Does competitive intelligence help improve the bottomline? (Part 2)

In my last post on competitive intelligence, I discussed how competitive intelligence can help improve the bottomline in emerging markets. In our article published in Journal of Business and Industrial Marketing, we observed that Competitive Intelligence (CI) activities have an impact on the market performance of Indian firms. In this post, I want to focus on the following three questions.

Competitive intelligence

• What are the macro and micro environmental drivers of Competitive Intelligence (CI) for Indian firms?

• How are CI activities organized within Indian firms?

• How is the usage and dissemination of CI taking place within Indian firms?

The macro & micro environmental drivers of Competitive Intelligence

Prior research suggests 8 environmental dimensions that have an influence on firm decision making. These include: 1. customers; 2. competitors; 3. international; 4. economic; 5. technological; 6. suppliers; 7. regulatory; and 8. socio-cultural dimensions.

Following the above 8, we asked corporate participants to rank these dimensions on their perceived level of influence on the firm, and their perceived level of strategic uncertainty. For practical reasons, focusing on all these dimensions for decision-making may not be viable for any organization. In this regards, organizations need to prioritize which dimensions to focus on. Focusing on Chinese firms, Tao and Prescott (2000)  observed that Chinese companies ranked economic, customer and technological dimensions above others. Other researchers state that while both India and China are growing rapidly on various environmental fronts, the manner of growth for both countries is dramatically different. Our results corroborate this claim.

We find that Indian firms perceive customers and competitors to be having high impact on their organizations. This is not surprising, given the growth of local and international competition in the Indian market in the last one and a half decade. At the same time, these firms are experiencing the maximum level of uncertainty with their customers, international environment, and economic environment . Given that CI can immensely assist managers in reducing environmental uncertainty by understanding the competitive environment as well as customer trends, our findings clearly suggest a critical need for a CI function in Indian firms.

Macro and Micro Drivers of Competitive Intelligence

Organization of CI within firms

To fully leverage CI effectiveness, location of CI is highly important. The location of CI within organization decides the budget, types of projects undertaken, and the reporting relationships. In our sample, only three firms have a separate dedicated CI department. However, it is encouraging to see that several firms (37 percent) have integrated their CI activities with their corporate planning process. Though, an overwhelming majority (61 percent) of firms have integrated their CI functions in departments outside corporate planning. Thus, there is concern that in most Indian firms, CI might be used more for tactical as opposed to strategic purposes. This clearly suggests that Indian firms could leverage the full potential of CI activities in a much better manner.

Another interesting observation relates to those firms that have located their CI function in their marketing/market research (23 firms) or sales (14 firms) departments. All these 37 firms had mentioned that customers had the highest impact on their firm. Thirty-four of these firms had also mentioned customers as the source of maximum strategic uncertainty. Also, the majority (65 percent) of the 31 firms that located CI in their IT department expressed technological environment as having a major impact on their firm. Thus, there seems to be a clear relationship between environmental impact and location of CI activities in Indian firms. Regarding CI personnel and budget allocation issues, almost half of our sample firms have five or less people involved in CI activities, and one-third of the firms do not have any specific dedicated personnel. From anecdotal evidence, we found that several CI professionals are also involved in other strategic and marketing functions of the firm, thereby rendering it difficult to assign a specific business function to them. This ambiguity in CI roles is also reflected in the budgetary allocation to CI activities, wherein most companies (65 percent) do not have any specific line item budget for CI activities. The median budget allocated among the remaining firms is approximately $23,000, with only 9 percent of the sample firms budgeting more than $50,000. However, the encouraging news is that approximately 72 percent of these firms are committed to increasing their CI budget in the next three years.

Usage and dissemination of CI

One of the most challenging tasks of a CI professional is to analyze the information, and convert it into intelligence. The quality of analysis is highly important for effective decision-making at the firm level, as the more sophisticated the analytical technique, the better will be the intelligence output. We found that a majority of the firms (73 percent) used less than five techniques on a regular basis. Foreign-owned subsidiaries and international joint ventures were the most sophisticated in using a variety of techniques (on an average more than ten were used on a regular basis). Privately held smaller firms were the next most sophisticated companies in terms of analytical techniques used. The five most common analytical techniques being used by our sample were critical success factor analysis (58 percent), strengths and weaknesses analysis (46 percent), benchmarking (39 percent), Porter’s five forces industry analysis (37 percent), and customer satisfaction surveys (34 percent). This provides us with an indication that there are tremendous prospects for global CI consultants in the Indian market, who can bring in more sophisticated analytical techniques to their potential clients.

