Thursday, November 18, 2010

Slumbering Smugness Eats Into The Vitals Of A Brand

When we read the Case Histories of Brands with potential that was not Fully Exploited, We find one Devastating threat linking them all – Complacency!

Rubik’s cube comes with six coloured sides, 21 pieces, and 54 outer surfaces. It can generate more than 43 quintillion (43,252,003,274,489,856,000) possible configurations. But there is only one solution. Despite 30 years of existence it continues to be one of the best selling toys of all times. Harlequin publishing house sells 140 million Mills and Boon copies every year, generating a turnover of $429 million. So, it’s Gods – and some other brands – who can afford to invoke monopoly power. Not the rest of us. In the marketplace devil does not take the hind most; he attacks the front runner. In the real world there are myriads of cases where brands constantly lose ground. They surrender their competitiveness due to a number of reasons – relevance or lack thereof, becoming predictable and formulaic, being outfoxed by smarter rivals, judgment errors, and so on. When we read the case histories of brands with potential that was not fully exploited, we find one devastating threat linking them all – complacency!

When Coca-Cola was forced to quit India in 1977, Double Seven was launched as its replacement. The product replicated the taste of Coke one hundred percent. The formula being developed by a government research lab, the central government decided to entrust Modern Beverages India Ltd. (MBIL) the task of marketing it. There existed no capacity limitation or equipment problems so that any desired volume could be supplied. There was no rival brand of course. But MBIL decided to produce soft drinks using a concentrate of only 1 tonne per day. Between 1977 and 1987 the production remained stagnant. In fact, by 1987 the brand had vanished from metropolitans. And since in the absence of a marketing push later entrants like Thums Up (in Western India) and Campa Cola (in North India) managed to capture a fair share of the market. So why did the brand fail even if it had excellent product back up?

For two primary reasons: MBIL’s handling of the bottlers and the perception that the PSU’s mandate was limited to produce bread. Thus, MBIL, used to dealing with small bread retailers, pursued the strategy of getting as many bottlers into its franchise fold as possible. India, after all, was following a socialistic model of development (even in a profit oriented venture!). Naturally, it failed to get the support of big bottlers in the metros. And, true to the PSU mode of operation, the enterprise never promoted the product effectively, so as to build a brand image matching Coke. In the soft drink industry the product cost is negligible; the consumer pays for the promotion costs. However, above everything else the marketing failure was the result of an indifferent government attitude; it promoted the drink till it served a political end. Beyond that no commercial interest. The brand went into neglect. Interestingly, the lab still has the secret formula. Any takers?

Trap No. 1: No marketing orientation, no success in a competitive market
According to IDC, Nokia’s marketshare in Indian mobile handset market has declined from 54% in Q2, 2009 to only 36% in Q2, 2010 (Nokia of course refutes the figure). Nokia seems to be missing the bus for a long time now. Just two years ago it enjoyed a market share of more than 70%. But now it is stranded in the middle of the market. At the lower end homegrown brands and the Chinese products are nibbling into Nokia’s market share while at the top end the likes of RIM, Samsung, and others are making its life miserable. All this because the company has became slothful. For example, when Indian buyer exhibited a clear proclivity towards clamshell models, Nokia had none to offer, supplying only candy bar varieties. And now that 39% of all handsets sold in the country (January-June 2010) were dual sim handsets, Nokia did not have a single model in the segment. The slide explains itself.

Nokia as an organisation, according to the insiders, swollen by its earlier success, has grown complacent, slow and removed from consumer desires. It has been following product orientation as against marketing orientation, primarily because its design approval process is mired in Soviet style bureaucracy. If you need evidence, read on. A few years before Apple introduced the iPhone, Nokia engineers presented a prototype of Internet ready touch screen version with a large display. Management was unmoved and refused to give a green signal for further development. You know the rest of the story where iPhone appears as the hero. During 2004 the management again rejected an early design for a Nokia online applications store – an innovation that all major players adopted three years later anyway. Nokia failed to improve its symbian OS, needed to support a more sophisticated smartphone. Though it introduced the industry’s first touch screen devices in 2003, it failed to perfect the technology to fingertip precision before Apple did. Notwithstanding N8 launch it still lacks a convincing response to iPhone. To make matters worse, Nokia spokesperson refuses to admit that the company follows a sloppy approach towards innovations, that the company has become risk averse.

Trap No. 2: Bureaucratic sloth kills the initiative, ingenuity and innovations
Mercedes Benz is one among many cases where multinationals misread the India market to their own peril. It shares this dubious honour with the likes of Peugeot, Wrangler’s, and Tang ... though not entirely, since it is one of the few companies which has wiped out red ink from its P&L account and now generates net profit. The story needs to be told anyway. Mercedes certainly created the market for luxury segments in India. Yet against a targeted number of 20,000 (including exports) the company actually sold only 1,885 cars in its launch year. First mistake, the company overestimated the consumer’s willingness to buy at a price tag of Rs.23 lakh. That too, through cheque payment! Then, it launched E220 model and not C series, since it wanted to pursue low volume high price strategy. But this model was about to be phased out from world markets. And the affluent prospective Merc buyer in India, who was well conversant with international trends, felt cheated. Further, the company was stingy in introducing newer models in India. Between 1996-2009 it launched only 25 models. In contrast, since January this year it has already launched 22 new models across various segments.

And yet, due to its absolute monopoly in the luxury car segment it wiped out all its accumulated losses by 2005, since when its balance sheet is awash with black ink. The performance thus had less to do with savvy marketing by the company, and more on account of existence of a market that offered no rival choices. So the moment the challenger brand BMW entered India, Mercedes lost its premier position to the new entrant, for the first time since it set up its operations here in 1996.

Trap No. 3: Monopoly status delivers you a ‘hostage’, not a ‘happy’ customer
Examples abound. Heinz with its premium pricing (where customer failed to perceive a clear differentiating reason to pay extra) thinking erroneously that everybody knows the brand in India (not true), MySpace which got eclipsed by Facebook and Twitter because overtime it lost focus, Liril bathing soap which exploited the potential of freshness plank but flogged it till it went stale, or Bajaj which again due to virtual monopoly position offered staid products and predictable communication. Women’s Era created the market for women’s magazine but failed to evolve with the modern readers.

Of course some realise their mistake and attempt mid-course correction – Mercedes (now following lower price high volume strategy), Star bouquet of channels (which is regaining its number one position through revamped programming and positioning, after it had lost to Colors), Coke (which realised that every experiment to undermine Thums Up was actually benefiting Pepsi more than Coke), and many others.

So, let complacency not consume your brand. You may not get a second chance to regain lost ground.