In recent decades, the dependence on established medical disciplines has begun to be challenged. There is the oft-quoted dictum that healthcare sector tends to illness rather than health. Another saying goes that some of the food you eat keeps you in good health, but most of what you eat keeps your doctor in good health. With a gap emerging between wellness-seekers and the healthcare sector, so-called “alternative” options are stepping in.
Some of these alternatives actually existed as well-structured and well-documented traditional medical practices for thousands of years before the introduction of more recent Western medical disciplines. This includes India’s Siddha system and Ayurved (literally, “science of life”), which certainly don’t deserve being relegated to an “alternative” footnote. Ayurved is also said to have influenced medicine in China over a millennium ago, through the translation of Indian medical texts into Chinese.
Other than these, there are also more recent inventions riding the “wellness” buzzword. These may draw from the traditional systems and texts, or be built upon new pharmaceutical or nutraceutical formulations. Broader wellness regimens – much like Ayurved and Siddha – blend two or more elements from the following basket: food choices and restrictions, minerals, extracts and supplements, physical exercise and perhaps some form of meditative practices. Wellness, thus, is often characterised by a mix-and-match based on individual choices and conveniences, spiked with celebrity influences.
A key premise driving the wellness sector is that modern medicine depends too heavily on attacking specific issues with single chemicals (drugs) or combinations of single chemicals that are either isolated or synthesised in laboratories, and that it ignores the diversity and complexity of factors contributing to health and well-being. The second major premise for many wellness practitioners (though not all!) is that, provided the right conditions, the body can heal itself. For the consumer the reasons for the surge in demand for traditional wellness solutions include escalating costs of conventional health care, the adverse effects of allopathic drugs, and increasing lifestyle disorders.
After food, wellness has turned into possibly one of the largest consumer industries on the planet. Global pharmaceutical sales are estimated at over US$ 1.1 trillion. In contrast, according to the Global Wellness Institute, the wellness market dwarfs this, estimated at US$ 3.7 trillion (2015). This figure includes a vast range of services such as beauty and anti-ageing, nutrition and weight loss, wellness tourism, fitness and mind-body, preventative and personalized medicine, wellness lifestyle real estate, spa industry, thermal/mineral springs, and workplace wellness. Within this, the so-called “Complementary and Alternative Medicine” is estimated to be about US$200 billion.
There are several reasons why “complementary and alternative medicine” sales are not yet larger. Rooted in economically backward countries such as India, these have been seen as outdated, less effective and even unscientific. In India, the home of Siddha and Ayurved, apart from individual practitioners, several companies such as Baidyanath, Dabur, Himalaya and others were active in the market for decades, but were usually seen as stodgy and products of need, and usually limited to people of the older generations and rural populations. In the West they typically attracted a fringe customer base, or were a last resort for patients who did not find a solution for their specific problem in modern allopathy and hospitals.
However, through the 1970s Ayurved gained in prominence in the West, riding on the New Age movement. Gradually, in recent decades proponents turned to modern production techniques, slick packaging and up-to-date marketing, and even local cultivation in the West of medicinal plants taken from India.
As wellness demonstrated an increasingly profitable vector in the West, Indian entrepreneurs, too, have taken note of this opportunity. Perhaps Shahnaz Husain was one of the earliest movers in the beauty segment, followed by Biotique in the early-1990s that developed a brand driven not just by a specific need but by desire and an approach that was distinctly anti-commodity, the characteristics of any successful brand. Others followed, including FMCG companies such as the multinational giant Unilever. The last decade-and-a-half has also brought the phenomenon called Patanjali, a brand that began with Ayurvedic products and grew into an FMCG and packaged food-empire faster than any other brand before! While a few giants have emerged, the market is still evolving, allowing other brands to develop, whether as standalone names or as extensions of spiritual and holistic healing foundations, such as Sri Sri Tattva, Isha Arogya and others.
An absolutely critical driver of this growth in the Indian market now is the generation that has grown up during the last 25-30 years. It is a class that is driven by choice and modern consumerism, but that also wishes to reconnect with its spiritual and cultural roots. This group is aware of global trends but takes pride in home-grown successes. It is comfortable blending global branded sportswear with yoga or using an Indian ayurvedic treatment alongside an international beauty product.
Of course, there is a faddish dimension to the wellness phenomenon, and it is open to exploitation by poor or ineffective products, non-standard and unscientific treatments, entirely outrageous efficacy claims, and price-gouging.
To remain on course and strengthen, the wellness movement will need structured scientific assessment and development at a larger scale, a move that will need both industry and government to work closely together. Traditional texts would need to be recast in modern scientific frameworks, supported by robust testing and validation. Education needs to be strengthened, as does the use of technology.
