Devangshu Dutta
January 22, 2008
Management consultants, the media, financial analysts have had one phrase tripping off their tongues the last few years … “organized retail”. … The growth of “…”, the inevitability of “…”, the power of “…”
Some highly visible people have even made statements that essentially mean – “if you want to play at the table of retailing, bring big money with you, because stakes have now risen, entry barriers have now gone up”.
In our opinion, nothing could be further from the truth – retail is fundamentally an entrepreneurial business, and even today, you can start with one shop, or even a corner in a shop.
We did write about it in May 2005 (read here : “Playing with the Big Boys“), prompted by some of the profound observations people were making on the inevitable demise of the small retailer.
Typically the only people who seem to talk about small retailers amongst these loud voices are the market associations when an ‘organized’ retailer opens a store in or near their market, and those activists who despise anything that has a whiff of corporate.
In that context, it is interesting to read the BusinessWorld article by Vishal Krishna, M. Allirajan and Manashwi Banarjee titled “Squaring Up To Survive”. It mentions companies that are enabling smaller retailers to streamline their operations, and describes what individual store owners are doing to compete with Big Business.
Yes, things are tough for small business people, but don’t write them off just yet. Almost every business that is big today was once very small.
Devangshu Dutta
January 18, 2008
The entertainment business suggests that nostalgia is a very powerful driver of profit.
It is quite clear that retro is “in”. The movie business worldwide is full of sequels, prequels, re-releases and remakes. The music business is ringing up the cash registers with remixes and jukebox compilations. Star Wars and Sholay still have a fan following. ABBA has leaped across three decades, Hindi film songs from 30-60 years ago have been given a skin-uplift by American hip-hop artists, while Pink Floyd is hot with Indian teens along with Akon and Rihanna.
As copyright restrictions are removed from the works of authors long-gone, the market gets flooded with several reprints of their most popular writings. Of course, we know that classic literature survives not just a few years but even thousands of years. Examples include the still widely-read 2,500-year-old Indian epic Ramayana by Valmiki, the Greek philosophers’ works that continue to be popular after two millennia and the Norse legends that have been told and re-told for over a thousand years. Spiritual and religious leaders’ writings are also recycled into the guaranteed market of their followers and possible converts for a long time after their passing away.
On the other hand, the basic premise of today’s fashion and lifestyle businesses is that silhouettes, colours and design-cues will become (or be made) obsolete within a few weeks or a few months, and will be replaced with new ones. This principle is true not just of clothing and footwear, but is applied to home furnishings, furniture, white goods, electronics, mobile phones and even cars. In fact, the fashion business (as it exists) would find it impossible to survive if customers around the world chose only classics which could be used for as long as the product lasted in usable form.
What Fashionability Means for Brands
Other than individual styles or products falling out of favour, as fashions move and as the market changes, it is evident that some brands also become less acceptable, are seen as “outdated” and may also die out as they lose their customer base.
Of course, that some brands become classics is quite apparent, especially in the luxury segment where brands such as Bulgari have survived several generations of consumers, and continue to thrive.
However, the past is of relevance to the fashion sector because, other than planned or forced obsolescence, the fashion business has also long worked on another principle – that trends are cyclical.
Skirts go up and down, ties change their width, and the colour palette moves through evolution across the years. A style formula that was popular in the summer of a year in the 1970s might be just right in another summer in the first decade of the 21st century.
So, the question that comes up is whether the same logic that is applicable to individual products, styles and trends, could also be applied to brands.
The answer to whether apparently weak, dead or dying brands could be brought back to life is provided by brands such as Burberry’s, Lee Cooper and Hush Puppies. Sometimes innovative consumers create the opportunity – as with Hush Puppies in the 1980s – while in other cases (such as Burberry’s, Volkswagen’s Beetle, or Harley Davidson), vision, concerted effort and resources can make the brand attractive again.
