

Market Structure ............................................................................................................................... 13

Herfindahl Index of Concentration ............................................................................................... 13

Concentration Ratio ...................................................................................................................... 13

Indian Retail- expanding the number of formats ............................................................................. 14

Price Discrimination .......................................................................................................................... 15

Second degree price discrimination ............................................................................................. 15

Third degree price discrimination ................................................................................................. 16

Private labels vs Brands .................................................................................................................... 16

Strengthening of Private brands at Big Bazaar ............................................................................. 17


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Inferior Goods ................................................................................................................................... 17

Creating consumption days .............................................................................................................. 17

Non Price competition & Oligopoly .................................................................................................. 18

Conclusion & Limitations ...................................................................................................................... 19

Interpretation of Results ................................................................................................................... 19

Suggestions ....................................................................................................................................... 19

Limitations ........................................................................................................................................ 19

Summary ............................................................................................................................................... 19

References ............................................................................................................................................ 19


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Acknowledgement

This project report was written in September 2010 by our group. The project was executed

at a Big Bazaar outlet in Lucknow city. This has been a very interesting period that has

provided us with a deeper knowledge about the area of Store operation, consumer

behaviour and market structures. With this project, we hope to develop a futuristic view of

industrys progress. We thank the management of the Big Bazaar at Sahara Mall, Lucknow

for allowing us to carry out the consumer survey.


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Introduction

The Indian retail industry is the fifth largest in the world. Comprising of organized and

unorganized sectors, India retail industry is one of the fastest growing industries in India,

especially over the last few years. Though initially, the retail industry in India was mostly

unorganized, however with the change of tastes and preferences of the consumers, the

industry is getting more popular these days and getting organized as well. BMI India Retail

Report for the third-quarter of 2010 released in May 2010 forecasts that the total retail

sales will grow from US$ 353.0 billion in 2010 to US$ 543.2 billion by 2014. Strong

underlying economic growth, population expansion, the increasing wealth of individuals and

the rapid construction of organised retail infrastructure are key factors behind the forecast

growth. As well as an expanding middle and upper class consumer base, there will also be

opportunities in India's second and third-tier cities. The greater availability of personal

credit and a growing vehicle population to improve mobility also contribute to a trend

towards annual retail sales growth of 11.4 per cent.

Challenges facing Indian retail industry

The tax structure in India favours small retail business Lack of adequate infrastructure facilities High cost of real estate Dissimilarity in consumer groups Restrictions in Foreign Direct Investment Shortage of retail study options Shortage of trained manpower Low retail management skill

Road Ahead

According to industry experts, the next phase of growth is expected to come from rural

markets. According to a market research report published in June 2008 by RNCOS titled,

'Booming Retail Sector in India', organised retail market in India is expected to reach US$ 50

billion by 2011.

Number of shopping malls is expected to increase at a CAGR of more than 18.9 percent from 2007 to 2015

Rural market is projected to dominate the retail industry landscape in India by 2012with total market share of above 50 per cent

Driven by the expanding retail market, the third party logistics market is forecastedto reach US$ 20 billion by 2011

Apparel, along with food and grocery, will lead organised retailing in India.


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Background

About The Future Group

Future Group, led by its founder and Group CEO, Mr Kishore Biyani, is one of India's leading

business houses with multiple businesses spanning across the consumption space. While

retail forms the core business activity of Future Group, group subsidiaries are present in

consumer finance, capital, insurance, leisure and entertainment, brand development, retail

real estate development, retail media and logistics.

Led by its flagship enterprise, Pantaloon Retail, the group operates over 12 million square

feet of retail space in over 71 cities and towns and 65 rural locations across India. The group

owns several leading formats including Pantaloons, Big Bazaar, Food Bazaar, Home Town,

eZone and Central. Pantaloon Retail was awarded the International Retailer of the Year -

2007, by the US-based National Retail Federation, the largest retail trade association and

the Emerging Market Retailer of the Year 2007 at the World Retail Congress in Barcelona.

Future Group believes in developing strong insights on Indian consumers and building

businesses based on Indian ideas, as espoused in the group's core value of 'Indianness'. The

group's corporate credo is, 'Rewrite rules, Retain values'.

About Big Bazaar

Big Bazaar is not just another hypermarket. It caters to every need of your family. Where Big

Bazaar scores over other stores is its value for money proposition for the Indian customers.

