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.