Coffee Conversations...

It’s been almost a year since I started writing this column – recording my own observations about the Retail Industry as well as analyzing and interpreting decisions and actions of Retailers and their activities. I must admit that I have acquired a lot of admirers and a few critics on the way – not on a personal note but more on a professional stance. To make your reading more interesting, I am introducing a new column titled “Coffee Conversations”. In this section, I seek answers for queries that I have from Industry experts and stalwarts, while also discussing my own thoughts about the same. This is not mainline journalism – and I am not a journalist. Nor are those who opine spokespersons of their respective organizations. They are mere professionals who share their thoughts on certain specific topics.

The next column is about the recent advertising marathon by Retailers and Brands – and the recent occasion being India’s Republic day that is celebrated every year on the 26th of January. Almost every brand/retailer have been showering discounts – from 10% - even 60% in some cases on a range of products including apparel, accessories, electronics, household items, etc. The only category missing conspicuously is Automobiles – probably they are happy counting their bucks, thanks to very good sales over the past three months. But this Discounting phenomenon brings some thoughts to my mind – what happens to the Brand‘s Equity in the long run?

I spoke to my good friend Raman Kalia, an Advertising and Marketing professional with varied experience across consumer brands and services who now leads the Marketing division for one of the best managed Airports in India. Excerpts from the conversations that we had recently over coffee:

Shriram (SS): So, Raman, did you see all the nice ads overt the past few days on leading national newspapers inviting shoppers to buy products on discounts? Which was the one that attracted you the most and why?

Raman Kalia (RK): In this season, it is not possible not to see discount and promotional advertising from brands across categories. The season in a way has become synonymous with discounts, so I did notice advertising from apparel brands, electronics brands to host of others categories. There is no specific campaign that stood out in the clutter because these were plain announcement ads with each brand trying to outshout the other but even with these one, even if one tries, not notice the larger formats and in your face advertising. So I did notice Big Bazaar, Croma and some apparel brands advertising, but the bigger question is what I remembered beyond the fact discounts were on - Answer is nothing.

SS: Do you think most consumers tend to shop more when they find words such as “Sale”, “Best Deals”, “Save”, etc.? If so, then why?

RK: It is no secret that Indian consumer is a value consumer and with discount seasons getting well established, purchase cycles are getting aligned to these seasons. It is more important for brands to consider with such seasons - are people spending more or actually less? On the surface, it might give an impression that people are spending more in that particular week, month or season but if a planned or need based purchase is getting aligned to that season, then probably brands are earning less, not more. Against this, if brands are able to build impulses, which are true in certain categories, say electronics or apparel, and expand their base of users, it can be said that consumers have shopped more. Brands should not look at just the season to base their assumptions but look at the full year to make a judgment whether discounts or sales or best deals have added value to their business or not.

SS: In the long run, do you think these brands/retailers would lose their significance? Would consumers shop only when there are deals?

RK: But of course brands/retailers would lose revenue and equity if consumers start buying during season. To take an example, if the MRP of a product is100 and offers a 20% seasonal discount year after year and the bulk of consumers start buying during that time, they are telling the brand we value at 80 and no longer 100, that means its premium has eroded in the consumer’s mind. The prime example of this is Benetton; you would rarely find people buying this, one of the most respectable and recognized all over the world brand, at full price in India any longer. It has become a discount brand, with weak associated imagery.

SS: What about the Brand Equity? Do you think consumers would value the brand as much at a later date when they shop again in full price?

RK: There is no single answer to this question; it depends from category to category. In certain cases it actually enhances the value of the brand because it offers a chance to experience or enter the category. Every brand has three set of consumers – core buyers, fringe buyers and non-buyers. As long as discounts do not isolate or create dissonance in core buyers and at the same time give an opportunity and a reason to fringe buyers/non-buyers such schemes add value.

SS: Which categories according to you think have the least effect on their value? Can you elaborate with some examples?

RK: Discounts, at the end of the day in a way mark the end of something and are a symbol of change, a precursor before the new comes. And in certain cases clearly demarcated time fragments which are well established. Let me explain this by picking up three categories; technology, apparel and hotels.

Let’s start with the simplest one, hotels, you have season and non-season. Discounts and offers during non-season do not impact the rates that hotels charge during the season, why one because people travel less during that time, but it gives a chance to fringe or non-buyer to enjoy that exclusive experience. Even if a core consumer avails the opportunity it still does not erode the value because overall reason of a season is well differentiated from the non-season. Different opportunities, different reason, no dissonance, yet at the same time adds value to the brand in terms of revenue, consumer base and building brand equity.

