Building brands in emerging markets

Building_Brands_1
For global brands, the challenge of emerging markets is analogous to the ‘classic’ centralize v/s decentralize debate. Growth for most of the top 20 global consumer product brands (Coco Cola, Pepsi, Gillete, Kellogs, Nestle etc) will be driven by emerging markets. In these markets, the consumer is usually a first time adopter while the brand has evolved over the time. The challenge is in creating local relevance. How do you get a global brand to be locally relevant and globally coherent? STOrai analyzes:

The question of how to manage global brands-such as Coca-Cola, Gillette, and Nestlé, as well as those with less global recognition, such as Wrigley, Avon, and Campbell’s-across a set of diverse geographies has spurred significant debate among consumer packaged goods (CPG) companies.

There are clear benefits to the development of global brands-and, more broadly speaking, to global coordination across brands and markets. Companies can find synergies across the value chain – from insights, to sourcing, to marketing.

There have been some fantastic stories of well-managed global  brands, both inside and outside the CPG industry. Some are well known: For example, at Apple, a great majority of R&D, innovation, and even marketing is organized centrally; Procter & Gamble’s strong arsenal of global brands benefits from its use of “open innovation,” in which a central R&D hub oversees a pipeline of ideas generated both within the company and with external partners. Other examples have received less publicity, such as the use of consumer insight that parlayed the brand equity of Kimberly-Clark’s Huggies diapers into other successful products for babies, including Pull-Ups and toiletries.

Localization of product development effort takes place when local market sales become globally significant, or when the main customer in an emerging market is the local subsidiary of a global retailer. To an extent, this explains the pace of product innovation within the CPG community in India.  Companies such as McDonalds and Pepsi have created specific products (e.g. Kurkure, Nimbooz, Aloo Tiki McBurger) for local markets. Other CPG companies, where brand managementBuilding_Brands_2 is centralized have used regional campaigns (Duracell, Gilette – other brands owned by P&G).

The innovation debate
There has been some debate about whether innovation can be ‘centralized’ and whether innovation would be applicable to emerging or nascent markets. In reality, brands which are managed centrally use core strategic insights gained from innovations in one market to cross populate into their home markets or into other emerging markets. In a sense, the central innovation R&D ‘facility’ provides the ‘ingoing hypothesis’ – the initial platform for the brand to enter a new market or segment. Centrally managing global innovation initiatives also allows brands to ‘reverse pollinate’ – for example both P&G and Kimberly Clarke have used insights from emerging markets to design products for low income groups in their home market.

Building_Brands_3An analysis by Booz Allen & Co showed that CPG companies have adopted differing approaches to managing their brands. While companies such as P&G and L’oreal are strongly centralized, Unilever, and Nestle are relatively decentralized in their approach.

The impact of the brand management structure on revenue and market share is inconclusive, For instance, European companies Unilever and Nestlé have long had global reach, but their interna­tional business is on the rise: Uni­lever now derives 62 percent of its revenues from outside Europe, compared to 54 percent a decade ago, while Nestlé has seen a simi­lar increase to 63 percent from 58 percent. Meanwhile, Wrigley and Procter & Gamble now see 67 percent and 54 percent of their sales, respectively, coming from outside North America (up from 52 percent and 50 percent a decade ago).

Succeeding in Emerging markets
Irrespective of the control structure used to manage brands, research suggests that the factors driving success have a strong local flavor. 60 percent of CPG companies who succeeded across emerging markets believed that a combination of a local sales force and locally designed products were key success factors for global brands to succeed in India.

How local is local?
The final dimension to this debate is the fact that brands face differing localization challenges. For example -in India, the main challenge is affordability – whereas, in China, IP rights is the biggest challenge facing international brands.

STOrai profiles four examples of localization of brands

“What’s your Kurkure?”
Perhaps it has something to do with the category – food and beverages – which is inherently local, but PepsiCo India has much to showcase on its innovation “curriculum vitae”. While most people think “product” when they think innovation, Pepsi’s India avatar has shown that its also about packaging and process.

Building_Brands_4Part of the process of innovating is asking tough questions – for example, asking the question of “how much can this idea contribute to same-store-sales-increase, to cash memo size and to customer footfalls” – the three most critical metrics for retailers in India.

Pepsi’s model for innovation focuses on insights – on asking customers the right questions.

Building_Brands_5In the case of oats – they were up against a tough sell. Oats has always been positioned as a “healthy” breakfast option – which in the customers mind translates to “tasteless”. By “repackaging” this much maligned breakfast dish with a focus on taste and including recipes on its packets, Pepsi has succeeded in breaking the main barrier to adoption. The result? 15% of sales in the category are now flavored oats.

