1. Lloyd Blankfein MARCH2006 Harsha Bhogle Rs 1000 Rs 14000 Rs 600 Rs 700 Rs 9 Rs 5000 Rs 780 R 9 0 00 00 4800R 00 500R C O V E R S T O R Y in emerging markets Brand strategies INSIGHT SPECIAL PRESIDENT BUSH VISITS THE ISB George W Bush

2. George W Bush President of the United States, at the Atrium of the ISBs Academic Centre 3. March 2006 | ISBinsight | 1 Dear Reader, This issue of the ISBInsight has interesting opinions on the hot topic of Branding. The markets are abuzz with the news of the tremendous growth potential and the huge opportunities that emerging markets present. Professors of Marketing, Marketers, Consultants all of them see a bright future when they peek into the crystal ball, and all of them agree that the new markets need creative approaches to branding. Brands have the power to change peoples lives and to change the world. The BRIC countries featured again in the speech of Lloyd Blankfein, the President & COO of Goldman Sachs Inc., during his maiden visit to India and the ISB. He talked about the irreversible progress of wealth creation in them. His visit and contribution of $1 million to the Centre for Analytical Finance was the high point for the ISB this last quarter. It appears that India is on a winning spree all around. With the cricket season in full swing, we were fortunate to get Harsha Bhogle and Professor Bob Stewart, who teaches Sports Management at the ISBs Executive Programmes, together for a chat on the challenges of encouraging excellence in sports in developing countries. It was the season for the annual student led events - the ILS, Solstice, Poseidon and some unusual topics such as Youth Particpation in Politics were discussed. The mood at the ISB has been upbeat with the entire community feeling that we in India are on the verge of something really big. The ISBInsight reects this mood. We share the brief and exciting encounter with President George W Bush, when he visited the ISB on March 3, 2006. The world needs India, he said and added, I am honoured to be at the ISB, almost endorsing Brand India and Brand ISB. It was a memorable visit in which the faculty, students, staff, and entrepreneurs participated. The Insight Special captures the visit and the reactions. It will be great if you could share your opinions on what we think. As always please email us at editor_insight@isb.edu Bhuvana Ramalingam Editor From the editors desk IFROMTHEEDITOR ISBInsight team Bhuvana Ramalingam Sreedevi Yadavalli Mrinal Kanti Ray Varshaa Ratnaparke Madhavilatha G Design: Trapeze Cover Illustration: Anupa Jayakrishnan Resources: Learning Resource Centre at the ISB Printed at Kala Jyothi Process Pvt. Ltd. Indian School of Business Gachibowli, Hyderabad 500032, India Phone: 91 40 23007000, Fax: 23007012 Email: editor_insight@isb.edu www.isb.edu Back Cover: The architectural splendour of the ISB buildings A view of one of the Student Villages 4. 2 | ISBinsight | March 2006 Contents 4 Cover Story: Brand Strategies in Emerging Markets With emerging markets experiencing an economic boom, marketers are being challenged to nd unique brand solutions. 6 Understanding Tomorrows Tigers Academicians,consultants,andindustry leaders share their perspectives and practical experiences about brands that work in emerging markets. 11 Strategies for Harnessing Local Brands Vijay Mahajan and Kamini Banga discuss strategies that can help companies leverage their brands to create opportunities in the 86 percent markets. 16 The Emerging Consumer Professor Sridhar Moorthy discusses the branding challenges for marketers considering the decreasing power of television, and increasing power of word-of-mouse. 19 Shouting Over the Fray: An Academic Perspective on Measuring the Impact of Advertising in a Cluttered Environment Professor Seshan Ramaswami on how academic research can contribute to a greater understanding of the effects of advertising in a cluttered environment. 22 Insight Special: President George W Bush Visits the ISB The ISB grabbed headlines the world over recently when the US President visited its campus. Our special feature captures the event. 26 Learning Lessons from Australian Sport Management Harsha Bhogle exchanges notes with Professor Bob Stewart on how an emerging economy like India can learn from the experience of Australia in managing sport. 30 ISB Leadership Summit 2006: India Next Politicians and business leaders, along with an academician and a social activist, discuss the need for greater youth participation in politics, and on synergies between the government and businesses for India Next. 31 India on a High Growth Trajectory: Lloyd Blankfein, President & COO, Goldman Sachs Group Inc. Lloyd Blankfein addresses the ISB students on his experience at Goldman Sachs, and compliments India on its emergence as a destination for direct investments. 32 Competitive Intelligence for Staying Ahead in the Market Phani Tej Adidam discusses cases where CI analyses have been successfully employed by companies to stay ahead of their competitors 34 The Current Status of Indian Economic Sector Reforms A report on the proceedings of a unique conference organised by the Stanford Center for International Development (SCID) and the Centre for Analytical Finance (CAF), ISB. GSVC judges Alice Lin, Kim Alter, & Sara Olsen Sandeep Dikshit MP, Lok Sabha 5. March 2006 | ISBinsight | 3 Tejendra Khanna Chairman, Ranbaxy Laboratories Ltd. Rajendra S Pawar Chairman, NIIT Rakesh Mohan Deputy Governor, RBI S Narayan Former Economic Advisor to the Prime Minister of India, & Former Finance Secretary, Goverment of India 36 GSVC: Social Ventures That Look Beyond the Bottom Line The Asia Semi Finals of the GSVC held at the ISB, attracted a lot of attention for the competitions focus on business plans that are protable, and also provide tangible social benets. 38 The Erosion of Categorical Boundaries: Interview with Professor Hayagreeva Rao Three students interview Professor Hayagreeva Rao on the blurring of categorical boundaries in organisational structures. 40 My Journey with the ISB: Memoirs of an Alum Aarthi Ramesh, Class of 2003, on the special bond that she shares with the ISB. 42 ISB Happenings There was plenty happening at the ISB, as always, with eminent visitors and guest speakers, student competitions, and colourful events that had the campus buzzing with activity. 44 Book Review 6. Brand Strategies in C ountries such as China, India, Brazil, Mexico, Russia, South Korea, South Africa, Egypt, and several others, are currently experiencing a heightened consumerism owing to a boom in their economies. These countries comprise a whopping 86 percent of the worlds market, a term used by Vijay Mahajan, former Dean of the ISB, and current holder of the Harbin Centennial Chair in Business at the University of Texas in Austin. Marketing successfully to the 86 percent is imperative for companies that want to remain globally competitive. On the one hand, the heightened consumerism, and rapid globalisation, is presenting global marketers with immense opportunities. On the other hand, these opportunities are riddled with some unique challenges for market solutions for emerging markets are different from those for the developed markets. Developing and implementing these solutions often demands innovation, and an inexhaustible drive to overcome obstacles in adapting to local conditions. This is because emerging markets have some characteristics common with the more mature markets; they also exhibit features that are unique, and regional. Time tested brand strategies that worked very well in the developed world, sometimes fail in emerging markets, causing companies to incur losses, and lose great marketing opportunities. Some characteristics that are common to customers in both the developed and the developing economies are an enormous appetite for devouring television entertainment while displaying a marked tendency to avoid commercials, the Net savvy consumer preferring to seek brand information through word-of-mouse sources rather than the conventional Emerging Markets 4 | ISBinsight | March 2006 7. word-of-mouth ones, etc. Academic studies also point to a cluttered advertising environment in emerging markets such as India, a problem earlier associated only with the mature, developed economies. What is singularly distinctive of emerging markets is a strong regional inuence. The inuence could be cultural, linguistic, socio-political, and even religious. Emerging markets are extremely price sensitive, as well as quality conscious. They can display a erce loyalty to a local brand in a show of patriotism, and also prefer a foreign brand in a show of sophistication. These markets demand the right mix of glocalisation, which is a complex tapestry of global and local attributes, and isoften variable from one emergingmarket to another, and more perplexingly, from one region within an emerging market to another. Our cover story is an amalgam of all these perspectives about brand strategies in emerging markets. Leading academicians and consultants share their expertise on brand strategy, while market leaders describe actual experiences in developing and marketing their brands. With companies developing a variety of solutions to meet the needs of emerging markets, what remains challenging is the need to be constantly innovative. As Dipak Jain, Dean, Kellogg School of Management, said during his address to the participants of Ikshaa the ISB Marketing Summit, In todays brand strategies, the word anticipation becomes more important than prediction. We no longer have the luxury of being reactive, we need to address not only the articulated needs of consumers, but the unarticulated needs as well. March 2006 | ISBinsight | 5 8. 