Last to Market but Smart to Grow: Five principles of Late but Latest Entry

As the mid-year approaches, rumours of Samsung trying to be a month ahead of Apple with the respective new smartphones have started doing the rounds. Samsung is reportedly bracing to launch its latest generation Note 6 phablet ahead of Apple launching Apple 7 Plus phablet. First-to-market is a time tested strategy; it helps a firm capture market as it gets formed and take market share when no competitor is around. If the product is indeed a pioneering product and captures user imagination, it could become a monopoly and create formidable entry barriers to other manufacturers. On the other hand, if the product is poorly engineered it could help the follow-on players to improve upon their products and excel even more.

Being the first-to-market is not an easy task; it requires advanced engineering, smart manufacturing and agile marketing. The DNA of such firms tends to be unique. Over time, however, as technology becomes relatively more accessible, the market starts becoming more populated with several follow-on players. As market expands and firms are able to segment their markets based on unique features and combinations, the first-to-market concept could morph into first-to-market-segment concept. Not surprisingly, in a free market economy there would be firms wanting to enter an industry at all times. While it is easy to appreciate that the first-to-market company, and early followers will have the bulk of market share, what motivates firms to enter an industry despite being the last or near-last to enter is inexplicable.

Last-to-market

Being the first-to-market is measurable and understandable as a well merited aspiration. Being the last-to-market, however, is less measurable as it is difficult to forecast who else will join the late party. Being the last-to-market is also less understandable and tends to be arbitrary. For example, any share less than 1 percent could be one measure in one industry but even 5 percent may not be the right one for being the last company in the race. Any production level less than the minimum economical production quantity could be another measure. As costs keep coming down, the sustainable minimal production quantity and minimal viable market share could be coming down. Still, it could beat one’s imagination as to why a firm should, in a manner of speaking, be the 100^th firm to enter a market when the same effort could be expended to be in the first group of entrants in another field. There are, of course, valid reasons for the last-to-enter firms.   

For example, the industry itself could be so fragmented that there may not be much difference between the first-to-market and the last-to-market. Secondly, the entry barriers could be so low that there is enough scope for even marginal players to make an entry. Thirdly, there could so much outsourcing and contract manufacturing occurring in the industry that being the 100^th manufacturer could be infinitely easy. Fourthly, certain firms have resources that can be marginally deployed in easy-to-enter industries without big expectations. Fifthly, managerial mind-sets of operating in highly established market segments prompt such late stage entries. There are many examples with varied technological and marketing characteristics that confirm to the above criteria.  Examples are Indian formulations market, global smartphone market, Indian processed food market, and so on.

Turning the tables

Admittedly, a pioneering company has many strategic advantages which can be further sharpened to snuff out completion from late entrants. These include lowering of prices, cross-subsidization, differentiation, geographical expansion, locking up distribution channels, buying up retail spaces, aggressive advertising, product extensions, product innovations, market segmenting, sales discounts, service offerings, aggressive advertising and so on. As a result, the later one enters a market the smaller one’s market share could be, empirically. A 1995 study by Gurumurthy Kalyanaram and others in Marketing Science suggested that the new entrant’s forecasted market share divided by the first entrant’s market share equals, very roughly, one divided by the square root of order of entry of the new entrant. It is evident as a market gets crowded, the last entrant would have miniscule market share. Yet, empiricism may not always be the only guidepost.

In normal social life, we have countless stories of backbenchers in schools and colleges becoming top rankers as well as the poor and underprivileged reaching top careers. A combination of aspiration and optimism, diligence and commitment, grit and energy, knowledge and application, positioning and a bit of luck helps in such amazing accomplishments. Late entrants to industries and markets similarly have opportunities to prove their mettle and turn the tables on the incumbents. Admittedly, whatever ‘magic’ late entrants can spin the incumbents can also carry out with their superior resources and manage to maintain or expand their lead. However, performance is not always only a function of increasing size and scale. Incumbency also leads to complacency of invincibility while late entry is backed by the passion of the underdog to upstage the favourite!   

Late entrants

Late entrants are of two types. The first type is a well-endowed corporation which has decided to make a belated entry into an industry which is already catered to by the existing players. Entry of Reliance Jio into telecommunication services is an example. They have all the resources to use any of the pioneering advantages despite the late entry, and secure a market space. Such firms are not a subject of this blog post. The second type is a more humble entity or individual with just the necessary resources to make a modest entry. They may not have the resources to claim any of the advantages that large late entrants have but are skillful in securing a market hold. They typically would adopt the following five principles.

Smart outsourcing

Every company needs design, manufacturing and marketing capabilities to put a product into the market place. Typically, each of these takes 25 to 30 percent of total investment, aggregating to 75 to 90 percent, leaving 10 to 25 percent of the investment for other activities. A late entrant deploys smart outsourcing in as many areas as possible to reduce the typical investment to just a small proportion of what an integrated corporation would need. The smartest outsourcer would outsource all operations, close to 90 percent, and focus only on strategy and oversight. The typical outsourcer, however, may choose to invest in one of the three key areas, be it development, manufacturing or marketing, and strategy. Smart outsourcing requires smart selection of the outsourcing partner, and providing a compelling value creation to the partner to break into the market together.

Smart costing

It is not so well recognised that costing, and consequently pricing, can make or mar a product. Purist accountants who fully burden a product with all the functional, site and corporate overheads and management inefficiencies literally kill the new product. In a pioneering or first batch entry, there could be scope for recovery prior to market growth but for late entrants to mature markets, fully burdened costing is a sure way to defeat the very objective of entry. Strategists must realize that market toehold and market expansion are the fundamental requirements for a product to survive. It is necessary to secure an entry and expansion, even at a loss, to be able to recover later. Smart late entrants focus on smart costing and smart pricing, and in most cases carry their outsourcing partners along in this strategy.    