In India, approximately 20 percent of the respondents have indicated that their corporate planning department is the primary user of CI, while 14 percent have mentioned that CI is exclusively used by the marketing department. However, in the majority of the firms (58 percent), CI is collectively used by their corporate planning and marketing departments as well as other senior executives. This pattern of CI use in India is very similar to that of USA.

Thus, we asked the respondents to rate 13 methods of dissemination regarding the users’ perceived effectiveness. The five most often used modes of dissemination are memos (81 percent), formal written reports (67 percent), oral briefings (59 percent), regularly scheduled presentations (52 percent), and e-mails (44 percent). A majority of respondents used two or more dissemination methods, which is quite common across the globe.

There are many other interesting nuggets available within the full paper. Use the link given below to read further.

Source: Phani Tej Adidam, Madhumita Banerjee, Paurav Shukla, (2012) “Competitive intelligence and firm’s performance in emerging markets: an exploratory study in India“, Journal of Business & Industrial Marketing, Vol. 27 Issue: 3, pp.242 – 254. (http://dx.doi.org/10.1108/08858621211207252)

Does competitive intelligence help improve the bottomline? (Part 1)

If you want an answer to this question as to

does competitive intelligence help improve bottomline

in one word, it is

YES.

It pays off big time when you keep an eye on your competitors’ activities. How do I know this? Well, Tej Adidam at University of Nebraska at Omaha, Madhumita Banerjee – University of Warwick and I recently published a paper titled “Competitive intelligence and firm’s performance in emerging markets: an exploratory study in India” in the Journal of Business and Industrial Marketing.

Competitive Intelligence

It seems long time ago; Tej asked an interesting question in one of our interesting exchanges about is Competitive Intelligence (CI) really helpful? Looking through the literature, we saw lots of anecdotal evidence and it seemed that most of the CI papers discussed the questions such as how is CI conducted in various parts of the world? What are the players involved in CI activities? What type of firms conduct CI activities? There were several other such questions asked and answered including the usage and dissemination of CI within firms.

Let me first be clear about Competitive Intelligence. The word CI does not mean corporate espionage and such negative things. It means, a system of environmental scanning that integrates the knowledge of all organizational members and encompasses marketing, structural, strategic and other organizational elements. The concept of CI has strong underpinnings in military science and has a rich history dating back more than 5,000 years. In recent history, especially in the field of management, the concept has been studied for considerable time under different titles. For example, it has been called “environmental scanning”, which focused on how executives “scan” their organizations’ environment. Similarly, over time, other labels have been used in prior studies to describe competitive intelligence as “business intelligence”, “competitor analysis” and “market intelligence”. CI is used in tracking the activity of direct and indirect competitors including their general business activities, tactics and strategies relating to various important issues such as market penetration, product development, patent registrations and so on. Thus, if we were to compare environmental scanning and CI, we can conclude that the former is a method of gathering information. CI takes this information, and converts it into knowledge of one’s competitors or a group of competitors which is used by various departments within an organization to make strategic decisions. In other words, environmental scanning is considered as the first step in CI.

As we all (i.e. Tej, Madhumita and me) had first-hand experience of working in the corporate environment of India, we decided to use India as a context for our study. Interestingly enough, there were no earlier studies we could find which focused on CI practices in India. So, it was like treading uncharted waters, and it was quite exciting too and it turned out to be fruitful in the end.

We tried to answer the following questions:

• Do Competitive Intelligence (CI) activities have an impact on the market performance of Indian firms?

• If so, what are the macro and micro environmental drivers of CI for Indian firms?

• How are CI activities organized within Indian firms?

• How is the usage and dissemination of CI taking place within Indian firms?

We used a stratified sample developed from a variety of mailing lists focusing on Indian firms. Confederation of Indian Industry (CII) was also quite helpful for this study. You can read more about the methodology in the paper.

As this post is getting too long, I will only tackle Question 1 we asked above in this part and will tackle the other 3 parts in the next post.

