IMB 357

S. Ramesh Kumar, Ande Teja and Syed Hussain prepared this case for class discussion. This case is not intended to serve as an endorsement, source of primary data, or to show effective or inefficient handling of decision or business processes. Copyright © 2012 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the permission of Indian Institute of Management Bangalore.

S. RAMESH KUMAR, ANDE TEJA AND SYED HUSSAIN

EXPLORING CATEGORY BENEFITS FOR BRAND BUILDING: KAYA AND THE BEAUTY CARE MARKET

India has been an emerging market that is witnessing radical changes in lifestyles and spending patterns of customers. Customers have been used to branded creams and lotions, and several of these offerings are being advertised with strong symbolic appeals associated with enhanced self-concepts. Kaya was also a brand in the beauty care category. However, the brand’s offerings dealt with medically anchored services intended to enhance the looks of the customers. The brand opened up a new facet of beauty care services that was associated more with up- market and state-of-the-art hospitals, where customers opted for these services under the supervision of doctors who had specialized in cosmetic surgeries/interventions. Would the differentiation between the first-time users of a beauty parlor and the loyal customers of a parlor offer insights that Kaya would find useful? Issues related to services management as well as customer value and customer loyalty were relevant to Kaya’s competitive strategies. Although the customers of a beauty parlor could be demographically different from Kaya’s customers, the commonality of the benefits related to the beauty services offered were the same. The challenge for Kaya was to use the insights from the customers in a related category of beauty parlor services in developing its category that did not face direct competition. INTRODUCTION: BEAUTY CARE INDUSTRY IN INDIA Traditionally, beauty care products in India had been limited to herbs and homemade products. Only soaps, hair oil, shampoos, and talcum powder from the organized industry had been able to penetrate the Indian market. However, with a steady increase in the awareness of hygiene and personal grooming across urban and rural India, several beauty and personal care categories gained momentum. In India, marketing activities generally involved popular celebrities, and traditionally highlighted aspects such as elimination of body odor and dandruff, improved oral health, and the prevention of infection. This further boosted the demand for beauty and personal care products. The Indian beauty care industry grew rapidly in a few years with the penetration of premium beauty care products and services. The rising disposable income and the changing lifestyles of Indians led to a boom in the beauty and personal care industries. The India skin care industry, for instance, was forecast to grow at 9% compounded annual growth rate (CAGR) during 2009–2014.1 Major fast-moving consumer goods brands such as Hindustan Unilever Limited (HUL) and Procter and Gamble (P&G) aggressively expanded their product portfolios, distribution networks, and marketing activities in this segment. With the proliferation of beauty and personal care categories and brands, customer awareness of the different types of products and brands increased. The consumption of beauty products and services seemed to have experienced significant growth.2 The emergence of brands such as Marico’s Kaya Skin Clinic, Lakmé Beauty Salon, VLCC, Shahnaz Husain Herbals, CavinKare’s Limelite, Green Trends, Keune, and Jawed Habib Hair & Beauty (JHHB) could be attributed to this trend. The boom was evident: HUL was opening up a new Lakmé salon almost every week, and JHHB had grown from 37 parlors in

1 Staying ahead of the game: How companies are adapting to the changing face of beauty, Euro monitor, November 2010, http://www.euromonitor.com/staying-ahead-of-the-game-how-companies-are-adapting-to-the-changing-face-of-beauty/report, accessed on October 3, 2011. 2 Beauty business set to boom, http://economictimes.indiatimes.com/news/news-by-industry/cons-products/fashion-/-cosmetics-/- jewellery/beauty-business-set-to-boom/articleshow/8921457.cms, accessed on July 12, 2011.