Smart differentiation

Differentiation is more common today than envisaged. Differentiation is confused with having variety. Having just a few products does not lessen differentiation (eg., as in the case of Apple) nor would a profusion of products provide differentiation (as in the case of Xiaomi, Huawei and Meizu). Oppo’s selfie phone with industry leading 16 MP front camera is an example of focused differentiation. Leveraging the scientific validation of Indian herbs and spices, a late entrant to the Indian masala product market could create new formulae for differentiation. An ice cream maker may capitalize on seasonality of fruits to develop seasonal special entries. Late entrants would need to focus on micro differentiation to make a smart entry.

Smart communication

While incumbents, pioneers or fast followers, may focus on aggressive advertisement, late entrants must focus on smart communication to be seen as providers of products which are qualitatively feature-rich, affordable and differentiated. Outsourcing helps the late entrants to assimilate the best of breed product features, from ingredients to packaging, and deliver them through multiple channels. Brand recall can be maximized with smart communication rather than just aggressive advertising. Out of several advertising campaigns, one normally recalls only those which convey a central message in a creative fashion. Airtel 4G advertisement, for example, says a lot without saying anything explicitly about the widest cellular coverage.

Smart organisation

In all cases, organization is important to secure and sustain market superiority. Late entrants, however, can bridge a lot of gap with an organization that is agile, flexible and adaptive with the right culture. Managers of a smart organization will have a first-hand feel for marketplace as well as manufacturing base. They should have a keen understanding of what makes customers switch brands and select outsourcing partnerships that provide such advantages. Smart organisation tends to be lean and non-corporate in structure and systems. Their relationships with product partners and retailing channels help the late entrants secure competitive advantage for the firm as a whole.

Scaling up

Late entrants certainly have a chance to enter a crowded market, and grow up with the smart formula discussed above. However, such firms have to contend with the fact that the incumbents are bound to hit back after experiencing the initial disequilibrium while even later entrants would try to replicate the success of the (earlier) late entrants. The challenge for reasonably successful late entrants is how they can move up to the next trajectory; solutions could emerge from external support systems rather than persist with the same success formula.

Simple successes lead to industry and private equity community taking notice. They are brought into a higher trajectory through mergers and acquisitions and/or external financing. The typical late entrant may thus gain huge power based on the late entry success but could become a typical incumbent through the step-up process. That would be a bit unfortunate for the firm but for the ecosystem it would be a benefit; as late entrants turn incumbents, new late entrants join the industry, keeping the ecosystem rich and bright.

Posted by Dr CB Rao on March 15, 2016

The Bitter-Sweet Truth of ‘Positional Monopoly’: Ten Management Lessons from the Curious but Educative Case of SKS Airport Sweet Stall

Positional monopoly occurs when a retailer is exclusively present in a geographically defined marketplace. The classic case is that of Higginbothams, the famous heritage book store that has its book stalls in several railway stations of India. While books can be purchased anywhere and anytime, the exclusive positioning of the bookstalls without any competition and the impulse buying by passengers to spend time in long journeys create positional monopoly for such bookstalls. Food catering by the sole catering agent of the Indian Railways, IRCTC, in railway trains is another example. The same can be said of sole selling shops that are situated in isolated areas, say a ‘kirana’ shop in the Himalayas!

Positional monopoly occurs at a product level too. Certain retailers may choose to stock only one brand of a particular class of products forcing customers to buy that product as part of a larger bundle of products from that retailer. Similarly, certain manufacturers may choose to retail their products only through certain channels (including only e-platforms). Positional monopoly makes customers forsake their brand loyalty in favour of purchasing convenience or inevitability. Positional monopoly gets reinforced when the demand for a product is a natural and integral part of living/social culture and the demand can migrate from one brand to another easily. Positional monopoly does not, however, mean that there would be unbounded demand. This blog post attempts a study of positional monopoly through the case optics of a famous sweet shop of Chennai, and develop some key management insights.

Sweet tooth

Most Indians have a sweet tooth. They also have a fascination for ‘branded sweets’ and ‘signature sweets’. In Chennai, famous sweet houses such as Aggarwal, The Grand Sweets & Snacks (GSS), Sri Krishna Sweets (SKS), Archana Sweets and Adyar Ananda Bhavan (AAB) are some of the branded sweet houses, with an amazing array of mouth-watering sweets. All these houses have their signature sweets, Aggarwal’s Jangri, Grand’s Fruit Halwa, SKS’ Mysorepa,  Archana’s Badam Halwa and AAB’s Sonepapdi are some such signature sweets. Of course, in each case, the formidable range of sweets is accompanied by an equally tasty set of snacks. In this respect, GSS probably is the best known brand. Like geographic indicators, the sweet houses have their locational niches in important shopping districts, with distinctive taste profiles.

While the sweet houses have their proprietary and distinctive tastes and flavours, they have no monopolistic power. They have their loyal customers but they are substitutable too. If one were to imagine a situation where only one of these sweet houses were to be present, it stands to reason that all the demand of the four brands would flow to the monopoly brand. That is the sweet pulling power of the four distinctive sweet houses! In recent years, SKS embarked on a store positioning drive that positioned SKS retail shops in traffic flow spots such as airports and fuel delivery stations. Of these, SKS sweet stalls in the Chennai airport are unique and distinctive, and strategically positioned with high visibility. The ideal situation of ‘positional monopoly’ has thus been secured by SKS. It thus offers an interesting case study to understand the nuances of positional monopoly.

