Social networks mirror the real world. The real world is large an indifferent place with people running a race to better their lives and given the opportunity will 'free load'- i.e attempt to gain goods and services without having to pay for them.
The real world is mostly leisure and pleasure seeking.
Its true, for every 1 hard working 'i want to change the planet and am ready to lose my last dollar for this', you have a 1000 that want to save the planet but not really switch off the bathroom lights when they are finished.
We like gossip. Social networks mirror this.
We like to be part of the 'cool crowd'. Social networks mirror this.
The one reason marketers have been trying to embrace social networks is that they believe (as do we) that social networks are a good way of engaging consumers. Is this really true?
Yes and No.
'Engagement' is a two way street. It requires action, reaction, action.
Most consumers really just want to read, hear and be informed. Only 1 in a 1000 will react. So why try to reach the other 999? you're really trying to reach the 1 that writes what the other 999 read.
Why advertise on Youtube? Why have your brand twitter? Why create a facebook page for your brand?
Rather than reach out to networks, we advocate that companies and brands create networks and invite selectively 'engag-able' consumers. Then allow these consumers to inform their own networks. But these are the 'brand or category advocates' that interact with the brand.
These advocates must be allowed to touch, feel and influence the brand. What's tricky is how do we filter the engaged user versus the non engaged (who will invariably come to the community if it becomes cool to be part of it).
But the bigger question is, does the brand manager have the maturity to distinguish between these two groups and focus on the quality of the engagement rather than the quantity.
That's what should decide online advertising budgets. The possibility of creating interactive and engaged communities. It takes time and effort. Like a 'frequent flier program' that over time separates the truly loyal from the others. A brand website that tracks user participation will eventually pick out the true loyalists.
Ritu and Venkat.
Wednesday, 31 March 2010
The REAL 'So What' of functional advertising
OK..so what's functional advertising....advertising that sells a product based on a functional benefit for its users. Unlike a Louis Vuitton bag that offers to satisfy mostly psychological needs. These products usually sell themselves on performance. Nike shoes. Sony. (When you lose your 'mojo' you drop from satisfying psychological needs to functional needs...its true, Sony.)
Now whats the REAL 'so what'?
The story of advertising usually ends with, buy me because i can do something better than the competition...or buy me because i can save you money or time.
This works when competition is weak. Once competition strengthens, and everyone offers a way to save money or time, whats the distinction?
And here is where the REAL 'So what?' becomes relevant. This is based on the core consumer need that saving money or time satisfies.
Brands need to understand this core need for its core segment. For example, a mother may like to save time so she spends more of it with her family...or on herself. Does your advertising capture this for the kind of mother you are targeting?
Or that a father would like to save money to buy a golf set or to put his children through a better college. Does your consumer understanding capture this about your target?
Nike does a fabulous job of understanding the 'so what'....we make great shoes, buts that not the reason you buy us. You buy us because we understand you want to compete and win...and mostly you are competing against yourself. We can help you raise the bar. That is what they help the consumers with.
Thats the real brand benefit that needs to be answered. The REAL 'so what'.
Ritu and Venkat
Now whats the REAL 'so what'?
The story of advertising usually ends with, buy me because i can do something better than the competition...or buy me because i can save you money or time.
This works when competition is weak. Once competition strengthens, and everyone offers a way to save money or time, whats the distinction?
And here is where the REAL 'So what?' becomes relevant. This is based on the core consumer need that saving money or time satisfies.
Brands need to understand this core need for its core segment. For example, a mother may like to save time so she spends more of it with her family...or on herself. Does your advertising capture this for the kind of mother you are targeting?
Or that a father would like to save money to buy a golf set or to put his children through a better college. Does your consumer understanding capture this about your target?
Nike does a fabulous job of understanding the 'so what'....we make great shoes, buts that not the reason you buy us. You buy us because we understand you want to compete and win...and mostly you are competing against yourself. We can help you raise the bar. That is what they help the consumers with.
Thats the real brand benefit that needs to be answered. The REAL 'so what'.
Ritu and Venkat
Sunday, 24 January 2010
Why does young India regret its past?
A couple of recent movies in India - "Rock On" in 2008 and "3 idiots" in 2009 have done very well at the box office. I enjoyed the two movies. But my level of connect was pretty low with both- the underlying theme being how successful young Indians look back at their lives and true passions (music, writing, photography) and find ways of going back to that. I am ok with that, but unhappy if school children get distracted by that message.
What i want to caution many of my fellow country men is this:
- India was a poor country 50 years ago, 20 years ago, today and will continue to be poor 50 years from today. (1 billion people will not get rich overnight)
- While many professions will open up, the competition for jobs will always be very very high.
- Applied professions (engineering, medicine, carpentry etc) will always be the best ways of making a living and getting the family out of poverty.
- Writing, painting and photography will keep you mostly poor.
So get to school and study, is my message to the youth. Looking back at the past from the very comfortable confines of a cinema is possible when you have used engineering to get a very good job and life.
"3 idiots" the biggest blockbuster of the last 10 years, was only watched by 10% of India's population in the cinema. The rest could not afford it.
There is a message in that.
What i want to caution many of my fellow country men is this:
- India was a poor country 50 years ago, 20 years ago, today and will continue to be poor 50 years from today. (1 billion people will not get rich overnight)
- While many professions will open up, the competition for jobs will always be very very high.
- Applied professions (engineering, medicine, carpentry etc) will always be the best ways of making a living and getting the family out of poverty.
- Writing, painting and photography will keep you mostly poor.
So get to school and study, is my message to the youth. Looking back at the past from the very comfortable confines of a cinema is possible when you have used engineering to get a very good job and life.
"3 idiots" the biggest blockbuster of the last 10 years, was only watched by 10% of India's population in the cinema. The rest could not afford it.
There is a message in that.
reproduction- your best bet against fundamentalism?
I was reading a note in the economist on how hindus- muslims integrate well into American society and do well for themselves. And avoid radicalism. It re-iterates what i have always believed- that economic growth is the best way to integrate people and cultures. A rich population has little blame to levy on its neighbors.
A very random thought...the declining population growth rate of western economies (christian faith), declining population growth rate in India, China. And conversely, where are population growth rates the highest? In parts of the world with least economic opportunity- arabic states in the gulf/ middle east...and Africa.
High population and low economic opportunities are fueling violent expressions of intolerance.
Fortunately, violent fundamentalists represent a very small fraction- but is it possible that as we leave unresolved issues confronting the muslim world to fester, that these numbers will grow?
For all the technology of the west - surveillance, preventive and predictive analytical techniques, large armies have often beaten back technologically superior ones.
While i dont predict doomsday, i ask whether developed countries should focus more on increasing their population? Not to prepare to fight wars, but to demonstrate very clearly that we love our way of life so much that we are bringing more people into it. Should that not be a good advertisement for progress? Why doesnt Obama make this a central piece of his administration?
And hopefully grandad will not have to learn to use a big gun! Just kidding! :-)
Venkat
A very random thought...the declining population growth rate of western economies (christian faith), declining population growth rate in India, China. And conversely, where are population growth rates the highest? In parts of the world with least economic opportunity- arabic states in the gulf/ middle east...and Africa.
High population and low economic opportunities are fueling violent expressions of intolerance.
Fortunately, violent fundamentalists represent a very small fraction- but is it possible that as we leave unresolved issues confronting the muslim world to fester, that these numbers will grow?
For all the technology of the west - surveillance, preventive and predictive analytical techniques, large armies have often beaten back technologically superior ones.
While i dont predict doomsday, i ask whether developed countries should focus more on increasing their population? Not to prepare to fight wars, but to demonstrate very clearly that we love our way of life so much that we are bringing more people into it. Should that not be a good advertisement for progress? Why doesnt Obama make this a central piece of his administration?
And hopefully grandad will not have to learn to use a big gun! Just kidding! :-)
Venkat
If you didnt build it, and cant control it, dont try to sell it!
Pretty poetic title, inspired by a report (click on title to read) on Nokia building in navigation software to boost sales in China.
Its a good service and like "life tools" in India aimed at building services into the phone proposition.
So far so good. But is this expected to help pricing or market share?
We think unlikely in the long run.
Why?
Because the open standards on these services will allow other companies to build, bundle and sell similar services.
But its all good for the consumer and we dont argue against that.
What we think should be optimised in companies, is the capacity to build proprietary technology and control of the distribution and access to that technology.
Everything else is tactical.
In a technology company, technological innovation must be at the core. Alliances and partnerships built on these proprietary technologies are to be valued.
ritu and venkat
Its a good service and like "life tools" in India aimed at building services into the phone proposition.
So far so good. But is this expected to help pricing or market share?
We think unlikely in the long run.
Why?