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2006 to 225 by the end of 2010. The boom in the Indian beauty market was also able to attract large multinationals, such as Jean-Claude Biguine with annual revenues of over 150 million Euros, to set up parlors in India.3 The predominantly unorganized, locally run beauty parlor market was being replaced by branded chains such as Lakme, which was changing the face of this industry in the country. These branded beauty parlors were the leaders in a new era of trained parlor personnel. They offered services based on global insights and professional products that incorporated the latest international technologies. The approximately INR 7,000-crore (1 crore = 10 million) organized and unorganized hair and beauty industry was growing at a CAGR of 35%. The industry was estimated to reach a potential business of INR 30,000 crore by 2015. Personal hygiene products (soaps and shower products), hair care and skin care products, color cosmetics, and fragrances were the key segments in the Indian beauty care industry (Exhibit 1). The skin care segment was relatively smaller than the personal care segment. The anti-aging cream segment alone, which was only 2% of the skin care market, had been growing at a rate of 90%. The increasing number of educated and working women in the corporate world was a major driver for this rapid growth. What made this industry even more fascinating was that even with the high growth rate, the Indian market was largely untapped, compared to other developing markets. In comparison, a developing country such as China spent ten times more on skin care, six times more on cosmetics, and twice more on hair care on a per capita basis (Exhibit 1). It is also worth noting that India had the highest percentage of women in the age group of 25–44 years, which was the key segment for the beauty industry.4 These figures and facts indicate the huge unrealized potential of the Indian market. Given the vast potential of beauty care services in the country, customer perception about the value related to the delivery of services, customer loyalty, and brand perception were important from the perspective of any branded or unbranded offering in this category. KAYA SKIN CLINIC In December 2002, after conducting extensive research, Marico identified an emerging need in the market that translated to an aspiration to look and feel good. On furthering this understanding with the customers, a more focused need that was still untapped was identified: that of having flawless skin that looked good naturally. Thus, the first Kaya Skin Clinic was launched with the single-minded objective of delivering flawless skin solutions customized to Indian skin using the latest technology. In 2011, Kaya had opened 81 clinics spread across 26 cities in India, 18 highly successful clinics in the Middle East, and 2 clinics at Dhaka in Bangladesh. In May 2010, Kaya acquired the aesthetics business of the Singapore-based Derma Rx Asia Pacific Pte. Ltd. (Derma Rx). The company expanded its portfolio with the launch of more services such as lip enhancement as well as fairness and hair removal services. Kaya Skin Clinic had a number of services and solutions such as skin beauty, skin concerns, laser hair reduction, and anti-aging. Their product range included over 40 skin, hair, and body products for women and men. Kaya offered 360 degree skin care solutions that included advice on proper diet and exercise regimens. All the services offered at Kaya Skin Clinic were designed and supervised by a team of over 250 dermatologists. The services were carried out by certified skin practitioners who had undergone more than 300 hours of training. The services were US FDA-approved and tested in-house, and conformed to the highest international quality standards. All the services were competitively priced, starting from INR 1,250. Kaya had over 600,000 satisfied customers. Kaya conducted frequent in-house training programs for its skin practitioners and dermatologists. Once in six months, Kaya held training-cum-refresher courses for its staff to keep them up-to-date with the latest skin care techniques that were available internationally. Its team of dermatologists also participated in the in-house Continuing Medical Education (CME) program, where international doctors met to discuss various trends in the field of skin care.

3 Beauty’s bet: JCB plans to set up shop in India, http://economictimes.indiatimes.com/beautys-bet-jcb-plans-to-set-up-shop-in- india/articleshow/1773980.cms, accessed on July 12, 2011. 4 Outlook for personal care industry: An Indian perspective, Tata Strategic Management Group, http://www.tsmg.com/download/article/Personal_Care_Chemicals.pdf, accessed on September 12, 2011.

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Kaya was divided into six service verticals, namely, Skin beauty, Skin concerns, Hair-free, Anti-aging, Bridal, and Kaya Men. Unlike other retailers, Kaya had not adopted the franchisee model. The company owned each of its clinics, because Kaya Skin Clinic believed in providing consistent services across the country. PHILOSOPHY OF KAYA5 The philosophy at Kaya was governed by the single value of placing the customer first at all times. The word “Kaya” in Sanskrit meant “body.” Kaya was all about personal confidence through expert skin care that seamlessly blended looking good with feeling good about one’s inner and outer selves at all times. The emphasis, therefore, was on highly customized and personalized services that were best suited for the Indian skin. The services were provided in a state-of-the-art clinic with a Zen-like ambience. The core values of Kaya Skin Clinic were:

• Customer First: Spirit of Partnership: Keeping the customer in focus and partnering to deliver skin care solutions. Doing what was in the best interests of the customer; business interests would follow.

• Openness: Allowing diversity of opinion by listening to members without bias. Sharing information both good and bad, and having a sense of trust and respect for each other.

• Ownership: Having a “my Kaya” mind-set. What would I do if I were the owner of the business? Displaying seamless behavior across the organization when necessary, rather than drawing boundaries of functions/grades in the interest of the organization.

