Tuesday, 24 March 2009

Backlash: How Early Adopters React When the Mass Market Embraces a New Brand

A very interesting note that appeared in the Knowledge@Wharton site (click title to view). Written by Wharton marketing professors David Reibstein and John Zhang who explain that a company could experience a backlash as its early adopters move on to other new products because of the arrival of the "mass market" consumers.

We believe this to be true and have written elsewhere in this blog of the need for companies to make a choice. Value or volume market share?


In a globally competitive market, no company has simultaneously gained volume market share while maintaining premium pricing. we think Starbucks went wrong there. We think Apple is at risk- so is Nokia.

ritu and venkat

Friday, 20 March 2009

The Easiest Way to Change People's Behavior

Peter Bregman writes this on the Harvard Business blog (click title to read).
We really liked the note. It says you can change behavior, and we buy the argument.

The reason we discussed it however is that we decided to view this note given the context of working in multinational corporations where people are all not speaking the same language...literally. Some speak English, some have French as mother tongue, others Chinese, German....and sitting folks from across the world in a meeting is a very interesting experience.

People are embarrassed to make mistakes in public. When its their language that is full of mistakes, its really hard on them. As well as on the people listening. Are people able to contribute best in a foreign language. Should all 100,000 employees undergo mandatory english language training? At what cost? (time and money). Is this compensated by better productivity? Will our competitors not leapfrog us with incremental improvements in the meanwhile? How do we measure all this?

The organisation should have a common language.

But it is not as easy to achieve this as we would like. And its a fascinating, humbling experience to bridge communication gaps in a multicultural world (or country- India).

Think about it.

Ritu and Venkat.

Disney features it's first black princess

I think Disney announced this way back in 2007 (not sure), but i read the note today (click on title).

And i think its wonderful. Disney is reflecting the diversity of society in its film. And its great. Beacause kids will see this film in huge numbers.

And they will see a market leader (market educator) and massive entertainer reaffirming the social context that they find themselves in.

I hope kids will be also assured that beauty has no color... and yet it comes in every color.

I hope kids speak about why such and such character was black and not the other one. And i hope that their teachers and parents tell them that good and evil have no color codes. To remove bias/ to mold behavior...we need to begin early.

This is a wonderful step. I hope companies in India take on this kind of role.

Not just make fancy ads using the latest technologies. But remind consumers of the world they live in and of the impact that their every choice has on the world.

Saving the environment is a message that can be built into every product and service. Yet it is not.

Conserving Energy. Recycling/ Reusing.... its up to large corporations to take the leading role in shaping how future generations think.

For too long corporations have motivated consumers to pamper themselves and satisfy their every need.

Lets find some corporations that talk to their consumers about appropriate levels of consumption. About personal responsibility. And this can be made fun.

It just needs some real leadership.

Tuesday, 17 March 2009

Onion offers

We're getting hit everyday by offers that hide more than they show.

A case in point is the Emirates holidays offer (photo) where 2 nights in Dubai costs more than the 3 nights in the European destination. For someone traveling from India, this is really strange. I spent more time trying to figure this out (no luck!) than appreciating the value of the European holiday.

Jet airways (www.jetairways.com) sends me upgrade coupons for being a frequent flier.
One of them is a 50% off for your companion coupon. Which i tried to use yesterday. Bought my ticket (non refundable) for Rs 6000 and asked to use the coupon for Ritu's ticket.

The polite customer service representative tells me the 50% off voucher is only applicable on a ticket that costs 16,000. So even at a 50% discount, Ritu's ticket would cost more than the fare of Rs6000 that my ticket cost me. Go figure.

And finally, Kuoni
(www.kuoni.com) advertised its holidays to Australia with a very enticing photo of a couple in very light evening dress on a boat off the Australian coast. Err.... It will soon be Winter in Australia. And the last time we were there in late spring, light evening wear was definitely insufficient.

Why would companies do this? Why would brands expose themselves to such customer cynicism? If a brand has no real value to offer, misleading consumers is not a solution.


Thursday, 12 March 2009

Jack of All Trades or Master of One?

A very interesting note by a marketing professor at Kellogg (click on title to read), Prof Alexander Chernev talks of the Performance perceptions of multi-feature products.

If a product has multiple functions, what does its price vis-a vis another single purpose product denote about it?

Eg: do consumers find a multi purpose product less efficient compared to a "single benefit" product at the same price? How does it change if the multi product has a higher price?

We have written on this blog that miniaturisation of technology will not only bring more "multi purpose" device into the market, but like the iPhone ensure that it performs very well on each parameter.

The research suggests a toothpast with anti bacterial and tooth whitening should be priced higher than a pure play tooth whitening cream.

We think this may be the case since you cannot actually determine quantitatively tooth whitening. Hence pricing (with the correct communication) may signal that the multi purpose toothpaste does both functions equally well, and very well. So consumer pays for the benefit of two functionalities.