Because the open standards on these services will allow other companies to build, bundle and sell similar services.
But its all good for the consumer and we dont argue against that.
What we think should be optimised in companies, is the capacity to build proprietary technology and control of the distribution and access to that technology.
Everything else is tactical.
In a technology company, technological innovation must be at the core. Alliances and partnerships built on these proprietary technologies are to be valued.
ritu and venkat
go on, be a Nokia- core purpose or core business?
By the title we dont ask you to adopt Nokia's business model. (we are far from convinced it is the right one). But we ask you to do what Nokia did in 1992, move away from its rubber, cable and non telecom businesses, to focus on telecom!
Wow!
Core purpose or core business? What should really matter to an investor?
India and China are huge markets with unmet needs across a wide range of goods.
TV penetration in India is 60%, but
- refrigerator penetration is less than 10% (among 220 million households)
- car penetration is less than 4%
- microwaves at 4%
and so on....
Mobile phone usage is still very low, with 90% of the penetration accomplished with "pre-paid" users shelling out 2 USD per month as revenue.
Value added services are 6% of phone bills, which on average are 4 USD per qtr.
Consumption is so low, the only restraint on an organisation's growth is imagination and ambition.
Now, here is some back of the envelope calculation:
If 20% of the families bought cars at USD 6000 each, this is a 250 Bn USD industry
If 60% bought refrigerators at USD 200, this is a 25 Bn USD industry
If we could get current mobile users to spend USD 5 per month on VAS, its a 30Bn USD business PER YEAR.
Ok, so your core business may not be in any of the above. But if you truly want to grow, why would that be an excuse?
Indian companies are not lacking for innovation. They lack for capital. Which is abundant in the west.
Why not acquire aggressively Indian companies, and bring in capital to "go to market" faster, stronger?
On another note, water purification and electricity generation will be interesting businesses to get into. At the household level. Technologies that dont depend on the government grid.
Stop worrying about your core "business". Worry about your core "purpose". Profitable growth!
Ritu and Venkat
Wow!
Core purpose or core business? What should really matter to an investor?
India and China are huge markets with unmet needs across a wide range of goods.
TV penetration in India is 60%, but
- refrigerator penetration is less than 10% (among 220 million households)
- car penetration is less than 4%
- microwaves at 4%
and so on....
Mobile phone usage is still very low, with 90% of the penetration accomplished with "pre-paid" users shelling out 2 USD per month as revenue.
Value added services are 6% of phone bills, which on average are 4 USD per qtr.
Consumption is so low, the only restraint on an organisation's growth is imagination and ambition.
Now, here is some back of the envelope calculation:
If 20% of the families bought cars at USD 6000 each, this is a 250 Bn USD industry
If 60% bought refrigerators at USD 200, this is a 25 Bn USD industry
If we could get current mobile users to spend USD 5 per month on VAS, its a 30Bn USD business PER YEAR.
Ok, so your core business may not be in any of the above. But if you truly want to grow, why would that be an excuse?
Indian companies are not lacking for innovation. They lack for capital. Which is abundant in the west.
Why not acquire aggressively Indian companies, and bring in capital to "go to market" faster, stronger?
On another note, water purification and electricity generation will be interesting businesses to get into. At the household level. Technologies that dont depend on the government grid.
Stop worrying about your core "business". Worry about your core "purpose". Profitable growth!
Ritu and Venkat
Tuesday, 12 January 2010
TV programming, advt dollars , and the audience!
The note below is taken from a site we visit regularly www.thoughtgadgets.com.
Insightful comments on happenings in the marketing world.
The authors argue "TV networks don't exist to serve content to audiences; they exist to serve *audiences* to advertisers."
http://www.thoughtgadgets.com/2010/01/syfy-wins-great-rebranding-debate.html
We agree. And explore deeper this idea in the case of an emerging country like India where there are no "content" dedicated TV channels, and no segmentation in the market. Each channel wants to grab the same eyeballs- so very little differentiation.
Over the past few years, Ritu and I saw that we were tuned out completely from prime time TV viewing, because the channels would only show drama and reality shows. How could Indian audiences (teens) for reality shows and drama (older aged) be relevant targets for advertisers? The 30-40 year old of our generation had disposable incomes, yet hardly getting any content on prime time TV.
All this changes with new technologies. We now watch recordings of programs that appear late at night. This is a very new technology in India unlike in the West.
And herein lies a new pot of gold for TV channels. This recording technology will allow advertisers to get in front of audiences irrespective of show times.
What then becomes prime time? Interesting thoughts that came out of our reading of thoughtgadgets.com today.
Ritu and venkat
Insightful comments on happenings in the marketing world.
The authors argue "TV networks don't exist to serve content to audiences; they exist to serve *audiences* to advertisers."
http://www.thoughtgadgets.com/2010/01/syfy-wins-great-rebranding-debate.html
We agree. And explore deeper this idea in the case of an emerging country like India where there are no "content" dedicated TV channels, and no segmentation in the market. Each channel wants to grab the same eyeballs- so very little differentiation.
Over the past few years, Ritu and I saw that we were tuned out completely from prime time TV viewing, because the channels would only show drama and reality shows. How could Indian audiences (teens) for reality shows and drama (older aged) be relevant targets for advertisers? The 30-40 year old of our generation had disposable incomes, yet hardly getting any content on prime time TV.
All this changes with new technologies. We now watch recordings of programs that appear late at night. This is a very new technology in India unlike in the West.
And herein lies a new pot of gold for TV channels. This recording technology will allow advertisers to get in front of audiences irrespective of show times.
What then becomes prime time? Interesting thoughts that came out of our reading of thoughtgadgets.com today.
Ritu and venkat
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
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.
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?
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
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
Thursday, 12 November 2009
Tirupati, Cricket and the changing Indian demography
First Tirupati- which is a town in South India with a temple dedicated to Lord Venkateshwara, of the Hindu faith. What is impressive about the town is how well it is organized and maintained. Smoking is banned, littering is absolutely banned, Indians are not allowed to chew tobacco (and spit out the red stained saliva). And in the name of the Lord, all Indians that enter the town respect the rules.
It is in a way, a little Singapore. I had to walk bare-feet for a mile in the city and it was really clean. You cannot walk barefoot in any city in India. In Tirupati, you can.
That was the good news.
The bad news was the crowds. Hundreds of thousands of people have been visiting the temple each day. This has been the case for many many years. And yet, the capacity of the temple management to regulate crowds is inadequate. Each solution is outdated by the time it is implemented, and the pushing, jostling to catch a view of the statue of the lord (which is stationery) is unimaginable. And this is the richest temple in the country with donations pouring in. Why cant crowd management solutions be put in place and implemented?
As I stood in the temple however, I made however, another observation that i note here.
Indian demographics is changing the nature of the visitor to the temple. The temple management should take note of this and act now, else be overwhelmed by the surge in the number of devotees.
When I visited the temple as a child, the exercise of traveling to a far off city, finding accommodation etc was an expensive “holiday”. So much so that it was restricted to many in the “upper middle class”. My parents saved money to donate to the temple.
Now, with travel getting cheaper and the average income in India on the rise, there are many more visitors. But the profile of the visitor is predominantly rural/ semi urban and from the small towns. This is good news. But on the other hand, the donations (per person and adjusted for inflation) being put into the temple are likely to be much lower than in the past.
The temple is going to find itself with few resources per person to handle the bulging crowds.
The temple has also created specific slots for a more personal viewing of the Lord, very early in the morning. These cost USD 2000 for a 10 year pass (where you can have a more exclusive viewing for the family once a year). Ordinary viewing tickets are USD1 per person. These however are limited in number. And with time are getting more and more expensive- supply and demand at work. However a family paying USD 2000 would expect a certain level of service from the temple in order to continue making this contribution to the temple.
On this visit, in spite of the “exclusive” pass, I found myself having to cover 2 miles and search in three buildings to find the office where I could get the “prasad” for the prayer I attended. The rules and the offices change every 6 months, so devotees have not many options to learn beforehand of a procedure.
The two above points highlight a classical marketing problem called segmentation.
You have a mass market. There the challenge is to maximize revenues from a large base but low affluence consumer. Cost management is critical here.
And you have the “niche” segment consumers willing to pay more, but demanding extra services. These are high margin consumers.
Managing both ends simultaneously is always a challenge, especially in a country like India with its “socialist” beginnings.
But the Tirupati temple trust need to wake up to the evolving Indian demographics to ensure the town and the temple continues to bring in devotes who can pray in a comfortable way.
2. The second area where I see a huge change that is going to come about is the sport of Cricket. Wildly popular in India raking in millions of dollars for the administrators, media and players.
