Mumbai: In his personal page on the London Business School (LBS) website, professor Nirmalya Kumar’s biography says, “Nirmalya is passionate about marketing and willing to espouse controversial positions.” The director of Centre for Marketing and co-director of the Aditya V. Birla India Centre at LBS certainly lives up to that statement. In an interview about the crisis in marketing and the efficacy of marketing metrics, he says that despite organized retail in India being one of the fastest growing in the world, Indian companies are complacent and lack sophistication. Edited excerpts:
Your most famous statement perhaps is “Marketing is in a crisis”. Is that still valid after the financial slowdown, when nations are becoming increasingly protectionist?
When I said marketing was in a crisis, I said it about six years ago. And the reason I said that at that time was because it turns out that the role of marketing in companies, especially when they are not growing very fast, had actually diminished. You would expect that when a country is booming, the marketing people find it easy to get more resources because the sales of every company are going up. It doesn’t mean that they are brilliant marketeers. But sales are growing because the economy is growing, the demand is growing. It is almost interesting that when sales are going up, the economy is in a boom, marketing people are more powerful because it is believed that they are delivering the results even though it is a function of the economic system.
Whereas like in the West, (when) the growth rates are very low, competition is very tough, then the marketing finds it much harder to deliver the results, especially the revenue results. And when they find that difficult, you find people in marketing start losing power rather than saying that’s the time to invest more in marketing.
And the problem with marketing has always been—and this has nothing to do with boom and bust—if you go into the boardroom, you have the CEO (chief executive officer) in the room, the CFO (chief financial officer) in the room, the COO (chief operating officer) in the room, but very few companies have the CMO (chief marketing officer) in the board of directors. So the voice of marketing in the board room is not really present unless the CEO himself is a champion of marketing.
Does that also have to do with measuring the effectiveness of marketing?
Yes, because we cannot measure the effectiveness of marketing as cleanly as other things, that is why people are not able to get money for marketing in tough times as easily. As we say, marketing is like a charity in many companies. It is well-funded in good times, but the first to be cut in poor times.
But we have to remember that while we can try to develop marketing metrics and we should confront marketing expenditure all the time to understand whether this is the best way to spend the company’s money, we have to distinguish between two kinds of marketing expenditure. There is expenditure which is short-term-oriented to get sales—promotion and advertising are two examples. There I can show you the impact of sales right away. Other marketing expenditures, which are long-term-oriented—customer service, investing in the brand—I can’t show you its impact. For the long-term metrics, we don’t have financial indicators but what we can do is still measure its impact by seeing its brand awareness, distribution availability, looking at how much esteem the brand is held in.
But stock prices depend on quarterly results and CEOs are pressured...
So basically, how one trades on short term versus long term is the CEO’s call. How much importance they want to put on short term versus long term and different companies will have different preferences with respect to that. But in the end, the challenge in any company or CEO, not only in marketing, is to manage the short term while developing the success formula for the company in the long term. That is one of the critical dilemmas which every CEO faces and that (is) because we are not running a company to sell it off tomorrow morning.
Which Indian company or group’s marketing stands out?
Without taking any specific group into the account, the most sophisticated marketing is done by packaged goods companies. Because they need to reach out to a large set of people, they also have a huge heritage in marketing. So they understand marketing more, their CEOs are sensitized to marketing because they are in an industry where people don’t have to buy your product and there are several choices available.
Also, sophisticated in marketing—but not currently in India today—would generally be retailers…because the customer switching costs are extremely low.
Home-grown retailers haven’t really been able to displace the mom-and-pop (‘kirana’) stores in India, have they?
I disagree. The fastest growing sector in retail in India is modern retail. The fastest growing modern retail market in the world is India after China. But in retail, there is always a role for the biggest and the best, for the cheapest and for the nearest. There will always be a kirana store. That is the equivalent of a convenience store in Europe and America.
As modern retail grows, how does it change the marketing dynamics?
The big change is that manufacturers lose pricing power because the retail chains are big. So the good thing is, organized retail lowers prices because they have more efficient supply chains, they push the suppliers to be more efficient, they push the suppliers for lower prices and they pass on the savings to customers. So prices go down the more you have organized retail. Has to be. Will India be the one exception? I doubt it.
But no country is an exception provided it is a free market and India is not a free market. Now, how manufacturers change! The power shifts from the brand manager to the key account manager (who manages retailer accounts). And key account management means you also have to incorporate retail management as a core capability. And retail management in India is pretty much non-existent.
Why do you say that?
There is no retail competency in India. What kind of retail do you see over here? It is not very sophisticated. That is why retailers in India are very sure that they don’t want foreign competition coming now. They won’t like it. As always happens in India, when they are ready to sell, that’s when they will have FDI (foreign direct investment) change (in policy). When FDI (policy) will change, that’s when the businessmen running the retail business in India want to change. They don’t want to change right now because they are in the build-up phase. Once they do the full build-up phase, they will push the government to change retail FDI rules so that they can sell to the foreign retailers. And that’s pretty much they way it is in modern industry in India.
Where do the home-grown modern retailers lag behind?
They don’t do a whole lot of retailing. They don’t understand category management, they don’t understand the financial models, they are in a nascent stage.
So according to you, who is opposing freeing up FDI in retail?
Who really knows who is opposing? But in India, we do know historically, people like to build up the system. First they build up the system, till that time they like to be protected. Once the system is built up, they pressure the government to allow FDI so that they can sell out. It happened in telecom, it happens in every industry in India. So why would retail be different?
What should Indian retailers do?
Indian retailers are surviving only because they understand the Indian consumer better than the others. That’s why if you look at all the foreign companies coming into India, there are still companies from India that are surviving pretty well, even in packaged goods whether it is Amul or Marico, because they have spent a lot of effort trying to understand the consumer better than the foreign companies. And they have managed to develop a system which will deliver value that the Indian customer seeks better than those companies. So the reason why a foreign company can exist in India or an Indian company can exist in India is because the consumer finds something they offer which someone else doesn’t offer. You either have to be distinct or you will become extinct.