At Big Bazaar, you will definitely get the best products at the best prices - that's what we

guarantee. With the ever increasing array of private labels, it has opened the doors into the

world of fashion and general merchandise including home furnishings, utensils, crockery,

cutlery, sports goods and much more at prices that will surprise you. And this is just the

beginning. Big Bazaar plans to add much more to complete your shopping experience.

Brief History

The hypermarket chain was introduced in India in 2001 by Pantaloon Retail (India)Limited.

The first store in Kolkata Pantaloon retail India Ltd was incorporated as Manz Wearprivate Ltd in the year 1987. It became a public limited company in 1991 and was

renamed Pantaloon Fashion Limited and then Pantaloon retail Ltd in 1999

The company introduced the concept of The Pantaloon Shoppe, an exclusive menswear retail store which expanded across India from 1994-1998. In the year1997,

Pantaloon moved a large format lifestyle retailing with the launch of Pantaloons,

Indias family store

The management was aware that in retail size mattered. The targeted large Indianmiddle class market waiting to tapped. Big Bazaar the discount store was launched

in the year 2001, to meet the aspirations of the middle class. In the span of two
http://www.pantaloon.com/http://www.pantaloon.com/


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years, it has added a Food Bazaar and Gold Bazaar to its range of Offering with the

motto - Saving is the key to the Indian middle class consumer.

The strategy

The concept of Bazaar, as the store offers large mix of products at a discountedprice, the name Big Bazaar was finalized.

The idea was to recreate a complete bazaar, with a large product offering and offer agood depth and width in terms of range

The Big Bazaar outlets sold a variety of products at prices, which were 5 to 60%lower than the market price.

Price was the basic value proposition at Big Bazaar. The catch line Isse sasta aur acha kahin nahin emphasised this The main consideration while selecting the location was whether the low margin on

the products would allow the company to sustain growth.


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Objectives1) To Study the Market structure of retail industry

2) To study the effect of second degree and third degree price discrimination followed by Big Bazaar

3) To understand customer satisfaction towards products and services

Importance of Study

Details of data collection

Data collection

1. Interviewing with customers at Big bazaar2. Questionnaires

Questions

1 Age *

< 20

20 - 30

30 - 50

> 50

2 Income *

50,000


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3 Occupation *

Student

Housewife

Salaried

Self Employed

4 Generally, when do you visit Big Bazaar *

wednesday

weekdays

weekends

5 If on wednesday then why? *

Due to special offers

No specified reasons

Scheduled day for shopping

I don't visit on wednesday

6 Do you prefer combo/bundled offer than single pack? *

Yes

No

7 Say, Tropicana one for Rs. 75, two for Rs. 125. Which one will you buy? *

Single

Combo

8 Which brand of noodles you prefer over the other *

Maggi

Tasty Treat

9 Which brand of cornflakes you prefer *

Kelloggs

Tasty treat

10 In chips, what will you generally prefer *

Lays chips

Tasty treat chips

11 Why do you prefer tasty treat brand of Big Bazaar? *

Low PriceQuality

Taste

Not much difference

I don't buy this

12 Rate the following for Big Bazaar *1- lowest, 5- highest

Low prices

One stop shop

Variety

Good Ambience

13 How do you come to know about Big Bazaar offers? *


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TV

Newspaper

Friends

Internet

Other:

14 How much of your shopping comes from Big Bazaar *

< 20%

20% to 50%

50% to 80%

80% to 100%

Analysis

Market Structure and competition

4P analysis of Big Bazaar with respect to Kirana stores

Big Bazaar Kirana Stores

Product

Maximum variety for each category of productand this is cited by the customers as one of the

main reasons why they like shopping at the

hypermarket.

Same product in every store in the city but morebrand options.

Quantity for each product is not limited to largepacks only.

Local brands of popular commodities, likediapers, sugar, wheat flour garments, chips etc,

are very popular in Big Bazaar stores. These

products are never advertised but offer huge

margin on sales. In this way lower middle class

customers are targeted well. The commodities

sold by the retail chain also includes its own

products which get a ready distribution

Products at kirana stores arelimited. Actually they have very

less shelf space.

The store owner does not havemany options regarding therange of products due to space

constraints

There is not much variety ineach product i.e. the brand

choice available to customers

is low.