The popularity of cricket in India has risen along with the rise in affluence of the Indian middle class. Almost every Indian living in the large towns has played cricket in his childhood. It is cheap, and with the availability of a playground, easily accessible. Unlike hockey and football (which need specific ground sizes and proper grass to play on). Swimming, golf, tennis all remained very expensive for India.
The Indian middle class that played cricket in its younger days (and lives in its cities) is now the Indian upper middle class. We pay to see people play and we relive our childhood neighborhood games when we see the cricket.
Cricket was always a middle class- upper middle class sport and with few exceptions, all of our players came from these backgrounds.
That is changing. The cities have no place to play cricket and indeed the affluent kids are shifting to tennis/ squash and other sports. These sports will grow in the future.
Cricket meanwhile is being shifted to smaller towns and villages which seen the only places now with open grounds where kids can play and practice the sport.
Emerging players for the national team (in the next 5 years) will have very non urban backgrounds. They will have learnt the sport by observation rather than training. (In non urban centers, training and coaching facilities are non existent).
They will come in with unorthodox techniques. Not ideal physical conditioning.
They will suffer far higher burnout than current cricketers, thereby limiting their playing time and the capability of the Indian team. Cricket will not be the money maker it is in Indian life today. The cricket board, in my view, is totally blind to this.
My guess is that unless administrators of cricket in India focus more on developing training facilities in smaller towns and villages, the competence of the Indian cricket team will decline very sharply in the next 4-5 years.
Lets wait and watch how these two areas of Indian life are influenced by the changing Indian demographics.
Venkat
It is in a way, a little Singapore. I had to walk bare-feet for a mile in the city and it was really clean. You cannot walk barefoot in any city in India. In Tirupati, you can.
That was the good news.
The bad news was the crowds. Hundreds of thousands of people have been visiting the temple each day. This has been the case for many many years. And yet, the capacity of the temple management to regulate crowds is inadequate. Each solution is outdated by the time it is implemented, and the pushing, jostling to catch a view of the statue of the lord (which is stationery) is unimaginable. And this is the richest temple in the country with donations pouring in. Why cant crowd management solutions be put in place and implemented?
As I stood in the temple however, I made however, another observation that i note here.
Indian demographics is changing the nature of the visitor to the temple. The temple management should take note of this and act now, else be overwhelmed by the surge in the number of devotees.
When I visited the temple as a child, the exercise of traveling to a far off city, finding accommodation etc was an expensive “holiday”. So much so that it was restricted to many in the “upper middle class”. My parents saved money to donate to the temple.
Now, with travel getting cheaper and the average income in India on the rise, there are many more visitors. But the profile of the visitor is predominantly rural/ semi urban and from the small towns. This is good news. But on the other hand, the donations (per person and adjusted for inflation) being put into the temple are likely to be much lower than in the past.
The temple is going to find itself with few resources per person to handle the bulging crowds.
The temple has also created specific slots for a more personal viewing of the Lord, very early in the morning. These cost USD 2000 for a 10 year pass (where you can have a more exclusive viewing for the family once a year). Ordinary viewing tickets are USD1 per person. These however are limited in number. And with time are getting more and more expensive- supply and demand at work. However a family paying USD 2000 would expect a certain level of service from the temple in order to continue making this contribution to the temple.
On this visit, in spite of the “exclusive” pass, I found myself having to cover 2 miles and search in three buildings to find the office where I could get the “prasad” for the prayer I attended. The rules and the offices change every 6 months, so devotees have not many options to learn beforehand of a procedure.
The two above points highlight a classical marketing problem called segmentation.
You have a mass market. There the challenge is to maximize revenues from a large base but low affluence consumer. Cost management is critical here.
And you have the “niche” segment consumers willing to pay more, but demanding extra services. These are high margin consumers.
Managing both ends simultaneously is always a challenge, especially in a country like India with its “socialist” beginnings.
But the Tirupati temple trust need to wake up to the evolving Indian demographics to ensure the town and the temple continues to bring in devotes who can pray in a comfortable way.
2. The second area where I see a huge change that is going to come about is the sport of Cricket. Wildly popular in India raking in millions of dollars for the administrators, media and players.
The popularity of cricket in India has risen along with the rise in affluence of the Indian middle class. Almost every Indian living in the large towns has played cricket in his childhood. It is cheap, and with the availability of a playground, easily accessible. Unlike hockey and football (which need specific ground sizes and proper grass to play on). Swimming, golf, tennis all remained very expensive for India.
The Indian middle class that played cricket in its younger days (and lives in its cities) is now the Indian upper middle class. We pay to see people play and we relive our childhood neighborhood games when we see the cricket.
Cricket was always a middle class- upper middle class sport and with few exceptions, all of our players came from these backgrounds.
That is changing. The cities have no place to play cricket and indeed the affluent kids are shifting to tennis/ squash and other sports. These sports will grow in the future.
Cricket meanwhile is being shifted to smaller towns and villages which seen the only places now with open grounds where kids can play and practice the sport.
Emerging players for the national team (in the next 5 years) will have very non urban backgrounds. They will have learnt the sport by observation rather than training. (In non urban centers, training and coaching facilities are non existent).
They will come in with unorthodox techniques. Not ideal physical conditioning.
They will suffer far higher burnout than current cricketers, thereby limiting their playing time and the capability of the Indian team. Cricket will not be the money maker it is in Indian life today. The cricket board, in my view, is totally blind to this.
My guess is that unless administrators of cricket in India focus more on developing training facilities in smaller towns and villages, the competence of the Indian cricket team will decline very sharply in the next 4-5 years.
Lets wait and watch how these two areas of Indian life are influenced by the changing Indian demographics.
Venkat
Friday, 23 October 2009
Nokia sues Apple
A brief note today (you can click the title to read about Nokia's latest strategy).
We don't recall Apple using the court as its innovation lab.
Nokia, wake up- focus on the customer and not on Apple.
Ritu, Venkat
We don't recall Apple using the court as its innovation lab.
Nokia, wake up- focus on the customer and not on Apple.
Ritu, Venkat
Wednesday, 21 October 2009
Apple, Nokia and CNN
No, they have nothing in common.
Apple announced its sterling results recently. And Richard Quest on CNN was analysing last evening the same with the help of some tech correspondent in the US and UK.
Apple makes cool products.
Nokia stumbled in looking for volume market share- and has so badly lost its 'cool factor'.
And CNN, business report on these two companies was so pathetic, it made me angry.
Our strategy thumb rule states that no company has cconsistently gained volume market share and maintained premium pricing (high margins) at the same time. Period. It has never happened.
Mass markets and premium products require very very different execution skills. They cannot remain in the same company.
Lexus and Toyota is a striking example of how to make it work.
In 2007, we mentioned that Nokia was possibly making a very big mistake is running after market share numbers. Sure, in the short run "analysts" reward companies for their sales. More sales means more revenues. But that is short term.
(http://rituvenkat12.blogspot.com/2007/07/market-share-or-profitability.html)
A technology company with high margins needs high innovation and investment in technology. When it gets distracted with mass market products, its capacity to dedicate resources (money and people) to technological advances reduces.
Sony Ericsson, in the meanwhile has simply gone the other way and now focuses on VALUE market share. We believe they will benefit in terms of bottom line as well as strengthening of the brand.
Apple keeps making sexy products and charging sexy money. What i find interesting about Apple is that they don't produce anything for the mass market. As the technology becomes out-dated, they simply drop the price to allow more people to enter their product categories. This is interesting. Designing and selling "cheap products" is a costly proposition. Selling cheap older technology is a great way to bring in new consumers.
And CNN got all of this wrong. The tech correspondent from California says " Apple is able to read the consumers needs of tomorrow and make products around that". !!!! What????
Their UK correspondent says " Apple makes great products, but i don't expect them to challenge Nokia's market share for a long time." Wow! He still does not get it. The day Apple starts to chase global market share folks, sell its stock.
All Apple does is use technology to create easy user interfaces. Lets not make soothsayers out of them. They simply listen to their consumers and enhance user experience.
Strategy is about choices. The first one to make is, who is my consumer?
If we start out to satisfy everyone, sooner or later we will satisfy no-one.
Venkat, Ritu
Apple announced its sterling results recently. And Richard Quest on CNN was analysing last evening the same with the help of some tech correspondent in the US and UK.
Apple makes cool products.
Nokia stumbled in looking for volume market share- and has so badly lost its 'cool factor'.
And CNN, business report on these two companies was so pathetic, it made me angry.
Our strategy thumb rule states that no company has cconsistently gained volume market share and maintained premium pricing (high margins) at the same time. Period. It has never happened.
Mass markets and premium products require very very different execution skills. They cannot remain in the same company.
Lexus and Toyota is a striking example of how to make it work.
