Why Havells fans market strategy reminded me of Michael Porter
How I discovered Porter when reading the story of Havells founder Qimat Rai Gupta
I recently read a book about Havells founder Qimat Ray Gupta (QRG) - an Indian entrepreneur who founded Havells in 1958 and grew it to a successful Billion dollar electrical equipment company. The book has a chapter about how the CEO planned the strategy for entering the fans market. Though the chapter does not mention Porter, I could not stop thinking about how the strategy formulation process followed a close application of Porters’ famous 5 forces framework and value chain framework.
Understanding competition
Michael Porters’ most famous 5 forces framework helps understand competition. The key elements of this framework are:
bargaining power of suppliers and customers
threat of new entrants and substitutes
industry competition
In the case of Havells, QRG started by setting up a small team in 2001 to study the prospects and device the entry strategy.
Industry competition consisted 6 major brands - Crompton, Usha, Bajaj, Orient, Polar, and Khaitan. Notably, since 25 years, there was not a single new brand.
Threat of new entrants was high due to the unorganized sector (non-branded fans) selling at rock-bottom prices.
There was no precedence for a large market share of customers willing to pay a premium price for a fan brand based on higher quality.
The key learning was the majority of competition was competing on low margin, low price, and high volume. Only one competitor was positioned on premium pricing without a huge market share.
Positioning relative to the competition
Michael Porters’ value chain framework helps to position product relative to industry structure and/or competition. The key elements of this framework are:
Create demand by offering a unique value proposition to customers
Satisfy demand by tailored value chain (test value chain for trade-offs, fit, and continuity)
In the case of Havells, QRG decided to position the product uniquely to differentiate it from the competition and offer customer value.
Demand - The unique value proposition offered to customers was fans with visual elegance and high quality driven by creative designs, low power consumption, high performance, comfort, safety, and durability at a premium price. QRG also bet on the demographic shift happening in India and the growing ability and willingness of Indian customers to spend on premium products.
Satisfy demand - Havells built a unique value chain to deliver on the value proposition. Unlike some other competitors, Havells built a completely integrated plant rather than outsourcing parts. To manufacture high-quality fans, best-in-class machinery was imported from Germany to India. The blades of fans were built from the highest quality aluminium available in the market. A competitor was acquired to buy into the distribution network as fans were sold via distributors and not directly to customers. Another innovation of the value chain was offering after-sales service directly to customers. This innovation saved the dealers a lot of headaches to handle customer complaints and provided much-needed direct insight into customer feedback. As a result, the dealers were also willing to push the Havells brand to customers over other brands.
Havells has today emerged as one of the fastest-growing, most trusted, and amongst the top two players in the country. The company is estimated to have a market share of about 19 percent.
Pervasive Porter
Michael Porter's frameworks are a powerful part of any product leader's toolkit. I continue to be amazed by the timeless frameworks introduced by Prof. Porter 45 years ago that are every bit useful and relevant to various industries until today.
(Photo by Felix Mittermeier on Unsplash)