6 | ISBinsight | March 2006 Understanding In US dollar terms, China could overtake Germany in the next four years, Japan by 2015, and the US by 2039. Indias economy could be larger than all but the US and China in 30 years. Dreaming with BRICs: The path to 2050 Goldman Sachs report, dated October 1, 2003 T he report quoted above has radically changed the way the world perceives emerging economies. Yesterdays low-cost, low-value contract manufacturers have become todays high-potential markets, and will soon be tomorrows boom economies. Small wonder, then, that these economies have become the cynosure of every multinational company from manufacturers of beer or cola, cosmetics or washing powder, cars or credit cards. The numbers show why. The BRIC (short for Brazil, Russia, India and China) economies are growing at a rapid pace of between 8 to 10 %, and are poised to overtake the G6 countries within 35 to 40 years in terms of their collective GDP. Of these, India and China alone, which account for over 30% of the world population, are slated to be major buyers of the worlds goods and services on the strength of the growing prosperity of their consuming classes. The big brands already have a strong presence in these markets and many more are crowding in. Growing markets, however, do not mean easy markets. Over the past decade and a half, many multinationals have rushed into emerging markets, eager to claim the millions of prospective consumers newly liberated from planned economies and protectionist barriers. Many of them burnt their ngers as a result. What makes these markets tough to crack? Emerging economies have several things in common. As K Ramachandran, Executive Vice Chairman and Managing Director, Philips India Ltd, points out, All of them are heterogeneous in nature. In contrast, most developed markets are far more homogeneous. Thus, given the income disparities, cultural and ethical diversities, it is important to understand the subsets within the emerging markets. Besides, these economies see more economic, political and regulatory changes than the developed world. Poor development of infrastructure, logistics inefciencies, and ever-changing regulations increase operational costs and pose huge risks for global corporations, Ramachandran adds. In this regard, India is quite representative of the emerging economies, and multinational experiences here, are typical of the problems faced in comparable markets elsewhere. One common problem is that multinationals, eager to gain a rst- mover advantage in these El Dorado markets, simply duplicate the models that worked for them in developed markets. A case in point is that of the US cereals giant Kelloggs. It entered the Indian One common problem is that multinationals, eager to gain a rst- mover advantage in these El Dorado markets, simply duplicate the models that worked for them in developed markets. Emerging economies offer fabulous potential but only to those global companies that study them well tomorrows tigers 9. March 2006 | ISBinsight | 7 market in the early 1990s hoping to replace the puri-aloo and idli-dosa on the Indian breakfast table with high-priced cornakes. The company erred on two counts. First, the concept of convenience foods in India was new, and yet to be accepted in a country in which less premium was placed on time. Second, Kelloggs also failed to understand the breakfast habits of Indians. Unlike most Western consumers, Indians largely prefer to eat their cereal with warm milk, which turned the cornakes soggy and unappealing. Kelloggs stumbled in China too. The two biggest constraints here as elsewhere in the developing world are price and product awareness. Breakfast cereals are perceived as expensive. Also, the Chinese prefer their own cuisine for the traditional meals of breakfast, lunch and dinner, but they are willing to try other products as snacks. Procter and Gamble also learnt the hard way in India. P&G entered the market in 1984 through its subsidiary Richardson Vicks. It faced many problems trying to sell products that were successful in other countries, such as the soap Camay, and detergents like Ariel. It was only after heavy price reductions, and some sachet marketing that Ariel succeeded in picking market share. P&G now focuses on the upper-middle class urban consumers, who are more likely to buy their products like Ariel. These examples hold out a simple lesson for branding strategies of tomorrow. And this is - understanding the unique needs of the consumer in each emerging market. Korean chaebol Samsung understood this very well when it used the proposition of good health to sell a range of white goods from refrigerators to washing machines, and establish itself as a dominant player in the country. Indeed, an innate understanding of the local consumer has given many domestic brands the edge. Several of them whether it is Nirma, CavinCare, Paras or Chandrika have posed a signicant threat to multinationals over the years. True, part of their advantage accrues from lower cost structures. But equally, they leverage a strong knowledge of the market to provide the local consumers a sound value proposition. This is certainly an invaluable ability. As John Goodman, CEOIndia and South Asia, Ogilvy and Mather, says, The biggest risk before multinationals is to make the economics of a product work in an emerging market. This means multinationals have to re-engineer their business models accordingly. As an example, Goodman points to C K Ranganathan, Chairman and Managing Director of CavinKare, one of Indias top three personal care products companies. He rst decides the price, and then goes to the drawing board, says Goodman. Concurs Harish Bijoor, brand expert and CEO, Harish Bijoor Consults Inc: One of the biggest risks comes from generic competition. This occurs at the level of the commodity. And marginally above the commodity are the generic quasi-brand offerings. Bijoor gives the example of the footwear market. In India, the basic footwear market is all about hand-made sandals and chappals. This is an unbranded, base commodity on offer. Just above that, at levels of 5 - 8% margins, is the hawai chappal market. New entrants in the footwear business need to contend with these issues rst, and then position their products. Another risk emerges from the distance factor. Most multinational brands, for instance, just do not understand the language of localisation. These brands need to go against the grain of what is being dictated to them from Seattle or Boston, adds Bijoor. Since comparatively low purchasing power is another reality in these countries, addressing key problems works wonders. In Brazil, fast moving consumer goods giant Unilever sells Ala, a brand of detergent created specically to meet the needs of low-income consumers who want an affordable yet effective product for laundry that is often washed by hand in river water. Politically unstable economies are risky from the multinationals perspective, but taking risks can also help companies garner a large market share. Take the example of Citibank in Indonesia. It chose to give its Indonesian strategy a big push in May 1998, when the country was smouldering. President Suharto had been toppled. Indonesias wealthy ethnic Chinese, had ed Indeed, an innate understanding of the local consumer has given many domestic brands the edge. Several of them whether it is Nirma, CavinCare, Paras or Chandrika have posed a signicant threat to multinationals over the years. 10. 8 | ISBinsight | March 2006 the country. So had most foreign bankers. This is where Citibank saw an opportunity. Citibanks Asian retail business head ew down from the Singapore ofce and keptcashmachinesandelectronicpayment systems operating. Citi staffers greeted Indonesian refugees at the Singapore airport with placards that read, Citibank will help you. Come here. Needless to say, many Indonesians opened accounts with Citibank. Later, taking advantage of liberal new bank rules, Citibank opened 61 branches. The number of accounts rose 300 per cent from 1998 to 1999. In the rst 12 months of operations, Citi earned a 100 percent return on its $10 million investment in the new branches. Cultural issues are another risk multinationals need to keep in mind while devising their branding strategies. For instance, the Chinese are ercely patriotic. They want to buy Chinese goods, except in categories where the brands appeal is specically its Western origin. So dining out at McDonalds with family members is not perceived as appropriate due to the foreignness of the food and the brand. But young men love to take their girlfriends to McDonalds on dates since it offers an opportunity to experience Western food and concepts. This is how McDonalds is positioned in China. Habits and market situations also play a big role in the success of a brand. For instance, internationally, Philips compact uorescent lamps come with a lifespan of 10,000 hours. In India, their lifespan is 3,000 to 3,500 hours. In Europe, people leave their lights on through the day, whereas in India, people use bulbs for four to ve hours only, says Ramachandran. So, a 10,000-hour bulb will have a life of 10 years in India, and thats not required. The 3,000-hour bulb costs a fth of its 10,000- hour counterpart. So, Philips had to design a bulb keeping the save electricity habit (driven by high power tariffs) in mind. The developed world laps up labour- saving concepts such as ultra-powered dishwashing detergents, ready-made meals, washingmachines,etc.Inemergingmarkets, however, labour is cheap, and consumers are willing to forego convenience or time savings in favour of low price. According to Ramachandran, this can be dealt with by addressing the perceived value in the eyes of the consumer. If consumers are told that clothes washed in their washing machine are cleaner, softer, and have enhanced lives, they will buy it, he says. This is why the penetration of washing machines is on the rise. The means of knowing a market are plenty market research reports, selective consumer testing, seeking views from experts and consultancies, seeking a local partner who understands the market and so on. It helps to have a local management since they best understand the business environment and the regulatory norms. In fact, it is widely believed that Korean (From the left) M Rammohan Rao Dean, ISB; Partha Rakshit MD, ACNeilsen - South Asia; Vinod Giri Director - Marketing, SABMiller (India); Harish Bijoor CEO - Harish Bijoor Consults Inc.; Dipak Jain Dean, Kellogg School of Management; and Hemchandra Javeri President, Madura Garments 11. March 2006 | ISBinsight | 9 companies LG and Samsung have succeeded in India because they used local talent. Most multinationals have chosen to go local in order to get a larger piece of the pie. Advertising as an index will reveal that most multinational brands today are extremely localintheirorientationbeittheDominos Peppy Paneer pizza, or Sania Mirza selling HyundaiGetz.Itsglocalisationthatworks for global companies. The exceptions are premiumfashionlabels,high-endcosmetics, premium alcohol and IT products (like HP, IBM, SAP, Cisco etc) and B2B companies. The challenge is in coping with the developing markets innite heterogeneities. India is a case in point. Santosh Desai of McCann Erickson describes it as the many Indias within India. As he points out, Every geographical market is a different market. In fact, very rarely would you nd a brand that is a leader in all the four geographical regions of India. There are also stark differences between urban and rural markets in these economies. Take rural India. According to Partha Rakshit, Managing Director, ACNielsen South Asia, three bottlenecks grip the rural Indian market purchasing power, media reach and distribution network. Things have not changed much since the 1980s in the rural areas. Its only mass products such as soaps and detergents that have seen a rise in consumption. And even in detergents, it is Nirma rather than HLLs Surf that is actually consumed, says Rakshit. Lack of communication or media reach is another problem. Companies like Unilever and Colgate have tried to tackle that problem by putting video vans on the roads to show local movies with advertisements for their products. Companies also try to penetrate the rural market through sachet marketing. Sachets give access to a product and raise the aspirations of consumers who then aspire to buy a larger unit when their purchasing power increases. In fact, packaging is the rst differential that multinationals need to create for emerging markets. For instance, shampoos sold by multinationals come in smaller bottles in emerging markets, as opposed to developed markets. All the same, multinationals would be making a mistake if they assumed that emerging markets are not discerning. Today, for instance, consumers in urban India want the very best in technology be it cars, mobile phones, television sets or washing machines. And inability to provide them the best often leads to failure. Take the example of Ford, which came into the market with a dated product Ford Escort in 1996. The car lost out to competition and the US car major was forced to design a product specially suited for emerging markets. This new mid-size car Ford Ikon is now sold in India, South Africa, Mexico and China, albeit under different brand names. Italian carmaker Fiat also brought a dated product into India. It entered the Indian market in 1997 in a joint venture with Premier Automobiles. Before that, The developed world laps up labour- saving concepts such as ultra-powered dishwashing detergents, ready-made meals, washing machines, etc. In emerging markets, however, labour is cheap, and consumers are willing to forego convenience or time savings in favour of low price. ICOVERSTORY 12. 