What Makes Titan Tick?

Finding Opportunity in India's Unorganized Retail Sector

Titan Industries -- India's leading watch manufacturer and the world's fifth largest -- recently fired a fresh salvo in the
watch market. In September, the Bangalore headquartered US$760 million Company made its very first foray into
the world of plastic watches with a new range called “Super Fiber”. A trendy and youthful collection of both analog
and digital watches, the Super Fiber range is part of Titan's mass-market Sonata brand. However, unlike the rest of
the Sonata brand, which has watches priced up to Rs. 1500/-, the entire Super Fiber range is priced below Rs. 600/-.

With this new launch, Titan is taking dual aim. On the one hand, it is looking specifically to target mass-market
consumers in the 16 to 25 age group. Perhaps more importantly, it is also looking to make fresh inroads into the
country's huge "unorganized" retail sector -- including corner shops, kiosks, street vendors and other single
proprietor venues -- which traditionally has been dominated by cheaply made, value-priced goods.

Although organized retail has taken hold in India -- with large, "modern trade" stores offering a more sophisticated
shopping experience, better selection, competitive prices, and formalized return and exchange policies – the
unorganized sector isn't going away any time soon. At present, unorganized outlets represent 97% of Indian retail,
and according to a 2008 report by the Indian Council for Research on International Economic Relations, the sector is
expected to grow at an annual rate of 10%, reaching US$496 billion in 2011. Based on that analysis, Titan's strategy
seems timely. But a question remains: How does it plan to succeed in a market segment where bargain prices and
cultural associations often outweigh brand cachet? "The sub-$10 watch market in India is flooded by cheap Chinese
imports and low-quality domestic products. The value we bring to this segment is high quality and exceptional
styles," explains Bhaskar Bhat, Titan's managing director.

Harish Bhat, chief operating officer for the company's watch division (Titan also manufactures jewelry and other
products), explains that, unlike the low-quality plastic watches currently available in the market at this price point,
Super Fiber watches offer superior performance and durability. The straps are made of polyurethane and the cases
are ABS (acrylonitrile butadiene styrene), making the watches more flexible, fall resistant and water resistant.
Despite its low pricing, the Super Fiber range also comes with a one-year replacement warranty. "Our global
sourcing and economies of scale give us a significant price advantage and enable us to offer an easy entry for
consumers to the branded world at this price point," he says.

Bhaskar and Harish expect Super Fiber to play a key role in doubling Sonata's sales from five million watches a year
at present to 10 million watches per year over the next three years. This will make Sonata, which is currently India's
largest-selling watch brand, one of the largest-volume watch brands in the world.

They have reason to be confident. The Indian watch market is currently estimated to be around 42 million units, of
which only 15 million units are from the organized-retail players. Among the organized players, Titan leads the pack
with a lion's share of around 11 million units across its watch portfolio of four brands: the flagship brand Titan
(addressing the mid and premium segments), Sonata (the budget segment), Fast Track (the youth segment) and
Xylys (Titan's top-end, Swiss-manufactured brand). The second-largest branded player in the Indian watch market is
Timex, with a market share of around 7%.
The sub-$10 category that Titan is now targeting with Super Fiber accounts for around 40% of the market in terms of
volume. With over half of India under 25 years of age, Titan's game plan is to catch them early on in the value chain
and then get them to upgrade to its higher-value products.

A Cricket Connection

Titan is targeting Super Fiber sales to come in mainly from the semi-urban markets -- and in keeping with its target
group, the company has roped in Mahendra Singh Dhoni, the young cricketing icon who hails from the small town of
Ranchi in Eastern India, as its brand ambassador. S Ramesh Kumar, professor of marketing at the Indian Institute of
Management, Bangalore, points out that at the lower end of the price spectrum, cultural aspects unique to the
Indian context and value perception are important for brands attempting to break into the unorganized sector.

Kumar cites Fair & Lovely "fairness" cream, Parachute hair oil and Tiger biscuits as examples of brands that have
used habits and beliefs that are unique to the Indian context. "Being fair is beautiful, coconut hair oil for healthy hair
and eating biscuits with tea are some of the beliefs and habits associated with consumers in the Indian context, and
these brands have successfully used these beliefs [to create] an appropriate value perception among consumers."

