Saturday, April 4, 2015

The Bitter-Sweet Truth of ‘Positional Monopoly’: Ten Management Lessons from the Curious but Educative Case of SKS Airport Sweet Stall

Positional monopoly occurs when a retailer is exclusively present in a geographically defined marketplace. The classic case is that of Higginbothams, the famous heritage book store that has its book stalls in several railway stations of India. While books can be purchased anywhere and anytime, the exclusive positioning of the bookstalls without any competition and the impulse buying by passengers to spend time in long journeys create positional monopoly for such bookstalls. Food catering by the sole catering agent of the Indian Railways, IRCTC, in railway trains is another example. The same can be said of sole selling shops that are situated in isolated areas, say a ‘kirana’ shop in the Himalayas!

Positional monopoly occurs at a product level too. Certain retailers may choose to stock only one brand of a particular class of products forcing customers to buy that product as part of a larger bundle of products from that retailer. Similarly, certain manufacturers may choose to retail their products only through certain channels (including only e-platforms). Positional monopoly makes customers forsake their brand loyalty in favour of purchasing convenience or inevitability. Positional monopoly gets reinforced when the demand for a product is a natural and integral part of living/social culture and the demand can migrate from one brand to another easily. Positional monopoly does not, however, mean that there would be unbounded demand. This blog post attempts a study of positional monopoly through the case optics of a famous sweet shop of Chennai, and develop some key management insights.

Sweet tooth

Most Indians have a sweet tooth. They also have a fascination for ‘branded sweets’ and ‘signature sweets’. In Chennai, famous sweet houses such as Aggarwal, The Grand Sweets & Snacks (GSS), Sri Krishna Sweets (SKS), Archana Sweets and Adyar Ananda Bhavan (AAB) are some of the branded sweet houses, with an amazing array of mouth-watering sweets. All these houses have their signature sweets, Aggarwal’s Jangri, Grand’s Fruit Halwa, SKS’ Mysorepa,  Archana’s Badam Halwa and AAB’s Sonepapdi are some such signature sweets. Of course, in each case, the formidable range of sweets is accompanied by an equally tasty set of snacks. In this respect, GSS probably is the best known brand. Like geographic indicators, the sweet houses have their locational niches in important shopping districts, with distinctive taste profiles.

While the sweet houses have their proprietary and distinctive tastes and flavours, they have no monopolistic power. They have their loyal customers but they are substitutable too. If one were to imagine a situation where only one of these sweet houses were to be present, it stands to reason that all the demand of the four brands would flow to the monopoly brand. That is the sweet pulling power of the four distinctive sweet houses! In recent years, SKS embarked on a store positioning drive that positioned SKS retail shops in traffic flow spots such as airports and fuel delivery stations. Of these, SKS sweet stalls in the Chennai airport are unique and distinctive, and strategically positioned with high visibility. The ideal situation of ‘positional monopoly’ has thus been secured by SKS. It thus offers an interesting case study to understand the nuances of positional monopoly.

Tested taste

SKS sweet stalls are situated, one each, in the arrival and departure halls of the Chennai domestic terminal (Kamaraj Terminal). They are small, compact stalls offering the full portfolio of sweets and snacks, in ready to carry boxes as well as in open trays for on-the-spot assorted selection and customized packing. SKS has also made special efforts to cater to the perceived unique needs of air travellers by offering special multi-product packs and ready to eat foods as well. Some of these custom packs are not available in downtown city stalls, presumably. All the products in the airport stalls are served in a hygienic manner by courteous staff. The stall also provides flexibility to have packs of just one or two sweets. Customers are even provided with a generous opportunity to test the taste of different products, a unique customer-friendly feature of SKS in all its locations!

Given the sweet tooth that passengers have, the special role sweets play as gifts by travelling public, the service atmosphere created, and the general demand portability for sweets across brands, the positional monopoly should have secured a demand of several thousands of packs to the SKS airport stalls. That is because the domestic terminal handles 9 million passengers approximately in a year, which works out to approximately 25,000 passengers per day. In marketing and sales management, brand recall and footfalls are considered essential to generate sales. SKS stalls which capture 100 percent eye falls and are grazed by thousands of walk pasts are ideally positioned for maximal footfalls and hence for maximal business, reaching up to as many passengers as handled by the airport, at least in a theoretical sense. 

Bitter-sweet position

In contrast to the above positive indicators of positional monopoly, however, not more than a couple of hundred packets are possibly sold in each of the SKS stalls in the airport on a daily basis. The high brand visibility and the excellent product range of SKS in a uniquely exclusive airport positioning is contrasted, unfortunately and surprisingly, by weak sales. Applying some general management and industrial engineering principles, certain factors can be identified for the bitter-sweet result. Firstly, strategic positioning for effective sales is more important than visible positioning for branding. The stall in the departure hall is located near the gates before the check-in counters and before the security area. Fundamentally, the departing (boarding) passengers would be in a preoccupation to take boarding passes and in a hurry to undergo security check rather than purchase sweets in a languid manner. Clearly, if the sweet stall in the departure hall is located in the pre-boarding waiting lounge there would be a greater possibility of relaxed purchase. 

Similar positioning issue affects the sweet stall in the arrival lounge too. The arrival sweet stall is located near the exit gates after the taxi booking counters. Here again, fundamentally the arriving (homebound) passengers would be in a preoccupation to get into their cabs once the cab booking is done rather than purchase sweets delaying the homecoming further. Clearly, if the sweet stall in the arrival hall is located in the baggage claim area, there would be a greater possibility of purchase while the passengers wait for their baggage. To aggravate the issue for the arrival lounge stall, the choice of sweets is decidedly inferior to what exists in the departure stall.  The arrival stall, on the contrary, should have a much better USP than either the pre-boarding departure stall or even the city stalls (as the homebound passenger could always think of the city alternative). The lesson here is that positional monopoly by itself does not confer any significant advantage unless it is strategically secured and creatively deployed to be effective.   

