Thursday, 18 December 2008

Marketers identify consumer needs. Markets satisfy them.

On a recent visit to the grocer’s, we observed the following. A number of companies have branded rice, salt and wheat flour, but none of these companies sold branded sugar.

Given the concern today on healthy diets, low cholesterol and sugar diets have become much talked about. But while companies have worked to reduce the harmful effects of edible oils, not much work has been done on sugar. We are expected to take to sugar substitutes and the aim is to develop substitutes that taste as well, without the harmful effects.

(Not the same thing. Anyway, this reflection requires some more research.)

However the thought raised another question. That in the commodities business (wheat/ salt/ rice/ sugar etc), there is a trend towards “de-commoditisation”. In something as basic as these elements, companies in India are trying to find “value add” opportunities to create a differentiation. (We have not observed this in more advanced markets; and perhaps that’s why this stood out).

The role of the marketer is to define “segments” on which relevant ( to the consumer) and profitable/ sustainable differentiation can be built. Create markets.

Not all markets start as commodities, but a large number of industries based on processing naturally available raw materials start there.

Then the markets follow four stages.

Stage 1: Commodity: Sugar/ iron ore/ cooking oil/ petrol/ salt etc. These are extracted and then sold. While the market volume indeed is large, the number of consumers who would pay for a brand that adds no value to the commodity is likely to be very low. Companies should not be spending money in mass consumer communication here. The “above normal” profits would not be available.

Stage 2:
Companies identify the possibility to add value on these materials to satisfy an apparent or non obvious need. For example, in India the health benefits of adding iodine to salt developed the salt market in an entirely new way.

The role of marketing media here is to connect to the end consumer to explain the benefit of the new innovation. Education is the key. Above the line drives the speed of this education.(in the consumer goods space).

A late entrant in this stage usually plays the role of “spoiler” and will drive down prices to gain market share. In essence, over time this category will step down to stage 1 commodity level.

Late entrants usually have to invest in their brand, as they category has been well established already. A good research question would be what is the maximum number of players that can profitably battle for the stage 2 market? (Our guess is that starting from the arrival of the 4th player, returns in this business start decreasing)

Hence innovating companies move to stage 3. Brands that establish themselves in stage 2, have the advantage in stage 3.

Stage 3: Segmentation, where higher order benefits are discussed. In this we look at the market for mobile phones. Where once the basic idea has been established, companies are defining phones for different users (business/ consumer), different geographies etc. again to create markets.

Media and the marketing message are continuing to educate consumers, however they are equally concerned about reaching specific segments. Market research becomes critical so as to identify large segments of consumers. Again, wider media options would be ideal here, optimized to the size of each segment being targeted.

For the early innovators, high brand salience requires less communication on the brand level but more on demonstrating the relevance of the new segment.

For late comers, that have not played in stage 2, developing the brand is critical in stage 3. At the same time they must also do one of the two:
1. Define a new sub-segment, build its relevance and hence the brands salience to the consumer.
2. Or demonstrate objective performance superiority in a new sub-segment.

Hence marketing investments have to be on two fronts.

Nokia would be an example of a brand that defined a category (stage 2) and then has continued to differentiate it in stage 3.

Another example, a brand like Tata salt that has established itself in the “iodized salt” category should have found it easier to then define “vitamin enriched salt” for the next stage. (It has not done so).

Stage 4: Super niche categories evolve with inherent high entry barriers as well as high profits. Technology and consumer expectations are very high. Here, we enter super-niches. Mass market communication tools are sub-optimal as the size (volume) of the segment decreases.

New entrants in the market must understand where their offerings would fall in the stage-wise evolution of markets. Without this understanding defining of the marketing mix is risky and inefficient.

Ritu and Venkat.

Thursday, 4 December 2008

Losing control at the car mechanic’s!

Companies that want to gain market leadership understand when consumers want to be in control of their purchase decision process and facilitate this.

We write this as a reaction to two recent purchases. Car tires and a car battery. For the first time in 10 years, we had to do this. It was not pretty; the average car workshop in India is very very ugly. It was not easy; we have little interest in cars, and so know very little about the products we were going to purchase.

It was a very suspicious process; the folks selling to us seemed to know no better than us.

We parted with a lot of money that we cannot justify beyond assuming that the seller knew better.

And in return, along with some tires, we were left with a question. Why do we know so little about this product? And why do we allow a complete stranger to decide how I will spend $250 ?

We thought of our purchase process for various products. Toothpaste, computers, apartment, car, tires….and concluded that our involvement in purchase decisions depended on :
1. inherent interest in a category,
2. the hardship from a bad purchase and
3. The cost of the purchase.

When we bought stationary or light bulbs, we simply accept the dealer’s recommendation. (As long as he offered the low energy technology on the bulbs). This is interesting, bulb makers make us aware that new energy efficient technologies are now replacing traditional bulbs. Did you know that energy efficient tires exist as well?

Why is it that the bulb maker does not leave this to the dealer to explain to me ,but the tire maker does?

Some purchases such as toothpaste/ shampoos/ light bulbs happen very frequently. A consumer shops for these types of products almost every month. (Unless he is a bulk buyer). Consequently, we are open to information about these products.
An advertisement is likely to influence choice (and be remembered) at least till the next purchase which may be a few months away.

For a car tire or battery, however, the purchase cycle if often in years. 3- 4 years sometimes. An advertisement may not necessarily stay with the consumer till his next purchase.

On the other hand, since the need for new tires is not usually evident in advance, the mind is not usually receptive to any information.
And it is only when we are engaged that we seek information.

A number of purchases are made on the basis of “habit”. Here the familiarity with a product category has been built up over time. A toothpaste is bought once a month. Only a very critical piece of research or a very poor product experience can change this habit. Having used both Pepsodent and Colgate, we personally choose Colgate because of its smoother mouth feel. What marketing message talks of this?

(We buy toothpaste for its medical value no doubt, and advertisements continue to emphasise this. But having realized that this benefit is now assured in every tube, we have moved onto other differentiators. A toothpaste manufacturer however is limited by the fact that he must continue to emphasise this medical benefit, less his competitor gets perceived as being better on this parameter.)

Being exposed to Colgate and Pepsodent advertisements on dental hygiene reassures me that my choice is OK.

With a light-bulb, which is less difficult to differentiate, we are more open to a dealer’s recommendation. As long as the “industry standard” technology is being respected. We don’t need to be in control. Again the key parameters:

1. inherent interest in a category,
2. the hardship from a bad purchase and
3. The cost of the purchase.

When the value of good increases, the risk from a bad purchase magnify. Then we ourselves seek for information.

Take clothes. We have some brands in mind as we begin the shopping process and then select based on prices/ designs / sizes. Seldom do we respond to the dealer’s recommendation.
At the same time, with little product differentiation, most companies work on the “qualitative” elements of the brand. The cost of a bad purchase is high and obvious very quickly.

A consumer is evaluating for himself, which category of products he wants information on. And then his level of “education” depends on the interest in the category and the information available.

However, successful companies have helped consumers re-prioritise. Think Intel.

If the information in the “public” domain is limited, the consumer depends on the dealer. When this product is a high value purchase (monetary or emotional), frustration is likely, since the consumer perceives a loss of control on the decision.

Usually, consumers do not invest time in learning about product categories which are cheap (per unit), last only a short duration (and any error can be corrected very quickly at low cost) and do not have a very damaging effect. (Our observation is that women take more time to choose between skin creams than between toothpastes).

So why dont we think about our tires and car batteries?

And hence we are perturbed, and surprised by how little control consumers have on their purchases of tires/ car batteries. There is not much “authoritative” information on these products. The need for them arises at very short notice, so a consumer that has not already made up his mind, often finds himself with not time to do so at the dealer point.

Then, the dealer becomes the decision maker.

Obviously, incentivising dealers to push their brands was cheaper and easier to control as compared to a direct engagement with consumers. More so that in a product seen as a highly technical, the role of the dealer was perceived to be the one of “experienced educator”.

But a dealer incentivised to maximize his gain, may not necessarily give the consumer the best possible advice. Not being in control in this purchase decision, does not amuse us. It’s a lot of money to give away on the advice of strangers. And clearly, in the tire business, we don’t (as consumers) perceive any clear market leader in India.

As in the pharmaceutical industry, it is necessary that companies invest in educating the consumer. If the computer industry has taught me to identify differences in hardware, why cannot the tire industry. It will be expensive, and the industry is not known to be a big cash generator, but then this is a Catch 22 situation. Consumers will pay premiums when they understand the benefits. Only through creating “demand” for their brands will true market leaders emerge. Those that will gain above normal margins. Otherwise this industry will be held captive by intermediaries (dealers) whose interest is not in product innovation and category advancement.

There is no justification any more for why companies will not spend money educating their consumers, if they expect these consumers to remain loyal and discerning. There is no short cut to this. No amount of dealer incentives or original equipment (OEM) recommendations will justify the loss of control that consumers face in these product categories.

Companies that want to gain market leadership, understand when consumers want to be in control and facilitate this.

Monday, 1 December 2008

Plus ça change, plus c’est la même chose!

