August 2015 Edition of BEACON, A Monthly Newsletter by SIMCON. Inside this issue: About Us Our Team INDUSTRY ANALYSIS : NBFC Industry COMPANY ANALYSIS : HDFC Bank BRAND ANALYSIS : Rolex Concept of the month: Pricing Myopia

1. VOLUME 03BEACON
AUG 2015 i ISSUE 08

2. VOLUME 03BEACON
ISSUE 08AUG 2015
Contents
ABOUT US
OUR TEAM
INDUSTRY ANALYSIS
COMPANY ANALYSIS
BRAND ANALYSIS
CONCEPT OF THE MONTH:
PRICING MYOPIA

3. VOLUME 03BEACON
AUG 2015 1 ISSUE 08
OUR PRESENCE
ABOUT US
VISION
The SIMCON - SIMSREE consulting club is an
initiative started in 2012 for those students in
pursuit of excellence in management consulting
and strategic management. Aimed at creating
awareness among the students about consultancy
as a discipline, the club strives to maintain strong
relations with top consultancy firms and provide
platform to craft highly skilled & competent
consultants from SIMSREE. The club is a resource
for information about consulting and a place for
students to obtain real-world consulting experience.
SIMCON provides an avenue of interaction among
faculty, students and alumni through competitions,
live projects, guest lectures, and conclaves. For
this purpose the club has also been publishing its
monthlynewsletter– BEACON (BE A CONSULTANT)
and maintains a FACEBOOK PAGE where latest
news and development in the consulting industry
are posted.
MISSION
To create awareness amongst the students
about consulting industry & its latest trends.
To maintain strong relations with top
consultancy firms.
To provide platform to craft highly skilled &
competent consultants from SIMSREE.
To provide exposure to students via
competitions, live projects, guest lectures &
conclaves.
Contributions invited:
To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We
invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a
cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your
entries to simcon.simsree@gmail.com.
Best Regards,
SIMCON - SIMSREE CONSULTING CLUB

4. VOLUME 03BEACON
AUG 2015 2 ISSUE 08
OUR TEAM
SANANDANDESHPANDE
NIKHILRAO
AMEYAMAHABAL
CHITRAWANI
deepesh jethwani
krishna nain
prathamesh indani
Sushil Gurav

5. VOLUME 03BEACON
AUG 2015 3 ISSUE 08
NBFC INDUSTRY
INDUSTRY ANALYSIS

6. VOLUME 03BEACON
AUG 2015 4 ISSUE 08
Introduction
Non-Banking Financial Companies are corporations
that don’t requrie a banking license, yet can provide
most of the banking services offered by banks.
NBFCs offer their customers:
• Loans and credit
• Retirement savings
• Educational loans
• Trading services
• Underwriting stocks
• Portfolio management
•Merger and acquisition services
As several of these functions overlap with those carried
out by banks, the distinguishing factors between an
NBFC and a Bank are as follows:
1) NBFCs cannot collect deposits like banks
2) NBFCs cannot issue checks drawn on themselves
3) NBFCs cannot issue Demand Drafts like banks
4) While banks are incorporated under banking
companies act, NBFCs are incorporated under the
Companies Act
NBFCs play a crucial role in the Indian economy, in a
country like India, where 70% of the population lives
in rural areas. NBFCs can often give credit to small
businesses who do not meet the stringent criteria that
banks require to lend out money. In this sense, NBFCs
play a key cog, by providing financial services in rural
areas and to small and medium enterprises.
NBFCs have several advantages over banks due to
their focus on niche segments, expertise in the specific
asset classes coupled with deeper penetration in the
rural markets. On the other hand, they depend to a
large extent on bank borrowings, leading to high cost
of capital and face stiff competition from banks which
have access to lower cost of funds via CASA (Current
and Savings Account).
As can be seen from the below graph, NBFC Assets
have been steadily growing over the years, as their
importance in our financial system increases.
Ratio of NBFC/Bank Assets
Types of NBFCs
1) Asset Finance Company (AFC): Asset Finance
Companiesofferloanstofirmsbyusingthecompanies’
assets as a means of obtaining a quick cash loan.
Example: Au FINANCIERs Pvt Ltd.
2) Investment Company: An investment company is a
company that pools together its resources and invests
in securities of other public or private company.
Example: Bajaj Financial Limited
3) Loan Company: A loan company finances other
companies by giving loans or advances, but does not
include an AFC. Example: Bandhan.
4) Infrastructure Finance Company(IFC): For a
company to meet the criteria of an IFC it must meet
the following conditions:
i) Have at least 75% of its assets as Infrastructure loans
ii) Has minimum of Rs. 300 Crores in funds
iii) Must have credit rating ‘A’ or its equivalent
9
12
15
FY14FY13FY12FY11FY10FY09
10.70%
11.30%
11.60%
12.70% 13.30%
14.30%
RATIO OF NBFC/BANK ASSETS

