Why marketing needs to change in the e-information age

THOSE who are ready to write an obituary for the science of marketing might do well to do a rethink. Ask Mohanbir Sawhney, McCormick Tribune Professor of Technology, and the Director of the Center for Research in Technology and Innovation at the Kellogg School of Management, Northwestern University. He says “as markets mature, marketing becomes more important.” The guru literally woke up to marketing when ET linked him up with ITCIBD CEO S Sivakumar in an engaging cross-border chat, conducted via the internet.

The architect of ITC’s celebrated and much-researched e-choupal initiative, Sivakumar debated various aspects of the new world of marketing, with the professor. who livened the discussion with case examples and anecdotes.

The management guru presented a couple of business ideas, business model innovations, and talked of the importance of going global and shedding arrogance while addressing unsophisticated markets. Sawhney was brutally honest in saying that Indian MBA graduates, who are in the news for their crore-plus salaries, do not really add the kind of value that would justify those prices. “Capture Value Through Collaborative Commerce” Mohanbir Sawhney and S Sivakumar debate the new marketing ground rules.

SS: What changes in the recent past have led to a different way of looking at marketing? What are the underlying drivers of the new world of marketing?

MS: I think the core premise on which marketing has been structured is that consumers were ill-informed and, therefore, the balance of power was in favour of marketers. We are evolving to an era of information demography, which implies that the customer you’re serving has perfect information. Therefore, the equation between consumers and marketers needs to evolve into one that’s based more on dialogue than on monologue, symmetry more than asymmetry, and on conversation.

A much greater reliance on partners is another shift I can trace back to information and communication technology. Traditionally, we thought of the firm as the marketer acting alone, but no company really acts alone. Every firm surrounds itself with partners, and we need to think about how we partner in order to build value. I think of marketing, now, as a collaborative set of processes — how we collaborate with customers and partners in order to create, deliver and share value, as opposed to the traditional view of marketing around the four Ps.

SS: If maturing markets are a challenge for marketers in one of part of the world, the paradigm is an exact contrast in the emerging markets. How do you get the non-consumers to consume? Are the elements of new marketing very different in this context?

MS: That may require creativity around how you price and package products. So let us think about how you would show state-of-the-art digital programming, movies and the like to villages in India. I had this conversation with Shekhar Kapur. He said: “What if we, in each village or a small town, set up an entrepreneur, much like you did with e-choupal, and the entrepreneur has a small facility which has one projection room with 50 or 100 seats and a mini movie theatre?” You have a state-of-the-art digital projection display, and you connect this with an optical fibre network and so the partners here would be Reliance, Microsoft, Intel and a content company.

This entrepreneur runs a movie theatre and charges Rs 10 or Rs 20 for a movie ticket. The beauty is that movies can be customised, and you can have different movies playing on the same day based on customer preferences, like a video on-demand network. And then, if you run movies from 3 pm to midnight, you could use the same facility for distant learning. This idea of taking capital goods and making them into shared services is a very powerful idea for emerging markets. I can see a nationwide franchise of 50,000 of these outlets potentially creating a broadband content distribution in small towns. If you think about this concept, what is new? Nothing. The products, the network and the content are not new, but what’s new is the way it’s all put together. This is what I call business model innovation.

SS: I guess the basic difference between mature markets and emerging markets is how value is created and captured. In the ‘small room and a projector’ example you talked about, the value was in building infrastructure and providing shared access at low cost.

In all the global cases you referred to, what would be the value capture mechanism? Most of the business models during the early days of the internet created a lot of value for the consumers, but many of them succumbed eventually as they couldn’t capture some of that for themselves.

MS: To me, the largest innovation comes in the value capture mechanism. Look at what Bharti has done with cricket match sponsorships — one would think that advertising would be the way sponsors recover their investments, but I believe what Bharti did was create contests through text messages, where you can bet on certain outcomes. That text message traffic alone created a lot of revenue and probably paid for that sponsorship. So, thinking about that alternative value capture mechanism or being able to offer telephone service for such low prices and still make money is interesting and innovative.