The more things change, the more they stay the same. It’s a French saying and I am forced to apply it to India post the Mumbai terrorist attack of last week.

Sure, some people have lost their jobs, noticeably the Home Minister. Of course, the fact that the portfolio goes to P Chidambaram (the current finance minister) speaks volumes of the paucity of efficient and competent ministerial candidates in the country. The finance ministry comes under the PM as “additional charge”. Wow!

But the fundamental problem remains the same. The great Indian divide. Between the cities and the rural masses.

Every news channel is highlighting the anger on the streets of Mumbai. But Mumbai is 18 million people. (Or 1.4% of India’s population).

Can these angry people change anything?

Well, let’s add to this another 100 million people living in India’s top 30 cities.

Does this change anything? A bit more, but not much more.

The real India is still in the villages and small towns. What is the sentiment of the “common man” living 100 kilometres from Mumbai? Has the tragedy been communicated to that common man? He may have seen the live coverage, but does he really understand his country was under siege? In his green farms, does he see the threat of terror? Or only the threat of being marginalised by another caste?

What is the sentiment of the man living 500 km and 1500 km from Mumbai? I don’t know that. The media hasn’t focused on it. And we seem to think that a few million angry Mumbai residents will change the course of politics in the country. Impossible.

The anger on the situation must spread. Unless the common man, far removed from day to day Mumbai life, is affected, nothing will change.
Because India’s common man, surely is voting for his own interests. Based on language/ caste/ sub caste… he wants his representative to find him his daily bread. A terrorist who is not striking in the villages of Uttar Pradesh is not enemy number one.

Unless media uses radio and road shows to take the problem to the common man across the length and breadth of the country, majority public opinion will still be far removed from Mumbai.

Is the media trying to do that? No way.

The heart of India is in the rural areas. Where the urban do not venture anymore.
This is a tale of two Indias. And I am willing to bet that 5 months from now when we head to the polls, the tragedy in Mumbai will be a very distant memory for 90% of the population.


Thursday, 20 November 2008

What does your customer want done?

Scott D. Anthony asks in the Discussion Leader (
"Who is your competition?"

Its a very motivating thought. Looking beyond the he points out "what is the consumer trying to get done?". We think immediately of Theodore Levitt's classic "What business are you in?" (a must read for any young MBA/ marketing practitioner)

Our example- Michelin, a tire company. It started as one. Need not have remained so focused on this business, though. Its brand that stood for quality mobility...and it should have moved in many new directions. A travel website- tie in the Michelin star rated restaurants to star rated accommodation, star rated holidays .....why did the lonely plant take over this space? Why did Opodo or a bevy of travel websites take over this space , given that Michelin's maps are the finest and most widely used - at least in Europe.

The customer's state of mind is not static. We use a product, and once we have mastered it, we want to take it to the next level. This is mostly interpreted by companies as the license to build a better mousetrap.

The consumer wants to be engaged 24/7. Most young people we know want to be connected to their peers on their terms. Not all the time...but when they want the connectivity, they expect to have it. Technology makes this possible. Smaller devices, more powerful devices allow them to "waste time" playing games...yet get on the internet in a second to look at the the assignments due for the next day.

Clearly what an Apple understands about technology and the needs people want to satisfy with it, Sony does not understand.

Truly remarkable question this..."what does you customer want get done?"

Ritu and Venkat

Friday, 14 November 2008

How "niche" should a start up be?

We came across this topic on the “Discussion Leader” site of the HBS Press. It’s an interesting place with simulating points of view.

The topic got us thinking of a fundamental misunderstanding.
How “niche” asks the author? Does that mean there are levels of niche?

"Should a start-up be mass market or niche?", he asks. Well, firstly, it’s a question you ask before you create your company. Not after.

Clearly, it can be played both ways. The mass market will give it (due to lower price) less margin per unit, but more sales volumes....hence good profits.

If you want a "niche" product, you have to be ready to continuously innovate to be at the cutting edge "wow" factor of your category....then recover that cost of innovation through pricing.

If you think you need to have millions of consumers to make the business a success, remember to have distribution systems/ customer support systems/ pricing and product development tuned to this.

Your choice of the 4 Ps..product/ pricing/ place and promotion is based on who you are targeting as your consumer. Be sure you know how your product will evolve over time. Without that vision of maybe 3-5 years, you cannot begin to decide whether you want a mass market play or a niche play.

In the consumers space, brand building rests on creating a duality for consumers. Consumers today want to be connected to "communities". While at the same time want to be able to express their individuality.

Nokia/ Apple/ Nike do this very well. A belonging to a community of like minded people helps consumers validate themselves.

How a start up should do this, we leave to its creators to decide. But to build a consumer brand, you have the ability to "personalise" the product. Question- how do you create a useful do you make this idea bigger?

We advice a company that is trying to establish itself in the consumer goods (jams/ pickles) space with its USP (for the Indian market) being that it has an astounding 60% of real fruit and vegetable pieces in the product.

We think this product belongs to a "niche". The product can demand a price premium. Fewer units of sales, but more profits per unit. No brand in the history of marketing has had a mass market appeal and maintained high volume share over a sustainable period of time. So a choice has to be made. We can always debate whether mass market or nice market products have greater long term benefits, but that’s not for now.

In our view brands that can innovate continuously, win. The choice of mass market or niche is not a determinant to the durability of the brand. Innovation is. And innovation forms the backbone of any brand built over decades.

We personally rate "value share" more useful than "market share".

The view of value at the "bottom of the pyramid" has convinced most marketers in India to run after volume market share. VCs believe (naively) that high volume share, i.e. large consumer base, can be magically converted to high revenues and profits in the long run. This is false, but a commonly held belief of most financial analysts and VCs.

So what should you do?

Understand how many people would YOU like to sell the product to.
(Please don't say "as many as possible". )

Niche or mass market strategies both work. A marketer has to decide where he wants to play.

Ritu and Venkat

Wednesday, 12 November 2008

Nicholas D. Kristof: Obama and the war on brains

The one above from Nicholas is an amazing yet obvious insight. In India, politicians are corrupt. Mostly. But the Prime Miniter has always been intellectually strong. Mostly.

With the emergence of Bush and his defeating Gore, most of us really gave up on the need for intellectual leadership as one of the criteria for American presidency. The Amercian "common man" it seemed cared nothing of intellect, as long as he got his beef, corn and well oiled rifle.

But the participation of the youth has changed this. Youth that have access to information and have a medium for making themselves heard. 24 X 7. From the comfort of their rooms. Just out of college. Who would like to believe that they have the right to asking intelligent questions and be given intelligent answers. They want to believe that change for the better comes from them. (this may be naive, but it gives change a chance)

Never before have young people been so engaged in an election. People, it seems, saw through Palin very quickly. The internet and the right to a good education will change the way leaders will get chosen. There is no doubt about it.

What we will see next is the use of the internet in other western economies which have a high penetration of the internet. Western European elections of the near future will be influenced. (I wonder why Gordon Brown has still not activated the web?)

The US election and the rise of Obama must be taken as a catalyst by all those people that are tired of being condenmed for their intellect. Strong intellect should not mean "lack of touch" with the common man. It should mean the ability of the leader to understand better the problems of theb common man and to build better solutions.

We hope Obama succeeds. (whatever that may mean). Because the rise of intellectual political leaders in the future will gain a lot of momentum from his successful presidency.

Ritu and Venkat

David CARR on Electoral triumph built on a Web revolution

Came across this in the International Herald Tribune. Its a very nice note and you will now read millions like these on how Obama won the elections.

Empowerment and Connectivity.

These are the key trends of our times.

In the US, access to the internet is very deep. Across age groups.
The internet allows us(comsuners) to communicate our point of view. And gravitate towards groups that hold our beliefs. It allows the marketer (Obama) to share his views real time, continuously with his audience. A two way engagement.

But this is true now in every domain. The Nike+ site brings together hundreds of thousands of passionate runners. Who compete against themselves and others through the site.

Products/ service/ brands that build these aspects of "self expression" and "connection to a community" into their offer, will definitely find loyal and passionate customers.

Caution: The internet is a two way communication device. Obama, having been elected on the power of the internet has to definitely realise that his stakeholders now expect to be equally engaged during his presidency.

Application to India:

1. too many interest groups....200 political do you get a "mass movement" on any subject now without it being diluted by caste/ income/ language?

2. access to the internet do you develop a two way communication with the masses?

It will not work yet, at least not as a political tool at the national level. Definitely worth a try to engage young voters in the large cities of India.

Yet, for Marketers that are interested to develop strong consumer ties with at least the "niche" that have regular internet access, this is the way forward.

Its connectivity and empowerment.

Ritu and Venkat

Arsene Wenger and his management philosophy at Arsenal Football Club...

Mr. Wenger demanded more support from the fans of Arsenal for his very young team.

Please read through this note, Mr. Wenger speaks of the need to support young talent while taking the bold (and necessary) step of putting them in the hot seat.
He speaks of keeping an eye on the future, yet striving for excellence today.

He speaks of investing based on internal accruals and not borrowings.

He speaks of willingness to bring in outside talent when the need arises.

I was very impressed by this gentleman. Not many football managers (or CEOs) speak with such clarity.

