Titan Version 1

Case Study - Titan Watches Limited

01 A.K. Sudeep08 Ankush Adlakha59 Sandeep Majumdar70 Sripathy Balaji 79 Vinay K Ele81 Vipin Shivashankaran

Index

Case Summary Environmental Analysis Forces of Competition Future Direction

Case Summary- Titan’s EnvironmentKey Areas Considered

Industry Sector & Competitors

Titan A JV between Tata and TIDCO incorporated in 1987 Nature of business Watches & Jewelry Explicit limits on the number of watches that can be imported / exported has been relaxed (QR) The total market size of the segment is 45 Million (2000-1)

Market segmented into 4 High End (Prestige) (Key Players Citizen, Swatch and Esprit, Omega, Seiko) Mid market (HMT, Maxima and Timex, Chinese Watches) Low end (Smuggled watches and Chinese Watches) Fashion watches (Guess & YSL)

Segment Behaviors Prestige End with selected target customer groups Mid market is sluggish The low end market is a high volume market Fashion brands have diverse accessories along with Watches

The market has become more competitive with the new entrants both in the top end as well as in the low end volume markets

Titan is the market leader in India with 15% of the market share with 6.9 million pieces

Case Summary- Contd…

Raw MaterialsTwo prong approach for selling watches Manufacture

Watches designed with fewer moving parts (Reduction from 150 to 50) Cutting down on gold plating costs Effective lean process to effectively manage inventories Planned capacity of 10 million units in a couple of years

White labeling Chinese Watches( in ideation stage ) Using the spare capacity of Chinese manufacturers

Human resourcesPrimary Staff accounts for 11.2% of the total revenue is distribution Employees: 3,629

Secondary No of CFAs: 32 Towns covered: 1,543 No. of outlets: 5,596 Titan showrooms: 117 Boutiques: 38 Stockiest: 58 Auth service centers: 290 Co. service centers: 41 Service points: 141

Case Summary- Contd…Financial Resources

The Capex so far has been $100 Million from inception The year wise sales in (Crores)

Tanishq the jewelry brand of Titan is high in working capital

Market Sector Domestic Market

High end Luxury watches (Titan Insignia, Gold Nebula) The Fashion/style segment - (Fastrack) Mid segment – (Sonota)

International Market Segment accounts for 8.7 % of the total sales In West Asia market, Titan is no 2 or 3 In Europe Titan is trying to get past the 100,000 mark Potential to get into Portugal, Spain, France and UK markets

Year Sales PAT1996-97 408.5 24.21997-98 442.1 14.61998-99 482.0 17.01999-00 630.3 19.32000-01 750.0 (Projected) -N.A.-

Case Summary- Contd…

Technology Reduction in moving parts for watches from 150 to 50 20% reduction in working capital due to ERP implementation for effective use of raw materials

Marco Environment

Tax burden provides a way for thriving grey marketers Government machinery has been ineffective in curbing smuggling of watches Lifting of quantities restrictions on import of watches The affordability at the bottom of the pyramid Youth has carved out to be a separate segment with specific requirements The Conversion value has played a key role in overseas spend for promotions

Identification of important environmental factors affecting the Industry.

PESTEL – Model

Political NotesPotential Impact

Implication And Importance Comments

Timeframe Impact Type Relative

Importance

Trade Policies

Quantitative restriction on watch imports were withdrawn since April 2000 in compliance

with the WTO agreement

High Immediate Increasing Negative Critical

As the availability of brands and the number of goods

that a distributor or retailer might wish to stock

increases, pressures on the deployment of available funds of a wider range of goods will also increase,

causing a thinning of stock levels for individual brands

Home Market Pressure

No support/stringent measures to stop smuggling of watches in

place high Immediate Increasing Negative Important

The unregulated market provides a stiff competition

to the watch companies

Shareholders / Stakeholder

Demands

Analyst views in terms of projects due to completion and also against the declared profits which has predominantly come

from selling of shares in RDI Print & Publishing which constitutes 97% of PAT

Medium 0-12 months Unchanged Negative Important

The impact may change if there are promising quarterly results. There will definitely

be impact in terms of investments for any

expansions due to investor sentiments

PESTEL - ModelEconomic Notes

Potential Impact Implication And Importance Comments


Importance

General taxation issues

The Tax burdens on branded watches does

not provide a competitive price point to the

customer in comparison to the Smuggled goods

market High 0-12 Months negative Increasing Important

Tax for imports and rebranding stands at 35% in 2000-2001. Tax rates

might get reduced to curb smuggling.