10 | ISBinsight | March 2006 ICOVERSTORY Premier had a license to sell Fiat cars, which were mainly used as taxis. So, Fiat had brand perception problems at the very outset. Fiat tried to sell the Uno in 1997 on the platform of a secure and reliable workhorse. Fiat sold a product that was inferiortotheproducttheysoldelsewhere, says Goodman. So the taxi and jalopy brand perceptions were reinforced. As competition rolled in, the Indian consumer was able to compare Uno with the other products. The result Fiat lost out in the Indian market. In contrast, Fiat is a runaway success in Brazil. As of 2005, it was the market leader in Brazil with a 25 per cent market share, followed by General Motors. Fiat Palio and Fiat Uno are amongst the ve largest selling cars in Brazil. So, there is no dened rule that can explain why one product fails in one emerging market and succeeds in another. This applies to intra-country markets as well. Take the case of Coke. The thanda matlab Coca-Cola campaign ran across India, barring the south. This region has always had a different set of advertising. Then again, you cant have a dozen different strategies because the costs will be huge and the error quotient will go up drastically. Investing in the right kind of distribution in emerging markets is important. Multinational products would benet from being multi-layered, using a mix of direct delivery, wholesalers and distributors. This is a challenge that multinationals, more often than not, shy away from. However, the rewards of developing a ground-up distribution are high. This is illustrated by Procter and Gambles strategy in Russia. It rapidly expanded market coverage by appointing promising local distributors in whom it invested in terms of information technology, vans, working capital and training in exchange for a commitment to exclusively distribute P&G products. As a result, P&G became the only foreign competitor across Russia, outside of markets such as Moscow and St Petersburg. While it is true that global brand values cannot change drastically across geographies, relevance and value to specic consumers count. This is the challenge every multinational faces as it tries to penetrate emerging economies. Desai points out that it is vital not to overestimate a market. In the nineties, the Indian middle-class was pegged at 200 million. Soon, foreign investors realised that the middle-class had actually been over-estimated by a whopping 170 million. Today,thepictureisverydifferentasthe spin-off benets of globalisation are making developing countries more prosperous. For multinationals struggling with marginal growth in saturated developed country markets, emerging economies India and China in particular are being viewed as the next Big Thing. Those that learn to understand the needs of these consumers could well have found their El Dorado. Ikshaa The Marketing Summit: Valuable Insights Ikshaa The Marketing Summit, organised by the Marketing Club, generated valuable insights from a stellar list of speakers who were leaders from the industry, and academic gurus in marketing and in consultancy. The theme of the summit was Marketing in 2020: Are Marketers Ready? The summit brought out interesting perspectives from the speakers. There was consensus on the view that the Indian consumer would be increasinglypowerfulinthefuture,thatthesmallertownsinIndiawouldsee tremendous growth, that the rural population would reduce considerably in numbers, and that every product would eventually become a service, bringing relationship marketing to the fore. What was singularly noteworthy was the effort of students at putting together a top-of-the-line marketing summit. The success of Ikshaa was made possible owing to the untiring efforts of a dedicated team of students who have put in much hard work despite their hectic study schedule. We are happy that the event has set a benchmark for future batches at the ISB, said Aakash Shah, Co-ordinator, Ikshaa, Class of 2006. Speakers at Ikshaa: Dipak Jain Dean, Kellogg School of Management Girish Bapat VP Marketing, LG (India) Harish Bijoor CEO, Harish Bijoor Consults Inc. Hemchandra Javeri President, Madura Garments Partha Rakshit MD, ACNielsen (South Asia) Vinod Giri Director Marketing, SABMiller (India) Participants at Ikshaa 2006 13. March 2006 | ISBinsight | 11 G iven the complexities of branding for developing markets, how can companies best leverage their local and global brands to create opportunities? The following sections discuss some strategies. Strategy #1: Make Your Global Brands Local Companies such as MTV and HSBC have shown the power of creating a global, recognized brand that is tailored to individual markets. HSBC uses a decentralized management structure to ensure that local brands are responsive to their markets, a strategy reected in its tagline of the worlds local bank. As an indication of the breadth of its reputation, in 2004 HSBC was named Global Bank of the Year by The Banker magazine, the Most Admired Corporate Brand by Asiamoney magazine, and the Worlds Best Bank by Euromoney. Five years after the launch of the global brand in the late 1990s, HSBC was already rated among the top 50 global brands. The HSBC logo may look the same around the world, but this similarity masks the fact that it is seen as a local brand across more than 90 countries. In most countries in which we operate, we are perceived to be a local brand, said Aman Mehta, former CEO, in an interview. It has been a great success story in branding. For the strategy to be successful, HSBC has to have a superior product behind the brand, and operations really have to be local. The main point in talking about a local bank is demonstrating to the customer that you are totally steeped in the local economy, Mehta said. Even if a company talks about being local, it cannot wave a magic wand and become local. People have to be convinced of that over a very long period of time. HSBCs approach can be contrasted to Citibank, which created a more homogeneous culture and retained its identity as a U.S. bank. Mehta said that this global brand was not established overnight. In most of the geographies in which we operate, we have been working there for a very long time, often 100 to 150 years, he said. We adoptedaglobalbrandstrategyonlywhenwe were quite sure it would be more powerful than local brands. When HSBC decided to use a global brand, intense debates resulted. One of the brands in the UK, Midland, had been in use since the 17th century. But the global brand with a local strategy prevailed. This was not done lightly, he said. In a speech in May 2004, HSBC Holding Group Chairman Sir John Bond noted that the same telecommunications and other technologies that have brought developing market outsourcing rms to the developed world are bringing global brands back home to the developing world. The value of branding in a globalized world is enormous, he said, adding that brand value will be more protable than the value gained through offshoring service jobs. Recognizing the diverse languages of different parts of the world (see the following sidebar), MTV has localized its brand around the world, as discussed in more detail in Chapter 5, Think Young. MTV India broadcasts primarily in Hindi, the dominant language of India, but it faces competitors broadcasting in Tamil, Telugu, and Punjabi. The company is considering launching or acquiring stations to reach listeners who dont speak Hindi, which is the primary tongue of only 30 percent of the population. Microsoft created a platform for localizing the language of its Windows XP software. Through its Local Language This article is an excerpt from the book The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the 21st Century by Vijay Mahajan and Kamini Banga. Vijay Mahajan is a former Dean of the ISB, and current holder of the Harbin Centennial Chair in Business at the University of Texas in Austin, and Kamini Banga is an independent marketing consultant. Strategies for ICOVERSTORY Harnessing Local Brands 14. 12 | ISBinsight | March 2006 ICOVERSTORY Program, the company announced plans in March2004todevelopWindowsandOfce software in 40 languages over the following year, building on versions in the Ethiopian language of Amharic and Ukrainian and other languages. The company announced plansinNovember2004torolloutsoftware in the 14 ofcial languages of India. The brand is still Microsoft, but the experience will be quite different for people in different regions. This tailoring of the brand to these local markets within markets, making it relevant, will help Microsoft respond to the threat of open-source software such as Linux and expand the use of computers in these countries. Although they are smaller than the total national market, these local markets are not small by any means. The Telugu-speaking area in Andhra Pradesh has a population of nearly 76 million people a market about the size of Egypt. The Tamil-speaking region of Tamil Nadu has more than 60 million people, about the population of the UK. As the market matures, MTV envisions that the Indian market might be treated like Europe, with different programs for different countries. Plans for Disneys Hong Kong Disneyland theme park call for local foods and programs in two Chinese languages in addition to English. Disney also consulted a feng shui master in designing the park. After learning hard lessons with the initial missteps of EuroDisney, Disney realized that it needed to nd a delicate balance between preserving the attraction of a distinctly American brand and tailoring the experience to local tastes. Strategy #2: Use Local Brands to Establish a Market Presence Localbrandscanbeagreatasset,particularly in building a presence in a market. Anheuser-Busch recognized the value of local brands in acquiring Harbin. HSBC spent a century working with local brands in different countries before bringing them under