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.