What happens when an iPhone is competing with a Canon? How can consumers compare these 2 goods?

We think:
1. a consumer that a multi purpose device should be priced in such a way that each of its functionalities is more expensive than a comparable pure play device.
That is, if an Iphone is at 250 USD and has a 3 megapixel camera, it should be more expensive than a 3 mega pixel camara. (by how much, we cannot say off hand).

2. However, if the Iphone has a 3 megapixel camera and the Canon is a 10 megapixel offer, then the basket of goods is not longer comparable.

Interesting topic. Makes you wonder what actually is the pricing / profitability benefit of converging so many goods into one?

Ritu and Venkat

Saturday, 7 March 2009

the trickle-up effect...and the strength of India's rural economy

A wonderful note in the Hindu today (please click title to read)... a must read for anyone interested in the Indian economy. We kid you not.

Its gives some interesting thoughts to mull over...and why we must now focus (apart from the IT sector) on the capacity of the Indian consumer- rural consumer to deliver economic growth.

To which we add are two bits:
Over the past 9 months, we have been emphasising the need for Indian industry to be optimistic for various reasons.

a. The US has a credit problem, sure..its based on predominantly, the unsustainable house price bubble. US banks took on too many toxic assets. Now the economy has to correct itself.

b. Europe has had limited exposure to this. The UK and Spain have had significant asset bubbles and will take longer to correct themselves.

c. Germany is affected because it is an exporting country (like China) and its major markets are the US and China.

d. France and Italy, we believe, have limited banking exposure to the toxic assets. There, it is clearly a sentiment issue. Layoffs announced by companies are opportunistic. Companies are using this crisis to cut out all the fat which govt regulations and strict labor laws prevent them from doing in normal times. Add to this, govts are giving away cheap money... what company will not use this opportunity to become more competitive? But the French and Italian economy is a predominantly a consumption based economy which depends on its people's optimism.

e. in India, our exposure to the US market is essentially through the IT sector. Infy/ Wipro and TCS have not laid off anyone. The lay offs in the news everyday are mostly from the American companies (which goes back to point 1). Organised retail is weak, but the insurance sector/ telecom continue to be strong. Reputed companies like the TATAs are reducing work hours rather than number of employees. This is important and needs to be amplified.

f. The Indian auto sector (exports) will be affected ...in a limited way since we do not export big numbers to the US. As the sentiment in Europe corrects itself, the auto sector in India will recover.

g. Now lets look at government expenditure. Farm loan waiver of 70,000 crore (14 Bn USD), Pay hike in the govt service, rural employment scheme of 30,000 (6 Bn USD) crore and new infrastructure investment of 70,000 crore. These are big numbers for the Indian economy....where the toxic asset problem is not a concern. Banks are fundamentally fine, the sentiment is awful.

This is a lot of public money which is slowly finding its way into the consumers hands.....but rather than a trickle down effect, govt expenditure targeted to the weaker economic class always causes a "tricke up effect". This will translate itself through purchases of mobile phone/ FMCG products (tooth paste etc) and basic white goods (TV, fridge)... then the 2Wheel segment starts to benefit. If you see, over the past 6-8 months, inspite of the economic slowdown, these industries have maintained robust growth. This rural/ semi urban sector (as pointed out in the note) does not invest in the stock market either, and have been untouched by the stock market crash.

h. It is true that as the foreign investor has withdrawn money from the India to pay off their loans and debts abroad, resulting in a crash in our stock market as well.
Companies have tried to collect as much cash as possible...lower manufacturing by TATA and Ashk Leyland , in our view, is an effort to reduce inventory levels and hence save cash.

If 14 Bn USD is being invested in infra, you need trucks to move things around.

So what am we asking? We are asking for optimism. It is irrational, this pessimism and it unfortunately feeds on itself and affects the lives of everyone.

We do not believe (if the govt continued to spend on infra and the rural scetor) , that the "slow down" in India will last much longer. We continue to invest in the market. This is our personal view.

thank you

Ritu and Venkat

Friday, 6 March 2009

Poor CRM (customer relationship management) is a waste of scarce management resources

A large retailer sent a letter to my wife with coupons as reward for her belonging to its exclusive loyalty program.

On thick, high quality paper, the letter started….”Dear Member”….
Dear member?

Is that how important CRM is to this retailer that they can’t afford to do a basic mail merge and personalise the letter?

It gets worse.

Of the dozen coupons, there was not a single offer made was of interest to my wife. She simply does not buy those product categories. This is a horrible waste of money.

• The shop has been in business for 5 years or more.
• We have shopped there regularly for a year.
• We bought a lot of our household furniture from there when we moved back to Bangalore last year.
• Ritu is a member of their loyalty program, having shared information on her age, interests, occupation.

