15 minute read
A Winning Equation for Consumer Businesses
There are various frameworks used to enable growth of an organisation or a business. We have the four Ps of marketing—Product, Place, Price and Promotion. We have come across innovation funnels, starting from ideas leading to a prototype and then to a product.
Following are some of the frameworks:
• Perceived value > Price
• Ansoff model for growth, which is a 2x2 matrix with new customer or old customer on the Xaxis vs. new product or old product on the Yaxis
• BCG Growth matrix
• Growth and ARPU (Average Revenue per User)
The Winning Model
When Perceived Value is greater than Price, it becomes a winning model.
Perceived value is not the value that manufacturers see. This is the value that the customer sees. Let us unpeel and understand both the theoretical framework and examples.
Winning customers through greater perceived value has various sub-parts such as:
• delivering more quantity
• delivering higher performance
• providing newer, add-on features, etc.
Delivering more quantity: Eg: To deliver more mileage per bike or more GB in a data plan. Nothing else changes. It is just about delivering more value.
Delivering higher performance: Eg: Better network and better emotional payoff. With a more reliable service, the customer feels better. Your probability of success goes up.
Newer, add-on features: A decade ago, we had the basic mobile phone. Then camera got added. Today, we have phone with 4 cameras. We once had basic detergents. Then we had detergents that were soft on hands, fragrance added and so on.
The trick is to get that without increasing the price, save for a small price increase. So the consumers see greater perceived value. Elon Musk, one of the most famous inventors of our time, says that great companies are built on great products.
In the same equation of Perceived Value > Price, what do we mean by price and what are its facets?
• Lower overall price: This means lower price versus competition. The most famous example is the Reliance Jio launch couple of years back or the zero cost service for three years offered for some cars and bikes.
• Lower outlay each time: Eg: EMI scheme or offering of products by FMCGs in sachets. Your outlay each time is lower while the actual price of the product has not gone down.
• Lower compulsory price: This is extremely popular in digital. Eg: “Freemium model” on web-series where basic option is complimentary and all addon features are considered as premium and charged.
• Lower total cost of ownership (TCO): This is a fascinating tool and a Japanese model. Eg: Cars TCO and Buy 3 for 2. The upfront cost you pay for a car may be higher but the vehicle will last you longer with low maintenance and your total cost of ownership over a certain number of years will be lesser.
Except the first one (lower overall price), the rest are about adapting the elements of the equation and balancing them. The trick is to do it without lowering consumer value and playing on the levers to accelerate growth.
The Case of PDF Magic
How did Pond’s Talcum Powder use this equation to deliver more perceived value at lower price? It offered:
• More attractive fragrance – The Pond’s Dreamflower (PDF) magic
• More emotional connect with TV ads
• New features and packaging – PDF magic x 2
• New features / ingredients – The introduction of sandal talc, a popular ingredient in the south
Packaging plays a very important role in quality. PDF Magic had used world-class printing, plastic body, rotary caps, etc. Now, let us see how Pond’s worked on lowering the price side of the equation:
• It offered 50g /20g pack of Dreamflower talc. The outlay came down with lower size pack.
• The government reduced tax by 40%. 100% of this reduction was passed on to the consumer.
• Launch of 8g sachet. Product quality was good but functionally, at that time, it did not succeed.
• 400g pack was introduced, which was priced 2.5 times that of 100g pack. Thus the TCO —Total cost of ownership was lower.
The Indian Mobile Phone Story
If we take the example of Indian mobile phone market, perceived value has been delivered in ways such as:
• More performance of network —better reach and speed
• New features via hardware —camera, dual SIM, etc
• New features via software —apps launched by new companies and those by existing companies (like SBI)
• New features through paidfor services like Zomato Gold and Music
They modified the price side of the equation by offering:
• Lower price—incoming free which was a big inflection point in the 90s and early 2000 when incoming was charged.
• Lower price through lower charges for voice / data
• Lower cost of phones
• Lower outlay each time —through prepaid option.
• Lower roaming charges and later on free roaming
People earlier would get very high mobile bills. Through prepaid, they came to know how much they consumed —GB, minutes, etc. Indian telecom has thus been an amazing example of delivering both on perceived value and lowering the price.
To quote Jeff Bezos, “There are two kinds of companies—those that work to raise prices and those that work to lower them.”
The B2B Business: HT Media
Can this equation be used to plan growth in a B2B business, just like in the case of consumer businesses which we saw earlier? Yes, we can.
