In his 2012 book Likeonomics, digital marketing strategist Rohit Bhargava explains how ‘relevance’ is the key to building real trust and achieve ‘likeability’. The idea may not be exactly new but it has come back into the spotlight as brand managers and R&D heads across industries struggle to come up with relevant offerings as product lifecycles become shorter.
The fundamental question is simple: how do you extend the life of a product at a low cost. Traditionally, extension strategies have revolved around five basic models. As a marketer, you could launch a fresh advertising blitz to gain a new audience or remind the current audience or try brightening up old packaging and introduce subtle changes that don’t disturb the basic product or alienate your current consumer base — thus, creating some excitement on a tight budget. If you are more adventurous you could opt for price reduction to make your product more attractive to customers. And if you had a sizeable budget you would ‘add value’ — add new features to the current product (for instance, video messaging on mobile phones) or even explore new markets and try exploring overseas markets. All these strategies have their own share of risks but can give your brand the much needed shot in the arm.
From the looks of it, our marketers are revising the old textbooks to come up with smart plans to extend their product’s shelf-life without chivvying the bosses for fatter product development budgets. Mind you, the extent to which product life spans are getting shortened will vary from industry to industry, from category to category. For instance, technology and youth-driven categories like mobile handsets and fashion call for an upgrade within three to six months.
On the other hand, FMCG brands, which reap the trust built among its consumers over the years, survive for longer periods without fundamental changes. Consider this example. In India, there have been no significant modifications in the formulation of hot-selling brands like Maggi noodles (Nestle), Cadbury Dairy Milk and Dove (HUL). Innovation is not always an imperative in these categories because consumers are largely habit-driven and, by inference, averse to radical changes. In 1997, the change in Maggi’s formulation was rejected by consumers; Nestle was forced to launch the old Maggi after two years.
At the same time, these star products have been indispensable items in the shopping list of urban consumers for decades. In a large measure, this is the result of a strong distribution muscle and effective brand management. Says Harish Bijoor, CEO, Harish Bijoor Consults, “The legacy of star products must be retained to increase a brand’s lifecycle. Path breaking innovation has a lower acceptance rate.”
The capital-intensive auto industry lies somewhere between the two poles. While engine technology may not evolve fast, steady changes in design play a critical role in extending the life of a vehicle. Siddharth S Singh, director, fellow programme in management and associate professor of marketing, Indian School of Business, says, “A company primarily considers the return on investment (RoI) in introducing innovations of any kind. Major innovations do not happen often, and are risky. Therefore, it is attractive for firms to introduce minor innovations as long as they do not have compelling reasons to introduce major innovations.”
He explains how several factors can influence the decision to improve old products without major changes. Some such key factors relate to a company’s internal ‘discipline’ and external market forces. For example, a company may be organised to create and introduce major innovations as part of its corporate philosophy. So if you are a Hewlett Packard, introducing regular innovations — sometimes even making your own products obsolete — will all be part of a day’s work. On the other hand, if a company organises itself for reducing cost, it would avoid introducing innovations that lead to an increase in its cost unless it becomes necessary due to external factors. Examples would be retailers such as Walmart that focus on offering low prices to consumers .
Smart floggers and twea’kings’
Barring mobile handsets, R&D costs in industries like automotive, FMCG and consumer durables have been going through the roof. According to KPMG’s 2012 Global Auto Executive Survey, the importance assigned to new products or new technologies as a factor contributing an auto company’s growth is down to 38 per cent from 44 per cent last year. Brand management has risen to 8 per cent from 5 per cent in 2011. A new product launch in auto industry is a Rs 1,000-crore bet materialising in three years after idea screening. This cost must be recovered within the estimated lifecycle of the product.
Things are not very different in white goods. Appliance lifecycles are down to nine years from 30 years, say experts. In 2010, Godrej Appliances added 100 stock keeping units under various categories in its portfolio. Despite following a multi-generation product plan to launch products in line with changing consumer lifestyle, the journey has not been easy for the company. “Because of shorter lifecycles, we have to come up with new platforms every three years which involves high cost. Also, we do product facelifts on a bi-annual basis to bring new designs to consumers. The going gets tough if these initiatives are not supported by volumes,” says Kamal Nandi, executive vice-president, sales and marketing, Godrej Appliances.