ML-PL-CL-AL business model

Every business (in fact, every human endeavour) would have a maximum level (driven largely by the total customer universe), a potential level (driven largely by customer demand preferences), a constrained level (in fact, most times self-constrained by infrastructure and organization!), and an achievable level (which may work best when it is also aspirational). The case of SKS sweet stall illustrates the point tellingly. Given that 25,000 passengers pass through the Chennai domestic airport daily, the potential for SKS is to sell as many as 25,000 packs at least. However, demand preferences and perceptions on time trade-offs as discussed above set a potential business level which can be quantified only by consistent consumer research. This can lead to a figure higher or lower than the magical 25,000 mark. Let us assume in this case that it would lead to a potentially lower level of 12, 500 (50 percent of the maximum). Here comes the catch; most businesses and organizations are not set up to capture even the potential business; they are self-constrained by their own infrastructural, operational and organizational templates!  

Take the case of the airport sweet stall. Combining both the departure and arrival stalls, it has four dispensing and billing customer sale points. The stall itself can accommodate only two queue lines, keep in mind also that every customer would have luggage with him or her, making the queue lines complex and making it difficult for more people to join. Each selection by the customer from the look to delivery through all the steps of iterative choice, communication, packing, billing and payment takes on an average five minutes. As a result, every five minutes four packs can be delivered (because we have four customer points in the aggregate). Assuming that the stalls are run round the clock 24 hours (which is not a reality, and also is not relevant as domestic flights do not operate round the clock), we have 288 slots of five minutes each. Given the delivery rate of four packs every five minutes, the feasible number of packs that can be delivered on any day is only 1152, which is 9.2 percent of the potential daily business and just 4.6 percent of the maximal daily business.

Various other logistical and behavioural issues would determine if even the constrained business of 1152 packs can, in fact, be achieved. This could relate to queue lines not accommodating more than a handful of passengers, mismatch between flight times and wait times, bunching of flight and people arrivals and departures, mismatch between customer wants and sweet availability, and the need for sales personnel to have rest times and breaks. The achievable business would be clearly lower than 1152 packs, and it is not, therefore, surprising that the sweet stall manages to sell no more than half of even the self-constrained demand. Clearly, there could be limitations (imposed by the airport authorities or the leasing charges) in terms of owning a larger space that accommodates additional display space, more queue lines and more billing points. But, the ML-PL-CL-AL Business Model illustrates how the typical businesses are planned to inherently operate hugely below their maximum potential and what can be done to bridge such huge gaps.

Ten management lessons

The objective of the blogpost (and the embedded case study) is not to discuss SKS Sweets per se, a respected and efficient entrepreneurial institution in its industry, which is run on professional lines but is to develop certain insights as to how businesses are unknowingly planned, established and operated not to reach their full potential (and, in some cases, even to fail!). For all we know, SKS airport sweet stalls may have been established just to establish brand visibility and not with business economics in mind. Again, as with all case studies, quantitative or qualitative factors are less important than the concepts and insights such analysis brings out. There are several management lessons that can be gleaned from the case study. Firstly, as illustrated by the study of positional monopoly, monopoly by itself does not guarantee a maximized business. Several strategic and operational positioning initiatives are required to achieve the full potential of even a monopoly.

Secondly, the total market ecosystem should be thoroughly studied to determine the maximum as well as other demand levels. The ML-PL-CL-AL Business Model suggested in this blog post provides a powerful tool for the study. It could be a real eye opener in terms of what can be achieved.
Thirdly, it is important to realize that even apparently well-established or well-run operational models tend to have significant unseen and unknown constraints that severely limit business realization. Industrial engineering and business management principles must be utilized for an introspective analysis and improvement actions. Fourthly, customer connect is a vital factor, whether for physical or virtual businesses. In this case, for example, a simple repositioning of stalls could provide higher customer connect and better business while signature packs, advertised in advance for their features, could minimize the transaction times. Fifthly, there would always be additional lateral solutions even if constraints cannot be avoided in toto. For example, the sweet stall can be a part of an SKS restaurant in the airport. Or, SKS may enter into alliances with select other food points in other strategic locations of the airport to display and sell at least the signature SKS packs. 

Sixthly, ‘silence’ even in respect of known institutions and visible brands is not an acceptable marketing option; active marketing, including market research, is essential for all types of firms and all kinds of brands. Seventhly, in today’s context, a networked business can provide a huge competitive advantage. For example, a departing passenger can be facilitated to log in his product requirement ahead of his travel which is delivered fresh at the airport neatly packaged as desired at the time of departure; or, an arriving passenger in a hurry may be encouraged to leave his request at the arrival sweet stall which is delivered at his home by one of the city branches nearer to the customer home. Eighthly, a business maximization approach needs, more than numbers, the right business and operational insights. As can be seen from this case study, a simple retail outlet can throw up valuable management lessons.  Ninthly, the right business insights would never develop from complex boardroom models; they result from simple ‘gemba’ (real place) observations by open minds. And finally, there can never be a limit to improvement; it is a continuous and perpetual process (‘kaizen’)!

The author feels grateful to Sri Krishna Sweets that their progressive gesture of a presence in the Chennai airport has inspired the author to develop a novel approach to study of monopolies, customer connect and business development, with an integrated and holistic model and present important management lessons.

Posted by Dr CB Rao on April 4, 2015

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