Do Competitive Intelligence activities have an impact on the market performance of Indian firms?

As I stated earlier, historically, analysts and researchers agree that better CI will improve firm’s overall performance in the marketplace. But most of this evidence is anecdotal and not empirically proven. In their study of 85 US firms, Subramanian and IsHak (1998) found that firms having advanced systems to monitor market trends exhibited great profitability. So, the positive relationship between CI and firm performance is empirically tested in the Western developed markets context. But, these markets are comparatively more stable than emerging markets like India. The emerging markets are changing directions too rapidly and the direction is highly unclear in terms of almost every macro and micro parameter. In such a scenario, can CI really help? Or as they say in India, let the lady luck play its part as you cannot do much about it.

Following the same typology as Subramanian and IsHak (1998), on the basis of the levels of CI activities carried out, we segregated our sample of Indian firms into ‘primitive’, ‘intermediate’ and ‘advance’.

The results indicated that those Indian firms with high (i.e. Advance) levels of CI activities perform better than those with low (i.e. primitive) levels of CI. Thus, the results indicate a positive linkage between a firm’s performance and level of Competitive Intelligence activities. We must highlight thought that this is not a causal linkage but a positive linkage. We found a large sample of our study (59 %) in the ‘primitive’ category. Therefore, it is not surprising to note that 63% of Indian firms were unsure whether CI activities led to any increased revenues and/or profits. However, there is clear evidence that those firms that are exhibiting higher levels of CI activities are indeed achieving better financial performance results.

We hope that these results would motivate more Indian firms to invest more in CI activities and programs. In the next post, I will focus on the other 3 question we answered in the paper and help the implementation process of competitive intelligence by identifying key macro and micro drivers of CI for Indian firms, organization of CI activities and usage and dissemination CI.

Source: Phani Tej Adidam, Madhumita Banerjee, Paurav Shukla, (2012) “Competitive intelligence and firm’s performance in emerging markets: an exploratory study in India“, Journal of Business & Industrial Marketing, Vol. 27 Issue: 3, pp.242 – 254. (http://dx.doi.org/10.1108/08858621211207252)

What is your Chinese New Year luxury strategy?

“The US is luxury’s largest market. Japan still remains a large luxury market in terms of absolute size. However, China is the true star of the region”

– Claudia D’Arpizio (Bain & Co. Analyst)

China: the luxury market for present and future

While the high-end luxury goods market is stagnant or decelerating for many brands across developed Western markets, the Asian region is accelerating at a breath-taking pace. While many luxury brands focused on European or American market may be recovering from the Christmas bonanza, those within Asia, especially in China cannot rest. The Chinese New Year is around the corner and that is one BIG event in global luxury’s calendar from the past few years.

In one of our observation studies carried out in some top luxury stores in London, we found a large number of clientele to be Asian and a significant number of them happened to be Chinese.

The Chinese luxury tourist is slowly but steadily taking the place of what Japanese tourist did for decades. It is believed that, as much as 50 per cent of total sales of luxury goods in many important European luxury markets including London, Paris and Milan, is associated with the Chinese luxury tourist. Bain & Company estimates merged with the World Luxury Association data suggests that Chinese tourists spent USD 50 billion on luxury goods in Europe itself and when considering the domestic Chinese market, the Chinese consumers in total may account for 15 per cent of the overall global luxury market. It is also believed that in coming decade or so, China will be the second largest luxury market in the world. The leading brokerage and investment group CLSA is even more enthusiastic and optimistic stating that China may become world’s largest luxury market in the by 2020.

Chairman and Chief Researcher at the Hurun Report, Rupert Hoogewerf captured the Chinese luxury sentiment (especially for the Chinese New Year) beautifully when said that “The Chinese love affair with gift giving is one of the key drivers for luxury brands. The money spent on gifting, especially at Chinese New Year, is staggering compared to the West.”

The gift-giving opportunity: Chinese new year

It is believe that 25 per cent of all the luxury goods bought by Chinese are either a form of personal or business gift. This aspect of consciousness towards others self-concept is captured in two of my earlier studies. (Effects of interpersonal influence…  and  Status consumption in cross-national context)

Within the Greater China region, Giorgio Armani Group operates nearly 300 stores. Accordingly to insider estimates, the group wants to open 35 more stores each year within China. Similarly, PPR Group, which had 54 Gucci stores and 27 Bottega Veneta has much larger plans for the region overall.