I work with HT Media Limited and we are the country's second largest English newssite and paper. Livemint and HT are from our group. We have radio stations as well. While we have a total customer base of 220 million across all mediums, 75% of our total revenue is essentially B2B and it comes from advertising both in our print and digital business. At times, it is 90% in some of the verticals. We engage readers with credible news and information. Butto keep the engine running, the revenue comes from advertising.
Inventing Your Way Out
Jeff Bezos says, “One of the only ways to get out of a tight box is to invent your way out.” Let's see examples of how we did that by offering more value to our advertisers:
• More audience reach—earlier we were only in Delhi. Now we are in Delhi and Bombay in the print business.
• New features for more impact —To help advertisers build their brand, we do events for them. We organise travel conclaves, education fairs, village activities, school activities, Codeathon and Olympiads. Right now, we are doing the country's largest coding contest and we have partners in that. In a B2B business, that's a new feature which we have brought to the table. Other leading players also do that. For publishing industry, these are innovative new features.
• As we have print plus digital, the ad will be featured in both. We even have glazed jackets that carry advertisements on the front page which is more impactful and catchier. It has great value for premium brands. We also have done French windows in newspaper, which open like a window.
Delivering ‘Lower Price’
This is a fascinating story. There are various parts of price and none of the examples given below are about cutting price.
• In the startup culture that blossomed in India, companies are keen on preserving cash. We started doing ad for equity barter. The startup does not give money for ads but they give their stocks. It is done with a lot of checks and balances.
• Geo-targeting: The target-audience for the ad is not pan India but restricted to locations like the top 3 metros. The price for the customer goes down and we do not lose any margin either.
• B2B business automation: We have programmatic advertising and consultative selling. Our sales people will help you make a plan or you can do it yourself. It's like a bank’s e-commerce. You can come and place ads directly at a lower rate, but it will follow an algorithm.
• Ads placed in supplements are priced less though they appear on the same day.
The larger point is that in a B2B example, this equation of ‘Perceived Value being larger than the price works well.
We can accelerate this journey through innovation. You may have come across innovation funnels used by various organizations. It is not a tunnel where anything that goes in, comes out. You may have 10 ideas. These may come either because there is a new technology change or there is a market demand happening. The trick is to have a set of ideas and ask three questions related to3Cs—Company, Customer and Cash.
1) Company: Can the company do it? Can its production system and the operating team build it?
2) Customer: Is there a market for it? Will the customer value it?
3) Cash: Will it generate cash?
If any of the Cs does not get ticked, it does not mean the proposal has to be rejected. It can be reworked and reviewed. Fail fast, fail often and fail forward are some of the new approaches in design. We have to figure out which20% of the company contributes to 80%of the results and attempt to scale that20%
The Success Mantra at Titan EyePlus & Tanishq
An organization has to figure out what they are better at —delivering perceived value greater than price, or delivering more value for money.
At Titan, we are better at delivering greater perceived value. Titan EyePlus is 15 years old and we came into being in2005. It was an unorganized, underserved industry. We wanted to deliver an overall solution and anaugmented product with a premium pricing while delivering exceptional value to the customer and good value to the company and its shareholders.
Eyeing on Perceived Value
• We employ qualified optometrists who are experts and dressed in professional attire. When you go into a Titan EyePlus store, meet them and talk to them, you understand that you are in good hands.
• The testing room has high-tech machines and a complete setup. We follow a 20step checking process whereby various dimensions relating to eyes are being systematically assessed before the expert concludes what is required for the customer.
• The glasses are more important part of the solution. There are large global companies like Essilor and their technologies are available to all opticians. The difference that Titan brings is customised solutions by understanding the customers —their age, profession, and the size of their face—and offering what fits well and looks good for them.
Thus, through expertise and empathy, we deliver value proposition to customers and they keep coming back. We also have a concept called the net promoter score which is a very powerful barometer—a KPI in Titan as a whole and in Titan EyePlus as well.Our NPS in Titan EyePlus is in excess of75, which is a global benchmark. The customer experience program of Titan EyePlus has been voted the world's best program in a Customer Experience Strategy Conference held in Netherlands in 2018. We won the prize beating Microsoft, Dell, Shell and such other global companies.
