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.