Archive for Insights

The Silent Majority: Don’t just listen to the customers who complain

One of the cinemas we visit regularly used to sell crisp warm samosas during the interval. But the last time we went, they had taken them off the menu. When we asked why, they said they had too many complaints about the samosas being too oily or too spicy and so they had decided to stop selling them even though they used to be a top selling item.

I suppose the people who liked the samosas didn’t bother giving any positive feedback (apart from buying large quantities). Making business decisions based only on complaints from a minority of customers doesn’t make sense. Food for thought in the era of Facebook comments!


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Tesco Forecasts Weather To Predict Customer Needs

Tesco, the U.K.’s largest grocery chain, is using weather-forecasting software to predicted temperature changes that influence customer needs and demand.

Tesco said the system has already predicted temperature drops during July that led to a big increase in demand for soup and hot puddings.

The computer program includes detailed regional weather reports for the whole of the UK going back five years and, crucially, what each Tesco store sold as a result of that weather.

A rise of 10C, for example, led to a 300% uplift in sales of barbecue meat and a 50% increase in sales of lettuce.

(Via The Times and Cool News)

The UK’s biggest retailer has pulled together a dedicated team of data experts who collate weather forecasts from a wide range of sources that are then analysed using unique software.

The computer program includes detailed regional weather reports for the whole of the UK going back five years and, crucially, what each Tesco store sold as a result of that weather. A rise of 10C, for example, led to a 300% uplift in sales of barbecue meat and a 50% increase in sales of lettuce.

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Spinning the Globe: How markets are evolving (differently)

One of the holy cows of global marketing in the 20th century  is the concept of market evolution. The idea is that markets develop along broadly similar lines along a spectrum where the habits and behaviours of consumers in the  poorer, developing countries in Latin America, Africa and Asia will eventually become more like those in the West.  At a very broad level, this theory has held true for most of the 20th century. As wealth accumulated in the West and innovation concentrated in Europe and the US, it was common and sensible practice to roll out these innovations to developing countries.  A typical chart might look something like this:

This has now changed in two ways.

1. A Leap in Evolution. Consumer habits in some developing countries, particularly in urban Asia, are now more advanced than in the West, in several mass market categories.  (This excludes Japan, which cannot be considered a developing economy.)  The repertoire of products and services used, per capita consumption, category penetration and trial rates of new products in several categories are considerably ahead of  Europe and the US.  This is driving innovation in some categories at a rate far higher than that in the West.  Consumer habits and preferences are also evolving in ways that are very different from those in the West. The recent failure of Apple’s iPhone launch in India illustrates this:

Analyst estimates that total official iPhone sales here have yet to touch 20,000 handsets. (iSuppli) estimates iPhones cost less than $175 to build, (but) both Apple and Airtel stuck to the approximately $700 price for the phone in India, vs. $199 with a two-year AT&T contract in the U.S.  In India, then, three iPhones equal one Nano, the $2,000 car that Tata Motors  launched in India just two weeks ago.  For Airtel and Vodafone, subsidizing the phone has not been an option (because) the vast majority of Indian users have prepaid accounts…
According to Sanjay Gupta, the chief marketing officer of Airtel’s mobile business, Indians just use their phones differently. Indian customers like to forward text messages; Nearly 70% of them do that at least once a day, says Gupta. Until recently, the iPhone didn’t allow users to do that. “It’s a big functionality issue,” says Gupta. (via BusinessWeek)

2. Home-grown Innovation. The cost and infrastructure constraints of doing business in large, developing countries are fostering a reverse wave of innovation that originate there and in some cases are then rolled out to or copied by the West.  Not all these innovations are relevant in the West (in some cases they are kept out due to legal or market structure barriers) but they are certainly relevant and easier to bring to market in other developing countries. This is changing the pattern of both sources of innovation and evolution of markets.

The M-Pesa service offers Kenyans the ability to send and receive money using SMS messages. M-PESA is a new Safaricom service allowing you to transfer money using a mobile phone. Kenya is the first country in the world to use this service, which is offered in partnership between Safaricom and Vodafone. M-PESA is available to all members of the public, even if you do not have a bank account or a bankcard. (Via PSFK). This idea is now being copied in other markets like India and South-east Asia.

(In designing the Tata Nano car, which costs only $2000 ),  there were three possible ways they could have gone: work down from a car design, work up from a scooter or start with a clean sheet of paper.  By going for the third option, Tata has created a new template for developing ultra-low-cost cars…  The team even asked whether there was a need for doors and whether plastic instead of steel could be used for the bodywork. Tata has filed for three dozen patents for the Nano, mostly for innovations that are out of sight. (Via The Economist)

…from Bangladesh, one of the poorest nations on the planet.  France’s Groupe Danone built local microplants that produced one one-hundredth of the yogurt of a standard Danone facility, in part due to the lack of refrigerated storage. The microplants produced yogurt almost as cheaply as the larger ones and have now been rolled out to Indonesia. Lessons from operating in Bangladesh have also helped Danone launch Ecopack, a low-cost yogurt line, in France. (Via Fast Company)

Clearly it’s time to throw away those old market evolution charts! The constraints imposed by low incomes and poor infrastructure are leading to product and service design innovations in developing countries. These together with cultural differences are driving consumer habits and preferences in new and diverse ways – not necessarily along the same path as consumers in Europe or the US.

