“India should focus on branding its software business”

al ries 2Vivek Kaul  
Al Ries first rose to fame in 1972 when he wrote a series of three articles on a new concept called “Positioning” along with Jack Trout. In 1981, the Positioning book was published and has since sold well over 1 million copies. The book has sold over 400,000 copies in China alone. The two authors also wrote Marketing WarfareBottom-Up MarketingHorse Sense and The 22 Immutable Laws of Marketing.
Al is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding. In this interview he speaks to FirstBiz on how countries can go about branding themselves. 

Can countries be branded like products?
It depends on the size of the country. The bigger the country, the harder it is to brand. The smaller the country, the easier. Brand USA, a partnership between the travel industry and the U.S. government, is planning a $200-million campaign to attract tourists to America. The theme: “United States of Awesome Possibilities.” That’s a ridiculous idea.
On the other hand, take a small country like Kenya. What is Kenya’s major tourist attraction? Wild animals from lions to elephants to giraffes. So how would I brand Kenya? “The world’s largest zoo.”
How is branding a country different from branding a product?
It’s essentially the same as branding a product. So how to you brand a product?
Narrow the focus. BMW narrowed its focus to “driving” and became the world’s largest-selling luxury-vehicle brand, ahead of Mercedes, Audi, Lexus, Cadillac and Lincoln.
What makes Singapore different from every other country in the world? Housing. 80 percent of the residents of the country live in apartments, not houses. As the world’s population continues to increase, more and more people are going to have to live in high-rise apartment buildings. Here’s how I would brand Singapore: “City of the Future.”
Can you give us examples of countries which have branded themselves well?
I know of only two, both small countries. Guatemala, a country in Central America, is branding itself as “The heart of Maya country.” An ancient civilization, the Maya have left hundreds of imposing temples scattered throughout Central America. But the country that has the most temples and other historic sites is Guatemala. (I once suggested the country change its name to Guatemaya). The other is Grenada, a country in the Caribbean sea, which is branding itself as “The Caribbean the way it used to be.” In other words, without all the fancy high-rise hotels for tourists.
How can a country go about branding itself?
The basic principle is to narrow the focus. But that’s extremely difficult for a large country. That’s why a large country should forget about branding the country. It should brand its major city instead. Instead of branding America, we should brand New York City, the one city most tourists to America want to visit.
Turkey is a large country that is trying to brand itself with a silly slogan, “Turkey is ready.” A better direction is to brand Istanbul as the best place in the business world for a global headquarters.
Could you elaborate on that?

Consider a company with representatives in the major cities on six continents: Johannesburg, London, Mumbai, New York, Sao Paulo, Shanghai and Sydney. Now where should a company like this one hold it corporate meetings? Istanbul.
Here are combined mileage statistics for a single representative from each city attending a potential global meeting held in these major cities.
Sydney . . . . . . . . 58,784 miles
Johannesburg . . . 58,676 miles
Sao Paulo . . . . . . 50,846 miles
Mumbai . . . . . . . 49,450 miles
New York . . . . . 46,342 miles
Shanghai . . . . . . 44,925 miles
London . . . . . . . 42,472 miles
Istanbul . . . . . . . 40,411 miles
And it’s not just location that gives Istanbul an advantage. Companies like to hold meeting in “neutral” locations, so that local representatives don’t dominate the meetings. Istanbul is not a European city. Istanbul is not an Asian city. Istanbul is a cosmopolitan city with roots in both continents.
And how would you brand Istanbul?
Crossroads of the world.” Sometimes it’s a good idea to compare yourself with another country or another location. Jamaica is a small country in the Caribbean, but it has mountains and waterfalls similar to Hawaii in the Pacific Ocean which is a major tourist attraction for Americans. Here is how we would brand Jamaica: “The Hawaii of the Caribbean.”
Most people think New Zealand is a country. But it’s also an island. Actually, it’s two islands. The North island and the South island. Here is the slogan we developed to brand New Zealand: “The two most-beautiful islands in the world.”
Any other examples?
Colombia is a country in South America that has had a lot of civil wars. But Bogota, the capital, sits on the natural trade route from North America to South America and would make an ideal location for foreign companies to establish their South American headquarters. Furthermore, Bogota sits on top of the equator, but at 8,000 feet above sea level. As a result, warehouses need no air conditioning and no heating all year long. Our proposed branding slogan: “Air conditioned by God.”
Would you suggest that when the reputation of a country is clear and positive, products that are made in that country carry an extra credibility?
Every country has a “natural” position established by decades or centuries of publicity.

Germany is “engineering.”
France is “wine.”
Italy is “fashion.”
Switzerland is “watches.”