the banner of its global brand. Around the world, Coca-Cola has relied heavily on local brands to go where its agship brand could not go. By 2004, the company owned more than 400 brands in 200 countries, earning about 70 percent of its income from outside the U.S. In Africa, the company sells 80 brands, with local beverages such as Sparletta, Hawai, and Splash. Coke has taught the world to sing, but in different languages. In China, Coca-Cola offers water and tea products under its locally developed Tian Yu Di (Heaven and Earth) brand, a successful carbonated juice-avored drink called Smart, and a noncarbonated juice drink called Qoo, developed in Japan. It became the leading Asian juice drink in just two years. These global sales are increasingly important to Coca-Colas future. While its 2003 sales growth was just 2 percent in the U.S., sales grew 16 percent in China, 22 percent in India, 14 percent in Thailand, and 10 percent in Mexico. Groupe Danone SA, the French-based maker of cookies, yogurt, and mineral water, built a growing business in China by acquiring shares in local brands and by developing products for China under its own brand. By 2002, China had become its third-largest market, about equal to its sales in the U.S. The company reported growth in China of 10 percent over the prior year and prots higher than the global average. Its growth was driven by the acquisition of controlling stakes in Hangzhou Wahaha Group and Guangdong Robust Group, the leader in the nations bottled water business. eBay has entered India, China, and other parts of the world through local acquisitions. Its international strategy has been to look for mini eBays, local companies that reect the spirit of the original online auction company. This includes the acquisitions of EachNet and Baidu in China, the acquisition of Baazee in India, and a majority stake in Internet Auction Co. in Korea. Despite eBays strong brand recognition around the globe, these local brands represented particularly important portals into countries with growing Internet presence and limited retail reach. The complexities for global companies in managing these local brands can be seen in the arrest of the head of eBays Baazee unit in India in 2004 after a pornographic video clip was offered by a seller on the site. The manager, a U.S. citizen, faced up to ve years in jail or a ne of 100,000 rupees (about $2,285) for violating Indias Vijay Mahajan Former Dean, ISB; and Harbin Centennial Chair in Business, University of Texas, Austin 15. March 2006 | ISBinsight | 13 Information Technology Act. Did the high prole of the parent brand contribute to the ofcial attention? Strategy #3: Grow Your Own Local Brands When Possible As Anheuser-Busch found with Harbin, acquiring local brands can be an expensive strategy. While some local brands are based on century-old local dynasties, it is possible to create new local brands that pay close attention to market needs. In India, the detergent brand Nirma was created in the 1960s by Karsan Patel, a chemist who made detergents in his backyard and sold them on a bicycle. Today, the brand has 15 percent of the Indian detergent market. In response to the success of Nirma and other brands, Hindustan Lever established its own low- priced local brand, Wheel, in the 1980s. This new brand allowed the company to meet the needs of price-sensitive consumers without eroding the position of its established brands. Wheel, with a free- standing organization, became one of the dominant brands in the country. Nirma built its brand by recognizing an opportunity in the consumer shift from low- costlaundrysoaptomoreexpensivewashing powder in the 1970s. Hindustan Lever and other major global rms concentrated on the high-income segment that was already using washing powder while most Indians still used economical laundry soaps. The laundry soap market was large and growing, but no one was making an effort to convert users to washing powder. Nirma moved into this local vacuum. Strategy #4: Recognize That Brands May Mean Something Completely Different Global brands may lose something (or gain something) in translation. Brands that may stand for certain qualities in the developed world may have a completely different meaning in the developing world. Companies often expect their established brands to be greeted with open arms as a sign of development and sometimes they are. But global brands may be virtually unknown in rural areas, conveying little advantage. In many cases, the value added by a global brand is homogenized to one key value proposition its foreignness. To the extent that this foreignness may add value, the brands may have value in developing markets, but for different reasons than in the developed market. For example, fast-food brands such as McDonalds, Pizza Hut, and KFC are considered upscale in developing markets. Their Western image raises the level of their brand among customers who want to be connected to the global village. This is contrary to their image and reputation in the developed world, where they are near the bottom of the food chain in luxury dining. Because of these differences in how brands are interpreted, companies need to take care in rolling out brands in the developing world. Managers need to carefully assess what the brands mean in different regions. Strategy #5: Address the Liabilities of Global Brands While global brands appear to have many advantagessuchasdeveloped-worldcachet and broad recognition they also suffer from liabilities. Multinational companies need to address these liabilities, while local rivals may be able to benet from them. For example, anti-American sentiments helped Mecca Cola challenge Coke and Pepsi among Muslim customers in Paris and other parts of the world. As well as aiding Quibla Cola in the UK and Zamzam Cola in Iran. These products are purchased by customers who like the appeal of cola but object to Coca-Colonization. The complexity of global and local branding can be seen in the success of Cola Turka in the Turkish soft drink market. This brand was launched in 2003 with advertising featuring U.S. actor Chevy Chase (popular in Turkey for his National Lampoon movies). It was a decidedly nationalistic brand promoted by an American celebrity who sang a traditional Turkish Boy Scout song and a Turkish-language version of Take Me Out to the Ballgame in advertising spots. This odd mix of local and global positioning led to a highlysuccessfullaunch,provokingsignicant price cuts by Coca-Cola and Pepsi. Global brands also have to be careful about attacks on local rivals and sensibilities. When a Toyota ad in a Chinese magazine showed a Toyota truck towing a Chinese rival up a muddy hill, Chinese customers were not amused by ICOVERSTORY Kamini Banga Marketing Consultant 16. 14 | ISBinsight | March 2006 this direct attack on a local brand. Toyota apologized and pulled the ads. Similarly, a Nike television ad showing U.S. basketball player LeBron James defeating a cartoon kung fu master and a pair of dragons was banned by the government for offending the national dignity. Local brands sometimes are helped by local distribution networks and regulators, who favor local players. Government regulators often side with the local brands over large foreign rivals. For example, Chinese courts in Beijing ruled against Toyota when it charged that local competitor Geely had ripped off the Japanese car companys marquee. The court ruled that the logos were not that much alike and that consumers were not dumb enough to confuse Geely cars with pricier Japanese models. Although it is important to recognize the impact of anti-global and anti-American sentiments on the value of brands, this impact should not be overestimated. As protesters are throwing rocks at American fast-food restaurants, their compatriots are continuing to purchase dinner there. A 12-country study of 1,500 consumers by Douglas Holt, John Quelch, and Earl Taylor found that the antiglobal segment (not anti-American) constituted just 13 percent of the market. Global citizens, who believe global brands, signal high quality, made up 55 percent. Global dreamers, who see global brands as a way to connect with the global village, accounted for 23 percent of the market. This means that nearly 80 percent of the market continues to nd value in global brands. Strategy #6: Stretch Brands Without Breaking Them Companies also need to be able to stretch their brands without breaking them. In 2004, Coke moved out of the major cities in China and India to push deeper into the smaller cities and towns, offering small bottles and low prices of about 12 U.S. cents per serving. The challenge was to address these markets without eroding its urban image. One Coca-Cola advertisement for rural Chinese markets shows a popular comic actor drinking Coca-Cola and closing the ad with a burp. The spot is in sharp contrast to its urban advertising, which positions Coke as a sophisticated drink for the rising middle class. While Pepsi has focused more on the cities, Coke holds a 55 percent share of Chinese sodas overall, compared to 27 percent for Pepsi. But will its more countried image in rural areas erode the brand among urban customers? Procter & Gamble was able to navigate this brand-stretching successfully in China. It moved its Crest toothpaste brand, which held more than half of the high-end segment by 2000, into the middle and low ends of the market. The company launched a cheaper, rural offering under the same brand, using cheaper ingredients, priced 30 percent below its premium brand. Its marketing emphasized cavity protection over the whiter teeth that were important in the premium segment. Crests share of the middle market in China more than doubled from 5 percent to 12 percent from 2000 to 2002 while its premium products also increased market share from 5 to 8 percent. Surrogate brands can also be used to stretch brands. Because of constraints on liquor and cigarette advertising in many parts of the world, companies have launched surrogate brands. The company can market soda or distilled water under the same brand as the alcohol. This builds awareness of the brand without violating rules against liquor advertising. Religious restrictions often require creative solutions to branding. In Islamic countries, womens apparel, jewelry, and fashion accessories are advertised without using models because a womans face cannot be shown. Advertisers work around this by showing silhouettes or women with their faces turned to the side, or they use Western models, because the restrictions dont apply to them. These ads can be creative and effective. While typical Western advertising focuses on diamonds and other jewelry as a sign of caring, such emotional appeals do not work in Islamic markets. Instead, jewelry is positioned as an expression of wealth, prosperity, and security. Dubais Emirates Airline, using its central location to become one of the ICOVERSTORY 17. March 2006 | ISBinsight | 155 fastest-growing airlines in the world, has worked around concerns about hiring Muslim women as ight attendants by relying primarily on foreigners. Strategy #7: Put the Brand