However the industry and the government move, from the consumer’s point-of-view the juggernaut is now rolling.
(An edited version of this piece was published in Brand Wagon, Financial Express.)
In this piece I’ll just focus on one aspect of technology – artificial intelligence or AI – that is likely to shape many aspects of the retail business and the consumer’s experience over the coming years.
To be able to see the scope of its potential all-pervasive impact we need to go beyond our expectations of humanoid robots. We also need to understand that artificial intelligence works on a cycle of several mutually supportive elements that enable learning and adaptation. The terms “big data” and “analytics” have been bandied about a lot, but have had limited impact so far in the retail business because it usually only touches the first two, at most three, of the necessary elements.
“Big data” models still depend on individuals in the business taking decisions and acting based on what is recommended or suggested by the analytics outputs, and these tend to be weak links which break the learning-adaptation chain. Of course, each of these elements can also have AI built in, for refinement over time.
Certainly retailers with a digital (web or mobile) presence are in a better position to use and benefit from AI, but that is no excuse for others to “roll over and die”. I’ll list just a few aspects of the business already being impacted and others that are likely to be in the future.
On the consumer-side, AI can deliver a far higher degree of personalisation of the experience than has been feasible in the last few decades. While I’ve described different aspects, now see them as layers one built on the other, and imagine the shopping experience you might have as a consumer. If the scenario seems as if it might be from a sci-fi movie, just give it a few years. After all, moving staircases and remote viewing were also fantasy once.
On the business end it potentially offers both flexibility and efficiency, rather than one at the cost of the other. But we’ll have to tackle that area in a separate piece.
(Also published in the Business Standard.)
Aggregator models and hyperlocal delivery, in theory, have some significant advantages over existing business models.
Unlike an inventory-based model, aggregation is asset-light, allowing rapid building of critical mass. A start-up can tap into existing infrastructure, as a bridge between existing retailers and the consumer. By tapping into fleeting consumption opportunities, the aggregator can actually drive new demand to the retailer in the short term.
A hyperlocal delivery business can concentrate on understanding the nuances of a customer group in a small geographic area and spend its management and financial resources to develop a viable presence more intensively.
However, both business models are typically constrained for margins, especially in categories such as food and grocery. As volume builds up, it’s feasible for the aggregator to transition at least part if not the entire business to an inventory-based model for improved fulfilment and better margins. By doing so the aggregator would, therefore, transition itself to being the retailer.
Customer acquisition has become very expensive over the last couple of years, with marketplaces and online retailers having driven up advertising costs – on top of that, customer stickiness is very low, which means that the platform has to spend similar amounts of money to re-acquire a large chunk of customers for each transaction.
The aggregator model also needs intensive recruitment of supply-side relationships. A key metric for an aggregator’s success is the number of local merchants it can mobilise quickly. After the initial intensive recruitment the merchants need to be equipped to use the platform optimally and also need to be able to handle the demand generated.
Most importantly, the acquisitions on both sides – merchants and customers – need to move in step as they are mutually-reinforcing. If done well, this can provide a higher stickiness with the consumer, which is a significant success outcome.
For all the attention paid to the entry and expansion of multinational retailers and nationwide ecommerce growth, retail remains predominantly a local activity. The differences among customers based on where they live or are located currently and the immediacy of their needs continue to drive diversity of shopping habits and the unpredictability of demand. Services and information based products may be delivered remotely, but with physical products local retailers do still have a better chance of servicing the consumer.
What has been missing on the part of local vendors is the ability to use web technologies to provide access to their customers at a time and in a way that is convenient for the customers. Also, importantly, their visibility and the ability to attract customer footfall has been negatively affected by ecommerce in the last 2 years. With penetration of mobile internet across a variety of income segments, conditions are today far more conducive for highly localised and aggregation-oriented services. So a hyperlocal platform that focusses on creating better visibility for small businesses, and connecting them with customers who have a need for their products and services, is an opportunity that is begging to be addressed.
It is likely that each locality will end up having two strong players: a market leader and a follower. For a hyperlocal to fit into either role, it is critical to rapidly create viability in each location it targets, and – in order to build overall scale and continued attractiveness for investors – quickly move on to replicate the model in another location, and then another. They can become potential acquisition targets for larger ecommerce companies, which could acquire to not only take out potential competition but also to imbibe the learnings and capabilities needed to deal with demand microcosms.
High stake bets are being placed on this table – and some being lost with business closures – but the game is far from being played out yet.
The apparel retail sector worldwide thrives on change, on account of fashion as well as season.