And he is a Frenchman in the English Premier League.

The fans have responded very positively (based on the posted comments).

Talk of bridging the cultural barriers as well.

("This is football you know..... you write it", said Ritu)

Here's another note of the game recently where the average age of the AFC team was 22 years! Playing in the champions league.

Tuesday, 11 November 2008

‘We’ve spooked ourselves into thinking there is a slowdown’

This is a post we recommend. This, appeared in the Hindu Business Line- an interview with Mr J.P. Nayak, Director & President (Machinery & Industrial Products), Larsen and & Toubro Ltd.

We support his view and we take this moment to repeat:
- In a country where TV/ Fridge and Washim machine penetrations are below 25%, how can demand become sluggish? (Who has been smoking the strong stuff?)

- Sure, liquidity is an issue and steps need to be taken to ensure this.

- But we must recogonise that our stock market falls have more to do with foreign investors pulling out from the Indian market (to perhaps raise cash to meet their commitments back home).

- Demand in the Indian market is only limited by the imagination of the entrepreuner.
The real challenge is to set up supply chain and distribution systems that help manufacturers reach to consumers far away from Indian cities.

- This "investment in the interiors" is what new entrants to the market are not doing. Every entrepreuner seems to want to take away share from the current entrants in the cities. (This is in itself not wrong, but a suboptimal strategy for emerging markets.)

The focus on gaining market share in urban markets ignores that larger un-tapped rural India. And it avoids us forcing ourselves to think of profitable ways to making products and services available to this market.

So, evertime the US sneezes, we avoid looking at the opportunity that remains in the country, and quickly send the SENSEX off to the hospital!

Saturday, 8 November 2008

An Apple eating into Nokia

We are re-visiting this note following a note we read on the drop in Nokia market share from q3 2007 (51.4%) to q3 2008 (38.9%).

Apple in the meanwhile grew from 3.6% to 17.3%. (note below)

Its just a good time to repeat: No brand in marketing history has maintained high profit margins and market share simultaneously over a long period. A choice has to be made.
We believe Nokia has missed this.

We believe Apple will soon be seduced by volume market share.

There is value at the top of the consumer pyramid. LVMH demonstrates the success focusing on this segment. (but yes, we are seeing them salivate after the “entry level” products as well.

Mass market products require a mindset very different from premium products. No company has mastered these two skills simultaneously.
Premium products may offer extra-ordinary profits that need to be re-invested in the extra-ordinary consumer base. A consumer base that requires innovation and a superior product and service experience.

Mass market products require a marketing mix that invariably leads to a company focusing on maximising value for the masses of consumers. This invariably leads the premium consumer’s experience to be compromised.

The market of the “low cost” phones has grown a lot more than the overall market for cell phones. Nokia has chosen to sell in this segment. Unless it is then able to find a cost structure that allows it to have the same profitability as for its more “upmarket phones”, its capacity for investing in innovation will fall.

Exposing it to innovators such as Apple. Apple's move to price down its phones will expose it to the next innovator in the market.

As the mobile phone gets more and more “commoditised”, it is likely that cheaper manufacturers in China will be able to deliver phones at $25 without having a high cost structure due to lower investment in R&D, manufacturing costs etc.

Would Nokia be able to match this? Should it?

As an industry matures, many consumer segments emerge. Satisfying each segment well requires specific business models. Working and synchronising among these different models different skills in a company and eventually proves impossible.

Ritu and Venkat

Thursday, 23 October 2008

India's airline industry- Nose diving in perfect formation!

An interesting topic addresses by Mr. BV Krishnamurthy on the state of the aviation industry.

The airline industry in India is losing money everyday and by some estimates expected to lose 1.5-1.7 billion USD this year (second only to the US airline industry).

The airline companies in India are upset and asking for the govt. to help them out. They blame fuel costs and the economic downturn.

I don’t believe them.

Take fuel costs. Even two years back when the airlines industry was taking off, the pricing of tickets was not allowing recovery of all costs. They were losing money at the beginning and they are losing money now. In fact, with falling oil prices they should feel happier than 4 months ago.

Take the economic downturn. What has everyone worried is that fill rates are declining. Economic slowdown seems to have everyone cutting costs. Non essential expenses are going out of the window. A downturn is indeed a good time to judge the fundamentals of a business model. Every airline company is suffering and this is unusual. Usually, in a downturn, there is “down-trading” within a category. People go for cheaper alternatives of the same product. Then, if the downturn is longer, they shift to different substitution categories.

Eg: to fight higher fuel costs- you buy a smaller car. (But if you’re already stuck with a big car, you switch categories and use public transport.)

In a downturn, you avoid a Gillette and go for a Wilkinson. Or avoid a Heinz and take a WalMart ketchup. If the downturn is too steep, you avoid ketchups!

In the airline example, you would, in a downturn, move from business class to economy class or from full service to budget airlines. But for travelers to shift from air travel to road transport en-mass means that for them the value proposition of the entire industry has been found wanting. (See- traffic declined by a whopping 19% in September 2008-

In today’s environment then, in India, low cost airlines should be gaining market share. But in India, they are closing down.

What happened?

When budget airlines took off, their ticket prices were indeed low (one fifth regular prices in some cases). But they were never making money. Always below break-even point. As the fuel prices increased, all companies were forced to reflect this into the ticket price as a ”surcharge”. These surcharges are now 80% of the price of the ticket such that the price of a low cost ticket is not much different from a full fare ticket.

These low cost airlines (Deccan airlines being the pack leader) drove first time user growth in the industry. But, fundamentally the “low cost” carriers were a myth. With a cost structure so heavily skewed to fuel prices, managing all other costs is not sufficient to create a truly low cost business model.

Sure, when less than 5% of the Indian population flies with any regularity, setting artificially low prices is a good way to drive growth. But for long term sustainability, the usage of air travel must become regular. What’s the use of market penetrating pricing if the consumer does fundamentally have the income to get hooked onto the category at some stage?

But the low cost airlines were not alone in their enthusiasm. The 30% passenger traffic growths were extrapolated by all airline companies that went on to add more aircrafts and routes....and hence more costs.

In the case of air travel, the consumer is also aware that his purchase is an indulgence. Unlike a TV/ fridge or washing machine which is purchased once in 6 years, and only when seen to be a necessity for which the purchase is planned months in advance.

When a return ticket for a 600 km journey costs Rs 6000 or USD 133 per person, does not the income of a family need to cross a significant level before such purchases become regular? (We estimate this threshold to be Rs. 15L (USD 35K approximately), before they take to flying regularly.)

Then the key questions:
How many households/ consumers in India make this cut? How many planes and airline companies are then really needed to satisfy this demand?

In the last 2-3 years, how many consumers actually flew because the ticket price was artificially low and unsustainable for the airline company?

What kind of government watches and encourages this kind of industry growth?

And now the airline industry is asking the govt. to hand out sops…and keep it afloat!

Why should the tax payer pay for the shortcomings of an incompetent business idea?


PS: on 14th Nov, came across this in the papers:

It seems, the budget airlines are indeed cutting down price to create a differentiation and hence become more attractive to consumers.
On a side note: A good parallel is the car industry. While auto manufacturers have entered the Indian market, they have refused to sell at a loss. The industry had identified new products (low cost car) that makes it more affordable for families to buy and has hence increased penetration. Isn't that a more responsible business model?

Monday, 13 October 2008

Mr Smith and the Leader as a Principled Pragmatist

We are not political writers, more into marketing strategy. Yet an article by Richard Norton Smith ( drew us to it. Its an apt article for these times. The US election this year and India goes to the polls by April next year.

He writes about the leader as a principled pragmatist!

Since we did not know, we would like to add that Richard Norton Smith is a 1975 Harvard graduate and author of eight books; his Thomas E. Dewey and His Times was a finalist for the 1983 Pulitzer Prize. Prior to accepting a 2006 appointment as Scholar in Residence at George Mason University, Smith served as director of the Hoover, Eisenhower, Reagan, Ford, and Lincoln presidential libraries. Presently working on a definitive biography of Nelson A. Rockefeller, Smith is also part of the team creating ambitious new exhibits for Ford's Theater.

Mr. Smith mentions that "Great presidents spend themselves in causes greater than themselves, for purposes nobler than re-election." Such a profound phrase. And no where is this tested as strongly as in India.

India is the land of the Mahatma Gandhi/ Sardar Patel/ Shartri...each a political leader that came to lead based on his moral authority. It is true that each prime minister in India has been built up by his political party over many years of struggling in the land, among the masses building his own political philosophy and succeeding in selling it to his constituency. (the only exception perhaps is Rajiv Gandhi, that experience ended sadly for all)

But as the political awareness and participation has increased, we find ourselves in a land of one billion, with so many special interest groups. Our last 4 governments have held together as coalitions. The Congress (a centre -left) ties up with the radical Left and some representation of "backward classes". There are over 200 registered parties that go to the polls. Compared to two in the US. Each government comes to rule on the basis of promises. Each voter looks only at the promises made by his special interest party. And yet, when you sum together all these promises made by various parties who have now come together to form a coalition, you ask the question how so manypromises can actually be fulfilled?

