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Innovating for the Indian market [Financial Express (India)](Financial Express (India) Via Acquire Media NewsEdge) Making managers think beyond the comfort of their functional silos is the key to success. Innovating for the Indian market needs to touch every element of the value chain Despite spluttering growth of late, India is a "must-win" market both for multinationals and their Indian challengers. But although India offers huge opportunities in everything from cell phones to cars, it also presents two daunting challenges: (1) a large part of the demand comes from extremely price-sensitive customers, and (2) getting products and services to these customers is made difficult by missing or inadequate institutional and logistical infrastructure. Overcoming the first difficulty calls for value innovation in the products and services offered-trimming some features while enhancing others to serve the precise needs of consumers in the middle and bottom layers of the demand pyramid at affordable price points. Overcoming the second requires in addition innovation in a firm's delivery system-how it reaches end-consumers and supports their buying process. In order to fully exploit the India opportunity, firms must be adept at both types of innovation. Consider the much-heralded Tata Nano, which promised to revolutionise mobility for the Indian middle class. Through radically re-engineering car design, manufacturing and supply-chain relationships, Tata Motors delivered a 'one-lakh-rupee ($2,500) car' in 2009. The product itself was a marvel in value innovation, some even comparing its impact to that of Henry Ford's Model T. Tata Nano was good looking, fuel-efficient, environmental-friendly and remarkably roomy; and above all, ultra-low-priced. However, despite all the hype, unit sales of the Nano in January 2012 were just under 8,000, a monthly rate that would soak up a mere third of the company's 2,50,000-unit annual production capacity. Delays due to the costly move of the Nano factory from Singur to Sanand (something outside the company's control) and initial safety issues with the car did not help. However, Ratan Tata, the chairman of Tata Motors, had it right when he acknowledged recently that mistakes were made in the marketing and distribution of the Nano. The company's impressive value innovation was not matched by an equally creative delivery system. The company has recently launched a new consumer-finance scheme, established a network of rural drop-in centres, and is exploring exclusive Nano-appointed dealerships in country towns. These will definitely help, but the company may have already squandered its first-mover advantage. Like the Nano, SKS Microfinance was a pioneer. But the company and India's microfinance industry are both in trouble today, and SKS shares are down about 70% from the price at which it went public just over a year ago. While microfinance companies have done a terrific job of establishing a network for lending to the rural poor, they have lagged behind in innovating and tailoring products for their clients. Instead of a 'one size fits all' approach, SKS and other microfinance companies could have designed products regionally adjusted for loan size, loan term and repayment frequency depending on the economic activities of clients. In addition, SKS did very little to engage the political economy of Andhra Pradesh, a region in which it had a major stake. Some have also questioned SKS's strategy of treating its clients only as borrowers, and not as depositors as well. The success formula When a firm masters both product and delivery-system innovation, it can show impressive growth. Consider the classic example of Hindustan Unilever Ltd (HUL)'s Project Shakti. HUL developed its own distribution system to sell shampoo to 5,00,000 villages with small populations in remote parts of India. The company provided basic sales and accounting training to women organised into self-help groups, who then became HUL distributors, each of them generating sales of $250-300 a month. What helped the sales effort was HUL's simultaneous launch of an innovative single-serve sachet for this market segment. Project Shakti now covers 15 states in India with over 45,000 women entrepreneurs covering 3 million households every month. Shakti distributors account for 15% of the company's sales in rural India. Other examples include Nokia's spectacular success in selling low-priced phones to the bottom segments of the demand pyramid, and Nestle India's impressive growth in the PPP (popularly positioned products) segment. Both Nokia and Nestle have introduced custom-designed innovative products for this segment and complemented that innovation with creative ways of reaching the end-customer. Godrej & Boyce, the Indian engineering company, is another example in the making. The company made headlines in 2010 when it launched a 'Nano' of its own-'The Little Cool' (ChotuKool) fridge for lower-income consumers. The portable fridge, designed to cool five to six bottles of water and stock a few pounds of vegetables, runs on batteries and is expected to be sold for just $69, which is 35% less than the cheapest fridge in the market. The product is planned to be distributed by villagers who are being trained as salespersons and will earn a commission of roughly $3 per fridge sold. This system is currently under trial and the company is wisely spending time and money educating the new end-users, training the intermediaries and building the distribution infrastructure. The company's latest experiment is to use the village postman to sell its refrigerators in rural areas. The leadership lesson In India, both the product and how it is brought to market have to be innovative and aligned to serve the special needs of customers in the middle and bottom segments of the demand pyramid. While the idea is intuitive, executing it is the real challenge. A company's R&D and engineering departments cannot work in isolation from its sales and marketing teams; and the latter cannot be so preoccupied with clever ways of reaching the customer that they forget about the pipeline of innovative products. Innovation for the Indian market cannot be compartmentalised. Making managers think beyond the comfort of their functional silos is the key to success. Innovating for the India market needs to touch every element of the value chain. Bala Chakravarthy is Professor of Strategy and International Management at IMD and holds the Shell Chair in Sustainable Business Growth. Sophie Coughlan is a Research Associate at IMD Copyright 2012 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com Credit: Sophie Coughlan (c) 2012 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com |