Wednesday, October 16, 2013

Innovation in emerging markets

Quite often when people think of innovation they think of Apple and the iphone. That such innovation is also relevant for emerging and developing markets is proven by the fact that China has already become the second largest market for Apple. But there is more to innovation in emerging markets that producing cute gadgets. 

If we define the purpose of innovation as the process which leads to a better satisfaction of consumer needs, or an improvement in the quality of life of the consumers, we need to firstly look at the profile of the target population of the consumers in emerging markets and see what kind of innovations can they benefit from. While luxury goods may be booming in emerging markets, they also house over a billion people living below the poverty line. Even the emerging middle class in these markets has much more modest spending power than the middle class in the West. This implies that while the Western style innovation of smart technology and slick designs is still relevant in the emerging  markets, there is also a totally new kind of innovation required for consumers who are actively seeking improvements in their lives it terms of basic aspects such as clean and safe drinking water, affordable housing, better education for their children and basic services such as banking. It is not surprising then that m-pesa a mobile phone based money transfer service emerged in Africa and not from the developed markets.

Jugaad innovation

We often use the term "jugaad innovation" in the context of emerging markets. Jugaad innovation is normally used to describe, relatively low cost, problem solving, basic, grass-root level innovation that is often the result of consumer and manufacturer ingenuity, directed at solving some problems and improving the quality of life for consumers. In the Western context, innovation is expensive as it involves expensive R&D, scores of Ph.D's pouring over their microscopes to discover new magical formulas. Innovation is normally a long drawn process with very little short-term return. While companies like Lenovo and Huawei are engaged in this Western style investment, only the most successful companies can afford to put in these kind of resources. For most companies in emerging markets the only route is frugal innovation.

Secondly, most innovation in the Western world is top-down - as the consumer needs in most areas are actually well satisfied and  it is the companies, who in search of higher profits and beating the competition are looking for ways to provide that extra stimulation and thrill to the consumers. However in the emerging markets, innovation often starts at the grass-root level, as the consumers have unsatisfied needs and often resort to cheap and crude but still workable solutions to seek solutions for their problems.

Chinese digital innovation

While the Western companies lead in innovation for technology products, one of the most active areas of innovation in China is the technology services in the digital and mobile arena. True, the Westerns platforms of Facebook and Twitter are not accessible to the average Chinese- but they have something much more suitable to their needs - Weibo. Just as twitter, Weibo allows you to express anything in 140 characters. Of course in Chinese, each character is actually a word, and hence you can say a lot more in 140 characters in Chinese than you can do in English or most other languages. Weibo has attracted more than 300 m users within a few years and has become a platform for discussion of everything from brands to social issues to corruption. Through Weibo urban young Chinese have found a relatively open but still an acceptable way to express themselves. Weibo has emerged and evolved in a uniquely Chinese way to satisfy the needs of the Chinese consumers.  

Similarly while Western companies like eBay and Amazon have made little headway in China, the Chinese e-commerce platform Taobao has 600,000 vendors selling everything from tablet PCs to freshly slaughtered chicken. Taobao was able to innovate to address several resistances towards e-commerce in China - which included a mistrust between sellers and buyers, low penetration of credit cards and extreme price sensitivity. Both Weibo and taobao have developed not through top-down innovation but through their users who have moulded the platforms to best satisfy their needs.

Innovation in emerging markets is extremely important. Not only can it add to the coffers of corporations, it can change and even save lives. Of course, to be effective it needs to be anchored to the consumer needs and a discovery of what can enrich their lives.

Written by Ashok Sethi

Thursday, June 20, 2013

The emergence of seamless retail

The juggernaut of online shopping

It is just to state the obvious that the Internet has totally transformed the world for both the shoppers and the retailers. Shoppers have taken to online shopping with gusto and entrepreneurs and businesses are straining hard to exploit the opportunity. In the early days of Internet, it was common to consider the web as a resource or an aid to shopping, and it was expected that consumers will rely on the Net to look for information about products, to locate a store where they can buy and to perhaps look for advice and assistance on how to make the right choice. It is indeed true and nearly all agree that the Internet has become a very useful resource for shopping. However clearly it has gone far beyond that and has become a gigantic marketplace - consumers are buying everything from luxury goods, shampoo, automobiles and freshly slaughtered chicken on the Internet. 

Online shopping has not just established itself in the developed markets, it has firmly established itself in the developing markets and e-tailing already accounts for 5-6 percent of 2012 retail sales in China and about 5 percent in the United States. In China online sales recorded an astonishing estimated 60% year-on-year growth in 2012 (Source: McKinsey. MGI China e-tailing report)

Last year online shoppers grew by 25% in China, with nearly 50 million new shoppers added to the fold (Source: CNNIC January 2013). The growth of group buying or tuan gou (which actually originated in China), also continues. We also see that consumers are losing their fear on online payments. In the initial era of online shopping, cash on delivery used to be a common method of payment, but thanks to Taobao (the largest online shopping platform in China with more than 6 million merchants listing their products), and the escrow system of payment known as Zhifubao, which protects both the buyers and the sellers, online shoppers are now ready to pay online.

