Bcg And Ge Analysis On Idea Cellular

Aditya Birla Group A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500. It is a multinational corporation based in Mumbai, India with operations in 25 countries. The group is a major player in all the industry sectors it operates in. The Group has been adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study 2007. The origins of the group lie in the conglomerate once held by one of India's foremost industrialists Mr. Ghanshyam Das Birla. He bequeathed most of these companies to his grandson, Mr. Aditya Vikram Birla – the father of the current Chairman of the group, Mr. Kumar Mangalam Birla. Mr. Kumar Mangalam Birla is the grandson of Mr. Basant Kumar Birla, who heads his own independent business conglomerate. Several other members of the Birla Family own and run their independent business groups. Aditya Birla is organized into various subsidiaries that operate across different sectors. Among these are viscose staple fibre, non-ferrous metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, Modern retail (under the 'More' brand of supermarkets, and also under the Trinethra, and Fabmall brands until recently), fertilizers, sponge iron, insulators, financial services, telecom, BPO and IT services. The Group consists of four main companies, which operate in various industry sectors through subsidiaries, joint ventures, etc. These are Hindalco, Grasim, Aditya Birla Nuvo, and UltraTech Cement. We have focused on the Idea Cellular SBU of Aditya Birla Group. It is One of India's leading GSM mobile service operators; IDEA Cellular is headquartered in Mumbai and has over 30 million subscribers. Innovation is central to IDEA's Value Added Service products. It was the first to offer 'Global SMS' in over 540 networks across all technology platforms. It has also acquired Modi family’s Spice. But then it even faces tough competition from various major players. The leading Mobile Networks today in India are Airtel, Vodafone (sold by Hutchinson Essar to Vodafone), BSNL, MTNL, Orange, Aircel, Tata Indicom, Idea, BPL etc. Each of these companies has a tough competition with one another. BSNL & MTNL being government sectors have more advantages than other Private sector Companies.

Strategic Business Unit- Idea Cellular Limited Idea Cellular Limited has a share of 12% in the total GSM telecom market in India (as on Mar’08). The Entire Telecom Industry is growing at a rate of 25% as compared to the base year 2006-07. This can be termed as a moderately growing Industry and it is expected to grow in the coming years. We are thus putting the middle line of the vertical axis in our BCG matrix as 15% as a division between low and high growth. The first BCG matrix will be plotted for Idea Cellular Limited, our chosen SBU, with respect to the market leader, Bharti Airtel. Taking

the market share of Bharti as 1X, the relative market share of Idea comes as 0.39X. The BCG matrix thus, would look like as under. BCG Matrix of Idea Cellular Limited with respect to Airtel

Marke t Growt h Rate (in %) 0 LOW 15 HIGH

10X 0.39X 0.1X

1X

Relative Market Share Analysis of BCG matrix: In the above matrix, Idea Cellular Limited falls in the first quadrant of “QUESTION MARKS”. The circle size represents the absolute market share (i.e. 12%) of our SBU in the telecom sector. We will formulate the strategies which Idea should follow in the later part of this project.

Plotting the Competitors 1. Bharti Airtel: Bharti Airtel is the market leader in the telecom sector with a market share

of 31%. The market challenger in this industry is Vodafone. So we plot the BCG matrix of Airtel with respect to Vodafone. Taking the market share of Vodafone (i.e. 23%) as 1X, the relative market share of Airtel comes as 1.35X. The BCG matrix of Airtel will look as under: BCG Matrix of Bharti Airtel with respect to Vodafone

Marke t Growt h Rate (in %) 0 LOW 15 HIGH

10X 0.1X

1.35X 1X

Relative Market Share Analysis of BCG matrix: In the above matrix, Bharti Airtel falls in the quadrant of “STAR” with respect to the market challenger. The circle size represents the absolute market share (i.e. 31%) of Airtel in the telecom sector. 2. Vodafone Essar: Vodafone is the market challenger in the telecom sector with a market

share of 23%. The market leader in this industry is Vodafone and so we plot the BCG matrix of Vodafone with respect to Airtel. Taking the market share of Airtel (i.e. 31%) as 1X, the relative market share of Vodafone comes as 0.74X. The BCG matrix of Airtel will look as under:

MarkeBCG Matrix of Vodafone with respect to Airtel t Growt h Rate (in %) 0 LOW 15 AnalysisHIGH of BCG

matrix: 10X

1X

0.74X

In the above matrix, Vodafone falls in the quadrant of “QUESTION MARK” with respect to the 0.1X market LEADER. The circle size represents the absolute market share (i.e. 23%) of Vodafone in the telecom sector. Relative Market Share

