The next big agenda of corporate India will be innovation: Nirmalya Kumar

Mumbai: Nirmalya Kumar, professor of marketing at London Business School(on a long leave of absence) and a member of the group executive council at Tata Sons Ltd, says one of the big items on the agenda of corporate India over the next 10-20 years will be innovation. Indians need to be given “the resource, structure and the process to become innovative”.

Considered one of the world’s leading thinkers on strategy and marketing, Kumar, whose latest book is titled Brand Breakout: How Emerging Market Brands Will Go Global, spoke in an interview about what Indian brands should do while operating in tough economic conditions. Edited excerpts:

What would you say are the key challenges faced by emerging market brands looking to go global?

The biggest challenge is that most emerging market countries have a very negative “country of origin” image with Western consumers. We assume that any brand coming from an emerging market will be of low quality, poor on environmental considerations; will be a cheap, shoddy product. So we have to overcome that. That’s the first challenge. The second is that for most of the countries, the competitive advantage is low cost or natural resource abundance. It’s not natural for most companies to go from that position to that of selling a brand. For instance, China’s problem is that their existing business model—of producing products for global manufacturers and brands—is so successful. It’s an efficiency- oriented business, a very large-scale volume, low-margins business, but one that requires a lot of capital investment. They have perfected that. But when it comes to building a brand, it is not a capital-intensive model. It requires you to be creative and to invest without knowing, absolutely certainly, what returns you may get. So Chinese companies understand how to invest in production facilities, manufacturing and supply chain. This marketing-branding thing, however, seems to be very fluffy to them. For emerging companies to become brands, they have to change their mindset, and they have to change their business model, which is not easy. With Indian companies, the challenge is different. They don’t have to struggle with understanding branding. The problem is quality.

What are the best ways for an Indian brand to grow internationally? Is the acquisition route preferable?

While that’s one route, it’s the least interesting. But the three routes that are most interesting for Indian companies are: the diaspora route, where you use own immigrants from your country to the other country, use them as a beachhead, you sell to them and through a demonstration effect you attack the host population. But for that strategy to work, you need enough Indian immigrants in that country, so a US or UK would be an obvious example. Also, you need a brand that has global appeal. So Bollywood, for example, is always restricted to the diaspora, whereas an ICICI Bank can expand outside the diaspora.

The second route is that of natural resources. You take a natural resource of the country and make a brand out of it. So, for example, we could do that with Darjeeling tea or the Alphonso mango. So, when you claim that (location), you are already unique. France has done the best job of this. It’s not just about using that location, but also imbibing some myth along with that location. An Israeli company, Premier Cosmetics, bases its products on the Dead Sea, which has 32% salt content. What’s so special? I’m not sure, but Cleopatra apparently got her beauty secrets from the Dead Sea salt. So you imbibe that myth. You also have to have an elaborate production system to show customers that this is quality and it has to be very expensive to bring up entry barriers to others. Not to mention strict independent auditing.

The third route is the cultural resources route. Overall the (country’s) image may be negative, but there may be certain aspects of the culture that may be positive. Ayurveda, yoga, exotic location, these are all the positive association that India has. If you say Brazil, everyone knows it’s about the sun, sea, music and fun. So Havaiana, a brand of flip-flops, sells its products from $25 to $200 by focusing and making its image connect to that of the sun, sea, fun image. In a sense, the entire Incredible India campaign is about that.

Our research indicates that in recession, what companies tend to do is increase prices to make up for anticipated drop in sales, increase promotions to incentivize customers, and cut cost—reduce advertising and slow down new product introduction. Our research has shown that exactly the opposite works. Using data from recessions in the past, it shows that companies who increase brand share don’t really increase prices too much, offer less deep promotions and don’t cut advertising budgets and keep introducing new products—do much better than those who clamp down on everything.

What’s your advice to brands operating in a changing media environment?

The biggest marketing challenge outside of India is that marketers approach new media the same way they do old media. The reason the car engine was in the front was that horses were in the front. It is the same reason that you see the beginning of Facebook marketing looks like Google marketing and TV marketing, which is not the right kind of marketing. In social media what will work is to design campaigns that will enhance the social experience of the user, not ones that will be like watching a TV ad. Or if I am on Amazon.com, I sign in through Facebook, it tells you today are the birthdays of these people. Based on what they like on Facebook, we recommend these three presents for them. Click here and we will send it to them. That is enhancing the social experience. We have to start thinking.

The second big thing in marketing is big data. I know who you are—I have always wanted to know that. Better than that, I know who you like, who you dislike, who your friends are—I never thought I will know that. And because of mobiles I now know where you are. So for marketing people this is potential nirvana. What we are yet to figure out is how to analyse this data and what are the privacy considerations that have to be kept in mind while exploiting this data. I think here Indian companies have a great opportunity because analytics can be done anywhere in the world. Big data is the future of marketing, big data analytics has to be the future of the Indian IT (information technology) industry.