The question then is not whether brands can be relaunched – they can. The more important question for brand owners is: should a brand be relaunched. And using the logic of the fashion business, rather than being left to linger and then dying a painful death, could brands be consciously phased-out and later brought back into the market as the trends change?
The Brand Portfolio – Diversifying Opportunities and Risks
These questions are particularly important for large companies, or in times when market growth rates are slow, or when the market is fragmented. Organic growth can be difficult in all these scenarios, and companies begin to look at developing “portfolios” by acquiring other businesses and brands, or by launching multiple brands of their own.
The car industry worldwide has lived with brand portfolio management for long. Even as companies have merged with and acquired each other, the various marques have been retained and sometimes even dead ones have been revived. The companies generally focus the brands in their portfolio on distinct customer segments and needs (such as Ford’s ownership of “Ford”, “Volvo” and “Jaguar”, or General Motors with its multiple brands), and then further play with models and product variants within those. When things go right portfolio strategies can be quite profitable, but the mistakes are especially expensive. Sensible and sensitive management of the portfolio is absolutely critical.
In the fashion and lifestyle sector, the players who already follow a portfolio strategy are as diverse as the luxury group LVMH, mainstream fashion groups like Liz Claiborne (with brands in its portfolio including Liz Claiborne, Mexx, Juicy Couture, Lucky Brand Jeans) and LimitedBrands (Limited, Victoria’s Secret, La Senza etc.), retailers such as Marks & Spencer (with its original St. Michael’s brand having given way to “Your M&S”, and also Per Una) and Chico’s (Chico’s, White House | Black Market, and Soma Intimates) who wish to capture new customer segments or re-capture lost customers. Some of these companies have launched new brands, some have relaunched their own brands, and some have even acquired competing brands.
The issue is also relevant to the Indian market, whether we consider Reliance’s revival of Vimal, the new brand ambassador for Mayur Suitings, or the PE-funded take over of Weekender. As the market begins evolving into significantly large differentiated segments, branding opportunities grow, and so will activity related to existing or old brands being resurrected and refreshed. An additional twist is provided by Indian corporate groups such as Reliance, Future (Pantaloons) and Arvind that are looking to partner international and Indian brands, or grow private labels to gain additional sales and margin.
The issue also concerns those companies whose management is attached to one or more brands owned by them which may not have been performing well in the recent past, but due to historical or sentimental reasons the management may not like to close down or sell them.
It is equally critical for potential buyers who would like to take over and turn brands around into sustainable profits. This is a real possibility in this era of private-equity funds and leveraged buyouts, where a company or a financial investor might find it cheaper and more profitable to take over an existing brand and turn it around, rather than building a new brand. This is already happening in the Indian market. More interestingly, Indian companies have also already acquired businesses in the USA and Europe, and the potential revival or relaunch of brands is certainly relevant for these companies as well.
When to Recycle and Reuse
Relaunch or acquisition of an existing active or dormant brand can be an attractive option when building a portfolio, or when a company is getting into a new market.
For the company, acquiring an existing brand is often a lower cost way to reach the customers, and also faster to roll-out the business. The company may assess that the brand already has an existing share of positive customer awareness that is active or dormant, and that the effort and resources (including money) needed to build a business from that awareness will be much less than that to create a new brand.
The risk of failure may also be lower for a relaunched brand than for a new brand.
This is because the softer aspects, the hidden psychological and emotional hooks, are already pre-designed. This provides a ready platform from which to re-launch and grow the brand.
From the customer’s point of view, there is the confidence from previous experience and usage, and possibly also nostalgia and comfort of the ‘known’.
‘Age’ or vintage is respectable and trustworthy. This is especially powerful during volatile times or in rapidly changing environments when there is uncertainty about what lies in the future, and makes an existing brand a powerful vehicle for sustaining and growing the business.
On the Downside
However, when handling brands it is also wise to keep in mind the cautionary note that mutual funds issue: “past performance is no indicator of the future”.