In 2007, we mentioned that Nokia was possibly making a very big mistake is running after market share numbers. Sure, in the short run "analysts" reward companies for their sales. More sales means more revenues. But that is short term.
(http://rituvenkat12.blogspot.com/2007/07/market-share-or-profitability.html)
A technology company with high margins needs high innovation and investment in technology. When it gets distracted with mass market products, its capacity to dedicate resources (money and people) to technological advances reduces.
Sony Ericsson, in the meanwhile has simply gone the other way and now focuses on VALUE market share. We believe they will benefit in terms of bottom line as well as strengthening of the brand.
Apple keeps making sexy products and charging sexy money. What i find interesting about Apple is that they don't produce anything for the mass market. As the technology becomes out-dated, they simply drop the price to allow more people to enter their product categories. This is interesting. Designing and selling "cheap products" is a costly proposition. Selling cheap older technology is a great way to bring in new consumers.
And CNN got all of this wrong. The tech correspondent from California says " Apple is able to read the consumers needs of tomorrow and make products around that". !!!! What????
Their UK correspondent says " Apple makes great products, but i don't expect them to challenge Nokia's market share for a long time." Wow! He still does not get it. The day Apple starts to chase global market share folks, sell its stock.
All Apple does is use technology to create easy user interfaces. Lets not make soothsayers out of them. They simply listen to their consumers and enhance user experience.
Strategy is about choices. The first one to make is, who is my consumer?
If we start out to satisfy everyone, sooner or later we will satisfy no-one.
Venkat, Ritu
Monday, 12 October 2009
animation in advertising
I saw recently Michelin's (www.michelin.com) new TV advertisements on the tagline "the right tire changes everything". Click title to see ad on youtube.
Without going into a discussion on the content, the position , message etc i simply reflected on the use of animation.
Bibendum, the Michelin mascot cleraly works better in animation that in real life. Animation proposes modifications to Bibendum's expressions and actions that would be difficult to replicate with real life actors.
And since Bibendum 'humanises' the tire like nothing else, he does appear at the centre of all advertitisng. Is this a good idea in itself? A very thin line between using the Michelin man to help tires emote, verus overexposing him.
Coming back to animated ads. (Coke has started this as well).
Unfortunately for the advertising industry Pixar is setting the standards in the animation business. And i would believe that consumers that see animation advertisements are immediately comparing the work to Wall-E or Nemo. TBWA is not a Pixar and the production quality shows.
Animation works well when it creates an incredible world for its characters. Worlds with lights, colors, sounds that seem more real than real. That's the difference between animation and cartoons.
Animation works when it uses a great storyline and humanlike characters. With expressions, with an interaction that allows us to experience our own lives even while looking at a movie about monsters, fish or outdated robots. Great animation
re-creates life through unreal metaphors.
Average animation is "plasticy" and establishes a disconnect from its message. Average animation simply exaggerates the human existence while drowning out the human condition. The message for a real world becomes distant.
The real risk for companies using animation comes not from their product competitors but from companies that exploit the animation technique so well that anything less than extraordinary simple makes the execution of the ad very ordinary.
Venkat
Without going into a discussion on the content, the position , message etc i simply reflected on the use of animation.
Bibendum, the Michelin mascot cleraly works better in animation that in real life. Animation proposes modifications to Bibendum's expressions and actions that would be difficult to replicate with real life actors.
And since Bibendum 'humanises' the tire like nothing else, he does appear at the centre of all advertitisng. Is this a good idea in itself? A very thin line between using the Michelin man to help tires emote, verus overexposing him.
Coming back to animated ads. (Coke has started this as well).
Unfortunately for the advertising industry Pixar is setting the standards in the animation business. And i would believe that consumers that see animation advertisements are immediately comparing the work to Wall-E or Nemo. TBWA is not a Pixar and the production quality shows.
Animation works well when it creates an incredible world for its characters. Worlds with lights, colors, sounds that seem more real than real. That's the difference between animation and cartoons.
Animation works when it uses a great storyline and humanlike characters. With expressions, with an interaction that allows us to experience our own lives even while looking at a movie about monsters, fish or outdated robots. Great animation
re-creates life through unreal metaphors.
Average animation is "plasticy" and establishes a disconnect from its message. Average animation simply exaggerates the human existence while drowning out the human condition. The message for a real world becomes distant.
The real risk for companies using animation comes not from their product competitors but from companies that exploit the animation technique so well that anything less than extraordinary simple makes the execution of the ad very ordinary.
Venkat
Saturday, 10 October 2009
Obama, the Nobel peace prize and bombarding the moon
You guessed it. There will be a lot of debate on this.
Anyway, i read the two headlines together this morning and found the irony funny.
"NASA bombards the moon" ..and i thought to myself why they used the word 'bombard'to describe NASA's experiment. Heck- to think we are bombarding the moon as well.
And then "Obama wins the Nobel Peace Prize". Read immediately after the first headline i could not help thinking why the man who started bombarding the moon of all places deserved the peace prize.
To me his award signifies a couple of things:
Firstly, it appears no clear and obvious choice seems ot have existed. It seems no one really delivered a significant peace initiative last year.
The only 'stabilisation' seems to be in Iraq- so Bush should have won for that. Life in Afghanistan seems to have takes a turn for the worse.
African states embroiled in unrest continue. The Palestine problem is not solved. India and Pakistan continue thier uneasy peace.
Was the Nobel prize really needed this year?
Secondly, is that the only wasy we could get Obama to work concretely towards expanding peace in the world. Is this what we are saying about the most powerful man in the world. That his good intentions need a prize before he actually is motivated enough to do something about it?
I mean we could have as well given the prize to Sarkozy- it was after all the French that started confronting Somalian pirates off the African coast?
Its like tipping a waiter as you enter a fancy restaurant.
Horrible.
C'mon folks, Gandhi did not get a Nobel prize for peace. Imagine that. And now Obama gets it.
Venkat
Anyway, i read the two headlines together this morning and found the irony funny.
"NASA bombards the moon" ..and i thought to myself why they used the word 'bombard'to describe NASA's experiment. Heck- to think we are bombarding the moon as well.
And then "Obama wins the Nobel Peace Prize". Read immediately after the first headline i could not help thinking why the man who started bombarding the moon of all places deserved the peace prize.
To me his award signifies a couple of things:
Firstly, it appears no clear and obvious choice seems ot have existed. It seems no one really delivered a significant peace initiative last year.
The only 'stabilisation' seems to be in Iraq- so Bush should have won for that. Life in Afghanistan seems to have takes a turn for the worse.
African states embroiled in unrest continue. The Palestine problem is not solved. India and Pakistan continue thier uneasy peace.
Was the Nobel prize really needed this year?
Secondly, is that the only wasy we could get Obama to work concretely towards expanding peace in the world. Is this what we are saying about the most powerful man in the world. That his good intentions need a prize before he actually is motivated enough to do something about it?
I mean we could have as well given the prize to Sarkozy- it was after all the French that started confronting Somalian pirates off the African coast?
Its like tipping a waiter as you enter a fancy restaurant.
Horrible.
C'mon folks, Gandhi did not get a Nobel prize for peace. Imagine that. And now Obama gets it.
Venkat
Thursday, 17 September 2009
Women power and the incremental 5 trillion USD
The news-week in its Sep 21 issue talks of the ‘real emerging market’, the estimated 5 trillion USD of new female earned income that will be generated in the next 5 years. http://www.newsweek.com/id/215304
Men earn 20 Trillion USD today compared to women (10 Tn USD), but the growth in income will largely be driven by women in the next 5years.
This is a BCG study and I don’t have access to the methodology.
As a marketer this is very big news, and I tried to dissect this with Ritu to understand what the implications are:
1. In the developed world significant numbers of women are educated and employed. Younger women while replacing the older women will move onto more higher paying jobs but this will be an incremental.
2. So the onus on creating this incremental 5 Tn USD will lie on the women of the developing world. They are more in number and getting access to education and job opportunities in larger numbers.
The problem however is that much of the work coming into the developing world is low end manufacturing or service which does not pay as much but employs large numbers of women.
The 5 trillion will be distributed over many many women, most earning between USD 1000 and USD 4000 per year.
At this level of personal income or ‘incremental family income’, spending is still limited to achievement of ‘family dreams’- TV, fridge , washing machine, car or house, the children’s education.
The number of women who will indulge on themselves will remain a very small percentage.
We disagree with analysts who say that “companies like Visa, Wal-Mart, Nestle, Johnson & Johnson, and others that already have a strong leg up in the women's market stand to prosper further from the female consumer boom.”
Companies that serve the ‘family dream’ market of the millions of families that re beginning to enter the middle class will be the real winners.
Men earn 20 Trillion USD today compared to women (10 Tn USD), but the growth in income will largely be driven by women in the next 5years.