What does the leader of this coalition do? Who can deliver what the country needs, given that special interest groups have the power to topple the government? Who can argue then that small incremental steps, loaded with compromises, are better than nothing at all? Who can complain then that the rate of change in India remains so slow?

What use is the moral compass when it is in the hands of special interest groups. What is the benefit of winning an election when you know you could be toppled at any time? (the recent withdrawal of support from the Left parties over the nuclear issue is an example).

In a country where so much has to change fundamentally, the purpose of electing a government for 4 years sometimes is pointless. Change takes longer. The seeds sown by one (the hardest part) are seldom reaped by them. Yet anything longer and the political machinery loses accountability (as evident from the decades of rule by the Congress part in the 50s,60,70s and 80s).

Its such a difficult balance. The note forces us to look at this issue with the oncoming elections.

Getting the moral compass right and then having the opportunity over a 4-8 year period is a rare combination. the US at least assures (unless impeached) a 4 year term. In India, the prime minister is no longer sure how long his term wil last.

When a president in the US compromises with this principles in doing what he believes is best for the country, is it any different from when the prime minister in India compromises to ensure his coalition partners dont ditch him?

We cant say, but some day prime minister Manmohan Singh and President Bush will write their memoirs and we might know a bit more.

Do spend some time on the note by Mr. Smith.

Ritu and Venkat

Voice recognition and the promise of "connecting people"

Came across this note today on IBM's Speech Recognition technology initiatives (ambitions). The piece was written by Steve Hamm. Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.

It talks of research being done by IBM and some other companies in voice recognition technologies.

I have no comments on the article itself. Its factual.

I do believe that voice recognition and translation will become a key “killer” functionality of mobile phones as (and when) this technology develops. What I don’t undersatnd is why mobile phone companies like Nokia/ Samsung/ Motorola are not more involved in this- to make the “when” happen faster.

Instead, each company is looking to build the better mousetrap. Adding higher resolution cameras/ mp3 players or touch screens does not fundamentally enhance the benefit of a mobile phone- that of connecting people.

The integration of GPS is indeed enhancing connectivity. But GPS was not developed by the mobile phone companies. They were built independently. Till they caught on and the mobile phone companies (led by Nokia) have sought to integrate them into phones. Why this reactivity?

I have written, in our blog on “connectivity and empowerment”, the two key trends of our times. Products that are enhancing simultaneously our sense of empowerment (expression of choice) and connectivity to our environment, are ruling.

GPS systems enhance the connectivity with our environment, which is provided by a mobile phone. The reason mobile phones have caught on in the first place, is their ability to keep us connected (till we choose to switch it off and become disconnected – the concept of empowerment) all the time.

As technologies advance, the phone will definitely become the credit-card/ mp3 player/ camera/ writing pad/ canvass all in one and at reasonable price points. But i believe we will still be making better mousetraps.

A voice recognition function goes further. The technology in-itself leads to a real time translation system.

Imagine being able to converse with cultures that are “alien” today because we don’t understand the language. How much more connected will we be?

Why then don’t mobile companies invest in this? Why is development left to the IBMs of the world?

What’s Nokia doing to continue its promise of connecting people?


Tuesday, 7 October 2008

Gillette Fusion and Pricing

Premium brands and products dont have the choice of ever lowering their prices.

Gillette Sharpens Its Pitch for Expensive RazorWe picked up this article in the Wall Street Journal on Gillette and its battle to maintain the premium price of its Fusion shaving system in these troubled economic times.
For a few months now we have been struggling to write on pricing and this article is an appropriate place to start. Here’s a brand that’s keeping its pricing and not trying to blame raw materials for an increase or the poor economy for a decrease.

As marketers, we love very deeply the Pricing “P” of the four Ps. It’s the most elegant and decisive proof of a successful marketing plan. Pricing is the most potent signal of how much a marketing team values its own offer to the consumer. It’s a key differentiator in any market.

Most companies leave pricing to the finance team. No way. Marketing does not exist if the pricing is not under the control of the Marketing Manager.

Well, here’s our take on pricing:

1. In our view, you never drop price on a product unless you accept that your value proposition for consumers has dissolved. (Note: this is not always a bad thing in itself. Most outdated technology based products cut price because new technology offers a better value proposition.)

2. Reducing prices to gain volumes and market share is a no-no. Reducing prices to protect against emerging competition is a bigger no-no.

3. On the other hand, price increases is an equally contentious subjects to us. Most companies in the past few months have raised prices on account of “raw material price increases.” Crap!

Crap, because raw material prices are now decreasing, but no one is reducing prices. So it appears that raw material based price increases are only crutches for a marketing team lame on good ideas and a company lame on good products.

Increase prices if you believe you have increased value. If you are following raw material prices in your pricing strategy, make sure you REALLY follow it. In both directions.

4. Essentially, you launch a product at a price point. You maintain it. If you’re creating strong demand, you will have the opportunity to raise prices. However, if entry barriers are low, high margins will attract other competitors. Then either you look for more differentiation to justify high prices (this is good and the basis of all marketing) or you drop prices (which takes us to point 2).

Coming back to Gillette. By not reducing prices of its Fusion shaving system blades, what is Gillette signalling to Venkat?

1. You Venkat, who bought the product for over a year at price X, need not feel that you were overcharged.
2. Because the economy is bad, does not mean our product is any worse.
3. Because the economy is bad, does not mean you, our customer shouldn’t have the best shave money can buy. You might as well stop buying toothpaste and chew on the bark of a “neem” tree.
4. You may choose not to buy the fusion. And we have a number of other products you could choose from. But when you’re feeling better, and think you’re ready to go back to the best, we’ll be waiting.

As a side note: another interesting “premium” brand Louis Vuitton has never had a price promotion (or any sales promotion) in its history. Never.

A price premium position takes years of R&D, marketing, sales efforts to develop.
Once you discount a brand, the expectation of future discounts will always remain. You will never again be completely trusted. There is no way to calculate the current value of these future discounts when taking a price reduction decision.

So Gillette, we salute you. Venkat may not buy a fusion blade for a while, but he will again, one day.

However, Gillette we pick fault with your advertising approach at this time. Your communication now is “In the world of high-performance, what machine can you run for as little as a dollar a week?” Why try to play down your price?

Premium products should never walk that path. Premium products charge a premium for an outstanding product experience. Period.

We would have focused the Gillette ad on the best shave a man can get.
“Sure the world’s looking pretty bleak now… even more reason you pamper yourself in the small ways that you can.”

Ritu and Venkat

Monday, 6 October 2008

Customer Service- a flight of fancy?

Show me the money. Show me the love, people.
Outstanding customer service is often a spontaneous occurrence. Which happens only with truly empowered staff empathizing with their customers.

This piece was inspired by a recent experience with the ticketing department of India’s Kingfisher airlines. While I focus on the airline business, my grudge applies to every consumer centric business.

I enjoy flying Kingfisher airlines. Very polite, well trained staff, clean planes, always a good experience. I am a frequent flyer. In fact when I book for any member of my family, I book Kingfisher.

But even they slip up. Here’s what happened and why I think I am being shortchanged all the time by these marketing folks.

I booked two tickets for my parents. But instead of flying them in first from Mumbai to Bangalore, I booked them Bangalore to Mumbai as first sector. Realized the error five minutes after booking and called the booking centre to make the change.

“Cant be done”, they said.

So I asked them to advance the return sector and push back the first sector.

“Cant be done”, they said. So I asked them to look in their rules and there was nothing to prevent me from doing this.

They still refused and I promptly wrote to Dr. Mallya, the chairman.

Within a few days, I was contacted by a guest relations executive and this was sorted out. Me being given a refund in the form of a travel voucher (that lapsed last week). All this works well. No problem. And I appreciated their promptness.

But here’s my point. The re-imbursement I was asking for was Rs 1500.
I estimate that I have spent over Rs. 100,000 in flight tickets this year with KF. So I am now asking for someone to look at my expenditure on the company’s information systems and waive off a Rs 1500 without my having to bring the chairman into play. (At least the email id I wrote to says “chairman@”)

That would be true customer service.
Outstanding customer service is a spontaneous occurrence. Which happens only with truly empowered staff empathizing with their customers.

KF is not there yet. But then there are so many companies that fail on this account.

My experience in marketing suggests most consumer goods companies spend about 6-8% of their revenues in marketing related activities.

Which means Rs 8000 of my expenditure of Rs 100,000 was spent on marketing. To whom? Not me. KF does not run any print advertisements/ nor TV commercials. So where is my 8000 rupees?

Let’s say that of the 8% spent on marketing, 50% (4%) is spent on acquiring new customers. OK, so maybe that’s why I don’t see that part of the money.

But I still want to see the other Rs 4000 being spent on me. In applying the same rules to me as to someone flying once in three months, what’s my gain?

This is not toothpaste and shampoos I am buying. And I am very serious. This is big money that should be invested in me.

Show me the money! Show me the love, people.

I’m making these cats fat. And I don’t see gratitude. I see free pens and toffees. But I don’t see that they trust me, care for me and respect the business that I contribute.

Is it because they know that I don’t have a choice? Any other airline in India would do exactly this, and some do it with a bigger smile and more free pens.