In re-launching active or dormant brands, there is also a downside risk. While the brand may have been strong and relevant in its last avatar, it may be totally out of place in the current market scenario. The competitive landscape would have shifted, consumers would have changed – new consumers entering the market, old consumers evolving or moving out – and the economic scenario itself may now be unfriendly to the brand.
Also, the “awareness” or “share of mind” may only be a perception in the mind of the person who is looking to re-launch the brand, and the consumer may actually not care about the brand at all. There are instances where the management of the company has been so caught up in their own perception of the brand that they have not bothered to carry out first-hand research with the target segment to check whether there is actually an unaided recall, or at worst, aided-recall of the brand. They are imagining potential strengths, when the brand has none.
It is also possible that, during its last stint in the market, the brand may have gathered negative connotations – consumers may remember it for poor products or wrong pricing, the trade may remember it for late deliveries, vendors may remember it for delayed payments…the list goes on. In such a scenario, it may be a relaunch may be a disaster.
So how does one know whether to resurrect a brand, or to reincarnate it in another form, and when to just let it die? The answers to that lie in answering the question: what is a brand? And then, what is this brand?
A Critical Question: What is a Brand?
Even in these enlightened marketing times, many people believe that the brand is the name. They believe that once you advertise a name widely and loudly enough, a brand can be created. Nothing could be further from the truth. High-decibel advertising only informs customers of the name, it cannot create a brand.
If we put ourselves in the customer’s shoes, a brand is an image, comprising of a bundle of promises on the company’s part and expectations on the customer’s part, which have been met. When promises are delivered, when expectations are met, the brand develops an attribute that it is defined by.
The promise may be of edgy design (think Apple), and the customer expects that – when the brand delivers on the promise and meets the expectation the brand image gets re-affirmed and strengthened. However, these attributes are not always necessarily all “positive” in the traditional sense. For instance, a company’s promise may be to be low-cost and low-service (think Ikea, or “low-cost airlines”), and the customer may expect that and be happy with that when the company delivers on that promise. The promise may be products with a conscience (think The Body Shop), which may strike a chord with the consumer.
What that brand actually stands for can only be created experientially. Creating this image, creation of the brand, is a complex and step-by-step process that takes place over time and over many transactions. Repetition of the same kind of experience strengthens the brand.
The brand touches everything that defines the customer’s experience – the product design and packaging, the retail store it is sold in, the service it is sold with, the after-sales interaction – all have a role to play in the creation of the brand.
For instance, to some it may sound silly that market research or how supply chain practices can help define a brand, but that is exactly how the state of affairs is for Zara. Changeovers and new fashions being quickly available are what that brand is about, and it would be impossible for Zara to deliver on that promise without leading edge supply chains, or a wide variety of trend research.
Similarly, it may sound clichéd that your salesperson defines the brand to the consumer, but even with the best products, extensive advertising, and swanky stores, for service-oriented retailers everything would fall apart if the salesperson is not up to the mark. This is indeed a sad reality faced by so many of the so-called premium and luxury brands.
Of course, brand images can be changed or updated, but the new image also needs to be reinforced through repeated action, a process just like the first time the brand was created.
Reviving a Brand: the New-Old Seesaw
Given that a brand is created over multiple interactions and repetitive delivery of certain attributes, it is only natural that the older the brand, the more potential advantage it would have over a new brand. Just the sheer time it would have spent in the market would give an old brand an edge.
An old brand can appear to be proven, experienced and secure, while a new brand could be seen as untested, raw and risky. An old brand may have had a positive relationship with the consumer, but may have been dormant due to strategic or operational reasons. In this case, reviving the brand is clearly a good idea. There is already an existing awareness of an older brand, which can act as a ready platform for launching the same or a new set of products or services. Often, there may be a connection with the consumer’s past positive experience of the brand.
On the other hand, a new brand may appear to be fresh, more up-to-date and relevant, and vigorous, compared to an old one that may be seen as outdated and tired. Certainly, if nostalgia had been all that brands needed to thrive, then old brands would never die and it would be difficult to create new brands.
