World biz and more as seen from India

Thursday, July 21, 2005

Standardized Shopping - Back to the basics

Well to deviate from the telecom buzz and delve into something that interests me was a hard decision to take. However, I really felt that Havoc's post needed a detailed post, rather than an inconspicuous comment!

Well talking of business models, the west has been know and has been the forerunner in terms of creating business models and management jargons. The retail store-oid of a concept was too, a western offspring adopted in India by leading retail chains such as Shoppers Stop, Pantaloon, Westside… to name a few.

However, when we talk of ‘economies of scale’, we need to understand the basic cornerstone of the economics-related concept that, it is applicable more to areas where manufacturing is a part of the process – manufacturing here covers the gamut of production as well as assembly. Imagine a hair cutting saloon trying to adopt economies of scale! At the most it could stock a year’s supply of talc and shaving lotions, which may not be in best interests.

Talking of food-chains and cafes, we need to first understand the basic difference between selling a product and a service. When a customer goes to a Mars outlet, he /she looks not just for the food (which is of course one of the aspects in his perception bundle which scores quite high) – the customer also looks for other aspects such as ambience, pricing, customer service, seating comfort, offers available, etc.)

Companies need to understand that a “BRAND is nothing but a perception in the minds of the customer about his perceived quality and features and attributes of the product which could define him in some way, in addition to satisfying the basic underlying need associated with the purchase of that particular brand, when the market has several ‘me-toos’ with barely any difference!”

Economies of scale cannot apply to a consumer-consumable based sectors, as logically, no one would like to eat your month old pizza and give out a 100$ bill! Talking of the condition of stores such as Mars and Café Coffee Day in India, we also need to understand that Indian consumers cannot be treated like those in the West.

In today’s world, the call of the day is for a ‘glocal’ focus, rather than mass merchandising and treating your cocks and bulls as one. The Indian consumer generally looks for a better bargain on most products – someone whom you would classify as a “bargain hunter” in marketing terms. The same customer who just purchased a Mercedes will haggle at the local market when he/she knows that the prices can be reduced!

An Indian consumer will look for the maximum value or rather ‘utility’ out of the product/service that he/she goes for. I use the economics-term ‘utility’ here just to point out the difference between utility and usefulness – I may purchase a crystal Spongebob doll for a million dollars! (No I wont actually!!!), because it has utility for me – this is irrespective of whether it is useful for me!
Talking in terms of personnel selling, the Indian customer has his own ZOPA (Zone of Potential Agreement), which generally is less flexible towards the higher price side, but extends more towards a lower price. In simpler terms, for a quoted price of Rs. 10, I as an Indian consumer would have a price band of say Rs. 12 to 5 for that product when I go to the market. In short, customers generally look to get a less price for almost most goods.

My marketing friends here would start arguing about products and the concept of BRAND, wherein a consumer purchases products just because he/she wants to feel like a part of a clan or a niche. However, I personally believe that brand as a perception has more to do with the perceptions in the minds of the customer about what the product offers him, rather than what will be the perception of the same product in the minds of the niche or clan he wants to be a part of. I do agree that there do exist a lot of products wherein the sole motive is to just feel special and exclusive.

However, the argument doesn’t apply to a Café Coffee Day outlet or a Mars outlet in India, primarily because these are not what the marketing frat calls “Cult brands”. The market has changed from looking for the product, to the service on the whole, to the newer concept of ‘experience’ – marketers today are selling you an experience. When I as a customer go to a Barista outlet, I go there not to drink coffee, but to spend 2 to 3 hours – for which I believe charging 50 bucks (my Mocha costs only 40) is pretty cheap!

Who lets you sit in an air-conditioned clean environment with comfortable seating, let you play the guitar, or rather challenge a buddy to a few games of scrabble or Pictionary, and of course, not to miss sitting amidst the exotic aroma of freshly brewed coffee?

The reason why such stores aren’t doing well is not because the niche of such customers is small in India – I myself have seen a lot of middle-class family people frequent such outlets to spend some time. I really don’t think Barista is catering a niche, since they already slashed their prices a lot a year and a half ago, which clearly signals that just serving the so called ‘elite’ is not what they solely target!

The reason for a Café Coffe Day’s success can be attributed quite a lot to their retail presence as well – in terms of the Coffee Day Xpress vending mnachines seen at several places across the nation, their mini snack bars set up at prime locations, and not to forget their focus on providing much more than coffee.

A Café Coffee Day outlet scores high in terms of selling food items along with coffee, which naturally increases their average revenue per customer. Barista on the other hand has been a coffee pioneer, and doesn’t believe in providing that much of variety in terms of food-items to accompany the coffee.

Another interesting aspect of Café Coffee Day’s success is the assortment of the snacks they provide – mainly items which are Indian, in addition to catering to the western tastebuds as well. You naturally cant have your mother in law to munch happily on a chocolate doughnut, and expect her to have as much fun as relishing the all-time favorite Punjabi samosas or puff pattice!

The Bottomline: Economies of scale may not always be possible in the consumables industry. In terms of success of brands, they need to focus more on customization and studying the local market and its needs (including PRICING), so as to compete viably with the competitors.