7. VOLUME 03BEACON
AUG 2015 5 ISSUE 08
iv) Have a Capital Adequacy Ratio (CAR) of 15%
Example: Rural Electrification Corporation Ltd.
5) Systemically Important Core Investment
Company (CIC-ND-SI): These are NBFCs that are in
the business of procurement of securities and meet the
following conditions:
i) Has at least 90% of its assets in shares or debentures
ii) Has at least 60% of its total assets in the form of
equity shares
iii) It must not trade its securities except block deals
to disinvest
iv) It does not carry out any other financial activities
except investments
v) Its assets must be a minimum of Rs 100 Crore
vi) It must accept public funds
6) Infrastructure Debt Fund: IDFs are companies
registered as NBFCs and their purpose is to facilitate
long term debt into infrastructure projects. IDFs raise
money by issuing bonds for five years. Only an IFC
can sponsor an IDF. Example: India InfraDebt.
7) Micro Finance Institution (NBFC-MFI): For a
NBFC to meet the criteria of a MFI, it must adhere to
the following conditions:
i) Loan issued by an NBFC-MFI to a borrower from
rural areas with annual income of 60,000 or less and
120,000 for a borrower from urban area
ii) Loan amount cannot exceed Rs. 35,000 in first cycle
and 50,000 in later cycles.
iii) Duration of the loan must be at least two years for
loans of amount more than Rs. 15,000.
iv) Loan can be extended without furnishing collateral.
Example: Bandhan.
Major Players
Sr.
No.
NBFC
Total
Assets
($Bn)
Note
1 HDFC 3.44
Non-Banking
Financial Services like
providing small loans
and micro finance.
HDFC keeps NBF
services separate from
its core services.
2
Power
Finance
Corpora-
-tion
2.36
Financial backbone of
power sector
3
Reliance
Capital
1.1
Reliance Capital
comes under the Anil
Ambani Group
4 IDFC .45-.55
Gives loan for
infrastructure related
projects
5
Rural
Electricity
Corp.
.105
Major lender to the
power sector
12,159 NBFCs were registered with India, as of January
1st 2015. HDFC is by far the largest in terms of NBFC
services offered. HDFC has maintained it NBFC arm
distinctly separate from its banking arm.
Porter’s Five Forces
Barriers to
Entry
Low • Licensing
requirements are
given by RBI for
NBFCs much easier
than for Banks,
hence low entry
barriers
• There are already
more than 12,000
NBFCs in India
Bargaining
Power of
Suppliers
High • Suppliers are
generally the
insurance
companies, banks &
asset management
companies
• They have several
alternative
investment
opportunities &
thus enjoy high
bargaining power
Urban & Metro
Semi-urban & Rural
70%
30%
BANKS
40%
60%
NBFCs
SEGMENT SHARE OF NBFCs & BANKS IN RETAIL FINANCE

8. VOLUME 03BEACON
AUG 2015 6 ISSUE 08
Bargaining
Power of
Customers
High • Considering the large
number of NBFCs,
the options available
to customers are
immense which
increases the
bargaining power of
the customers
Competi-
-tion
High • The sheer number
of players makes
this an extremely
competitive industry
Threat of
Substitutes
Medium • Banks are a
substitute for
customers who are
looking for credit,
especially in the
urban & semi urban
areas.
• However, for rural
customers without
proper credit ratings,
NBFCs are the main
source of credit,
since banks are far
more selective while
providing credit.
• However, in the rural
areas, NBFCs also
face competition
from private money
lenders
Key Growth Drivers
• Growing need for credit as per capita consumption
increases
• Growing rural segments, this will further augment
rural consumption
• Product innovation: NBFCs are customizing loan
structures to suit the needs of a wide customer base
• With RBI giving payment licenses to several new
players, and encouraging online wallets, NBFCs
will greatly benefit
Recent Developments
1) RBI Cancels registration certificates of 7 NBFCs
• RBI recently cancelled the registration certificates
of 7 NBFCs, four of which had their offices in
Kolkata, while the rest were from New Delhi
• Following the cancellation of the registration
certificates, these companies cannot transact the
business of a non banking financial institution
• The Kolkata based NBFCs are Dewra Stock &
Securities, Nott Investments, Swetasree Finance &
Eden Trade & Commerce
• Religare Finance, an entity of Religare Enterprises,
was non operative & had voluntarily surrendered
its license
• The group had two NBFC licences for its two
entities – Religare Finance & Religare Finvest
(which carries out its SME mending business)
2) Banks pipped by Insurance companies as the biggest
lenders to NBFCs
• The Financial Stability Report (FSR) 2015 of the
RBI shows that insurance companies have replaced
banks as the largest lenders to NBFCs
• However, market participants attribute that to
flooding of longer dated paper being issued by
the infrastructure finance companies, which also
includes some quasi government entities, that
get absorbed by the insurance sector looking for
relatively longer period fixed income products
• In FY14-15, insurance companies gave loans of Rs
1.76 Trillion to the NBFC sector, as compared to
the Rs 1,595 Trillion worth of loans extended by
the banks during the same period , according to
the report
0
500
1000
1500
2000
2500
3000
Insurance Companies AMCs SCBs
Mar-15Mar-14Mar-13Mar-12
1513
83
780
1453
624
880
2919
756
965
1595
1008
1760
INCREASED FUNDINGS
Investments by Scheduled Commercial Banks, Asset Management
Companies &Insurance Companies in Non-Banking Financial Companies
Source : RBI Supervisory Returns
Conclusion
NBFCs will play a crucial role in the growth of the
Indian economy. They already form the financial
back bone of Small & Medium Enterprises, and as
rural consumption is set to scale up, NBFCs can fully
capitalize on the opportunities.
References
Live Mint - RBI , Live Mint - Insurance Companies , RBI ,
Investopedia , India Financing , PwC Report on NBFCs , NBFC
Sector - Care Ratings Report

