Nautica

1st Round

Introduction
After regaining the rule in the state of Mahishmati, great Mahendra Bahubali and his
administration worked day and night to bring back the economy on track. Since the past few
decades, the state of Mahishmati is flourishing in the agricultural and manufacturing
industries. In 2017, when people had higher in-hand income, they looked for better
fashionable clothes and accessories. To tap this potential, few clothing companies (dealing
in Sarees and Salwar Suits) targeted market in Mahishmati and you as future managers and
change-makers have to help them in taking a few critical decisions to compete in the fierce
competition imposed by big established companies and younger/ newer firms (other players)
which aim to grow in the same segment.

About Mahishmati
According to a census of 2011, 70% of the population is under the age of 35 and the median
age of state is 27 years. Census also indicates that there are 940 Women per 1000 men in
the state.

Females in the state prefer ethnic wears (sarees and Suits) over western trends but this
trend is changing and the younger generation is looking to experiment in other styles as well.
Fashion industry in ladies segment are primarily driven by new trends and sensitive to
promotions and offers.

In the women’s wear market, saree is by large the most popular outfit in the state. Retail
value of women’s wear market in Mahishmati is estimated to be around MNR 122,600 Crore
(US$ 19.2 billion) in 2017, of which saree alone contributed nearly 33% amounting to nearly
INR 38,000 Crore, this segment is expected to grow at a CAGR of 5%-6% between 2018 to
2023 owing to increasing demand for the saree from various segments across the state.

Saree market in the state is dominated by rural market accounting for nearly 60% of the
overall saree consumption; however the revenue contribution from this segment is low and is
expected to remain low owing to the price of sarees being consumed in the segment.
Demand for silk and designer sarees is expected to witness strong growth owing to
increasing spending on these types of sarees by women in the urban regions.
The online market is one of the major reasons in the growth of sarees in the state. Since the
adoption of Sarees is majorly in rural areas where penetration on internet is increasing day
by day, this will lead to opening of a new revenue pockets for stockholders in saree industry.
The increasing penetration of Internet, the increasing purchasing power of women, high
brand consciousness and fashion sense has made e-commerce an important medium of
shopping. Brand awareness is increasing among the consumers and hence they are
exploring options based not only on the value but also on the brand.

In 2017, suits sales contributed to 25% of the total revenue from women’s wear market. This
segment is expected to grow at a CAGR of 10%-11% from 2018 to 2023 owing to the
demand of the younger generation who are looking for a replacement towards sarees. Suit
market is dominated by urban market which accounts for 70% of the overall suit
consumption.

Clothing market can be categorised into premium and budget segment. In Premium segment
customers are particular about product quality, brand image and customer service whereas
the budget shoppers includes lower middle class people and are primarily driven by the low
cost of product and durability of the product is secondary. Budget segment is expected to
grow at a CAGR of 15% while the growth of premium segment is expected at CAGR of 7%
in next 5 years.

About the Company

The company is an domestic clothing company which was introduced in January 2017 with
the vision of catering to the growing demand for fashion in the ladies’ segment. Company
manufacture clothes in both budget and premium segment and offers primarily two products
- Sarees and Suits. Company owns brands SHIVGAMI in premium segment and offers
brand DEVSENA in budget segment. Women from age 18-35 are the target customers for
Salwar Suit segment whereas women from age group 30-55 are target customers for
Sarees.

Current Scenario
According to finance department of the company, the cost associated with different customer
profiles are tabulated in Table 1.

Customer No of Customer Sales Profit

Type
Existing 100000
New

Sales distribution for 2019 among different segment are mentioned in Table 2.

Segment % sales distribution % of total profit

Budget 70 % 55 %
Premium 30 % 45 %

Promotions
In past 2 years company has employed following different promotional scheme for customer:

(i) Loyalty Discounts: Loyalty offer in which 5% of the price is discounted on 2nd
purchase. Total spend in this category is Rs 3 Million.
(ii) VIP Club: Loyal customer are offered perks like new product previews, time sensitive
deals and top class customer service. Total spend in this category last year was Rs 1
Million.
(iii) Advertising: In 2019, company has invested Rs 1 Million, in various online and
offline advertisement channel.

Raw Material
The company’s manufacturing plant is equipped with automated machinery which is
operated by skilled workers and clothes are manufactured from scratch from raw material.