This is a BCG study and I don’t have access to the methodology.
As a marketer this is very big news, and I tried to dissect this with Ritu to understand what the implications are:
1. In the developed world significant numbers of women are educated and employed. Younger women while replacing the older women will move onto more higher paying jobs but this will be an incremental.
2. So the onus on creating this incremental 5 Tn USD will lie on the women of the developing world. They are more in number and getting access to education and job opportunities in larger numbers.
The problem however is that much of the work coming into the developing world is low end manufacturing or service which does not pay as much but employs large numbers of women.
The 5 trillion will be distributed over many many women, most earning between USD 1000 and USD 4000 per year.
At this level of personal income or ‘incremental family income’, spending is still limited to achievement of ‘family dreams’- TV, fridge , washing machine, car or house, the children’s education.
The number of women who will indulge on themselves will remain a very small percentage.
We disagree with analysts who say that “companies like Visa, Wal-Mart, Nestle, Johnson & Johnson, and others that already have a strong leg up in the women's market stand to prosper further from the female consumer boom.”
Companies that serve the ‘family dream’ market of the millions of families that re beginning to enter the middle class will be the real winners.
Thursday, 20 August 2009
buying jeans on monthly instalments plans
Please click the title of the note to read Levi's pilot campaign in Bangalore (India). They are offering purchase of the brand on a 3 month installment plan.
This will stir up a lot of discussion. Its been done before - TVs- cars- houses- holidays- are all available on loan schemes. But Jeans? Interesting.
And if Jeans, what next?
Our opinion? Lets look at 2 issues first and then we will give our verdict:
- does this promotion serve the target audience of the Levi's brand in India? Given Levi's pricing, (4-5 times that of a 'local player', their target market would be the top 10% of India's population)
Is this person going to buy Levi's because of the instalment scheme? Maybe. But an instalment scheme cannot alter the price proposition of the brand- especially a 3 month instalment scheme. If it was a 12 month scheme, suddenly the equation changes. But that takes guts for the bank to execute. And it is expensive for the brand to implement.
- does this promotion increase consumption of the brand , or bring in more users?
Will the possibility of spreading my purchase cost over three months make me more inclined to buy Jeans (and T shirts) versus other Indian dresses- casual shirts- trousers? Unlikely.
A pair of jeans in India competes with other pairs of Jeans. In a market where a pair of Levi's costs 5 times the "private label", does this promotion really address the price issue?
Given that credit card penetration is very low in India, does this scheme actually enable to bring in more consumers?
Or is Levi's simply trying to get more share from the other brands such a Pepe/ Wrangler?
We think someone at Levi's India got really excited by the idea of selling jeans on credit. The bank charges restricted them to a 3 months scheme. And the marketing team just pushed ahead anyway.
Levi's may report a change in volumes and market share, but this is not going to expand the category. Sooner or later the other brands will launch the same offer, and the bar will be reset to zero.
Thumbs down! An installment scheme for Levi's cannot be a competitive advantage. But it makes for interesting news.
This will stir up a lot of discussion. Its been done before - TVs- cars- houses- holidays- are all available on loan schemes. But Jeans? Interesting.
And if Jeans, what next?
Our opinion? Lets look at 2 issues first and then we will give our verdict:
- does this promotion serve the target audience of the Levi's brand in India? Given Levi's pricing, (4-5 times that of a 'local player', their target market would be the top 10% of India's population)
Is this person going to buy Levi's because of the instalment scheme? Maybe. But an instalment scheme cannot alter the price proposition of the brand- especially a 3 month instalment scheme. If it was a 12 month scheme, suddenly the equation changes. But that takes guts for the bank to execute. And it is expensive for the brand to implement.
- does this promotion increase consumption of the brand , or bring in more users?
Will the possibility of spreading my purchase cost over three months make me more inclined to buy Jeans (and T shirts) versus other Indian dresses- casual shirts- trousers? Unlikely.
A pair of jeans in India competes with other pairs of Jeans. In a market where a pair of Levi's costs 5 times the "private label", does this promotion really address the price issue?
Given that credit card penetration is very low in India, does this scheme actually enable to bring in more consumers?
Or is Levi's simply trying to get more share from the other brands such a Pepe/ Wrangler?
We think someone at Levi's India got really excited by the idea of selling jeans on credit. The bank charges restricted them to a 3 months scheme. And the marketing team just pushed ahead anyway.
Levi's may report a change in volumes and market share, but this is not going to expand the category. Sooner or later the other brands will launch the same offer, and the bar will be reset to zero.
Thumbs down! An installment scheme for Levi's cannot be a competitive advantage. But it makes for interesting news.
Thursday, 6 August 2009
beware the naked man that offers you his shirt
This note borrows its title from a book by Venkat's very first management guru, Harvey Mackay.
His lesson came to mind as we read this free book by Chris Anderson - FREE. Please click title to read.
Chris Anderson has written a well known book called "The long tail". He is a well known writer and his new book is on a concept that has been around in marketing for decades. (So we're glad its free, but still cost us our time).
Anyway its an interesting concept to summarise in a few lines. Marketing theory and practice has been using the idea of FREE for many many years. Among the 4Ps of marketing, 'FREE' falls under 'Promotions'.
Its various forms are:
- buy one get one free (increases volumes, the consumer gets one unit free.
- get X% more (same as above)
- Buy a set of razor blades, get a can of shaving gel free. (a company wanting to launch shaving cream will give free samples of this with every purchase of its razor blades.)
- 50ml of sunscreen lotion FREE on every purchase of body lotion.
- sampling - handing out trial packs of one time use to get people to buy more.
Once some years ago in India, we ran a very successful sales promotion giving away a micro wave free for every purchase of a Home PC. The logic was that Indians buy the PC when all other household purchases are done, so this offer was aimed at a two in one benefit for the family, accelerating the penetration of the first PC in the home.We made this possible by getting the marketing folks to buy microwave ovens instead of TV spots!
Free happens all around us. Has been for years. But its objective is to get us to pay for the stuff that makes money for companies.
Now what happens when ideas are shared for free? This is the interesting, but really no different from products being given free. Google gives away so much for free because it wants you to come back to its search engines where it makes money.
'Free' works if the free item was indeed valuable. Then folks come back for more, even if they need to pay.
'Free' works, if there is the probability of more 'free'. Even then folks will stick around for more.
But 'free' has to make money somewhere for the company. TO create something takes time and money- which costs. And the cost is always borne by the consumer.
In fact, the more 'free' stuff from a company, the more expensive its 'paid' content is.
Wonder why Mckinsey keeps putting out free industry reports?
Free and relevant insights build credibility and allow ideas to reach a wider section of people. And invite consumers to pay for more services if they so desire.
We like free. We blog to share our opinions for free. We think 'free' knowledge builds communities bigger and wider than any subscription service can. The problem with free is filtering. It makes it difficult for you to select your community. New technologies could help solve this problem, though.
FREE is a good idea to consider in any line of work. So what will you give away free today?
Venkat, Ritu
His lesson came to mind as we read this free book by Chris Anderson - FREE. Please click title to read.
Chris Anderson has written a well known book called "The long tail". He is a well known writer and his new book is on a concept that has been around in marketing for decades. (So we're glad its free, but still cost us our time).
Anyway its an interesting concept to summarise in a few lines. Marketing theory and practice has been using the idea of FREE for many many years. Among the 4Ps of marketing, 'FREE' falls under 'Promotions'.
Its various forms are:
- buy one get one free (increases volumes, the consumer gets one unit free.
- get X% more (same as above)
- Buy a set of razor blades, get a can of shaving gel free. (a company wanting to launch shaving cream will give free samples of this with every purchase of its razor blades.)
- 50ml of sunscreen lotion FREE on every purchase of body lotion.
- sampling - handing out trial packs of one time use to get people to buy more.
Once some years ago in India, we ran a very successful sales promotion giving away a micro wave free for every purchase of a Home PC. The logic was that Indians buy the PC when all other household purchases are done, so this offer was aimed at a two in one benefit for the family, accelerating the penetration of the first PC in the home.We made this possible by getting the marketing folks to buy microwave ovens instead of TV spots!
Free happens all around us. Has been for years. But its objective is to get us to pay for the stuff that makes money for companies.
Now what happens when ideas are shared for free? This is the interesting, but really no different from products being given free. Google gives away so much for free because it wants you to come back to its search engines where it makes money.
'Free' works if the free item was indeed valuable. Then folks come back for more, even if they need to pay.
'Free' works, if there is the probability of more 'free'. Even then folks will stick around for more.
But 'free' has to make money somewhere for the company. TO create something takes time and money- which costs. And the cost is always borne by the consumer.
In fact, the more 'free' stuff from a company, the more expensive its 'paid' content is.