In case of technology, it is an ever evolving category and every new launch makes the previous obsolete. So when an Apple discounts Nano after the launch of Nano with camera, buyer who has bought Nano at full price also understands that earlier price was an opportunity cost, without impacting the brand equity. Same is true for cars, when a new launch happens, say i-10 vs Santro from Hyundai and Hyundai offers Santro at a discount, it need not kill the demand of i-10. Some value conscious consumers might buy Santro instead of i-10 but in their mind the trade off of price and technology is clear. It does not devalue the brand.

Apparel is far trickier to answer. Fashion is always about change, and in a way reflection of the consumer. Now if new range is distinctive from the old discounts it would not erode the equity but unfortunately it is not true every time. Some brands and their products are so generic that it is impossible to differentiate the two and that’s where the issue comes. Now change could be color, cut, shade, design anything but in apparel a majority of Indian brands have not been to establish that and even otherwise a majority of Indians are not fashion conscious, hence erosion of brand equity with established seasonal discounts gets eroded rapidly.

Bottom-line is, discounts work for brands only when the reason of discount is well established and consumers can answer the brand is offering a discount because of a well defined and well understood reason. Trade off between new and old is when discounts do not impact brand equity, if that difference is not established it leads to dilution of brand equity and loss of margins. And the market is strewn with such examples where brands have not been able to achieve this; white goods, apparel, fashion accessories, footwear and zillion more – and today are victims of “I will buy during the discount season” mentality.

Brands should offer discounts only when-

1. Such schemes will not create dissonance in core buyers or change their buying behavior

2. Reason of discount is well established and trade off is understood

3. It marks the end of something

4. There is marked difference that segregates the old from the new, which is felt by the buyer either in perception or by any of the five senses.

SS: Last words of wisdom for Retail Marketing Managers?

RK: There are no simple or easy answers.

Thank you Raman, and wish you all the best for your upcoming Shopping Festival.

National Shopping (& Savings) Days…

We sold 40,000 cameras, 7,000 laptops and 8,000-9,000 LCD Tvs, during the 23-26 weekend, proclaimed Mr. Kishore Biyani last week, Founder and CEO of India’s largest Retailer, The Future Group. This property famously created as “Sabse Sasta teen din” or “Cheapest three days” six years ago, was experimented at the Big Bazaar Outlet at Lower Parel, Mumbai among others and has hence become a national rage. This year, over 120 outlets of Big Bazaar spread all across the country participated in this challenge. Over the past few years, the other formats of the group have also joined the bandwagon and this was vividly seen this year. The idea apparently stemmed from a simple fact – that consumption in India is driven largely based on two needs – a regular monthly need and a festival/event related one. So, there was monthly shopping of Grocery and Household items and the 2-3 times a year festival/event shopping – Diwali, Id, Christmas, Wedding, Birthday, Anniversary, etc when consumers shopped for Apparel, Electronics and other Home needs including premium and luxury products. The Group wanted to create a day (or rather a period) where consumers could shop without a specific reason – and only for the value and related happiness they derive. Thus was born this unique concept. 26th of January is India’s Republic Day, a national holiday which is always one or two days around the weekend and is usually considered as a long weekend since many take one or two days leave from their work places to spend more time with their family and friends.

Many industry experts have compared this to Boxing Day/Thanksgiving Day like in the West. These are specific days of the year when consumers throng to Retail stores because products are available at the cheapest prices. While most products are outdated or out of season, consumers still see value in the offering. For example, a laptop for home use which would usually cost $ 900 would be sold at say, $ 600 – and this is only for a day. So, consumers plan their purchases in such a way that they wait for the shopping season. A lot of research on the topic has revealed that more than 30% of such products purchased during these times were inconspicuous consumption – the customers didn’t really want them but bought only because it was cheaper… Consumers are the same everywhere – from Amsterdam to Ahmedabad, Bangalore to Boston, show them “value” and they would buy even if they don’t need it immediately. Thus, the value formats of The Future Group, namely “Big Bazaar” & “Food Bazaar” have seen a huge spike in sales.

What confused many of us in the industry is that this concept has been blatantly followed by many other Indian and even International Retailers who are not in the “value” retail formats. Apparel and Department stores were offering discounts, and so were the mono-brand fashion retailers. Electronics saw a huge surge in discounts, with a number of bundled deals and lowest prices for the period. While the offers were tempting enough for consumers to buy, was there a long-term approach in these efforts? Probably not. Beyond a point, discounts will not increase sales but will only decrease – what is famously know in Macro-Economics as “Law of Diminishing Marginal Utility”. Over a period of time, consumers will refrain from buying at full prices and will wait for the discount season. Yes, I agree that this country has over a billion consumers and thereby throughout-the-year shopping will exist, however this would do more damage to the brands' reputation, especially fashion and luxury, in the long run.