Market and trade cycles

Significant shift in the market demand for simple time keeping

machines to a trend of style based approach, prestige, fashion etc. A

hit in terms of traditional watch lines. Mid market

segment is a bit saturated and may move to the reach of high end

segment. A further segmentation in the

market for the younger generation High 0-24 months Positive Increasing Critical

Titan has always positioned watches as

accessories of style and part of the wardrobe and

a means of self-expression. Titan will have an edge with

respect to its Indian counterparts like HMT

and Maxima

Distribution Routes and retailers

Shelf Space and distribution channels in

the wake of foreign competition might

significantly thin out investments to showcase

a single brand instead the marketers might go for a muti brand shelf High Immediate unknown Unchanged Important

Acquiring shelf space can work well with Titan due

to its price point of luxury watches much lesser than competitors can open up significant demand from

lower segments. Diversified approach with

Sonata, Fastrack along with presence in jewelry

market can provide significant ability to bundle watches with Jewelry. The impact

depends on the reaction

PESTEL - Model

Economic NotesPotential Impact Implication And Importance Comments


Importance

Exchange Rates

Exchange rates have not been stable and import of watches for rebranding or Export of watches due to Forex fluctuation will have

a significant impact medium 0-6 Months Positive Increasing Important

Titan's strategy for entering into markets abroad in Asia as well as

Europe will be significantly impacted incase the rupee

strengthens, a weak rupee would bring about significant profits.

Disposable Income

The Low end segment within the market consider

Watches as a luxury but aspiration acquisition and a lower price point would

help in penetration medium 0-6 months Positive Increasing Important

Entry of Chinese watches have proven a threat in the short terms.

Titan's view of using the spare capacity of Chinese

companies/Rebranding will provide a edge for Titan to meet the price point, the brand image will provide Titan to penetrate to the low end

market

Financials

The net margin has significantly reduced in the business from 5.9% in 96-

97 to 3% in 99-00 Medium0-12

Months Negative Increasing Critical

The cost of manufacturing have gone up since 47.1% is the inputs for the production. The Others +

Rest constitutes 22.1% of the revenues. There is scope of relooking at this 22.1% and

optimize. The inventory management via ERP has brought about 20% efficiency in WC needs which would improve on the net

margins

Production Level

Over production by 300000 pieces, The company does

not seem to have the necessary production

levels given a market size of 45 Million. But there are

plans to increase the capacity to 10 Million from

6.9 Million Pieces Medium0-24

Months Positive Increasing Important

Increase in the capacity in specific low-cost segment will help Titan.

There is a significant loss of opportunity in terms of the 45

Million. It is very unlikely that Titan will loose its market leadership due

to the stiff competition between the new entrants.

PESTEL - Model

Social NotesPotential Impact Implication And Importance Comments


Importance

Customer Attitude and opinions

Customer attitudes have changed by the advent of foreign brands as well as

segmentation in the market space with

importance to style and prestige Medium 0-24 Months Positive Increasing Important

Titan's positioning in the youth segment as well as positioning watches as a

accessory of style will help Titan to boost its

sales

Consumer buying Patterns

Customer buying pattern clearly indicates that the mid segment and lower segments consume very

little of domestic sales for Titan High 0-12 Months Positive Increasing Critical

Customer buying pattern in terms of purchases

attached with cost is high in the lower segment.

Though Sonata has done well at Rs 500. The

market is much more at the lower levels of 150-

250 per piece. An opportunity that Titan

can use and procure low cost watches from China

Major events and Influences

Ad campaigns are the major influences in India as

well as markets abroad High 0-24 Months Positive Increasing Critical

Titan has an advantage in countries with the Indian satellite-TV footprint like sri lanka, Myanmar etc.

The idea of creative blend of diverse skills resulting in extraordinary beauty can be leveraged the most by Titan. With its

multi country presence as well as presence in the jewelry sector where

designs are a key thing can be leveraged for

promotions

PESTEL - Model



Importance

Age, Gender preferences

Age and gender have had a greater influences in selection of watches

High 0-24 Months Positive Increasing Important

The youth segment has specific requirements

which Titan is trying to cover via the fastrack

range of watches. Smart designs based on gender have been already as part

of the shelf Via Titan's Fastrack range. There is

significant potential in this area and it will be a challenge to foreign brands as the social

preference of this segment if specific to the Indian

subcontinent

PESTEL - Model

Technology NotesPotential Impact Implication And Importance Comments


Importance

Competing technology

Watch makers from the Swizz were the creators of the time keeping machines and have evolved to create modern watches. On the

other hand the Chinese have been fast to adopt technology and to

create low-cost production capabilities as compared to others

High 0-24 Months

Negative Unchanged Important

Titan has not been able to adopt / create specific

technology itself. Instead the strategy

seems to be aimed at revenue generation instead of R&D. The

model might be good in a short term for revenue

generation but in the long run competitors could refuse sales to

Titan.

