Inverting The Pyramid
There’s more money to be made at the pointy top of the heap rather
than at the broad bottom of the pile. The well- established marketing principle
that backs this thesis talks of the virtues of high unit-value, good profit,
less volume, therefore more manageability, and last but not least, reduced
proportionate cost of selling. Most people at the top are easy to target and
they always have the cash. All the marketer has to do is interest them in the
product.
Congress Vice President Rahul Gandhi may have belatedly
recognised this very worthwhile resource as he takes a momentary pause from the
aam aadmi he loves to champion, at
least in a rhetorical sense, by his attempt to woo the captains of business. He
did this recently, but as usual with a bizarre twist, he exhorted them to
‘revolt’ if they don’t like local conditions. He did not spell out how, but the
Khas aadmi has been on a protest
march for some time.
Mr. Gandhi may perhaps be made aware by one of his handlers
that many Indian business houses are deeply disenchanted with economic policy
and the stifling corruption here, and prefer to invest in expansion and markets
abroad. They have been doing so, like Tata, Reliance, Mahindra and others, by
buying over foreign brands along with their know-how, bouquet and goodwill. And
without imposing Indian operational bosses on their foreign managements.
This thrust abroad is partially to experience less red tape
and harassment from the Indian government, which has ramped up its powers to
target business owners and executives, proudly threatening them with fines,
retrospective taxes, arrest and and jail-time of late. And, of course, to seek
higher profits in less moribund markets.
But, things are not easy abroad for Indian multinationals wrapped
in the tricolour, because our country’s global image, and that of India Inc. as
a consequence, has been sharply eroded during the rule of UPA II.
And there are very worthwhile successes of both foreign
acquisitions and investment at the top of the line. Recent news reports state TATA
paid what seemed a high 1.15 billion pounds sterling to buy Jaguar Land Rover (JLR)
in 2008 from Ford, but have just turned in a profit, for this half year alone,
at over 1 billion pounds!
This took JLR, and Tata Motors in tandem, to a 71% increase
in profit. The profit spike comes despite Tata Motors’ tepid performance and
perceived ‘desi’ quality compared to the many international brands of vehicles
on offer here nowadays, and despite a dull domestic economy. Tata Motors is
listed on the New York Stock Exchange (NYSE) and its success, where Ford
largely failed with JLR while running up massive losses, is being globally
noted.
But unlike the
‘frugally engineered’ and Indian built Nano, launched just months before the
JLR acquisition, which just hasn’t gained traction, the luxury segment brand
acquisitions of car lover Ratan Tata, now Tata’s Chairman Emeritus, worked out
very well indeed.
And the sales from
the new Jaguar F Type sports car, the
nifty Range Rover Sport, the
beautifully designed Evoque, the well
accepted Freelander, and even the
full-dress Range Rover, are excellent,
particularly amongst the aspirational and brand conscious Chinese. Meanwhile, there is a new engine plant just built, ramped up employment numbers at
JLR, and plans to roll out more new models with lighter, non-corrosive
aluminium bodies.
The base of the pyramid model (BOP), by way of contrast,
involves, most famously, distribution of sachets of shampoo, packets of Pan Bahar and cigarettes sold in retail
by the stick, and so on. Unilever, in India, has also tried adding creams and
potions in miniature packs. The FMCG major was among the most enthusiastic at
adopting the original Stuart Hart and the late CK Prahalad’s ‘inclusive’
formulation, first made in 2002. After all, billions of people are assumed to
be the global target audience, particularly in India and Africa.
But sadly, cultivating the BOP ends up being uneconomical
and disconnected. This even when NGOs are brought in to assist, because NGOs,
with their lack of business acumen on average, tend to be bad at selling and
distribution. There has been more success, ironically enough, with the so
called ‘trickle up’ effect wherein the people at the BOP ask for what they want,
and those responsive to the demand, act on it.
There has been substantive challenges to the BOP theory from,
among others, University of Michigan’s Aneel Karnani. Karnani called the BOP a ‘mirage’ in 2006, and
urged marketers to think of a wider value proposition instead of an ‘exploitative’
one. Mr. Gandhi should perhaps take note when he blatantly tries to exploit the
‘poor vote’ at the BOP.
Today, after a good monsoon, high ‘support prices’ for the
farmer and greater disposable income in rural areas, it will be seen again, as
has been clear for some years, that the customer prefers to buy his money’s worth of quality and
quantity, and is just as clued in as the urban Indian. This is noted even as
marketers display their wares in highly populated venues such as the Kumbh Mela.
Therefore, rural consumer behaviour when it comes to
consumer durables, two-wheelers, tractor-trailers, farm implements, seeds,
fertilizers, computers, cellphones, technology of various kinds, and
aspirational items like cars, even if they are meant to be utilitarian, tend to
follow urban buyer dynamics. The so- called poor and illiterate are influenced
and informed by satellite television now and also demand performance and
durability. They do not want things aimed at them which patronise them by having
low price points because of minute quantity. This is not seen by the target
consumer as a principal USP. The rural audience does not want low quality
‘cheap’ goods either.
And so, despite Ratan Tata’s fond hope, the ubiquitous rural
family on a bicycle or a scooter is not very keen on jumping into the toy-like
600 cc Nano after all. No one thinks it is a serious car, notwithstanding the
initial amazement around the world at the near miracle of a $2,500 value
proposition.
Aspiration and perception however rejects it as a kind of
parody. And just as the top-end luxury car is not well supported on India’s
still uneven road and service networks, neither is the Nano, despite its claims of hardiness. Besides its propensity to
self- combust has not helped matters.
A Narendra Modi value proposition is grabbing the
imagination of the nation and the world not because he has come from humble
origins, but because he has converted his life into a shining example of
aspiration and performance second to none. The aam aadmi finds this aspiration and achievement mantra resonates with
him as the gargantuan crowds at Modi’s rallies seem to suggest. Obama did
likewise in America and the country raised him up, the first black candidate,
to the presidency of the US.
(1,148 words)
November 10th
2013
Gautam Mukherjee
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