This note is for companies that want to move to a new level in customer service.

Business analytics is with every company now. Last week, I had a letter from Jet airways asking why I had stopped using their services. ( I was impressed. But then turned cynical. Do I think they would have accepted that I erroneously reversed the order of a journey and wanted that changed- at no cost? Naaah!

So each company has a lot of data on its customers. What we buy, don’t buy etc. So they can surely identify and segment their customers as A,B,C or any which way they choose. Would they not then have some rules for treating these segments differently? I don’t see that.

Remember, when my family flies, I pay but I don’t get the freq flier points. Why cannot an information system track the credit card details to identify the big spenders? If airlines companies really wanted to reward loyalty, they would link the points to the “buyer” of tickets.

Sure a first class customer is treated differently. Frequent flier points give you some free-bees. But where is the differentiation in customer service for a customer that I neither carrying his freq flier card on his face, nor seating himself in first class- but still contributing heavily to business?

Everyone is looking to get new customers. Why is customer retention such a “non issue”? Is it the high switching costs?

It’s a pity. Because “customer service” is a clear opportunity to differentiate in a relevant way. Proper technology married to proper judgment is a powerful tool in producing genuine “wows” for customers.

Technology is bringing powerful information to corporations and their customer facing staff. Even the most “subjective” decisions can be quantified and modeled in order to produce objective guidelines.

We seem to have the technology.
We seem to have well trained people.

So what stops companies from treating us as the unique individuals we really are?


Monday, 29 September 2008

Road infrastructure and the development of retail trade

Very brief note.

I looked back on some thoughts i had scribbled 10 years ago. A question I had asked during a company sales conference to the head of sales. He was emphasising in the late 90s the emergence of organised retail and how chains like Shopper's Stop - Subhiksha would become a dominating force changing our distribution approach.

My question: Where in the world has retail trade ever preceded the emergence of good road infrastructure and suburban connectivity?

The point i was making then is valid even today:
Does "organised retail" not look to capitalise on low rental costs in the suburban areas and then attract people willing to drive the 20 Km to their shops?

When will Indian roads permit a family to cover 20 Km in roughly 20 minutes?

If you're an organised retailer located in the city- forget it.
1. Your rentals will always put you at a disadvantage compared to a kirana shop.
2. Your size will never be large enough to exploit the scale effect.
3. You will always have competition within 3 minutes walking distance.

Mr. Gates' s MS ads

The Bill Gates- Seinfield “connecting” ads: Focusing on the consumer goes beyond trying to connect with amusing ads.

Ok, maybe we came to the party really late …. But we finally managed to see one of these ads and enjoyed it.

We beign with a disclaimer: We admire Mr. Gates. We really respect him and what he has managed to do. We respect what his foundation is setting out to do. We would love to have had his professional life. But we don’t agree with everything he has done.

What I don’t enjoy is this: Mr. Gates is trying to connect to people and playing up the role of “connectivity” that his software brings to the world.

But to most common users, his software has been one of the most frustrating “essentials” of life. If Mr. Gates was truly connected, he would have not found it hard to hear the millions of people who moan about why windows takes 5 minutes to boot up.

He would have heard us complain about why it costs so much for me to own a product of which I use so little. Why has no MS never really educated me about the millions of features embedded in the product- for which I pay but never use.

Mr. Gates, there are two key sentiments in our world today. Our need to be connected. You go that right. But the second equally important sentiment- we need to feel empowered. Our need to be heard. To believe that we actually make a difference to the world. That we matter to our friends. And to large corporations like yours. You have largely ignored that need.

You have continued to build bigger and more expensive mouse traps.

Great brands engage, educate and entertain Mr. Gates. Your company should try to hear its millions and millions of consumers. Tell us you are trying to understand us. Tell us why your product is as it is. What is it trying to solve? What will the next relaease do for me- common man me.

Lets come back to another cliché. Consumers are at the heart of the business. Has your company got that right?

Supply chain/ financing arrangements/ distribution/ sales team….all this is secondary. The principal idea behind a business is “who is your customer? And what is the value you are proposing to him?” Then lets worry about how to fund the business/ investing in R&D/ supply chain.

MS has a problem. It created a great product. But then it stopped creating great products. Windows, bigger and brighter windows, even bigger and even brighter windows..etc.

All I want is my computer to be up and running when I press the start key. It takes 5 minutes. It has always taken 5 minutes.

In the world of operating systems, if I am to believe MS, nothing has changed. Even worse, I believe now that MS has ensured that nothing can change.

Why do I like Apple? Apple took a music player and made it cool and enjoyable to use. Then they took a video player and did the same. Finally, they took a phone and did the same. I have never used an Apple PC, so I can’t speak about that.

But Apple tells me that things are changing. Continuously and for the better.

MS tells me, things should not change. We will not let things change for you. Ever.

MS has not bought me anything new. MS does not listen to me. With its new ads, Gates and MS try to be entertaining, but nothing more. Tks for the funny ad Mr. Gates, but hope you get the next Windows release right.

Thursday, 11 September 2008

The Singur episode (TATA- Nano)

To move India out of poverty, millions of people have to be shifted from the farming to manufacturing/ service sectors.

Bengal must be among the poorest states in India. The low level of industrialisation coupled with under-developed agricultural practices and produce, in my view is a key reason. (Punjab- haryana, while agro based have very high productivity...however they to face low growth rates)

Agriculture in India has not grown more than 3-4% (long term average). Which means that a farmer in the long run has only and will only see his income increase 3-4%.

Industry and services however have the capacity to grow more than 10-12% per year and have done so the last 5 years.

What then is the fastest way out of poverty for a country that has 70% of its population dependent on agriculture? Surely shifting people to the services and mfg sectors is key.

Sure, i dont understand everything about the Singur problem. But i do want to know if our politicians such as Ms. Banerjee have considered that small scale intensive agriculture such as the type followed in Bengal is not the way to progress for the millions of her supporters. Is returning farm land to the farmer offering them a higher standard of living in the long run?

She could be right. But I suspect she isn't.

Axe Chocolate and Amul MAcho

Axe Chocolate and Amul Macho- the ad message and media choice in an advertising campaign must be coherant with the target audience.

I came across an article on the Indian government having banned the Axe deodorant advertisement recently. (Link to the ad below)

It set me thinking on these “naughty/ spice” ads and how they managed to find themselves onto the Indian TV networks.

Personally I like the Axe ad a lot.

There are a number of advertisements that could be classified as “suggestive” on TV today. The Axe ad has been created and produced in a Western society. Women ogling at men isn’t such a new concept. The ad is a play on the irresistibility of chocolate.

Transferring this to India (as was the case with all other Axe ads) is interesting. In as much as the advertisement subscribes to the dominant male role, it seems acceptable to the consumer. Where is heads into new territories, of the female being dominant and expressive, it seems there is a concern. The government finds it “indecent, vulgar and repulsive”.

I don’t get it.

And therein lies the problem. The advertisement is created for a consumer who spends Rs 150 on his personal hygiene. This represents perhaps the top 5% of Indian consumers. This section of the population is expected to be aware of body odor and its impact on attracting members of the opposite sex. This segment would be expected to be open to “global” (Western) attitudes- and the concept of male-female equality. To this segment, the woman biting the bottom of a “chocolate man” is completely in line with the promise of this product in its ability to attract women.

But by showing this concept on a mass medium such as TV, you are exposing a concept to the other 90% of the population which may not have come around to this point of view. It is likely to cause debate. In this case, the government decided to be “big brother” and call off the advertisement within the preview of the Information and Broadcasting ministry.

I don’t have a point of view on whether this is right or wrong. I think it is not unexpected. There is a lesson for all advertisers here.

The discussion in the same write up then went on to refer to an underwear ad banned in 2007. (Amul macho- see below).

Firstly, I find the advertisement ridiculous. That’s me. But a company and an advertising agency thought it could differentiate the product.

Women expressing sexuality/ sexual preferences is a very nascent idea in India. It’s the “top 5% of the market versus the other 95% “debate. The top 5% - western influenced- creates this advertisement and then broadcasts it to the other 95%. Certainly, a reaction is to be expected.

Again, I am not debating the reaction. I think it should be expected.

The debate is more on who validated the mass media broadcast? These are ads suited to the internet- youtube- and the audience that spends time there.

For Axe, this would align the target audience and the brand message.

For the underwear, this is not good enough. The “underwear” ad is being targeted at a mass market. So it needs to be on TV. But not to have the sensitivity to the value systems of the “mass” has definitely wasted time and money for the company.

Sure, we are moving towards “kissing” in films, boys and girls dating and trying to attract each other…and that’s good. But women expressing sexuality has not yet become a “mass” phenomenon and I don’t think an underwear advertisement should try and drive the debate.

I thought a learnt a lot comparing these two ads…and thinking about why they were banned. On a mass market medium, respecting the mass’s value systems is key. If you want to change them, you still need to begin at the starting point. Not at the finish line.

Tuesday, 9 September 2008

The core of a business

The core of a business:

1. All companies process information: Whether you are making bricks, operation systems for computers or tires. You are processing information in converting resources from one form to another.