Clearly, there is no single answer to whether it is a good idea to re-launch an existing or old brand. If you are considering whether it would be a good idea to revive an old brand, or to acquire and turn an existing brand around, ask yourself this:
If the answer is “No” to any of these questions, then one needs to think again. However, if the answers are all “Yes”, then a resuscitation is just what the doctor might have ordered.
Devangshu Dutta
October 11, 2007
The sector of retail that has been attracting the most corporate interest over the last few years is the food & grocery market.
Quite logically so, since this comprises the largest slice of spending – well over 40% in urban markets and above 50% in the lower income towns and rural areas. It, therefore, offers the maximum opportunity for rapid scaling. Working in sequential logic, the nature of that large business would be highly capital intensive, and the large amounts of investment and large footprint should logically act as entry barriers for competitors. Size should also drive costs down through efficiencies of scale and raise margins by removing intermediaries.
By that reasoning, the bulk of the small retailers should be out of business very rapidly, as the well-capitalised corporates buy their way into the market, whether by opening their own stores or by acquiring many retail chains and mashing them together into one company.
This has led some commentators and consultants to predict that within the next 5-10 years, as much as 25-35% of the food and grocery market would be taken by the so-called organised retailers.
That, in my opinion, is a gross overestimation of the pace of change.
Fortunately for the smaller retail chains and the independent mom-and-pop stores, and unfortunately for the large corporates, scale and efficiency is not enough of a competitive advantage at the local level. Retail is a business in which you have the opportunity of growing or diminishing your business’ future prospects every time a customer buys at your store, or chooses not to.
And the food and grocery business is tougher still, since you cannot impose a product top-down in India, with a mix of cuisines and cultures that are as varied as different countries in Europe.
Yes, change is coming to the food business. Like other products, food retailing in India will convert more and more towards modern retail, but it will happen in slices of percentage points. It will happen only when the modern retailers understand and respect the cuisine boundaries rather than imposing a sea of sameness for consumers across the country. It will also need retailers to plan and manage the supply chain and vendors at micro-levels.
There are plenty of speed-bumps and potholes on the way – proceed with caution.
Devangshu Dutta
April 20, 2007
A few weeks ago there was an immense buzz about an email that was apparently leaked from Starbucks. Chairman Howard Schultz apparently had written this to CEO Jim Donald, and there was immense speculation about whether it was fake or a genuine leak.
Well, Starbucks itself put that mystery to rest by confirming the e-mail’s authenticity, and that makes it even more interesting. The soul-searching shared by Schultz in the memo, reflects the criticism that Starbucks has faced in recent years.
As a pioneer of “the third place” experience, it must be especially painful for Schultz to admit that the quality of experience now is below what the consumer would (or should) expect. In the quest for scale and efficiency, he says:
“…we have had to make a series of decisions that have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.”
He acknowledges ownership for the decisions, which he says…
“…were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is unfortunately much more damaging than the individual pieces.”
As a brand with over 13,000 locations, clearly Starbucks needs to be able to work with a model which is consistent across locations, can be implemented quickly, and delivers the product quickly and at controlled costs. Automation and packaging are two major areas that have given it that capability, but have also become the weak point of the experience from the perspective of coffee connoisseurs, or even people who would just enjoy a “rich and personal” experience.
Schultz quotes some specific cases that are especially powerful illustrators of what is right AND wrong with the business model.
“…when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency but removed much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista.”
Clearly the automatic machines improve the consistency of coffee delivered in each cup of Starbucks, and also reduce time the customer waits (a huge issue in many of the stores where peak-hour traffic can result in customer queues right to the door). But it is that much more generic an experience. And one would imagine that the barista behind the counter is also just that bit less involved (dare we say, less passionate) about the cup.
Creating a process (and better still, automating it) reduces the dependency on individual skill in any business, and is a strategy followed by all businesses that want to scale up without losing quality. However, an experience that is supposed to be “personal” and unique, needs to retain the human touch to a far greater degree.