Currently, Godrej is working to make its existing range of air conditioners more energy efficient by making technology tweaks. A new brand launch is not always the best way out, says the company. New product failure rate in the US and Europe can be as high as 50 per cent and 90 per cent respectively. It’s not much different in India — according to studies the new product failure rate stands at 53 per cent. In this scenario, it makes sense for a company to flog its star products by making frequent tweaks in them rather than invest resources on a spanking new idea.
Look at what Maruti Suzuki has been doing in recent years. It has refreshed its offerings from time to time to stay abreast of new technology and push sales. Traditionally, there has been a long time gap between the launch of its cars. The company sailed through during these gaps by launching new variants (at least two in a year) and making tweaks in the engine, interiors and design of its hot-selling cars like Alto, WagonR, Swift and Ritz, among others. Says Sumit Arora, research director and head of Ipsos Automotive, “Tweaking vehicles by extending the same engine or design to different cars in a company’s portfolio can go a long way in achieving economies of scale. The best part is, a company can pass on the benefits of reduced cost to the customers.”
That’s exactly what the passenger car leader has done with the Alto.
Last month, it relaunched its best-selling car as the Alto 800 with new features. The new Alto is Rs 4,000 to Rs 8,000 cheaper than the old one, depending on the variant. The idea was to push sales. The sales of the car have been flagging for some time now— in financial year 2011-12, it sold an average of 25,000 units a month. The figure, so far this year, is down to 18,000 a month.
The company works on a five-year plan for each brand to understand the number of variants and full model changes. Launched in 2000, the Alto, for instance, has been refreshed eight times — the maximum for a Maruti Suzuki car — followed by the WagonR and the Swift. Says Mayank Pareek, chief operating officer (marketing and sales), Maruti Suzuki, “Product lifecycle is shortened when it becomes too familiar in the mind of the consumers (not obsolete) or when a better product hits the market. At Maruti, customer feedback data is the most important ingredient of our product refreshments.”
At times, companies try to stretch product lifecycles by taking its offerings to new markets with effective brand management. Around 2009, Research in Motion, the maker of BlackBerry smart phones realised how its market was restricted to the affluent consumers. In June 2010, in a bid to bring affordability to its portfolio, the company launched BB 8520 priced at Rs 15,000. This was followed by the launch of a co-branded campaign with Vodafone, which positioned the brand as the choice of the youngsters, and not just a communication tool best suited for the corporate honcho.
Later in the year, component costs of handsets saw a steep fall, resulting in BlackBerry slashing the price of its models. Its service plans had also become cheaper by that time. Says Amit Mathur, director, channel sales, RIM India, “This helped in taking all our products including the 8520 beyond metros to tier 1 and 2 cities that were warming up to smart phones. Market dynamics, right pricing and branding helped us increase the life of our handsets.”
According to Yamaha India’s national business head Roy Kurian, manufacturing companies must do their homework properly before zeroing on a new product launch. On the back of design tweaks made in the R-15 FZ series and the Fazer in the last one year, the company claims to have achieved a spike of 25-30 per cent in sales.
The right mix
All this is not to say companies should stop investing in new product development and focus tactically — on simply extending the shelf-life of their faster moving brands. Points out Singh of ISB, “To deal with rising R&D costs, companies sometimes form alliances to conduct R&D and share benefits. They sometimes let new ventures test innovative concepts and products in the marketplace and then buy them out. Other methods are moving R&D resources to lower cost areas such as the developing countries, working with faculty members by supporting their research, and co-creating products with consumers.” That said, “innovation is a critical decision and companies do not take it lightly,” he adds.
Smart managers know that. Pareek of Maruti Suzuki, who spends three days in a week with consumers from across the country, agrees. “Getting the most out of existing products with minimum new investment is certainly attractive,” he says, “but that should not be a reason to cut down on investments in new product development.”
Of course, the spread of communications technology has made things both easy and difficult for manufacturers. Earlier, collaborations took longer and access to information was limited. This restricted the pace of innovations. Now people can collaborate easily at a much faster pace, in fact in real time. The access to information is also easy. “Technology has enabled people from across the world to work on projects all the way from ideation to finance. While all these factors have resulted in more and faster innovations they have also resulting in reduced life cycles of existing products,” adds Singh.
So there you have it: enhancements and innovations should go hand in hand — you can’t win markets piggybacking on one element and ignoring the other outright.