The circuitous consumer journey

For the consumers the two worlds of online and offline shopping are now intrinsically intertwined. In the initial days of online shopping the consumers often looked for information on products online but the then returned to the comfort and security of the familiar bricks and mortar environment to lighten their wallets. While this is still a reality, the other phenomenon is more prevalent and on the rise - consumers today often touch and feel the product in the traditional stores, but come back to their comfortable chair at home, where they sit in front of their favorite computer or the newly acquired tablet and enjoy in-home retail therapy by clicking the "Buy" button.

The fact is that today the Internet is as much a part of the retail scenario, as is the supermarket or the hypermarket. Whether you are a retailer or a marketer of brands, it is no longer a question of developing an e-commerce strategy - the task really is to entirely reshape and develop a retail strategy for the digital world.

Online, offline and seamless..

This juggernaut of online sales has huge implications on the online as well as the traditional retail industry. It is not possible to understand the implications for e-commerce unless we simultaneously look at and compare the respective roles that online retail and conventional retail are carving for themselves. And to understand that we must understand what consumers expect in an online environment and what are their expectations in a traditional store.

Consumers are very clear when they think about what is important to them in an online store – ‘saving money’, ‘more payment and delivery options’ and  ‘better selection and delivery’ top the list. The needs from an offline store are very different. ‘Ability to touch and feel the products’, ‘satisfaction of immediate delivery’,  ‘better service’ and ‘enjoyable experience’ top the list. So the two channels have very different strengths and at this moment at least, it is too early to proclaim the demise of the traditional trade, though some change in its role is definitely in the offing

According to Deloitte’s Store 3.0 Survey among retail executives, it is apparent that the role as well as form of a bricks and mortar store will inevitably change. Today the executives say that he role of in-store employees is largely in providing basic purchase service and assistance and display some product knowledge. But this is expected to be totally transformed five years from now, when the most important skill of the workers will be to be able to leverage technology to enrich the customers' experience. Another important role of the sales staff will be to act as brand ambassadors. In fact retail executives indicated that in five years, providing customers with a compelling brand experience will become the primary role of the store.

So what does it augur for the future of online and offline trade. Online retailers need to clearly understand, that they lag behind the traditional trade when it comes to providing immediate gratification, intimate touch and feel, the immersive experience and the joy of shopping. They need to look at innovative ways of providing that intimacy - can technology be used to provide a better virtual touch and feel of the products, can virtual reality be used to help consumers come closer to the product? Can they collaborate with traditional retailers or can they establish their own limited brick and mortar presence (as some of them are doing already)? 

For offline retailers, the task it to zealously guard and enhance their ability to facilitate human interaction with the consumer. The store's function is not just to act as a convenient transaction center, it is to provide a valuable and important experience to the customer. For brands it is an opportunity to develop a relationship and bond with the customer, which is more of a challenge in an impersonal online environment. The most successful retailers will be those who can offer the best of both offline and online shopping and in fact offer a seamless shopping experience in which the shoppers can effortlessly move from online to offline, back to online then again to offline if they so desire .

This article is based on FutureBuy 2013 - a research study conducted by GfK in 14 markets across the world – which focuses on understanding shopping trends across the globe.

Written by Ashok Sethi

Spring festival blues and commercial opportunities

The Chinese new year is a festival of joy, family reunion, fun and celebration. However when 1.3 billion Chinese decide to celebrate and get reunited with their families during the same seven day period, it generates unprecedented competition for limited resources and ensuing hardship. At the same time it generates a commercial bonanza. According to data from the Ministry of Commerce in China, total retail sales during the week long festivities reached 539 billion yuan ($86 billion)- 14.7% more than last year. The commercial opportunities do not just exist for the big retailers and manufacturers, this special time of the year generates some rather niche, ingenious but also sometimes dubious commercial activity.

Take me home

The most intense competition during this period is for transportation to go back home. According to popular estimates in the media, the Chinese will make 3.4 billion trips during the peak 40 day travel period around the Chinese New Year, of which 3.1 billion will be road trips. 220 million are expected to take a train ride during this period. Online ticketing, which started just a few years ago, was expected to make the whole process relatively painless - however it turned out to be a barrier for migrant workers in buying tickets to go back home during the spring festival. According to a survey by the Shanghai Institute of Foreign Trade, more than 90% of the migrant workers preferred taking a train to go back home and almost 80% of them said that they would do so by buying tickets from a ticket office. 70% of them said that they were not familiar with the online ticketing procedure and only 18% had tried using the online ticketing service. A kindly couple who was offering the service for online ticket purchase at a small fee to migrant workers was apprehended with the accusation of touting. 