The End of Season Sale or EOSS is usually just around Christmas globally but in India, the cycle was a bit behind – many Retailers were planning it around Valentines Day (14th Feb.). But this has also changed of late. Many Indian Retailers have already started their EOSS in Jan. and there seems to be a mad-rush among them for the customer’s wallet. With all the brouhaha around discount shopping (my forthcoming article would delve deeper into this), consumers are smiling away to glory having got the best deals due to intense price-competition among Retailers. So, what happens to the Brand Equity of these players? Would consumers continue to shop at full-prices when they know that the same brand is available at a discount in the near future? Watch this space…

Coffee Conversations...

It’s almost a year since I started writing this column – recording my own observations about the Retail Industry as well as analyzing and interpreting decisions and actions of Retailers and their activities. I must admit that I have acquired a lot of admirers and a few critics on the way – not on a personal note but more on a professional stance. To make your reading more interesting, I am introducing a new column titled “Coffee Conversations”. In this section, I seek answers for queries that I have from Industry experts and stalwarts, while also discussing my own thoughts about the same. This is not mainline journalism – and I am not a journalist. Nor are those who opine spokespersons of their respective organizations. They are mere professionals who share their thoughts on certain specific topics.

The first such column is about the recent advertising fiasco featuring the world’s best known Ice-Cream Retailer and one of the most respected agencies. Many of you would know the fauxpas already – the agency communicated on a signage that entry to the newly launched store was “restricted only to holders of international passports”. What they meant was something else but this irked the Indian sensibilities almost immediately and what followed was brand bashing – offline and online. They say “Any publicity is good publicity” but I guess this is the last the Brand would have wanted even as they move into one of the toughest consumer markets in the world. The agency has been removed from the services of the company with immediate effect and it is yet to be seen what happens next.

I spoke to my good friend Akshay Ananth, a young and energetic advertising professional who leads the Client Servicing Division for one of the best known agencies in the world, which is also the most popular and respected one in India. Excerpts from the conversations that we had recently over coffee:

Shriram (SS): Tell me Akshay, how important is the role of the Advertising agency to get into the DNA of the Retailer or the Brand, especially if it is new in the Indian market?

Akshay Ananth(AA): Whether the brand is old or new it needs someone to communicate with the consumer. It’s the agency that does it right now. The whole idea of an agency is to talk the consumer’s language as opposed to manufacturer speak. Some of the best brands have been created by the agencies. E.g. BBH raised Johnnie Walker to where it is now. Lemon, Axe, McDonald’s. The list goes on.

SS: Is it important for the Retailer/Brand to engage the agency at a very early stage – say, even when the Brand plans to enter the country?

AA: Yes absolutely, the brand that will win the war over minds is the one that makes the consumers tell the right story. If the entry itself provides a story, why not?

SS: Is the agency solely responsible for all internal and external communication that goes out? What about the Brand Management Team?

AA: When s**t hits the roof, somebody has to be holding the can – accolades to the brand team and all s**t to the agency. It’s a hurting fact but its true… Globally.

SS: When there is a result that is not the most desirable (like in this example), what is the stance that the agency and the Brand should take? Defensive? Mud-slinging? Does sacking and replacing the agency help?

AA: I guess there are two things here, do the due diligence (also get someone to wear the black hat) and the second is, get a crisis plan ready.

Mud-slinging is our national sport, so I guess that’s good entertainment. Other than that, if you do not stick with each other thru thick and thin, what team are you? Firing the agency was a knee jerk reaction and an easy one. I would have started with firing the brand manager.

SS: What happens with the image of the Brand? Is it true that Consumers forget and forgive? Can you cite some examples?

AA: Yes, to a great extent. With all the clutter in the consumer space, nobody is an Einstein. People do have very short memories today and a lot of brands to take advantage of this fact. For examples, I will only say Lexus, Mattel and Cadburys & Pepsi.

SS: Last words of wisdom for Brand Managers?

AA: The agency is not your slave, but a partner. If you treat as a slave, like all slaves it will run at the first sign of trouble. A partner will see a problem and solve it, have a back up plan or atleast stick with you. Additionally, clients that treat agencies like dirt always end up paying the price. They see attrition rates shoot through the sky from the other end.

Only one word of wisdom to the agency crowd: one of my bosses was fond of saying: “client ke client ko samjho”, believe me, this piece of advice is invaluable.

Thank you, Akshay for your time and keep up the great work. Best Wishes for your future endeavors. Cheers.