Kumar adds that value perception is applicable to both quality of offerings as well as the pricing aspects, and he
points out that all three brands have low-priced sachet packing as stock keeping units. "Titan's low-priced model,
with its cricket-based celebrity associations, is another example of how a brand combines value perception with
culture," he says. (Cricket, as is well known, is an intrinsic part of Indian culture.) Titan's associates see the
company's move in this space as hitting a sweet spot. "Coming from Titan, Super Fiber assures quality and style --
both of which are currently lacking in this price segment. It has the potential to redefine the low-end, unorganized
watch market in India," says B.K. Singhania, a partner at Bangalore-based Arun Distributors, a long time distributor
of Titan watches. Redefining the market in fact is pretty much core to Titan's success since its inception in 1987. At
that time, the watch market comprised primarily mechanical watches, and the government-owned Hindustan
Machine Tools (HMT) was the only significant branded player. HMT's watches stood for accuracy and robustness --
and for the consumer, the sturdy watch was just a functional time-keeping device.

Titan entered the market with two key differentiators: One, it brought in quartz watches, which it promoted
aggressively, and two, it introduced the element of style -- which until then was missing in this segment. There were
other firsts, too, that Titan introduced in the watch market: It ushered in a completely new retail experience,
brought out advertising with aspirational value and offered after sales service in a showroom environment.

With the entrance of Titan, the watch got transformed from a humble time-keeping device to a style statement and
a fashion accessory. According to Harish Bijoor brand consultant and chief executive officer of Harish Bijoor Consults
and visiting professor at the Indian School of Business: "Titan changed the paradigm in the watch market. It was, in
fact, one of the first Indian brands to realize that differentiation is the key to success." Adds Santosh Desai, chief
executive officer of Future Brands, a subsidiary of the Future Group: "Titan has the ability to bring in a certain
amount of newness of thought into existing categories. Titan's decision to come in only with quartz, for instance,
was a very brave one," at a time when nearly all Indian consumers were familiar with hand-wound watches.

Fragmented Categories
Desai points out that a brand attempting to be among the first branded presences in a fragmented category must
first justify why the category needs a brand in the first place. "There are good reasons why categories don't have
brands. It could be the artisan aspect of the category, like in the case of female ethnic garments, or deep personal
relationships like with jewelry, or it could be the sheer price aspect like in commodities. You need to redefine the
market and create a value perception of a different kind that gives the consumers an overriding reason to shift to a
brand."
This is exactly what Titan did when it entered the jewelry market in 1994 with its Tanishq brand. Tanishq not only
brought a wide design expertise and a plush retail environment to a segment which until then was limited to local
family jewelers and small set ups, but by being the first to introduce the karat meter to measure the exact purity of
gold, it brought the element of trust to the forefront. Before Titan, 'trust' between the consumer and the jeweler
was a factor of personal relationships. "The reassurance of guarantee and purity in such a transparent manner was a
great new value addition that Tanishq brought to this category," says Desai.

While there are strong city-specific players like Ganjam and C. Krishnaiah Chetty in Bangalore or G.R. Thanga Maligai
in Chennai, Tanishq, with sales of US$450 million is the only significant national brand. The jewelry market in India,
estimated to be around US$15 billion to US$20 billion, primarily comprises a host of small players. C.K. Venkatraman,
chief operating officer of Titan's jewelry division, says that Titan has adopted a double-pronged growth strategy for
its jewelry business. In the metros and larger cities where the Tanishq brand is well established, it is working at
increasing its reach by becoming more accessible. In the past three years, it has doubled the number of Tanishq
showrooms from 60 to around 120. Simultaneously, it is also reaching out to the semi-urban and rural markets
through a separate mass-market brand called GoldPlus, which it launched around three years ago. Titan currently
has 30 GoldPlus stores in South India. Over the next couple of years, Venkatraman plans to expand the GoldPlus
showrooms in very small towns across the country. Interestingly, Titan has not associated the GoldPlus brand with
Tanishq. Instead, it is drawing strongly from its parentage as a Tata-owned company, positioning the brand as
'GoldPlus from Tata.' Venkatraman explains why: "Tanishq is still a young brand, and its awareness is limited to the
larger cities, but the Tata brand is over 100 years old and is synonymous with reliability and trust. It is known
everywhere." According to Venkatraman, while Tanishq will play on the style platform, in the case of GoldPlus the
primary focus will be on value. Bijoor, however, questions this strategy: "Over the next eight to ten years, even the
smaller markets will go the Tanishq way. So why not look at taking Tanishq itself to the smaller towns and do
evangelical work there?"