Schultz talks about moving to flavour-locked packaging – again a great decision to retain the quality of the product across the chain of stores, while creating an efficient supply chain from procurement, through roasting, bagging and shipment to stores. Each of the outlets receive the coffee with a optimal shelf life left in the product. However, as Schultz says,
“…I believe we overlooked the cause and the affect of flavour lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma — perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage?”
When Schultz took over Starbucks there were hardly any significant competitors – it was either personalised, neighbourhood cafes or fast food joints serving low-grade motor oil masquerading as a beverage. The product itself that Schultz wanted to sell was not just the coffee, but the possibility of someone having a beverage in a relaxed environment outside home or a bar.
Today, Starbucks has itself upgraded the customer’s tastes and expectations, but risks losing that product leadership to smaller competitors, even as the fast food chains are improving the coffee that is served on the go, at prices often cheaper than Starbucks, and also as other “third place” options emerge.
It is the closing of the memo that shows a ray of light…
“…we desperately need to realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. I have said for 20 years that our success is not an entitlement and now it’s proving to be a reality…Let’s get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and 150,000 partners and their families who are relying on our stewardship.”
From reactions from various quarters, it seems that a lot of people not only agree with Schultz, but also admire him for his frank assessment of Starbucks’ weakening brand leadership and authenticity. When the leadership is honest with itself, there must be hope for the brand and the company.
An acquaintance who works with Starbucks expressed it eloquently when she identified the challenge of “staying small, while growing big” and said, “I’m glad our leadership hasn’t forgotten the qualities that have made us who we are.”
Starbucks remains a market leader by far, in terms of retail footprint worldwide and can only grow stronger by sorting out these issues which are at the core of the business.
Devangshu Dutta
March 15, 2007
Two separate incidents recently reinforced to me the need to know and understand the customer intimately, and to have the ability to respond to that knowledge with the appropriate product or service.
One was the experience an acquaintance had with the tea-vendor at a Mumbai railway station, who had segmented his tea-concoctions by the train (and its passengers), customizing to their regional tastes.
The second was a music concert sponsored by a well-known motorbike brand. The audience was largely off-target and the event was clearly not successful for the bike brand, though the audience and the band itself had a great time. As the creator of the department store and the American inventor of the price ticket, John Wanamaker’s once said: “I know half of my advertising money is wasted, I just don’t know which half.”
It’s funny, how gut instincts and home-grown wisdom may quote often seem more successful than planning through facts and figures.
This is partly a function of India’s complexity as a country and a market.
Traditional marketing discipline calls for categorizing customers into segments that are similar within themselves, and distinct from each other. It assumes that there are large or at least measurable numbers of distinct groups of customers Within each group, the customers are assumed to behave and buy in similar ways, which are quite distinct from the other groups in the market.
The reality of life, of course, is that in any market, segments are almost always an artificial construct. In fact, it is becoming more difficult to find large segments that are cleanly demarcated – what’s more, in markets worldwide, customer segments have been blurring into each other.
The Indian market takes this complexity to another plane, and savvy marketers know this from personal experience. India as a market is anything but continuous or homogenous. This diversity is brought out by a media-group’s advertisements series on its radio-channel that make the point about India being a country with 145 festivals in a calendar of 365 days. Or as I’ve often heard Kishore Biyani and others say, in India the mix of language, food and culture changes every 80-100 kilometers.
Let’s face it, most mass products that are marketed in the same way across the country, are handled that way due to manufacturing or distribution economics. Some may even be handled uniformly due to the lack of marketing imagination. It is certainly not due to customers across the country being identical.
How well we can understand the dimensions and the differences can mean the difference between success or even survival and abject failure.
Here is an article that describes the benefits and pitfalls of consumer analyses in India. (Slicing The Market)
[Note: With a 6 MB filesize , the download may take a while if you have a slow connection!]