You would think this would be more than enough information for them to design some seriously useful offers. Each of their offers was for purchases of an “indulgence”. High end stereo, watches, jewelry, pens, make up. A terrible selection in a time when people are postponing purchases of everything but the most essential items.

Unfortunately as I criticize this initiative, I will not know how successful their contact program was. Perhaps my wife was just plain unlucky. But I think not.

What would we have preferred?
- Offers on savings on purchases of petrol.
- Clothes
- Service offers on household whitegoods/ furniture

I am sure the retailer is under pressure to build up sales of slow moving items. But what’s the point of throwing good money behind bad? A consumer, unsure of his next pay check, is not thinking of a high end home theater system.

This is the time to seriously connect with the consumer.

Why would I be excited about a “buy one watch, get a pen set free”, or “buy a watch and get a T Shirt free?” when I am doing everything possible to postpone the watch in the first place? What do I do with a pen set? Or a Reebok T Shirt. The cross promotions were not attractive.

The amount of discount required for a consumer to reconsider an indulgence purchase during an economic slowdown are simply too deep. Anything less, is useless.


Thursday, 5 March 2009

Discounting in a downturn

Been reading a lot about retailers and brands discounting in this downturn in order to preserve sales.

Pricing is our favourite P, and all this talk of discounting motivated us to write this note.

In our view, any pricing action has to be preceded by a couple of questions:

a. are you a brand or are you a commodity?

A brand is able to distinguish itself from its competitors on the basis of being a unique and relevant differentiation. It hence charges a premium, and uses that premium to re-invest in itself and continue to strengthen its position. Michelin tires help to save you fuel, Duracell lasts longer, Ipods are sexy, Colgate gives you 12 hour protection etc.

If you have no unique distinctive characteristics that customers understand and value, you are a commodity. Go ahead and feel free to cut prices.

b. What do you want your customers to do?
Brands grow by getting in more customers or by getting its customers to consumer more. In a downturn both of these tasks will be difficult.

Brands have a core set of loyal customers and then those on the periphery that come and go. In a downturn, a brand manager must focus on keeping the core together. The core may down-trade or exit the category altogether. This must not be allowed to happen, in the long term interests of the brand.

A strong brand should however, temporarily alter the value proposition for its “core” customers to reflect the challenging financial situation. But a brand should never, never reduce prices.

We suggest to increase the value of the purchase by offering extra volumes for free. This costs less on the bottom line and has a positive impact on the consumer. At the same time, it sends out the message that because the economy is tough, does not mean the product is any worse. It signals that the brand understands the challenges of the economy, and takes the opportunity to thank its loyal consumer with the promise that it will whatever it takes to ensure that even in these challenging times, the consumer can enjoy the products he loves.

The key question is, how much is good enough? Should the brand offer 10% extra volume? Or 20%? Or 50%? There is not enough research on this ,but our understanding is that anything over 15% begins to devalue the brand.

A price reduction impacts the bottom line strongly- devalues the product, sets expectations of future bargains and limits ability to reinvest in the brand.

A 10% increase in volume (given free) has a far lesser impact that a 10% price reduction. (Please do the maths on this, its simple and very illustrative)

We do not recommend cross promotions either. Buy a HP laptop and get a printer free! Once again we apply the principle that the cost of “free gift” should not be more than 15% of the cost of the product.

On the other hand, there are premium brands like Louis Vuitton than simply never cut prices. No end season sales, no bulk discounts, nothing. These products however deal with customers exhibiting a completely different price elasticity and we shall not go into that here.

Brands take years to build, only hours to discount. We know what we wrote here may sound theoretical, but we are convinced price discounts are the surest way to kill your brands.

ritu and venkat

Monday, 2 March 2009

Lyrics deeper than Dylan!

Ok. I am being sarcastic. But the text on the left if part of the wrapping on a bottle of water branded "HIMALAYAN" and sold by a TATA Group company. The TATA Group is one of the most prominent business groups in India.

"I look back on life, its funny how things turn out. You a connoisseur of fast food, now gaze on water that took years to make. And i, some of the purest water in the World, stand here, trapped in a bottle."

Folks, who wants to read this on a bottle of water? Who is Himalayan targeting?

Its kids 16 and below who, we believe, actually read labels regularly and with relish. We took this to our neighbors children who read it, and shrugged their shoulders, unable to connect with the text.

We don't know under what circumstances this text was approved. But surely this is not what you should be putting on a bottle of water. It does nothing to educate customers on the uniqueness of the product. The text is not engaging, the vocabulary is very unusual.

A lesson we draw from this is that marketers must have every element of the marketing mix (pricing included) tested with the target audience.

Brand managers must not try to create brands they love, but create brands that consumers can come to love.

Ritu and Venkat