While there are number of Chinese patrician consumers, most belong to parvenu category (Segmenting the luxury brand consumers). The young Chinese consumers enjoy showing off their luxury-brand logos as symbolism is such a significant factor within Chinese culture.

With all these happening in China, if a company has not got its China strategy sorted, I think it should do so urgently.

What is your Chinese New Year luxury strategy?

What makes a good luxury brand great?

Most luxury brands aspire to become great,

however, the great luxury brands differ from me-too luxury (mostly available in accessible luxury domain) on the value they provide. There are several differences between good and great luxury brands. From my perspective following are the big differences.
(a) Great luxury brands have a very clear idea about what target segment do they serve for each of their product category and sub-category and
(b) Great luxury brands deliver value on more than one dimension.

In one of our recent studies, we identified four major value aspects luxury brands should serve including social, personal, functional and financial value. Social dimension refers to the pride relating to acquisition and display of the product. Personal dimension reflects the individualistic attitude of materialism and pleasure seeking. The financial and functional dimensions refer to the price and quality match and the uniqueness. What differentiates great luxury brands from good brands is that good brands focus mostly on creating uniqueness rather than usefulness at most times. Most good brands are uni-dimensional.

What differentiates great luxury brands?

Luxury Brands: Good to Great

Great luxury brands deliver to their desired target segment all these above mentioned values in far better way than their competitors. For example, Hermes understands that its customer mostly belongs to patrician category who prefer privacy of consumption rather than ostentation. These customers are also interested in subtle signals and therefore from design to marketing Hermes focuses on subtlety. On the other hand, brands such as LVMH or Gucci have large number of customer base from middle to higher middle class and many of these customers intend to show off their acquisition. They are interested in loud signals and that is what these brands provide. This is done through (a) brand prominence in terms of logo placement on the product and (b) marketing campaign which continuously affirms the purchase decision made by the consumer. So, from a marketing perspective, great brands differ on their comprehensive understanding of the target market and the segments they serve and their overall value proposition.

Like I stated above, great brands are multi-dimensional. The advantage they garner over other competing brands is through their superior understanding of market and consumers and their overall value proposition. In this regards, the greatness aspect is repeatable and replicable. If an upcoming luxury brand is ready to understand the market and consumers and match its value delivery to what the consumers desire on the four dimensions of social, personal, functional and financial values a good brand can certainly become a great brand over a period of time. However, it has to be understood that this value delivery has to happen continuously for a long period of time for a luxury brand to achieve greatness.

Comparing the luxury brand value

Luxury brand value

With the rise of emerging markets, the luxury goods industry has grown substantially across the world in the past two decades. While customer demand in developed Western markets for luxury brands appears to be buckling under pressures of the recessionary trend, craving for luxury has grown substantially in emerging economies such as China, India, Brazil and Russia. The economic expansion in these emerging markets has obviously increased the desire for global luxury brands among customers. For example, according to Bain & Company estimates, in 2009, 85% of all the new luxury stores opened were in emerging markets.

Since the emerging markets are the growth milestone for luxury brands, it becomes critical for luxury brand managers to understand why consumers buy their brand and what value dimensions trigger the purchase. Value dimensions are the material and non-material qualities/attributes that attract consumers towards certain brands or products and compel them to buy/purchase them. The value dimensions are important not only from a marketing perspective but also because most luxury brands charge a premium for their goods and services making it important to understand what value dimensions will increasingly satisfy the customers.

Early evidence from academic literature suggests that customers in different countries differ significantly in the way they associate with various product categories. This may also be true for luxury brands. However, the earlier results lack empirical strength due to sample choice (i.e. use of student sample rather than real consumers) and anecdotal indication which only captures a single academic or practitioner’s views. To provide an answer to this ambiguity, Keyoor Purani at Indian Institute of Management Kozikode from India and I, conducted a research which looked at the impact of various value dimensions on luxury consumption among British and Indian customers.