Eyeing Other Territories

Meanwhile, Titan is now looking to bring the power of the brand to yet another unorganized category: Last year it
entered into prescription eyewear with Titan Eye+. The prescription eyewear market in India is estimated to be
around 25 to 30 million units per annum with revenues of US$300 million and growing at around 15% to 20% per
annum. As per industry statistics, only around 25% of the people who need prescription eyewear are actually using
them.

Despite its size and growth potential, however, this is another industry that is largely fragmented. While there are
some strong regional branded players like GKB and Lawrence & Mayo, there is no large national player in this space.
It is this opening that Titan is aiming to fill with its Titan Eye+.

Like in watches and jewelry, Titan's play in eyewear is based on trust, design and retail. In the year-and-a-half since it
has entered this space, Titan has opened 30 stores across 12 cities, and over the next three years it plans to open
around 250 stores across the country. Unlike traditional 'across the counter' optical stores, the Titan Eye+ stores are
styled on a browse, select and buy format where the customers are offered a wide range of frames and lenses
comprising both in-house as well as global brands like Gucci, Armani, Essilor, Bausch & Lomb and so on. Each store
also has a style consultant and a state-of-the-art optometric clinic that promises zero error prescriptions free of cost.

Ravi Kant, chief operating officer, eyewear division, points out that even though global lens brands like Essilor are
present in India, customers typically leave the choice of lens to the optician. "There is no transparency in the
prescription eyewear market in India, and the customer typically has no clue what he is paying for," he says. Kant
adds that as in the case of watches, in eyewear Titan's focus is on positioning the product as a style and fashion
statement and driving multiple [purchases]. "Eyewear is no longer about just seeing well. It is also very much about
looking good and it is fast becoming a lifestyle product," says he.

The lifestyle space, in fact, is where Titan is looking to make a larger play. Having tasted success in watches and
jewelry and forayed into eyewear, Titan now wants to leverage its strengths in manufacturing, design expertise,
retail knowhow and brand building for other lifestyle products. It is actively researching new categories that it can
enter. Titan is also looking at expanding Fast Track, its youth brand comprising watches and sunglasses, to other
accessories like belts, bags and so on.

Bhaskar Bhat is, however, emphatic that Titan will not enter any category where the opportunity to compete is only
on price and product quality alone. Says Bhaskar: "We have always chosen to enter segments where we saw that
the consumer was being significantly underserved. In watches, it was lack of choice; in jewelry, it was
undercaratage; and in eyewear, it was lack of information. In each of our businesses, we have focused on offering
sharp differentiators, and the greatest consumer opportunity to differentiate comes in the unorganized sectors."
Desai of Future Brands expects that over the coming years, more and more unorganized sectors will in fact see a
brand play. One key driver of this, he says, will be the fast-growing modern trade format. Traditional Indian stores,
he notes, are like "cupboards," where only a few items are visible and consumers cannot access them directly.

Typically, it is the shopkeeper who mediates. The modern trade format, on the other hand, offers the consumers the
opportunity to build a direct relationship with brands. "The moment modern trade opens up, the number of brands
that a market can handle goes up dramatically," says Desai. Citing the example of the female ethnic wear category,
Desai adds: "Earlier, there were very few national retail chains which could offer controlled distribution, and that
made it very difficult to set up a national brand in female ethnic wear. With modern trade opening up, it will be far
easier for categories like these." Desai sees Fabindia, which has a chain of 97 stores across the country, as one of the
first national brands emerging in this space.

Pointing to examples like radio-cab service Meru Cabs and household services provider Handiman Services, Richa
Arora, founder and chief strategy officer of Five By Six Consulting, notes that services is an area where one is likely
to see a lot of branding soon, especially in the metros. According to Arora, who has earlier worked with companies
like Britannia, Balsara Home Products and FCB Ulka: "Across categories, the consumer is fed up of the low level of
service. He is now more aware and more demanding, and this makes it conducive for brands to emerge in the
services sector."

According to Bijoor a nation gets hungry for brands when its economic profile has an equal proportion of the
"haves" and the "have nots". "Currently, around 35% of the Indian population is prosperous, while 65% is non-
prosperous," he says. "Typically, it takes over two decades to build a strong, ubiquitous brand. With India moving
towards higher prosperity, this is the right time to start building more evangelical brands in India."