Where are the next Googles or Apples? What stops Indian companies from being innovative?

Indian business for the most part is about 30 years old. Before that they didn’t need to be innovative. So innovation has only been on the agenda for the last 30 years. At some stage, the problem for most Indian companies was that demand was exploding and “how do I ramp up supply to meet that demand”. Now we are finally at a stage where corporate India will have (a) hard look and say “we have to become innovative”. This will require us to invest in R&D (research and development). Indian corporates’ investment in R&D is about 0.6% of their sales. In China, it is 1.2%. For the West, it is about 3-5%. We have to increase this if we have to go for innovation. It is not as if people in India are not innovative, but they haven’t been given the resource, structure or the process to become innovative. And we have to do that. Over the next 10-20 years, one of the big items on the agenda of corporate India will be innovation.

Your mandate at the Tata group is about customer centricity to the fore and focus on marketing strategy. Could you tell us what you are hoping to achieve at the group?

At the Tata group my role is very straightforward: I am supposed to help with strategy. Just like all companies, we also have many strategic challenges. So my role is to advise him (the chairman) on that. I have no operational role in the Tatas. The only thing I can do is help to increase the imagination of the group.

One of the most ambitious projects of the Tata group, the Nano, hasn’t done well. First positioned as a car for the typical Indian family looking to graduate from a two-wheeler to a car, now it is being positioned as a youth symbol...

I have not studied the Nano. But in general, as an academic, I can say that radical innovation (like the Nano) is always a strategy of launch-and-learn. In incremental innovation, you test the product with consumers and launch, and 90% of the time it will be a success. With radical innovation, you launch the product and 90% of the times it will be a failure, and you learn with every success along the way. So intellectually, I know the answer.

You mentioned in a blog post that the test of a good brand is “does anyone hate you?” Please comment…

That was my way of making a point that good brands stand for something. If you are trying to make your brand loved by everybody, it cannot stand for anything. That is the challenge for a brand—by standing for something, to restrict the target market. Take the example of Mercedes (cars). Everybody thinks Mercedes is great, but some people will never buy a Mercedes because it is too nouveau riche for them and too big a car. Also Disney, people love it, but for some people Disney only stands for American values. As a brand you need to have an edge and when you have an edge, some people will love you and some people will hate you. Universal love is neither desirable, nor achievable. If they hate me for not executing my brand value and brand proposition, then I have a problem. But if a set of customers hate(s) me because I am executing my brand proposition really well, that’s fine.

NIRMALYA KUMAR: A BRIEF PROFILE

Born: 8 March 1960

Education: Schooling from La Martiniere for Boys, Kolkata. He received his bachelors degree in commerce from Calcutta University in 1980—he stood first in a class of 5,251 students—and a masters degree from Shivaji University in 1983. He completed his MBA from the University of Illinois, Chicago, in 1986, scoring a perfect 5.0 grade point average.

Kumar received his PhD in marketing from Kellogg Graduate School of Management in 1991 and won the Marketing Science Institute’s Alden G. Clayton Award for his PhD dissertation.

Work: He is professor of marketing (on long leave of absence) and former co-director of the Aditya Birla India Centre at London Business School. He taught at Harvard Business School, IMD (Switzerland) and Northwestern University (Kellogg School of Management). Kumar has authored seven books, five of which were published by the ‘Harvard Business Review’. Several of his articles have been published in the ‘Journal of Marketing Research’ and ‘Harvard Business Review’. He has been a coach, consultant, seminar leader and speaker to over 50 Fortune 500 companies, in 50 different countries. He has served on the boards of various Indian companies, including ACC Ltd, Ambuja Cements Ltd, Bata India, BP Ergo, UltraTech Cement Ltd and Zensar Technologies Ltd. He was appointed as a member of Tata Sons Ltd’s group executive council, reporting to chairman Cyrus P. Mistry, with effect from 1 August. He will hold responsibility for overall strategy at a group level and help bring in customer centricity to the fore across group companies. He was included in the Thinkers50, a biannual list of the top 50 management thinkers in the world. He also received the Global Village Award for the person who contributed the most to the business community’s understanding of globalization and the new frontiers established by emerging markets.

NIRMALYA KUMAR’S CONCEPT OF 3Vs

Nirmalya Kumar is credited with introducing the concept of “3Vs”: valued customer, value proposition and value network.

Kumar places a lot of emphasis on the need to change the standard marketing focus from the 4Ps of product, price, place and promotion to the 3Vs. He maintains that while the 4Ps is an essential part of marketing, it is not enough to differentiate products based on that alone because the 4Ps can easily be replicated by competition. By focusing on the 3Vs, a company can sustain differentiation, he argues.

“Valued customer” is a way to segment and target customers based on perceived value. “Value proposition” is about differentiating products and services to customers. And “value network” is all about delivering the value proposition to the target customer.