For those who are internet literate the task of making a booking is no less arduous. The average daily number of hits on the website has topped 120 million during the peak days. Online sales are now responsible for over a third of total tickets, accounting for as many as 6 million tickets a day. The buyers often face interminable waits while the overtaxed computers cope up with the deluge of booking requests. In an exhibition of ingenuity, three internet giants - Qihoo360, Kingsoft and Sogou - designed plug-ins for browsers to automate the task of repeatedly trying to login and buying  train tickets on the overloaded train booking website. Critics opined that the software gives the internet savvy an unfair advantage to secure the much prized tickets.

The road less travelled 

Many consumers are taking the "road less travelled" with one entrepreneur from Hangzhou choosing to take 48 buses to reach his home in Linyi in Shandong. Another enterprising soul undertook the arduous journey back home using 8 train tickets and transfers from Shanghai to his home town in Sichuan. As direct tickets are most difficult to secure, this segmented approach worked well for him and he was able to get home smoothly and relatively quickly. In fact the train enthusiast is offering consultancy to others on identifying circuitous routes back home where ticket purchase is still a possibility.

Meet your future son/daughter-in-law

When the young city workers go home, the parents are solicitous about their quest for marriage partners. Those who have not achieved success in this area, are worried about creating anxiety among their parents and persistent pressure on themselves. Taobao, china's online megastore, which offers everything from the latest iPad to freshly slaughtered chicken, comes to rescue on this count also. For a few thousand yuan, any unattached youth can hire someone who would pretend to be his or her future life partner during the golden week that is spent with the parents. Things do not always go as smoothly and dispassionately as planned, with a genuine spark of affection for the hired companion. 

Happy meals

Those who have already tied the knot and are the sole bearers of the family name and hopes for their parents ( as a result of family planning) need to make the difficult decision of with which set of parents should they have the nianyefan or the New Year's Eve dinner. Restaurants have come to the rescue urging the young from hosting the dinner at their premises, including both set of parents and even grandparents. The service is popular and the good restaurants are often booked months in advance.

Packaging for 'face'

Of course, when you go home you must carry gifts. Migrant workers who have left their children in their home towns and villages in the custody of their elders, have no dearth of what they can buy, and go back home loaded with toys for their children. The elderly are often rewarded with health foods, which will provide them with even more energy and stamina to look after their grandchildren. Marketers often exploit the gifters' need for face and desire to be seen as someone who has done well in the city and has come back with generous and valuable gifts. The often modest gifts are made to look more alluring and grand through excessive packaging. The authorities have taken notice of this and are coming down or deceptive and wasteful use of extravagant packaging.

Sleep well while you travel home

A product named "sleep support" has gained popularity on the internet as a sleep support for sitting upright sleep. The gadget provides head and chest support to the users, while sleeping upright on a train. a netizen suggested that if the instrument can also provide a place for comfortably holding an iPad its value will be considerably enhanced.

Written by Ashok Sethi

Tuesday, January 22, 2013

Looking ahead to 2013

An ode to joy 
Like every year we went through our ups and downs in 2012, holding our breath, praying, cursing , rejoicing and regretting. But it was delightful to see that the year ended with a cry of joy (or rather the promise of a cry) when it was declared that Kate Middleton, the Duchess of Cambridge was expecting a baby. Through sheer luck and extraordinary coincidence, prince William a kind of heir to the British throne and Kate's husband, is expecting the same! The British (or rather the world's) cup of joy runeth over and we should see a brighter and more prosperous 2013. David Cameroon, the British Prime Minister said that he was delighted at hearing the news. John Osborne, the Chancellor of the Exchequer announced that the austerity (not abstinence)  measures seem to be paying at last and the end of recession can not be far now. The world will listen to every gurgle, splutter and burp coming from the royal mahogany cot and look once again at the future with a sense of optimism. Such good fortune while the British were still basking in the glory of the Olympian sun, and the Queen's diamond jubilee! Experts feel that this will make the British a less cynical nation and might transform the nation of stiff upper lips to one of drooping lower jaws.
General  Petraeus, who moved a while ago from Pentagon to CIA, apparently left his pants behind and was caught without them, having an affair with his biographer.  "I wasn't content just having my name on the book, and wanted to get under the covers," said Paula Broadwell, his biographer.  It was a shirtless FBI agent who blew the whistle on the trouser less General Petraeus. The story captivated the American public's attention, while the nation was having its pants taken in Afghanistan. 

