Advertising as Association: Warranty as an Open Card

Every wakeful moment of ours there are two things that keep happening invariably. The first is that we continue to be ever so unaware of our real internal selves. The second is that we become constantly ever so aware of external things which are not necessarily real. The first is related to the ego that we grow with. The first is not the focus of this blog post. The second is related to a ubiquitous phenomenon called advertising. What began as a management process to provide information to those who need has become a managerial process or profession by itself. When we see a newspaper today we see more advertisements than news. When we view electronic media, we see already broken stories that are further fractured by advertisements. When we go through any event, we encounter directed self-promotion rather than genuine public purpose. Everything in life, including organizational life, seems to be anchored around mutual advertisements.

Advertising may be defined as the non-personal communication of information, usually paid for and usually persuasive in nature, about products, services, events or ideas by their sponsors through various media and channels intended for consumers. Professional advertisement, however, has gone far beyond the classic definition. Persuasion had long ago become competitive persuasion but has not stopped there. It has now become visually overwhelming demonstration even against natural instinct and personal space. The day newspapers started having full page advertisements as their cover pages, the day popup advertisements began clouding any information in social media and the day self-promotion became a surrogate to performance, truth has started becoming a casualty in some manner or the other, and to some extent or the other. Like technology, advertisement is a product of modernity that needs to be utilized for the good it offers rather than the distortions it creates.   

Creative but crafty

Advertising is a process that is considered creative. Similar products and services are presented in different ways by advertisers solely because of creativity. Like fine arts, advertising requires creativity while staying within the prudential limits of decency, integrity and realism. Even global products need be presented to reflect local tastes and preferences, embedding cultural ethos in presentations. Advertising happens through multiple channels such as hoardings, posters, print, radio, television, cable network, television and social media popups, besides word of mouth. It is considered the essence of one of the four essential ‘Ps’ of marketing, product, price, positioning and promotion. Advertising can be subtle or gross; it can just provide cues or mandate action. Over time, advertisement has become a specialized science of consumer psychology, seeking to understand, influence, and shape consumer mind.

Viewing in a very objective way the deluge of advertisements that impact our senses day in and day out, one can easily understand that advertisement is not only creative but also crafty. Crafty is a fairly broad word, ranging in definition from artful to deceitful but in essence implies a clever way of achieving objectives by artful and deceitful methods.  Advertisement unfortunately is made most on products that are either injurious to health or those whose health claims are plain exaggerated. Massive advertisements for sugared drinks and processed foods typify the former while intensively child focused advertisements for growth and memory exemplify the latter. Advertisements do expand demand and help companies create more supply side wealth. Advertisements which are paid for by companies create huge employment and also help media subsidise their services. Advertisements also can be great tools of responsibility messaging and social engineering. That should not limit us from exploring betterment of the art.

Style rather than substance

Advertisements are fundamentally supposed to be persuasive based on facts, rather than perceptions. The more technical and functional a product is the more important such factual explanation becomes. The more lifestyle and personal a product is the greater is the reliance on perceptions and imagery. However, advertising has strayed from mainstream objectives so much that these two propositions are not followed faithfully. Where products are technical, company rather than product is the base of advertisement. Advertisements have moved from building product equity or brand equity to building corporate equity. Measures to promote Google, Microsoft, Cisco rather than their products stands out as an example. Also, advertisements have started focusing on scale and pomp rather than facts to impress. The ever increasing garish advertisements in realty space as well as full page advertisements in India are a classic example.   

Apple iPhone advertisements in India are another example of condescending approach that brand and corporate driven advertisements can take. The advertisements expect the users to be psyched further into product supremacy with overwhelming product imagery, and some minor price concessions. When advertisements go long on style truth suffers. Airtel is presently running a very engaging creative advertisement series on its 4G network and nationwide data, and voice connectivity therefrom. The advertisement mesmerises people over the daily call drops they suffer in their core cities. The Indian advertisement scenario is replete with several suggestions of style without substance; the several campaigns by jewellery houses on gaudy ornaments is just another example. There is no correlation between the ornaments pf crores of rupees they advertise and the actual simple jewels that crores of Indian population can really afford.   

Life of style or lifestyle?