Other examples abound – from Nimbooz – which is part of the overall directional drive to showcase Indian drinks such as nimbu-paani in the company’s repertoire – multipacks and party packs which provides serving sizes for various needs, to branded vending machines at high traffic points such as airports, to changing the visual look of a product (e.g. their limited edition “glow in the dark” Mountain Dew).

Building_Brands_7They have learnt innovation through collaboration with trade. For example – during the Indian Premier League (IPL) they found that creating promotions which highlight the product, will result in greater sales off take, as top of mind recall is about the experience of watching the match which includes snacking and drinks. Thus, the IPL is now a separate “season”.

Perhaps the best example is of KuBuilding Brandsrkure. The equipment that created the product was part of a failed global experiment, and related depreciation costs were a drag on the P&L. By juxtapositioning a quintessentially Indian taste onto the product, backed by a “hatke” advertising campaign, they delivered a success story.

Kurkure’s most important contribution is that it has reinforced the lesson that local empowerment can deliver innovation. Tellingly, today, when internal teams present to Pepsi’s global Board, they are asked “What’s your Kurkure?”.

The Burger goes Desi
McDonald’s launched its first restaurant in India in October 1996 with a restaurant each in Mumbai and Delhi. The entry into India was timed with the opening up of the economy to new influences and growth stimuli driven by demographic and social changes. For a nation that is particular about its food and significantly fond of home cooked food, the trend of dining reflected the globalization of India and the opening up of new markets not witnessed in India, before.

Building_Brands_8Over the past decade and a half, the Indian QSR industry has grown manifold. The segment has witnessed a marked change in dining out patterns both at large metros and across smaller cities. There has been a steady increase in the number of people eating out of home and experimenting with cuisines and this has tremendously helped the IEO (Informal Eating Out) industry to grow and expand. “Reasons like – rising number of nuclear families, exposure to global trends, increasing number of employed women, increase in the number of dual-income households – have had a significant impact on eating out habits and these factors continue to drive growth in the Indian QSR market. These are the reasons why McDonald’s decided to enter the realms of India.” says     Amit Jatia, Vice Chairman, McDonald’s India (West & South).

The IEO industry then, consisted mainly of Indian fast food restaurants. The concept of Western fast food was completely alien to the Indian consumer. This in spite of the fact that a significant part of the Indian population consisted of the youth who were well educated and had access to information. This gap proved advantageous to for McDonald’s and left ample scope not only to build the brand but also to set standards.

A critical factor in McDonald’s system growth is the strong relationship between McDonald’s corporation and its franchisees and partners. In India, McDonald’s has two Indian entities: Hardcastle Restaurants Pvt. Ltd (HRPL), which holds the franchise for West & South India and Connaught Plaza RestBuilding_Brands_9aurants which handles North & East.

“When we entered India 17 years back the QSR market was at a nascent stage. McDonald’s introduced the concept of Western Quick Service Restaurant in India. At the time, customers were not certain of what to expect from international QSR players in terms of price and were vary of consistent quality and service standards.”, says Amit Jatia, Vice Chairman, McDonalds India (West & South).

ypically, the common issues faced by players in the QSR segment in India include the prohibitive cost of real estate, fluctuations in commodity prices, cumbersome licensing laws and a lack of skilled manpower. “Furthermore, when we entered India, we realized that there was a lack of infrastructure in terms of cold storage or supply chain facilities and produce like lettuce, an essential ingredient for the iconic Burger was not grown in India. We identified these challenges worked from base up – creating McDonald’s supply chain infrastructure and established McDonald’s as a brand that offers convenience, quality and value.”Amit says.

Food is a culturally sensitive topic. McDonalds was conscious of this and chose not to serve pork or beef at their restaurants. Investments went towards providing a local flavor to the menu; “We invested in creating products unique to India like the Maharaja Mac and the iconic McAloo Tikki Burger. We also developed an egg-less mayonnaise for the first time in the worldwide system. Working closely with our suppliers and product development team, numerous other menu innovations were added through the years including the Veg. Pizza McPuff™ and Chicken McGrill™ which were formulated and introduced using spices favored by Indians.” Amit says.

Globally, McDonald’s success has been attributed to the ‘“Think Global, Act Local and Sell like a Retailer” philosophy. McDonald’s followed this international mantra while entering India. Operational and on-ground initiatives were supported by focused marketing communications; the starting point of which was to clearly change consumer perceptions of McDonald’s being ‘foreign’, ‘American’, to one which could be better identified with ‘Indian’, ‘values families and culture’, ‘comfortable and easy’. In short a ‘friendly place where families would love to enjoy and have a special time’.