9. VOLUME 03BEACON
AUG 2015 7 ISSUE 08
HDFC
COMPANY ANALYSIS

10. VOLUME 03BEACON
AUG 2015 8 ISSUE 08
Introduction
The HDFC (Housing Development Finance
Corporation Limited) was among the 1st to receive an
‘in principle’ approval from the RBI (Reserve Bank of
India) to set up a bank in the private sector in 1994. It
was a part of RBI’s liberalization of the Indian Banking
Industry. The bank was incorporated in Aug 1994 in
the name of ‘HDFC Bank Limited’. HDFC Bank has
its headquarters in Mumbai, India. It commenced
operations in Jan 1995 as a Scheduled Commercial
Bank.
Since its inception in 1977, the Corporation has
maintained a healthy as well as consistent growth in
its operations to keep its position as a market leader
in mortgages. Its outstanding loan portfolio has
more than a million housing units. It has developed
expertise in retail mortgage loans to different
segments of the market. It also has a large corporate
client base for its housing related credit facilities. It
has a lot of experience in the financial markets. It has
strong market reputation, unique consumer franchise
and large shareholder base. Thereby, HDFC was
ideally positioned to promote a bank in the Indian
environment.
Management
Name Designation
Shyamala Gopinath Chairperson
Paresh Sukthankar
Deputy Managing
Director
A N Roy Director
Keki Mistry Director
Renu Karnad Director
Aditya Puri Managing Director
Kaizad Bharucha Executive Director
Bobby Parikh Director
Partho Datta Director
Malay Patel Additional Director
Business Segments
HDFC has three key business segments:
• Wholesale Banking
The Target market of banks is mainly large
manufacturing companies in the corporate sector.
It also has small & mid-sized corporate clients and
agri-based businesses. The Bank provides commercial
and transactional banking services, including trade
services, cash management, working capital finance,
transactionalservices,etc.tothesecustomers.Thebank
is also a leading provider of structured solutions. The
cash management services are combined with vendor
and distributor finance. For its corporate customers, it
facilitates superior supply chain management. HDFC
Bank has made its way into the banking consortia of
a number of leading Indian corporates based on its
superior product delivery as well as superlative service
levels. It has strong customer orientation including
MNCs and companies from the domestic business
players as well as the prime PSUs. It is a leading
provider of cash management and transactional
banking solutions. These services are provided to
mutual funds, stock exchange members, corporate
customers, as well as to banks.
• Treasury
The bank has three major product areas - Local
Currency Money Market, Foreign Exchange
and Derivatives & Debt Securities, and Equities.
Because of liberalization of the financial markets
in India, corporates demand more sophisticated
risk management advice, information and product
structures. The various treasury products are provided
through the bank’s Treasury team. The bank is required
to hold 25% of its deposits in government securities
to comply with statutory reserve requirements. The
Treasury business is responsible for managing the
market risk and returns on this investment portfolio.
• Retail Banking
The objective is to provide its target market customers
with a full range of financial products and banking
services. It gives its customers a one-stop window for
all of their banking requirements. The products are
delivered to their customers through their growing
branch network, as well as through other delivery
channels like Phone Banking, Net Banking, ATMs and
Mobile Banking.
The HDFC Bank Preferred program for HNIs, the
Investment Advisory Services and the HDFC Bank
Plus programs are designed keeping in mind needs
of customers. The Bank also has a range of retail loan
products including Personal Loans, Auto Loans, Loans
against marketable securities and Loans for Two-
HDFCBANK
Wholesale
Banking
Treasury
Retail
Banking

