Business

Mumbai’s marketer

Kabir Mulchandani makes televisions. He also thinks he knows how to sell them to India’s elusive middle class

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THE imperial facade of the Taj Mahal Hotel commands a spectacular view of Mumbai's harbour and the Gateway of India. If the burly—and surly—turbaned doormen deem you respectable, you can escape from the city's sweltering heat into its lobby. If you want to rub shoulders with the really rich, however, you must take the private lift up to Chambers, a members-only club exuding a snobbery of which any in London would be proud. This is where Kabir Mulchandani likes to hold court. A self-assured 25-year-old, he is not exactly the club's typical member. Is Mr Mulchandani perhaps the coddled son of a dynasty, meeting chums for drinks at Daddy's club?

Not at all. The man who has staked out one of the Taj's overstuffed leather armchairs thinks he understands affluent Indians and how to sell them things. A host of foreign firms have been lured by talk of 250m consumers, with a high disposable income and a long-suppressed appetite for Western goods. Yet even a heavyweight such as Coca-Cola has floundered in the country: India is the only large market where Coke is not either first or second in its category. Long protected from foreign-made products by tariffs and a tangle of regulations, Indians have resisted Western consumer goods.

Without some bad news in 1993, Mr Mulchandani might never have returned to India from America. When he was just a year into a degree at Stanford University, his parents told him to come back to help sort out the troubled family electronics firm—or to pay his own way through college. He soon realised that the business was beyond hope. But his curiosity was aroused. He appreciated what many Indian firms still do not: that the sharp drop in tariffs that came about following liberalisation in the early 1990s would make it impossible to continue selling Indians shoddy consumer goods at outrageous prices.

Accordingly, he took control of one of his family's small firms, called Baron International, and persuaded Japan's Akai to let him assemble and sell its televisions in India. Today, every size of television he makes outsells all or most of its rivals; sales, $14m three years ago, will top $210m this year. More important, he insists, Baron makes a 46% return on capital employed, three or four times that of local rivals.

That is no mean achievement. Foreign television makers such as Sony, Samsung and Philips are losing money in India—like most foreign firms that rushed into the country after liberalisation. Frustrated foreign managers now say that Indian consumers are too price-conscious and perhaps even too impoverished for them to make any money in the near future.

On the contrary, says Mr Mulchandani: decades of Gandhian simplicity and Nehruvian socialism have instilled an almost puritanical sense of “value” in the country. Foreign firms are failing because most expect consumers to pay large premiums for international brands, without convincing them they are getting their money's worth. He points to Mercedes, which brought in its older, underpowered E-class sedans at high prices—and was surprised when rich Indians snubbed them. He says that even poorer consumers will spend money provided you convince them your product is a good “investment” and not a wasteful indulgence. “I must convince consumers my product provides them the best return on investment versus not just other televisions, but computers, fridges and even shares and bonds,” he says. Even Baron's slogan—“Akai: redefining the value of the rupee”—is more redolent of stockpicking than soap operas.

However, the secret of his strategy—and his margins—is not to redefine the value of a television set, but to confuse it. He has not slashed prices dramatically, even though his costs are lower than those of other domestic producers, but rather bundled televisions together with special offers. The latest promotions, for example, offer buyers free goodies such as video recorders or miniature scooters. In another promotion, he reduced the price of a new set if consumers brought in an old one (dealers sold them to rural consumers). Mr Mulchandani points out that Indians—even rich ones like his mother, he says—would never throw away a working television, however decrepit, but might trade it in for a new one. And they did, he notes gleefully, “like sailors running off a ship for the bordello.”

East meets West

Nobody can deny Mr Mulchandani's success. He has greatly expanded the colour-television market in India (see chart) and he is planning to diversify into other products such as mobile phones. But, for all his talk of investment, consumer electronics lose value faster than almost any product imaginable. Nothing is as worthless as last year's model—be it a television or a mobile telephone. For all their supposed Gandhian instincts, that is a lesson that India's newly liberated consumers will soon learn.

They will also quickly realise that bundling televisions with fridges and VCRs instead of competing on price alone does not necessarily make them a better buy. Given the exorbitant retail price of televisions—still 50% above American prices—there is plenty of room for discounting. Rivals are already producing more generous offers of their own, lowering margins for everyone. As a result prices are falling. Indians may even learn to prefer cash to a free gift—just like consumers elsewhere.

In other words, if Mr Mulchandani's original insight succeeds in putting Indians in touch with modern gadgets, he may find himself in need of another.

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