In India, for most of the country, weather changes are less extreme, so seasonal change is not a major driver of changeover of wardrobe. Also, more modest incomes reduce the customer’s willingness to buy new clothes frequently.
We believe pricing remains a critical challenge and a barrier to growth. About 5 years ago, Third Eyesight had evaluated the pricing of various brands in the context of the average incomes of their stated target customer group. For a like-to-like comparison with average pricing in Europe, we came to the conclusion that branded merchandise in India should be priced 30-50% lower than it was currently. And this is true not just of international brands that are present in India, but Indian-based companies as well. (In fact, most international brands end up targeting a customer segment in India that is more premium than they would in their home markets.)
Of course, with growing incomes and increasing exposure to fashion trends promoted through various media, larger numbers of Indian consumers are opting to buy more, and more frequently as well. But one only has to look at the share of marked-down product, promotions and end-of-season sales to know that the Indian consumer, by and large, believes that the in-season product is overpriced.
Brands that overestimate the growth possibilities add to the problem by over-ordering – these unjustified expectations are littered across the stores at the end of each season, with big red “Sale” and “Discounted” signs. When it comes to a game of nerves, the Indian consumer has a far stronger ability to hold on to her wallet, than a brand’s ability to hold on to the price line. Most consumers are quite prepared to wait a few extra weeks, rather than buying the product as soon as it hits the shelf.
Part of the problem, at the brands’ end, could be some inflexible costs. The three big productivity issues, in my mind, are: real estate, people and advertising.
Indian retail real estate is definitely among the most expensive in the world, when viewed in the context of sales that can be expected per square foot. Similarly, sales per employee rupee could also be vastly better than they are currently. And lastly, many Indian apparel brands could possibly do better to reallocate at least part of their advertising budget to developing better product and training their sales staff; no amount of loud celebrity endorsement can compensate for disinterested automatons showing bad products at the store.
Technology can certainly be leveraged better at every step of the operation, from design through supply chain, from planogram and merchandise planning to post-sale analytics.
Also, some of the more “modern” operations are, unfortunately, modelled on business processes and merchandise calendars that are more suited to the western retail environment of the 1980s than on best-practice as needed in the Indian retail environment of 2011! The “organised” apparel brands are weighed down by too many reviews, too many batch processes, too little merchant entrepreneurship. There is far too much time and resource wasted at each stage. Decisions are deliberately bottle-necked, under the label of “organisation” and “process-orientation”. The excitement is taken out of fashion; products become “normalised”, safe, boring which the consumer doesn’t really want! Shipments get delayed, missing the peaks of the season. And added cost ends in a price which the customer doesn’t want to pay.
The Indian apparel industry certainly needs a transformation.
Whether this will happen through a rapid shakedown or a more gradual process over the next 10-15 years, whether it will be driven by large international multi-brand retailers when they are allowed to invest directly in the country or by domestic companies, I do believe the industry will see significant shifts in the coming years.
Following on our article (“Numbers and Stories”, 23 November 2009), our friends at Retailwire.com thought it would be interesting to run a poll to ask the Retailwire community what they thought about retailers using research. The original discussion is here on Retailwire, but we’ve reproduced the comments and the poll results as they stand today (16 December 2009).
As evident from the graph below, the short answer is “no, companies don’t use research well”; only 15% of the respondents felt that companies are “good” in using research, at their best. Should we blame the companies or the researchers? The comments seem to suggest that the blame needs to be shared equally.
Comments below:
This sounds a lot like a chapter we wrote for ESOMAR’s Best Practices book. We have devalued research in favor of insights, which can rely much more on a good narrative and much less on good data. A management team that expects insights from research all the time is asking for trouble down the road. A research team that doesn’t focus on quality first and insights second is doomed to failure when management makes the wrong moves. Research needs to give management the best information possible in a way that management can understand it. Management needs to understand that research is providing the best information it can within budget constraints. The two need to work together. [Stephen Needel, Managing Partner, Advanced Simulations]
One of the concerns I have at present is how SKU rationalization research is viewed, so quickly judged, and acted upon. Many retailers are looking only through a narrow interpretation based on shear numbers and not taking into consideration other more visionary factors about specialty brands, niche items, and growth brands. If this keeps up, consumers will have very few choices and most of the stores will all look the same with exact assortments. Only price will differentiate one from the other. The results will be rather ironic. [David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates]
I agree that there is a lot of bad “research” out there in the world. Any analytical study has to be right, applicable, and actionable. If a study doesn’t meet these criteria, it is worse than useless–it can actually pollute the minds of decision makers by letting them think they know something they don’t. Before spending any valuable share of mind on numbers, executives should ensure:
1) Is it right? If I only had a buck for every time I’ve seen a big name consulting firm presentation with numerical “findings” using a flawed methodology or with no statistical significance…. I’d be retired in Paris right now.