11. VOLUME 03BEACON
AUG 2015 9 ISSUE 08
wheelers. It is also a leading provider of Depository
Participant (DP) services for its retail customers. It
provides its customers the facility to hold his/her
investments in electronic form.
HDFC launched an International Debit Card in
association with VISA (VISA Electron). Also, it issues
the MasterCard Maestro debit card as well. It was the
first bank in India to do so. However, the credit card
business was launched in late 2001. The bank had a
total card base including debit and credit cards of
more than 25 million by Mar 2015. The Bank is also
one of the leading players in the “merchant acquiring”
business. It has more than 235,000 POS terminals
for accepting Debit or Credit cards at merchant
establishments. The Bank is well positioned as a leader
in variety of internet based B2C opportunities. The
services include a wide range of internet banking
services for Bill Payments, Fixed Deposits, Loans and
many more services.
Shareholding Pattern(As on 31st March 2015)
Others
FII
Institutions
Individuals
Promoters
Shareholding (%)
30.68%
26.88% 23.15%
8.79%
10.5%
Competitor Analysis
Name(All
figures in
Rs. Cr.)
Market
Cap. (As
of 17 Aug
2015 )
Interest
Earned
(FY15)
Net Profit
(FY15)
HDFC
Bank
274,049.44 48,469.90 10,215.92
SBI 211,135.30 152,397.07 13,101.57
ICICI Bank 175,905.73 49,091.14 11,175.35
Canara
Bank
17,856.73 43,750.04 2,702.62
Axis Bank 133,439.64 35,478.60 7,357.82
SBI :
• SBI is the nation’s largest and oldest bank.
• The bank operates over 13000 branches within India
• SBI also has over 190 branches in about 36 foreign
countries.
• The bank has other units devoted to fund
management, insurance, capital markets, credit
cards, factoring and commercial services, and
brokerage services.
SWOT Analysis
Financial
0
5
10
15
20
25
FY15FY14
4.37
Net Interest Margin(%)
Interest Spread (%)
Net Profit Margin (%)
4.43
8.01 8.01
17.28
21.07
The Net interest margin of HDFC bank has increased
to 4.43% in FY15 from 4.37% in FY14. This is a sign
of demand for loans being greater than demand for
savings. Even for ICICI bank, net interest margin
increased by 15bps to 3.48% in FY15. As compared to
ICICI bank, HDFC has a better Net Interest Margin.
This gives them extra cushion and thereby HDFC
possesses a lower business risk than ICICI bank.
The interest spread has remained constant. So the
differenceinborrowingandlendingrateshasremained
unchanged. The Net Profit Margin has increased from
17.28% in FY14 to 21.07% in FY15. The increase in net
profit margin means the bank faces lesser business risk
than last year.
• 2nd largest private bank of
India
• Huge employee base (>50000)
• Over 4014 branches & 11756+
ATMS across 2464 cities
• Large collaborations with cor-
porates for employee salary
accounts
• Abscence of strong rural pres-
ence as compared to its direct
competitor, ICICI
• Lacks aggressive marketing
strategies
• Lack of reach in the market for
some of the products
• Can tap into rural markets
• Has the necessary technology
to adapt to ever increasing
demands of the industry
• GIFT, city in Gujarat would
serve as an opportunity for all
the banks including HDFC
bank
• Unable to expand its market
share owing to strong competi-
tion
• Modernisation & adaptation of
new tecchnology by Public
Sector Banks poses a threat
• NBFCs, Payment banks, New
age banks increase poses a threat
Strengths Weaknesses
Opportunities Threats

12. VOLUME 03BEACON
AUG 2015 10 ISSUE 08
0
50
100
150
200
250
Book Value per ShareEPS
FY15FY14
35.34
181.23
247.40
40.76
The Book Value per Share has increased owing to
increase in reserves & surplus. The EPS has increased
from 35.34 in FY14 to 40.76 in FY15. The per share
earnings has increased as compared to last year. The
0
5
10
15
20
25
ROE(%)
ROA(%)
FY15FY14
1.9 1.89
21.28
19.37
ROA marginally decreased from 1.9% in FY14 to
1.89% in FY15. ROE has dropped from 21.28% in
FY14 to 19.37% in FY15. The reason for decrease
in ROE could be due to decrease in loans turnover
or increase in costs which is found through Dupont
analysis. However, the Loans turnover has remained
fairly constant at 0.15 and the costs as percentage of
income have marginally increased. So the factor that
was responsible for the decrease in ROE is increase in
share capital.
Liquidity Ratios
Basel Committee on Banking Supervision has
introduced a global liquidity standard whereby strong
capital requirements along with strong liquidity base
are a necessary condition for banking sector stability.
During the early ‘liquidity phase’ of the financial
crisis, many banks despite having adequate capital
levels experienced difficulties mainly because they did
not manage their liquidity in a prudent manner. There
are certain liquidity ratios like Liquidity coverage
Ratio(LCR) & Net Stable Funding ratio which should
be monitored by banks for its stability. In India, the
Net Stable Funding ratio would be made applicable to
banks from 1st January 2018. HDFC Bank, Axis Bank
and ICICI Bank, driven by strong liability franchise
and investment done in branch expansion over the past
few years, are well placed to accelerate loan growth.
Liquidity Coverage Ratio(LCR)
RBI has defined LCR as ratio of high quality liquidity
assets with banks to net cash outflows over the next 30
days. The LCR requirement is introduced in a phased
manner starting with a minimum requirement of 60%
from January 1, 2015 and reaching minimum 100% on
January 1, 2019
Particulars Rs. Million
Total HQLA (High
Quality Liquid Assets)
841,030.2
Total Net Cash Outflows 990,451.2
LCR = 84.91%
0
10
20
30
40
50
Operating costs to Assets ratio
Cost Income ratio
FY15FY14
45.61
44.56
2.45 2.37
The cost income ratio and operating costs to assets
ratio has dropped. The bank has become more efficient
in terms of handling costs. The operating costs
(administrative and fixed costs, such as salaries and
property expenses) rose at a slower rate as compared
to operating income.
Asset Quality and Loan Composition
To determine asset quality, we would look at NPA
ratios and Credit Risks undertaken by the bank.
NPA ratios: The Gross NPAs to Gross Advances have
come down from 0.98% to 0.93%. Even the Net NPAs
to Net Advances have dropped from 0.28% to 0.26%.
This denotes that the bank is handling the NPAs more
efficiently than last year.
0.0
0.2
0.4
0.6
0.8
1.0
Net NPAs to Net Advances (%)Gross NPAs to Gross Advances (%)
FY15FY14
0.98%
0.28% 0.26%
0.93%