I think you are going to see the same thing with mobile commerce in India. We may actually see the phone evolve into an ATM or a bank account. Mobile commerce in India will leapfrog what we are doing in the US. Value capture mechanisms will be an area to innovate in, because when we are talking about capital goods and large ticket items where the initial purchase price becomes a barrier, and if you want to bring new consumers into the market, you have to really rethink and capture value. If you think about HLL’s single serving of shampoo, that’s also a value capture innovation because what you are doing really is reducing the lot size down to an affordable level. The general theme here is reducing barriers to purchase and allowing for people to enter more easily into the market.

SS: Again, most of these are examples from emerging markets, can you share some interesting innovations in capturing value in the mature markets, where the process view is adopted?

MS: What is common in the mature markets in companies like Otis, is using the product as a means to deliver services. If it is a long lifecycle product, like an aircraft engine or locomotive, service will become the way for capturing value. The solution orientation where you are selling an outcome and you are not selling a product is the way that value capture innovation has speeded up in the developed markets. I think solution orientation will translate into the emerging markets, but that may happen at a stage of maturity further down the road. If you look at the airline industry, you still see large acquisitions of aircraft. In the US market, we are seeing some interesting value capture innovations — the International Lease Finance Corporation (ILFC) is the largest purchaser of aircraft which are leased out to airlines — giving them more flexible capacity. We are also seeing the development of air taxi networks, which are going to be a shared service, instead of charter planes. But you still see airlines buying aircraft in India. As airlines become more mature, you’ll see more flexible pricing and leasing arrangements. Already, in the case of automobiles and homes, we have started seeing a lot more activity around leasing and flexible financing schemes. In India, everyone paid for their houses and cars in cash in the mid-80s. It was inconceivable to think of a loan or mortgage for a car. So, a lot has changed in the credit market and the change will continue.

SS: Let me pick up a different thread. The buzz around India right now is the potential retail revolution. What are the implications of the balance of power shifting from the brand marketer to the retailer?

MS: Today, there are really no retailing brands in India; we don’t have the likes of a Wal-Mart, and these will evolve over the next few years. This evolution will mean lower prices, better shopping experiences, and more variety and choice for customers, but the entire balance of activity will shift to retailers, which will be interesting to watch. That said, retailers still need to be very close to customers. What kind of shopping experience does the Indian customer want, and how does that look different in the tier II or tier III towns as opposed to the metros? How will it be different in produce and dry goods? What is the right configuration of products, what size, what show — I think there will be a lot of interesting experiments that will be conducted over the next few years and retailing will see the need for good marketing. I believe that Indian retailing will evolve its own distinct style and point of view that you won’t find anywhere else in the world because of the unique circumstances, geography, culture, languages and the logistical challenges of serving outlying areas. You will see different structures evolve in the metros compared with the tier III or small towns. You will probably see different players emerge as leaders in different segments.

SS: Mohan, when you spoke about arrogance and humility, a thought crossed my mind… Put someone through an MBA school, out comes an arrogant mind! But how does one cultivate humility?

MS: That’s a very good question. We are guilty at business schools of creating the MBA halo or the MBA syndrome, and it is more apparent in India than in the US because of the short supply of MBAs here. In fact, they are starting to get really big heads about their roles and how much value they are doing, particularly in the Indian context. You are talking about 22-23-year-olds expecting $40,000 to start with and it’s not clear where they can actually add the kind of value to justify those prices. I think there is a real danger that if the arrogance and expectations of MBAs gets ahead of them, a correction may be called for.

I don’t know how you build humility except that in the US, you went through a shock in the 2001-2002 period where our students had difficulty finding jobs, and salaries started to drop. That led to a resetting of expectations. It’s unlikely to happen in the short run in India but I think potentially MBAs could price themselves out of the market — companies could actually say, ‘You know what? You are too expensive, you are too arrogant and you need an adjustment in attitude.’ But I think the only advice I can give students is not to lose sight of the fact that some of their value is driven because of scarcity and shortage and not really the value that they are creating. As my dean Dipak Jain likes to say, a person’s attitude is the best predictor of their altitude.