2) Is it applicable? So, some other retailer says their TV spend has a 150% return (or some consultant claims that). So what? Your business is different. Consumers react differently to every retail concept. You do need to know for you.
3) Is it actionable? Oh, we all know about the study designed to validate the CEOs hunch. Want to guess what the consultant’s findings will say? If you are going to do research, you’d better be prepared to act on the findings–either way.
This is why in-market testing is such a powerful technique in retail. While it does take commitment to do it right, it is one of few techniques that almost always meets these criteria. [Jonathan Marek, Senior Vice President, APT]
It is absolutely true that marketers do not often take the time to understand the basis of the research that they are presented with. Understanding how the research is developed and the analysis approach used to develop recommendations is an important, if misunderstood, part of the job description for a data-driven marketer.
I do find, however, that marketers more often do not carry out sufficient research to draw conclusions, even when that research is relatively easy and low-cost to execute. If you have access to email addresses, you can execute basic research surveys to customers and gain valuable insights in less than a week, at a very low cost. Those opportunities to “fill in the gaps” are often overlooked. Sometimes those insights can make the difference between success and an indifferent failure of a key initiative.
Marketers must understand the opportunities that research affords them, even when timelines are tight. Obtaining the Voice of the Customer, particularly the Best Customer, is a practice that should be followed religiously. Only then will marketers be able to gain insight and make truly data-driven decisions. [Mark Price, Managing Partner, M Squared Group, Inc.]
We have to keep in mind that corporations are run by human beings that often make decisions on emotion rather than logic. I have many clients who have been very successful making decisions by shooting from the hip, yet they always prefer to see my research, just to be sure. Most of my clients are very bright people and my research generally confirms their own instinctive thoughts. There have been times when I have been brought in to do an autopsy on a project to find out why a store failed. Typical reasons are:
Researchers did not want to offend management so they candy-coated the results.
Key decision makers are suffering from some kind of physical or emotional impairment which affects their ability.
Corrupt middle managers that change the research results.
Researchers leaving out a key piece of data (i.e. not telling management that the Mexican format store they have planned is in a Puerto Rican neighborhood).
Overall, I don’t think retailers have a narrow view of research. Researchers can do a better job in communication by simplifying the results, being blunt, and putting their integrity ahead of their paycheck. [David Livingston, Principal, DJL Research]
I think there are two elements at play here:
First and perhaps foremost, retail is an emotional business. We can have reams of data and still use the words “It feels like….” and make significant decisions based on those gut feel moments. Certainly this has long been true in the world of merchandising. Something “feels like” it’s going to be a home run or a dog, and it “feels like” we’d better take a markdown or run a promotion to goose traffic. And actions are taken accordingly.
Now, can I tell a retailer in all honesty to ignore those gut feels? I really can’t. I can encourage them to use data to support actions taken based on those feelings and obviously that’s what I do…every day. But I can’t ask them to ignore their gut completely.
This brings me to the second issue: we don’t always present data in an easily distilled and understandable format. Our retail survey respondents repeatedly ask to have their Business Intelligence delivered in simpler ways. While “red light, yellow light, green light” might be a little too simple for some decisions, the data just has to be usable and quickly actionable.
Finally…if a retailer (or any company really) is going to make such a dramatic shift, it has to be driven from the top. And the C-level exec driving the initiative also has to LISTEN to what he/she is being told in response. Otherwise you get a company similar to Home Depot under Nardelli. [Paula Rosenblum, Managing Partner, RSR Research]
Decisions are always made without perfect information to support them. But sometimes, decisions are made that ignore the available information or decline the implications.
Research is clearly most valuable when it can be turned into actionable recommendations. We are all too aware that research can be used as a fishing expedition without a clear objective. However, there is also a danger in using research designed just to prove a point rather than develop real, new learning.
On balance, I believe that research, properly done, interpreted, and acted upon, can vastly improve the decision making process. [Ray Jones, Managing Director, Dechert-Hampe & Co.]
I’m reminded of the Samuel Taylor Coleridge quote “Water, water, everywhere, nor any drop to drink.” Research/knowledge is the raison d’ tre for The Luxury Marketing Council www.floridaluxurycouncil.com; it’s what I do. The highest level executives or those who will someday sit in the corner office recognize the value of research. They’re able to sift through the myriad of information to find what’s relevant and actionable.