Tested taste

SKS sweet stalls are situated, one each, in the arrival and departure halls of the Chennai domestic terminal (Kamaraj Terminal). They are small, compact stalls offering the full portfolio of sweets and snacks, in ready to carry boxes as well as in open trays for on-the-spot assorted selection and customized packing. SKS has also made special efforts to cater to the perceived unique needs of air travellers by offering special multi-product packs and ready to eat foods as well. Some of these custom packs are not available in downtown city stalls, presumably. All the products in the airport stalls are served in a hygienic manner by courteous staff. The stall also provides flexibility to have packs of just one or two sweets. Customers are even provided with a generous opportunity to test the taste of different products, a unique customer-friendly feature of SKS in all its locations!

Given the sweet tooth that passengers have, the special role sweets play as gifts by travelling public, the service atmosphere created, and the general demand portability for sweets across brands, the positional monopoly should have secured a demand of several thousands of packs to the SKS airport stalls. That is because the domestic terminal handles 9 million passengers approximately in a year, which works out to approximately 25,000 passengers per day. In marketing and sales management, brand recall and footfalls are considered essential to generate sales. SKS stalls which capture 100 percent eye falls and are grazed by thousands of walk pasts are ideally positioned for maximal footfalls and hence for maximal business, reaching up to as many passengers as handled by the airport, at least in a theoretical sense. 

Bitter-sweet position

In contrast to the above positive indicators of positional monopoly, however, not more than a couple of hundred packets are possibly sold in each of the SKS stalls in the airport on a daily basis. The high brand visibility and the excellent product range of SKS in a uniquely exclusive airport positioning is contrasted, unfortunately and surprisingly, by weak sales. Applying some general management and industrial engineering principles, certain factors can be identified for the bitter-sweet result. Firstly, strategic positioning for effective sales is more important than visible positioning for branding. The stall in the departure hall is located near the gates before the check-in counters and before the security area. Fundamentally, the departing (boarding) passengers would be in a preoccupation to take boarding passes and in a hurry to undergo security check rather than purchase sweets in a languid manner. Clearly, if the sweet stall in the departure hall is located in the pre-boarding waiting lounge there would be a greater possibility of relaxed purchase. 

Similar positioning issue affects the sweet stall in the arrival lounge too. The arrival sweet stall is located near the exit gates after the taxi booking counters. Here again, fundamentally the arriving (homebound) passengers would be in a preoccupation to get into their cabs once the cab booking is done rather than purchase sweets delaying the homecoming further. Clearly, if the sweet stall in the arrival hall is located in the baggage claim area, there would be a greater possibility of purchase while the passengers wait for their baggage. To aggravate the issue for the arrival lounge stall, the choice of sweets is decidedly inferior to what exists in the departure stall.  The arrival stall, on the contrary, should have a much better USP than either the pre-boarding departure stall or even the city stalls (as the homebound passenger could always think of the city alternative). The lesson here is that positional monopoly by itself does not confer any significant advantage unless it is strategically secured and creatively deployed to be effective.   

ML-PL-CL-AL business model

Every business (in fact, every human endeavour) would have a maximum level (driven largely by the total customer universe), a potential level (driven largely by customer demand preferences), a constrained level (in fact, most times self-constrained by infrastructure and organization!), and an achievable level (which may work best when it is also aspirational). The case of SKS sweet stall illustrates the point tellingly. Given that 25,000 passengers pass through the Chennai domestic airport daily, the potential for SKS is to sell as many as 25,000 packs at least. However, demand preferences and perceptions on time trade-offs as discussed above set a potential business level which can be quantified only by consistent consumer research. This can lead to a figure higher or lower than the magical 25,000 mark. Let us assume in this case that it would lead to a potentially lower level of 12, 500 (50 percent of the maximum). Here comes the catch; most businesses and organizations are not set up to capture even the potential business; they are self-constrained by their own infrastructural, operational and organizational templates!  

Take the case of the airport sweet stall. Combining both the departure and arrival stalls, it has four dispensing and billing customer sale points. The stall itself can accommodate only two queue lines, keep in mind also that every customer would have luggage with him or her, making the queue lines complex and making it difficult for more people to join. Each selection by the customer from the look to delivery through all the steps of iterative choice, communication, packing, billing and payment takes on an average five minutes. As a result, every five minutes four packs can be delivered (because we have four customer points in the aggregate). Assuming that the stalls are run round the clock 24 hours (which is not a reality, and also is not relevant as domestic flights do not operate round the clock), we have 288 slots of five minutes each. Given the delivery rate of four packs every five minutes, the feasible number of packs that can be delivered on any day is only 1152, which is 9.2 percent of the potential daily business and just 4.6 percent of the maximal daily business.

Various other logistical and behavioural issues would determine if even the constrained business of 1152 packs can, in fact, be achieved. This could relate to queue lines not accommodating more than a handful of passengers, mismatch between flight times and wait times, bunching of flight and people arrivals and departures, mismatch between customer wants and sweet availability, and the need for sales personnel to have rest times and breaks. The achievable business would be clearly lower than 1152 packs, and it is not, therefore, surprising that the sweet stall manages to sell no more than half of even the self-constrained demand. Clearly, there could be limitations (imposed by the airport authorities or the leasing charges) in terms of owning a larger space that accommodates additional display space, more queue lines and more billing points. But, the ML-PL-CL-AL Business Model illustrates how the typical businesses are planned to inherently operate hugely below their maximum potential and what can be done to bridge such huge gaps.