Luxury brand value model

The luxury brand value dimensions

Taking into account the earlier academic work, my study focused on the following specific value dimensions:
(a)    Self-directed symbolic value: This dimension focuses on the extent to which customers attach or associate psychological meaning to a luxury brand depending on the product or brand name.
(b)    Other-directed symbolic value: This value dimension predicts the extent to which customers focus on and associate value to the social desirability of luxury brands.
(c)    Experiential value: This dimension relates to the sensory, emotive experience of consumption. This is especially important for luxury brands as they evoke unique emotions within customer psyche.
(d)    Financial value: This value dimension measures the financial risk considered by customers while buying and owning luxury brands.

Understanding British and Indian luxury customers, based on these value dimensions, provides a unique contextual comparison between a developed and an emerging market, a mature versus a rapidly developing market, and cultures of individualism and collectivism. In simple terms, the consumption behaviour of the British and the Indian customers may uncover both similarities and differences, and thus provide an appealing setting for researchers and managers regarding the impact of luxury value dimensions.

Findings relating to luxury brand value dimensions

While looking at the findings, it was observed that British customers considered self-directed symbolic values, other-directed symbolic values as well as financial values while consuming luxury. On the other hand, Indian customers relied heavily on other-directed symbolic values and financial values. This proves that customer values differ significantly across markets.

Customers in developing collectivist markets such as India use simpler selection criteria for measuring value of luxury goods than customers in developed markets like UK. They largely focus on societal and monetary value associated with luxury brands. Therefore, managers who generalise every market’s purchasing pattern may overspend resources in developing markets like India where customer focus is on simpler value dimensions.

British customers exhibited higher levels of psychological attachment than Indian customers. However, the study findings revealed the relationship to be weak and with a downward trend. This implies that British customers are increasingly attaching less psychological meaning to luxury goods. The lessening of psychological meaning suggests that luxury brands are losing their lustre in such developing markets. This may largely be assigned to the democratization of luxury brands where many brands, in a bid to increase their penetration, have become so common that consumers have stopped assigning the quality of luxury with them.

The increased market penetration of luxury brands seems to be working against them as it broadens the customer base but reduces exclusivity. With luxury brands being relatively easily available and consumed by many customers, it creates a dilemma for those original luxury consumers who cannot reflect their self-image anymore through that specific luxury brand, and therefore refrain from consuming such brands in future. This finding has important managerial implications. By increasing their penetration, luxury brands may be able to increase their short-term revenue. However, this may have a long-term negative effect. Hence, luxury brand managers need to be wary of this phenomenon.

As one would expect, Indian consumers rely more on other-directed values than their British counterparts. The finding reflects a collectivist psyche where luxury consumption is seen as a means to achieve social recognition.

Overall, the symbolic value dimension provides luxury brand managers an opportunity to standardize their strategy of marketing luxury brands across different types of markets. Emphasizing the increased social acceptance of luxury consumption may bring them lucrative results in global markets.

The experiential value dimension was found to be non-significant in both countries. This finding provides evidence against prevailing wisdom that luxury goods are consumed for the pleasurable experience they offer. This could be attributed to two main reasons – value contraction and recessionary conditions. Researchers have observed that the increased penetration of luxury goods has led to an overall reduction in their value. Moreover, this may be a reflection of the prevailing economic trend where customers are increasingly demonstrating self-restraint and reducing their pleasure-seeking purchases. The non-significance of experiential values among Indian customers may be a reflection of the cultural element of modesty and humility, which is significantly observed in collectivist societies. Luxury brand managers will have to take these aspects into consideration when developing their communication strategy.

The impact that all these value dimensions have on consumers, as  triggers for the intent to purchase certain brands, has not been dealt with in prior studies. The study findings reported here demonstrate that on the whole, luxury value dimensions have significant impact on purchase intentions across markets. However, the British consumers give more credence to their luxury value dimensions in comparison to Indian customers.

Overall, the study findings demonstrate the centrality of value dimensions in influencing customer purchase behaviour regarding luxury brands. However, considerable cross-national variations exist which provide important theoretical insights as well as strategic implications for managers in developing global luxury brand strategy while remaining sensitive to local differences.

Source:

Shukla, P. and K. Purani (2011), “Comparing the Importance of Luxury Value Perceptions in Cross-National Contexts”, Journal of Business Research, Forthcoming.

