Thursday, October 18, 2012

Reverse Innovation Process: Procter & Gamble Case Study

I found this very interesting article about Procter and Gamble strategy in the emerging market. Procter & Gamble masters the worldwide market of shaver with its brand Gillette. Gillette products are very priy, all over the world, and they have succeeded in increasing the proposed value to customers through innovation. It is so pricy that in some French stores, those products have specific security measures to avoid robbery. 

But in a market like India, where people have low incomes, it is a challenged to propose an appropriate product to customers. India is a very interesting market as it is the biggest market in volumes of razors.  

Procter & Gamble had to apply a strategy I did not hear of, but which is very interesting: Reverse Innovation. For years, in its domestic market, Gillette did not stop innovating, proposing more and more complex products. But in India, Gillette needed to adapt to the level of development of the country.

Therefore they developed a specific product for the local market, with one single bladed, design for the specific needs of Indians. 

It is becoming more and more difficult to find revenue growth in our western countries market, and it is important to find new ways to conquer new foreign markets. This is somehow the same strategy Renault used with its Logan brand to get market shares in Eastern Europe countries.

What is also interesting in the article is that the author considers possible that Gillette may sell the products they defined for the Indian market in the US market. And hence, the reverse innovation process would be complete. I believe that sometimes, it is important that companies question their own business model, even when it is working and doing fine. Because someday, you will always find a disruptive competitors, which will be able to innovate where you simply wanted to keep revenues flows.

I believe it is interesting to read this article, and to see the whole process Procter and Gamble applied in order to get into the Indian market. It is especially interesting to see how they had a local approach, instead of simply focusing on selling their international products.

Monday, October 15, 2012

Looking For A Business Model For Start Ups: Freemium

I believe the economical crisis hitting the world right now has affected the social media business. Despite the fact the market still grows, and there are a lot of room for innovation, entrepreneurs have been challenged by the lower capacity to raise money, but also the aim to find a strong business model. I posted last week an article about how we could imagine someday Facebook asking users to pay for the service, as they were looking for sustainable sources of revenues.

For the longest time, the Internet companies have based their business model on the revenues of advertising. As the market was growing, it was easy for companies to get attention from brands to advertize on websites. 

Also, another very common business model strategy for Internet companies was  what iscold freemium: Propose a free service to user, attractive enough to get them hooked, and to convince them to upgrade to a version they would pay for.

But Freemium still remains a problem. 

In the oft-cited Hershey’s experiment that started the free-mania, behavioral economists from MIT tested customer preference for Hershey’s and Ferrero Rocher chocolates at two different price points. For one group, they offered Hershey’s at one cent and Ferrero Rocher for 26 cents. For another, they offered the chocolates at zero cents and 25 cents respectively. When the Hershey’s chocolate was free and the Ferrero Rocher chocolate was 25 cents, 90 percent of the participants chose Hershey’s. $0 price seems to have done the magic in driving customer adoption. The result became the foundation of the freemium school of thought — free is free marketing. First use the free version to drive adoption and build a large customer base, and then find ways to monetize that base by upselling the paid version and selling extras.

Thursday, October 11, 2012

Questionning the business model of Facebook And Twitter

Would you pay for an add free Twitter or Facebook? This is the title of an article CNN published on its website couple of months ago. 

And this is a very interesting question. You know that even though I am an early adopter and strong believer in Twitter and Facebook future as a mass media, I am still wondering about how those companies are going to become profitable in the next few years. Indeed, I have always questioned the strategy of many Web 2.0 start up to focus on developping a large base of users without even thinking for a second about how to make profits out of it.

And so far, I have been right: Facebook's IPO has been a failure, I believe no one could say the contrary. Investors are worried about the revenue growth pace of Facebook, and its ability to perform as expected.

Same thing for Twitter, where most of their initiatives to implement ads to generate revenues has failed.

Now, people have been used to a free Internet, where services are paid by companies through ads. But the thing is there are way too many services on the Internet which base their revenues on ads for brands to finance all of them! And with the economical crisis, we all know that advertising budget is the first one to be frozen.

So now, would people pay to use Twitter or Facebook? The article has a good point: "If we're selling a service, our customers are our users and our job is to make our users happy,". Indeed, that is what Facebook and Twitter have been working on: Having a great product for users. But they have not integrated at an early stage of the process the way to get their "clients" (brands) involved in it. If users pay for the service, Facebook and Twitter will go on being interesting, but if now their main focus is to get as much advertising money as possible, I believe the service will deteriorate and in the end, they will never be able to become as profitable as they could be.

I would personnaly pay for Facebook or Twitter. The access to my network and to the information it allows me to get is just great, and I don't see myself living without it. Now the thing is how much am I eager to make out of it? VCs have based the value of these companies on how much money they can generate from an average user. Am I eager to pay that kind of money to use these services?

This is the answer to be asked. And let me be more precise about my thought: On the long run, to be honest, I don't see how Twitter or Facebook would be free.

Is Customer Loyalty A Myth?

Customer loyalty is a goal any companies is willing to achieve. All companies know how pricy the aquisition of one new prospect may be, and companies would rather make sure they keep a strong loyal customer base, securing their revenue flows at the same time.

Customer loyalty strategies have been set up when markets started to become mature, and as the "external growth opportunities" were starting to shrink. A bunch of strategies and tools are available to marketers in order to trigger customer retention or loyalty: Loyalty reward programs, data mining, create emotional bond with one brand...

But we all know, as marketing managers, it is tough to accomplish. 

I read a very interesting article not so long ago in French Newspaper website Le Monde, which questions the whole concept of customer loyalty. Indeed, Andrew Ehrenberg demonstrated while ago that customers tend in a natural way not to stick with one brand. On the long run, according to the article, only 5% of people remain loyal to one product on a one year basis.

Nevertheless the natural unloyalty of customers needs to be counterbalanced by the fact that loyal customers are the ones who built the profitability of one company. They are the one who counts for 80% of the business, and most of the time, for 80% or more of the profits.

The article does not really give any answers to this question. But the question is right to be set. Especially during economical crisis, customers are eager to find the best deal, more than securing quality through a brand they trust. But customer loyalty is a very complex concept. It implies several aspects, both statistical and emotional. Working on growing a loyal customer data base is something any company should go after.