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Consumers in the Crisis

Grant McCracken writes about 4 ways in which consumer behaviour may change in the downturn as spending power (or perceived spending power) goes down. I’ve summarized his ideas below:

1. Elastic Consumers: spending less during the crisis but reverting to old habits once things get better

2. The Exception: spend less on most product categories but keep spending at the current level on one (or more).

3.  Trading-up: Spend less on some categories to spend more on others. (Which ones and why is an interesting and important question to answer!)

4.  Sticky Savers: reducing spending during the crisis and staying that way forever.

Read the original article here.

I did a little research to look for actual examples of these types of behaviour. Here are two of the more famous (but most probably apocryphal) ones:

The Lipstick Index (Via The Economist)

a term coined by Leonard Lauder, the chairman of Estée Lauder, a cosmetics firm, in the 2001 recession. In the autumn of that year, lipstick sales in America increased by 11%. Believers in the theory trace the phenomenon back to the Depression, when cosmetic sales increased by 25%, despite the convulsing economy.

If this theory were true, then lipstick could be an “Exception” or a “Trading-Up” category for many people. However, The Economist writes that while lipstick sales do increase during economically difficult times, they also increase during times of relative prosperity so there is no clear correlation. Click here to see a great chart showing the data.

The Mama Noodle Index (via Wikipedia)

In 2005, the Mama Noodles Index was launched to reflect the sales of Mama noodles, the biggest manufacturer in Thailand. The index was steady since the recovery from the East Asian financial crisis, but sales jumped by around 15% in the first seven months in 2005 on a year-to-year basis, which was regarded as a sign of recession. People could not afford more expensive foods, hence the increase in the purchase of instant noodles, as instant noodles is seen as an inferior good.

I haven’t been able to find data to prove or disprove this theory but the notion of instant noodles being an inferior good may not be the only explanation as this article by Christopher Solomon describes:

It is comfort food in the ultimate sense of the word: the comfort that you can eat, and feel as if you’ve eaten, for mere pennies. One does not hanker for instant ramen. One doesn’t dive into the cupboard in search of ramen and emerge with, say, tomato soup. It is almost always the other way around.Yet this meal of last resort is all the more satisfying, because the alternative — hunger — is unthinkable.

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Adding value by subtracting features

In an age where the media lays on the hype for gadgets and products with more, better features, it’s worth looking at some very successful innovations with fewer features:

a. Firefly Mobile

The fun phone designed from a kid’s point-of-view.  With just 5 keys, this phone keeps kids connected to the people who matter most.  Includes lights, sounds, colors, and animation.

b. Nintendo Wii

It doesn’t have the HD graphics, super-fast processor chips or DVD / Blu-ray drives of its more expensive competitors Sony PS3 and X-Box 360. A technically inferior product with a superior interface (the Nunchuck) and simpler games, targeted at non-users of video games.

c. Detergent / Skin Care products without perfume for people with allergies.

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Traffic Deaths or Terrorism: Understanding the Power of Perception

Wired Magazine has an article on the most likely causes of death in the US which uses statistical analysis to show that one is 80 times more likely to die in a traffic accident than in a terrorist attack. Meanwhile, a recent poll shows that 59% of Americans expect another terrorist attack while the stats suggest they have more to fear from the flu.

I think this effectively demonstrates how people’s perceptions are different from factual reality. Somehow, politicians seem to understand this better than anyone else!

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What do consumers really need?

I mean, what do they really, really need at the absolute root of it all?

Soap or clean skin?

Cars or personal transportation?

Cellphones or anytime-communication?

Power drills or holes-in-the-wall?

The answer seems obvious: people need solutions, not products. If a given product is the best possible solution, then people will buy it.

Streetcar, which provides an interesting personal transport solution as an alternative to owning a car, is a good example of this approach to innovation.However, by and large, firms that have an established product business and are invested in the process of making and selling a product do not have much interest in thinking about innovative solutions to the consumer’s fundamental need. Much of their effort is spent in making improved versions of their product. Meanwhile, other smaller firms create and bring to market “disruptive innovations” that can put the incumbent firms out of business.

Professor Clayton Christensen described this concept in his book “The Innovator’s Dilemma” and he offered a solution in his book “The Innovator’s Solution“.

The other big barrier is that people like to own products. Especially the ones with “badge value“, like cars or mobile phones, which signal our personal image to other people. Invisible solutions like services have to find ways to provide this kind of value for most people to consider adopting them. Alex Steffen at WorldChanging offers a perspective on how firms might do this by creating “service envy” – “a way to display or even flaunt” the invisible solutions that we use. Another useful perspective is in Harry Beckwith’s book “Selling the Invisible” which offers some very good ideas on the marketing of services.

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