There are a couple trends re: research. Some executives don’t want facts to get in the way of their vision. Historically, these individuals’ careers stall. Also, there are many companies that have pared down their employees to the point that executives don’t have time for the facts–they’re too busy keeping the ball moving. The third group often doesn’t understand how to read the research, how it affects them and/or how they can use it for their benefit.
Relevant research is an imperative for retailers. Having a 360 on your targeted customer and understanding their collective experiences is the key to personal and business success. [Chris Ramey, President, Affluent Insights]
Devangshu Dutta mentions many of my personal concerns regarding research. But before I go any further I have to add, my name is Joan and I am a researcher. I’ve spent many years working in the industry to help alleviate some of the barriers Mr. Dutta listed. There is still much to be done of course.
In this world of easy access to numbers/statistics, upper management demands and gets “stuff” by which they make decisions. Trying to explain the difference between good research and everything else often falls on deaf ears. Management expects those who supply the data, whether they are staff or outside consultants, to bring the quality, validity and relevance required. And in turn they do not question the underlying premise of what they are buying, or what they are buying into.
And when forecasts don’t work out as expected, new products fail and marketing strategies are ineffective, it’s all about how research failed to deliver. Researchers preach to the choir when they have meetings about quality standards.
CASRO (Council of American Survey Research Organizations) has a Code of Standards and Ethics. Companies who belong to CASRO must adhere to them. And this is one way in which clients can insure research results are reliable.
CASRO is initiating an ISO certification program. I believe more client companies and executives will relate to and understand ISO (because their own companies go through similar ISO certification processes), perhaps choosing vendors and staff accordingly. In my opinion, this could be a turning point for the acceptance and recognition of true quality marketing research. I hope so.
As for the story telling aspect of research…well that’s another “story” entirely. I’ve mentored many researchers and advised them to always answer three basic questions, What? So what? And Now what? These questions get to the heart of why research is conducted in the first place. Good reporting and presentation requires training. If you believe that anyone can be a researcher and choose vendors or staff based on that assumption, you get what you get and it may fall below the standards Mr. Dutta advocates. [Joan Treistman, President, The Treistman Group LLC]
During my 11 years with Kenosia I used a phrase with clients “One truth.” By combining disparate data sources, a retailer or a brand manager can get to the “one truth” and then make a business decision regarding direction. Far too often, decisions are made using one source of data which can lead to less than effective results.
Example, if a retailer only views their loyalty data to make business decisions about advertising, are they understanding all the trends happening in their market? Probably not. Combining their loyalty data with demographic data makes it better and adding additional information from a syndicated data provider makes it even better yet.
The great news is, there are a dozen technology solutions to help both retailers and brand managers combine data and the data to combine is available and affordable. It boils down to first understanding the questions and then going out and combining all the best data sets to create the answers. [John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC]
The use and misuse of research, data and “insights” varies widely across retailers and brands. Typically, the larger the company, the more primary research they have and the more reliant on primary research they are.
Unfortunately, great research and insights are, as many here are illustrating above, not nearly as commonplace as they should be. There are many reasons for this:
– Flawed and biased methodologies (e.g., let’s “Focus Group” this”);
– Vendors who specialize in one research/data collection area over another;
– The research goals and objectives themselves: pure answers to hard marketing questions rarely come directly from research but rather from what is done with it, i.e., what is the data needed to create information to support or disallow a hypothesis?
Budgets, which have mostly seen cuts for the past two years; though the cost of collecting data has come way down in many cases.
All these challenges with research underscore the importance of knowing who your customers are, having an ongoing dialogue and relationship with them, and gleaning insights from them. There is nothing better than customer (transactional) data to gain an objective perspective and insights for your business.
Unfortunately, many companies are data rich and insight poor. Even worse, many companies, retailers included, don’t know their customers or how they behave. This is continuing to change for the better, however, and those who are focused in this area are the ones who will make better decisions and be more successful in the long run. [Phil Rubin, CEO, rDialogue]
One simple question expresses the confusion around statistics: “Why do we have Democratic and Republican Pollsters?” I think it was Harry Truman who when confronted by economists telling him “Well on one hand the statistics are saying this, but on the other they could mean this” said “Someone get me a one armed economist.”
The thing with retail is that we don’t need answers to thousands of different questions. We ask the same questions a thousand times: how does this product sell, what is its net profit, how important is it to my customers, does it fit my brand objective, how does it relate to other products, are there viable substitutes, etc? Instead of poring over tons of numbers, the POS data should be used to construct answers to questions.
