Vikram Sakhuja, Global CEO, Maxus engaged well-known marketing strategist Professor Niraj Dawar in an insightful discussion on how organisations need to revisit their ‘product-oriented’ approach and become more customer-centric at the IMPACT One-On-One with Niraj Dawar event in Mumbai.
Vikram Sakhuja: The fact that you are labeling this point about the need to be customer-focused rather than upstream means that people are not doing it. What is preventing them from doing it?
Niraj Dawar: For 250 years we have been focused on the upstream. All these years we have structured our organisations, our management practices, our culture, and the questions that we ask to manage the upstream. The factory is at the core of everything we do, or the product is at the core of everything we do. But business costs have shifted downstream. Value that customers are willing to pay for has shifted downstream. The centre of gravity has shifted, but we are still continuing managing the upstream. That is where we are right now. So, why is it so difficult? In one word, the answer would be inertia.
Vikram Sakhuja: You have also been asking Ted Levitt’s ‘marketing myopia’ type questions about ‘Which business are we in?’. Are you getting the sense that people are not asking this enough?
Niraj Dawar: Fifty years ago in 1962, Ted Levitt published a paper in Harvard Business Review in which he had said that companies are answering the question ‘What business are we in?’ too narrowly. He said, for example, the railway companies thought they were in the railways business, but when transportation by air and on the highways became common and inexpensive, the railway companies suffered and went out of business because they didn’t see themselves as being in the transportation business. As for the lessons learnt, they have not permeated management thinking. So, we still have companies like BlackBerry and Kodak, which eventually filed for bankruptcy and is trying to emerge from it. Kodak saw itself as being in the film business as opposed to being in the imaging business.
So, have Ted Levitt’s lessons been learnt? The answer is no. I think the companies need to ask another question in today’s age—“Why is a customer buying from us rather than from our competitor?” When one starts to ask that question, I think it will open a set of opportunities that I have been talking about.
Vikram Sakhuja: I loved the part where you said in your book how Apple did just that with their response through iTunes, at a time when Napster and others were having problems. Could you tell us what iTunes did that made MP3 monetise-able?
Niraj Dawar: Apple’s innovation was not necessarily the iPod. The MP3 player was, in fact, invented by a Korean company three years before Apple introduced it. The idea that consumers would share or download music was invented by Napster and others. So, Apple didn’t invent that either. Best practices in online retailing were invented by Amazon. So, what did Apple contribute? Steve Jobs stitched all these innovations together into a business model that asked the question – Why would customers buy music in an environment where they can download it for free? The answer was not in making better music, but in making music easily searchable; making sure the catalog was sufficiently large or giving consumer a mechanism that would make their entire music collection portable and make that collection searchable. All these are downstream reasons for why customers would buy music and that is what Apple did so well with the iTunes.
Vikram Sakhuja: In your book, you seem to have crystallised the entire game of customer facing strategy to two things – how you buy being more important than what you buy and how you buy being all about elimination of cost and risk.
Niraj Dawar: So, what I argued is that we need to be able to ask questions – “What costs do we impose on our customers?” “What costs do they incur in buying our product?” Or “What costs do they incur in searching, using, comparing it with others, or disposing our product?” There are so many costs that they incur through the entire chain of activities. We, as sellers, have too long focused on that narrow slice of “the transaction” because that is where money changes hands. If we widen our lens a little bit and look at the entire spectrum of activities, we would realise that our customers incur costs, which are sometimes far greater than the price that they pay for our product. If we can cut those costs, we create customer value, and often need not reduce our price in order to compete.
The same goes for the risks our customers incur. Risks are even more interesting because it’s hard to uncover the risks that people incur while consuming our products. So, once you start to uncover costs and risks, you realise that there is a tremendous amount of value that the customer is willing to pay for that we neglect because our focus is almost solely on the product.
Vikram Sakhuja: In terms of devising your downstream strategies to reduce costs and risks, you have given one of the more practical applications of Big Data by giving the examples of how Amazon used Big Data to connect with consumers and also how Google is using it for search predictions. You also talked about how the education industry has used it to benchmark. Would you like to share some of that?