Wonder why Mckinsey keeps putting out free industry reports?
Free and relevant insights build credibility and allow ideas to reach a wider section of people. And invite consumers to pay for more services if they so desire.
We like free. We blog to share our opinions for free. We think 'free' knowledge builds communities bigger and wider than any subscription service can. The problem with free is filtering. It makes it difficult for you to select your community. New technologies could help solve this problem, though.
FREE is a good idea to consider in any line of work. So what will you give away free today?
Venkat, Ritu
Thursday, 9 July 2009
Beware the ghost of the BS art
An interesting note by Clif Reichard (please click title to read it).
We are practitioners of sales and marketing and in our more limited experience (11 years) find that mostly sales persons today are being trained to fail.
We have been in the B 2 C space and deal with products that pass from the company to distributors and onto retailers before the consumer buys them.
The sales force is required to ensure the product is available at the distributor and then sold into the retailer by the distributor.
The distributor and retailer do not buy the product from the company for the reason that the end consumer does. The end consumer wants to feel beautiful. The distributor wants to feel rich.
In fast moving consumer goods (toothpastes etc), distributor gross margins in India are about 5%. Net margins are 2%. Unless his working capital rotates 12-15 times, the distributor is better off investing money in the stock market.
In this business, salesmen need to be trained in managing working capital and advising distributors and retailers in managing working capital. What stocks to order- how much- how to stock products-how to allocate costs to various products.
We have seem the same principles apply in the PC business and in the tire business. We believe it is universal. Simple xcel tools can help sales persons understand how their customers make money.
Yet few companies train their sales persons on anything more than product benefits. We are not surprised at all that the sales community is viewed with skepticism. They dont seem to speak a language relevant to their customers.
Most senior managers don't grasp the idea that the same principles that apply to their business, apply to their customers' business.
Ritu and Venkat
We are practitioners of sales and marketing and in our more limited experience (11 years) find that mostly sales persons today are being trained to fail.
We have been in the B 2 C space and deal with products that pass from the company to distributors and onto retailers before the consumer buys them.
The sales force is required to ensure the product is available at the distributor and then sold into the retailer by the distributor.
The distributor and retailer do not buy the product from the company for the reason that the end consumer does. The end consumer wants to feel beautiful. The distributor wants to feel rich.
In fast moving consumer goods (toothpastes etc), distributor gross margins in India are about 5%. Net margins are 2%. Unless his working capital rotates 12-15 times, the distributor is better off investing money in the stock market.
In this business, salesmen need to be trained in managing working capital and advising distributors and retailers in managing working capital. What stocks to order- how much- how to stock products-how to allocate costs to various products.
We have seem the same principles apply in the PC business and in the tire business. We believe it is universal. Simple xcel tools can help sales persons understand how their customers make money.
Yet few companies train their sales persons on anything more than product benefits. We are not surprised at all that the sales community is viewed with skepticism. They dont seem to speak a language relevant to their customers.
Most senior managers don't grasp the idea that the same principles that apply to their business, apply to their customers' business.
Ritu and Venkat
Asia Rising- Only half the story
A recent blog entry in the Harvard Business web site (http://blogs.harvardbusiness.org) spoke of Asia rising as a key trend. Sure nothing wrong in that. But it did beg the question, is the West sleeping? and if so , why?
It is clear that India and China (and Africa as well) will grow fast...why not, they are the poorest parts of the world. Especially in the case of India, poor government policies of the first 50 years of independence condemned large parts of the population to stagnation.
Now, these two countries are trying to make up for lost time and opportunity. 1 billion people in these two countries are still poor...i.e. not even in the middle class. The per capita GDP in India is USD 1000 and in China about USD 2000. About 15 times lower than Western Europe.
But this is still half the story of the world. The slowdown in western europe and the US made me ask a question to my colleagues there.
At 30,000 USD of per capita GDP, have you achieved all that you want?
Is there really no further aspiration?
Why is it that space travel is still not affordable and aspired for by your country?
Have you reached the end of research into AIDS and cancer treatment?
Have you given up on green technologies- and alternate fuels?
The world has too many unsolved problems. India and China can solve a few, but only those that don't require expensive research.
Why the West gave up on the idea of "renewing and re-educating" itself, i cannot say. The world has more than enough room to grow at more than 4% over a very long period. It needs productive investments. Both in Asia and in the West. Our leaders fail us when they allow us to get complacent. Both business leaders and government leaders in the west are responsible for the slowdown there.
One day Asia and China may also begin to bask in the glow of "contentment"- to their own peril.
India was a very rich country 500 years ago, but the kings spent the money on luxury goods- building palaces and generally decorating themselves. Sounds familiar?
Ritu and Venkatesh
It is clear that India and China (and Africa as well) will grow fast...why not, they are the poorest parts of the world. Especially in the case of India, poor government policies of the first 50 years of independence condemned large parts of the population to stagnation.
Now, these two countries are trying to make up for lost time and opportunity. 1 billion people in these two countries are still poor...i.e. not even in the middle class. The per capita GDP in India is USD 1000 and in China about USD 2000. About 15 times lower than Western Europe.
But this is still half the story of the world. The slowdown in western europe and the US made me ask a question to my colleagues there.
At 30,000 USD of per capita GDP, have you achieved all that you want?
Is there really no further aspiration?
Why is it that space travel is still not affordable and aspired for by your country?
Have you reached the end of research into AIDS and cancer treatment?
Have you given up on green technologies- and alternate fuels?
The world has too many unsolved problems. India and China can solve a few, but only those that don't require expensive research.
Why the West gave up on the idea of "renewing and re-educating" itself, i cannot say. The world has more than enough room to grow at more than 4% over a very long period. It needs productive investments. Both in Asia and in the West. Our leaders fail us when they allow us to get complacent. Both business leaders and government leaders in the west are responsible for the slowdown there.
One day Asia and China may also begin to bask in the glow of "contentment"- to their own peril.
India was a very rich country 500 years ago, but the kings spent the money on luxury goods- building palaces and generally decorating themselves. Sounds familiar?
Ritu and Venkatesh
Tuesday, 7 July 2009
The Indian Budget 2009-2010
There will now be numerous notes on the Indian Budget that was announced yesterday. (please click link above to read what the Economic Times has to say).
The budget disappointed those who wanted specific details on the disinvestment plan, on increased Foreign Direct Investment and on reducing the fiscal deficit.
But on the other hand, the government has spelt out clearly how it will focus expenditure on the rural economy, on building infrastructure and creating jobs for the weaker sections of society. The focus is clearly on strengthening the economically weaker sections of society- bridge the very huge gap between the rich and the poor in India.
Penetration of consumer goods in India (apart from TVs) is very low and enriching the weaker sections of society will drive consumption and hence purchase of goods and services. This should succeed in creating a trickle up effect.
We maintain that the huge salary growths of the middle and upper classes in the period 2003-2007 have raised income levels sufficiently and now the focus must be on delivering wealth more directly to the 60% of the population which is dependent on agriculture and is significantly poorer than the average family.
This is our belief. We support the budget.
Ritu and venkat
The budget disappointed those who wanted specific details on the disinvestment plan, on increased Foreign Direct Investment and on reducing the fiscal deficit.
But on the other hand, the government has spelt out clearly how it will focus expenditure on the rural economy, on building infrastructure and creating jobs for the weaker sections of society. The focus is clearly on strengthening the economically weaker sections of society- bridge the very huge gap between the rich and the poor in India.
Penetration of consumer goods in India (apart from TVs) is very low and enriching the weaker sections of society will drive consumption and hence purchase of goods and services. This should succeed in creating a trickle up effect.
We maintain that the huge salary growths of the middle and upper classes in the period 2003-2007 have raised income levels sufficiently and now the focus must be on delivering wealth more directly to the 60% of the population which is dependent on agriculture and is significantly poorer than the average family.
This is our belief. We support the budget.
Ritu and venkat
Monday, 6 July 2009
Brands that target niches- should this be news at all?
The Financial Times (click on title) had this article on Mars (maker of M&M, Twix chocolates) is targeting women with a new brand of chocolates called "Fling" -(www.flingchocolate.com/about.htm).
The news item first had me cynical. Why is this?
A friend of mine tells an old tale to describe how his company (multinational in the foods/ home and personal care business) keeps going in circles. First cuts all local brands to focus on "key brands and innovations", then goes back to investing in local brands to "revive sales and market share on a country basis"....and goes through this loop every 5-7 years.
The tale is about an old woman with 4 sons. Someone asks her how the sons keep busy to which, after much coaxing she says..."do you see the carpet hanging there. Well, two of my sons unravel it every few days...and the two others then stitch it back."
To why is the creation of segments "which the FT very stylishly refers to as 'niches' ", news?