Advertisements in India have induced a lifestyle that is consumption oriented rather than consumer oriented. They have impacted the attention span and processing ability of individuals on matters that are more central or crucial to life. One is exposed to several advertisements that talk about offbeat products; like special rice for diabetics, health insurance for elderly, attractive mutual funds etc. However, not one advertisement would care to expand on the theme to advise how the products actually are offbeat. In some advertisements, thanks to the regulators, risk factors are provided but in such small print and with such disclaimers that no one can decipher any contextual meaning.  The objective of advertisement has been to encourage people to resort to additional or excessive consumption to achieve a life of style rather than a lifestyle that is truly consumer friendly. It is not surprising, therefore, that the expenditure on advertisement as a percentage of sales tends to be higher than expenditure on product development itself!

Despite lack of information or even information that brings out the downside, companies continue to be blasé about their claims even as consumers continue to get swayed by advertisements. For example, despite the indictment in a judicial court in USA that a talcum powder of a leading company had cancer causing potential, the products of that company continue to be advertised as the safest even for the most tender skins without any reference or disassociation with such developments. When a food giant reintroduces its product that has been withdrawn, no explanation is offered in the relaunch advertisements on how the reformulation is different. The reason is that advertisements create a strong sense of association between consumers and their dream lifestyle through their products, and companies are indeed loathe to impact such positive associations with any negative association, even if it is established under certain circumstances.

Association, the key

Association is the relationship between two data items that is established through feeling, expectation or through memory. Creative and crafty advertisements seek to establish a positive and desired association and position their products as the providers or enablers of such association. Soaps, for example, seek to establish a clear association with skincare while some specialized soaps with hygiene. Ayurvedic products bring out association with natural cure, bereft of chemicals. Electronic products focus on specific attributes such as picture clarity to promote real life visual experience. Not all associations of advertisements are positive, however. The advertisements of yesteryears on cigarettes associated smoking with heroism and cowboy style, and in hindsight had been extremely negative for life and living. Advertisers continue to be crafty; even though advertisements for alcoholic drinks are banned they continue use surrogates and brands. Even more harmful are some advertisements which are sexist, crass and titillating. While there have been mechanisms like advertisement council to legislate standards and handle deviations, such mechanisms have been post-facto, and hardly serve to undo the damage.

There is a need to put in place alternative templates of advertising. This blog post suggests that all advertisements must have two sections; one the visual and descriptive part as now and the other a technical part which provides technical details of claims in a manner intelligible to common persons even. When an ayurvedic product advertises itself as having 21 herbs, the least that must be done has two components. The first is the theoretical aspect of what each herb is purported to do as per ancient texts. The second is the practical aspect of how the company has, in its view, succeeded in bringing those benefits to the product by virtue of material isolation, product quality and validated clinical trials. Similarly, the maker of a fan/air conditioner could speak of comparative strengths in terms of airflow, noise levels, motor/compressor durability etc. True and authentic advertisement is the one which can make an open commitment to consumers on product quality based on specifications, manufacture and usage with expected benefits. Each advertisement for any product or service needs to be an open warranty card more than anything else.  

Posted by Dr CB Rao on May 31, 2016

Product Renewal through Technological Resurgence: When Past is the Future and Legacy is the Discovery!

It is generally believed that new technology not only makes older technologies inefficient and inappropriate but also makes whole product lines obsolete. There have been many case studies of products that have become obsolete by the sheer march of technology. Mechanical watches by quartz watches, ink jet printers by laser jet printers, fountain pens by ball point pens, hand telephones, calculators, cameras and navigation systems, all by cellular phones, physical publishing by digital publishing, corner bookstore by online bookstore, telex by fax, mail and fax by Internet, and so on. Almost all of these have been driven by revolutions in electronics, telecommunications and software technologies. If such changes have not been more universal (for example, X Ray not getting edged out still by CT Scan), the costs alone could be the deterrent.   

The upcoming Apple Watch is another perfect example of a disruptive technology in wearable computers that could change the way smartphones and health devices are positioned in future. Interestingly, this technological trend may not leave even very traditional and mature products such as automobiles untouched.   The fascinating point in all this technological revolution and product obsolescence is that the basic needs that were fulfilled by the earlier generation products continued to be required. Things like timekeeping, printing, writing, voice communication, photography, navigation, book reading, mail communication, other non-voice communication, and medical diagnosis are still required. Technology’s ability to converge more applications into one device or one medium has contributed to this transformation.