Niraj Dawar: The questions that people keep asking about Big Data tend to be technical questions. For instance, how do we analyse, store and consume Big Data, etc. I think the strategic question we need to ask is what value does Big Data add to our customers. When we begin to ask those questions, we realise that applications of Big Data are far simpler than the technical problems. For example, when you log on to Amazon, it can predict what kind of book you would buy based on the fact that it has access to 180 million customers and their purchase history. Based on this data, it knows the type of customer you are. It can predict your product preference and what kind of price you would pay for the product. Big Data can be even simpler than this. For example, the fact that people post reviews of products and books on Amazon that other consumer can read is also a use of Big Data, wherein you are assembling information from consumers and feeding it to consumers who are likely to buy the product. This is a very valuable use of Big Data, which I have called ‘Relaying and Connecting’.
Vikram Sakhuja: What is your view on closed platforms such as iOS versus open platforms such as Android and their ability to aid in devising customer strategies?
Niraj Dawar: I think there are lots of pros and cons of open versus closed platforms. I think eventually open platforms will drive out closed platforms. However, the key to consider in a platform decision is always the network advantages. So, how many people are likely to use and continue with a platform; that decision can get technical very quickly.
Vikram Sakhuja: What is evident to all of us is that first to market necessarily does not mean first to mind. Why is it that brands who go to mind first do better than first who go first to market?
Niraj Dawar: An example in this case would be Pampers, which was not first to market. The brand that was the first to market in diapers was Chux by Johnson & Johnson. But we have never heard of Chux because Pampers was first to mind. Companies which are first to mind are much more likely to have used mass marketing. They are much more likely to form key criteria of purchase. Pampers was the first to create the purchase criterion of absorbency and has occupied it for the last 40 years.
On the other hand, Chux was introduced in early 1960s as a solution to the problem that your gas tank was larger than your baby’s bladder. In other words, you could drive long distances on the interstate, but you would have to stop if you didn’t have diapers for the baby. The solution that diapers were supposed to fulfill was that you can continue to drive for longer distances. It was a product that was associated with the highways. That was very niche use of diapers. It was Proctor & Gamble that took diapers to the mass market and got the criterion of absorbency associated with Pampers. That was what made the difference.
Vikram Sakhuja: But Viagra was first to market and first to mind. It still managed to find a competitor in Cialis. How is that?
Niraj Dawar: Just because you are first to mind does not mean that you have a perpetual monopoly on the product category. When Cialis was launched, the erectile dysfunction (ED) market was very attractive because Viagra had become a $1.5 billion product within 3-4 years of its launch. Competitors wanted to get into the market. What happened was that Bayer developed Leivitra, but launched it as a ‘me too’ product with a slightly lower price tag. Cialis changed customers’ criterion of purchase. It was no longer the effectiveness of the ED drug, but the much longer window that the product promised – you take the drug and you have a 36 hour window, is what Cialis promised. Thus, Cialis changed the criterion of purchase from effectiveness to duration. That is what made the difference. They changed the game.
Vikram Sakhuja: In all your research across four continents, have you looked at any Indian brand or company which you found was forward facing, concentrating on the downstream and customer-oriented? Who is doing it right over here?
Niraj Dawar: I think there is a lot happening here. To give an example, a few years ago, I came across United Phosphorus. I was talking to Jai Shroff at UniPhos based in Mumbai, who told me that that they sell phosphorus to farmers. But often the farmers are not able to afford the application equipment. So, the company talked to retailers, who would buy the application equipment and rent it out to farmers. Thus, they designed a business model to rent out the application equipment to farmers along with phosphorus. Remember, they are in the phosphorus business, but they are now developing rental schemes and capital leasing. Then they realized that retailers still didn’t see the business model as effective unless they were able to get loans from banks to buy capital equipment. Therefore, United Phosphorus got the banks involved and developed a business model, wherein banks would lend money to the retailers, who would buy the captail equipment, which was in turn sold to the farmers. Thus, they developed an entire business model in the downstream.
Vikram Sakhuja: I truly got a lot out of reading your book ‘Tilt’ and found it very useful. I say that because I am in an industry which has been accused of a fair degree of commoditisation. So, if we have to differentiate and get more value going for us, I think that there is a whole lot of ‘tilting’ that we would need to do.