Marketing Management

Aava Natural Mineral Water (A & B)

Group 1:
Anupam Shukla | Bhawana Tamrakar | Francis Sebastian | Nidhi Kaicker | Sunita Rani
Sachin Abda | Suresh G.

Q1: Considering the growing competition in the market, which customer segment(s) should Aava target
primarily, and accordingly which product stock keeping units (SKUs) or package size should it focus on?
Should it target the large institutional customers (SKU 200 ml bottles), retail and small institutional
customers (SKU 1 liter bottles) or the bulk water customers (SKU 20 liter jars)? Taking the two cities of
Ahmedabad and Mumbai as the base, which SKU is more profitable for the company? Conduct the
profitability analysis of various SKUs considering different parameters?

Answer:
Currently, Aava product portfolio comprises Natural Mineral Water is varying SKUs, including Aava
Mini (200 ml), Aava Personal (500 ml), Aava Sports (750 ml), 1 litre cup-cap bottle, and 20 litre bulk
jars. It is also into 1.5 litre packs, and 5 litre and 10 litre bulk jars. Aava has presence in Ahmedabad and
Mumbai, and currently, some of its variants, especially the bulk jars are available in Ahmedabad only.
The small units (200 ml and 500 ml) are targeted towards large institutional clients such as airlines and
hotel chains. 750 ml pack, with its specialised packaging was targeted towards sportspersons. The
medium sized units (1 litre) was targeted towards retail stores, shopping malls, super markets,
hypermarkets and small institutional customers, including restaurants, clubs, banquets, caterers etc. The
bulk SKUs (especially 20 litre) was targeted at domestic household buyers and corporate offices.

If we consider the sales mix, 65% of the sales come from the Aviation Sector (which is primarily small
SKUs – 200 ml bottles) followed by 23% from Institutional Sales (including 200 ml and 500 ml bottles).
The retail segment (1litre packs) contributed to only 7% of Aava’s Sales, and the bulk buyers (20 litre
packs) contributed 5%.

The following table summarizes the sales volumes of its three primary SKUs – 200 ml, 1 litre and 20
litres, along with the operating and fixed costs for each. The contribution margins for each SKU is also
calculated. Because of the difference in dealer prices and interest costs in the two cities of Ahmedabad
and Mumbai, we conduct the profitability analysis separately for these two cities.
 Aava Aava Bulk
SKU Bottle Bottle
Mini Mini Jars
Quantity (ml) 200 200 1000 1000 20000
No. of SKUs per box 24 12 1
No. of SKUS Sold 29956368 1633497 160K
Boxes Sold 1248182 136125 160K
CITY AHD MUM AHD MUM AHD
COSTING(Rs. Per Unit)
Raw Material (Plastic Preform) 1.10 1.10 2.90 2.90 3.00 For Bulk: (@ Rs. 150, used 50 times)
Bottle Cap 0.24 0.24 0.24 0.24 1.50 For Bulk: (@ Rs. 1.5 used once)
Label 0.13 0.13 0.35 0.35 0.63 For Bulk: (@ Rs. 1.25 used twice)
Shrink Packaging 0.30 0.30 0.90 0.90
For 200 ml & 1L, it is 3% of Raw
Wastage 0.04 0.04 0.11 0.11 1.03 Material plus Packaging; for Bulk, it
is 20% of the Variable Cost
Distribution Cost 0.20 0.50 0.50 1.40 10.00
Electricity, labour &
0.50 0.50 0.90 0.90 5.00
Miscellaneous
Interest Cost 0.16 0.17 0.80 1.20 2.40
Assumption: If Interest Costs
are Included in Fixed Cost:
Total Cost - Variable, Wastage,
2.67 2.98 6.70 8.00 23.55
Fixed, Interest, Distt
Excise Duty Rate (%) 12.36 12.36 12.36 12.36 12.36
12.36% of total cost; for 1 litre, it is
Excise Duty 0.33 0.37 1.36 2.04 2.91
12.36% of 55% of MRP
VAT Rate 15% 15% 15% 15% 15%
Calculated as 15% of total cost, excl
VAT 0.40 0.45 1.01 1.20 3.53
excise
Total Cost including Taxes 3.40 3.80 9.07 11.24 29.99
Selling Price / Dealer Price 4.00 4.25 11.00 15.00 60.00
MRP 20.00 30.00 70.00
Margin per Unit 0.60 0.45 1.93 3.76 30.01
Margin (%) 18% 12% 21% 33% 100%
Assumption: If Interest Costs
are Excluded from Fixed Cost:
Total Cost - Variable, Wastage,
2.51 2.81 5.90 6.80 21.15
Fixed, Interest, Distt
Excise Duty Rate (%) 12.36 12.36 12.36 12.36 12.36
Excise Duty 0.31 0.35 1.36 2.04 2.61
VAT Rate 15% 15% 15% 15% 15%
VAT 0.38 0.42 0.89 1.02 3.17
Total Cost including Taxes 3.20 3.58 8.15 9.86 26.94
Selling Price / Dealer Price 4.00 4.25 11.00 15.00 60.00
MRP 20.00 30.00 70.00
Margin per Unit 0.80 0.67 2.85 5.14 33.06
Margin (%) 25% 19% 35% 52% 123%