Technological resurgence

Established technologies, and hence established products, may be overtaken by newer ones; however, nothing prevents them from staging a comeback. The case of Seiko Epson, the famous Japanese printer group is a case in point. The company, under the stewardship of Minoru Usui san, took a bold step in 2006 to refocus on ink jet printers despite the likely advent of a paperless digital office. Not only did he focus on ink jet printers, in preference to laser printers that are considered to be technically superior, but also shifted focus from consumer markets to business markets. This has been made possible by a technological stride in print head technology patented by Seiko Epson that enabled high accuracy in firing the ink droplets and thus securing higher print quality. This was also accompanied by a different bundling strategy for the marketplace that enabled his high cost printers featuring big tanks accept cheaper inks from any brand.

Similar technological resurgence has been behind the Swiss watch industry, which recovered from the shock of piezoelectric quartz watch technology by a refocus on its precision design and manufacturing capability on one hand and by integrating multiple drive options from mechanical to quartz to light powered and radio powered movements in watch design and manufacture. This was also accompanied by redesign of watches to appeal to customers belonging to different demographics and professions, including youngsters, students, sportsmen, professionals and seniors. There has also been a very successful effort to position watch as a luxury product, with an additional ornamental value for the ladies watches. The case of the fountain pen is also one of similar comeback, from a mass writing instrument to one which is rendered obsolete by ballpoint pen and which finally staged as a gallant comeback as a luxury writing instrument.

Basic needs

It is important to recognize that technologies may come and go but the basic objectives of all technological developments would be to fulfil certain basic needs in an ever better fashion.

As long as writing exists, the need for writing instrument exists. Many thought that personal computers have rendered typewriters irrelevant, and along with traditional typists. True, but typing itself has never gone out of need; in fact, typing has become a universally required skill and physical keys of a typewriter got replaced by a computer keyboard, followed by a BlackBerry keyboard, now followed by a virtual keyboard. The same type of product reinvention cycle can be seen across products. At the core of such renewal lies the relevance of technology in enhancing user experience even for basic established needs.

Successful technological resurgence would depend on multiple factors: the scope for the old generation technology to be upgraded, the opportunity to extract incremental value from the technology, the costs and benefits of breakthrough innovation vis-à-vis incremental innovation, the potential to integrate supportive technologies, the ability to re-segment the markets based on new technologies and products, the possibility to reposition and rebrand through ‘retro’ features, the adaptive nature relative to the Internet technologies, and so on. Not all later stage technology would result in more expensive products. For example, Swatch watch used inexpensive quartz technology to provide to youngsters inexpensive watches as fashion accessories. It is important, therefore, not to discard any product or banish legacy technology simply because a new technology has arrived. 

Market redefinition

The key to re-emergence of legacy technologies for renewing products lies in the ability to redefine markets. It also requires redefining competition. The relevant case is that of fountain pens. The industry possibly sold several hundred million units each year in the 1950s but by the 1970s the annual sales dwindled to a few million units due to the advent of the ballpoint pen. Today, possibly in unit volumes the same level is being maintained but in dollar value the turnover of the industry multiplied – the reason being that the fountain pens are now being marketed not as utilitarian writing instruments but as nostalgic luxury accessories. It is not that technology was passive in this process; from finely honed gold nibs to lacquer finish cases, new technology did give luxury touch to the renewed fountain pen drive.  As a result, fountain pens and ballpoint pens now operate in two distinct market segments. The same could happen to radios and record players.

The case of Seiko Epson also demonstrates how technological resurgence gives confidence to redefine markets. Given the lower print quality and lower price point relative to laser printers, ink jet printers were ideally positioned for the cost conscious consumer markets and the laser printers for the office market. However, on the back of energy efficiency and comparable print quality, Seiko Epson could do the contrary market positioning for its new series of ink jet printers focusing more on business users successfully. The likely future market definitions could be even more disruptive; from simple definition on the basis of a spectrum between mass consumption and luxury use, future products would have very novel redefinitions. For example, shoes in the past moved from being classified as business and casual shoes to application oriented shoes (running, jogging etc.). Tomorrow, if a smart chip can be embedded in the sole of a shoe, shoes may get stratified into health shoes and routine shoes!

Human factor

The temptation to discard legacy technologies could be easy to fall for executives and companies but the grit to re-develop and re-deploy legacy technologies requires strong human faculty. Fundamentally, it starts with the resolution of the apex business and function leaders to preserve the institutionalized value of technologies until the time comes to merge new technologies. This also requires preserving the technicians and workforce that grew with and lived in/with the legacy technology. There is an interesting anecdote on this. When Zenith, a Swiss watchmaker was buffeted by the quartz onslaught, it like many Swiss mechanical watchmakers decided to discard all its production tools, including critical molds and dies. However, a veteran employee who could not stand the idea of scrapping all the historical production tools hid them in a shed in the factory.  When, years later, the mechanical watch industry made a comeback and Zenith was at its wit’s end as to how to participate in the revival, the veteran employee returned to disclose the hidden treasures of historical tools and drawings, and led Zenith’s foray into mechanical watches.