on Wheels (or Legs) To develop brands in rural villages, companies have used banner advertisements on elephants and video vans to build brand awareness. Colgate-Palmolive, for example, drives vans into rural villages to build brand andproductcategoryawareness.Thesevans, designedtointroducevillagersinIndiatothe concept of brushing teeth, show half-hour infomercials on the benets of toothpaste and then distribute free samples. Whereas the company might ght for a share of the supermarket shelves in cities or developed markets, in these rural villages, competition comes from local preparations made from charcoal powder and the neem tree. These local rivals have a signicant advantage in distribution because their products can be found in the surrounding countryside. Companies also team up with nongovernmental organizations (NGOs) to promote toothbrushing or other aspects of personal hygiene by combining product promotion with social action. In media- deprived areas of the world, brands may rely much more on word of mouth and village leaders to develop the brand. Brands on the Run Branding in emerging markets denes simple formulas. These markets are neither entirely local nor entirely global, but a mix of global, national, and local brands. The success of small local brands can build new national and even global brands, such as Samsung, LG, and Haier. For certain segments and products, global brands are more appealing, but even these need to be positioned and tailored to local culture and tastes. The important thing is to recognize that markets tend to be more fragmented and branding and positioning more localized than in developed markets. It may seem obvious that companies need to think about their branding strategy country by country and even local market by local market within countries. Companies need to develop a coherent portfolio of global and local brands. Such portfolios are apparent on the websites of companies with sophisticated global branding strategies, such as LG Electronics and Sony. They offer diverse home pages tailored to different countries showing different languages, customers, and products based on the countrys specic needs. While LG Electronics overall tagline Lifes good is the same, what a good life means is interpreted market by market. In contrast to this extensive tailoring, some companies merely translate language or have only a local identity online. The portfolio of global and local brands should be shaped by the companys brands and the demands and characteristics of specic markets within a given country. Companies need to become skilled at managing and balancing these complex portfolios based on insights from specic parts of the market. One key is to understand the roots of success for products and brands that are already successful in each market and to recognize that brands may have different meanings in these markets. What makes these brands attractive to this specic segment? Do You Speak Hinglish? Think English is the language to know for business? Maybe not for long. Consider that Mandarin Chinese has the largest number of speakers in the world - a billion, including second- language speakers. This is followed by English, with about half as many speakers, and then Spanish, Hindi, Arabic, Bengali, and Russian. If you want to work with the 86 percent world, you need to speak the languages of the 86 percent. Even English is being affected by the rise of the developing world. Former P&G-India CEO Gurcharan Das has commented that if the 19th century was the age of British English and the 20th century the age of American English, the 21st century may well be the era of Hinglish a combination of Hindi and English used by Indian speakers. ICOVERSTORY 18. 16 | ISBinsight | March 2006 R 1400 R 16000 R 4500 R 900 R 1200 R 600 R 1200 R 800 R 1400 R 16000 R 4500 R 900 R 1200 R 600 R 1200 R 800R 1400 R 16000 R 45 00 R 900R80 I t has been ten years since the revolution began. I am referring, of course, to the Internet. I browsed the Net for the rst time in 1994. The browser was called Mosaic. There were a handful of websites then, and search engines with names like Archie, Veronica, Gopher, and Jughead none of which exist now. Back then everyone was proclaiming how our lives would be changed forever by this new invention called the Internet. Traditional bricks-and-mortar stores would disappear.Sowouldthedifferencesbetween television and computers. Everything would converge. We would all be shopping for groceries on the Net and watching television on cell phones. Even business paradigms changed. Investment in online enterprises didnt require prots to justify. Price-earnings ratios didnt matter either. What was important was that the start-up had eyeballs: page views for its website. The ght for market share became a ght for eyeballs. Both revenues and prots would eventually come. How? From stickiness and network externalities. Such were the assumptions behind the dot-com boom of the late nineties. Well, the dot-com boom came and went. Investors realized that prots and price-earnings ratios were important after all. Business schools, which went into a tizzy creating Internet-based curricula, suddenly found that these courses had few takers. It was back to the basics. So what really changed? Did the Internet have any impact? I want to argue here that the answer is yes to those questions. The Internet has had a big impact, and the impact is continuing. But away from the media headlights, it is a quiet revolution. The revolution is in The Emerging Consumer. Its impact in the Indian context is perhaps years away, but the developed markets already present a case study of what to expect. As advertised, the Internet has reduced the costs of searching for information. Some people have interpreted this to mean that the role of product and service differentiation has disappeared, that branding is dead. Neither is correct. Both of those concepts remain important, and arguably even more important than before. What has changed is the nature of branding. How you differentiate, rather than whether you differentiate. How you brand, rather than whether you brand. Take online retailing. Retailing can be described on several dimensions: product assortment, own brands, shopping convenience, ambience, and service pre-sale and post-sale. All these dimensions are available to the online retailer for differentiating itself. The ambience of the website takes over from the ambience of the bricks-and-mortar store. Shopping convenience and pre- sales service take the form of how easy or hard it is to navigate the website, to nd the information you want as a shopper. The Emerging Consumer The author of this article, Professor Sridhar Moorthy, is Professor of Marketing at the ISB, and Manny Rotman Professor of Marketing at the University of Toronto. 500 Y 680 Y 4000 Y 2010 Y 5000 Y 540 Y 12000 Y 460 Y 1300 Y 80 1 0 1 0 2 0 2 Y 0 Y 00Y06060 R6R0R0R0606 Y0Y00Y03030 0 R 0 R 0 1 0 1 0 1 0 12 0 2 Y 0 11000 Y 3500 Y 4000 Y Y 680 Y 4000 Y 2010 Y 500 0 Y540Y12000 0 12 19. March 2006 | ISBinsight | 17 Of course, what is missing is the hands on touch-and-feel experience, and the instant gratication of the real store, but this can be seen as a problem or as an opportunity. What the consumer is looking for is assurance that she will get what she desires, at the time it was promised. A reputation for accurate product descriptions and a reputation for on-time delivery provide these assurances. They also provide avenues for differentiation and branding. But note well that the online retailer has to earn this differentiation. It cannot be done through advertising. The retailer has to provide good service in order to develop a reputation for good service. While advertising might get you the rst order, how you perform on that rst order will determine whether you get repeat business and good word-of-mouth. For the manufacturer I would argue that branding and differentiation have become harder. The reasons are two- fold. First, a primary means of branding is losing effectiveness. I am referring to television, the mainstay of branding for consumer goods for a millennium, which is rapidly losing its importance with the growth of the Internet. Consumer media habits are changing. Instead of watching television, the consumer is browsing the Net. And when she watches television she is increasingly skipping the commercials. TiVo-type personal video recorders are booming in North America. One of the chief attractions of these devices is that not only can the viewer time- shift his/her viewing, she/he can avoid the commercials while watching her favourite shows. Take away television, and imagery- based branding has become almost impossible. The advertising possibilities made possible by the Internet banner ads, pop-up ads, and spam are a poor substitute. They dont have the richness of TV advertising a requirement if you are trying to differentiate via imagery. Plus, they have a bad reputation. In a recent survey by Forrester, spam and pop-up ads were the least trusted advertising media. They were also the most annoying. The consumer on the Internet doesnt seem to be open to be marketed to. Thesecondreasonbrandinghasbecome more challenging is that advertising is not the only source of inuence for consumers. They are talking to other consumers. Word- of-mouthisnotanewconcept,ofcourse,but what has changed is its scale and scope, its speed, and its effectiveness as an alternative channel. The new word-of-mouth doesnt look like the old word-of-mouth. In fact, it doesnt involve talk at all, but rather reading and writing in blogs, discussion forums, news groups, and review sites (like Epinion). And you dont need to know someone to disseminate your opinions or access theirs. Just enter the name of the product you are seeking information about into a search engine like Google and dozens of word-of- mouth sites pop up. There is even a name Professor Sridhar Moorthy The new word-of-mouth doesnt look like the old word-of-mouth. In fact, it doesnt involve talk at all, but rather reading and writing in blogs, discussion forums, news groups, and review sites (like Epinion). 00 R$ 360 R$ 6000 R$ 9000 R$ 760 R$ 800 R $ 4000R$760R$900R$400 0 R$ 490 R$ 7000 R$ 00 R$ 360 R$ 140 0 Rs 18000 Rs 200 Rs 900 Rs 1000 Rs 5500 Rs 60000 Rs 25000 Rs 1900 Rs 900 1400 Rs 18000 Rs 200 Rs 900 R $ R $7 R 7 s 7 s 7 1000 Rs 5000 Rs 6000 Rs 5500 Rs 4000Rs 55 000 20. 