For the first time in my 26-year working life, last year one heard more about the stress on the bottom line, and much less about the top line. Businesses across categories from low put-down price products, like glues and confectionery, to high-price items, like consumer durables and automobiles, to the ones in between, including mobile handsets, have groaned about spiralling costs and the tough market battle to retain share. These sounds are new to the Indian marketplace which, in the last two decades, has remained buoyant and optimistic with good growth and expanding business.
I am no economist but, at the base level, the reasons are not hard to find. 2011 was a year of inflation and the rupee weakened dramatically against the dollar. These caused the bottom-line pressure businesses face. However, digging deeper, a larger question arises: have marketers actually built strong brands in the last two decades? And is 2011 a year when the marketing excesses (and sins of the past) catch up with business in India? This may sound hard, but it is a line of thinking worth pursuing.
Clearly, 2011 was the year when the fallout of Indian excesses got revealed. Business excesses spilled out into the social field too. Two examples: the telecom scam and the anti-corruption movement. These came on the back of unbridled growth in the first decade of the millennium, with few checks and balances on business practices. India won the Cricket World Cup last year but the memory faded very fast — because of the disease of excessive cricket that ensured the public and cricket aficionados couldn’t savour the win. One week after the win, out came the Indian Premier League — and a couple of months down the line, an English tour in which India got whipped.
In the last two decades, the Indian market has seen the democratisation of many categories. Increased competition and the presence of multiple brands in each category meant more choice for consumers and big “price” advantages. This all seems rosy. However, has it really been a win-win situation for consumers and businesses? Are the prices a fair compensation for the business costs incurred to deliver the product or service? That is critical for long-term sustainability. It’s important to note that fair prices always help both marketers and consumers. It helps businesses to get “fair” returns and the consumer to get “good” quality. A continuous squeeze on price results, at some level, in a depletion of quality. Ricardo Semlar, a few years ago, evocatively defined the airline business worldwide as a unique “lose-lose” market. As prices drop and margins crash, airlines end up with big losses. The consumer ends up being treated like cattle, with few well-trained ground and cabin staff and ill-kept aircraft. In 2011, India saw the airline industry crash-land. That was something that seemed like happening in the years before — but was quietly ignored. The glitz suddenly went out of the business, and so-called rationalisation happened. While “market can bear” is a reality of pricing, the “cost of doing business” is another reality. The optimism of the early part of the decade helped the industry grow, business reality hit in the later half — and the slide was revealed last year. Is this malaise lurking around in many other categories and industries?
This rapid democratisation also raises another question: have brands have been built in the interim period, or have products and categories grown on the back of low prices and name identification masquerading as a brand? A marketer’s reluctance to increase prices with cost increases reveals a hidden fear that there exists no brand to support or justify the higher price in competitive, crowded markets. It’s perhaps time for marketers to think of how brands can continuously be augmented to command a premium as they grow in the market — else bottom lines will continue to be squeezed.
Finally, I fear that many businesses have entered the market with an eye on capitalisation and sell-off rather than on building sustainable business models. Acquisition of consumers (and top lines) is seen as a means to show scale and sell-off. One saw that happen during the dot-com boom here in India in 2000. (Ironically, one sees the returns of dot-coms in 2011!)
Two examples show how added value works to provide marketers with a premium. Dove, in the last few years, has grown exponentially to become a big brand on a strong product superiority story, and created a clear premium slot for itself in the shampoo market. The brand today is set to threaten brands in small towns by leveraging its premium image in the sachet segment. Similarly, LED and LCD televisions continue to grow in an inflationary market, where distinct product value-added and strong brands like Sony and Samsung are able to strengthen and encash their brand equity. You don’t need to be cheap to get Indian consumers to buy you.
Branding is about getting a consumer, keeping her and then getting her to pay more for the value she gets. Steve Jobs showed the way by continuously introducing products at the top end of the market and getting the consumer to pay more for better products and experiences. He managed to get consumers to pay for products that could be “stolen” for free — like music. There is something to learn from him.
It’s time for brands and businesses to pause and think beyond penetration and volume, and think consumption and value-added. It’s time to believe businesses and brands exist for the long term. Price and quality go hand in hand, and long-term business is sustained on the back of quality and consumer loyalty, rather than on the back of consumer acquisition and numbers. And, finally, business and brand-building are long-term activities and not short-term efforts to make a quick buck. Else the market will get muddied and more markets will end up in “lose-lose” situations.
2011 has given us enough hints to pause and reflect on our activities — and this is something worth thinking about.
Views expressed are personal.
madhukar.sabnavis@ogilvy.com
