Synopsis

This case study describes and analyses the growth of a business that challenged powerful multinational companies.Paper Boat is a beverage company that manufactures authentic Indian traditional juices and drinks. The company used the new age marketing strategies like story-telling to create engaging content.

Target Group

This case provides an overview of an indigenous business and is intended to undergraduate students in pre-final and final year of undergraduate courses. This case also adds value to research community and startup training institutions as an example of a small company that stood against the competitive challenge posed by international giants using its unique marketing strategy. This case could also be extended to MBA students who can analyse and strategize methodologies for the company to succeed in the market.

Learning objectives and key issues

1. Dealing with Fierce Competition

Startups function at a situation of high competition from other companies in spite of having a great product/service. The market is not a level playing field, after all it is “survival of the fittest”. Existing giants as well as new rivals pose a threat to the startup. Planning the right strategy and adapting to the new reality defines its success. The discussion can include examples from the case including global giants like Coca Cola and Pepsi; and new entrants like Dabur.

2. Right Pricing

Pricing issues are faced by most of the startups. Although there is no perfect pricing mechanism, the company must choose wisely not to run into losses. For companies that face extreme competition, the competition-led strategy can be used. Keeping competition in mind, the company must also device a strategy to give a compelling reason apart from pricing too. Paper Boat products are priced around 1.5 times that of Pepsi and Coca-Cola products, making it unaffordable to a wide section of customers.

3. Marketing

Several startups encounter problems as they may not have allocated enough resources to marketing and sales. A well structured plan is essential to generate a pull among the customers towards the product. Money spent on marketing definitely yields positive returns. Paper Boat uses emotional marketing and storytelling strategy to bring an appeal in the minds of the customers. Fancy packaging also adds to the value of its unique marketing strategy.

4. Supply Chain Management

Supply Chain Management includes all the processes involved in creating a product : right from raw material to design, manufacturing, packaging and distribution. Startups must give priority to each process in the SCM chain. Paper Boat faces issues in acquiring seasonal ingredients. This gets worse due to short shelf life of the drink. Collaboration with raw material suppliers is crucial for sustainable inflow of inputs.

5. Managing the 5 M’s

Startup must manage men, material, machinery, money, and creating and maintaining a market. A market is created when there is some differentiation among the products. Unique Selling Proposition (USP) must be identified before launching a product. This uniqueness promoted using effective public relation and advertising. Efforts must also be made to give word-of-mouth. In order to sustain the growth and demand, the company must have a plan and suitable infrastrastructure to scale up . There should be a plan to meet all additional financial requirements. The market saturates after few years and gives rise to new competitors. The demand flattens and the growth in sales comes to a steady level. This drives the company to develop and introduce a new product to the market. This new range of products must complement the existing product sales and not cannibalize it. In order to extract the maximum productivity, machinery can be utilised for multiple shifts and and more men could be employed. Proper skill training must imparted to the men. The aim should be to survive-sustain-scale up in this order.

Teaching strategy

Teaching this case begins by asking the students to go through the case before the class. The faculty can begin the class with a brief 10 minute introduction to the case. The objective of this case is not to find the optimal marketing strategy for Paper Boat, but rather to recognize the challenges characteristic to small businesses competing against giants.

VRINE Model

VRINE is the acronym of Value, Rarity, Inimitability, Non-substitutability and Exploitability. These are attributes that determine the competitive advantage of any company. The students can be asked to form groups of 4 and asked to fill this worksheet.

ResourcePaper Boat DrinksAnswers
Is it valuable?The products give a lot of benefits like restoring traditional drinks and providing a healthier alternative.Yes
Is it rare?These drinks are rare in cities.Yes. Pushing in urban areas will bring huge profits.
Does it have substitutes?Dabur manufactures very similar products under the name Yoodley.Yes. This poses competition.
Is it exploitablePaper Boat exploits the traditional nature of its products for effective marketing.Yes

PESTEL Analysis

A PESTEL analysis focuses on the external environment of the company to identify the political, economic, social, technical, environmental, and legal issues. The students can be asked to identify these opportunities and threats. This will further help them suggest ways by which the company can function profitably.

Examples are as follows:

…. An observation about the political scenario is that the Government is encouraging more and more India-based startups. Schemes like “Make in India”, “Standup India” and MUDRA Yojana can be utilized by startups enter into the startup ecosystem.

…. By examining the social scenario in India, extreme westernization has caused traditional foods items unavailable, while people still crave for them.

Questions for discussion

Alternatively, the faculty can gather the same information by asking few questions. Here are some of the questions that can be discussed in the class.

  1. What are characteristics of a product introduced by a startup?
  2. Describe some novel food startups.
  3. How can we handle new entrants in business environment?
  4. What is the international outreach of Indian food startups?
  5. What are the key challenges faced food startups? Why do they fail?
  6. Give some examples of emotional marketing.
  7. Which is better Cost-led pricing or Competition-led pricing?
  8. List some government initiatives to support startups.

Analysis of data

Funding Stats

Indian Startups get huge investment from foreign as well as Indian investors. In a year, over 300 angel investors, venture capitalists and private equity players invest in Indian startups with around INR 45000 . This makes India the most sought after startup hub for investors. Some of the active players are Tiger Global, Softbank, Kalaari Capital and Sequoia Capital.

Paper Boat could raise INR 6 Crore from N.R. Narayana Murthy-led Catamaran Ventures and Footprint Ventures and further INR 8 Crore from Sequoia Capital.

Turnover

Turnover is the net business generated by a business and profit is the residual earnings of a business after all expenses are deducted. Higher turnover does not mean higher profit. The growth statistics are shown below :

FY17FY18FY19 (expected)
Revenues₹69 crore₹118 crore₹200 crore
Net Losses₹78 crore₹44 crore

The data indicates that there has been a whopping 71% rise in net revenues generated by Hector Beverages in the fiscal year 2018 than the previous year. It also has trimmed losses by 43%.

The deterrents have been the culture shift from sugar based drinks to health conscious drinks. Demonetisation also seems to have affected the sales of Paper Boat products. The growth has been attributed to the introduction of new flavours of products like Thandai and coconut water.

Cost Issues

India being price sensitive market, selling a product priced at a premium value is difficult. As it has a high brand name value, Paperboat can sell the brand name for a Hefty royalty to a universal giant. A good example for this selling of the brand name “MTR” for a huge amount. Another example is the taking over of Good Night mat by Godrej.

Background reading

Here are few related cases the students can explore

Multimedia

Here are few innovative advertisements which portray revival of tradition as well as childhood memories.

References