Ten management lessons

The objective of the blogpost (and the embedded case study) is not to discuss SKS Sweets per se, a respected and efficient entrepreneurial institution in its industry, which is run on professional lines but is to develop certain insights as to how businesses are unknowingly planned, established and operated not to reach their full potential (and, in some cases, even to fail!). For all we know, SKS airport sweet stalls may have been established just to establish brand visibility and not with business economics in mind. Again, as with all case studies, quantitative or qualitative factors are less important than the concepts and insights such analysis brings out. There are several management lessons that can be gleaned from the case study. Firstly, as illustrated by the study of positional monopoly, monopoly by itself does not guarantee a maximized business. Several strategic and operational positioning initiatives are required to achieve the full potential of even a monopoly.

Secondly, the total market ecosystem should be thoroughly studied to determine the maximum as well as other demand levels. The ML-PL-CL-AL Business Model suggested in this blog post provides a powerful tool for the study. It could be a real eye opener in terms of what can be achieved.

Thirdly, it is important to realize that even apparently well-established or well-run operational models tend to have significant unseen and unknown constraints that severely limit business realization. Industrial engineering and business management principles must be utilized for an introspective analysis and improvement actions. Fourthly, customer connect is a vital factor, whether for physical or virtual businesses. In this case, for example, a simple repositioning of stalls could provide higher customer connect and better business while signature packs, advertised in advance for their features, could minimize the transaction times. Fifthly, there would always be additional lateral solutions even if constraints cannot be avoided in toto. For example, the sweet stall can be a part of an SKS restaurant in the airport. Or, SKS may enter into alliances with select other food points in other strategic locations of the airport to display and sell at least the signature SKS packs. 

Sixthly, ‘silence’ even in respect of known institutions and visible brands is not an acceptable marketing option; active marketing, including market research, is essential for all types of firms and all kinds of brands. Seventhly, in today’s context, a networked business can provide a huge competitive advantage. For example, a departing passenger can be facilitated to log in his product requirement ahead of his travel which is delivered fresh at the airport neatly packaged as desired at the time of departure; or, an arriving passenger in a hurry may be encouraged to leave his request at the arrival sweet stall which is delivered at his home by one of the city branches nearer to the customer home. Eighthly, a business maximization approach needs, more than numbers, the right business and operational insights. As can be seen from this case study, a simple retail outlet can throw up valuable management lessons.  Ninthly, the right business insights would never develop from complex boardroom models; they result from simple ‘gemba’ (real place) observations by open minds. And finally, there can never be a limit to improvement; it is a continuous and perpetual process (‘kaizen’)!

The author feels grateful to Sri Krishna Sweets that their progressive gesture of a presence in the Chennai airport has inspired the author to develop a novel approach to study of monopolies, customer connect and business development, with an integrated and holistic model and present important management lessons.

Posted by Dr CB Rao on April 4, 2015

Buying and Selling in a Digital World: From Instant Satisfaction to Distant Nirvana?

Economic and social development is based on exchange transactions; more specifically, buying and selling transactions. Every moment of our lives, we buy or sell something. Most times such buying and selling transactions cover tangible products and services but they also cover intangible factors such as goodwill and brand equity. Many times, buy-sell transactions get known under different nomenclatures such as deposits and loans, in the context of a banking transaction, for example; but a closer look will reveal the embedded buy-sell nature of even a banking transaction. In certain other times, the presence of intermediaries and channel partners obscures one from the realities of buy-sell transactions. From the very established situation of physical buying and selling that has been in vogue till recently in an exclusive manner, electronic commerce has brought in completely varied hues to buying and selling. Two ubiquitous variables, one an outcome variable called value and the other a process variable called bargaining, influence the arithmetic of buy-sell leading to either profit or loss.

The buy-sell transactions are a key aspect of human, organizational, social and national behaviour. Like a coin has two sides, all these entities have buying and selling as the two sides of their personalities. Resources, especially natural and financial resources, being finite it is impossible to specialize and excel only in buying or selling. One needs to be adept at both simultaneously. Organizations tend to believe that buyers and sellers have characteristics that are different and differentiated; rarely one does see a head of procurement becoming a head of sales, and vice versa! There are some who believe that the underlying characteristics are the same, the differences are caused by the respective universes that the buyers and sellers operate in; the buyers operate in a limited supply pool and the sellers operate in a huge market place. In respect of a bank as an example, the buyer of a fixed deposit has only a few banks to choose from while the bank has millions of customers to sell its deposits to.  

Buy-sell characteristics

Buyers do not exhibit homogeneity. A buyer who is part of an organization tends to be methodical seeking high quality for low cost. The same person as an individual tends to be less analytical and more emotional while exercising his or her buying decisions. An organizational buyer tends to operate within a budget while an individual buyer prefers to be influenced into purchasing with elastic budgets. An organizational buyer tends to be a responsible and held-accountable buyer while the individual buyer tends to be a responsive and self-empowered buyer. The organizational buyer is motivated to save costs and increase profits for his organization as part of an integrated organizational goal system. The individual buyer is inspired to fulfill needs and increase esteem as part of a diversified social aspiration system. Industrial buying and individual buying have completely different ecosystems and behavioural triggers even if the operating person is the same.

