It was just another distributor meeting for Devita Saraf, CEO of Vu Technologies. Until a dealer cornered her and held forth on why she needed to focus on sub-Rs 10,000 24-inch television sets, because that’s what the mass market wanted. Volumes could increase dramatically, said the dealer.
Saraf heard him out, and then told him she was not chasing volumes. In fact, she added, she was planning to cut production of the few 24-inch screens that Vu produced.
The margins become almost non-existent when you go below a certain size, she tells me when I meet her at The St. Regis hotel in Mumbai. “I buy one Starbucks coffee for me and one for you and there goes half my profit for that small TV,” she says, half in jest. I check the prices later, pretty sure that she was exaggerating to make a point. A tall cappuccino costs Rs 175, so she’s looking at a margin of roughly Rs 700 on a TV that costs on average, Rs 10,000; that’s 7%. Globally, television sellers have been forced to slash margins to 10%-plus from the glory days of 50%-plus, thanks to the higher cost of production and far stiffer competition than ever before.
When I ask, she says she doesn’t share margin numbers because she has dealers ranging from online biggie Flipkart to Kohinoor Stores, and that means a huge difference in margins. Like most other players, Vu throws in installation and some service for free along with every set. Installation costs are the same regardless of the size of the TV, she says, which means margins on the smaller sets are anaemic.
The conversation with the dealer, and later with me, pretty much sums up Saraf’s approach to business: Gun for profits and a luxury niche, rather than sweating over volumes. It’s a bold move, given that she’s up against giants like Samsung and Sony with their huge research spends and marketing muscle. But she doesn’t want to compete with the likes of Videocon and Onida at the other end of the spectrum.
Then again, it’s a large market, and there’s room for Saraf’s brand of chutzpah. Niju V., director with market research firm Frost & Sullivan, says the market for flat-screen televisions is growing by almost 15%, which translates to 1 million units a year. By 2020, he says, the market will touch 19 million unit sales. Much of this growth is to do with the fact that most homes have more than one TV. In fact, it’s pretty much the first big buy for most people, often even before an air conditioner or washing machine.
Saraf says her dealers often push for other electronics with the Vu brand—air conditioners and mobile phones are often suggested, she says. Their logic: “Jo dikhta hai, woh bikta hai”, or what sells is what is seen. So, more shelf space means a greater chance of people buying Vu. However, that’s not what Saraf wants. She doesn’t see herself as someone who hawks hardware, but rather as a purveyor of “a brand that’s cool”.
A short walk from The St. Regis is the Phoenix Mills mall, and Saraf rushes me there to show off her store. We enter, and it’s as if a switch has been hit. Saraf turns from a shrewd businesswoman-who-looks-like-a-Mumbai-socialite to the quintessential salesperson. She urges me to consider “the latest metal-brushed luxury TVs that have just come in”. I play along and make uncertain noises about the price, so she’s quick to pivot and point me to the entry-level range. It’s a masterclass in selling, and if I was hooked to TV shows, I may have ended up handing over my credit card to her.
Is that really what she enjoys doing, I ask when we get back from the store visit. She laughs, and says it’s something she’s been doing for a long time at many of her stores. Sure, it helps her understand what customers want, but I get the feeling she enjoys the process of making a sale. She likes meeting and interacting with people, not just in the garb of a salesperson; she has helped host events for Burberry in India.
Making TVs has little to do with selling them, so what is Saraf’s deal? I know that like most of the newer consumer electronics brands, her products are manufactured in China. Who designs them? Is she as closely involved with the nuts and bolts of production and distribution as she is with the marketing? Turns out, she was the one responsible for a collaboration with Intel, and the subsequent designing of Vu TVs in California.
It all started back in the 1990s when Saraf joined her father’s company, Zenith Computers, while she was still a student. At a chance meeting in Mumbai with Jason Chen, then Intel’s vice-president of the sales and marketing group and co-general manager, Asia-Pacific operations, Saraf realised that conversations in the tech world then were all around building a sub-Rs 10,000 personal computer. She talked with Chen about how Intel and Zenith could work together to come up with something different. “I wasn’t interested in pushing for discounts, I wanted to open up new segments,” she says. Intel told her to come back with an idea, and her entrepreneurial journey began.
Student ID in hand (she was doing business studies at the University of Southern California), Saraf began visiting R&D labs across the world, including Industrial Technology Research Institute’s innovation lab in Taiwan, Intel’s innovation lab in Oregon, and Massachusetts Institute of Technology’s Media labs. She met scientists and researchers, and began putting together an outline of what she wanted to create. By then, she also realised that the profit margins on a sub-Rs 10,000 computer would be wafer thin.
She also began to see how consumption patterns were changing. “It’s something you notice when you are in and out as opposed to always being in the market,” says Saraf.
Her insight on the changes in consumption led to the birth of Vu Technologies. The idea was to offer high-end electronics to young, urban customers. Digital photo frames, home entertainment systems, and similar (expensive) gadgets were on offer. There was also a digital home concept—a high-end PC, speakers, a big TV and an RF keyboard—which cost what was then a whopping Rs 3.5 lakh. When she approached dealers to stock this, they looked at her as if she had brought a spaceship to sell in a car showroom.
Was she disheartened that her idea wasn’t taking off? With characteristic feistiness, Saraf says she began listening more closely to customer feedback. “Listen to your customers; they will tell you what your strategy should be,” she says. And what they told her was that the TV Vu was offering as part of various entertainment systems was good value for money. They would be happy to buy the TV alone, said many. Saraf got the message and decided to focus on the idiot box.