Kirana stores usually avoidkeeping expensive products

which cost more than Rs. 200

and they limit themselves tocheaper and daily use items.


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Price

Price is the critical point in a competitiveindustry. Big Bazaar works on a low cost model. It

considers its discounted price as its USP. There is

an average discount of 7-8% on all items w.r.t.

MRP.

Lower prices due to direct securing of stocksfrom the manufacturer.

There are huge synergies in terms of bulkpurchasing, central warehousing and

transportation. These all factors help the retailer

to keep low prices.

Survey indicated that low prices were the biggestfactor in customers mind while coming to Big

Bazaar. It has never focused on giving great

services, but laid emphasis only on low prices to

attract crowd.

Price is a very biased issue in akirana store

General policy regarding pricesin a store is to give ready

discount to its regular

customers but to charge the

MRP from new customers.

Departmental stores generallywork on tight margins of 6- 7%.

Change in prices is directly

passed on to the customers.

Promotio

n

Big Bazaar has huge promotion budgets toencourage bulk shopping.

Promoting each store of Big Bazaar as low-costshopping option. The store has advertised

through TV, newspaper leaflets, road shows and

also started reality show-typed promotional

campaign The Big Bazaar Challenge.

Promotions like Wednesday Bazaar are a verysuccessful strategy to get footfall.

Store oriented promotion which includesspeaking on the loudspeaker in nearby blocks.

Buy 2 Get 1 Free type of promotions are verycommon.

Original prices are cut down and new prices areshown, of which Big Bazaar

Loyalty schemes which reward regular clients.Promotion is also done through co-branded

credit cards with ICICI bank.

Tighter budgets for promotionsKirana stores are involved in

almost negligible promotion

activity.

They rely mainly onadvertisement from the

manufacturer of goods to pull

in customers.

They promote certain brandsby putting names on shelves

etc but they do not advertise

themselves as preferred store

for local people.

Leaflet promotion maybe doneonce while inaugurating new

store, but not during the

course of existence.


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Place

Always worked on low-cost locations. It targetssemi-urban population with its placement.

Cheap location as compared to hot spots in thecity. Even in Gurgaon, Big Bazaar chose Sahara

Mall instead of Metropolitan or City Centre,

which are more popular than Sahara Mall.

Rely on promotional activities to make up forunattractive locations. The channel of place is

company owned stores to have complete control.

Use of internet by launching a merchandiseretailing website www.futurebazaar.com which

targets high-end customers ready to use credit

cards.

Internet as place has put them in a profitableposition because there is minimal expense of

maintaining a website. The promotion of this

website is done through advertisement on

Google. The website is put as sponsored link.

Kirana stores are always placedin crowded market area which

is located in each block and

sector.

Mostly inherited from thefamily line of business, so they

had no choice of location.

It is common practice to findbusy street corners to get

maximum customers.

Location is important becausebuying decision is on impetus

during day-to-day life. So the

customer goes on for the

nearest store. The store

owners are ready to pay more

rent for better locations

because their promotion

activity is negligible.


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Market Structure

Herfindahl Index of Concentration

To measure the nature of oligopoly with this method, we make two assumptions: A few

large firms in the industry are sufficient to calculate the index. The market shares of the

firms are proportional to their market capitalization values. H = (%S1*%S1) + (%S2*%S2) +

(%S3*%S3) + .... + (%Sn*%Sn) Where %S1, %S2, etc indicate the percentage of market share

of the firms.

Retail Company Sales(in Crores) %Market Share Square of Market share

Aditya Birla Retail 1460 8.85 78.39

Pantaloon Retail 5934.37 35.99 1295.18

Reliance Retail 4735.7 28.72 824.80

Shoppers Stop 1546.58 9.38 87.97

Spencers Retail 856.6 5.19 26.99

Trent 563.3 3.42 11.67

Vishal Retail 1,393.03 8.45 71.37

Total 16489.58 2396.37

*The figures for Reliance Retail and Pantaloon retail include those of all of the subsidiaries

Since the Herfindahl Index is greater than 1800, this indicates that there is acute

concentration and the organized retail sector is a tight Oligopoly.

Concentration Ratio

CR4 i.e. the percentage of the market sector controlled by the biggest 4 firms is 82.94%.

