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RAJKIRAN Jain stood a little away, taking in the conversation between his father
and a family of three that had come to Neel Kamal Electronics (NKE) to buy a CD
player. The visiting father and son seemed to debate on brand and store. "That is why I
told you to check first with Jain

Êthe father was heard telling his son at one point.
"He always advises wisely; you will never go wrong" Rajkiran moved towards the
window, deep in thought. More and more customers were telling him NKE was very de-
pendable. Yet NKE sold nearly the same brands as the others down the road, charged
prices that were well within prescribed margins, but ensured the customer got a good deal.
NKE, with its average looks, somehow had a distinctive appeal and advan tage in the
minds of these customers. Most of them usually said: "We feel safe when we shop
here«.. we have never regretted our b u y s « . "

Raj had spoken about this often to his younger brother, Pavanraj, an MBA student. "I
think, somewhere we have come to own an advantage, an attribute that customers do
not find in other stores," he said. "Yet, it is nothing tangible or unique that others cannot
provide. Point is, they wander, browse in other stores too, but eventually buy at our
store."

"It's something like a differential advantage," said Pavan, "though in our case, it appears
to be a soft advantage, service - related, image-related..., but worth encashing. The thing is,
there is a perceivable difference we have, which causes customers to re turn to our store.
You need to cash in on this and make it our brand, our unique selling proposition." But
Raj was not sure what that special difference was, al though he agreed it was a soft
attribute, an aggregate of goodwill, lineage, service, credibility, etc. Whatever it was, it
seemed to make NKE irreplaceable in the perception of his customers.

Pavan was clear it was time for NKE to examine its 'special effect' on people and use that
to consolidate its position in the dynamic marketplace. "Today the retailer is far more
critical than being a mere bridge between manufacturer and consumer," he said. "I do think
retailing in durables is soon going to see a huge redefinition in India. Are you prepared for
that?" That depressed Rajkiran more. "How is that going to translate into growth for us?"
he asked Pavan. "How is will NKE double its size?" For, the manufacturers whose brands
he stocked and sold ² Whirlpool, Philips, LG, etc., often told him: "Organized retail is
coming, you have to start running your business better' "What does this mean?" he
asked Pavan.

"That means," said Pavan, "you need to build NKE as brand, where the products are not im-
portant, but where the store itself becomes a brand. Like Nalli Saris, Barista Coffee,
Crossword bookstore, you're a mini brand in your own right, where the consumer shops
for the assurance of the store's proven quality, known sales service and credibility on
many other counts. Sometimes this comes from sheer habit consequent to location,
as it happened with many kirana stores, but that convenience also leads to a preference
to shop at that store than anywhere else. The point is, you now need to sustain that
preference because today neither is location a barrier to entry, nor is the consumer
immobile."

Rajkiran understood all this better than learned managers, because he had grown up
watching his grandfather, uncle and his father work on the store. While he sat in a
corner and did his homework, his ears picked up valuable store management insights,
values on customer building and service;' on vendor management and a lot more. And
his ears also picked up cus tomer chats, complaints, his father's re sponses, his
grandfather's counter arguments, his uncle's arbitration and when the sound of voices
trickled to an amiable tone, he usually looked up and saw the customer leave with a
smile on his face. Therefore, today in his mid 30s, with the advantage of more
sophisticated reading material at his di sposal, he knew deep within himself that his
store, Neel Kamal Electronics, was a virtual brand name. Wasn't that why his uncle had set
up his own store in Andheri and called it Neel Kamal Electronics?

Which was why two years ago, Rajkiran established more formal HR practices at NKE:
bought computers, built a very sophisti cated database of his consumers, spending
valuable time and money to track the old ones who had moved, to go back as far as 30
years. On the vendor side, he gave a fair share to each of the brands he stocked. And
Rajkiran never let them down. Not happy with three stores carrying the name Neel Kamal
in Mumbai, Raj now pondered seriously the idea of franchising his store name to smaller
shops. "That's the only way I can grow!" he said to Pavan. "I have expanded the breadth
of my portfolio and am now also selling computers, but I do not want to travel beyond
durables."

Said Pavan: "When a company which originally sold in a given region wants to go
national, that is, make the whole country its market place, it invests in brand built. And
that is exactly what you need to do. To support this franchise idea, you need to do some
structured brand building."