So the fundamental reason retailers (and anyone, really) make bad decisions from raw data is because they don’t know what questions they’re trying to answer. Start there. [Bill Bittner, President, BWH Consulting]
The fact that information is available and is being used effectively are two separate things! Usually a company uses too much information, regardless of correct or incorrect, or it does not use information. Very few companies strike and maintain a balance between insight, gut feeling/intuition and relevant, timely information in decision making. [Pradip Mehta, Principal, Mehta Consulting, LLC]
I’ve found that the overall views of research within companies goes in cycles. Of course, leadership changes come into play with the research points of view as well. Some executives understand how to use it better. Some have used it so much they can go by gut.
In any case, a research cycle may start when a huge mistake is made by using strictly gut instinct (Tropicana?), then more and more insights will come from research and less from gut until, one day, it is determined that there is too much science and not enough art, and the cycle starts all over again.
I do believe though, that research is one of the faults with our nation’s fashion business today. Too much science, not enough art. The talent and guts it takes to take a big chance on new, fun fashion seems to have been relegated to trend reports, focus groups, ethnography and best seller lists. The rare exception to that rule is Forever21…instincts still survive there. Perhaps they can teach the industry a lesson. [Lee Peterson, EVP Creative Services, WD Partners]
Where would Disney be without fairy tales? SMWeiss’
The problem, dear Brutus, is in ourselves. Retailers and brands have created vast action machines with thought paradigms behind. Anyone doing research is likely to be looking to fit information into the existing machine. And for each individual, when they formulate a research query, they bring their own current thinking into it–obviously! This means that the results they get back reflect, in far too great a way, their own predispositions. This, coupled with the fact that lots of research is “ask” type research–interviews–guarantees a sluggish and distorted view of reality, what I call the Picasso business view; shared distortions, unperceived as such by both researchers and respondents.
The partial antidote to this is “observational” type research, and the hierarchy of truth. And observation here must be of the real world, not some laboratory simulation, which typically just further cements the existing distorted paradigm. The hierarchy of truth means distinguishing between what is most rock solid and least likely to be distorted, and that which may be as changeable as the weather. (That’s right, Maude. It used to be just common sense that the weather changes. ; )
One example near and dear to my heart is OBSERVING how many items people buy in a store. The most common number, whether in a convenience store or a supercenter is ONE. But the “world” absolutely refuses to believe this, because it does not match their own conceptions/perceptions. An observation like this is at the pinnacle of retail truth, and must be allowed to shatter any part of the paradigm that does not conform to it. THAT’S “revolutionary,” but it is also the route to racing past the competition that is spending their time dancing on peanut butter.
No one should reproach themselves for participating in a social Picasso view of their business. (Although I may insult you from time to time. ; ) All of us are afflicted with the phenomenon noticed many years ago, about historians and their “research” of the past. Looking into the past, for a historian, is much like looking at a reflecting pool at the bottom of a very deep well. The image the historian tends to come away with is a reflection of himself. Business people are no different. [Herb Sorensen, ScientificAdvisor, TNS Global Retail & Shopper Practice]
There are plenty of great tools to make sense of all of the information. The challenge is balancing it with the human side. Take, for example, the stores. Are all corporate employees required to walk the stores and report what they see? View the stores in the evening when store management has left for the day. These age-old problems are still far too common, yet they are the source of some of the most valuable information available anywhere. Sales will be increased, labor decreased and earnings improved if this information is acted upon. [Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM]
New York Times reports that Cablevision will provide targeted ads to selected homes based on a variety of criteria. (Cable Companies Target Commercials to Audience).
Department store pioneer John Wanamaker is reported to have said that half his advertising was wasted, but complained that he didn’t know which half it was.
With such targeted advertising on cable, he would have not only been able to tell which half was being wasted, but would have also been able to reschedule it to reach the right audience and avoid the waste. Cable companies with a good consumer database and analytics should be able to figure out who would be watching what shows, and target the ads accordingly (e.g. late-afternoon may trigger fast food ads in households with kids).
The article says: “…Cablevision will use its targeting technology to route ads to specific households based on data about income, ethnicity, gender or whether the homeowner has children or pets…viewers may not realize they are seeing ads different from a neighbor’s. But during the same show, a 50-something male may see an ad for, say, high-end speakers from Best Buy, while his neighbors with children may see one for a Best Buy video game.”
This could, of course, sound very creepy to an average customer who doesn’t want to know that he or she is being tracked.
If fact, the article quotes Marc Rotenberg, the executive director of the Electronic Privacy Information Center, a Washington-based civil liberties group, as saying that the company needs to show that the information “can’t be reverse-engineered to find the names of individuals that were watching particular shows”.
But let’s face it, in today’s environment, if we’re online or on a communications device, there is a good chance that we can be / are being tracked.