13. VOLUME 03BEACON
AUG 2015 11 ISSUE 08
Credit Risk
HDFC Bank has adopted standardized approach
under RBI’s Basel 3 capital regulations for its credit
portfolio. The bank’s Outstandings can be divided into
3 major risk buckets:
Particulars
FY15
(Rs mn)
FY14
(Rs mn)
% Increase
Below
100% risk
weight
2,050,063.9 1,812,818.0 13.1
100% risk
weight
1,806,594.1 1,406,668.2 28.4
More than
100% risk
weight
1,160,514.2 948,648.3 22.3
Other Industries
Iron and Steel
Real Estate & Property Services
Engineering
Other Retail Assets
Wholesale Trade
Services
Road Transportation Retail Trade
Power
NBFC/Financial Intermediaries Food and Beverage
Consumer Loans Bank and Financial Institutions
Automobile & Auto Ancillary Agriculture
Fund Based Exposure
10%
5%
7%
11%
3%
4%
3%
3%
4%
5%
7%
14%
2%
2%
2%
19%
Industry-wise Distribution of Exposures
There has been huge contribution by sectors like
Agriculture, Consumer Loans, Wholesale Trade and
other retail assets.
Key Developments
• HDFC Bank scaled up its presence in Haryana
and opens its 300th branch in Ramnagar. The
new branch will give local customers access to full
range of HDFC Bank’s products and services.
• HDFC launched digital payments app ‘PayZapp’ in
June 2015. It will enable access to a host of online
marketplaces and make payments in one click
• HDFC launched medical benefits prepaid card-
‘HDFC Bank Apollo Medical Benefits Card’ in
May 2015. It partnered with Apollo Hospitals for
the prepaid product. This allows corporates to
disburse medical allowance to their employees.
• HDFC sold its entire exposure of Rs 550 Crore
given to Essar Steel at 40% discount in April 2015.
The loss was provided through HDFC’s floating
provisions. There was a consideration of both
security receipts as well as cash in the loan that
was sold.
• HDFC Bank decided to raise up to $500 mn from
External Commercial Borrowing in April 2015.
HDFC would raise the money under the ECB
window for housing finance companies. This
window is allowed by the Reserve Bank of India
(RBI) for funding affordable housing projects.
Challenges
• HDFC Bank faces deposit concentration risk.
The bank raised more than 50% of its deposit
from a small number of Ultra HNIs. In such
circumstances, these customers could exert undue
influence on the decisions of the bank.
• RBI has given impetus to rural banking. The major
challenge that the banks including HDFC would
face is that of expanding in the rural areas.
• In the digital space, there are many banks like
Kotak Mahindra that give better facilities than
HDFC. Kotak Mahindra Bank is live on Finacle to
accelerate innovation-led growth. SBI has ventured
into digital space by partnering with Accenture.
• With RBI offering more banking licenses to foreign
banks than local players, the competition seems to
be intensifying. The foreign banks would look to
attract customers with attractive offers. This would
put pressure on the interest rates offered by local
players including HDFC.
References
HDFC Annual Report:2014-15 , HDFC Bank , Profit NDTV ,
HDFC Bank - Assets

14. VOLUME 03BEACON
AUG 2015 12 ISSUE 08
ROLEX
BRAND ANALYSIS

15. VOLUME 03BEACON
AUG 2015 13 ISSUE 08
Origin & History
Rolex was founded in 1905, in London specializing in
the distribution of timepieces, by Hans Wilsdorf. He
was 24 when he founded the company. He had a dream
of making a watch worn on the wrist. Hans Wilsdorf
believed that the wristwatches could become elegant
as well as reliable in the days when wristwatches were
not very precise.
Hans Wilsdorf wanted his watches to bear a name that
was short, easy to say and remember in any language
and which looked good on watch movements and
dials. He tried combining letters of alphabet in
different ways but could not get a satisfactory name
for his watches. He says, one morning, while riding
on the upper deck of a horse-drawn omnibus along
Cheapside in London, a genie whispered ‘Rolex’ in his
ear.
Rolex focused on the quality of movements. Its quest
for chronometric precision finally led to success when
the Official Watch Rating Centre in Bienne granted
the Certificate of Chronometric Precision to Rolex
in 1910. Key Observatory in Great Britain awarded
a Class ‘A’ Precision Certificate to Rolex in 1914
which until that time had been given to only marine
chronometers. Since then, Rolex became synonymous
with precision.
Precision Certificates Received by Rolex
In 1920, Rolex moved to Geneva, renowned
internationally for watchmaking which is its
Headquarters now.
Creation of the first waterproof watch Oyster in 1926
was a major step by Rolex. The claim was proved in
1927 when the English swimmer named Mercedes
Gleitze crossed the English Channel wearing a Rolex
Oyster. The watch was in perfect condition even after
10 hours of swimming.
The year 1931 saw the birth of the world’s first self-
winding mechanism with a perpetual rotor by Rolex.
This indigenous system which is patented by Rolex has
become the heart of every modern automatic watch
today.
In 1945, creation by Rolex of the Datejust, the first
self-winding wrist chronometer to indicate the date in
a window on the dial marked a major step forward. A
specifically created Jubilee bracelet and a fluted bezel
made Datejust immediately recognizable as a Rolex.
Perpetual Movement
In 1953, Rolex launched Submariner, the first divers’
watch waterproof to a depth of 100 meters (330 feet).
The GMT-Master, which became the official watch of
several airlines, was developed in 1955 to meet the
specific needs of airline pilots. The two-wheel bezel
which marked daytime from nighttime hours was the
most distinguishing visual feature of this watch.
The GMT – Master
Available only in 18 ct gold or platinum, the Oyster
Perpetual Day-Date made its debut in 1956. It was the
first wristwatch to display the date and the day of the
week spelt out full in a window on the dial.
The Day – Date
The Lady-Datejust, which was the first ladies version
of the Rolex Datejust chronometer, was developed in
1957.
In1971,RolexpresentedtheOysterPerpetualExplorer
II which featured a distinctive 24 hour hand. This was
an invaluable aid around the poles and beneath the