There is a practical and compassionate element to the human factor too. It is easy to lay off people but difficult to retrain people. Companies which invest the time and effort to retrain people would combine the benefits of legacy knowledge and futuristic technology. Seiko Epson, for example, decided to retrain and redeploy its people on newer product lines. This, of course, requires not only a compassionately practical management but also a mature employee base which is not plagued by insecurity but is willing to learn new technologies as eager students with a faith in future. The third important factor is to focus on the customer as not merely as a user but more importantly as a human being who needs to be provided a better quality of life. The new slew of products, particularly the ones on the anvil, such as smart phone linked health watches are nothing but the stethoscopes, pedometers, electroencephalographs and diagnostic algorithms, all rolled into one.

When the customer is pampered and enthused as a human being, just with satisfaction of basic needs with resurgent technologies and renewed products, past tends to be future-perfect and legacy promises to be future-creative!  

Posted by Dr CB Rao on March 21, 2015  

Differentiation versus De-commoditization: Strategies for Haves and Have-nots

Differentiation is seen as a value building, remunerative strategy in product and business development. Differentiation as a strategy evolves along with industry structure. When an industry is built around a first time pioneering monopoly product, differentiation is of academic interest as the product constitutes the entire industry. As new players with identical or similar products enter the industry, differentiation emerges as the differentiator amongst different firms. However, when competition reaches a saturation point, the feasibility of differentiation declines even as the importance for cost leadership climbs up. Popularly, when competition becomes intense and differentiation becomes difficult, a product is seen as a commodity product. As an axiom, differentiation tends to be inversely correlated with commoditization, and vice versa. Yet, firms with investible resources tend to pursue differentiation as a premium strategy even in commoditized industries.

Differentiation tends to be primarily on product technology. In certain cases, it can be in terms of branding, channel marketing and point of sale strategies. Technology-driven differentiation tends to be more robust and sustainable relative to other forms of differentiation. Firms can seek to be differentiated not only by offering highly unique products but also offering a diverse range of products. In many cases, single product differentiation becomes vulnerable and firms are forced to field a broad range of products to meet multiple consumer needs. There was a time when Maruti-Suzuki held almost 100 percent of the Indian car market with only one product, the 800cc car. Yet, its dependence on small cars coupled with entry of other global car manufacturers in India led Maruti-Suzuki cede 50 percent of its share to competition. Diversity for a firm leads to differentiation of sorts. Diversity does not, however, stop commoditization. Many analysts equate with commoditization with genericization, and vice versa. This, however, is not necessarily true.

Commodity

In strategic discourse, commoditization is a concept that is used rather extensively as a driver or outcome of competition. Compared to innovation, commoditization figures more prominently as an inevitable concomitant of a developing industry structure. Many analysts suggest that commoditization is a direct consequence of lack of competition on one hand and excess of competition on the other hand. It is now hypothesized that no industry, however technologically advanced it is, can escape commoditization. For example, unbridled competition in smart phones is making the high-technology products look like commodity products, freely available off-shelf; a proof that no product group can escape the specter of commoditization. However, commoditization is not just related to competition.  Understanding the theorem of commoditization in strategic parlance requires the understanding of the word itself. Common words often get layered with folklore especially in strategic discourse!

Simply put, commodity is a raw material or a product that can be bought and sold. Some analysts believe that materials that do not have differentiating characteristics are free commodities. Some others believe that even when no differentiation exists, the demand-supply equation determines if certain products are precious commodities. Some commodities like oil, gold and water, which are non-renewable natural resources in varying degrees, tend to be precious while some like grains and metals whose production can be stimulated tend to be more freely available commodities. Some believe that products and materials that are nature’s gift are commodities while products and materials that are worked by human design and manufacture are considered non-commodities. Even this approach does not work because a product of great human effort like steel is often considered a commodity. In a sense, there is no straight correlation, in any combination, between natural occurrence, human development, preciousness, differentiation that can define commoditization.   