We can expect the tug-of-war about consumer privacy to continue, but this is too seductive a tool for advertisers to ignore, especially in a downturn.
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.
When I am at the receiving end of expectations, business plans and such like, of companies that are looking to ride the current retail boom in India, one thing stands out, and scares me the most: the opening slides, paragraphs or pages that are devoted to the “opportunity presented by India’s booming middle class and its rising income”.
In the previous part to this column (“The Case of the Missing Millions“, 27 April 2006), we concluded that for most international companies looking at India, the potential target market was in the region of 18-19 million people, or over 3 million households. When international companies look at the “middle class” they may be looking at annual household incomes adjusted for PPP in the region of US$ 40,000 (Rs. 5 Lakhs, in absolute terms, not adjusted for PPP), and this population number is what appears on the radar.
Clearly, this less than a tenth of the figures around which many new businesses are being launched in the hottest retail market globally (as global comparative studies are stating). 200 million, 300 million – take your pick – they’re all in the mythical range!
So is it time to put out a missing persons alert for the hundreds of millions of so-called “middle class consumers”, on whose back the current retail boom is to be built?
Hang on – the trick is in changing the frame of reference. Let’s first define what the characteristics of the middle class should be.
In my opinion a good starting point is a simple one – look for a segment that is on the middle of the income scale.
Most marketers and their reference guides live in a high-income urban India paradigm (read, Mumbai, Delhi, Bangalore). Passing out of even a second-tier business school today, starting salaries can easily be over Rs. 20,000 a month. When you get into the middle-management segment, metropolitan salaries in the private sector can easily be Rs. 35,000 – 50,000 a month. This may not sound like much money when you live life from the Delhi-Mumbai-Bangalore paradigm, but trust me, it is still a very large sum of money as you go further down the list of cities and towns in India. In those towns and in semi-urban and rural India, the rupee goes a much longer way.
However, the income scale can be defined subjectively by different people.
So, to this evaluation I would add one other important attribute – this middle segment should be a substantial proportion of the total population. Clearly, a population that is only 2 to 3 per cent of the total is still very much at the narrow tip of the pyramid. We definitely need to move further down the income scale to find the real middle class.
The next annual household income range defined by NCAER is Rs. 2 Lakhs to Rs. 5 Lakhs. Now it starts to get interesting. In this income segment we are talking about approximately 9 million households or a little under 50 million people. An income of Rs. 2 Lakhs (US$ 4,500 in absolute terms) is equivalent to a little over US$ 16,000 by PPP, which is well below middle-class standards in developed economies. However, in India an income of Rs. 16,700 per month brings a number of aspirational and discretionary purchases within reach. This size of population is about the same, or larger, than many countries in Europe and will grow to 70-80 million by the end of the decade.
However, as far as my criterion of significant proportion is concerned, this still doesn’t cut it – we’re still only in the range of 6 per cent of the total population. We need to move further down the income scale, to the Rs. 90,000-200,000 annual household income range.
Bingo!
NCAER identifies this segment as having over 41 million households – that is over 225 million people – about 22 per cent of the total population. Large towns (population of over 500,000) have about 30 per cent of this population, while rural India has about half of this income group.
Earning between Rs. 7,500 a month to over Rs. 16,000 a month, this is the population that, in my opinion, is the real growth engine for the great Indian retail dream. This population has discretionary income, and yet it spends with discretion, if you will pardon the pun. It is a population that is only just beginning to be touched by cashless spending, a population that is beginning to appreciate the comforts and conveniences of modern retail, and its power as a driver of markets. It is possibly more firmly rooted in Indian traditions than aspiring to move to western standards. It is a population that is probably discovering the benefits of investing as much as it is the joys of spending thus reducing the free cash available.
Many brands are ending up planning for the 150-200 million real middle class population, while offering products and prices that are more appropriate for the ersatz “middle-class” of 15-20 million.
Consumer markets are structured around obsolescence, replacement and repeat purchases. If your product fits well within the price-value equation for repeat purchases, you have a winner. If you don’t, then what you get is a bunch of occasional purchases from most of your consumers, with long replacement cycles (or even, no repurchase).
The end result is the sales plateau that is the characteristic of so many brands in India.
If you want to volumes, prepare a product and price offer that makes sense to the real Indian middle class. The small shampoo packs make sense, the “chhota recharge” on the mobile phones makes sense. Does your product?
The missing millions aren’t really missing – they’re just invisible through our Delhi-Mumbai-Bangalore upper income blinkers. It’s time to take off the blinkers.
In my previous column (“Deal Ya No Deal“, 9 March, 2006), I raised a point about unrealistic volume expectations on the part of many marketers launching new products and brands in India.
