In 1990, a brand manager was struggling to maintain the profitability of his brand. His R&D devised a product formulation, which was inferior to his current one but cheaper. The brand manager tested the product alongside his existing one among loyal current users.
Ninety-five per cent of them couldn't tell the difference. He went ahead with the revised product. Sales grew and so did the brand's profit. He repeated the formula the next year, sales continued to grow albeit slower and the brand manager moved on.
His two successors in the next four years continued the same formula, reducing quality by 5 per cent each time, testing among existing loyal users vis-a-vis their current product in the market, getting the same 95 per cent result and so replacing the existing product with the revised inferior one.
Suddenly in 1996, the marketing team discovered that the market had grown substantially, however their brand had been largely stagnant and while profits remained good, market share had been lost.
And when their product was compared with the competitor (who in the intervening six years had just upgraded in quality), it was seen as definitely inferior. And the competitor's large-scale sampling exercise just drove loyal consumers to convert!
In another company, a market leader was suddenly confronted with a competitor who used an inferior ingredient to offer a larger product at the same price. Again market research (and members of the brand and advertising agency teams) claimed that consumers saw little difference in the taste of the market leader and the Johnny-come-lately competitor.
There was a great temptation for the market leader to downgrade quality and maintain profits, to combat the late entrant. However, the marketing manager decided to do the apparently unwise thing. He increased his product size, cut into his profits but offered what he believed was a superior product at a competitive price. Within 12 months the brand is back on track.
The stories may sound hypothetical but are real. The brand names have been concealed for reasons of confidentiality. However, they are strongly indicative of the growing short- termism in the Indian marketing world -- an ailment that is bound to show its harmful effects slowly but surely in the years to come.
The genesis of this ailment can be traced back to the changing business philosophy over the years -- an obsessive focus on profit!
Every business organisation comprises four Ps:
Product: The offering it makes in the market -- be it goods or services
People: The human resources deployed to make the product
Profit: The financial output of the organisation that actually helps sustain and grow the organisation
Process: The production infrastructure that helps produce the product and the practices that the organisation has to facilitate its people to deal with each other and the other stakeholders of the business. These are enablers to deliver product and profit through the people.
All four Ps are required for the proper functioning and growth of an organisation. The continuous tension within an organisation is to find the right balance between the different Ps. Too much of process leads to bureaucracy; too little leads to anarchy.
Process brings method to madness but could stifle creative thinking -- and thus the madness required for it! Too much people focus could lead to a highly affiliative organisation with little focus on results -- product and/or profit delivery.
However, too much focus on product and profit could leave a company with a set of demotivated/tired people. And too much focus on product could result in an environment that is continuously looking for perfection and no action! Production upgradation and people development and motivation costs can often be postponed to deliver profits today, often with negative implications tomorrow.
The focus on profits in the industry is very apparent. In many businesses, annual reports have given away to quarterly reports. Monthly assessments, weekly briefings and even daily reviews have turned up the pressure on everyone to perform in a climate of increasing immediacy.
(The quintessential Indian entrepreneur kept a daily bookkhata -- more to monitor his cash and business rather than evaluate and pass judgement on the performance of the business!)
Long-term thinking has been replaced in many contexts by exclusively short-term thinking.
Results are wanted now. And in this environment, the urgent pushes out the important.
An anonymous confession of a factory manager is fairly illustrative of this : "I'm abusing my facilities. We need maintenance and repair if we're in this for the long haul. But to do that, we need some shutdown. And if I shut anything down I can't make my immediate quotas. If I produce, I get promoted out of here. So I guess I'll just have to leave the problems to the next guy."
There is no disputing that the ultimate measure of success of a business organisation, as strategy guru Michael Porter says, is "to deliver superior long-term return on invested capital (ROIC)."
However, in the same breath, Porter says, "Shareholder value is the result of real economic value, not a goal in itself." Attempts to influence stock price directly is fraught with danger-- manipulative accounting is often a bi-product of a desperate need to show good results and have a good price on the stock market.
It is this obsession with the stock market and quarterly results that has spawned the growth of "short termism" within the business -- suddenly profit becoming the end in itself.
Interestingly, a study of corporate objectives of American and Japanese businesses revealed a difference in priorities. For the Americans, the top three objectives were: ROI, maintain stock prices, and market share.
For the Japanese, it was market share, ROI and introduction of new products. Clearly, one set of businesses look at today only, while the other has an eye on tomorrow too.
The result: In too many businesses the only concern seems to be to make the numbers come out right. Keep the margins up. Boost the profits. Increase stock value. And so the implications on corporations: worry less about people and their well-being. Take production and product short cuts wherever the consumer can't make the difference. And short circuit processes as long as the results come in and leave the problem for the next.
The implications on marketing: End of brand building -- often referred to as "returns in heaven" and the entry of tactical advertising -- euphemism for sales promotion or buying sales.
Not surprisingly, many branded categories are turning into commodities and battles are often being fought on prices. Not enough is invested in creating product differentiation, in building emotional values for the brand or building relationships with customers -- activities that give returns in a longer term.
Lou Gerstner once said, "Products are not launched in IBM, they leak out'-- commenting on the company's desperate need to be 150 per cent sure before launching and so often missing the bus. On the other hand, there are so many new brand launches that are done without either a concrete plan to support long-term or with the simple objective of meeting the KRAs of a brand or marketing manager.
Volumes come in during the first three years purely because of distribution and initial novelty value -- but later gradually die a death as their promoters have got their promotions and moved on.
Sustainable businesses need sustainable brands. And sustainable brands need sustainable support. And all this involves a little more long-term thinking and planning -- an ability to give up some things in the present for results in the future.
Something worth thinking about.
The writer is Country Manager -- Discovery, Ogilvy and Mather India. The views expressed are personal.
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