Since drive-through service is not common in India, scooters and bicycle delivery services extend the concept of a quick, hot meal on the go in a way that is quintessentially Indian yet consistent with the global brand. It’s still McDonalds, and Indians love it. Think global. Be local.

The combination of global and local menu offerings, communication that is tailored for India, affordability and value, makes McDonald’s a favorite eating option across age groups and socio-economic classes. “We have carefully crafted iconic communication strategies based on deep-rooted consumer insights at every touch point to keep itself relevant. As a result, it has been able to scale up its media presence through increased television advertising”, says Amit.

Additionally, McDonalds is focused on expanding its media strategy to encompass both online and social media platforms. “We have always used innovative techniques and platforms to advertise our offering through various media be it television, print, radio and OOH. We have had several memorable ad campaigns over the years that have won various accolades. For example the communication that we created for our uniquely Indian product, the Masala Grill burger was aimed at creating an emotional connect with customers offering them a product that was ‘Pakka Indian’” The product was supported by a high voltage ad campaign, which linked consumption of the Masala Grill to being a ‘Pakka Indian’.

“We see a tremendous untapped opportunity in the market and with the growing market we expect to grow more, we have already established our leadership in the Indian Eating Out Industry and are constantly working towards ensuring that we offer our customers something new to look forward to at all times.” concludes Amit.

The Breakfast Dilemma
Kellog’s market launch  in India was, to say the least – ‘difficult’. The company launched in 1994 – when the Indian market was just ’emerging’ and food choices in the country were traditional and sharply regional.
“Our only rivals are traditional Indian foods.” Denis Avronsart, MD, Kellogg India had said.

At launch, the product proposition was focused on quality of food. Adoption was slow as price points were high and the consuming class had not evolveBuilding_Brands_10d to the point of wanting to experiment on breakfast foods. The product range at launch was restricted to wheat and rice flakes – which were too bland for the Indian palate, customers were used to strong flavors at the breakfast table. Secondly, most Indians believed that cold breakfasts are ‘a shock’ to the system – culturally, hot food is associated with nutrition and taste.

The breakthrough for Kellogg’s was the introduction of Chocos in 1996 which targeted children. Chocos were wheat scoops coated in chocolate – and sold in Europe and the Middle East. In 1997 Kelloggs introduced Frosties – another product which was sold in Europe and the UK. The success of these two products created the pull for India specific advertising and channel management budgets. Kellogs introduced Honey Loops and created brand and promotions specific to India – including Introducing the limited edition Kellogg’s Chocos Spider Man 2 “web designed cereal” and  adding Indian taglines such as ‘Shakti’, meaning power.

The company also introduced its small serve package to encourage local trade (i.e Kiraana’s) to stock the product.

A secondary focus was on community development activities: Conducting school contact programmes and active interface with opinion leaders – CFTRI, the government, independent agencies etc. The company also focused on Image building through recycling and reusing, improving access to health and human services in local communities.

Today, Kellogg’s has a 60% share of the Rs. 700 crore Cornflakes marBuilding_Brands_11ket – while the company is a category leader, the real growth will still need the customer to change breakfast preferences.

Kellogg’s in India has been about perseverance. There have been product innovations which are market specific (e.g. Mango / Banana Cornflakes) but overall, the company has focused on distribution and managing perceptions around changing food habits. The company is now planning to move into the Oats breakfast market – which at Rs 160 crores, is small, compared to the Cornflakes market.

Harpreet Tibb, Director-Marketing, Kellogg India, says, “Savory oats will ride the same distribution as cornflakes and we expect to ramp up distribution in this segment. We have introduced basic flavors such as pudina which is new in the Indian market along with the evergreen tomato flavor and will be exploring more variants depending on the consumer”.

Gillette’s Journey in India
Procter & Gamble executives say it was striking the first time they witnessed a man shave while sitting barefoot on the floor in a tiny hut in India.

He had no electricity, no running water and no mirror.

The 20 U.S.-based executives observed the man in 2008 during one of 300 visits they made to homes in rural India. The goal? To gain insights they could use to develop a new razor for India.

‘That, for me, was a big ‘a-ha,” said Alberto Carvalho, vice president, global Gillette, a unit of P&G. ‘I had never seen people shaving like that.’