The Shine of Tanishq
Tanishq, which is 25yearsold, was launched in 1996 in Cathedral Road in Chennai. Over the next three to four years, we changed many things—offering gold jewellery of the traditional kind to start with. We brought in carat meter to demonstrate the purity of gold. I have been associated with Tanishq for about 15 years now.
Around 2006, one of the things that really struck us was the manner in which the local jewellers across the country were dealing with customers in a very personalised manner. The owner knows the customer and greets them. We realised that if Tanishq were to become the largest jewellery brand in the country, we need to combine two things—one, the modern aspects of product design, branding, assortment design and retail experience that we bring to the table and two, the ageold principles of personalisation, relationship and warmth the local dealer was doing so well.
Birthdays with Tanishq
We started a loyalty program in 2007 called Anuttara with multiple objectives. One was points for every purchase which the customers could use to buy jewellery in future. We also ended up collecting a fair amount of information about the customer like birthday, anniversary, taste for music and special events, the festivals they celebrate and the kind of books they like reading.
We were able to do many things, for example, celebrating the birthdays of customers in their homes as a surprise event. The sales staff would take the cakes, visit the customers in their house on the birthday morning and organise the cake-cutting. If a customer happened to visit the store on her birthday, we would order a cake and celebrate it with other customers in the stores. Over the last 15 years, Tarnish’s customers have become a very large family.
We also started doing this in a localised way. For example, the Bombay stores would make the typical sweet dish of Kerala—Chaka pradaman, which is a type of kheer—on Onam and give it to Malayalee customers at their homes. They would be blown by the thoughtfulness of this gesture as many of them would be sitting away from their home State.
When I visit the stores, the mantra that I tell the staff there is, “It does not matter if the customer walks out of the store with an empty hand, but as long as she walks out with a smile in her eyes and warmth in her heart, it’s okay; she will come back later and buy Tanishq. But if she walks out of the store with a bag in her hand and dissatisfied with whatever happened in the store, then she may not come back at all.”
We have worked hard for the last 15 years in creating a really magical experience for customers of Tanishq. Today, we have digital programs even as the pandemic is upon us and it has helped us in our recovery rate in the last two to three months. Thanks to the investments that we have made in digital and building of relationships between thousands of our staff and millions of our customers, though Tanishq is perceived to be an expensive brand, our customers tell us that when it comes to total value, it is too good.
How Companies Use Research to Achieve Balance
Some of you might have read Dan Ariely’s book, “Predictably Irrational,” which illustrates where and how we could go wrong with pricing. Because of our irrational decision making, the whole paradigm of pricing becomes a bit more complicated than what we think.
Dan his team did some simple experiments. He asked a set of respondents to pick up a cordless keyboard with a price similar to their social security number. Because of this anchoring bias, people in the top 20%percentile of the security numbers were willing to pay three times more than those who had their the social security numbers within the bottom 20percentile. He defined it as anchoring effect.
Discounted Chocolate: Sweet or Sour?
In the second experiment, he got two sets of panels. He asked the first set of people to pick up chocolates priced at 14 cents. After they picked up, he brought down the price to free and asked them to take the chocolates. In the second set, he asked the people to pick up chocolates priced at 15 cents. After they did that, he brought down the price to 1 cent. In this case also, the reduction was 14 cents, which was same as offered to the first set. But the first set of people was delighted than the second, because of the effect associated with the term ‘free.’
Drink and Solve with Energy
In the third experiment, he again selected two sets of people. He asked them to solve some problems. He gave an energy drink to the first set and said it would help in their problem solving ability. He told them that he bought it at the retail price stated on the drink.
He also gave the second set of people the same energy drink and told them that it would help in their problem solving ability. But he added that he had bought the drink at a discounted price. It was observed that the first set who received the energy drink, supposedly at the retail price could solve more problems than the second set who perceived the value of the drink lesser than that of the first group because of the ‘discount’ factor thrown in.
If we look at the three different examples given above, we can appreciate the impact of pricing on our perceptions. For many years, we thought that we were all homo economicus—a rational and selfish individual with relatively stable preferences, but this has been challenged (Thales & Sunstein, 2008). Our behaviour is subject to cognitive biases, emotions and social influences.
That is why, a set of activities done by a particular brand may not be taken so well by customers but the same set of activities done by another brand could work well. Social influences, peer pressure and word of mouth have an impact across many industries. When we buy a particular product, we actually peg it to another product and see if it offers more value or less value. It is often a relative decision that we take.Consumer market research provides solutions in these areas.