16. VOLUME 03BEACON
AUG 2015 14 ISSUE 08
ground where you cannot tell night from day.
Lady Datejust The Explorer II
Rolex Awards for Enterprise were launched in 1976
to celebrate 50th anniversary of the Oyster. In 2002,
Rolex founded Mentor and Protégé Arts Initiative
to encourage talented individuals through a unique
programme of one-to-one mentoring with a major
figure in artistic discipline.
In 2005, Rolex created the blue Parachrome hairspring
after five years of research. It is crafted from a
paramagnetic alloy and it is unaffected by magnetic
fields. It is 10 times resistant to shocks.
Blue Parachrom Hairspring
The Oyster Perpetual Rolex Deepsea Challenge is
an experimental diving watch which is certified
waterproof up to 12000 meters (39370 feet). It has set
the record of the deepest diving watch in the world.
Oyster Perpetual Rolex Deepsea Challenge
Rolex entered into a long-term partnership with
Formula 1® Racing as Official Timekeeper and Official
Timepiece in 2013.
Brand Portfolio
The three family brands of wristwatches called
“Collections” are part of Rolex Brand Portfolio. Each
of the collections has a subset of brands.
The Oyster Collection which targets affluent men
and women has eight sub-brands differentiated by
features and design including the “traditional” Rolex
wristwatch.
The Oyster Professional Collection has seven sub-
brands. Through its specific features and imagery, it
targets specific athletic and adventurer user groups.
The Cellini Collection encompasses seven sub-brands
and focuses on formal occasions through its elegant
designs. The collection incorporates fashion and style
features like colored leather brands and extensive use
of diamonds.
Segmentation & Targeting
Geographic segmentation for Rolex is done based on
the states/regions and market density with wealth.
Developed countries are the first segment tapped,
followed by developing and semi-urban markets as
fast emerging and profitable market segments.
Rolexoffersseparateschemesfordifferentageandhigh
income groups. It offers special outlets for premium
customers and premium plans for business executives
and professionals. For example: special collections on
special events.
Positioning
Rolex has positioned itself as a brand without any
compromise in the quality of the services and
sustained its growth by generating substantial profits.
Rolex believes that the good quality and extraordinary
look provide them competitive advantage. With its
excellent channel of distribution, Rolex has been
able to position itself in almost every part of the
world. It has launched various exciting and beautiful
advertisements and sales promotional activities for
creating sales and enquiry.
Differentiation
Rolex is a very high quality luxury watch which helps
to build its brand image. The differentiating feature of
Rolexisitsqualitycombinedwithitsbrandimage.Rolex
targets a smaller market which can pay a premium for
a luxury watch. Rolex follows focused differentiation
strategy. While other brands in the market focus
toward a specific customer segment, Rolex’s strategy is
concerned about the unique attributes of its watches.
Higher value proposition created from these unique
aspects allows for a higher price for the Rolex watches.
Rolex also uses “No to Second Life” strategy. There
ROLEX
Oyster Perpetual
Air-King
Perpetual
Date
Datejust
DatejustTurn-O-Graph
Day-Date
Lady Datejust
Lady Datejust Pearl
Imaster
Oyster Professional
Explorer
GMT-Master II
Submariner
Submariner Date
Sea-Dweller 4000
Yacht Master
Cosmograph Daytona
Cellini
Cellinium
Quartz
Cellissima
Classic
Danaos
Cestello
Orchid
2005 Prince