Sellers also do not exhibit homogeneity. A seller who is part of an organization tends to be methodical seeking high price despite low cost. The same person as an individual tends to be less analytical and more emotional while exercising his or her selling decisions. An organizational seller tends to operate within a budget while an individual seller prefers to be influenced into selling with a view to deleverage, save or buy something else. An organizational seller tends to be a responsible and held-accountable seller while the individual seller tends to be a maverick and self-compelled seller. The organizational seller is motivated to offer discounts and raise volumes or prices for given volumes with a view to increase profits for his organization as part of an integrated organizational goal system. The individual seller is inspired to fulfill needs through better buys later and increase esteem as part of a diversified social aspiration system. Industrial selling and individual selling have completely different ecosystems and behavioural triggers even if the operating person is the same.

Premium-discount-loyalty-volume mix

A trained organizational buyer and an experienced individual buyer have one common characteristic though. He or she invariably seeks premium at a discount. A trained organizational seller and an experienced individual seller have also one common characteristic in a similar manner. He or she invariably seeks volumes at a premium. Both premium and discount generate loyalty. Loyalty, in turn, generates volumes. The buyers and sellers have a convergence play in how premiums and discounts are structured for a given specification and quality level. The selling strategies of organizations and the buying strategies of individuals vary depending on how the premium-loyalty, discount-loyalty and loyalty-volume relationships are structured. It appears that within this convergence, a divergence is developing between physical stores and virtual stores (or brick & mortar sales and electronic sales). There are essentially two points of view; one from a premium repositioning angle and the other from a discount repositioning angle, both of which attempt to increase purchases and sales, without losing the premium tag or accruing discount scorn, respectively.

The premium repositioning hypothesis is that the higher the perceived premium in a product or service and the higher the discount obtained on such product or service the greater is the value (and the volume). Even entities and channels which wish to play on premium are therefore forced to simulate, if not exactly offer, discounts.  The increasing trend of same store gift or discount certificates of premium retailers (Lifestyle, Home Centre, Shoppers Stop) or the same channel loyalty points of premium corporations (Taj Hotels, Sheraton Hotels and Lufthansa) are designed to encourage long term repetitive buying behaviour on premium products without sacrificing the short run profitability that could have come with discounts on premium pricing. The discount repositioning hypothesis is that the lower the perceived premium and the higher the discount obtained on such product or service the greater is the value (and the volume). Even channels which wish to play on discounts are therefore forced to continuously enhance the discount experience. The increasing trend of flash discounts by e-commerce channels and Uber style cab services are designed to continuously refresh the value-volume equation even with discounts.

Close touch to virtual scan

Electronic commerce, including electronic auction, has redefined the buy-sell characteristics. The foundations of close look and trial performance of physically available goods that have been the solid foundations of physical buy-sell experience have been replaced with the 360 degree compasses of universal scan and analytical evaluation of endless arrays of portal-linked goods. The physical buyer has become a more focused and circumspect consumer while the digital buyer has become a more empowered and maverick consumer. The physical seller is challenged with the task of re-establishing the relevance of brick and mortar store while the digital seller is challenged with the task of delivering to promise of digital platform. The physical buyer and seller are in a state of rediscovery for the next level of interaction with the physical sellers attempting to find other value enhancements besides look-feel (digitized shopping follow-up, for example) and the digital buyers seeking to find other credibility alternatives besides direct interface (digital price matching, for example). The digital buyer and seller are in a state of evolution with the digital sellers attempting to find other value enhancements besides discounts (same day delivery, for example) and the digital buyers seeking to find other credibility alternatives besides discounts (reseller warranties, for example).

The big corporations and the small consumers in both physical and digital buy-sell relationships are thus in a state of evolving expectations. As the chairman of Hindustan Unilever, Harish Manwani, stated recently electronic commerce cannot be wished away. The physical sellers may decide or influence their channel partners to list what can be sold through digital channels; the long term success may, however, lie in supplementing and complementing rather than in competing and substituting one for the other. This could include own e-commerce sites or contractual tie-ups with independent e-commerce sites to make available what is not physically available. As the consumers of e-commerce sites recently experienced what is most sought after digitally is rarely available freely. The digital buyers may patronize the digital portals for instantaneous buying gratification; the long term satisfaction may, however, lie in bringing in some of the discipline and practices of physical buy-sell to digital platforms. This could include more voice-verification opportunities, product reservation facilities, cancellation options and product return policies. Both flash sales in digital platforms and progressive sales in physical platforms require media advertisements, a trend likely to continue for long time – until a time point is reached when buy-sell is as embedded and as contractual phenomenon as a family, school, college, club or job relationship is. A completely integrated buy-sell ecosystem is what the future evolution is likely to be, as Apple Pay and Google Wallet may indicate.

  

Digital nirvana

In the extended digital age of the future, buy-sell will undergo a major transformation. A few principles of buy-sell nirvana will determine the evolution. Firstly, all buyers will be sellers, and vice versa. Buying intentions will be to buy as now but only to use temporarily and sell eventually.  Selling intentions will be to sell as now but only to induce repetitive buying through a variety of means, including buyback. Secondly, all physical will be digital and all digital will be physical. Buyers will seek seamless transfer between digital and physical buying and selling. Sellers will redesign and throw open their call centres and warehouses to buyers (akin to factory outlets). Thirdly, modularity and scalability will be used to extend product lifecycles. Designers will be encouraged, or even required, to use as much portability as possible. Fourthly, value will be determined by neither premium nor discount; it will be determined by exchange feasibility. Fifthly, buyers and sellers will weave themselves into integrated ecosystems in which phones, tablets and computers with banks and telecommunication providers will connect the buyers and sellers. 

