Wednesday, 23 December 2009

pricing in India

Some very random thoughts:

India is NOT a low price market.

Nokia phones, tires, computers and cars sell in India at the same price (almost) as the comparable offer sells in more developed markets of Europe and Asia.

India is not a low price market.

True, the higher the price, the lower the pentration of the product. But companies are under no obligation to sell European products at cheap prices in India.

India is a "value" centric market.

Nokia sells USD 20 phones in India and a 100 million consumers buy these.

But these phones are configurd for the Indian market with lesser features. Features that the Indian consumer values more than an Mp3 player. (a phone that doubles as a torchlight for example)

These phones sell at prices that most surely (and we cannot confirm this) offer NOkia lower margins compared to their most advanced devices. Selling 100s of millions of these phones will drag lower the margins of Nokia.

In the Indian market, companies need to choose very carefully between pricing for the mass market and pricing for large margins. Both are possible. But not simultaneously.

Companies with high legacy costs (pension plans to pay off, large health care benefits to take care off) should think long and hard about which segment of the market to enter. In the long run, it may be posible to innovate and hence design and manufacture products that are cheap but with very strong margins. But from here to there...... is a long time.

Ritu, Venkat

Tuesday, 15 December 2009

Tiger and the branding of personalities

Ok- Tiger goofed up. But unlike most people, i am not worked up about it. I think his wife needs to handle the goof up, not me.

I am not a golfer, but i think Tiger is an outstanding athlete. A great brand, because apart from all other attributes, Tiger lasted (lasts) a long time- the true attribute of a great brand.

In maintaining a regular stream of "off the books" relationships however, Tiger seems to have suddenly turned from legend into a deplorable person overnight.

My two bits:
Tylenol was a bigger disaster- people died.
Firestone as well.
But the brands survived.

Why not Tiger?

Personality brands often highlight our own inadequacies. Tiger the perfect man- great golf game, great family....everyday men see Tiger on TV, they are reminded of their "average" existence. The wife drools over Tiger, the girlfriend fantasizes. It is the wide appeal of Tiger which will be lost forever. A tiger will now appeal only to a niche (like Paris Hilton- hopefully not to the same niche).

A moral fall is a great leveler. Suddenly our wives and girlfriends don't think much of Tiger. He has fallen, and by extension, i have risen. Do i want to see Tiger rise from this? Nope.

The brand Tiger is finished. Not zero, but nowhere close to where he was. He was on a pedestal, and now he is possible going to be held at the same level as a Paris Hilton.

If Tiger had been French, he would have been most likely forgiven by his countrymen. Not Americans, who still guard some "moral" values. (I am myself very uncomfortable with the word "moral" - how it is defined- by whom etc).

But America is the largest golf market in the world, and no matter what citizenship Tiger held, his worth in the US market would have fallen.

A very clear message for celebrity brands.

Friday, 4 December 2009

corporate strategy in India

This may be very ambitious, but here it is.

Say you are selling a standalone product. A standalone product can be used by itself using fuel- without the aid of any other product.
Eg; A car is a standalone product. A tire is not (since you need a car to sell the tire!)

I believe, that for standalone products priced at 30$ per unit, a penetration of 30% of India's households is possible. Do the math to calculate the volumes.
If the economy grows at 9%, then at constant prices, 9% more people will enter this market. Pricing innovations (producing the same item for 20USD) will get disproportionate volume growth.

For products cheaper than this, penetration will off course increase- around 0.25 USD per item, 60% product penetration is possible. (Distribution becomes the challenge- how do you reach 60% of India's population?)

There still is 40% (in my opinion) of the population for whom buying a USD 1 product is a luxury to be avoided.

At 3000 USD, the penetration of the product will drop to 4%.

So here it is : In 2009 prices:
Price USD 3000 Penetration: 4%
Price USD 30 Penetration 30%
Price USD 1 Penetration 60%

So where do you want to position yourself?

The great waves of India and China

If you have been living in India for a decade or so, or have been visiting often over the past ten years, you would agree with this observations.

There is a lot of change happening in India- social- economic and demographic. You see the increasing affluence around you, the cars- homes. Yet the sight of slums, beggars and abject poverty never goes away.

Why? We asked.

And we realised that the this is the case in India and possibly China- large and poor economies. The large size of the population means that the only entity that has the objective of moving forward the entire population,i.e. the government, has no chance of either reaching everyone nor has the resources to move the population upwards, together.

So economic activity will never be "equal" or socialist- no matter what the government says, tries or does.

In the meanwhile, people move to cities - the areas of maximum economic activity, to get rich the earliest. These go ahead to buy cars and homes.

As cities reach saturation levels, private enterprise goes further into smaller cities for newer markets. So on and so forth. At the same time, less affluent people are heading to the cities- the centres of activity.

When a countries population is 30 or 40 million, this change can be rapid.

When the population is 1 billion, this change takes place over time. India's affluence is concentrated in the top 10% of its population. This is the FIRST WAVE of people that benefited from their presence in cities to benefit from the first wave of economic investment.

The rest of the population is poorer, most fighting for basic needs, unconcerned about public hygiene, cleanliness or the environment. So for every person who becomes more conscious about the environment and decides not to litter, there is another who enters the city to make his fortune- but is absolutely unconcerned about civic duties. So the litter and filth continue.

The first wave will give rise to the next wave in 5-10 years. And then the next wave.

In this way, we see the entire population getter richer (per capital GDP of USD 30,000 for example) over 50-60 years.

In the meanwhile, one set of poor people will move on in life to be replaced by a slightly poorer set of people. Who will move on to be replaced by another set of less affluent.

The rich and the poor in this way will continue to cohabit for many many years. Maybe as the fifth wave takes over (in 30-40 years), the affluence will cover better the poverty....but for the next few decades, lets just accept the site of two India's all around us.

What does this mean for companies looking to invest in India?

Ritu, Venkat