2. Industries differ in the type of information they process.
a. Within industries, companies very in the efficiency with which they process information.
b. (In selecting core products/ service, keep in mind that market share and price premiums do not go hand in hand. There has been no known example of this.)

3. Finally, in a stable state (stalemate), all companies converge in terms of their offer. The returns to all companies converges to the minimum returns. Any higher or lower than this will destabilize the industry and cause the equilibrium to move back to the lowest value.

To avoid this, continuous differentiation is required. This depends on innovation.

Innovation secures above normal profits for companies.

Innovation is the application of the brain to deliver differentiation. It is always possible to innovate.

1. Innovation is possible across all frontiers:
Product/ Process/ Price/ Place (distribution) etc.

2. Innovation is necessary to avoid stalemates (Bruce Henderson) and consequent commoditization of industries.

3. The rate of successful innovations determines the vibrancy of an industry.

Innovation is either disruptive or evolutionary. But it is necessary.

Strategy then becomes a bet on which innovations to fund. This leads to the classical view of strategy that “Strategy is about how the future will unfold and taking in the resources today to handle this.”

Thursday, 4 September 2008

A dosa from McDonald's

For those unfamiliar with South Indian cuisine, a dosa is an Indian crepe!

Ritu and I recently wrote "The State of the West address"; "The State of the Union address" and "Desiging for the bottom of the pyramid". In this note, we are trying to close the loop.

1. India's per capita GDP of USD 1000 must grow at 9-10% for the next 25 years for the average Indian to enjoy a "western" standard of living. This is his right. Lets focus on making this happen.

2. The West cannot understand 9% GDP growth. No one in the working class has ever lived through 9% growth. From current literature, we gather that the long term projected growth rates for India and China are 6%. We challenge this. And ask whether western think tanks are trying to rationalise growth to bring it in line with their beliefs? 6% growth will continue to continue to leave almost 2 billion people in close to poverty conditions for another 25 years.

3. If you look at the average Indian, he lacks so many "day to day" products, that delivering 10% GDP growth should not be a problem. Whitegoods/ housing/ medical facilities/ name it and the penetration in India would be less than 10%. So why should high GDP growth be a problem? The Indian consumer sees, through the TV, products available around the world. And would like to access these products at reachable price points. (Think a Nokia phone at USD 30 with built in features such as a radio and a torchlight, which are relevant to the rural masses at the bottom of the pyramid).

4. Designing products for the Indian mass (at the bottom of the pyramid) requires not stripping away cost from western concepts, but adding value to current consumer practices. Western strength in R&D must be used to build products and services from the base-up.

5. This brings us to "a dosa from Mcdonald's". Why has a chain like Mcdonald's not gone much further than "Indianising" thier burgers? (Mcdonald's does not make beef burgers in India, but uses chicken. To cater to the vegetarian taste, McDonald's prepares various vegetarian options). Why has McDonlad's not developed a "parantha" (similar to a pancake) for the North Indian consumer, or a dosa for the South Indian consumer. Why has Levi's not gone further and developed Indian outfits....kurtas/ a means of tapping into consumers at he base of the pyramid.

10% GDP growth in India should not be dependent on whether Infosys sees its IT business grwoing or not.

Growth is possible as long as companies are willing to get their hands dirty in the Indian market and develop products based on the usage and habits of Indian consumers.
There are too many things an Indian consumer lacks today for us to believe that growth should be anything less than 10% on average for the next 2 decades.

Lets start to believe.

Wednesday, 3 September 2008

Designing for the bottom of the pyramid

My professor of marketing Prof Mithileshwar Jha said this to me today.

Products for the masses at the bottom of the pyramid cannot be built by striping down current designs to strip away cost and hence reach a price point.
They need to be designed by looking at current products being used by the common man and adding value to them.

So a cheap car can be built better not by strippoing down a sedan (Renault Logan?) but more by building up from the common man's transport solution of today. (Either a two wheeler or even the three wheel auto rikshaw.)

A hotel for the bottom end cannot be a stripped down Taj Hotel. It has to be a improved "Udupi restaurant" experience.

I think there is much to mull over here. The man is my view one of the best "mass" marketers I have ever encountered. Thank you, sir.

Saturday, 30 August 2008

The State of the West address

India and China need to grow at 10% GDP growth rates for the next 25 years if we want the average citizen to have a reasonable standard of living.

If will happen, only if we believe it can happen.

This note is for various global “think tanks”. The Economist Intelligence Unit/ Global Insight …and many others. I was at a seminar yesterday, and it got me thinking.

Ritu and I have been fortunate. We have lived all our lives in India. We studied in India and began our careers here. But we have had the opportunity of working and living in Western Europe for the last six years.

Some time last year, we both developed a strong urge to return. No matter what, we realized, our professional aspirations could only be achieved where 1 billion people were beginning to grow their GDP at 9%. These are amazing facts. Western Europe (all of it) is about half the size in population and one third in growth.

For most (if not all) people in the work force in Western Europe, 9% growth rates never happened in their lifetimes. This is key to understand how they view high growth in populous countries like India and China. Western Europe continues to be focused on the growth rates in China and India. They are judging whether such high growth rates as sustainable. They are not focusing on the current quality of life in India and how much the growth has to be sustained for living standards to rise to Western European levels.

The “Hindu” rate of growth is no longer relevant. We Indians are already looking beyond that. But the “Christian” acceptance of “sustainable” growth levels is beginning to drive global investment sentiment in India-China. And we need to be very very cautious.

What am I seeing:
- The west is enamored by China’s consistent growth rates over the past 10 years. It has accorded China much respect. It believes China will take its place among the industrial powers of the World.

o However, look at any long term growth forecast for China, and the average growth over the next 25 years (2008-2035) will always be predicted at between 6 and 6.5%. WHY?

How can we decide that 6% is the long term sustainable growth rate? Who has decided this? Were these people predicting China’s decade of 10% average growth?

- The West is equally enamored by the rise of India. 9% GDP growth rate over the past 5 years is wonderful.

o However, look at any long term growth forecast for India, and the average growth over the next 25 years (2008-2035) will always be predicted at between 6 and 6.5%. WHY?

How can we decide that 6% is the long term sustainable growth rate? Who has decided this? Who predicted India’s resurgent growth rates?

Since I do not believe in economic predictions, I will not make one.

In a Q2, 2008 report, the Global Insight suggested the folloing numbers:

India : nominal per capita GDP (USD) of 975$ growing to 8,027$ by 2035. Implying a growth rate of 6%.

China : 2,483$ growing to 25,623$. A growth rate of 6.20%.

Australia: 43,709$ growing to 129,203 $. A growth rate of 3%.

The average Indian is 20 times poorer than the Australian. If India grows at 6% for another 25 years, the average Indian will remain 15 times poorer than an Australian.

This is not particular to Global Insight. I saw similar numbers from the Economist recently. And i believe this is a deeply entrenched perception about future growth in India and China.

The West cannot digest a consistent 9% growth rate. That’s their problem. What worries me is that the Indian investment community is accepting their predictions. And using the stock market fall to justify the "overheated economy" and the "correction" necessary.

The economy has not slowed down. Our confidence and belief has. That's sad.

These think tanks and thought leaders must not make us Indians and Chinese pessimistic. There are 2 billion people in these two countries that are looking to buy the daily basics…good clothes/ shoes/ food/ medicines. Do you think that we can ask these 2 billion people to wait another 50 years because western think tanks think we can only grow at 6% annually?

Do you think they will wait? Do you think social balance will remain in the face of economic disparity over such a long period of time?

A 9% growth is not only possible. It is the bare minimum necessary.

What is my prescription: Quite simply, If we are working in product categories that have less than 10% penetration, we must continuously look for opportunities that double turnover every 4 years. Then, we can expect that in a 25-30 year horizon most Indians and Chinese will be able to afford a lifestyle that people reading this blog can afford today. We are still asking them to wait 25 years.

And it is not about the Indians and Chinese. Its about people who live on this planet. The Africans are poor. The middle east is (in real household income) poor.
Most of the world is poor. And following the west’s predicted growth trajectory is a “self fulfilling sin” that we will commit on mankind.

The west is not used to 9% growths. We Indians have only now seen it happen. But we know it is possible. And it happened because companies in India invested in India.
It happened in India. Let it continue. Let us continue to believe in the power of the human spirit. In the Chinese spirit. And the Indian spirit.

Wednesday, 27 August 2008

Leela Hotels: A new "rain"?

Readers of this note would be advised to peruse the Engage, Educate, Entertain note presented elsewhere in this blog. (March, 2008 under the label 'Marketing')
Based on the feedback from some readers, in this note, I move beyond concept and attempt to “prescribe” a solution..

I scanned the above advertisement of the Leela Group of Hotels from A Kingfisher in-flight magazine. (please click to enlarge. The print is interesting)

Let me present what works, what does not work and how they could develop this idea.

Firstly a segmentation- targeting- positioning assessment.
The ad, since it is presented only in in-flight magazines, the broad “segment” is people who either on corporate or personal accounts, use air travel. The hypothesis is that this segment presents a sub group that aspires for the better experiences of life and hence a “Leela” experience.