Exhibit 3 presents some of Kaya’s print advertisements. They give an idea of how Kaya tried to differentiate itself from regular beauty parlors by consistently emphasizing its technology, the expertise of its dermatologists and skin experts, and so on. Kaya Skin Clinic could be called a chain of cosmetic dermatology clinics. It was a pioneer and thought leader in the skin care services space in the country. It offered its clients tailor-made, result-oriented, safe, non-surgical skin solutions, with the latest and most suitable technology available in the world. These services were completely administered by dermatologists. Any beauty or skin care brand/service could be considered as competition for Kaya. One of their biggest competitors would be individual doctors and dermatologists who offered one or two specialized services. It was in this context that Kaya needed to use the commonality of the category benefits to develop its brand, especially among loyal customers. KAYA’S APPROACH TO OBTAIN INSIGHTS ABOUT THE CATEGORY BENEFITS In an emerging market such as India, personal and beauty care has attracted the attention of consumers in several ways. There have been several products and services in this sphere. One recent addition to this category is the services of Kaya that is medically anchored. It is interesting to find that in several markets and product/service categories, consumers prefer a range of offerings or delivery mechanisms to obtain the benefits of the category. For example, for urban transport, there are two-wheelers and four-wheelers; for hair care, there are hair oils and creams; for knowing the time, there are both watches and mobile phones; and for skin care there are creams, lotions, soaps and gels, and cosmetic surgeries. Beauty care has evolved in India from making use of homemade products to obtaining the services of well-known brands. Although socioeconomic status and psychographics of consumer groups may influence the type of offering/delivery mechanism, the case is written from the viewpoint of the marketer who would like to learn about consumer loyalty through a substitute in the category. Kaya’s services and beauty parlor services are meant for different types of consumer segments. Kaya, being at a stage in the market where it does not face much of direct competition owing to the emerging nature of the category, the brand would like to know if there can be lessons learnt from a service that is related to its services. For example, the hospitality aspects, ambience, response of the service providers to the needs of the consumer (in this instance, consumers in the beauty care segment) and what differentiates a loyal consumer from a new consumer are dimensions that are common to both Kaya’s services and beauty parlors: they may vary in their styles and approaches.

5 Kaya Culture, Kaya Philosophy, www.kayaclinic.com, accessed on September 13, 2011. Note: Additional information about Kaya Skin Clinic was provided by Garima Sharma and. Aditi Chada of Kaya Skin Clinic.

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What should a “self-concept”-centered service category in a market do to obtain inputs in a category that has evolved little? The case’s survey was triggered by such a question and beauty parlor services were selected for the purpose. This point can be illustrated as follows. Benefits of beauty care Self-concept of the customer Self-concept of the consumer

Beauty-based services Beauty-based services

Kaya’s services (new offerings forming a subcategory) Beauty parlors

Dimensions of customer loyalty Dimensions of loyalty

Differentiation between new and loyal consumers Insights Differentiation between new

for Kaya and loyal customers METHODOLOGY OF STUDY The objective of the study was to compare the value perception of first-time customers and loyal customers of beauty parlors in order to obtain category insights that Kaya could use. We were interested in finding out how an emerging category (technology-based beauty care in the consumer market and not in the conventional medical market) in an emerging market without direct competition can obtain insights from a related category (beauty parlors) that offers the same core benefit of beauty care. This context (emerging category, related category with the same core benefit as the emerging category and the emerging market in the Indian context) was a unique one and the case focused on a learning that would be useful to Kaya in terms of understanding the behavior of “first-time’’ consumers and loyal consumers. The value perception needs to be built around the customers’ experiences of the service at the service provider’s premises. The questionnaire had a scale related to several components of the service experience as shown in the three sections of Exhibit 2. Responses were collected from the residents of three Indian cities, namely, Bangalore, Hyderabad, and Delhi. The data collection was done in June and July 2011. Data from 50 first-time customers and 50 loyal customers of beauty services were collected. Loyal customers of a beauty parlor were those who had visited the same parlor more than thrice. Given the nature of the category as perceived by the authors, they opined that a respondent who had visited a parlor more than thrice could be considered a loyal customer. The respondents were drawn from among students and working professionals. The Likert scale was used to rank their responses. The list of items that reflected the dimensionality of the value perception in the context of beauty services was developed based on extant academic literature.6, 7, 8, 9, 10

6 Millan, A. & Esteban, A., Development of a multiple-item scale for measuring consumer satisfaction in travel agencies services, Tourism Management, October 2004, 25(5), 533–546. 7 Sweeney, J. C., & Soutar, G. N., Consumer perceived value: The development of a multiple item scale, Journal of Retailing, 2001, 77(2), 203– 220. 8 Jensen, Ø. & Hansen, K. V., Consumer values among restaurant consumers, Hospitality Management, 2007, 26, 603–622.

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Would differentiating between first-time customers and loyal customers be a worthwhile exercise for Kaya? Would studying the customer’s decision-making process be useful to the brand? Kaya had to decide what kind of insights could be obtained from the data on beauty parlor customers in order to develop itself in an emerging market in which the brand was required to diffuse itself.