But Rajkiran was already a step ahead, without knowing it. "I have already been doing
some work like that," he said. "I have considered promotions, advertising, internal HR
acceleration and higher salaries." For, Rajkiran was hugely ambitious for NKE. He had seen
his father and grandfather, Tilakraj, slave over the business, but the returns never seemed
commensurate. In the retail business, he knew growth could only come through multiple
stores and that was why he thought so hard about franchising and acquisitions. The family
was wary about his dreams, but Raj was quite confident And, to some extent, so was his
father. He was keen to spread the Neel Ka mal name across the breadth of Maharashtra and
even MP. "We must start owning a sizeable share of the market; how else do we take
NKE further?" reasoned Rajkiran. Ramanraj, his father, shared some of his optimism.
Having built the store during the 1970s, he had not dared to dream. But now his son's
generation was raring to go. They saw altogether new possibilities in the market; why, Rajki -
ran and Pavanraj were now talking of building NKE into a brand like Coke! Pavan was away
in college, but Raj was talking to consultants, making plans to renovate the store, air -
condition it, hire English-speaking staff ...all of which was adding up to a neat sum of Rs
2 crore, not to mention the advertising and publicity.
The whole idea appeared preposterous to the grandfather, Tilakraj, who said: ³All this is
a waste of good money. Ever heard of a store becoming a brand name? Where is the
money going to come from?"

But Raj reasoned with his father, "For me to build a brand and take it to multiple stores, I
have to make money from the customer, even if I get bank financing. The cost of brand
building, which I have to load on to my customers for the next five years, comes t o 1-2%
of product cost. If I don't load it, then in the process of brand building I will kill my own
firm!" And to Jaideep Vats, the consultant and Pavan's friend, he pleaded, "I have this moral
dilemma; I value my father's word tremendously and he values his father's word just as
much. That's how we are. Now we have these customers for 30 years for whom I did the
best deals. Now I am saying I need to have a brand, whereas dad never felt the needed to
have a brand name. So do I load the price, not load the price, should I forget brand build ing,
or in the process of brand building, will I end up axing my own feet since my customers
won't accept this glossier, more expensive avatar of Neel Kamal Electronics? At least that's
how father thinks."

Said Jaideep: "You have such a good name in your city, that your kind of consumers
won't mind paying that 1%."

But Ramanraj had his arithmetic in doubt. "If I did not do brand building, I would have
charged Rs 10,000 for a product, but because Neel Kamal has decided to do it and with
blind faith you come and buy from me, I charge you Rs . 10,200. u
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Ê...customer may not notice it at first, or even not at all...but it goes against my
grain...it is very nice to say go and build your brand, but it will be at the customer's
expense! So how do I justify it? I understand that there is a rationale for building
brands; otherwise worldwide people won't be doing it. Now you tell me what I should
do."

Simply, the father was asking 'How do I continue to say that I am giving best value for
money when, in reality, I am charging extra to pay for brand building?' But manufacturers
had always built the cost of brand building into the product price; it was an accepted
norm, but to say it ran counter to business ethics?
THE ethical issue was that there would be a segment of customers that would pay for the
brand building. After the costs were recovered, there would be a segment that would not
pay for it. But if for the sake of irresolvable contradictions he were to continue charging
the premium, he would end up profiting irrationally. And Ramanraj was unable to
differentiate between the two. Therefore, was there a way in which he could put that back
into the customer's pocket so that the. customer gained? As father asked: "When after six
or seven years I have recovered my investment in brand building, should I start charging
less?"
Jaideep felt more confused as father stated the issue. As far as he knew, brand building was
an ongoing process, not a one -off exercise. Soaps, toothpastes, detergents all of them built
a brand, invested in brand building, but it never ceased. Then it was re launch, reposition,
refurbish..., so it went on. But father now said: "My NeelKamal brand was built over the
years without my spending on it. All I spent so far is emotions. I knew my audience was in
the city, not beyond, so I worked on local sentiments, local needs, desires, drives, habits. I
put up huge stalls during Ganesh Pujas, Navratris... My customers knew they could
always expect a fair deal from me. I passed on all company promotions to them, did
repairs and after-sales service as expected, delivered goods at my cost, gave them product
demos even when the company did not provide me with a demo product, and so forth.
Periodically, I even discounted a product when a customer bought two or three items and
budget was a constraint for him. On that kind of brand build ing I have always spent, if you
call it expenditure; now my brand name Neel Kamal is well known.
"Today you are suggesting a front-end brand-building exercise. It appears a bit mixed up.
I did it all along unconsciously, did it because it was good for my customers and over the
last 20-25 years the brand name was built. Otherwi se how would people come to me and
ask me to franchise my name to them? I think my brand name is already built!
"The way I see it is, my today's brand building need is to set up 20 more stores all over
Maharashtra, Gujarat and MP. Not because that exercise will build a brand name for me, but
because the name is so well entrenched that I must spread. Therefore, my spends should
come out of yesterday's profit I appreciate that growing my business will need me to spend
on sustaining that name, ensure consistent quality of service, etc. But shouldn't that come
from past profits? Whereas you are saying it should be loaded on to price and, thus, come
from future revenues. And this is what I fail to understand."
"Yet," said Jaideep, "when you want to build more stores and let distant consumers
benefit from your lineage, you need huge sums of money, right? That kind of money you
do not have in accumulated profits! So where is that going to come from? So it has to come
from future customers."
Jaideep could see that there was a fundamental difference be tween the brand-building
exercise that a new soap would do and the brand-building exercise that a retail store
would do. A soap grows by first building the brand and then taking the product forward. In
the case of a retail brand, the product ² the store takes birth first and, over 20 years, the
name Neel Kamal becomes
ÊnameÊ to reckon with. Now the name needs to become a brand
name because that's how it can sustain itself. It was a business issue because unless the Jains
established NKE as a brand, it would perish as competition increased. It was a 'growth in
business' situation.