3. BSNL: BSNL is another competitor ahead of IDEA in the telecom sector with a market

share of 19%. The market leader in this industry is Airtel and so we plot the BCG matrix of BSNL with respect to Airtel. Taking the market share of Airtel (i.e. 31%) as 1X, the relative market share of BSNL comes as 0.61X. The BCG matrix of Airtel will look as under: BCG Matrix of Idea Cellular Limited with respect to Airtel

Marke t Growt h Rate (in %) 0 LOW 15 HIGH

10X 0.6X

1X 0.1X

Relative Market Share Analysis of BCG matrix: In the above matrix, BSNL falls in the quadrant of “QUESTION MARK” with respect to the market LEADER. The circle size represents the absolute market share (i.e. 19%) of BSNL in the telecom sector.

GE Matrix The GE matrix for Idea Cellular will be made keeping the following two major dimensions: 1. Market Attractiveness 2. Business Strength Market Attractiveness: This dimension forms the Vertical axis of the GE matrix. The factors which we have considered which may affect the industry attractiveness for our SBU are: 1. Overall Market Size: IDEA operates in an industry which has overall revenue of Rs. 125

Billion and has a subscriber base of 261.07 million customers. Thus it has a huge target audience and we need to give substantial weightage to this factor. We have given it 0.20 out of 1.0. 2. Market Growth Rate: The telecom industry is growing at 25%. As previously stated,

this can be considered as a moderately growing and having high growth opportunities

with the growth of Indian economy. But in the current recession scenario, we decided to give it a little less weightage of 0.15 out of 1.0. 3. Profitability: Telecom industry net profits just increased from 12% to 14% from the last

fiscal year. Due to no such significant increase in profitability as compared to sales, we have given it a weightage of 0.10 out of 1.0. 4. Technological Development: With new technologies like 3G knocking at the doors of

Indian telecom sectors, technological development will be an important factor to be considered in the business policies towards our chosen SBU. Hence a weight of 0.15. 5. Global Opportunities: Bharti has started making forays into global markets. With the

expected entry of many foreign players in the near future, this can open the door for global opportunities for Indian players. Hence the weightage of 0.10. 6. Market Rivalry: Indian telecom sector is an Oligopoly where 80% of the market share is

picked by only 4 players. Also the future guarantees the entrance of several big global names in this sector. Hence clearly market rivalry weighs above others at 0.20 out of 1.0. 7. Pricing: Being an Oligopoly, pricing strategies are a key for any player to make profits in

such a competitive sector. Thus we have given it equal weightage as technology and more than even factors like profitability and growth rate. Market Attractiveness Overall Market Size Market Growth Rate Profitability Technological Development Global Opportunities Market Rivalry Pricing Total

Weightage

Rating(1-5)

Weighted Score

0.20

4

0.8

0.15

4

0.6

0.10

3

0.3

0.15

4

0.6

0.05

5

0.25

0.20

5

1.0

0.15 1.00

3

0.6 4.05

8. Market Growth Rate: The telecom industry is growing at 25%. As previously stated,

this can be considered as a moderately growing and having high growth opportunities with the growth of Indian economy. But in the current recession scenario, we decided to give it a little less weightage of 0.15 out of 1.0. 9. Profitability: Telecom industry net profits just increased from 12% to 14% from the last

fiscal year. Due to no such significant increase in profitability as compared to sales, we have given it a weightage of 0.10 out of 1.0.

10. Technological Development: With new technologies like 3G knocking at the doors of

Indian telecom sectors, technological development will be an important factor to be considered in the business policies towards our chosen SBU. Hence a weight of 0.15. 11. Global Opportunities: Bharti has started making forays into global markets. With the

expected entry of many foreign players in the near future, this can open the door for global opportunities for Indian players. Hence the weightage of 0.10. 12. Market Rivalry: Indian telecom sector is an Oligopoly where 80% of the market share is

picked by only 4 players. Also the future guarantees the entrance of several big global names in this sector. Hence clearly market rivalry weighs above others at 0.20 out of 1.0. 13. Pricing: Being an Oligopoly, pricing strategies are a key for any player to make profits in

such a competitive sector. Thus we have given it equal weightage as technology and more than even factors like profitability and growth rate. Factors considered for Market Attractiveness The rating is done on a scale of 1-5 where the industry attractiveness is rated associated with the industry as a whole. Here 1 represents very unattractive and 5 represents very attractive. We can see the difference in weightage and type of rating varying in the different factors. The market growth rate can have a low weightage as compared to market size but has the same rating because growth rate is attractive for the players in the market. Also pricing may have much more weightage as compared to global opportunities but the ratings are the other way round. This is for the reason that pricing strategies are not that attractive to the company because of strong competition and regulations whereas global opportunities are more attractive for the industry. Based on the above assumptions substantiated by the industry facts and growth avenues, the weighted total score for market attractiveness in case of Idea Cellular comes to be 4.05. Business Strength: 1. Market Share: The market share of Idea Cellular is 12%. Well it just acquired Spice 2. 3.