9 Sheth, J. N., Newman, B. I. & Gross, B. L., Why we buy what we buy: A theory of consumption values, Journal of Business Research, March 1991, 22(2), 159–170. 10 Huber, F., Herrmann, A. & Henneberg, S. C., Measuring customer value and satisfaction in services transactions, scale development, validation and cross-cultural comparison, International Journal of Consumer Studies, 2007, 31, 554–564. The authors would like to thank Garima Sharma and Aditi Chada, Executives of Kaya Skin Clinic, and Deepa Rajaram who had earlier worked for the company for their sustained support to this case initiative. The authors would also like to thank Prof. Dinesh Kumar, Chairperson, Research & Publications, IIM Bangalore for the support provided.

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Exhibit 1 Market share of segments in the Indian beauty care industry, with a comparison of the

market distribution in India and China11

11 Outlook for personal care industry: An Indian perspective, Tata Strategic Management Group, http://www.tsmg.com/download/article/Personal_Care_Chemicals.pdf, accessed on September 12, 2011.

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Exhibit 2 Responses of customers of beauty parlors (first-time customers vs. loyal customers)

Item

Average of responses

Loyal customers First-time

customers

Section 1

Ambience of the beauty parlor is expected to be attractive and comforting 4.21 4.27

Employees at the beauty parlor are expected to be well-groomed 4.37 4.38

Employees at the beauty parlor are expected to be polite and friendly 4.56 4.43

Employees at the beauty parlor are expected to be willing to help me with

initial queries regarding the products and services

4.47 4.19

Employees at the beauty parlor are expected to be dedicated enough to

answer all my queries

3.74 3.62

I expect that the service would help me mingle better with friends/people 3.02 2.84

I expect that the service would improve my confidence level with regard to

interpersonal aspects

3.19 3.22

I expect that the service would help me become more attractive (as

perceived by others)

2.98 2.97

I expect that the services would help me improve my social relations 3.19 3.14

I expect that the service would make me feel good about myself 3.88 4.00

I expect that the service would make me feel confident about myself 4.00 4.11

I expect that the service offered will be relevant to my needs 4.30 4.32

I expect that the service will have a high standard of quality 4.58 4.41

I expect that the service quality will be consistent in all subsequent visits 4.35 4.27

I expect that the service will have a long-lasting effect 3.77 3.84

I expect that the service will be different from what is offered in other

parlors

3.98 3.54

I expect the service to be reasonably priced 4.12 3.97

Section 2

The beauticians created an amicable environment for me to communicate

my needs

3.91 3.65

The beauticians were able to identify my needs correctly 3.67 3.27

All the products and services suggested were relevant to my needs 3.65 3.24

I was well-informed about the benefits that each product or service would

provide

3.23 3.14

I was well-informed about the side effects of the treatment well in advance 3.07 3.19

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The beauticians at the beauty parlor were punctual at keeping the

appointments

3.88 3.70

The beauticians treated me well while conducting the sessions 3.70 3.73

The technology used in the treatments was the most advanced and offered

the best results

3.70 3.49

Section 3

I found the ambience of the beauty parlor to be attractive and comforting 4.00 3.86

I found the beauticians at the beauty parlor to be well-groomed 4.00 3.89

I found the employees polite and friendly 3.98 3.76

I found the employees very helpful 3.79 3.65

I felt that the employees dedicated enough time in answering my queries 3.44 3.38

I felt that I improved my confidence level with regard to interpersonal

aspects

3.02 3.03

I felt that I became more attractive (as perceived by others) 3.09 3.14

I felt that I improved my social relations 2.79 2.95

After using the services, I felt good about myself 3.79 3.78

After using the services, I felt more confident about myself 3.51 3.70

The services offered were relevant to my needs 3.88 3.70

The services offered were of high quality standards 3.65 3.73

The service quality was consistent throughout the course of the sessions 3.65 3.65

I felt that the beauty treatment would have a long-lasting effect 3.09 3.03

I found the services offered to be unique 2.77 2.84

The services offered were reasonably priced 3.21 3.05

I would recommend the service to those who seek my advice about such

matters

3.77 3.59

I would encourage my friends and family to use the service 3.81 3.70

I would post positive messages about the service on Internet forums/social

networking sites

3.19 2.95

I would continue using the services of this beauty parlor 4.02 3.59

Source: Figures were derived from the field survey carried out by the authors

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Exhibit 3 Print advertisements of Kaya Skin Clinic