These principles could lead to a new ecological logjam. The more one buys the more one will sell, and vice versa. With digitization while paper and trees are saved more plastic, metal and rare earths are potentially being generated, consumed and wasted.  If this trend accelerates, as it looks to, the planet could be burdened with profligate consumption of resources and excessive hoarding of products of multiple generations. As buyers keep looking at the earliest points of sale and resale, rather than maximal points of use and extended use, and as sellers keep looking at the earliest points of purchase and repurchase, products will only multiply exponentially.  Accelerated buy-sell (of a range, from physical goods to financial instruments) which is seen today (and possibly for several years, and even decades to come,) as an inevitable driver of socio-economic development will be seen as a fit case for accepting some philosophical and spiritual caveats relating to the limitations of the planet. A buy-sell nirvana could be a theme that would encourage ‘optimum development-optimum conservation’ (if not, ‘minimum development-maximum conservation’). Nations would have ombudsmen, corporations would have offices, societies would have crusaders and families would have thinkers who will reflect the principles of a responsible universal digital age that focuses on design optimization and resource conservation.

Posted by Dr CB Rao on November 2, 2014

Saturated Launch versus Silent Launch: Quality and Innovation as the Tilts to the Right Choice

Product launch is one of the most important milestones in the lifecycle of a product. Next to product development expenditure, product launch expenditure is the single largest expenditure component. While the scale and scope of launch determines the scale of revenues, the splurge on product launch also has an adverse price impact, influencing revenues in turn. Several options are available to the new age marketers in media to achieve saturation marketing. The loudness of some of the recent product launches including multi-full page advertisements raises the question if the maximal deployment of the promotional resources is required in today’s competitive marketing scenario or, on the contrary, promotional resources are being well spent. In fact, some of the promotional characteristics of even high technology products like consumer electronic products are focused more on visual aspects than on technical points. Even in respect of iPhone there is nothing more than a strong product visual and a price buyback offer in a full page advertisement!

While this excessiveness is an offshoot of free market competitiveness, the trend of saturation and intense advertisement of product launches is also related to the shortening product lifecycles. It has probably become important for firms to aim at the fastest possible recovery of investments, sometimes in periods as short as 3 to 6 months. The movie launches of recent times which aim at not only maximum number of screens in the home state or home country but also at simultaneous multilingual and multi-country launches is a striking example of saturation launches. While the automobile industry in sellers market conditions was accustomed to pre-launch booking of cars, other businesses especially cell phone and tablet firms are vying with each other in taking pre-orders although such industries are not exactly in sellers market conditions. Saturation marketing for the benefits listed above carries with it the possibility of making the customers insensitive to the messaging. It is time to consider if silent marketing could be an alternative to the current trend of vocal marketing; however, prior to that, an examination of what could constitute saturation launch could be appropriate.

Saturation launch

Saturation launch involves launching a new product through a well conceived and well coordinated advertisement campaign on the new product involving all the media (almost like a  blitzkrieg!). Typically, it starts with teaser advertisements in the pre-launch phase and full blown advertisements in print (newspaper and journal), radio, television, cinema, and social media immediately prior to and after product launch. In respect of certain products (such as automobiles and electronic gadgets) exposure in exhibitions of products at prototype stage itself is a given phenomenon. The benefit of saturation launch is that it captures the attention and imagination of the widest possible potential buyer and influencer base. It caters for diverse attention spans and mood scenarios, from early morning to late night exposure and flexibility of weekdays or weekend coverage. Given that each medium has its dedicated following as well as transient and random following, an exposure strategy can be designed based on product features and target customers. Saturation marketing is expressive in multiple ways; in fact, it attempts to capture the imagination of the customers through multiple human senses.

Pictorial, reading, listening, touching and simulation are the ways in which saturation marketing works. Saturation marketing can attract a potential customer to a product through pictures, can educate through written explanation, convince through sound bites, motivate through feel, and integrate through experiential simulation. Movie trailers, product displays, model homes, architectural walkthroughs, self-selection options and automobile test drives are examples of how pilot experience options can be deployed by firms to propagate the features of products as launch cum marketing experience. Next to such holistic experience, pictorial launch and marketing has been the most effective, and popular, medium of launch communication in India, even in this digital age. Sky hoardings, wall posters and wall paintings, rain and sun canopies and painted displays on transport equipment continue to be the most expressive launch media in India. Packaging and carry bags as well as flyers and leave behinds or product leaflets enable communication of the messages in a more ambulatory fashion. It is estimated that a saturation launch campaign on all of these lines together with maintenance marketing would cost anywhere between 10 to 20 percent of sales revenue for a product that achieves a viable scale.

Silent launch

Silent launch, on the other hand, could save the firm a considerable amount of such expenditure which can be passed on to the customers in terms of lower prices for the products. However, what exactly could be a silent launch has no formal definition. That said, it may be defined as a launch of a product without advertisement or publicity of the contemporary kind. One of the recent silent launches in India has been the re-launch of Tata Aria crossover SUV a few weeks ago. Compared to the first launch a few years ago, the re-launch has been absolutely quiet. In practical terms, silent launch tends to be the only option for products launched by small and micro enterprises (SMEs) and self help groups (SHGs) which cannot afford launch resources. That said, a silent launch need not be, and cannot be, a nondescript launch. Silent launch could involve quiet but effective product display at points of sale with efficient sales executives explaining the product features, and wherever feasible, touch and feel. Display of new automobiles in luxurious shopping malls is an example of silent launch. Even in the FMCG sector, consumers are often surprised by new products which quietly take shelf life alongside established products. Some of the SMES and SHGs tie up innovatively with leading hotels and retail chains to gain display and marketability as a component of the corporate social responsibility of such large enterprises.