Building BrandsP&G adopts a centralized model to brand management. Product and promotion are centralized, with channel and distribution management being driven by strong regional teams.Building_Brands_12

The visits kicked off the 18 months it took to develop Gillette Guard, a low-cost razor designed for India and other emerging markets. The story of how Guard came to be illustrates the balance companies must strike when creating products for emerging markets: It’s not as simple as slapping a foreign label on an American product.

Gillette has sold razors in India for over a decade. The company had 37.3 percent market share in 2007, selling its hBuilding_Brands_14igh end Mach3 razor, and a stripped down Vector two-bladed razor on the lower end. The company used sportspeople as brand ambassadors – in the Indian context this meant cricketers.

But Gillette wanted more of the market. To do that, P&G executives would have to attract the nearly 500 million Indians who use double-edged razors, an old fashioned T-shaped razor that has no protective piece of plastic that goes between the blade and the skin when shaving. This razor, which maBuilding_Brands_15kes skin cuts more likely, costs just a few rupees per blade.

Gillette had stumbled once before with Vector in 2002. The version of that razor had a plastic push bar that slid down to unclog the razor. The bar was added because Indian men have thicker hair and a higher hair density than their American counterparts. Adding to that, they often shave less frequently than American men, so they wind up shaving longer beards.

Gillette, which is based in Boston, wanted to test the product among Indian consumers before launching it, but instead of making the costly trip abroad, they had Indian students at nearby Massachusetts Institute of Technology test the razor. ‘They all came back and said ‘Wow that’s a big improvement,’ Carvalho recalls.

But when Gillette launched the razor in India, the reacBuilding_Brands_18tion was different. Executives were baffled about why the razor flopped until they traveled to India and observed men using a cup of water to shave. All the MIT students had running water. Without that, the razor stayed clogged.

Building_Brands_16‘That’s another ‘a-ha’ moment,’ Carvalho said. ‘That taught us the importance that you really need to go where your consumers are, not just to talk to them, but observe and spend time with them to gather the key insight.’

P&G had acquired Gillette in 2005 and the next several years were spent integrating the companies. But in 2008, the focus on India returned when Carvalho decided to bring 20 people, ranging from engineers to developers, from Gillette’s U.S. headquarters to India for three weeks.

Building_Brands_17They spent 3,000 hours with more than 1,000 consumers at their homes, in stores and in small group discussions. They observed people’s routines throughout the day, sometimes staying late into the evening. They also hosted small group discussions. ‘We asked them what their aspirations were and why they wanted to shave, and how often,’ Carvahlo said.

Building_Brands_22They learned that families often live in huts without electricity and share a bathroom with other huts. So men shave sitting on their floors with a bowl of water, often without a mirror, in the dark morning hours. As a result, shaving could take up to half an hour, compared with the five to seven minutes it takes to shave in American households. And Indian men strain to not cut themselves.

The takeaway: In the U.S., razor makers spent decades on marketing centered on a close shave, adding blade after blade to achieve a smoother cheek. But men in India are more concerned about not cBuilding_Brands_19utting themselves.

With that knowledge, the Gillette team started making a new razor for the Indian market. In nine months, P&G developed five prototypes.

They tested things like handle designs, how well the blade cuts hair and how easy the razor is to rinse.

The resulting Guard razor has one blade, to put the emphasis on safety rather than closeness, compared with two to five blades found on U.S. razors.

One insight from filming shavers was thatBuilding_Brands_21 Indians grip the razors in many different ways, so the handle is textured to allow for easy gripping. There’s also a hole at the handle’s base, to make it easier to hang up, and a small comb by the blade since Indians hair growth tends to be thicker.

Next, the company had to figure out how to produce the razor at the right price. ‘We had to say ‘How do we do this at ruthless cost?” Carvalho said.

Building_Brands_20P&G scrutinized the smallest details. It cut the number of components in the razor down to 4 compared with 25 needed for Mach3, Gillette’s three-blade razor. They even made the razor’s handle hollow so it would be lighter and cheaper to make.

‘I can remember talking about changes to this product that were worth a thousandth, or two thousandths of a cent,’ said Jim Keighley, the company’s associate director for product engineering.

The result? The Guard costs about one third of what it costs to make the Vector. Gillette sells the Guard for 15 rupees, and each razor blade is 5 rupees.

The company’s strategy seems to have worked. P&G says with 9 percent market share, Guard’s share has grown faster than any other P&G brand in India. And Gillette’s market share for razors and blades in India has grown to 49.1 percent in 2013, according to Euromonitor. That’s up from 37.3 in 2007.

Summarized and extracted from the Daily Mail, UK, published on October 13, 2013

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