‘To broaden revenues, narrow your markets!'

VINAY KAMATH | Updated on January 12, 2011

Prof.Mohanbir Sawhney. Photo: R_Shivaji Rao   -  The Hindu

The previous week's edition of BrandLine carried the first part of an interview with Dr Mohanbir Sawhney, Robert McCormick Tribune Foundation Clinical Professor of Technology at Northwestern University's Kellogg School of Management. Known for his work on strategic marketing and innovation, Prof Sawhney spoke to BrandLine on how India is poised to become a global hub for innovation and the necessity for marketing to have a role in the boardroom. He is a strong believer in the view that companies can grow through fewer and focused brands rather than spread themselves too thin with a vast assortment, which makes them prone to neglect.

You've recently written an article along with Sanjay Khosla in Strategy+Business magazine where you've talked about growth through less. You've advocated that companies focus on fewer products to drive revenues and profits rather than spread themselves thin by marketing many brands. Do you see any Indian company adopting this strategy?

If you go back 20 years the market opportunity in the domestic Indian market was limited. Consumption too was limited and therefore to get scale and size you needed to be diverse. The dominant players were mostly conglomerates such as the Birlas and the Tatas. One of the interesting paradoxes, if you think about their businesses, was that there was little cumulative logic. It is very hard to explain what business the Tatas were good at - their businesses spanned everything from steel to textiles to hotels to salt. In essence, the very concept of a conglomerate is at odds with the idea of focus.

But things have changed in India. First, the domestic market has become larger; second, because of global competition the products made for the domestic market now have access to global markets, which means your total addressable market is now actually worldwide. Therefore, Indian firms can now afford to be more focused, and indeed, they need to be more focused. And that's what I'm seeing. Consider the Tata Group, for instance. While they are still a conglomerate, they are focusing on a few key strategic themes at the group level - information technology, automotive and steel, to name a few. I would venture to say the Tatas are becoming known more for fewer things now. The Tata group is now really associated with a handful of flagship companies as opposed to, say, 150 things they were doing earlier.

If you look at newer conglomerates such as Reliance, they are more focused, even if it might not seem so. This is an interesting question that I asked Mukesh and Anil years ago: What is the connection between petrochemicals, telecom and now retail? At first glance, there seems to be little in common between these businesses so it seems that they were pretty unfocused. Their response was eloquent – they noted they did two things well – they know how to manage very large projects and they know how to do infrastructure. The common theme in telecom, retail, petrochemicals, textiles - they are all about infrastructure and project management. So they are actually quite focused from that standpoint. They get into businesses that require large amounts of capital, complex projects and complex dealings with regulatory authorities. Take the example of Bharat Forge. It is pretty focused in what it does and a world leader in the field of forgings. In summary, my contention is that Indian companies can afford to be more focused and they need to be more focused. Because the market allows them and the market demands it too.

And, today the environment also has changed to make it more conducive, hasn't it?

This is true. Let's think back to what had made the conglomerates tick. They were actually filling the institutional vacuum, whether it is financial or talent or processes. In an inefficient institutional environment, you needed to do everything yourself. So the glue that unified the conglomerates was their access to capital, their ability to recruit talent and their ability to navigate the “Licence Raj”. But now as capital markets became more efficient as talent has become more widely available, it sets into motion centrifugal forces on conglomerates, as individual companies within the erstwhile conglomerates can access talent and capital from the institutions in the open market. This means that Indian conglomerates will have to think harder about their core competencies and they will need to focus their efforts in a more coherent and narrowly defined set of businesses.

What are other examples of companies around the world which have worked with single-minded focus?

To me the shining example of the power of focus is Apple. The company basically has only five products, yet it generates $65 billion in revenues and has a market capitalisation of almost $300 billion! One thing that Apple never does is to proliferate its brands or product lines. The iPad is just the iPad – you can choose different capacities and connectivity options, but there is only one brand. It is the same with the iPhone and the iPod. Contrast this with Samsung in the mobile device business. It has dozens of sub-brands including Instinct, Galaxy, Captivate, Epic, Fascinate and so on. The result – each of these brands has limited awareness and weak brand equity. The benefit of focus for companies like Apple is that they are able to put “more wood behind fewer arrows”. They can focus their resources in fewer brands and products. Companies such as Sony, Samsung and Microsoft need to learn from this. We see the same phenomenon in packaged consumer goods, retail, pharmaceuticals, in technology as well as in financial services.

So what you are advocating is fewer brands, but you are saying take those brands to the world?

Absolutely. You need to narrow the lens through which you are going to focus – the geography may be a lens, the vertical market may be a lens or the channel may be a lens. Consider an example: in the case of Fonterra Foods (a dairy products company based in New Zealand), it chose the food service channel (selling to restaurants and other commercial food establishments) as a lens to focus its growth efforts. While it narrowed its focus on the channel front, it offered a broad range of dairy products through the food service channel. The insight - if you want to broaden your revenues, you have to narrow your markets!