From the beginning, Saraf was sure that she wasn’t going to get into the actual manufacturing of the TVs. She began looking around for suppliers, and became a regular at trade shows such as the CES (Consumer Electronics Show) in Las Vegas. And she started meeting manufacturers in China.
Did she never plan to set up a factory in India? Not even after the high-decibel Make in India campaign, I press. “Honestly, we are worried about quality when manufacturing in India because an ecosystem for manufacturing is not there. And the government gives sales tax benefits only in certain zones, where the logistics costs eat up the cost saving.” (Are the Make in India proselytisers listening?)
Saraf hadn’t forgotten the conversation she had with Intel’s Chen, and was processing all she learnt from her various lab trips. “I studied the human-factors approach to product development,” she says, explaining why she set up a new products development centre in California. “We have a team of engineers and designers who research trends in the market and consumer preferences and come up with new products.” She adds that the plan initially had been to tie up with Intel for innovation and marketing, but Intel was hit with a monopoly suit in the U.S. in 2005, which meant it could not fund outsourced R&D. The Vu development office in California was resized.
Designed in California, made in China, and sold in India: Isn’t the global nature of this business terribly complex? “The biggest hardship is making sure our profits remain intact, since the margins are slim and the dollar fluctuates,” she says, adding that companies like hers can lose big money because competition drops prices temporarily, or because logistics costs shoot up suddenly. What about managing the workforce, I ask. Is that a challenge? “People management is always a challenge,” is the instant reply. “I’m not keen on managing a large workforce. We have 200 people who work like a tight ship to make sure our development, sales, commercial, HR, and services work like clockwork and can scale during high sales of festive season,” she says.
Talking of losing money, I ask Saraf about her big investor, the one she calls “bank of dad”. Raj Saraf, who set up Zenith Computers and took it to dizzying heights in the days when computers were still rare objects, gave his daughter Rs 7 crore to set up Vu. (She hasn’t returned that money; “I don’t think there has ever been a line between his money or my money,” she says. “He doesn’t want me to repay him quickly, he is looking for the business to grow”.)
I ask père Saraf what he thinks of his daughter getting into this line of business. “I had no hesitation because it was an industry that she knew something about and of which I had some knowledge. I would be really worried if she had wanted to start a fashion label or a jewellery line,” he says, smiling at the thought.
Did he always know she would set up shop on her own, I wonder. Or had he hoped she would follow him into Zenith? (That was before he shut the company in 1995, of course.) Her early days in business show that her father clearly expected one of these two. When she entered Zenith, she was thrown head first into the accounts department, where she learned where the cash flow bleeds, where the profits are made, where expenses need to be watched and so on. “The marketing and sales, which she really has gotten good at, came much later,” says Saraf’s visibly proud father.
Sales and marketing are clearly Saraf’s forte. In the early days of Vu, the company consisted of her and six executives, and an annual marketing budget of Rs 1.4 crore. She was personally involved in selling to high-end clients, and the first two customers were the Oberoi and Taj properties in Mumbai. She sold them a couple of dozen units, which were used for signage.
From hospitality, she moved to banking, and sold a few thousand TVs to HSBC and ICICI. To be sure, the numbers weren’t phenomenal, but it was enough to keep afloat. Saraf says the first five years of Vu were all about getting the positioning right. “We were driving at becoming a Zara, not a Gucci or a Pantaloon,” she says. This isn’t to say that she isn’t driven by a certain cash-grab expediency to maximise in the business that she got into. She says she’s always admired the science behind what appears to be ingrained luxury. “There’s a set format and a checklist in creating an ambience of luxury for most products,” she adds.
Which is not to say she ignores the bean-counting in favour of creating an ambience. Saraf was either smart enough or lucky enough (or both) to wangle an exclusive sales deal with Flipkart in 2014. That’s paid off in spades. Today, some 60% of her sales comes from online buyers; her top line has grown 10 times to Rs 275 crore in the past two years. Vu has a wide range, but is available only at lesser-known outlets. For example, it prefers Kohinoor to a Vijay Sales. “If you have a recognised brand, it’s not hard to find or ask for a product by name in a shop,” says Saraf senior.
It’s difficult to estimate Vu’s share of the market because the segment it plays in is highly fragmented. Players such as Micromax have entered the flat-screen space, leveraging the huge reach that selling mobile phones has given it. Micromax sells more than 1 million TVs a year, but is clear that its focus is on “the belly of the market” says Shubhajit Sen, director of marketing, Micromax. I ask if Vu is emerging as a serious competitor. “I think each company in the TV segment is following a different trajectory and we don’t see any threats from anyone,” he says. He adds that Micromax plans to focus on the sub-Rs 50,000 segment, “which is not the premium segment”.
At the premium end are companies like Samsung, with R&D budgets running into millions of dollars. Samsung accounts for 31.5% of the TV market, says Rajeev Bhutani, vice-president of Samsung India’s consumer electronics business. “All the players in the industry have their own objectives but we have our own strategy to sustain and protect market share,” he says, when asked about competition. He’s not worried about customers opting for a lesser-known brand; customers need to have confidence in a brand, he says, and don’t look only at value for money.
What is Saraf’s strategy to take on peers and biggies? Quite simply, she doesn’t plan to. She’s happy to play in the niche she has created for Vu. She knows she doesn’t have huge budgets to spend on R&D and marketing, and would rather pump funds into opening stores in premium locations. She raised some eyebrows when she decided she would be the face of the brand, rather than pay for an expensive brand ambassador. That saved her a pretty penny—and she got people talking about her and her brand. Equally, she’s pragmatic about the future. “I’m just 35 years old. If someone comes across to me with an amazing offer, I’m not going to say no”. And if she does sell? She’s confident that she’ll build another business from the ground up.