2012 IMRA Emerging Markets Conference in London

International Management Research Academy (IMRA)

2012 Emerging Markets Conference

Emerging Markets and the New Dynamics of Management

Since centuries, it has been perceived that, the western world is at the forefront of innovative theories and practices in management. Last two decades have evidently demonstrated that now it is no more the hegemony of the developed world in contributing towards management art and science.

The BRICs (Brazil, Russia, India and China) and other European countries are now emerging as sunrise economies and are offering new dynamics of management. Be it grassroots level technologies or socio-economic development, the emerging markets are certainly presenting the new world economic order. This conference is an endeavour to disseminate the new dynamics of management from emerging markets.

The call for papers can be found here.

Luxury marketing: exploiting the heritage code of luxury brands

Marketing luxury brands is significantly trickier than regularly purchased brands. In this regards, many luxury brands from Europe seem to be stepping up a new kind of luxury marketing activity – exhibitions in prominent museums. For example, “Inspiration Dior” exhibition at the Pushkin Museum, Moscow; “Culture Chanel” at the Museum of Contemporary Art Shanghai; and Louis Vuitton “Voyages” exhibition in the National Museum of China. This exercise bags a question as to can this create a win-win situation for luxury brands and museums? In the following paragraphs, I shall share my views on marketing luxury brands through exhibitions.

A win-win situation for marketing luxury brands and museums

Many luxury brands continuously associate themselves with the local culture, local flavours and local identity in almost all their communications. In my earlier article on luxury marketing and brand origin effects, I specifically highlighted how brand origin connection is used by luxury brand marketers. Exhibitions provide another marketing opportunity to luxury brands to expose and engage those consumers who are less aware or feel psychologically distant from these brands. Many consumers still associate luxury brands with negative value associations such as snobbism or conspicuousness rather than the uniqueness or high quality. The negative association of snobbism or conspicuousness may not bode well for positioning purposes in present recessionary environment. Exhibitions, especially in world-renowned museums provides luxury brand an added benefit of going beyond those negative value associations and associate positively.

On the other hand, museums increasingly look for exposing their visitors to world cultures and sub-cultures. For example, Victoria and Albert museum, a prominent art and heritage museum in London, identifies its purpose as “to enable everyone to enjoy its collections and explore the cultures that created them; and to inspire those who shape contemporary design.”

In this regard, luxury brands which associate themselves with a specific culture tone represent both ‘culture’ and ‘contemporary design’ objectives. Therefore, it creates a win-win situation for both luxury brands and museums. The brands gain stronger cultural tone, wider exposure (as masses may sometimes find some of these brands snobbish) and added prestige of being classic. Many consumers see museums as the most accurate snapshot of a specific culture or a specific event. In a way, many consumers take the museum’s view as the reality. In this regards, marketing the luxury brand via a museum gains a strong positive association due to the exhibition. The museum on the other hand may get more visitors who may be curious in looking at a certain outfit (e.g. Kate Middleton’s wedding dress is already being identified as a museum outfit). Thus, both brands and museums win.

The increasing inclination from museums to host brand-focused exhibitions can be explained from a socio-cultural perspective also.

Firstly, as I stated above V&A museum identify one of the major purpose is to represent ‘contemporary design’. Luxury brands and especially their ready-to-wear business is a buzzing ground of contemporary design. Most luxury brands lead from front in this regards. Recently, I saw a documentary on the house of Valentino (Valentino – The Last Emporer) released by BBC under it’s storyville programme. It shows how much effort goes on behind each of the creations and the substantial detail behind each aspect of design. Furthermore, the amount spent on design aspects in accessories business such as perfume bottles and other packaging is in itself a recognition of the emphasise put by luxury brands on design. It seems that museums have started recognizing this extra effort put by many brands.

Secondly, the contemporary aspect in museums is becoming ever more important. Previously, museums were thought to exist for the historical snapshot they provided to mankind. However, more and more museums across the world are embracing a forward-looking approach by identifying and appreciating contemporary design. This in turn has probably brought a newer segment of consumers (especially young adults) to museums as they enjoy exposure to the what is contemporary more than what is historical.

Thirdly, many luxury brands have become so popular that they have created a cult kind of a cultural identity around them. Our world is full of brands and brand related messages. Furthermore, many luxury brands are old enough to have a strong heritage aspect associated with them. This in turn, fits with the museums’ agenda of being historical and contemporary at the same time.