4.

5.

Communications and is among the top 4 players in GSM sector. But being a market follower its primary motive is profitability. Thus we gave less weight to market share. Market Growth Rate: Idea being a small player has ample of scope to grow but its growth rate puts little effect to market rate as compared to other players. So it has again been given weightage of 0.10. Profit margin relative to competitors: This is the most important aspect of Idea’s competitiveness. IDEA’s profit margin increased about 4 percent from 2006-07(11%) to current profit margin (15%) that is 2007-08. This is an area where it would like to have a competitive edge. Technological Innovation: Idea was the first telecom operator to launch GPRS and EDGE technology. We have given high weightage to support its innovational outlook. Recently it formed a alliance with “high tech computers” (HTC). It also launched and secured a position of leader in value added services like “cellular jockey”, “background tones”, and “group talk”. Brand Reputation: IDEA already has a backbone “Aditya Birla group” which has already established as a global and truthful image. Being a part of Aditya Birla Group, it

has to carry a brand name. But now its strategy would be more of brand building than brand reputation. So we have given a low weight. 6. Sales Distribution Effectiveness: The breadth of the distribution network has grown by over 30% in the past year. In addition to this the company is operating additional 589 Idea ‘n U and showrooms which supplement the distribution channels and provide customer service. 7. Advertising and Promotional Effectiveness: Idea went for aggressive promotional

techniques such as having Abhishek Bachhan as the Brand Ambassador. The tag line “What An Idea” was very successful proving the effectiveness of the advertising and promotional activities carried by Idea. 8. Pricing strategies and Customer Loyalty: By adopting different pricing strategy it

discriminates among its customers. For example it has different pricing strategies for postpaid subscribers and prepaid subscribers. Key Competitive Factors Market Share Market Growth Rate Profit Margin relative to competitors Technological Innovation Brand Reputation

Weight

Rating(1-5)

Weighted Score

0.10

4

0.4

0.10

4

0.4

0.15

5

0.75

0.15

4

0.6

0.10

4

0.4

Sales Distribution Effectiveness

0.10

3

0.3

Advertising and Promotional Effectiveness

0.15

4

0.6

0.05

4

0.2

0.10

3

0.3 Total= 3.95

Pricing strategies Customer Loyalty STRONG

MEDIUM

5 LO W M E DI U M HI G H

3 .66

2 .33

GE Matrix for Competitors- AIRTEL Key Competitive Factors 5 Market Share 2.33 Market Growth Rate Profit Margin relative to competitors Technological Innovation Brand Reputation

Weight

3.66 1

Rating(1-5)

Weighted Score

4

0.401

0.10

4

0.40

0.10

3

0.30

0.15

4

0.60

0.15

4

0.60

Sales Distribution Effectiveness

0.15

3

0.45

Advertising and Promotional Effectiveness

0.15

4

0.60

Pricing strategies

0.05

4

0.20

0.10

Customer Loyalty Market Attractiveness Overall Market Size Market Growth Rate Profitability Technological Development Global Opportunities

0.15

3

0.45 Total= 4.0

Weightage

Rating(1-5)

Weighted Score

0.20

4

0.8

0.15

4

0.6

0.10

3

0.3

0.15

4

0.6

0.05

5

0.25

0.20

5

1.0

0.15 1.00

3

0.6 4.05

Market Rivalry Pricing Total

The factor for Industry attractiveness will remain same for market leader as well. Bur the competitive strength will differ and so the weights and ratings. It is evident from our above assumptions about Airtel that they will lesser rating to profit margins and more towards advertising and promotional effectiveness and brand reputation. The GE matrix of Airtel will look like as under:-

STRONG

MEDIUM

5 LO W M E DI U M HI G H

3 .66 5 2.33

3.66 1

2 .33

The GE matrix for Airtel indicates that it lies in the 1st quadrant corresponding to high market 1 attractiveness and strong competitive strength.