Creation of segments based on distinct and profitable needs is the basis of marketing.
What is annoying is how marketers seem to develop needs through brands that make a connect with consumers, and then in the interest of "shareholder value" and cost-cutting, kill brands overnight, transferring the brand's properties to a larger "mega brand".
This weakens brand management and over time erodes the "mega brand" as well.
Venkat
The news item first had me cynical. Why is this?
A friend of mine tells an old tale to describe how his company (multinational in the foods/ home and personal care business) keeps going in circles. First cuts all local brands to focus on "key brands and innovations", then goes back to investing in local brands to "revive sales and market share on a country basis"....and goes through this loop every 5-7 years.
The tale is about an old woman with 4 sons. Someone asks her how the sons keep busy to which, after much coaxing she says..."do you see the carpet hanging there. Well, two of my sons unravel it every few days...and the two others then stitch it back."
To why is the creation of segments "which the FT very stylishly refers to as 'niches' ", news?
Creation of segments based on distinct and profitable needs is the basis of marketing.
What is annoying is how marketers seem to develop needs through brands that make a connect with consumers, and then in the interest of "shareholder value" and cost-cutting, kill brands overnight, transferring the brand's properties to a larger "mega brand".
This weakens brand management and over time erodes the "mega brand" as well.
Venkat
Sunday, 5 July 2009
an essay on recent pricing trends in india
Income growth estimates 2003-2007:
Given a lack of recent public statistics on income and income growth, we used newspaper reports and other estimates to paint a picture on the income segmentation in India in 2003 and its evolution in the period 2003-2007.
Table 1.1:
Number -------Annual inc(INR)----Average----Grth%(03-07)--Income 07----Inc grth% 08
of HH
4,000,000 ----->215,000 ---------215,000 -----25%---------524,902---------10%
90,000,000-----45,000-215,000----130,000 -----15%----------27,371----------8%
66,000,000------< 45,000----------22,000-- ----6%----------28,405----------6%
Table 1.2:
Average Inflation in the period 2003-2007 ----5%
Inflation 2008 -------------12%
Inflation 2009 -------------------1%
1 USD= 48 Indian Rupees (INR)
Given that the Indian economy grew between 7-9% in this period, these household income growths were not seen to be irregular. Income growths in the period 2003-2007 were significantly higher across all income segments, compared to inflation in the same period.
Note that salary growth rate fell in 2008 while inflation rose spectacularly (refer table 1.1)
Income growth in 2003-2007 must be seen in the context of supply and demand. While the Indian economy grew at break neck speed, the number of well educated graduates and competent managers was restrained by the lack of growth of high quality educational institutes. This resulted in high rates of turnover in companies, sky rocketing salaries and an overall increase in employment. In-fact this period also saw a large migration of people having very basic educational qualifications (grade 8 pass) moving from villages to cities where booming sectors such as retail were offering entry level jobs to people with modest education.
This means that apart from the 66 Mn households at the bottom of the pyramid, all other households were earning far more than inflation. This is a very big difference w.r.t. Western economies where salary increases are very closely tied to inflation. The savings rate in India increased from 27% in 2003 to 36% in 2008.
The period 2003-2007 was giving most Indian households real income growths in excess of 10%, taking into account inflation, and a lot of extra savings was being created
This is one of the reasons we wrote in 2008, that high inflation of 12% in 2008 was unlikely to impact the common man. Contrary to common opinion held in India that Indians would take to the streets to protest high prices, we maintained that “middle class” India had received a huge buffer in terms of salary increases since 2003 and would be able to withstand inflation of 12% in 2008. We maintained that if salaries rises were to reduce, the middle class would still be able to survive 12% inflation into 2009. But that inflation would need to fall in 2009 to 5% or lower.
The bottom most segment of 66 Mn households is agriculture dependent. This segment consumes what it produces and then sells to the market its excess. In a high inflation period, our understanding is that this segment is insulated from increasing prices of cereals and staples, since they themselves are the producers.
So, how did all this translate into pricing?
In the period 2003-2007, pricing went through the roof- particularly for the packaged goods and services sectors. From FMCG majors like Colgate and Unilever to airlines and everything in between, raised prices continuously between 2003 and 2007.
Capacity increases often take time and in the period where industry was constrained by capacity, prices increased sharply.
These packaged goods and services, do not have a significant impact on the calculation of inflation in India, official inflation continued at 5%. The less affluent families also did not see their basket of goods (mainly non processed food) becoming very expensive.
There was a complete “free for all” interms of pricing and companies reported huge profits in this period.
The year 2008:
In 2008, commodity prices started impacting India as well and the price of basket of goods that are used to calculate inflation, rose 12%. India also began to take note of the global slowdown, which through the fall in exports of products and services, hit home sometime in the second half of the calendar year 2008-2009.
Sentiment fell. We wrote at that stage that the large and untapped Indian market was reason enough for entrepreneurs to focus on satisfying domestic demand, and not worry about global sentiments. We added that as long as the companies representing “new India” - Infosys/ TCS/ WIpro did not lay off staff, there would not be any risk of mass layoffs and hence the economy would be able to continue growing, albeit at a lower pace of maybe 5-6%. On top of this, the government announced various incentives (farmer loan waivers/ infra investment/ pay scale revision of govt employees) all adding to almost 200 Bn USD. This is a big investment for a 1 trillion USD economy.
Companies reacted by initially holding prices steady and accepting declining volumes. A very bizarre approach in the mass market segments. Sure enough, worsening sentiment coupled with high prices (given salary increases were minimal in 2008), meant that the Indian shopper stayed home. Retail sales collapsed in the 3rd Qtr of 2008.
By the end of 2008 and in the early months of 2009, however, we have seen pricing sentiment and philosophy change significantly. Companies became more cost conscious and began to benefit from the worldwide fall in raw material prices. They started to reduce prices and most companies took a hit to margins as well. And companies looked to maximise capacity utilisation.
- FMCG majors such as Unilever dropped prices in the market.
- Promotions (cross promotions/ price discounts/ free volumes) on products have increased.
- Hotels have launched very sensible “all inclusive” packages taking care of food, non alcoholic beverages, laundry and sight-seeing for their guests.
- Low cost airlines became truly low cost opening a 30-40% differential versus full price.
- Capital goods manufacturers reduced prices as the government announced reduction in sales taxes.
- Real estate prices have fallen 10-30% depending on the location.
Over and above, companies have started looking at rural India as a viable business opportunity and have started to set up products and services targeted at rural masses (at suitable price points). The aggressive pricing has brought the Indian consumer back and Q4 of the financial year 2008-2009 recorded 6% growth for the Indian economy.
What happens going forward:
A new budget will be announced by the government early next week. We expect to see investments made to facilitate development of the less affluent, infrastructure development and privatisation of government companies (mostly to finance the budget deficit, but also to make them more competitive).
These will be good initiatives that will continue to increase domestic demand.
However, one concern is still agriculture- the monsoons are late. 60% of the employment sector is supported by agriculture and if the rains fail, this will impact the buying capacity of a significant segment of the population while diverting government resources from investments to direct support of the weaker sections of society.
Bottom-line on Pricing in India:
Our view is that India is a market where product availability and distribution are the most important factors for success. Marketing is very nascent and is limited to advertisements featuring prominent film celebrities. Marketing becomes important when people start having choices. In India, we are still many years behind that stage.
In our view, the capacity shortages of 2003-2007 which caused pricing to spiral out of control, have been corrected. A lot of investment went into infrastructure and manufacturing capacity in the period 2003-2007, and these will keep pressure on pricing. Investments in education, infrastructure are increasing and the supply-demand imbalance of talent should be mitigated significantly by the time the Indian economy returns again to its 9% trajectory.
Companies will find it hard to increase prices beyond “raw material increases” or the standard inflation rate (4-5%). While there is some segmentation in the market, penetrations for most product categories are less than 20% (micro waves/ washing machines/ computers/ vehicles). This means that driving penetration and hence gaining volumes and market shares in the market is the priority. The Indian consumer is price sensitive and hence value pricing and “penetration” pricing will continue to drive the pricing approach in India.
Ritu and Venkat
June 2009.
Given a lack of recent public statistics on income and income growth, we used newspaper reports and other estimates to paint a picture on the income segmentation in India in 2003 and its evolution in the period 2003-2007.
Table 1.1:
Number -------Annual inc(INR)----Average----Grth%(03-07)--Income 07----Inc grth% 08
of HH
4,000,000 ----->215,000 ---------215,000 -----25%---------524,902---------10%
90,000,000-----45,000-215,000----130,000 -----15%----------27,371----------8%
66,000,000------< 45,000----------22,000-- ----6%----------28,405----------6%
Table 1.2:
Average Inflation in the period 2003-2007 ----5%
Inflation 2008 -------------12%
Inflation 2009 -------------------1%
1 USD= 48 Indian Rupees (INR)
Given that the Indian economy grew between 7-9% in this period, these household income growths were not seen to be irregular. Income growths in the period 2003-2007 were significantly higher across all income segments, compared to inflation in the same period.