In some part these are due to the marketer believing his or her own hype. However, a more insidious influence on the expectations are the unrealistic assumptions – a big factor being the incorrect assumption about the size of the market.
Back in the early days of economic liberalisation, during 1993-94, I remember figures being thrown about that talked about the 200-300 million middle class. Multinational and Indian consulting firms, in the slick presentations on behalf of Indian clients pitching partnerships to foreign companies, fed the legend. (Hey, let’s face it, for a while I, too, was part of that game!)
Well, for the last two to three years, those times have been upon us again. The difference is that, instead of hiring consultants, Indian companies have smartened their act, hired a few (or a few dozen) young MBA’s, who are making the exact same pitch to potential international partners again.
As a fall-out in my own small little corner of the world, I have been severely troubled by several international clients and associates whose first question is: “Just how big is India as a market?” and I must say that not many of them like the answers I have given them.
Foreign companies’ first attraction to India is the billion-plus population. Brands from countries which have domestic markets of 50-300 million salivate at the prospect of 1.2 billion Indians starving for their particular make of biscuit or coffee or the latest backless cropped blouse. The thinking goes, “If we can capture even 2% of the market to start with…
Let’s stop dreaming and tell the truth for a change. And I promise you, the truth is still very palatable – you just need to shift your perspective a bit.
The simple fact is that, if we were to evaluate incomes, spending and consumption the way they are evaluated in the developed markets, even allowing for purchasing power parity, the Indian “Middle Class” is possibly less than 20 million individuals.
“What?! But that’s less than 2 per cent of the Indian population,” has been the anguished reaction of many international marketers that I have spoken to in the past year or so. Followed by, “Where are you pulling out these figures from?”
The answer to the first question is: “that’s correct”. And the answer to the second question is: the sample survey carried out by the National Council for Applied Economic Research (NCAER) over the past few years focussed on household income.
Let’s consider the figures that NCAER has been coming up with. In its figures for 2001, NCAER estimated that approximately 2.5 million households earned above Rs. 500,000. The reason I see the Rs. 500,000 figure as important is because, in absolute terms in the Indian, context it is a good benchmark – about Rs. 40,000 per month – by which to categorise the middle class. Also, in relative terms, adjusting for PPP (say a factor of 3.5), this is an annual income of about US$ 40,000.
After allowing for mandatory household and other expenses, these (or higher) income levels do leave a good margin for discretionary spending. This population has much greater access to the stimuli and information that international marketers rely on to build a brand presence across borders. Other sources of brand and product influence include overseas travel (or relatives travelling in from overseas).
NCAER has dubbed the class earning between Rs. 500,000 and Rs. 1,000,000 as “the Strivers”, and that I believe is the most apt definition of the middle-classes across the world.
Currently, the estimate for this population would be over 3 million households, or about 18-19 million individuals. That then, my friends, is the size of the middle class, to be targeted by international companies and premium Indian brands.
Ouch! that was the sound of thousands of dreams shattering and hundreds of business plans going into waste-bins!
Come, come, let’s pick the pieces up and look at them afresh.
Firstly, a population of 19 million is no small market by itself. Many of the international brands’ home markets are about the same size – Australia’s population is a little over 20 million. Italy’s total population is estimated at about 58 million and UK’s slightly above 60 million, and so on. The problem is that when you start with a reference point of 1-billion, a figure in the vicinity of 20 million looks very uninteresting. So, the first solution is to shift one’s initial perspective on the Indian market.
Secondly, a significant part of this target population in India is concentrated in a few large cities in the country. This makes it easier to target this consumer group, rather than dispersing the budget and management effort across a very large number of locations. The reality is that most national brands can achieve a bulk of their sales from the top 8-12 cities in the country, and there is no reason why the story should be any different for international brands looking to create a new presence in the market.
Third, and very important, I would challenge you to show me another similar population anywhere else in the world (other than China), which is growing at the rate of 11-12% a year i.e. doubling every 6-7 years. This is certainly not because the upper income classes are producing babies at a more prolific rate – it is the rise in real incomes and the wider distribution of wealth through greater business opportunities for businesspeople and increases in salaries for the employed.
So, as an international brand, or as a premium Indian brand, by the end of this decade you’re looking at a potential market of 30-40 million consumers.
Now, that number is a respectable market anywhere in the world. What’s more, on the back of the growing market, if you launch your products now, you’re looking at very healthy business growth rates over the next few years.
“But where is the mythical 200-300 million middle class?” was the third painful question raised by our clients and associates, “Do they really exist and how do we reach them?”
But that, my friends, is the next column.