Added interactions : a major luxury marketing objective

Moreover, brand related exhibition may also bring a kind of visitor who may get curious to know more about a brand s/he is exposed to for years but hardly understand. A regular consumer may not be aware of who is Frida Giannini, however, will be very much aware of what is Gucci. Thus, a brand based exhibition overall may bring (a) normal visitor to the museum who may not have come to the museum before; (b) heighten the reputation of the luxury brand and cement its cultural identity and (c) increase the designer’s reputation overall.

Another important segment who may win in this situation is the budding designers and artists. This segment of visitors can now get time to actually see the works of master designers behind those brands in real rather than just from images in magazines. Therefore, the exhibitions in turn may become an inspiration for the new age of design.

Overall, I believe the luxury marketing efforts geared towards exhibiting luxury brands across the world may lead to a win-win situation for everyone involved.

Luxury branding: back to basics

When using luxury brands consumers make a subtle claim that they are special, different and at the very forefront of social trends. Therefore, creating a fit between the social trends and keeping up with them is one of the critical strategic issues for all luxury brands. However, with mass-market brands gradually upgrading their appearance, strategic response and approach to marketing their products, many luxury brands are finding it hard to stay ahead of the peck.

In this scenario, many luxury brands have decided to move beyond their niche and diversify very quickly into other market spaces which the consumer may not associate with the specific luxury brand. The idea of brand extension and at times irrelevant diversification (i.e. moving away from one product category to another one) is particularly delicate issue for luxury brands. This is mainly because of the strong brand origin and brand image associations luxury brands have in consumer minds.

Luxury branding: barbie jewellary

While there are some brands who manage to extend their portfolio without any major issues, many luxury brands find it a massive struggle and therefore should think about such extensions carefully. For example, Prada’s move from shoes to handbags and then into ready-to-wear market worked every time. Same was the case with Gucci. However, it took many years for the first Bulgari watch to become a success. In case of smaller and boutique luxury brands, due to financial and marketing resource limitations, the issue of brand extension looks very lucrative but can become a bottleneck very quickly. For example, in 2005, Mattel decided to create Barbie-themed clothing and accessories and involved fashion designers such as Tarina Tarantino and Anna Sui to interpret Barbie’s wardrobe for grownups. However, this extension was identified as one of the worst extension for the year and so its effects on the involved designers may be felt in long-term. Another example of this is Audi in US market. Audi still struggles to crack the US market as consumers remember those sudden unintended acceleration issues and a series of product recalls associated with it nearly 3 decades ago.

Luxury branding and getting back to basics

In this regards, I would urge luxury brand managers to be highly cautious of brand extension and diversification. There are many other routes suggested by marketing experts which can be taken into account. For example, Ansoff’s Product/Market matrix provides good few insights on what other options can be exploited without diversification.

Figure 1: Ansoff product/market matrix for luxury brands

The image above shows interesting strategies for luxury brands too. In the quadrant 1 where a company wishes to expand itself into its present local market, could focus on various ‘market penetration’ strategies by (a) increasing the frequency of usage; (b) increasing the quantity used and (c) identifying new application of the product. I am sure the options a and b are quite feasible in case of most luxury brands which are used occasionally only by consumers as my research has shown. This in itself can lead to higher market share and stronger customer loyalty.

The quadrant 2 which focuses on developing new products for the current markets does not mean diversification but instead looks at ‘product development’ strategies. In this case, luxury brands can focus on product improvements (highlight them in communications carefully) and line extensions (after careful market research rather than an insiders only brainstorming).

The quadrant 3 focuses on ‘market development’ strategies. In this case, luxury brands should focus on (a) geographic expansion and (b) target new segments. For each of these options, specific strategic initiatives are required. Such as, for geographic expansion, cultural proximity and market understanding are a must. Similarly, when targeting new segments, it would be desirable to identify those peripheral groups which take the current luxury brand consumers as their aspirational leaders.

The quadrant 4 relates to diversification. However, remember this is quadrant 4 of 4 and that means it should really be thought of as one of the last options. If growth has not been possible with the first 3 quadrant a luxury brand should focus on diversification. However, in my own experience, I have seen entrepreneurs/managers focusing this as their first option. While if done carefully it can provide significant benefit, it’s quite risky also as seen in earlier examples.

