Arvind Singhal: Managing change

MARKETMIND

In the business sense, the list of the top 20 companies by way of market capitalisation shows entrants who did not really exist (at least in the present form) even 20 years ago. The top 20 by way of sales now include companies like Nokia, which did more than Rs 7,000 crore in revenues in 2004.

At last week's ICICI Awards for Retail Excellence, the winner in the category of "consumer durables retailer of the year" was LG (a manufacturer and marketer), and another manufacturer/marketer, Madura Garments, took the honours for being the "fashion retailer" of the year.

A recent credit offtake analysis (by ICICI Bank) reflects major shifts in the borrowing and spending behaviour of millions of Indians, showing increasing credit-friendliness and a desire to consume more at a much younger age.

The reasons for this increase in the pace of change are also, by now, well known to almost everyone. The primary factor, of course, is the very fundamental shift in the age-profile of India with a population amongst the youngest in the world.

Improved literacy rates, higher exposure to the world through the media and more travel, opening the domestic market to imports, changing job profiles, and the emergence of new channels (e.g. shopping malls, the Internet, direct marketing including tele-marketing) for a wide range of goods and services are some of the factors leading to changes in aspirations as well as the behaviour of an increasingly large section of the Indian population.

In the process, businesses that choose to ignore such changes and continue to believe that the past (or even the present) could be an indicator to the future have already come to grief (or will do so shortly).

Alas, no business has any long-term contract with the consumers, much like some politicians have recently discovered in Bihar (and Haryana).

To manage and even prosper from these very fundamental changes in India, and in the needs and desires of hundreds of millions of the consuming class, companies (and even political parties) have to take time out to isolate all the factors that are causing these changes in India, e.g. demographic, literacy, media exposure, travel, job profiles, lifestyles, the arrival of international companies and brands, new channels for distribution, new categories of consumption, thereby creating competing pressure on existing categories of consumption, and many others.

Unfortunately, the traditional tools for predicting the future using past or current information and behavioral patterns are not likely to work effectively, and in many cases, they could""in fact""lead to misleading conclusions or lost opportunities.

In this scenario, even the consumers are unsure of how they would be behaving tomorrow, and hence conducting traditional market/consumer research is likely to be of very limited value (if at all, of any value) if the objective is to predict future aspirations and buying/consuming behaviour.

Instead, companies have to start looking at engaging in scenario-building exercises, using a wider range of tools from disciplines such as behavioral sciences like psychology, statistics, macro and micro economics, etc. to come up with models, and then refine and test the validity of these models using a diverse range of variables (such as those listed above as change factors).

It is, of course, not easy to carry out such an exercise and needs significant time (and financial) investment. However, I believe companies that aspire to remain or achieve market leadership have no choice today but to do it.

It is likely that the outcome of such an exercise could throw up very interesting and very different possibilities. It would be a waste of time carrying out such an exercise if the business then does not have the courage to go ahead with adapting itself to the (forecast) changed environment.

"Speed to market" for the new products/services that may be identified as an outcome of the scenario-building exercise would be crucial since the predicted window of opportunity itself could be transient.

Hence, businesses now have to be iconoclastic when it comes to what and how they develop new products, and how to make them reach the targeted customers/consumers.

One of the most recent examples of the same was presented at a recently concluded retail summit at Delhi, wherein one of the speakers shared some very interesting insights on how his e-commerce site (indiatimes.com) has become the largest seller of a wide range of consumer products including air-conditioners, kitchen appliances, and some others in India, outselling some of the well-established traditional retailers by some distance.

The key to success for indiatimes.com is apparently its insightful understanding of consumer needs and buying behaviour, superior understanding of the power of technology, and willingness to bet on the kinds of trade-offs consumers are willing to make (e.g. in the case of air-conditioners, they were willing to trade off their option to choose any particular brand in favour of better price).

Another interesting example, again presented at this retail event, was that of eBay (Indian operations), which is emerging as one of the most promising channels for selling (exporting) a wide range of handicrafts and other merchandise from India to various markets across the globe.

The good news is that with a sustained momentum of growth of the Indian economy, the consumption pie will continue to expand substantially in the years to come.

Hence, the payout to those who will make this investment in forecasting change will be highly rewarding.

arvind@ksa-technopak.com