Silent launch is particularly appropriate under five conditions. The first is when the product is such a runaway hit that it needs no special publicity. An iPhone, whose attributes of use and symbolism of possession are well known, qualifies for such a silent launch position. The second is when the product is likely to be a low volume niche product whose sales would not bear a proportionately elastic relationship with the advertisement and other launch expenditure. Tata Aria, which though a good product could not capture the imagination of the market, falls in such a category. The third is when a product is launched under marginal costing principles leaving no scope for launch extravaganza. The fourth is when, as discussed earlier, the firm by its very ownership or operational structure has no resources to support launch activities. The fifth is when the product is of a neighborhood variety; for example, local produce or local eatery. Word of mouth, including product reviews by independent reviewers, plays a strong role in the success of silent launches. Silent launches can occur in any industry though! The movie industry is prone to successful silent launches made possible by positive word of mouth. Products which are highly visible in use (like automobiles) or in display (like televisions) and products which are a common part of daily use (like fountain pens) gain by word of mouth or ease of use. Some industries like pharmaceutical industry or insurance industry may find themselves appropriate for (relatively) silent launches given the regulatory restrictions.

Quality, innovation

Saturation marketing, by definition, is cost-intensive. In contemporary marketing in India it has become cost-excessive due to several high voltage attempts to grab attention. The practice of having a celebrity brand ambassador (a successful movie actor or an accomplished sports person, for example) has been the biggest cost driver of saturation marketing, on a rather universal basis. Sponsorship of major sporting events such as Cricket IPL and Football World Cup are the significant seasonal cost drivers.   Taking full front page advertisement space in newspapers and multifold front page advertisement space in journals and magazines has been another extravagant cost driver. Sponsorship advertisements in popular television serials or sporting event telecasts are also major cost drivers.  In terms of sunk costs with recurrent expenditure, exclusive company sales plazas have emerged as the trend to capture consumer imagination. Big firms tend to utilize all of these elements to ensure, in their view, strong enterprise and product line recall. However, does this recall automatically translate into consumer preferences for specific products? The answer is probably in the negative.

If Samsung, LG or Sony would launch a curved super high definition television, the consumers would be interested in evaluating purchase of such a new product based on novelty of features and the prestige value associated with such purchase rather than on whether any of the companies was associated with any great event or celebrity. While it may be argued that when the market is crowded with many competitors such high voltage and saturation marketing enables some differentiation and recall, it is a moot point if there exists a direct correlation between such saturation investments and actual product purchase decisions. Many of the concepts underlying saturation launch and marketing need to be validated by research on the revenue effectiveness vis-à-vis cost extravagance. In the earliest stages of mechanical revolution, in the middle years of electronics revolution and in the contemporary digital age, only quality, as evidenced by predictable and reliable performance, remains as the robust consumer draw while only innovation, as evidenced by premium, futuristic product design, remains as the unique product differentiation. As competition gets tougher, firms would do well to seriously reconsider marketing extravagance and reevaluate relative allocation of expenditures between sustainable quality and innovation on one hand and saturation launch and marketing on the other; from the author’s view the balance has to tilt strongly tilt in favor of the former! In such a quality and innovation driven scenario, silent launch could provide more value for the consumer than saturation launch would provide.

Posted by Dr CB Rao on June 15, 2014

   

  

 

Four User Factors (4U’s) as the Market Definer in the New Age

Classical marketing hypothesized the importance of 4P’s in how marketing is positioned and made successful in the marketplace. These 4P’s are Product (or Service), Place, Price, and Promotion. Together, these are called marketing mix that influence the success of marketing. Many of the successes of marketing (as also failures) are related to the manner in which a company manages (or mismanages) its marketing mix. That said, not all the 4P’s are equally important for all types of products and services. For example, for a product like cake, the taste, variety and freshness of cakes and the location which favors instant cake purchase are far more important than price or promotion. However, in the case of a restaurant the culinary offerings, the location of the restaurant including the parking space, the pricing of the dishes over a spectrum, and the novelty as well as the intensity with which the restaurant is promoted are all equally important.

Classic marketing, therefore, proposed a three phase approach to successful marketing comprising market research to define the 4P’s, a product and service development plan and a marketing strategy that designs and executes the marketing mix. The issue with this approach is that it has been developed in the pre-Internet and pre-globalization era wherein the 4P’s offered considerable leverage for differentiation. The Internet and globalization have completely altered how the products are designed, developed and used. The 4P’s while continuing to be relevant at a product level are overtaken by another set of user related factors. These are user expectations, user experience, user loyalty and user prosperity. The contemporary marketing mix moves the centre of gravity towards this set of factors internal to the user, from factors that are external to the user. These contemporary factors are discussed as the 4U’s of marketing in the Internet era.   

User expectations

The earlier era required companies to deploy a posse of market researchers to approach potential customers with sets of questions and hypotheses and develop a required product or service profile based on the research. Today’s user, however, is much more well informed of what is likely to emerge out of technological trends and even has a better awareness of his or her own expectations. A plethora of industry exhibitions and events as well as company announcements and indications build up user expectations. Today’s product development leads any latent consumer needs. User expectations are set ahead of product launches than as a result of product launch. As companies outline their emerging technologies and future products far ahead of launch, user expectations also build up exponentially. There are several examples of such lead times.