Maturity of technology

Technology adoption has been key with various vendors in terms of evolving from Jewels to Quartz to

Digital watches

Medium 0-6 months Negative Increasing Important

Adoption of Quartz and reducing the number of components from 150 to

50 was a natural advantage for all watch manufacturers. Chinese

and Japanese manufacturers had adopted technology better which have

brought down the costs

PESTEL - Model



Importance

Manufacturing maturity

The industry is ever evolving due to change in tastes and modern requirements. The industry

evolution provides an opportunity to various vendors to provide innovate

products

Medium 0-24 monthsPositiv

e Increasing Critical

Titan has certain geographical advantage

and could define a product that suits with the

local conditions. On the other had given a

potential for using the capacity of Chinese watch

makers Titan can potentially invest more on the product development

side and operate with Chinese watchmakers

spare Capacity

information Technology

Inventory Management and Internal IT adoption have been high and brings about a good amount of

process automation and control

High 0-12 Months Positive

Increasing Important

Titan has been able to implement ERP and thin down on the inventory

holding by a reduction of working capital by 20%

Environmental NotesPotential Impact Implication And Importance Comments


Importance

Company Values

The focus has been to be a

significant player globally in

Watches and Jewelry and The core strength to

change to counter

competition. A diversified view

for product lines. Ability to change depending on the market patterns

High 0-24 Months Positive Increasing Critical

Titan as an organization has a blend of Jewelry and watches in their

product line and given the idea of being a seller does not limit it to react to the market demand does

not limit to source the products from internal manufacturing capabilities.

An average 30 days to reach to market changes points to a

significant amount of customer behavior data being in place with

the company to interpret this.

PESTEL - Model



Importance

Global Factors

Competition in domestic and international

markets, With well know names

around the world. The purchasing power and the

brand adoption is easy in Advanced economies with better per capita rather than the

Asian and Indian markets

High 0-24 Months Negative Unchanged Critical

Titan has been trying hard to expand globally and given the

massive sustenance and launch costs in the western markets, It seems difficult to reinvest the

rupee income in brand building abroad. Titan has to think of

upfront investments for establishing the brand abroad. In

cases where demand is phenomenon due to market

conditions of viewing a watch as a fashion / style accessory, Titan

has a play if case there is a supply issue which does not seems so in

the current scenario

PESTEL - Model


Timeframe Impact Type Relative Importance

EU based factors

It’s a chance a new entrant will have in terms of

acquiring a stable defined market in EU

Medium 0-12 Months Negative Unchanged Important

Titan to get into larger EU markets has to bring in a specific differentiator in

terms of the product range. Current players have a mixed range and a cost advantage

is not a significant selling point. A strategy to carve out a segment around a jewelry line or a mixed positioning may provide Titan with an

edge

PESTEL - Model



Importance

Management Style

Rigidity of management to

think in a conventional mode

of questioning Citizen and

Omegas salability in the market as also a strategy to

position in a market created by

competitors

High 0-6 Months Unknown Increasing Critical

Titan rigid approach might provide cash rich companies to go for a massive market capture strategy

and eat away Titan's share. Currently the operational model

seems to be working on a pivot and a player with significant experience and cash can reverse the trends via

a low profit entry model, The international brands overweigh the

brand image of Indian players. A team up strategy in a "sell with" and "Sell to" strategy in specific

segments may help Titan

PESTEL - Model

PESTEL Model

Legal NotesPotential Impact Implication And Importance Comments


Importance

Regulation bodies and

process

US has standardized an ISO based model

for standardization of watch definitions in Federal Register /

Vol. 64, No. 110 /Wednesday, June 9, 1999 /Rules and

Regulations

Medium 0-12 Months Positive Increasing Important

India is a participating country and will provide Indian watch

makers to position their products with an ISO label in the

international market. Titan can leverage on this participation

International regulations

WTO agreement and a significant

impact on opening up the market

High 0-24 Months Positive Increasing Critical

Titan apart from facing competition also has a way to

make inroad into countries who are part of the WTO. New

markets will open up for Titan

PESTEL-Model



Importance

competitive regulations

There are no competitive

regulations in the market

High 0-12 Months Positive Increasing Important

Titan will have a fair play in the market due to non existing of any competitive

regulations. The sales and revenue

will be purely driven via their internal

strategy

Competitive Diamond

Strategy Structure

Demand Conditions

Factors

Cluster

"+"local market with a huge potential of 45 Million units

"+"Right positioning of Products and segmentation

"+" Mixed focus on Domestic and Exports"+" Brand building

"-"Lack of focus at the bottom of the Pyramid

"-"Production capacity gaps for local companies

"-" Fierce competition in pricing

"+"Good Demand Forcasts internally as well as internationally

"+" Specilization and defined segments

"+"Demand not fulfilled is not recorded in domestic market to ascertain the gap

"-" Competetors with International experience

"-"Significent product positioning experience by competetors

"-" Innovation not driving demand

"+"Good Local base for related industries (Jewllery and Fashon products) natual clusters