Within this segment, the target, based on the ad seems further focused into, young- affluent couple with children.

The “position” that Leela seems to desire is: Leela, through this innovative advertisement, wants to represent a five star hotel chain that makes interesting holidays happen.

This broadly works for me, except the child in the photo:
1. Kids usually do not have monsoon breaks in India. Hence we are already implying a loss of school days.
2. In the monsoon, most parents dread their kids being caught in the rain and hence falling ill.

So why did Leela bring in the child? Why could the target not have been “young/ adventurous” couples? Frolicking in the rain could be perceived as a romantic (or re-igniting) idea, but definitely without the child.

I will not elaborate on the 4Ps…the product/ price/ place and promotion are indicated in the print.

But now let’s go back to “engage-educate-entertain”. Great brands, I believe must do this.

In this advertisement, Leela is attempting to educate the audience. Sure, we know that by the time the monsoons arrive, one holiday season in India is complete. All hotels see a drop in fill rates.

The Leela is attempting to associate “fun” with the rainy season and offering their attractive package as an option.
Question: What makes the Leela package more special than a Taj Hotels package? The fact that Leela has advertised a lower price?

I agree with this attempt to link rain and fun and getting wet. I enjoyed (much to the horror of my mother) getting wet. Often resulting in a cold/cough attack immediately after. However, I am appalled by the thought of getting my nephew wet in the rain.

So while I would explore the idea of frolicking in the rain with my wife, I would leave kids out of this. Sorry, I repeat, but its to make a point on a key visual element of the advertisement.

How about engage and entertain?

The price is supposed to be engaging. Here’s what I think. In this package, the focus need not have been price. Because you are saying “look, getting wet is such a great experience.”
If Leela is really convinced of this, they should not be discounting the price. You drop price when you think the product offer is not strong. Period.

The biggest worry for me on a rainy day, is wet clothes.

I would think, an alternative for the Leela group would be to work with a higher price, but offer “free laundry” during the stay. And one free massage for every two nights stay.

How about entertaining? I don’t see much entertainment in the ad. Entertainment is not necessarily laughter. It could be pity/ anger…. But an ad that leaves you indifferent, is not entertaining. This ad doesn’t speak to me. The imagery is for a family that will have difficulty accepting the product.

The concept needs to target the romantics. Example: DINKs.

I can imagine enjoying watching the rain fall while I am getting an exotic massage.
I can imagine, enjoying hearing the rain fall on my porch while I am cuddled with the Mrs. , book in hand, and a few "pakoras" next to us.
I can imagine walking into the garden to get drenched….only because it brings back memories.

The rain is not bad. And its not a bad time for a holiday.

I appreciate the Leela for awakening me to this. Really, I think it’s a good concept. Bravo.

But the concept simply does not get the required marketing treatment it deserves.

Comments welcome.

Wednesday, 20 August 2008

Its time to differentitate. Segment. Do some marketing!

Marketing is more than gaining market share and cannot be validated by this simple measure.

So, Mr. Jack Trout is in India this week. An apt time to talk of differentiation.

The Indian market is so fascinated by value at the bottom of the pyramid, that it is neglecting value everywhere else in the pyramid. I hope Mr. Trout will be able to motivate an improvement.

In fact, Mr. Trout will realize that Indian companies have no concept of segmenting.
Mr. Trout will realize that Indian companies misunderstand marketing and accept promotions and film star endorsements as marketing.

If India Inc has to enhance its presence in the world market, it must start to learn some lessons of marketing very quickly. The basics: Segmenting, Targeting, Positioning. The basics (4Ps): Product, price, place and promotion.

A Volvo that stands for safety. A BMW that stands for performance. Where are India’s equivalents of these brands? What does Airtel stand for? Does Mr. Bharti care?
What does TATA stand for in the car business? When will Mr. Tata think of this?
What does the Taj Group of Hotels stand for? How is it different from the Oberoi?
What does Kingfisher stand for? How is it different from Jet?
(Being different from IA is not so difficult. If your plane takes off and lands and has polite service on board, you’re already different from Indian Airline)

Gain in market share does not a great marketing company make.

India, over the past 5-7 years has seen tremendous growth. This growth has brought purchasing power to millions across the pyramid. Companies have aggressively targeted these new consumers. Indeed, new categories have taken off based on these emerging consumers. Retail/ airline/ mobile phones….you name it.

But as a marketer, I am interested in building brands. And the growth of the Indian consumer has not brought with it the growth of Indian brands. Why?

Before I answer that, let me site some recent conversations I have had:

My travel office asked me the other day which airline I would choose to fly between Bangalore to Puna.

My response: “I need to be there for 10am, don’t care who gets me there.”
They replied: “IA is always late.”
“OK”, I said, “anything but IA.”

This kind of conversation has happened elsewhere.

Admin to Venkat : “Which mobile sevice provider do you want?”
Venkat: “Whats the difference?”
Admin : “Nothing.”
Venkat: “Anything”

Here’s another: Grocery:
Wife to me: “We need to do our grocery shopping today.”
Venkat: “Where?”
Ritu: “Anywhere.”

Try this: Mobile phones:

Ritu: “ I want to buy one.”
Venkat: “Ok, which one.”
Ritu : “Nokia. What else?”

Why such lack of involvement in product categories that we are exposed to every day?

I submit the following:

1. It is easier to set sell.
Setting up distribution network to make products available produces faster results. Especially in a market where products have not be available, and purchasing power is increasing. This is the case in India now.

Develop a product. Price is “for the masses”. Bring in a filmstar to legitimize the product and the brand. Make it available. From time to time raise prices based on “raw material prices”.

Servicing a “scarcity” situation makes quick money. And in the Indian context as penetrations are below 5% in most product categories costing Rs 5000 ($125) or more, this approach is likely to yield results for the short run.

2. However, marketing becomes important in a competitive market place.
Where many brands fight for the same consumer pocket. This is not the case in India.

Companies are looking to deliver products to gain volume market share. Hence their entire segmenting approach is usurped by the “bottom of the pyramid” which determines the entire 4 P. And for this segment, price being the most important, each company is focusing on gaining volume market share at the lowest cost.

Leaving consumers up the value chain feeling completely abandoned.

The value in the middle and top of the pyramid are being neglected in the hunt for market share. (Which seem to drive, in the eyes of financial analysts, the overall firm value).

All short term thinking. And suboptimal for firm performance.

The consumer at the bottom of the pyramid drives service and product value definitions. Eg: a consumer using Rs10,000 of talk time per month is serviced by the same service network that addresses a consumer spending Rs 250 per month. Will he accept this for long? If ever given the choice of better service, he will shift. Immediately. Even for a price premium. Only when one has suffered poor service does one know the value of good service.

My bet is that in servicing the bottom of the pyramid, most Indian companies are exposing themselves to share loss at the top of the pyramid. Value share loss.

India Abroad:

The Indian market seems to lack entirely the concept of segmenting the market. And driving consumer loyalty through relevant promises made to each segment. Under this kind of marketing exposure, our dreams of establishing global brands will fall flat. Very hard.

Experience gained satisfying the bottom of the pyramid will be useful in other developing economies, but not in developed countries.
Where consumers want products that are “made for them”. Where they can choose from multiple service providers . Once product penetrations increase, growth slows and you are faced with maximizing value per customer and enhancing consumer loyalty. This is where marketing develops.

In this market situation, producing and delivering goods is not sufficient. A “reason to buy” is key. And that comes from understanding that there are multiple consumer segments demanding many solutions.

A Volvo that stands for safety. A BMW that stands for performance. Where are India’s equivalents of these brands? What does Airtel stand for? Does Mr. Bharti care?
What does TATA stand for in the car business? When will Mr. Tata think of all this?
What does the Taj Group of Hotels stand for? How is it different from the Oberoi?
What does Kingfisher stand for? How is it different from Jet?
(Being different from IA is not so difficult. If your plane takes off and lands and has polite service on board, you’re already different from Indian Airline)

Consumers will force companies to dedicate resources to clusters of consumers.
To have one type of customer service for all consumers will be rejected.

Indian companies need not wait for the market to mature before they start investing in Marketing. They can and should start right away. Brands takes decades to be built and sustained.

Companies have to realize that the value at the bottom of the pyramid is not to be gained at the cost of the top of the pyramid. This is a luxury that companies in India are getting used to.
This may be good for the bottom line today, but it will definitely be a handicap when companies try to go global.

As a marketing professional I believe today’s bottom lines should not come at the expense of long term creation of company and consumer value.

Go on. Do some real marketing. Today.

Monday, 11 August 2008

The Curse of the Pyramid

The curse of the pyramid:
Should companies target value market share or volume market share?

No, “the curse of the pyramid” is not the proposed titled for a fourth Brendon Frazer “Mummy” movie. The genesis of this note comes from discussions I have had on the grounds that I believe a company searching for ”premium prices” and profitability should not search for market share as well, without defining very carefully its ”market”.

In the history of marketing, I claim, no company has been able to be a volume market share leader while maintaining premium pricing. (Market share of a leader and premium pricing are both relative to the industry, but as a generalisation, this always holds true.)