Designers
It is observed that creating an in house expertise of designers helps in giving fresh
perspective about brand to customer. Fresh designs can be sold at a premium. Also,
launching new designs before other players helps in gaining early mover advantage and
helps in acquiring new customers.
On the other hand, designers charge a hefty fee for their designs and their efficiency to
create new designs is also low and we cannot always be sure if the designs will be liked by
younger generations. Currently, company does not employ any designers and follow the
market trend for latest designs. Also it is estimated that investment of Rs 2 Million can
directly improve sales up to 10%.

Logistics
Currently, third-party logistics service is used by the company to transport material to stores.
Initially, the company decided to avoid heavy investment of Rs 3 million in establishing an in-
house logistic service. Lately due to inefficiency of the service provider like - delays and
missing shipments, company had to suffer losses of around 4% of total sales.

Distribution Channel
The fashion market sales are driven by two channels online and offline. The sales are
majorly driven by offline stores (90 % of the total sale) but with the advent of e-commerce in
the last 2 years, online sales have also started to pick up.

Online channel comprises of platforms such as AmJohn, MahishMart, Snytra etc. which sell
fashion apparels among other products category online. Currently, the sales, driven from
online channel is approximately 10% but is expected to grow in the coming years. Online e-
commerce clothing sales are forecasted to grow at a CAGR of 16 % in the next 5 years
owing to increasing internet penetration in the region and wide range of products at great
discount available at door step of customer. In spite of its boom, the e-retail industry had its
share of problems. Cost of customer acquisition is very high because these firms were
engaged in deep discounting in order to acquire new customers. Also, due to high discounts
on online platforms, the profit margins are 20% lower as compared to offline stores.

In Offline channel, 30% of sales is generated from major retail stores in urban area (like
Pantaloons, Central Mall, Westside etc.) who directly procures product from our factory. 20%
of the total sale is through Company owned retail store. Remaining 50% sale is distributed
among small scale retail stores who cater to majority of rural market. These retailers get
products through area wholesalers.

Human Resource
Company working culture is manual intensive and workers in the company are not skilled
enough to manufacture designer suits and sarees. If company choose to position itself in
premium segment, then the firm does not have required talent to execute the design
provided by designers. According to study, an investment of Rs 1 Million in Staff training and
development may lead to increase in sales up to 5%.
Customer Relationship management (CRM):
CRM is an approach to manage company’s interaction with current and potential customers.
It uses data analysis about customers’ history with a company to improve relationship with
customer , specifically focusing on customer retention and ultimately driving sales growth. It
is estimated that investing Rs 0.5 million in CRM may improve sales by 5%.

Competition
Apparel, fashion and accessories market in Mahishmati was highly fragmented and
competitive. Currently, the fashion market is dominated by 5 major established firms and
together they capture 65% of total sales. Of those, 3 companies deal in budget segment and
the other 2 companies have majority of sales in premium segment.

Similar to your company, there are several other new companies (other players of the game)
which are competing for the same customer segment. All such companies are relatively
young i.e 1-3 years old.

Objective
Given the intense competition and inherent challenge associated with being a new entrant in
the market, you need to increase the customer base and enhance customer loyalty to grow
the business. As the newly appointed CMO, there are a lot of expectations for driving the
growth of the company. You, having gathered and studied the market and the company’s
past performance, have to decide the long term strategy of the organization and are required
to provide the following inputs about your total investment of Rs 10 Million for time horizon of
2 years:

(i) Which segment your company is targeting for (a) Premium segment or (b) Budget
segment (Dynamic)?
(ii) How do you want to split the investment among Offline : Online (Non Dynamics)
(iii) Distribute your spend of marketing budget among following promotional activities
- Loyalty Discount : What would you like to keep discount percent??
- VIP Club: How much would you want to invest in VIP Club promotion offer
- Advertisement: How much would you want to invest in promotion through
advertisement
(iv) How much should you spend for Staff training & development (Non Dynamic)
(v) Would you opt to create a market research department in your organization? One
time market research department would need investment of $7 Million. Market
research will provide you with valuable insights about the market which could be
beneficial to you in the long run. It’s a one-time investment. (Non-Dynamic)
(vi) How would you handle Logistics: (a) Using a 3rd party Service (b) Set up in-house
logistics for your organization (Non Dynamic)
(vii) How much you want to invest in designers? Generally, organizations spend around
5% of total sales in designers.(Dynamic)
(viii) How much would you invest in customer relation management activities??