Commoditized shakeout

Commoditization is a resultant of a number of factors: abundant natural availability, ready usability, shared characteristics, surfeit of capacity, basal need fulfillment and so on. Any product, even if reflecting the highest level of human ingenuity, can become commoditized with time. Any commodity could also turn precious and differentiated if it ceases to be naturally available, gold for example. A commodity could become differentiated if it can be worked on to imbue special characteristics, diamonds that are cut uniquely for example. If a commodity like oil can be developed to reduce friction and reduce pollutants it becomes differentiated. When first introduced, a mutual fund instrument could have been very special but today it is completely undifferentiated and commoditized. The same with a special lending instrument like housing finance. It was made differentiated with a specially established institution, Housing Development Finance Corporation but with all the banks treating housing finance as a key component of their lending portfolio the instrument has become commoditized.

Commoditization is a concomitant of two principal factors: easy availability of materials and easy availability of technologies. Together, they determine the height of entry barriers to an industry. When faced with this, the first response of the firms and industry is to drive down the entry barriers even more, almost to a level of a shakeout in the industry. Emerging markets such as India are particularly prone to the phenomenon of commoditized shakeouts. Several industries, as diverse as motor pumps, lubricating oils, airlines, television channels, home foods and bulk drugs, to quote a few are witness to the commoditized shakeout phenomenon. The strategy adopted by most firms, when faced with commoditization, is to seek cost leadership to avoid being the victims of shakeout. This strategy has clear a floor level of cost-price below which it cannot be pursued, except at the risk of self-annihilation. The ideal strategy to address this is to have differentiated products all across the firms but it is easier said than done. As mentioned earlier, only a few firms which possess high technology and resources can hope to pursue differentiation in the face of commoditization (the “Haves”). If differentiation is for the Haves, the Have-nots need a relevant strategy; this blog post proposes de-commoditization as a novel strategy for the Have-nots.   

Differentiation for the Haves

Differentiation is not a mere function of financial resources. It requires visionary ideation and smart strategizing. Technology that continually fulfills higher levels of needs helps in differentiation. Basic human needs of communication and socialization are continuously expressed through different levels of technology, from the early telegraphy to modern day satellite communication. Socialization has kept pace with communication technologies but have essentially utilized the communication portals and cloud infrastructure. Future technologies could be extensions of human intellectual and physical activities. Socialization can take the reverse route to induct robots as part of everyday life. These kinds of differentiation requires two types of Haves, having technological innovation as the first core competency and customer outreach as the second core competency.

The possession of these core competencies enables firms to continuously innovate new products that fulfill the human needs in completely different manners. Those who utilize the core competencies to undertake only incremental innovations cannot achieve true differentiation; on the other hand, they deliver small incremental improvements through high levels of technology, leading to adverse cost-value relationships. Those firms which have true technological and market competencies are truly firms of destiny for industry evolution. While the pioneers qualify almost naturally for the differentiator role (for example, Cadbury’s in milk chocolates, Danone in dairy products, Kellogg’s in breakfast cereals), time to time new differentiators emerge (for example, Nestle with KitKat). The Haves should rightfully concentrate utilizing their core competencies to setting newer product trajectories. Given that this requires huge investments, the Have-nots would need a different approach.

De-commoditization for the Have-nots

De-commoditization at one level is responsible business management. It avoids trivializing a product through self-destructing strategies. Launch of a new product at a huge price premium but immediately offering buybacks and cash-back discounts trivializes technologies and products. The first step towards commoditization is an almost unintended consequence of volume-driven marketing or cost reductions. The right strategy of de-commoditization is to hold, and if possible even reinforce, product specifications all through introduction and growth phases of the product life cycle, even in the face of new competition. The second step in de-commoditization is to avoid frivolous market segmentation. While offering products at different value points is inescapable, mindless jumbling up of specifications for driving up product proliferation adds to commoditization. The right strategy of de-commoditization is to keep the product lineup simple and meaningful.

The next challenge of de-commoditization arises when the inevitability of commoditization happens. De-commoditization can happen in one of three ways. The first is by building value adding features in a commoditized product (for example, extending a yogurt product in two directions of low-fat range and high-energy range). The second is modifying a product to deliver two principal functions in place of one principal function (for example, making a gaming device like Kinetic that helps gaming as well as exercising). The third is retro-designing a product to rediscover the roots (for example, bringing smart watch technologies to conventional Swiss watches). De-commoditization requires a disciplined Kaizen mindset that upholds a product’s value in the eyes and heart of the consumer always. It will not require the mega investments that the Haves splurge on differentiation drivers but will certainly need a keen eye for detail and a penchant for simplicity and functionality in a mindset of quality.

Posted by Dr CB Rao on April 6, 2014