GE Matrix for Vodafone The market challenger Vodafone will again have the same Market Attractiveness dimension as the other players but will have an entirely different competitive strength dimension. Assuming Vodafone’s company objectives to be more focused on building a customer loyalty, we assign it a weight of 0.15. Also its sales and distribution effectiveness is much lesser than Airtel or Idea, so give a weight of 0.05 to it. Vodafone has a brand reputation of the world’s largest telecom provider which it has to maintain even in the Indian Telecom Industry. For that it would definitely look to emphasize more on advertising and promotional effectiveness. So both these factors are given 0.15 weights. Market Attractiveness Overall Market Size Market Growth Rate Profitability Technological Development Global

Weightage

Rating(1-5)

Weighted Score

0.20

4

0.8

0.15

4

0.6

0.10

3

0.3

0.15

4

0.6

0.05

5

0.25

Opportunities Market Rivalry Pricing Total

0.20

5

1.0

0.15 1.00

3

0.6 4.05

Vodafone may still assign lower rates brand loyalty as compared to sales distribution effectiveness as they would like to put a competitive front in the distribution network. Moreover they would find advertising effectiveness and pricing strategies more attractive than a higher profit margin. The above assumptions led us to the different dimensions and the corresponding GE matrix. Market Attractiveness Key Competitive Factors Market Share Market Growth Rate Profit Margin relative to competitors Technological Innovation Brand Reputation

Weight

Rating(1-5)

Weighted Score

0.10

4

0.40

0.10

4

0.40

0.10

3

0.30

0.10

4

0.40

0.15

3

0.45

Sales Distribution Effectiveness

0.05

5

0.25

Advertising and Promotional Effectiveness

0.15

4

0.60

0.10

4

0.40

0.15

3

0.45 Total= 3.60

Pricing strategies Customer Loyalty

Competitive Strength

STRONG

MEDIUM

5 LO W M E DI U M HI G H

3 .66

2 .33

5 2.33

3.66 1

Plotting the GE matrix for Vodafone, we found that it lies in the quadrant corresponding to High market attractiveness but average internal evaluation, i.e. average business strength. 1

STRATEGIES FOR IDEA CELLULAR The Idea Cellular Limited falls in the “question mark” quadrant of BCG matrix and in the High attractive and Strong Competitive strength category as per the GE Matrix. Thus they need to formulate some strategies to try capturing some market share, growing and building their brand image as well as brand value. Market penetration The company enters where the products and the market already exists. IDEA being a question mark that means it is competing in a high growth market but with a relatively low share compare to its competitors. Market penetration can be done by attracting competitor’s customers that implies increase in market share. The strategy that IDEA can adapt under market penetration is to attract non-users and convince to use their product more often. They are different market

penetration strategies like cutting price, increase in promotion, and creating innovative distribution tactics. The target should be in such a way that IDEA sales volume relative to its competitors should be high as expressed in percentage. IDEA’s present market share is about 12%, and competitors like airtel, Vodafone, and bsnl have a market share of about 31, 23, and 19 percent respectively. Though telecom industry is growing rapidly every year, there is always a little increment in the percentage of sales for IDEA. To overcome this problem and to occupy the competitor’s position we recommend following strategies. • • • • • •

Increasing the mobile circles which are at present are only 11, so there is always a need to expand its services. Target the rural segment in India which is expected to grow by 15% every year Launch different types of packages as per the requirements for different segments of the customers Provide more high end services like GPRS, mobile internet services Collaboration with different service providers on global basis to provide better facility to customers on roaming. Tracing out the search patterns which are left untapped by the competitors to reveal new markets.

Backward Integration – In July 2008 Swedish equipment supplier entered into a contract to provide technology “Ericsson Mobile organizer” to Idea cellular enabling its subscribers to serve email facility on its cell phones. Forward Integration – Company operate approximately 589 Idea” n “U and other showrooms which supplement the distribution channels and provide customer service. Horizontal Integration: Idea acquired the Modi family’s stake of 40.8% in spice which ultimately in a way increased the market share of Idea. This can be seen as horizontal integration Strategic Alliance 1) Product alliance Idea should form product alliance with a company that has a strong brand image and carry a promotion for one another. E.g. Acer in collaboration with Ferrari launched Acer Ferrari laptops which are catering to high end niche segment having high specifications and high price. 2) Promotional Alliance: Idea should form promotional alliances in collaboration with big movie houses or big retail brands to promote their products. Recently SONY Viao had a promotional alliance with “James Bond” latest movie “Casino Royale”.

References: 1. http://www.pdfcoke.com/doc/8201179/Telecommunications 2. http://www.vodafone.com/start/investor_relations.html 3. http://www.pdfcoke.com/doc/4950792/Indian-Telecom-Sector 4. Marketing Management, 11th Edition, Philip Kotler