"+" A good exchange of segment information

"+"Down Stream and Up Stream facilities for raw materials and Distribution Networks

"-" Innovation and R&D investments

"-" Foreign dependency for accelerated Production

"-" No specific government policies for the Cluster

"-"Growth of alternate time keeping systems (Mobile Phones)

"+"Proximity to Markets both local markets

"+" Good technology support

"+" Good tecnology knowhow

"+" Well connected transport facility

"+" Good Infrastructural Facilities"-" Heavy taxes

"-" Weak investments

Medium/Weak

Medium

StrongMedium/Weak

Invest/Adopt

Innovate

Nature of Industry & forces of competition

The Watch Sector

Manufacturers SellersSpare Parts

Component manufacturers

Gold Plating

Straps and accessories

Watch Assembly

Rebranding

Provide Trends

Supplementary and Co-branding

Inputs

High end Watches

Fashion Watches

Basic Watches

IndustryThe Industry consists of Watch Manufacturers Importers & Exporters Segment focused companies like fashion/ sports etc

Competitors Highly competitive industry with Indian and International brands The industry does not have perfect substitutes at the moment though Mobile phone manufacturers can be

potential threat

Sector Watch Manufacturers Watch Sellers ( Important because Ability to bundle it with their product line) Component providers

Market segment

The market segment is divided into 5 groups High-end (Prestige ) segment Mid-market Low end Youth segment Export Segment

Changing industry boundaries Positioning watches with Fashion goods Low end market focus Competitor advantage to customers for selection from a wide range of brands. Designs and Features

Industry Competition

New Entrant

BuyersSuppliers

Substitutes

Economies of scale due to Chinese Invasion of the segment

Defined market segment and leadership by foreign brandsA long life time for the products Brand Building Capital Requirements

Shelf space a scarce commodityShelf life and sales cycle

Segments Covered by existing vendors

Industry growth potentialLack of clear leadership in the marketOpportunities untapped providing backdoor entry Diversity of competitorsBrand identity Lower Churns to market swingsSignificant CapexIndustry standards Supply chain creation

Not a basic necessityPer piece salesSeasonal driversStatus callsPrice and Features

focused requirementsVisibility ImpactIncome barriersDurability Recurring Costs

Warranty to damages

Supplier of raw materials (Local Demand/Supply factors)47% of raw material costsSellers and WarehousesSuppliers being competitors in the industry and control over prices

Industry Competitors

No Major Substitutes

Inference

New Entrant Competitive environment looks attractive due to the demand and fragmented markets The New entrant with a significant experience in the industry will have an edge The existing capacity does not seem to cater to demand so the gap can be a easy area for a new entrant The neglected segments will provide opportunity to new entrants

Suppliers Supplier impact depends on the model of the new entrant, if there is a local manufacturing intention

suppliers needs to scale up Supplier is important and critical to the business in terms of churning out the products as the industry is

highly input intensive Flexibility of supplier product lines will be key and a supplier could become a feeder to a specific group

Substitutes No known substitute in this areas possibly mobile phones may prove a competition but will be weak

Buying Power The product is not a basic necessity and stills falls under a luxury or a wish list significant advertising required to popularize the need and the style The need for style supersede the requirement and the utility of the product to the buyer Unit sales demands a personalized approach to the buyer / market segment

Probable future directions for Titan.

Possible Future Directions Domestic market looks more attractive due to demand and lower cost to market and operate The competition has widened the thought process of the customer so the follower strategy will help as Indian market

is slow to adopt Rebranding of Chinese goods might be a viable proposition for low-end segments The investments in capacity uplift will help cater to the demand Titan could consolidate its position given its brand value and reach With additional product lines Change in attitude of customers to possess watches as fashion accessories could boost sales Production costs is a big issues Titan may look at low cost countries Attractive Ad campaigns may bring about a boost in sales Titan’s Sub branding is unique and this will help titan to grow as there is a special segment based association Jewelry market as a fashion accessory is growing and Titan will have opportunities to bundle watches with Jewelry Titan’s international market share may not grow till there is a focused approach for investments for brand positioning

in europe

Probable future directions for Titan Contd

Possible Future Directions Other international markets with similar value to rupee and similar market segmentation would accept Titan product

as India Titan could effectively use its supplier network to counter competition Current ERP implementation could come in handy for analyzing behavior patterns and better position products

The current statistics in terms of sales / number of pieces clearly indicates a market leadership in the industry. So the future direction is more centered around consolidation and uplift rather than a recovery

Thank You

Documents

Titan Version 1