Strategic Baniyagiri
Strategy Formulation and Strategy Planning can be two different ball games all together. This difference was taught to us by Dr. Girish Jakhotiya at a guest session in NMIMS with the help of this simple, but extremely effective story.
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Vipul Mittal and Sameer Deshmukh were two grocers in a small village in India. Mittal had a very shrewd business sense. Jealous of Mittal's success, Deshmukh one day decided to beat Mittal at his own game.
The price of sugar in the market was Rs. 16 per kg. Deshmukh started a price war, hoping to drive Mittal out of business. He lowered the price of his sugar to Rs. 15 and kept a large board outside his grocery shop announcing the drop in price. But before he could utilize the drop in revenue to pump up sales, Mittal responded. Mittal cut down his price to Rs. 14 and put up a similar board in front of his shop. Deshmukh, of course, didn't like it a bit. He continued the price war even more aggressively.
The cost price of sugar was Rs. 10. Having known Mittal for years, Deshmukh knew that it was beyond Mittal's 'baniya' tendency to sell sugar without a profit. Deshmukh dropped the price of sugar to Rs. 11 and kept an even larger board outside his shop. Customers started coming to his shop in large numbers. But to his utter shock, Mittal dropped the price of sugar to Rs. 10.
It was a question of pride for Deshmukh. He reduced the price even further. He sold sugar at a loss. But every single time he reduced his price, Mittal would undercut him. Customers poured in to Deshmukh's shop for sugar, and his financial condition was deteriorated. However, Mittal was doing surprisingly well. His grocery shop did not show any signs of lack of funds.
Ultimately, Deshmukh's business went bankrupt. Mittal gladly purchased Deshmukh's entire business.
When the deal was done, Deshmukh went to Mittal and confided in him, "Mittal, I have known you since years. I know that you would never sell anything even at breakeven, forget a loss. Still, how did you sell the sugar at such low prices? And to add to it, how is your shop doing so well that you had the financial muscle to buy me out?"
Mittal replied, "Oh my friend Deshmukh, it was very simple. I never sold sugar below the cost price. Whenever a customer came to my shop for sugar, I asked him what other items he wanted and sold him those. When he asked for sugar, I asked him to wait for a day and then go to your shop as I was sure that you would reduce your price even further. My customers were only too glad to wait for another day to get a better deal. Thus, I sold everything except sugar."
Vipul Mittal only formulated the strategy. Sameer Deshmukh executed it.
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Vipul Mittal and Sameer Deshmukh were two grocers in a small village in India. Mittal had a very shrewd business sense. Jealous of Mittal's success, Deshmukh one day decided to beat Mittal at his own game.
The price of sugar in the market was Rs. 16 per kg. Deshmukh started a price war, hoping to drive Mittal out of business. He lowered the price of his sugar to Rs. 15 and kept a large board outside his grocery shop announcing the drop in price. But before he could utilize the drop in revenue to pump up sales, Mittal responded. Mittal cut down his price to Rs. 14 and put up a similar board in front of his shop. Deshmukh, of course, didn't like it a bit. He continued the price war even more aggressively.
The cost price of sugar was Rs. 10. Having known Mittal for years, Deshmukh knew that it was beyond Mittal's 'baniya' tendency to sell sugar without a profit. Deshmukh dropped the price of sugar to Rs. 11 and kept an even larger board outside his shop. Customers started coming to his shop in large numbers. But to his utter shock, Mittal dropped the price of sugar to Rs. 10.
It was a question of pride for Deshmukh. He reduced the price even further. He sold sugar at a loss. But every single time he reduced his price, Mittal would undercut him. Customers poured in to Deshmukh's shop for sugar, and his financial condition was deteriorated. However, Mittal was doing surprisingly well. His grocery shop did not show any signs of lack of funds.
Ultimately, Deshmukh's business went bankrupt. Mittal gladly purchased Deshmukh's entire business.
When the deal was done, Deshmukh went to Mittal and confided in him, "Mittal, I have known you since years. I know that you would never sell anything even at breakeven, forget a loss. Still, how did you sell the sugar at such low prices? And to add to it, how is your shop doing so well that you had the financial muscle to buy me out?"
Mittal replied, "Oh my friend Deshmukh, it was very simple. I never sold sugar below the cost price. Whenever a customer came to my shop for sugar, I asked him what other items he wanted and sold him those. When he asked for sugar, I asked him to wait for a day and then go to your shop as I was sure that you would reduce your price even further. My customers were only too glad to wait for another day to get a better deal. Thus, I sold everything except sugar."
Vipul Mittal only formulated the strategy. Sameer Deshmukh executed it.
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