17. VOLUME 03BEACON
AUG 2015 15 ISSUE 08
are several instances of counterfeiting goods and
Rolex does not want to lose its reputation of making
world class, reliable, quality watches. Rolex fears
that selling of watches in second life would lead to
duplications which might lead to customer confusion
and dissatisfaction.
Rolex also used the scarcity marketing to build up its
luxuriousbrandimage.Limitednumberofdistributors
give customers a feel of distinctiveness and rarity.
Social Media Marketing
Rolex segmented its approach while jumping into
social media instead of rolling out all of its assets at
once. Social media journey for Rolex began with
its YouTube launch in 2012. Rolex wisely resisted
the temptation to bloat the page with product ads.
Instead, Rolex used the platform to launch in-house
documentaries about topics that matter to the brand
and its devotees, like Himalayan expeditions and deep-
sea missions to investigate the polar ice caps. Rolex
practices extreme caution and strategy calculation
while publishing any content on YouTube and its new
Facebook hub. The brand meticulously selects what
media tells the brand’s story best.
Rolex believes in active social listening. It looks for
brand mentions on its own and other social networks
to identify what consumers want to see from the
Rolex on the social media. In July 2013, after mining
Facebook comments, Rolex realized that people
wanted to know about the distinctive features of Rolex
watches. One of the commenters was curious about
the quirky roman numerals on Rolexes. In response,
Rolex launched ‘Did You Know’ series to explain why
Rolex uses Clockmaker’s Four instead of IV. The post
became a hit garnering more than 119,000 likes.
Unique Marketing
Hans Wilsdorf had identified the importance of
marketing campaigns to illustrate technological
achievements by Rolex to the whole market of
potential buyers. In 1927, for example, Mercedes
Gleitz became the first woman to swim the English
Channel successfully while wearing one of the Rolex
wristwatches. To trumpet this historic achievement
and showcase its new watch, Rolex took out a front
page ad in England’s Daily Mail. The “testimony
concept” got introduced to the world through this ad.
In the 1927 placement, the copy describes the qualities
of the watch (waterproof), while the witness (Gleitze)
provides testimony that Rolex’s claims of a waterproof
watch are true. “More than ten hours of submersion
under the most trying to conditions failed to harm
its perfect timekeeping,” the ad proclaims. “...Perfect
timekeeping under all conditions is at last a possibility.”
A 1927 print ad depicting Mercedes Gleitze’s momentous swim
Rolex watches have been a part of several historic
events. In the 1950s, Rolex started capitalizing
commercially on such events. For example, Rolex
modeled a new watch, the Oyster Perpetual Explorer,
to honor Sir Edmund Hillary and Tenzing Norgay
when they became the first climbers to conquer the
summit of Mount Everest in 1953.
Members of John Hunt’s expedition wore Oysters as they
ascended Mount Everest
Jacques Picard used to wear Rolex while exploring the
depths of the sea. These tests coupled with effective
advertising campaigns demonstrated significant
durability and quality of the brand. Because of the
rational and emotional value linked with the brand,
well respected pilots in the British Royal Air Force
bought Rolex refusing standard government-issue
watches, during World War II.
Only well known, top notch professionals in their
relative fields promote Rolex keeping the luxury
concept of Rolex to its heights. Only the undisputed
winners from their respective fields endorse Rolex
watches mirroring its legacy and distinguishing it
from other brands. From equestrians, opera singers,
yachtsmen, and Olympic skiers to the race car drivers,
golfers and, most notably, Swiss — born star tennis
player Roger Federer, all of them have achieved

18. VOLUME 03BEACON
AUG 2015 16 ISSUE 08
something monumental in their careers and they are
not temporary heroes.
In TV ads, Rolex has reinforced the notion that its
watches are iconic and witnesses to history, a tenet that
has become central to its brand storytelling. The series
of commercials with the tagline “It doesn’t just tell
time; it tells history” became one of its best-received
campaigns. Rolex produced several variations on the
theme, including individual videos which highlight
achievements of professionals like tennis player Roger
Federer who has become the face of Rolex since 2006,
and golf legends Tiger Woods and Jack Nicklaus. In
the Tiger Woods commercial, the narrator cleverly
describes the traits shared Woods and Rolex through
the line “This watch has seen ... uncanny precision and
impossible physics, on golf’s most hallowed grounds”.
Rolex is the official timekeeper for the tennis
tournaments “Australian Open” and “Wimbledon”
and the golf tournaments “U.S Open” and “The Open
Championships”. Rolex also sponsors “The Senior
Open Championship” and the “Women’s World Golf
Rankings”. To convey its rich lineage linked to high-
end sports, Rolex has created a series of short videos:
• Roger Federer’s Rolex Commercial for Wimbledon
2011 – Federer Greatness
• Formula One Rolex Commercial
• Steve Guerdat – Rolex TV Advertisement
• Rolex Commercial Equestrian
• Rolex – Maxi Yacht Rolex Cup – Commercial
Environmental & Social Responsibility
Hans Wilsdorf Foundation: It supports the arts,
culture,educationhelpingbuildsportsandeducational
facilities for schools, theatres, literature, architecture
and others. The Foundation has also supported NGOs
to secure and defend children’s rights in African
countries such as Ethiopia and Senegal.
The Rolex Awards for Enterprise: It recognizes
pioneering men and women around the world who
work to improve life on our planet; and advancing
human knowledge and well‐being in the areas of
science, technology, exploration, the environment and
cultural heritage. Since the Awards were initiated, 110
Rolex Awards have been presented to recipients in
more than 60 countries.
Young Laureates Programme: Five young pioneers
between 18 and 30 with ideas to solve tomorrow’s
challenges in science and health, applied technology,
exploration,theenvironmentandculturalpreservation
are selected under this program and funding is
provided to deploy their ideas.
The Rolex Mentor and Protégé Arts Initiative: Set up
in 2002, this philanthropic program intends to make
a contribution to global culture. It pairs extraordinary,
rising artists with great masters for a year of creative
collaboration and helps them achieve their full
potential. Artists from various fields like dance, music,
film, theatre and visual arts and literature are selected
for this initiative. (Click here to watch the video)
References
Rolex , Academia , Crafted Intelligence , Mashable , Alpha
Tech , Rolex Mentor Protege , The Business Professor ,
Marketing 91