18 | ISBinsight | March 2006 for this new generation of word-of-mouth: Consumer Generated Media (CGM). Or you could call it word-of-mouse. How does word-of-mouse differ from word-of-mouth? First, it is more organised. Second, it is faster. Third, its reach is wider you are not limited to your friends, relatives and neighbours. Put it all together, and you have a potent new means of communication. Put it in conjunction with the decreasing power of television, and as a marketer, you have big branding problems. What to do if you are a marketer? One the one hand, you may nd solace in the fact that while fewer eyeballs are watching advertising on television, the ones who do, may be more responsive to it. But these may not be your most desirable targets in terms of revenue potential. Research indicates that they are likely to be the lower socio-economic groups. What other means of communication can you access to reach the more promising targets? Print magazine readership, apparently, is holding its own in the face of the Internet. That remains an avenue for developing awareness of new products and services and for brand- building, but as is well-known, the kind of branding you do in the print media has to be more factual and performance- based than imagery-based. The retail environment is increasingly seeing the invasion of television, and that arena may be ripe for more advertising. But will TV ads work as well in the noisy environment of a store? The movie theatre may be a more congenial environment. Two-thirds of the respondents in a recent Arbitron study said they wouldnt mind more advertising in the movie theatre. Speaking of movies, product placement in movies is growing, and will continue to grow. The bottom line is that the consumer is becoming more elusive, and hard to reach. Integrated marketing on multiple media is a necessity now. Thenatureofbrand-buildingchangesas aresult.Forhigh-ticketitems,theconsumer will research the Internet and nd out what reviewers and other consumers are saying. If you provide good value, then you have nothing to fear. That value becomes your brand. If you dont provide good value, then you need to quickly nd the means to become competitive or else For low- ticket items, where the differentiation has traditionally been on imagery, the point of decision-making shifts to the store. Here the retailer is king. Instead of media advertising, merchandising at the point of sale becomes important. This is the reason trade promotion spending has exceeded advertising spending in the U.S. for many years now (56% versus 19% of total spending in 2004 according to ACNielsen). The movement towards retailer-branded products, i.e., private-labels, will continue as well. Already, in many countries in Europe and North America, private-label shares exceed 50% in some categories. Aldi, a German retailer, generates over 85% of its sales in private-labels. The Indian marketing environment is different, of course. Broadband penetration is still in its nascent stage (only 3 million subscribers in 2005 versus 40 million in China); the neighbourhood kirana store still dominates retailing; and personal video recorders are virtually non-existent. Together with rising disposable incomes, it would seem that the power of media advertising to create brands and move products has never been stronger. But going forward, it would be hard to argue that The Emerging Consumer will not emerge here. ICOVERSTORY The bottom line is that the consumer is becoming more elusive, and hard to reach. Integrated marketing on multiple media is a necessity now. 21. March 2006 | ISBinsight | 19 A seemingly permanent characteristic of management buzz on various fora is a focus on change and trend- spotting. Themes such as The Future of X, New Y Paradigms for the New Decade, where the X or Y could be advertising, or marketing, or supply chain management, or retailing, or inventory control, abound in these fora. As do themes like How Z Will Transform Your World, where the Z could be the internet, or discount airlines, or the WTO implementation, or September 11. Somehow, it seems inevitable to all of us, that the future will be very different in fundamental ways. And that every new phenomenon will change the world forever. A corollary of that is, that if we do not do something drastic right now in anticipation of the future, then we will be crippled, or worse, cease to exist. However, the obsession to consistently worry about the future can also lead to ignoring the need to continue to improve our understanding of the basic principles of sound marketing today. Surely, the specics of the marketing challenges of a particular space and time, matter to a product or brand manager. On the other hand, we still have a lot to learn about the fundamental nature of competitive and consumer response, regardless of whether the environment is the emerging economies or the more advanced ones, and whether in the year 1975 or 2025. Academic research, often derided for ivory tower mentalities, focuses almost exclusively on that kind of basic research developing new theories as well as methods. Academic research in marketing is a fairly young phenomenon, most major academic journals in marketing being just 2-3 decades old. The focus of this research is not on selling product X to consumer segment Y in country Z. Instead, the focus is on understanding how various kinds of sales promotions work, how advertising affects consumer memory, or how companies should respond to price cuts amidst rapid technological innovation. I recently heard a prominent American newspaper association spokesperson talk about how the newspaper industry had changed completely all over the world. He also shared many examples of how newspapers were doing many different things to combat competition from other news sources. Yet, he continued to dene his business throughout as the printed broadsheet that the printing presses put out each morning! He spoke about all the other things that the newspaper companies were doing to combat the changes, but continued to see the print newspaper as his business. An advertising agency leader recently spoke to my students here at the ISB about how ad-agencies do not see creating television advertising spots as their main product anymore, and are moving to many other innovative media like music videos, organising ash mobs, sponsorships, events, etc. These are important trends, and they are triggered by changes in technology and by how consumers seek information as well as get entertained. However, the basic nature of these businesses has not changed, and perhaps never will. Not if they think of their businesses as not the printed word or the TV spot, but meeting the information and communication needs of the audience/ clients. And when business is dened in these fundamental ways, theory-building research that asks fundamental questions about the nature of competitive and consumer response, becomes a powerful source of knowledge. The author, Professor Seshan Ramaswami, is Associate Professor of Marketing at the ISB, and Associate Professor Strategic Marketing, Singapore Management University. This article is based on his talk at the Diamond Jubilee Symposium Future of Advertising organised by the Advertising Agencies Association of India (AAAI). An Academic Perspective on Measuring the Impact of Advertising in a Cluttered Environment ICOVERSTORY Shouting Over the Fray 22. 20 | ISBinsight | March 2006 Consider the specic problem of advertising in a cluttered environment. The problem is acute in mature economies, where many brands compete viciously for market share in a saturated industry. But increasingly, emerging economies are beginning to face this problem as well. In the emerging economies, growth in industries is often accompanied by the rapid growth in the media businesses too. For example, there have been two major newspaper launches in Mumbai in just the last few months, and new television channels and internet websites continue to proliferate on a daily basis. More and more brands are ghting to grab the attention of the consumer, whose availability in terms of advertising processing time or space has not increased. InmyAdvertisingcourse,Iforcedyes, it is a tough course! my students to watch twenty minutes of live cricket programming duringtherecentlyconcludedIndiaPakistan cricket Test series. Their assignment was to track every single brand name that they were exposed to during that time on players clothing, bats, the umpires coats, the scoreboard, the various pop-ups and clip-art videos celebrating boundaries and wickets, the brands advertised around the boundary, in signs that the stadium audience was holding up, etc. They had to observe the placement of the various brands and comment about which brands were getting the greatest value for money. The students listed anywhere between 12 to 40 brands in all. My own study during a Test match a couple of years ago in Chennai resulted in noting some 37 brands in a 30 minute period. It is interesting that even under conditions of concentration, there is such variance in the number of brands listed. What is even more certain is that not more than a few of those brand names will be consciously recalled by even the most avid cricket viewer. I routinely show clips of television programming interspersed with one pod of advertising in my consumer behaviour and advertising courses at the ISB, and test for unaided advertising recall right after the clip is shown. The explicit recall of brand names, let alone brand associations and advertising messages, is almost never more than 5-6 out of the 12-13 brands that get exposure in these clips. And this is a highly concentrated and quiet classroom environment which should maximise the possibility of accurate and full recall relative to the regular noisy television viewing environment. There is plenty of money being spent on outdoors advertising, on transit modes including innovative uses such as Air Deccans use of the media of plane exteriors, luggage hold doors on aircraft interiors, luggage tags etc. It is very difcult to measure the impact of these media spends on the long term equity of the brands being advertised. Conventional measures of sales and market share are unlikely to reect the unique effects of the advertising spend, un-confounded by other marketingactivitysuchastradepromotions, distribution changes, etc. The effects on building memory links of the brand with the category, or of the brand with positive associations, as a consequence of these expenditures, will not show up in the sales gures, or even in the conventional day after recall measures. This is where academic researchers in marketing can contribute. Academic researchers begin with a theoretical base, which is not dependent on either the product or the locational context (whether emerging markets or advanced ones) or even on consumer segment. They are endowed with a rich set of methodological tools, experiment designs, and economic and statistical models of how both competitors and consumers respond to marketing activity. This background of theory and methods allows them to contribute to a greater understanding of the effects of advertising even in a cluttered environment. Professor Seshan Ramaswami Armed with the rich base of theory and methods, academic researchers are able to unearth effects of marketing expenditure which would be missed by the conventional commercial market research measures of unaided and aided recall and sales gures. ICOVERSTORY 23. March 2006 | ISBinsight | 21 I present three examples: The rst is a paper by Angela Lee and Aparna Labroo. In a series of experiments, they describe how the uency or ease of processing a brand name (or a logo or packaging) can lead to greater liking for the brand name. Thus, someone exposed to a lot of cricket broadcast may have little or no conscious