The costs involved in building the store brand meant advertising, promotions, publicity,
store decor, etc. For example, Rajkiran would now have to emphasize the buying
experience and, therefore, need to air-condition his stores. But Ramanraj asked: "Would
that improve to the way people buy washing machines? So, why should my customer pay for my
granite floors, piped music
nd air-conditioning? It is not going to change the value
proposition of a Whirlpool or a Samsung washing machine. A customer who wants
Whirlpool will buy a Whirlpool whether I have air-conditioning or not."

Jaideep said: "But it will matter to his decision to buy from you or another store. Okay, he
may buy from Neel Kamal for the, various service efficiencies you offer, but in the future
these services are not uniquely sustainable, as everybody will provide the.. same service
level. So you have to create those emotional bond. with advertising, support these bonds,
change the product mix... .. and somebody has to pay for it! Therefore, the same customer
who was buying for Rs 10,000 will now pay Rs 10,200.
"There are so many issues at stake. Please understand you are not simply growing new
shops because it is a hobby. You are, in fact, taking your quality of service to new places
and new customers. Therefore, the customers consequent to the change will have to bear
the cost. Where is the dilemma?"

Jaideep was clear that brand building was required, nearly clear that the cost had to
come out of future profits, but, somewhere, even he was not fully convinced that the
rationale was justified. And before they knew it, FDI regulations would sanction the entry
of a Circuit City or a Best Buy or a Dixon's to set up shop in India, then what would happen
to Neel Kamal if it had not harnessed the market by then? The time was right and they
had to start shoring up soon. At the same time, it had been proven else where in the world
that the local retailers who had invested in the brand were the ones who had stood up and
survived.

Father Ramanraj himself was caught in this change situation. At one level he dearly
wanted to hang on to the past values and traditions, yet he knew that growth had to
happen before the sharks were let loose in the market. And typical of a father of his era,
Ramanraj also wanted to be sure that he left behind for his son a world that was bearable,
manageable, a world that was up to his standards of progress, better than all the
generations before. He did not see anything wrong with what his son aspired for. So if
Rajkiran wanted to grow 20 more stores, Ramanraj knew he would do it. But what he
wanted to know was that it would be done within the boundaries of the values he had
inherited.

Which is why he wanted to hear from Jaideep an answer that was do-able and bearable to
his ears. But he knew, somehow or the other, this conversation would end up justifying loading
costs on to the buyer. That worried him. "For example," he said, "can you imag ine a
conversation between two sisters, one who buys a microwave from me and the other who
buys the same brand from another store, and the one who bought from me has paid Rs 200
more to defray my brand-building cost. Can you see how it begins to erode the faith?
Classical economics tells you that if there are two people selling bricks, one at a lower price
and the other at a higher price, consumers will choose the low-priced seller." "But it is the
brand value that will keep the customer coming to you," said Jaideep. That's the whole
purpose of brand building."

"But who pays for the brand building?" wondered Ramanraj. Jaideep knew he was
Caught in an idiomatic abyss and he needed to give Ramanraj a new idiom with which to
perceive his business situation, a new perspective which would enable him make the
paradigm shift-from one era to another.

"Then let me ask you another question, ´ aid Jaideep, bracing himself. "Is there any
differ-once between NKE and Ahuja Sales down the road? If a customer should
prefer your store to another, where is the 
 Ê  ÊSo, if there is a difference between
you and Ahuja, then let that difference show, become apparent; state it . A customer
chooses NKE because you are different. Those attributes that set you apart from Ahuja
and 10 others in this locality is what causes a customer to prefer your store. Now if you
want that customer to keep preferring you, put all those special or unique attrib -that set you
apart into a nice little definition and give it a name. A brand name.