A number of other countries competed to put forward their own sex scandals. In UK news channel BBC was itself in the news, when it accused one who didn't of sexual offences, and broadcasted Christmas tributes to the one who did it. Thankfully Jimmy Saville, the one who did it, is dead and severely handicapped in doing it again. 

New leadership

After a grueling electoral battle with Mitt Romney, Barack Obama won the tenancy of the White House for four more years. Mitt put up a brave fight and spent a lot of money to evict Obama but failed to win favour of  "binders full of women", and hordes of Asians and non-whites who set their faith in Obama. Obama's acceptance speech saw a change of sponsor from Metal Can Company (and hence the slogan -Yes, we can) to American Best Foods (the Best for America is yet to come). Perpetually being scolded by his wife Michele for not listening to her, Obama embraced her on Twitter and proudly announced "Four more ears".  The Economist urged him to follow this with an embrace of a Republican.

New leadership also surfaced in the most important country in the world and Xi Jin Pin replaced Hu, while Wen looked on. Bent on making a difference, Xi started by setting a record for the shortest speech delivered by a senior Chinese leader. He announced, to the amazement of everyone, that the mission of the party was to look after the needs of the people. He also made the political leaders tongue tied by banning "empty talk" and red carpet receptions, with bouquets, banquets, expensive Chinese liquor and smiling children. The share price of all Chinese white spirits companies has been coming down and orphanages putting up more smiling children for adoption after the announcement.

In Russia, Vladamir Putin decided that Russia is yet to realize its full Putintial and moved back into the presidential palace.  A man called Hollande was elected leader, not of the Netherlands, but France, and is showing Dutch courage by attempting to raise the tax rate of on the wealthiest French to 75% of their income.
Liberal world

It was a good year for GLTB's as three states in America voted to legalise marriage between partners of the same sex. Several other states are expected to follow suit, while some are considering gay marriages to be the only legal marriages in their territories. Some American states changed their attitude towards marijuana usage and said that they will not try to shoot or blow up recreational users of the drug. The Netherlands on the other hand demanded a proof of Dutch citizenship before serving the stuff in its cafes, saying that it was worried about crime, though it did push tourism (as well as the tourists) to a new "high".

Banking in a fine fettle

That everything was fine with the world's banks, was proven by the fact that UBS paid nearly a billion dollars in fines to the regulators for fixing something called LIBOR. HSBC and Standard Chartered also paid over a billion each in a fine gesture to help the struggling US economy under the guise of a punishment for money laundering.

Apple and Siri 

It was a fruitful year for Apple, when it shortly became the firm with the largest market capitalization ever. As it conquered and expanded to new markets, it learnt their ways and talk and Siri started speaking Chinese when iOS 6 was released. To the delight of the Chinese iPhone users, Siri was very well informed about the location of brothels and promptly named several prominent establishments when asked "where can I find a prostitute?". This service has since been suspended and the phone now Siriously reprimands the enquirers on their cheekiness.

Bedlam in India

Indians, of course, do not have sex but still somehow manage to produce a prodigious number of babies. Many of these babies grow to become adults and need jobs which makes it imperative that the country registers a decent level of economic growth. India lost its secular momentum and reverted closer to the Hindu rate of growth. The Prime Minister made desperate efforts including allowing direct foreign investments from the likes of Walmart in retail trade. Opposition parties, true to their name, opposed this initiative (as they opposed everything else - good or bad - it is not for nothing that they are called opposition) saying that Walmart will eat the lunch of small shop owners by stealing their shoppers. 

Ending the year in style

The whole world rocked to the beat of Gangnam style from Park Jae-sang, better known as PSY, whose video clocked a billion hits on YouTube. Another young Korean, a little to the North, called Kim Jong Un, son of the Great leader Kim Jong Il (who passed away last year)  was declared the most handsome man by the satirical news channel called the Onion, which was widely and seriously endorsed by the China media. Kim swore to keep his country fit by allowing only low calorie diets for the country's starving people. It is rumoured that he might inadvertently succeed in shooting a rocket to the moon, by attempting to fire one at South Korea. 

Cliff-hanger finish

it was a cliff-hanger finish to the year. Republicans were refusing to accept any tax increases, particularly for the rich, who they argue work harder than the poor and hence deserve more tax breaks, and the Democrats were balking at any spending cuts. Speaker of the House John Boehner, a ski enthusiast, dismissed the cliff as a mild slope and decided to use it to ski down for his new year holiday. To most others, however, it was clear that the cliff will be very sharp indeed. Despite sovereign claims it is not just an American cliff, the whole world would to enjoy the precipice. As we enter 2013 we look forward to being taken for a collective ride - you don't have to have an American passport or even a green card to enjoy the spectacle and the ride. 
Written by Ashok Sethi