My aim in this article was to offer some alternative strategies for luxury branding rather than just thinking diversification. Going back to basics can always help any luxury branding effort and I hope it would ignite that thought in you.

Image courtesy: BusinessWeek

The Alternative Vote (AV): moving from nominal to ordinal measurement

Tomorrow is a very important day for British citizens when we shall decide our next voting system – labelled as the Alternative Vote (AV). Presently, we use a simple voting system called ‘First past the post’ (FPTP). In this system, the candidate who has won the most amount of votes is the winner. So, lets say, there were 3 candidates and 1000 voters and candidate A got 401 votes, candidate B got 400 votes and candidate C got 199 votes. In the FPTP candidate A will be called the winner as he has got the most amount of votes, though in reality the difference between candidate A and B may not be significant in reality. This is a nominal measurement system wherein you get to make one choice as a voter. In research world, this is called the assignment property.

The alternative vote (AV)

The FPTP is the norm across most democratic countries. In Australia however, for nearly a century they have been using a different voting system which in the UK right now is being called the Alternative Vote. The system focuses on identifying a candidate who is the first to get more than 50% votes. In this altenative vote system, the voters don’t only put an X next to a specific candidate they like (or least dislike in most cases). Instead, the voters rank the candidate in terms of their order of preference. In research terms, this is called order property and the scalling is called ordinal scale. The order property is little better than assignment property in a way that the assignment (i.e. whoever is 1^st preference) is already built inside but at the same time the order of preference (i.e. whoever is 1^st, 2^nd or 3^rd and so on – who is most favourite and/or least favourite) is also known.

So, in case of ordinal measurement system in voting preferences we may have a different results than FPTP. Taking the example, mentioned earlier wherein candidate A got 401 votes, B got 400 votes and C got 199 votes, I shall now explain how the alternative vote system works. The candidate C will now be eliminated as s/he has got the least amount of votes. In the next step, their 2^nd preference will be now be taken into account. Of those 199 votes, lets say 150 votes went to candidate B and 49 votes to candidate A. In that case, candidate B will have the maximum amount of votes (i.e. 400+150 = 550). Therefore, s/he shall be declared a winner.

BBC has done a wonderful video on this. It is embedded below.

http://www.bbc.co.uk/news/uk-politics-13276178

This in itself is a little better but not a perfect system as in reality it may also happen that both candidate may get similar votes or again the different becomes non-significant. The major problem with both system is that they do not take statistical significance in account and therefore may not be representative system.  There are many other issues associated with both the systems however my focus has been to explain the issues relating to (a) nominal vs. ordinal measures (b) issue of statistical significance and representativeness where both of them fall short. If you wish read a bit more about these issues from research perspective, have a read through my book on marketing research.

We will get to know tomorrow if Alternative vote (AV) gets FPTP tomorrow.

Influence of prospect payments psychology and pricing

Influence of prospect payments on pricing OR should you charge more for your iPhone app?

While discussing the issue of how consumers get converted from prospects to customers in one of the MBA classes and later on in the Marketing Research class, a thought occurred in my mind. Should (and do) companies take into account and adjust the pricing of their specific offering according to the customer propensity to purchase on a specific eco-system?

As I read somewhere long ago, Amazon did that till 2001 using cookies but had to stop that practice. However, if a small scale supplier does it, will it actually be noticeable? How ethical would that be?
Let me take an example. We all know that Apple consumers generally pay more for every mainline and peripheral product in comparison to their PC counterparts. I do not wish to dwell on the functionality comparison and such other issues but in reality when you are prepared to pay more for within a particular eco-system, can it be exploited by others who also provide services within that eco-system?
Think about an app provider who supplies his apps to consumers on two competing mobile eco-systems of Apple app-store and Android marketplace. In this case, keeping in mind the propensity to pay higher amount of money from the Apple consumers, should the app provider charge more money for the app than on Android marketplace?

Like many consumers, who hardly compare prices (I know some of us do but most don’t), supermarkets exploit this window of opportunity like anything and supply products at different prices. If that is feasible between two supermarkets, can it not be taken into account by mobile eco-systems? So, should app suppliers take into account the prospect payment psychology in pricing their apps?