19. VOLUME 03BEACON
AUG 2015 17 ISSUE 08
PRICING MYOPIA
CONCEPT OF THE MONTH

20. VOLUME 03BEACON
AUG 2015 18 ISSUE 08
INTRODUCTION
“The moment you make a mistake in pricing,
you’re eating into your reputation or your
profits.” - Katharine Paine
The above quote from the founder of KDPaine &
Partners LLC and The Delahaye Group is quite apt.
Pricing is quite often ignored by executives & leads
to people not understanding how it can change the
competitive game in an industry.
Executives fail to understand the freedom they have to
utilise pricing in order to gain competitive advantage
for their firms or to even enhance the performance of
the business. Businesses accept pricing as determined
by the industry & market while failing to understand
how pricing can be tweaked to gain superior control
over the market. Owing to this myopic vision,
businesses work on cost reduction, boosting asset
utilisation, market growth or new market finding
rather than using pricing as a tool to garner advantage
over competitors.
Most executives believe pricing to be a zero-sum
game, i.e. price increase shall lower volume of sales
thus in turn hurting the margin gain, but the other
way round need not necessarily be true. This problem
arises owing to the setting of prices based on cost-plus
basis rather than a customer value point of view basis.
The methods to capture such value are:
• Better understanding of customer’s behaviour and
demand elasticity
• Proper segmentation of customer beyond using
price as a parameter
• Proper communication of the value of the product
• Developing innovative & different pricing
structures that cater to various segments & can
harp upon their full willingness to pay that price
Most often, precise metrics & processes to keep a tab
on pricing are lacking. Thus, exactly quantifying the
impact of incremental pricing actions is a difficult task.
PRICING AS A STRATEGY & NOT A
TACTICAL DECISION
The solution to this problem is that pricing strategies
should be defined, measured, executed and managed.
Focusing on pricing and getting heterogeneous
departments to operate in sync, companies can deliver
anywhere between three-percentage-points to ten
points improvement in EBIDTA. Pricing strategies
are constantly changing, even if not recognised by the
industry members. Many of them are original and
new in nature, while some are borrowed from other
industries with modifications to suit the industry
in discussion. American Airlines pioneering use of
pricing to maximise its fleet’s capacity utilization was
significantly instrumental in making it a strong force
in the airline industry. This pricing has been borrowed
by the fashion industry presently by using yield
management to optimize their use of markdowns.
Many executives assume that pricing is a tactical
decision rather than a strategic decision. This being
said, there have been multiple companies wherein
pricing has been a strategic decision, such as:
• Wal-Mart (Every Day Low Prices)
• Microsoft (MS Office system package is much
cheaper than the cost of individual components)
The strategic decision on pricing by these companies
upset the competitive balance of powers in their
respective industries.
EXAMPLES OF PRICING STRATEGIES
I) Experience-Curve Pricing
Over years of gaining experience in the market by a
product or service, its cost goes down. The competitor
that reduces its prices earliest will gain market control
by speeding up experience & by creating an advantage.
Companies such as Apple, Samsung use this strategy
well with their phones and other electronic devices.
Prices for new phones while launching are high, then
they are pulled down once other new products enter
the market.
II) De-Averaged Pricing
Pricing should reflect a combination of relative
competitive positions by customer, segments or
other factors. The company that realises its strengths
& weaknesses as compared to other companies can
differentiate its prices for different markets & thus
maximise its profit & disrupt the industry dynamics.
Most companies set a standard MRP price across
segments & locations thereby failing to increase
grasp of the brand in various segments. This method
of pricing can easily provide an opportunity for
competitors to lure away more profitable, low-cost-
to-serve customers by catering to prices in their
requirement bracket.
III) Bundling
If a company has a broader product or service range
than its competitors, it can cater to the customer’s
demand for a bundled alternative. Industries such as
telecommunication, financial services, retailing and
software have successfully implemented bundling to

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get advantage over its competitors. In US, the concept
of getting new phones with service provider bundled
up is a strong example for this type of pricing. In
India too companies like Vodafone & Airtel have two
year contracts available for customers along with the
iPhone 6.
IV) Loyalty-Based Pricing
Superior information technology aids companies
in using customer’s purchasing history in terms of
volume and mix to determine tailor made pricing
for the customer. Such loyalty reward systems act
as a motivator for customers to invest in making
a continuous relation with the company & creates
a pseudo-firewall preventing them to reach out to
competitors. Banks use this type of system well to set
the interest rate for lending out to corporates and in
countries like US even to retail customers.
V) Dynamic Pricing
Setting prices closer to the moment when a customer
needs a product or service is increasingly possible, but
it requires a deep understanding of full and marginal
costs and investments, and of the value proposition
for the customer. One stark example of this would
be the pricing policy followed by airline industry.
During peak holiday season, as the booking date nears
the ravelling date, the price of the ticket increases.
Similarly, if booking the ticket nearly 2 to 4 months
before, the cost of the ticket is much cheaper than in
the previous case.
CURE FOR PRICING MYOPIA
Responses to the below mentioned fundamental
questions shall provide the first step to reduce pricing
myopia:
1. What is the effect of price fluctuation by 1%, on the
bottom line?
2. Which are/are not the price sensitive customers?
Why?
3. Which departments & functions control the final
pricing decisions?
4. How can pricing be changed to gain an advantage
in the industry?
The return on companies developing a globally
recognizablepricingcapabilityisveryhigh.Companies
recognising this can easily set prices that will maximise
revenues & market share along with increasing profits
and delivering sustained competitive advantage.
REFERENCES
Change This , Emerald Insight , Value Vantage Partners , BCG
Perspective