"It's because you sell differently, deliver differently, serve the customer differently, your
service, your offerings become differentiated. You are offering a better buying experience.
And that you must keep doing if you want to be seen as different. If you do not
differentiate, then your store is substitutable. That means a customer could buy a TV
from you or anyone else and not stand to lose. But you say, 'check my prices; I offer the
best deal.' It's because you differentiate that for a customer the perceived cost of going to
another shop is higher. That also means that there exist in the market many more such
positions you can take which make your offering distinct and better. And you have now
to pick out your position.

Therefore, you have to state the 'buying experience' as part of the product you sell. The
product you sell is not a television or a refrigerator or a music system. Those are, in
effect, commodities. LG cannot relate to the end user directly through its brand name. It
still needs the retailer, the dealer who serves as the communica tor, the conduit that
delivers the brand and its attributes to the consumer. What you are selling, hence, is a
unique buying experience. The experience of buying at Neel Kamal versus buying any -
where else, right? Today there are 20 brands of TVs to choose from, but, in effect, they are
all just televisions. Who will tell the customer which one is best suited to his budget, the
size of his drawing room, his usage situation? You, the retailer. And that is the buying
experience."

Rajkiran couldn't agree more. He said: "The point is, today, the customer is willing to
pay for that buying experience. He wants to know what he is buying, why not another
brand,. whether he has got himself a good deal and, for this assurance, he is willing to
pay a premium. Which is why he doesn't buy any toothpaste at Rs 25, but one that adds
value to his purchase. And because these are durables, he wants t o be doubly sure.
Because he is buying for a longer term!"

Ramanraj was stupefied. "That means I can apply the same marketing rationale to my
store?" he asked. "I didn't know a retailer can claim to be bigger than the brands he is
selling! Yet, how can that be possible? LG, Philips, Samsung are all manufacturers! And
they manufacture different kinds of TVs and refrigerators. As a retailer I am only
providing service. How can I be better than a manufacture? Isn't there a difference?"

Grandfather Tilakraj had a completely different viewpoint.. "Let me tell you how I see the
market, the customer and this whole business you call brand building. When I set up this
store in 1961, I knew even then that my customer base, what you call audience, was alrea dy
defined by the location of my shop. I was lucky to get this spot in Dadar those days, but I
did not think, and nor do I think now, that I can charge my customer for being well -
located. I know I am not the only place from where they can buy a radio or a music box.
There were 20 others on this road right up to Dadar Kabutarkhana..., a customer could
go anywhere. After all, he wants a radio or a music box. And let's face it, a retail shop is
easily substitutable. Therefore, if today I start saying 'I am different, I give you a better
buying experience,' I will have no buyers! No one wants to pay more for what can be
bought cheaper. Shopping is a necessity, not an entertainment. When you want a TV set,
you want a TV set, not 10 people fussing over you, five people talking, someone bringing
you a cold drink. 2 Ê ÊÊvalue addition 

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ÊYes, I can discount a bit, tell you
what to buy. 
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 ÊThis is not a circus! How does it mat-
ter where a customer buys from?
I am saying this from a buyer's point of view. As a retailer, yes, we have over 30 years
experience dealing with the best firms; we offer good brands; you can be sure of service,
etc. Yes, the shopper should feel he is in safe hands, that's what we are of fering. But how
can I package this and call it a brand? I am wondering about this whole business of brand
building." But Rajkiran was emphatic that consumer behaviour had changed sig nificantly
today. "Today a consumer does not only look at the money price he is paying for a
product," he said.
"The buying experience holds for him a big value and that in fluences his perception of the
price he pays eventually. Simple things, why do we buy our groceries from Gokul? Why?
It's our perception that Gokul is safer to buy from. We have a certain equation with him, we
know his stocks, his delivery, his price, we know he will have what we want, etc. Our
perception of the service influences our choice of the shop. There is a real consumer price
perception and, because it is there, it can be influenced."
Tilakraj was surprised. "And how long before 10 others copy Gokul? I don't think a
retailer can keep his service as a differential advantage. Tomorrow, if Gokul decides to
build a brand, and he adds 20 paisa to everything, won't your bill go up ? Will Gokul still be
your favorite store?" That worried Ramanraj too. Store quality, service levels and price
were not sustainable differentiators. So what would brand building achieve? The belief that
retail could replicate manufacturers in brand building was overstated.