Since CR4 is greater than 50%, this measure also indicates that the market is a tight

Oligopoly.


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Indian Retail- expanding the number of formats

In modern retailing, a key strategic choice is the format. Innovation in formats can provide

an edge to retailers. Organized retailers in India are trying a variety of formats, ranging from

discount stores to supermarkets to hypermarkets to specialty chains.

Formats Adopted by Key Players in India

Retailer Original formats Later Formats

RPG Retail Supermarket (Foodworld)Hypermarket (Spencer's)Specialty

Store (Health and Glow)

Piramal'sDepartment Store (Piramyd

Megastore)Discount Store (TruMart)

PantaloonRetail

Small format outlets (Shoppe)Department Store (Pantaloon)

Supermarket (Food Bazaar)Hypermarket (Big Bazaar)

Mall (Central)

K Raheja

Group

Department Store (shopper's stop)

Specialty Store (Crossword)

Supermarket (TBA)

Hypermarket (TBA)

Tata/ Trent Department Store (Westside) Hypermarket (Star India Bazaar)

Landmark

GroupDepartment Store (Lifestyle) Hypermarket (TBA)

Others

Discount Store (Margin Free, Apna Bazaar),

Supermarket (Nilgiri's), Specialty Electronics


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Price Discrimination

The strength of Big Bazaar lies in the prices that it offers to consumer. Price Discrimination is

the key practice which Big Bazaar follows.

Price discrimination or yield management occurs when a firm charges a different price to

different groups of consumers for an identical good or service, for reasons not associated

with costs.

Although first degree pricing, i.e. charging each customer its reservation price, is not

practiced by Big Bazaar, it heavily practices second and third degree price discrimination.

Second degree price discrimination at Big Bazaar

In second degree price discrimination, price varies according to quantity sold. Sellers are not

able to differentiate between different types of consumers. Thus, the suppliers provideincentives for the consumers to differentiate themselves according to preference. As above,

quantity "discounts", or non-linear pricing, is a means by which suppliers use consumer

preference to distinguish classes of consumers. This allows the supplier to set different

prices to the different groups and capture a larger portion of the total market surplus.

Bundling is the example of second degree price discrimination. Product bundling is a

marketing strategy that involves offering several products for sale as one combined product.

Big Bazaar follows all types of bundling:-

Pure bundling: where a consumer can only purchase the entire bundle or nothingo joint bundling: the two products are offered together for one bundled price

e.g. Jo soap and shampoo, three Jo soaps

o leader bundling: a leader product is offered for discount if purchased with anon-leader product

e.g. buy harpic cleaner and get a discount on lizol floor cleaner

Mixed bundling: where consumers are offered a choice between the purchasing theentire bundle or one of the separate parts of the bundle

e.g. clean mate detergent, buy one for Rs. 110 or three for Rs. 199

(Mixed-leader bundling is a variant of leader bundling with the added possibility of buying

the leader product on its own.)


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Third degree price discrimination

Third-degree price discrimination occurs if a seller charges different prices to two or more

different buying groups with different demand elasticity. These groups can then be

differentiated based on characteristics such as, age, location, or sex.

Big Bazaar follows third degree price discrimination on certain products. For items such as

potatoes and onions, Big Bazaar stocks it in two ways :- Loose lot and Packaged. The loose

lot are priced at say Rs. 18 per kg whereas the packaged one are priced at 20 to 22 per kg.

The idea is that some consumers are better off buying the packaged ones because they

dont want to assort from the lot.Also those who are in hurry wont mind paying slightly

higher price. Thus same product is sold at two different prices.

Another third degree price discrimination is Wednesday Bazaar. Big Bazaar markets

Wednesday as the cheapest day of the week with further discounts on selected products.

The idea is the to cash in on the off peak time of the week.

During off peak time of the week, the demand is elastic and hence even lower prices are

offered, supposedly on the products where margins are higher. Due to this lowering of the

price, only on a particular day of the week, prices of same goods are different at different

time. This strategy is targeted to the consumers who are very thrifty and have huge love for

discounts.

Private labels vs Brands

Private labels enable retailers to offer quality products and earn higher margins. The retailer

also derives many advantages of using private labels. In-store labels are at least 5-20 per

cent cheaper across various categories. This is because they cut out middlemen costs and

pass on the benefit to the consumer. Private labels enhance the bargaining power of the

retailer while negotiating with manufacturer (national/ international) brands. In the long

run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many

retailers are considering increasing their private label offerings significantly.