As can be seen from the above table, the highest margins lie in the Bulk Water Segment, despite high
distribution costs, and the lowest margins are in the small SKUs. But for Aava, the maximum sales
actually come from the smallest SKUs.
To understand, which segment should Aava target, and accordingly, which SKU Aava should focus on,
we have to understand the competitors as well as consumers.

Competitive Environment
The primary players in the natural mineral water segment are as follows, along with their strengths in the
Industry:
Player
Segment Strengths
(Sales Turnover)
Premium  Strong Brand Equity of Tata
Modern trade stores,  Leveraging on Tata Network
High end retail outlets  Superior understanding of Indian Market
Hypermarkets  Harnessing the perception of consumers - related
Himalayan
Hotel chains to purity of Himalaya
(22 Crore)
Entertainment zones  Elegantly designed pink colored bottle
Fine-dine restaurants  Strong network distribution
(20000 retail outlets  TV Commercials
across India)  Global distribution- JV with Nourishco

Vedica Masstige  Bisleri brand equity

 Visual Appeal- sophisticated stylish bottle

Premium
 Positioned as fine water with balanced mineral
Qua Fine-dine restaurants
content
(8 Crore) High-end hospitality
 Using Bollywood stars
companies
 Variants (Vitamin Water)
Catch Health conscious  Flavored Variants
(12 Crore) consumers  Soda made up of spring water
Industries
Natural Spring Foreign embassies
(6 Crore) Hotel chains
Airline companies
Elite customer class in
Evian  French Brand
India
Refreshing ,all natural,
Perrier  French Brand
calories ,free beverage

The presence of different (natural mineral water) players in different SKU segments is as follows:
Ahmadabad Mumbai
200ml -
500ml Himalayan, Vedica
750ml - -
1 Ltr Himalayan, Vedica, Qua, Catch, Natural Spring, Evian, Perrier
5 Ltr - -
10 Ltr - -
 20 Ltr - -
However, because of our pricing as well as our current positioning, we are perceived as a ‘packaged
water’ brand, clubbing us with the likes of Kinley, Aquafina, Bisleri, Oxyrich , Bailley and Kingfisher. In
fact, in the retail and bulk business, Aava competes with the typical packaged drinking water players

Institutional segment: It is our main strength as we are the dominant player as there are no competitors
and customer are loyal and ready to pay premium price. We have to consolidate this segment by more
brand recall through advertising and tie-up with hospitality sectors like hotel chains, hospital chains,
Premium Airlines.
Retail segment: To create brand awareness this segment is important, so here the presence is necessary.
The low margins can be sustained because we have more profitability in bulk segment. In this segment,
we can offer more brand extensions or variants like flavoured or medicinal variants, highlighting health
benefit and social status.
Bulk Segment: Our strongest segment in terms of profit margin. As such we are the only one which is
offering natural mineral water as contrary to others who are offering packaged drinking water. So we can
build up this segment.

Q2: 2. Why does Aava feel the need to improve its positioning in the market? Considering how some of
Aava’s closest competitors have positioned their brands, should Aava continue with its current
positioning or should it modify it?

Aava needs to reposition itself considering competitor’s strategies because:

• Aava is being perceived as packaged drinking water, not as natural mineral water (packaging was
similar to packaged drinking water)
• Low brand awareness and recall (due to lack of proper advertisement campaign)
• Customers were not being conveyed about Aava’s source “Arravali”, main health benefits and
attributes
• Brand identity crisis
• Despite lots of efforts , Aava achieved little success in creating premium brand image
• To succeed in market ,it was important for Aava to project right image
• Currently, Aava is not positioned as premium brand (Product differentiation)
Considering the competitor’s s strategy we can say company should try to reposition itself in the market
to sustain in the competitive environment.