This content relates to : EMERGING ECONOMY – INDIA
Jagdish Sheth
Emory University
There are much better opportunities in innovation outside of the product development. Probably the two ingredients that comes about from everybody who talks about emerging economies, especially India, is accessibility, which is the whole logistics, distribution, etcetera of the product. How do you reach the rural population? And there a lot of innovation has to be done. And there are companies after companies who have done it, like Avon in cosmetics. Actually agents who live and breathe in the rural communities in India. Or in fact, for example, Brooke Bond Tea at one time, which is now owned by Unilever, creating a distribution system where a young boy, will be taking the Brooke Bond leaf tea on bicycle or walk 5, 6 kilometers, providing deep reach into the rural population which does not have traditional roads, traditional, you know, storage facilities. So, accessibility, I think, is the most critical value-add one can do outside of the laboratory.
Equally important, but not so important as accessibility, I think is affordability. How can you make products …, because the economies are not at the same level of economic maturity. We are talking about advanced country products and how you make them affordable, which changes the whole paradigm in the way you make it. So, you can place smaller innovations such as product size. Rather than having 8 ounces of Coca-Cola, can you make it 5 ounces? Or rather than having a whole bottle of shampoo, can you make it into a sachet single serving so you make it affordable. I mean there are lots of experiments companies have done successfully. In the old days, ITC was a cigarette company. It is still a cigarette company. And they found out that in the rural population, they couldn’t afford a packet of cigarettes. So they decided to sell one cigarette stick at a time, which is what the farmer or the rural person can afford. So, affordability is another key area. And there are two dimensions in affordability. Again, willingness to pay, which is what we do in marketing quite a lot. How do you motivate them, by you know, promoting, creating association with actors or cricket players you know, we do all this stuff. But willingness to pay is very easily understood by us how to do it. But ability to pay, we have not paid enough attention.
We have to look at the whole ecosystem of livelihood. How can you make consumers – also your merchant, for example, so he or she has the money to pay for your products by selling to others; make them agents. There are so many ways we have to look at ability to pay. Ability to pay can be done in another way which we see in public services, which we have to think as a marketer also because in public services, I’m the user as a consumer, but I’m not the payer. The payer is the government. Health insurance, for example, or health services or education for that matter. There are many, many public services but this is becoming …, now that the government begins to subsidize or offer free, because it is good for the population, it’s good for the economy. Whatever the reason. So we have not learned enough how to leverage public policy reforms to make the products more affordable. Ability to pay, increasing the ability to pay. Here is a very interesting contradiction. What we study in terms of ability to pay is what the economists tell us, which says, look at the per capita income or per household income. But we do not look at discretionary income. So, if you take a software engineer in Bangalore, you know, good educated, ten plus two plus three, 15 years of education. Today he will start at about, let’s say, 60 thousand to 70 thousand rupees a month. His monthly income working for a top Indian IT service company such as Wipro, Infosys, TCS, these are the well-known companies… But at the end of the month he will have no positive cashflow. So, he’s now moving to Bangalore or some big city, as a paying guest. Almost one third or 40 percent goes in paying rent just to have a living place. Of course, he’s very contemporary, modern, therefore he has a significant other, girlfriend, boyfriend whatever they are. So they are to go into the evening economy, without cell phones they can’t live, a smartphone you have to have. Think about, think about all the young people, what they need. You are into social media, which is an expenditure.
Necessity. Here’s a case where the want becomes a need. Very interesting to watch. What we think is a want or a desire becomes a need for them. And then at the end of the month, he, of course, has to have a motorcycle, if not a car. Contrast that with a crane operator in the port of Mundra in Kutch, Gujarat. That technical guy, is only college or high school educated, is given a certificate. He’s earning about 90 thousand rupees a month. He’s married. Has a wife who is a homemaker, takes care of the kids, and the aging parents, the in-laws, typical family. He does not have to pay rent because he’s living with his parents. He does not have all these aspirations to go to nightclubs. He’s a married person. At the end of the month he has more discretionary income than the software engineer in Bangalore. So we have to pay attention to discretionary income. And surprisingly in India, discretionary income is much greater, surprisingly, among the second tier, third tier cities, or even I will call rural population. Which is why companies like Amazon, online companies like Flipkart and now there are many more, they’re totally surprised during the COVID lockdown, their biggest revenue growth came from second, third tier cities more so than the metro areas. So we have to undo our thinking in the way we thought about emerging economies from an ability to pay, not just willingness to pay; and where they save their money. It’s mind-boggling, this family is worrying about their child. They want to send the child to a private school in a small town because they think public schools will not unlock the potential of their child. They save for a motorcycle because he needs the transport rather than rely on a public transport. Can I have a motorcycle so he can use that for family recreation at the same time. And, of course, they’re saving money to make sure that the next generation that they produce will be more than crane operators.
I have yet to understand all that, which is a part of what I call ability to pay, along with the willingness to pay. So, affordability is the second major area I can innovate quite a lot. And people are doing it. Again, I am, we are not storytellers so please bear with me. Among all the life insurance companies that I have had the opportunity or the privilege to do advising, probably no company has created more life policies than Life (Insurance) Corporation of India, LIC. But they are mandated by law as a state enterprise to provide life insurance in the rural population. The agency system they created to provide access. The kinds of whole life policy we call it in India, called endowment policy, which is a savings mechanism, they’ve done a brilliant job. Similarly, India Post is the saving place for many rural populations as it used to be in advanced countries at one time because the postal system was everywhere. So I think we have to understand the ground-level context of India or emerging economies to make sure that affordability comes properly.
And the last area and very exciting actually, which we do very well in marketing, but we don’t talk about it, is really very unique, very different, is promotions. Not only sales promotions, lotteries, whatever it is, but clever campaigns. I’m very fond of actually looking at campaigns made in India or other emerging economies. And what can we learn from them because the local ad agency produced it in a way that is very contextual. And the context matters. In fact, if you look at the best commercials more recently by Unilever, which is adding purpose to every brand worldwide and if you take this soap business, some of the best commercials to show how consuming their product, which is basically a bar soap essentially, right, it’s interesting. And how it gives inner meaning to consumers. It’s mind-boggling. 1 billion hits on the internet. Powerful!
So, I think there’s very strong innovation in the way advanced country economies, companies, as well as the local companies, are doing a fantastic job of innovating in the advertising, promotion, salesman side. So I think we need to go beyond just the laboratory-based engineer product innovation. Innovation is possible in products, clearly we need it; but innovation is also possible in processes. And also innovation is very possible in programs, which is what we do very well in marketing, creating a marketing program.
Dr. Jagdish Sheth
Emory University