recall of the multitude of brands that she/he was exposed to. Yet, the repeated exposure of the brand name in the background of the game in progress could lead to greater familiarity with, and also greater ease of processing that brand name in a competitive set. When someone enters a self service outlet like a supermarket or some of the modern self service retailers of shoes, electronic items, etc., certain brand names, models, packages may grab your attention and also evoke your liking spontaneously. Thus advertising exposures may affect your preferences even while you have little conscious awareness of that exposure. There is signicant risk in evaluating advertising expenditure only in the short run. A stream of research by Marnik Dekimpe and Dominique Hanssens uses data from the pharmaceutical industry. They evaluate the impact of advertising in medical journals using sophisticated time series analyses of data on ad spend and sales over a long period. They are able to isolate, with some precision, the effects of such advertising. Heres a sample result from their work: each $1000 advertising shock generates immediate prescription increases of 70, which amplify to 83 in the long run. A third stream of work by Leonard Lodish and his colleagues, is based on a series of advertising eld experiments using split cable technology. These experiments are enabled by split cable technology which allows the broadcast of a differentiated level of ad spend to different sets of consumers on a random basis. For example, every second household can be separated into a different group, and the two groups can be exposed to normal ad spend versus twice the normal ad spend. Their summary of multiple experiments in many categories reveals interesting results about the effects of advertising. One illustrative nding is that concentrating TV advertising versus spreading it across a longer time period results in larger brand sales. Armed with the rich base of theory and methods, academic researchers are able to unearth effects of marketing expenditure which would be missed by the conventional commercial market research measures of unaided and aided recall and sales gures. Getting a more sophisticated understanding of how the marketplace operates at a fundamental level can lead to rich rewards in the long run to companies that help to foster and fund such research. Research focused schools like the Indian School of Business, which attract many leading scholars of marketing to teach as well as to participate in academic and industry research, can be a great source for professional marketers to tap into to improve their arsenal, and for the use of their arsenal of marketing tools. ICOVERSTORY When someone enters a self service outlet like a supermarket or some of the modern self service retailers of shoes, electronic items, etc., certain brand names, models, packages may grab your attention and also evoke your liking spontaneously. 24. 22 | ISBinsight | March 2006 George W Bush, President of the United States, and David C Mulford, US Ambassador to India, at the grand Atrium of the ISBs Academic Centre. 25. T he ISB grabbed headlines the world over for a different reason recently. George W Bush, President of the United States, visited the ISB on March 3, 2006. It was the rst time that a US President had visited a business school in India. Rajat Gupta, Chairman of the ISB (Former Managing Director of McKinsey and Senior Partner Worldwide), received the President along with Professor M Rammohan Rao, Dean, ISB. We are delighted that President Bush has chosen a premier management institution like the ISB for his visit. This is indeed a prestigious event for us, said Rajat Gupta. The President was accompanied by US Secretary of State, Dr Condoleezza Rice, Mr David C Mulford, US Ambassador to India, and a few other ofcials. First Lady Laura Bush joined President Bush later at the ISB, after the conclusion of the Roundtable with the group of entrepreneurs, which was held at the Atrium of the imposing Academic Centre. Earlier, the Chairman and the Dean of the ISB briefed the President about the history of the school, and about the remarkable progress that it had made since the ve years of its establishment. The ISB has emerged as a world-class business management institution within a short span of time. We highlighted the success of our one year post graduate management programme to the President. We took the opportunity to emphasise our focus on entrepreneurship and cutting-edge research, especially relevant to emerging economies, said Dean Rammohan Rao. At the Roundtable, President Bushs interaction with the entrepreneurs focused on various aspects of Indo-US relations. To an audience consisting of members from the entire ISB community faculty, staff and students, who anked the Roundtable on both sides President Bush spoke on a wide range of topics that included free trade, protectionism policy, outsourcing, the civilian nuclear deal, alternative sources of energy, the growing importance of India in the global economy, and the emergence of middle-class Indians as a precursor to the growing entrepreneurial might of Indians. One of the reasons that I wanted to come to the ISB is that, as I understand it, it is a Centre of Excellence in education. It is a new school using innovative tools necessary to succeed. These words were part of President Bushs opening remarks during his address at the Atrium. I am honoured to be at the ISB, he added. President Bushs easy, affable manner, and his entire demeanour, spoke of friendliness. India is an important partner for the US not only because of trade and commerce, but also because it is a symbol of democracy and peace. It embodies the essence of democracy, and the world needs such examples to learn from, he said. Yesterday,Ihadthehonourofstanding on the stage with your Prime Minister talking about a new relationship between the US and India. I am excited about our strategic partnership. Im equally excited about the future of India, he stated. For students of the Indian School of Business, who study the phenomenal turnaround that their country has made this last decade, as it is poised to break into the top order of the global economy, it is certainly a shared excitement. President George W Bush I N S I G H T S P E C I A L Visits the ISB Condoleezza Rice US Secretary of State, and Rajat Gupta Chairman, ISB (Past Managing Director McKinsey & Senior Partner Worldwide) One of the reasons that I wanted to come to the ISB is that, as I understand it, it is a Centre of Excellence in education. It is a new school using innovative tools necessary to succeed. March 2006 | ISBinsight | 23 26. 24 | ISBinsight | March 2006 F or the faculty and students of the ISBs Class of 2006, President Bushs visit to the ISB was indeed a memorable event. Ruchi Bansal, who, along with Rajesh Mani, had the honour of greeting President Bush on his arrival at the ISB, says, The Presidents interest in the ISB students and young entrepreneurs here can be seen as a furthering of the knowledge partnership between the two countries. During his address, President Bush referred to the growing importance of the Indian entrepreneurial class by saying, It is in the interest of the United States that an entrepreneurial class grow in this great country. The Entrepreneurship Centre at the ISB came in for some special words of praise by the President. He said, Its hard to teach people to be risk takers, and you have professors here who give you the tools to be risk takers. Earlier, he had told Professor V Chandrasekar, Executive Director, Wadhwani Centre for Entrepreneurship Development (WCED), Youve got a great thing going! Professor Chandrasekar says that globalisation has presented huge opportunities to Indian entrepreneurs by bringing their inherent creative and innovative capabilities to the fore. Historically, entrepreneurship and development have always gone together in shaping the destinies of nations. This is a fact that the US recognises, owing to its own experience. The US also identies closely with India in this regard, as our country is undergoing a similar transition, he says. The Presidents meeting of young entrepreneurs is signicant in the light of The Presidents Visit is a Memorable Event for the ISBians President Bush addressing the gathering at the Atrium 27. Indiaslargepopulationofyoungpeoplewho are contributing to this transition through sheer dint of their creative energies, he adds. In many ways, the ISB itself embodies the very essence of the entrepreneurial spirit. In just four years, it has gone from strengthtostrengthinprovidingworld-class business management education through its innovative initiatives. The schools many achievements have ensured that it is on the radar of important institutions of the world, the White House included, says Rajesh Mani. One of the innovative initiatives that the ISB has undertaken involves the curriculum for its post graduate programme in business management. It is mandatory for all students to undergo a core course in entrepreneurship irrespective of what they opt for in the advanced elective courses. The course goes a long way in giving shape to the creativity and idealism in students. Anjali Patel, a student from the ISB Class of 2006 was part of the Roundtable for entrepreneurs addressed by the President. She is the President of the Net Impact Club at the ISB, and told the President that she runs the social enterprise club with a lot of help from the faculty, the Entrepreneurship Centre, and the student body of the ISB. She also talked to the President about compassionate capitalism consisting of providing venture capital funding to small businesses and social entrepreneurs so that they can sustain themselves. Such projects use a market based model rather than a traditional aid-based model, she explained. Dishan Kamdar. Assistant Professor in the area of Organisational Behaviour at the ISB, adds his perspective to the Presidents visit. As the faculty representative from the ISB who greeted President Bush on his arrival here, I think that the visit endorses the ISBs focus on cutting-edge research especially relevant to emerging economies. Not many business schools in this part of the world envision a research-oriented thrust that is so essential for global business schools. It is here that the ISB scores in terms of attracting expatriates who either come back to join school to augment a career shift, or to work here as resident or visiting faculty, he says. Its a pleasure to be here at the ISB, and to have visiting dignitaries such as the President of the US, he adds. I N S I G H T S P E C I A L (Seated from left to right in the foreground): Rajesh Mani Class of 2006, ISB; Ruchi Bansal Class of 2006, ISB; Dishan Kamdar Assistant Professor, ISB; V Chandrasekar Executive Director, WCED, ISB; Ajit Rangnekar Deputy Dean, ISB; M Rammohan Rao Dean, ISB; and others. March 2006 | ISBinsight | 25 28. 