The following are the key merits of Private Labels.

Gives the opportunities to stand out from the crowd Helps maintain consistency in stocks. Outside brands may or may not be available in

the future leading to a potential loss of customers.

Enables retailers to control margins by improving their bargaining power Facilitates movement into a planned environment. Since private labeling requires

long term planning, it enables the retailers to understand all the nuances of its

products as against an opportunity stock which could turn into an opportunity cost in

the long run


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Strengthening of Private brands at Big Bazaar

Food Bazaar now stocks over 350 SKUs in over 58 sub-categories that belong to the

private brands portfolio. These products not only deliver better margins but also address

price gaps and need gaps of consumers that are currently not addressed by existingbrands.

A major initiative towards the strengthening of the private brands portfolio was the

launch of Ektaa offering community-specific food products across the country. The first

product launched in this series is popular variants of rice from different states of India.

Ektaa branded rice is now available in five variants in all Big Bazaars and Food Bazaars

across the country. The brand would also see a series of product launches like wheat,

regional spices, pickles, papads etc in phases, giving customers a large basket of

community foods to choose from. Last quarter also saw the introduction of a range of

Chinese noodles under the Tasty Treat brand. It came out with 3 variants - Hot Garlic,

Manchurian and Schezwan, positioned at a unique price point of Rs. 39 and offered with

a stainless steel fork and spoon free with it. In the fashion category, Future Groups

private brand John Miller extended its footprint in the mens grooming category by

launching a range of deodorant sprays in all Big Bazaars and Food Bazaars across the

country. The product was launched in 3 unique fragrances.

Inferior Goods

Creating consumption days

In India consumption demand at an individual customer level is still low compared to

anywhere else in the world. Therefore, Big Bazaar has pioneered the concept of creating

Consumption Days that create additional demand from consumers and also bring in fresh

setof customers to its stores.

At Big Bazaar, the Sabse Sasta 3 Din and Mahabachchat celebrations drew immense

consumers to the stores and translated into creation of new consumption demand. Apart

from such promotions, the format had createdWednesday Bazaar, Pehli Tarik and Shubh

Muharat that were celebrated on a weekly andmonthly basis to bring in new consumers as

well as increase the consumption basket.

An example of this was a successful occasion at eZone, when the format offered 48 hour

non-stop sale. The objective of this sale was to increase the sales velocity in eZone storesand to reinforce its leadership position in the overall market. This was the first time in the


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history of Indian retail that any specialty store remained open for 48 hours non-stop. During

the Zero Margin Sale stores were kept open from midnight of June 11th to midnight of

June 13th so that customers could shop at their convenience in 'off peak' hours. During this

sale eZone clocked in highest ever sales on any single day, with increase of customer traffic

by over 300% and conversions of over 30%. eZone sold more than 3500 Flat PanelTelevisions, 4000 cameras and 2000 laptops amongst other products. Our stronger value

creation for customers was corroborated by the Nielsen Retail Index for Q4 2009 v/s Q1

2010 which indicates that, at an aggregate basket level, the price change in Big Bazaar

stores was 5.8% lower than comparable changes in general trade.

Non Price competition & Oligopoly

Firms compete for market share and the demand from consumers in lots of ways. We make

an important distinction between price competition and non-price competition. Price

competition can involve discounting the price of a product (or a range of products) to

increase demand.

Non-price competition focuses on other strategies for increasing market share. Consider

the example of the highly competitive UK supermarket industry where non-price

competition has become very important in the battle for sales

Mass media advertising and marketing Store Loyalty cards Banking and other Financial Services (including travel insurance) In-store chemists / post offices / creches Home delivery systems Extension of opening hours (24 hour shopping in many stores) Innovative use of technology for shoppers including self-scanning machines Financial incentives to shop at off-peak times Internet shopping for customers


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Conclusion & Limitations

Interpretation of Results

Suggestions

Limitations

Summary

References

1. http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.html2. www.ibef.org
http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.htmlhttp://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.htmlhttp://www.ibef.org/http://www.ibef.org/http://www.ibef.org/http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.html

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Final Project ME Ravi