Note that salary growth rate fell in 2008 while inflation rose spectacularly (refer table 1.1)
Income growth in 2003-2007 must be seen in the context of supply and demand. While the Indian economy grew at break neck speed, the number of well educated graduates and competent managers was restrained by the lack of growth of high quality educational institutes. This resulted in high rates of turnover in companies, sky rocketing salaries and an overall increase in employment. In-fact this period also saw a large migration of people having very basic educational qualifications (grade 8 pass) moving from villages to cities where booming sectors such as retail were offering entry level jobs to people with modest education.
This means that apart from the 66 Mn households at the bottom of the pyramid, all other households were earning far more than inflation. This is a very big difference w.r.t. Western economies where salary increases are very closely tied to inflation. The savings rate in India increased from 27% in 2003 to 36% in 2008.
The period 2003-2007 was giving most Indian households real income growths in excess of 10%, taking into account inflation, and a lot of extra savings was being created
This is one of the reasons we wrote in 2008, that high inflation of 12% in 2008 was unlikely to impact the common man. Contrary to common opinion held in India that Indians would take to the streets to protest high prices, we maintained that “middle class” India had received a huge buffer in terms of salary increases since 2003 and would be able to withstand inflation of 12% in 2008. We maintained that if salaries rises were to reduce, the middle class would still be able to survive 12% inflation into 2009. But that inflation would need to fall in 2009 to 5% or lower.
The bottom most segment of 66 Mn households is agriculture dependent. This segment consumes what it produces and then sells to the market its excess. In a high inflation period, our understanding is that this segment is insulated from increasing prices of cereals and staples, since they themselves are the producers.
So, how did all this translate into pricing?
In the period 2003-2007, pricing went through the roof- particularly for the packaged goods and services sectors. From FMCG majors like Colgate and Unilever to airlines and everything in between, raised prices continuously between 2003 and 2007.
Capacity increases often take time and in the period where industry was constrained by capacity, prices increased sharply.
These packaged goods and services, do not have a significant impact on the calculation of inflation in India, official inflation continued at 5%. The less affluent families also did not see their basket of goods (mainly non processed food) becoming very expensive.
There was a complete “free for all” interms of pricing and companies reported huge profits in this period.
The year 2008:
In 2008, commodity prices started impacting India as well and the price of basket of goods that are used to calculate inflation, rose 12%. India also began to take note of the global slowdown, which through the fall in exports of products and services, hit home sometime in the second half of the calendar year 2008-2009.
Sentiment fell. We wrote at that stage that the large and untapped Indian market was reason enough for entrepreneurs to focus on satisfying domestic demand, and not worry about global sentiments. We added that as long as the companies representing “new India” - Infosys/ TCS/ WIpro did not lay off staff, there would not be any risk of mass layoffs and hence the economy would be able to continue growing, albeit at a lower pace of maybe 5-6%. On top of this, the government announced various incentives (farmer loan waivers/ infra investment/ pay scale revision of govt employees) all adding to almost 200 Bn USD. This is a big investment for a 1 trillion USD economy.
Companies reacted by initially holding prices steady and accepting declining volumes. A very bizarre approach in the mass market segments. Sure enough, worsening sentiment coupled with high prices (given salary increases were minimal in 2008), meant that the Indian shopper stayed home. Retail sales collapsed in the 3rd Qtr of 2008.
By the end of 2008 and in the early months of 2009, however, we have seen pricing sentiment and philosophy change significantly. Companies became more cost conscious and began to benefit from the worldwide fall in raw material prices. They started to reduce prices and most companies took a hit to margins as well. And companies looked to maximise capacity utilisation.
- FMCG majors such as Unilever dropped prices in the market.
- Promotions (cross promotions/ price discounts/ free volumes) on products have increased.
- Hotels have launched very sensible “all inclusive” packages taking care of food, non alcoholic beverages, laundry and sight-seeing for their guests.
- Low cost airlines became truly low cost opening a 30-40% differential versus full price.
- Capital goods manufacturers reduced prices as the government announced reduction in sales taxes.
- Real estate prices have fallen 10-30% depending on the location.
Over and above, companies have started looking at rural India as a viable business opportunity and have started to set up products and services targeted at rural masses (at suitable price points). The aggressive pricing has brought the Indian consumer back and Q4 of the financial year 2008-2009 recorded 6% growth for the Indian economy.
What happens going forward:
A new budget will be announced by the government early next week. We expect to see investments made to facilitate development of the less affluent, infrastructure development and privatisation of government companies (mostly to finance the budget deficit, but also to make them more competitive).
These will be good initiatives that will continue to increase domestic demand.
However, one concern is still agriculture- the monsoons are late. 60% of the employment sector is supported by agriculture and if the rains fail, this will impact the buying capacity of a significant segment of the population while diverting government resources from investments to direct support of the weaker sections of society.
Bottom-line on Pricing in India:
Our view is that India is a market where product availability and distribution are the most important factors for success. Marketing is very nascent and is limited to advertisements featuring prominent film celebrities. Marketing becomes important when people start having choices. In India, we are still many years behind that stage.
In our view, the capacity shortages of 2003-2007 which caused pricing to spiral out of control, have been corrected. A lot of investment went into infrastructure and manufacturing capacity in the period 2003-2007, and these will keep pressure on pricing. Investments in education, infrastructure are increasing and the supply-demand imbalance of talent should be mitigated significantly by the time the Indian economy returns again to its 9% trajectory.
Companies will find it hard to increase prices beyond “raw material increases” or the standard inflation rate (4-5%). While there is some segmentation in the market, penetrations for most product categories are less than 20% (micro waves/ washing machines/ computers/ vehicles). This means that driving penetration and hence gaining volumes and market shares in the market is the priority. The Indian consumer is price sensitive and hence value pricing and “penetration” pricing will continue to drive the pricing approach in India.
Ritu and Venkat
June 2009.
Monday, 29 June 2009
Brand Michael Jackson
The title above leads to an article by John Quelch, a Harvard professor and renowned expert on marketing. This note from John, we felt was pretty badly written. One of the reasons we think, serious thinkers should avoid going pop.
Apart from the style of writing, we disagree with the content. MJ, for all his wonderful music, died a very poor brand. At the pinnacle of his fame (80s-mid 90s), he was a great brand, but we are not sure he will be remembered as one.
The last decade of his life, MJ did not create any entertainment or associate himself with any work that engaged , entertained or educated his fans. The 3 Es that all brands must continuously strive to deliver to remain consistent.
In fact, his actions took him into realms where even his staunchest fans could not but begin to suspect an unstable mind at work.
We loved his music and hold both "Off the Wall" and "Thriller" as masterpieces. We are saddened by his death, but we were equally saddened to see the brand already in decline from the mid 90s. We were hoping the brand would revive itself with the latest concert.
If anything (and with a heavy heart), we would present his life as a classic case in not only how great brands establish themselves, but how they fade away as well.
While we cannot offer any precise insights on what went on in his life, we think he started living in a virtual world filled with sycophants. Brand managers that get removed from their consumers should beware. It appeared as if, MJ felt he was above the rules of social living. Great brands reflect the society they live in and working from within, evolve social thinking.
Thanks for all the music and entertainment MJ. May your soul rest in peace.
Ritu, Venkat.
Apart from the style of writing, we disagree with the content. MJ, for all his wonderful music, died a very poor brand. At the pinnacle of his fame (80s-mid 90s), he was a great brand, but we are not sure he will be remembered as one.
The last decade of his life, MJ did not create any entertainment or associate himself with any work that engaged , entertained or educated his fans. The 3 Es that all brands must continuously strive to deliver to remain consistent.
In fact, his actions took him into realms where even his staunchest fans could not but begin to suspect an unstable mind at work.
We loved his music and hold both "Off the Wall" and "Thriller" as masterpieces. We are saddened by his death, but we were equally saddened to see the brand already in decline from the mid 90s. We were hoping the brand would revive itself with the latest concert.
If anything (and with a heavy heart), we would present his life as a classic case in not only how great brands establish themselves, but how they fade away as well.
While we cannot offer any precise insights on what went on in his life, we think he started living in a virtual world filled with sycophants. Brand managers that get removed from their consumers should beware. It appeared as if, MJ felt he was above the rules of social living. Great brands reflect the society they live in and working from within, evolve social thinking.
Thanks for all the music and entertainment MJ. May your soul rest in peace.
Ritu, Venkat.
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