However, focusing doesn't mean you are selling less. On the contrary, you are actually increasing scale but you are doing it in carefully selected areas. Therefore, if you pick a few brands to focus on, you need to take them to the world. And if you are going to pick a few markets then sell everything in those markets. So, you do need to pick the lens and then you need to drive that to scale through organic growth as well as through acquisitions.

Then, going by what you are saying, would a brand such as 3M be an aberration in today's world of intense focus and fewer brands; I thought they thrive on brand width?

Yes, 3M could be considered an aberration. But, in the scheme of things, the amount of innovation at 3M is measured by the number of new products they have created. I don't think it has been translated into commensurate market value for the company. In fact, 3M's stock price has remained stagnant over the past five years. Moreover, it is not just the number of products a company offers. You could have 20,000 products but you could be focused on few vertical markets.

So, it is really a combination of how many products, categories, brands, markets, geographies, channels the company has in its portfolio. For instance, a company may have thousands of products, but if they are all focused on a couple of vertical markets such as healthcare and manufacturing, they are still a focused company. But, if you have complexity along multiple dimensions, then it is quite likely that you have exceeded the point of diminishing returns and are unfocused.

If business is about brands and brands are about actually going out and pulling in consumers, why did marketing ever lose out? I mean, is that realisation coming only now that business is only about brands?

When you said that business is about brands that is truer in the world of FMCGs. I think in FMCG, marketing has always played an important role. So if you are at Unilever or P&G, brands have always played a strategic role. But I spend a lot more time with technology companies, B2B companies, and if you tell them it's about brands they say it's all about products.

Paradoxically, of the world's top 20 brands, more than half are technology brands. This is because technology companies do corporate branding. P&G doesn't brand the company. Cisco, Google, Microsoft, Nokia, all brand the company so those are very valuable brands. But these brands are not managed by brand managers. There are no brand managers in technology companies. So I think that B2B technology companies need to evolve more towards the CPG model.

I see a brand as the sum total of all the experiences and interactions that a customer has with your products and your company. In the FMCG world, the interaction largely is limited to the interaction with the product and the advertising. But in a technology or a services business, there are a vast number of “touch points” – ways in which customers interact with your company. Your sales force, Web site, call centres, retail stores, partners, distributors, invoices, support manuals – every interaction through every touch point is an act of branding. So we need to think about brand management much more strategically. To me brand management and customer experience management are conceptually the same thing.

If you go by all these touch points, I am afraid most Indian companies will fall short!

This is true. In fact, the more you try to create a perception of image through marketing communication and then not deliver on your promise through all the touch points, you are actually creating more trouble for yourself. You would be better off not doing any advertising of false promises! For example, if you say in your marketing communication that “we are the easiest company to do business with”, but then I can't find anybody in a call centre and I can't find any information on your Web site or you are only open from 9 to 5 at your retail stores – you are lying to customers! Companies need to make sure their brand experience is orchestrated across all the touch points in a way that it is consistent and coherent. And marketing must be the orchestrator of the customer experience. This is ultimately what a brand is about and this is what the responsibility of the marketing organisation is.

I couldn't agree more with you on that, but I think Indian companies still have a long way to go.

Yes, but indeed, things are changing. And there has always been excellence in pockets. I recall an incident from 1988 when I was working with Titan Watches. I was with Mr Desai (Xerxes Desai, founding MD of Titan) – one of the most brilliant marketing minds I have met – at the Hosur factory. He spent a good half hour with the landscaper who was doing the gardens for the factory. I asked Mr Desai, “If you don't mind me asking you, you are the CEO, don't you have better things to do than deciding what plants go where, that too in the factory? What difference does it make?” He replied: “We are a fashion company, we are in the business of lifestyle, everything we do, and every way we present ourselves sends a message. We bring our collaborators, policy makers to visit our factories. I can't have a watch that looks beautiful and gardens that look overgrown. Our lawns should embody our design aesthetic. Our building should embody our design aesthetic. The way the receptionist greets guests sends a message. How we merchandise our products sends a message. Everything contributes to our image. All our messages need to be consistent. How can we have beautifully designed watches while our garden in the factory is neglected?” I will never forget this lesson.

Another very important lesson that I learnt from him was when we were on a flight together. One of the things Mr Desai would often do was wear some new prototype watch to test. That day, he was wearing a new watch, but he kept asking me what the time was. So I asked – “Don't you have a watch, Mr Desai?” He smiled and showed me his watch. This watch had a lot of ornamentation, to the extent that you couldn't see the hands and the time on it too clearly! He said: “A watch is a fashion accessory that happens to tell the time. Sometimes it doesn't even tell the time!” He knew what business we were in: the fashion business. Nobody buys a BMW to drive from point A to point B; there are lots of ways to satisfy our basic functional needs but the value that marketing adds is that it brings the extra sense of style, self-expression, identity that takes you to the next level.

Published on January 12, 2011

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