Merging low cost brands with high cost brands – a risky proposition

Sometime back I had read an article in Mint that Tatas are interested in buying Jaguar and Land Rover brands from Ford. Vaishali jajoo of Angel Broking Ltd. raised a very valid issue by saying, “They (Tatas) don’t have the experience in managing such brands. Tatas overall portfolio consists of low-cost products and I don’t know how they will leverage the distribution network.” Imagine mixing Indica taxis with Jaguar.

Now jokes apart, there are two issues related to such acquisitions. One is related to marketing issues like positioning and distribution and the other is related to operations.

First, lets talk about the marketing issues. How can the same company expect to sell a high value luxury product and at the same time sell a low value mass product. In the case of cars, this is common. For instance, Ford and GM do sell cars across all markets. However, Tatas do not have the expertise, image or reputation in the world car market as Ford and GM have. As such, it would be difficult for Tatas to manage marketing including distribution of Jaguar and Land Rover along with Indica.

We have also seen that Jet is struggling with its acquisition of Sahara airlines and the same is the situation with Air Deccan and Kingfisher. Both of them were not very clear as to what they should do with their acquisitions. Vijay Mallaya has shortened the name of Air Deccan to just Deccan. He has removed the inconsequential part of the name, that is, “Air” which a number of airlines have before or after their name. The colors of the two airlines are the same and even ticket will be sold from the same counter. For all practical purposes, I feel Air Deccan has already merged with Kingfisher. Now why would a customer fly Kingfisher instead of Deccan if he knows that the all the backend operation of the two airlines are the same. Will there be any cannabalisation in the revenues between the two airlines. In any case, slowly and steadily, Vijay Mallaya will keep raising the fares and level of service of Deccan and then one day announce the merger formally. Mallaya is not merging the two airlines as he wants his option to fly international open with Deccan. I think the same will happen with Jetlite and Jet..

Lets look at operation problems. Can you think of Vijay Mallaya running anything “low cost” let alone an airline? I can’t.

What about the processes of the running a low cost airline and a premium airline? What about the culture? Both Jet and Kingfisher have faced problems with this respect.

So the question is “Is it a good idea for a premium product company to acquire a low cost mass product?”

Avinash Narula

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Comments

I didn’t know how I could give an update on my earlier article so I decided to use the “Leave a reply” facility.

It seems that either Vijay Mallaya is reading my blog or both of us or on the same wavelength. I wrote in the above article on 18/10/2007 that slowly and steadily will merge the two airlines and on 23/10/2007, the press reported that Deccan has announced a number of customer centric initiatives including telecheck-in facility, a new refund/cancellation policy, hot meals at a nominal charges and leather upholstry. Don’t you think that Vijay Mallaya is slowly and steadily reducing the gao between the two airlines in terms of services and pricing. Once the gap is marginal, the objective of running two different airlines is reduced considerably. On the other hand, if customers can get ontime delivery and service levels guaranteed by the UB group at low prices then why would customer travel by Kingfisher resulting in cannabalization of sales.

So lets see what happens as we keep an eye on Vijay Mallaya.

Avinash Narula

Reply

Great! Thank you very much!
I always wanted to write in my site something like that. Can I take part of your post to my site?
Of course, I will add backlink?

Sincerely, Timur Alhimenkov

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