Opinion Leading the value-led market

Because every competitor can deliver more or less similarly in demand led markets,and the hunger for increased business is so high,there is negligible scope to create differentiation. This situation compels an enterprise to reduce profitability year after year. The demand led market is extremely vulnerable as anybody with money,infrastructure,people and good trading skills can enter it. In this space,you don’t have to worry about competency,skill set,differentiation,quality standard or capacity,you can also forget about high profit after tax. You are generating revenue on big volume alone.

Conversely,in the value led market,you can actually get sizable margins. Take a simple banana that has high demand in world markets. How can you create a difference with a banana? A talented chef can take two ripe bananas costing 50 cents,dramatically change their value by using crème,chocolate sauce,nuts for another 50 cents,and then with appetising styling,he can sell a banana desert for $15 in his restaurant. A four-star restaurant can even sell it for $50. The basic banana has been transformed to enter the value led market.

Sophisticated developed countries have displayed tremendous flair in creating the value led market. Value here does not mean bringing in fundamental invention. It requires intellectual thought and shared passion between the leader and team for market study and forward planning.

My favourite value led market example is the innovative success of Swatch. If we look back at the Swatch adventure under co-founder Nicholas Hayek,it happened when digital watches from Japan threatened the Swiss watch industry in the 1970s. Swiss entry level watches with manual craftsmanship was losing market share. Swatch not only innovated through high technology,but reduced parts in the watch from over 91 to 51,and with aggressive marketing,daring designs and unfailing quality made Swatch into a fashion statement. Swatch means both Swiss watch and second watch. This low-priced $30 “change your dress,change your Swatch”,was cheeky and fun,girls even wore them as ponytail bands. Swatch proved that you can drive aspirational value even with low pricing. The company has become so successful since its 1983 launch that Swatch has acquired some of the world’s most sophisticated watch brands,including Breguet,Blancpain,Jaquet Droz,Glashütte Original,Léon Hatot,Omega,Tiffany & Co.,Rado,Longines,Union Glashütte,Tissot,Calvin Klein,Certina,Mido,Pierre Balmain,Hamilton,Flik Flak and Endura.

All-time trendy Swatch is the first individual brand in the watch category to bring out a business model through a retail chain. Walking along New York’s Times Square five years ago,I crossed a funky painting gallery. I walked in to discover it was a Swatch retail. Inside there were very few watches interspersed with cult images and trendy gear. When an enterprise thinks like that in the demand led watch market,it gives you the learning of how to radically transfer from demand-supply to lead with value and win customers,profit and create benchmarks.

By the 1970s,fastfood outlets like McDonald’s,KFC,Pizza Hut,had established their brands. But a gap existed in fastfood chains that they somehow make you feel pressurised to eat quickly and leave so somebody else can occupy your chair. This is the way their revenues go up. There were those who looked at this gap of how to create fastfood chains that would give people a relaxed ambience. Latin societies like Italy and France have a cafe culture where,with a glass of beer or coffee,you sit in individually owned cafes for hours. Europeans have never thought that their cafe heritage can be made into a chain. But three Americans,by founding Starbucks,successfully commercialised this space,gave it value,and took the concept to 55 countries. This is the value led market approach with lateral thinking.

In the 20 years since economic liberalisation,India has responded well to the demand led market in most industries and amassed critical mass. It’s good to hear that we have big size,billion dollar Indian companies with a global footprint,but while benchmarking with global competitors,we have a great deal of catching up to do. In a demand led situation,Indian companies can certainly grow in revenue. But they will be under huge profit pressure in the coming years unless they can change gears in the direction of the value led market.

The more companies drive towards value,attrition will come down as people will work with pride to help the company that they want to be part of grow. When people work with passion,they can create perceptible quality in products or services. Such a company’s brand gets magnified when it becomes a subject of discussion in society,which automatically would lead to increased profitability,or even becoming the industry benchmark. India’s vision in the next 20 years should be to climb the value led market. It requires only guts and brainware to get there.

Shombit Sengupta is an international creative business strategy consultant to top management. Reach him at http://www.shiningconsulting.com