Ford India has announced its compact SUV, Ecosport more than a year ago, even as car magazines are full of similar new automobile features, months ahead of the likely launch dates. Movie houses are no longer secretive about their new productions. Launch and audio events are held months ahead, with openness. Futuristic generations of smart phones are announced even as the latest ones are launched.  Even infrastructure projects highlight the upcoming architectural features proudly, for example Mori Tower in Tokyo or Burj Tower in Dubai. Product definitions, ahead of launches, set user expectations. There is now a new responsibility on corporations to define what they can deliver in future, by accelerated design rather than by accidental default. The free availability of information on the Internet has immeasurably helped this process of setting user expectations, universally without any distinction of rural or urban, or even the poor and the rich.

User experience

Products or services are governed by features and specifications which provide functionality and performance. In the Internet era, a whole new concept of user experience has emerged. Whether it is improvement of hardware or software, user experience has a whole new definition for users. There are expectations out of not only the product as a whole but out of each of the components. The expectations of an automobile user today are manifold, from the starting and gliding ease to power and fuel economy, from strength and safety to style and elegance, and from comfort and convenience to capacity and connectivity.  Products of new generation technologies have even more exacting expectations; the scrolling and swiping smoothness of a smart phone must be matched by processing and multi-tasking capability, the connectivity capability by the imaging competence and the hardware strength by application count.

User experience, however, is much beyond features and specifications. The ultimate user experience is achieved when a product design enables the most complex operations to be performed in the most simplistic fashion. This, in turn, is achieved when innovative features of a product are capable of being handled by the user in an intuitive manner. The first use of an equipment or device must, by itself, act as a guidance manual for the user. Apple products score impressively on this nature of user experience dimension. The look and feel, and the overall user experience of any Apple device clearly set it apart from any other device. User experience is based on the designers imagining the way users are likely to use a product and converting the user functionality into user experience. This is a higher level challenge than just designing a product. User experience, being a design factor rather than a marketing factor, it is likely that future battles in intellectual property domain are fought on the platform of user experience.

User loyalty

User loyalty is the third of the U factors. Promotion, the fourth P of the marketing mix, is the factor that develops a brand around a product or service, creating perceptions around it. However, sustainable user loyalty is a function of the user experience and the corporation’s marketing mix, especially price in respect of products and price as well as location in respect of services. In general, promotion helps a firm more to switch customer loyalty than retain customer loyalty.  However, promotion also can reinforce user loyalty as long as it is able to skillfully weave perceptions around user experience.  Promotion is more than advertising. It is simulating user experience, and connecting products and services through user experience. The emphasis of the automobile industry in advanced countries on display of vehicles, and test drives shows how user experience can make a difference to user loyalty, ahead and independent of purchase.

There are two concepts that are at the core of user loyalty as new products get launched by the firm and its competitors. The first is the loyalty retaining user experience. The second is the loyalty retaining user price. Tata Motors has recently launched a plan to retain customer loyalty on these two dimensions. First, it has substantially upgraded its Manza sedan integrating several luxury features into the car. Second, the company provided an assured buyback of Manza at sixty percent of the price after three years (potentially in exchange for another Tata car). In certain product categories, a third dimension of operating assurance would be required. Automobiles, white goods and other equipment subject to wear and tear over time are particularly supported by continued after-sales service.  As opposed to product-specific user experience, after sales service tends to be a firm level capability; Toyota, for example, scores over most competitors in terms of after sales service.

User prosperity 

User prosperity is the foundation on which marketing segmentation and market skimming strategies have been based ever since marketing evolved as a management discipline, decades ago. The real definition of user prosperity, however, must be in universalizing of prosperity, rather than its isolation. In emerging markets, especially, the concept of user prosperity has become opportunistic and in some cases even exploitative. Burgeoning prices of luxury products is a clear example of this unhealthy trend. One may say that there is nothing wrong in inherited rich and nouveau rich buying an imported luxury car at a million dollar price. One may even argue, rather speciously, that the price of an imported car which bears over 200 percent of duties and taxes helps the buyer add revenue to the government exchequer! The argument is intrinsically flawed because not only such purchases increase conspicuous extravagance but also reduce employment generation. The purchase of one such large car takes away from the hands of the purchaser the power to purchase as many as three to five cars or use the money thus released for other productive purposes and generate additional employment.

This trend of extravagance is becoming rampant across ages and generations, unfortunately. A sum of Rs 40,000 represents one equated monthly installment (EMI) on a home loan of a young person. In this age, the typical young person of Young India is willing to sacrifice one EMI every year on a smart phone! And so is a gadget-enslaved older generation that is following such a trend.  Unfortunately, neither generation uses even a fractional amount of the ‘smartness’ that a smart phone possesses. Real user prosperity occurs when each product or service helps the user become more productive and thus generate more national wealth. The key for firms here is a focus on the productive aspects of technology rather than the cosmetic aspects of technology. User prosperity that gets generated out of productive technology is far more enduring than that is generated wholly out of cosmetic technology. It is important that firms and users focus on productive leaps in technology than incremental cosmetics to support the market skimming strategies. It is also equally important that such productive technology is diffused into the lower end products as well so that productivity driven prosperity is facilitated across income and demographic levels.

4U’s, with 4P’s   

Classic thinking positions the product or the service as the focus, with the 4P’s as the core of marketing mix. Neo thinking must position the user as the focus of the marketing mix, with 4U’s as the enablers. It is important that we realize the continued importance of 4P’s of product, price, place and promotion even as we shift the paradigm around the user with the 4U’s of user expectations, user experience, user loyalty and user prosperity. The result would be an enhancement of user productivity, universally enabled alongside generation of national wealth, equitably distributed.

Posted by Dr CB Rao on April 28, 2013