Example: Leather carry bags. Louis Vuitton is a “premium” player in the market. But has possibly les than 1% of global leather bag sales. (including non branded goods sold in open market places around the world). Does LVMH set itself volume market share goals?

While contemplating these ideas, I came across an article in the HBR by Vijay Vishwanath and Jonathan Mark called “Your Brand’s Best Strategy”.

One of the key points I understood in this article is that a company’s ambitions must be judged in line with the commoditisation of the industry it is in. Eg: mobile phones- dominated by 7 manufacturers that add to more than 70% of the market and are all focused on innovation and profitability. Each company focused on justifying a price premium. Till the emergence of the “cheap phones” market in India and China, this model was working very well. Now everyone wants to put a mobile phone in every Indian’s hand. So the average cost of phones in India has dropped quickly towards the USD 35-40 mark. Sure Nokia has gained market share. But what has happened to its average price per phone and average profitability.
Its innovations are no longer “technology innovation” but more design innovations that involve integrating a flashlight and radio in every phone. Easy to copy.

Apple in the mp3 market is another example. Apple stands out through innovation in an industry where there are a number of low priced options. A decrease in the prices of Apple will mean a decrease in its capacity to spend on R&D and hence innovate. Immediately product differentiation will suffer.

Compare this to the tyre business. Consumers are neither “wowed“ by innovation, nor seem too concerned by lower priced products. No real innovation has come to the market in the last 30 years. Is there any surprise that all companies in this business use “raw material price increase” as the crutches on which they increase their own pricing? (I use the word “crutches” since if these decisions were indeed genuine, we would all remember examples of companies that decreased prices in an era where raw material costs were coming down).

I want to continue with the Nokia example. Today Nokia has defined the category- with products from $30 to more than $1000. So far, they have gotten market share as well as profitability.

Now, lets say that the market of the “low cost” $30 phones grows 5 times more than the overall market for cell phones. Nokia will be forced to sell more in this segment. Unless it is then able to find a cost structure that allows it to have the same profitability as for its more “upmarket phones”, its profitability will fall. (not overall profits, but profit per phone).

However, as the mobile phone gets more and more “commoditised”, it is likely that cheaper manufacturers in China will be able to deliver phones at $25 without having a high cost structure due to lower investment in R&D, manufacturing costs etc.

Would Nokia be able to match this? Should it?

Or should it then refocus on businesses that value its innovations and allow it to continuously charge premiums and reinvest profits into its innovations.

As an industry matures, many consumer segments emerge. Satisfying each segment well requires specific business models. Working and synchronising among these different models different skills in a company and eventually proves impossible.

Today Nokia and Apple are masters at their game because their respective industries are still relatively new. Customer segmentation is still relatively narrow. But it will not be the same 5 years from now. Where should these companies create competencies in their business models?

Perhaps it is for this reason that in a mature industry, there has never been a “premium”, innovator that has consistently maintained strong prices and continued to gain market share.

Now let me bring in the concept of the pyramid, and the curse.

The segmentation of consumers in most countries is shaped as a pyramid, with a broad base at the bottom (signifying a mass market) and a narrow top signifying a smaller set of consumers at the premium end.

Products can be launched at both ends of the pyramid. At the top end, they are more exclusive, with cutting edge features that justify the premium pricing. The bottom end products (in the same category) tend to be cheaper, and with less technological differentiation.

In developed economies, the base of the pyramid is not as wide as in developing economies. Indeed I may argue that the height difference of the pyramid (difference in the spending power of the top end of the population compared to the bottom) is also lower compared to developing markets like India and China.

Consequently, in developed economies, servicing the bottom end does not drain resources of the company to the extant that it does in India or China. I.E to reach the bottom end of the pyramid in India requires a distribution network spanning the country. It requires a service network and a product range that is both cheap as well as innovative. With prices ensuring that the returns are much lower.

The top end by contrast, can be serviced at the top 20 cities of the country with limited investments in sales, distribution and service. By definition, targeting the top end implies reaching fewer consumers, but those that can pay high value for products. Hence higher profits per customer.

Sure, the base of the pyramid is where volume market share is built. Its where the volumes are.

But in my experience, the capabilities required to satisfy both ends of the pyramid are so different that few companies have come close to mastering them. Perhaps none in the Indian market. For example, customer support and service networks are designed to satisfy the entire customer universe. A one size fits all dominates. In fact it is the expectations of the “mass market” customer that then determine the infrastructure. What does this mean for a customer who pays 10 times the price? Should he not expect 10 times the service?

This is where the brand experience at the top end starts getting impacted. And customers become open to newer propositions.

In India, companies will have to choose which end of the market they want to target. The two ends of the pyramid are seducing in terms of the business and market share potential, but require enterprise competencies that have so far not been demonstrated.

Companies that enter the Indian market today without a clear idea of which segment they want to play in, risk losing their brand value and customer loyalty.

This is the curse of the pyramid.

Thursday, 7 August 2008

A brand called Dhoni?

A brand called Dhoni…..umm…Dhoni…a brand?

The other day newspapers reported how brand Mahendra Singh Dhoni was now generating more revenues than brand Tendulkar. (for the un initiated, these gentlemen are Indian stars in the game of cricket).

Fair point. The numbers back this.

But the article seemed inappropriately worded. Something made me uncomfortable. I mulled over it for a while and concluded that the use of the word “brand” in describing Dhoni was intriguing.

“Label Dhoni generates more revenue than brand Sachin.” That sounds fine.

I have tremendous respect and admiration for Dhoni. As a cricketer and captain, he has shown immense application, confidence and results. I do not grudge him the respect and admiration of the country. (Myself included).

But it’s the use of the word “brand” that alerts my senses. As a marketer, the “brand” is holy. It’s the ultimate recognition given to the goods/ services being marketed. Its earned. Over time. Over generations.

Who should wear this crown? When? And Why? Can the title of “brand” be so easily earned? Is Dhoni not a well known label today? Sure, maybe I am being esoteric here. But them, this is my profession. If I don’t get picky about marketing issues, what else should I do?

Coke is a brand. Pepsi. Nike. TATA. Britannia. Tendulkar. Many more. These brands have been along many years and have established a trust with consumers based on their performance under the spotlight day after day. Over time.

This aspect of time in the definition of a brand is in my view, a very critical element.

Why is time critical in the creation of a brand?

Lets take the example of Mohandas Gandhi. The father of a nation. Lets say he is a brand. Do I think he would have generated more ad revenue than Dhoni and Tendulkar put together? Certainly on the lecture circuit he would have done well.

What made him great enough to be called a “Mahatma”? The great soul? Is that not what brand managers try and sell in a brand? The “soul”?

What did the Mahatma have? In my view, the following:
• Unique skills.
• Evolving consumer connection.
• Sustained consumer value.

Business jargon. But it makes the point.

How did we judge the Mahatma? Not because he had one year of excellent negotiations with the British. Not because he went to jail for 15 months. Not because he chose to wear “khadi” for a few summer seasons.

His enabling the country’s independence was a struggle over many decades.

Through evolving times, turbulent periods of our history the Mahatma delivered his message consistently through his path of non violence. He modified his battles in sensing the mood of the country as well as the British and ensured he was relevant to the need of the emerging nation. At the time of his passing away, three generations of Indians were engaged with the Gandhi brand.

The duration of time allows a brand to present itself to new generations of users. If it succeeds, its consumer base is unlimited. If it fails, it was never a brand!

Coca Cola. My nephew has an opinion on the brand. My parents have an opinion and I have an opinion. The brand has engaged each of us. It means different things to each of us. And we do not each use the brand in the same way (my father consumes the most). But to each of us, in its own way, the brand has represented a way of life which is fun, responsible…and for me. It has done this over years. Reflecting the changing consumer in its projection of the brand. It capturing the essence of the times through its imagery. By delivering a product consistently. It has followed our lives’ journeys. We believe the brand when it says - “I understand you. I am always with you. Wherever you are, whatever you are doing, lets share the moment together.” (I accept that the element of sugary, fizzy drinks not being ideal for good health has taken off some of the sheen around this brand).

Or lets consider Amitabh Bachchan. From the angry young man of the 70s and 80s to the knowledgeable patriarch in the new century. He has captured the mood of the country. The brand had its down phase as well. (Was it over extension?) But the strength of its recovery demonstrated its capacity to adjust to the evolving consumers as well as the changing environment.

In the public domain, where all brands exist, its only the ”test of time” that forces a need to evolve, adapt and demonstrate relevance.

The revenue generated by the Dhoni name is only a reflection of current value and estimated future potential. It allows companies to associate their products with a name that means high performance today but equally shows the potential for future performance.

I have no problem with that. But Dhoni, I can’t believe that you are already a brand. You have had a strong beginning. May you successfully continue building yourself into a strong brand one day.

Anyway, I am not sure if Dhoni even worries about this when he is hitting low full tosses for sixes with his helicopter swing. The point of my writing this note is simply to request any reader of this note to be a little cautious when ascribing the title of “brand” to persons/ products or services. Most of us in the marketing business will agree it takes years and years of preparation for a brand to develop. If it was any easier, our professions wouldn’t be so much fun. Lets respect the title “brand” and be judicious in using it.