As in the last issue, questions will be raised at the end of the article on some of the areas discussed. Responses are invited from readers and the best one will be published in the following issue of the BOSS.
Marshall McLuhan’s ‘global village’ has arrived. Technology has democraticised the world – everybody has access to the same information at the same point in time and globalisation ensures that our worlds are becoming aligned.
However, technology and forces of globalisation are feeding consumer appetites and pockets faster than businesses can keep pace Businesses the world over are facing similar problems and learning that they cannot change fast enough. They are going through a major transition:
Moving from in-house to outsourcing, benchmarking processes with best in class- not necessarily in their own industry, from domestic focus to glocal ambitions, shift from being product- to customer- centric, replacing mass by target marketing, reorganization of business with multi discipline teams instead of functional departments, evolve from competing to collaborating and several other changes. Today, it is important to look at each aspect of your business to ensure that it has made the transition into the new world of business.
It is interesting that most companies, wherever they are, are facing the same sort of marketing challenges. Despite that, many are finding new and innovative ways of profiting from them:
Customers are becoming increasingly demanding and sophisticated. Most importantly, they have discovered the Holy Grail of asking for and getting products at lower and lower prices. Factories in China, Vietnam, India, Mexico, Korea and others are ensuring that prices are on a downward spiral. Wal-Mart and IKEA have built some of the biggest businesses on the promise of lowest prices. However, low price alone are not enough, Sears practised low prices until Wal-Mart came along.
It is increasingly becoming difficult to have a long lasting early mover advantage as products can be copied in no time with better quality and at lower prices. Manufacturers’ brands have to contend with supermarkets’ own brands with high product parity and lower prices. Zara is a classic example of how haute couture brands well before they have hit the departmental stores, are available in all Zara stores at a fraction of the price without sacrificing quality. By its very nature, fashion is a phenomenon of constant change. By making products cheaper, Zara have made this possible and have moved from a small volume high – margin to high volume – small margin business model. Being fashionable is now far more affordable. Haute couture brands are fighting back by bringing out lower priced prêt-a-porter ranges.
In this climate of brand proliferation, cost of acquiring customers is becoming prohibitive. Usual channels of advertising are far too expensive and largely ineffective. Most of the budgets are spent on below the line promotions. Samsung has just hived off bulk of their advertising budget to promotions in a bid to get new customers in smaller towns and rural areas. Many companies are now looking at retaining customers and investing in long term value of a customer rather than one time cost of acquiring them. Banks, automobile manufacturers and mobile phone companies are following this concept quite successfully. In the West, for example, the hand-set is ‘free’ while the customer gets into a long- term contract with the service provider who markets the hand set and airtime in such way that the price is realized over a year or more. Maruti have priced their cars such that the insurance, and maintenance cost are built into the original price, to be paid in monthly istalments. And finally, Maruti consumers could trade in their old car for a new one at a discount.
Technology has provided new delivery mechanisms and therefore spawned competition from unanticipated quarters. Bookstores did not foresee Amazon as a competitor for a long time. Digitisation has changed the business of entertainment and information forever. Free downloads of music, games, films, copying of software has meant loss of revenue for producers of these products. What if Microsoft offered free computer lessons with purchase of software. Producers are now offering free downloads from prescribed sites with revenue being generated by selling space to advertisers.
While the size of the consumer wallet is growing, the product and brand choices are growing at an incredible pace. Will he/she buy upgrade his mobile phone rather than his cooking oil? Or will he downtrade his mobile phone to upgrade his 2-wheeler to a 4-wheeler. In the West, it is common to find affluent women flocking into ASDA or ALDI, both discount stores, and buying not only groceries but also cheap apparel. It is now a mix and match of haute couture with clothes bought at discount stores.
Has globalisation changed your company? What are the main marketing challenges facing your company and how have you responded to them?