26 | ISBinsight | March 2006 Harsha: You were once an ace footballer. I know that active Sportsmen dont care too much for researchers or academicians. Its interesting that you made the transition. Bob: Yes, but with some difculty, because in academia, sports isnt often treated very seriously. Ive had to convince people that sport is a serious area of study. I have taken a while to carve a strong economic niche. I use my sporting background to say that its important to have that link between the practice of sports and the study of it. Brandmanagementisasubjectofstudyinall B-Schools. I wonder if sport requires brand management across the world, particularly because of increased commercialisation and globalisation of sport. Its beginning to become a major area of interest. A number of sporting organisations around the world, and some of the more commercially driven popular clubs, are now seeing themselves as an important brand. The idea that well known sporting organisations around the world have a strong brand name is an important issue for analysis. India is largely a single sport nation; we are full of what people might loosely call low demand sports where there isnt enough funding, nor enough professional sportspersons, and therefore there isnt adequate viewer or spectator interest. In your experience, do we seek government help in managing low demand sports, or focus only on managing high demand sports like cricket in India, and football across Europe? In Australia, we have targeted a number of sports, some of which arent necessarily the most popular, or the most visible sports, such as cycling. We have driven them with support, giving them facilities, and student scholarships etc. We have ensured overseas exposure to improve the prole of the sport, and for bettering performances at international competitions. This has In this feature on Executive Education, we present the perspectives of two eminent personalities connected with sports Harsha Bhogle, Indias leading cricket broadcaster and television personality, and Professor Bob Stewart, Associate Professor in Sport Management and Policy Programme, Victoria University, Melbourne. They exchange notes on how an emerging economy like India can learn from the experience of Australia in managing sport. Harsha Bhogle is easily the most recognised name in cricket broadcasting, and also the most popular, worldwide. He has worked extensively with the British Broadcasting Corporation (BBC), ESPN, Star Sports, Trans World International (TWI), Doordarshan, and the Australian Broadcasting Corporation (ABC). Bob Stewart was the faculty for the rst ever programme in Asia on Sport Management, conducted by the Centre for Executive Education (CEE) at the ISB, in collaboration with Sports Knowledge Australia (SKA). Harsha Bhogle Interviews Bob Stewart Learning Lessons from Australian Sport Management IEXECUTIVEEDUCATION 29. March 2006 | ISBinsight | 27 brought in regular attendance from the crowds. Today, Australia stands next to Great Britain as the world champions in track cycling. The government has a critical role to play in all this. But Australia has the advantages of a lot of space, and a lot of opportunity because of low population. How can the promotion of sports work in developing nations where sport has to constantly compete with other overriding requirements such as education? Australia has always valued sports as part of our popular culture. It has also been a part of our history, from the days of colonialism. Certainly, with developing countries its hard to convince government ofcials that money should be put into sports, when it could be taken away from education, health policy etc. In some respects its a chicken-or-egg situation. Do you really have economic development rst, before we can put resources into sports, or vice versa? Thats one of the strong dilemmas that every developing country faces. One other dilemma in developing countries like India is that while a certain sport like cricket generates huge interest and money, for other sports where the government is providing infrastructure, the government tends to take its job further, and run the sport as well. I have rst-hand experience of seeing this happen in India.I dont know whether other developing countries experience this. Maybe, the government should provide the infrastructure, and leave the running of the sport to somebody else? While government funding is crucial, its also important that you have advisors from the private sector that provide additional funding and facilities, and also assist in the running of major events. In Australia, we have quite a good balance in three fundamental sectors: the government provides the large physical infrastructure, the civil society or the volunteer sector provides enormous amount of labour and the human resource for sport, and lastly, the private sector provides funds, manages events, and also the training of professional managers. While we have been fortunate in having a good balance of the three sectors, for others, if you have one of those bleeding, then the other two develop weaknesses. Another problem that we currently face with being so cricket-centric in India is that there is cynicism about the kind of media attention and corporate assistance that cricket gets, while the other sports are not cared for. The government believes in funding and running these other sports in a bureaucratic manner, and that leads to a lack of accountability. There is a reasonable Harsha Bhogle at the ISB IEXECUTIVEEDUCATION India is largely a single sport nation; we are full of what people might loosely call low demand sports where there isnt enough funding, nor enough professional sportspersons, and therefore there isnt adequate viewer or spectator interest. 30. 28 | ISBinsight | March 2006 amount of money in football and hockey, but the games are run so poorly that we keep slipping down the international table. You probably know that Indian hockey was at a fair peak many years ago, but has now gone into a free fall because of the lack of accountability that comes with government run sports. We need to make a concerted effort to ensure accountability and transparency two very important aspects for a sport development system. In Australia, when the government provides funds for anybody, there are very clear expectations about what the fund is for, and how it should be used. If the outcomes are achieved, then the administrators of that particular sport are held accountable. If there is chronic underachievement, then the government will not provide money for future development. It works quite well. DoyouhaveaproblemofplentyinAustralia, as with the Aussie-Rules, for example? In India, we have a problem of plenty in cricket. Theres far too much money, and there is a feeling that it may actually end up harming the sport. Can too much money actually harm a sport? The Australian Football League, the body that runs the Aussie-Rules Competition, has a single sport broadcasting contract that earns it well over 120 million dollars per year from television channels that broadcast the sport. This is in stark contrast to the 120 other sporting bodies in Australia out of 130 that get virtually nothing through TV broadcasts. Most of these 120 groups of smaller, or non-popular sports, nd it hard to make ends meet throughout the year. This is a worldwide dilemma. In Australia, the government supports the lesser sports by providing a nancial base. Is large scale planning of sports then, the prerogative of developed nations? The developing countries have more pressing needs to full, and do not look for sport planning. Some people talk of the link with GDP and Olympic medals. Somebody said that given Indias GDP, we should be looking at 11 medals. It turned out to be a awed piece of statistics, because effectively, the amount of money in Indian sport is low considering the population vs. medals equation. Quite a few studies undertaken by economists around the world suggest that theres a very strong link between the population, and international sport success. Wealthier countries dominate international sport because they have the economic foundation to provide the resources. Most developing countries dont enjoy the same advantage. One way to break the cycle is to target just 3 - 4 sports, or put resources into that one local sport that the population is good at, and do well in that area. Then work to coordinate the base. The media clearly plays a huge role in developing sports. I wonder how Australia tackles this, considering that it is relatively a low media country just ve media channels that have got to have the soaps, the news, and the sports on all the channels, two major publishing houses, and no more than four or ve really national newspapers. In terms of media outlets, theres just the state run radio that I know is big, having worked a lot over there. Australia is not like the UK, or the US, or even India a big media country. Thats true. We have few media outlets, but we do have very strong emphasis on sport broadcasting. For instance, we have a paper in Melbourne called the Herald Bob Stewart, Associate Professor in Sport Management and Policy Programme, Victoria University, Melbourne While government funding is crucial, its also important that you have advisors from the private sector that provide additional funding and facilities, and also assist in the running of major events. 31. March 2006 | ISBinsight | 29 Sun. In the winter months, when football is popular, they allocate up to 40 pages for sport coverage. Yes, I can see that happen for the commercial sports like the Aussie Rules, the Tennis and the Rugby League, where theres a consumer pull anyway. What about media coverage for the non-commercial sports that the state is trying to promote? There isnt any coverage for those. Most of them would die for the amount of coverage that football and some other sports get. But its a fact of life. They accept the fact that they will always be seconded, and will have a smaller share of the resources. The governments limited funding ensures that they have a strong base, and they even achieve some level of international success. Even a high profile sport like Tennis in Australia wasnt producing top players for almost 10 years, but now there has been a resurgence. The Australian Open has now regained its importance as a Grand Slam event. How has it been possible? We have always had a tradition of tennis in Australia. Every small country town has a tennis court thats part of the sporting fabric of the country. So, a lot of people play tennis at least casually, even though there may not be international success. But apart from Lleyton Hewitt, we havent produced world champions like we did 20 or 30 years ago. And that is one of the weaknesses in the system. The resurgence is due to the government pitching in with investing millions into the infrastructure called the Melbourne Park for the Australian Open, which has got the Australian Open back as a big event. Did the government do that in a spirit of philanthropy, or did they hope to recover the investment, and actually make money out of the allied business generated? Thats a very good question. But, we need to see what making money really means here. Actually, the government didnt make too much money. It didnt cover all its cost