Japan is “automobiles.”
America is “computers.”
India is “tea.”
So when you brand a product, it can be helpful to relate your product brand to the country’s position. For example, I met once with the CEO of a Swiss company developing a new automobile brand. Does an automobile from Switzerland make any sense, he asked me? Sure, I said and I have a headline for your first ad: “Runs like a watch.” 
What does India need to do to brand itself well? What sort of Indian products will it help sell? The first decision to make is, Do we want to build a brand to attract tourists or to attract business? You can’t do both. Potentially, India can have a great tourist business, but the current visa situation is seriously undermining that possibility. So I would suggest India focus on business, rather than tourists.
What type of business should India focus on?
Darjeeling tea is one possibility. But it would take forever to broaden the territory covered by the Darjeeling “tea gardens.” A better possibility is “computer software.”
India has three advantages in software. First of all, India turns out more college graduates than any other country in the world. Second, computer software today is primarily developed in the English language which put countries like China at a serious disadvantage. Third, wage levels in India are lower than in most developed countries.
Then, too, opportunities are opening up in software because the market is fragmenting. Microsoft is not nearly as dominant as it once was. Also, the raft of new electronic products (smartphones, tablet computers and many more to come) will continue to generate strong demand for software.
How can a strong country brand help companies and brands originating from that country ?  Many brands take advantage of this idea by including the name of their country or city in their logotypes. Paris is known for cosmetics and L’Oréal is a leading French cosmetics company. The company’s logotype says: L’Oréal Paris. And the Lancȏme logo also includes the name “Paris.”
In one of the columns that I read on country branding it was suggested “ Brands across the board from particular countries can command higher prices than those from other countries, simply by virtue of the strength of the country’s brand.” Do you believe in that? Could you give us examples on the same?
The best example is Switzerland which has a monopoly on expensive watches. A quartz watch made in Japan and sold in America for $500 or so will keep better time than a mechanical watch like Rolex that sells for $5,000 or $10,000.
So why do people pay thousands of dollars for a mechanical watch? Because it’s a Rolex from Switzerland. The same is true for wine from France. Fashion from Italy. Spain is the world’s largest producer of olive oil. But Spain doesn’t have the same reputation for olive oil as Italy. So much of Spain’s olive oil is shipped to Italy and then sold on the world market as “Olive oil from Italy.”
The interview originally appeared on www.FirstBiz.com on March 7, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Why there is no alternative to the dollar, the Russian threat notwithstanding

 3D chrome Dollar symbolVivek Kaul 

Sergei Glazyev, a close advisor to the Russian President Vladmir Putin, recently threatened that if the United States imposed sanctions on Russia, over what is happening in Ukraine, then Russia might be forced drop the dollar as a reserve currency. He also said that if the United States froze the bank accounts of Russian businesses, then Russia will recommend that all investors of US government bonds start selling them.
How credible is this threat? Is Russia really in a position to drop dollar as a reserve currency? Or is any country in that position for that matter?
There are a host of factors which seem to suggest that the dollar will continue to be at the heart of the international financial system. As Barry Eichengreen writes in 
Exorbitant Privilege – The Rise and Fall of the Dollar, “The dollar remains far and away the most important currency for invoicing and settling international transactions, including even imports and exports that do not touch US shores. South Korea and Thailand set the prices of more than 80 percent of their trade in dollars despite the fact that only 20 percent of their exports go to American buyers. Fully 70 percent of Australia’s exports are invoiced in dollars despite the fact that fewer than 6 percent are destined for the United States…A recent study for Canada, a county with especially detailed data, shows that nearly 75 percent of all imports fromcountries other than United States continue to be invoiced and settled in U.S. dollars”
So, most international transactions are priced in dollars. Most commodities including oil and gold are priced in dollars. Over and above this dollar remains the main currency in the foreign exchange market. 
As Jermey Warner writes in The Telegraph “For instance, if you were looking to buy Singapore dollars with Russian roubles, you would typically first buy US dollars with your roubles and then swap them into Singapore dollars.” 
Hence, a major part of the foreign exchange transactions happens in dollars. 
As the most recent Triennial Central Bank Survey of the Bank for International Settlements points out “The US dollar remained the dominant vehicle currency; it was on one side of 87% of all trades in April 2013. The euro was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010.” 
Over and above this, another good data point to look at is the composition of the total foreign exchange reserves held by countries all over the world. The International Monetary Fund complies this data. 
The problem here is that a lot of countries declare only their total foreign exchange reserves without going into the composition of those reserves. Hence, the fund divides the foreign exchange data into allocated reserves and total reserves. Allocated reserves are reserves for countries which give the composition of their foreign exchange reserves and tell us exactly the various currencies they hold as a part of their foreign exchange reserves. 
We can take a look at the allocated reserves over a period of time and figure whether the composition of the foreign exchange reserves of countries around the world is changing. Are countries moving more and more of their reserves out of the dollar and into other currencies?Dollars formed 71% of the total allocable foreign exchange reserves in 1999, when the euro had just started functioning as a currency. Since then the proportion of foreign exchange reserves that countries hold in dollars has continued to fall. 
In fact in the third quarter of 2008 (around the time Lehman Brothers went bust) dollars formed around 64.5% of total allocable foreign exchange reserves. This kept falling and by the first quarter of 2010 it was at 61.8%. It has started rising since then and as of the first quarter of of 2013, dollars formed 62.4% of the total allocable foreign exchange reserves.
Euro, which was seen as a challenger to the dollar has fizzled out because Europe is in a bigger financial and economic mess than the United States is in. Given this, there is no alternative to the dollar and hence, dollar continues to be at the heart of the international financial system. 
So where does that leave the Russian rouble and the recent threat that has made against the dollar? Here is the basic point. When the entire world has their reserves in dollars, they are going to continue to buy and sell things in dollars. So, when Russia exports stuff it will get paid in dollars, and when its imports stuff it will have to pay in dollars. And unless it earns dollars through exports, it won’t be able to pay for its imports. 
Any country looking to get away from the dollar is virtually destined for economic suicide. Russia can throw some weight around in its neighbourhood and look to move some of its international trade away from the dollar. The Russian company Gazprom, in which the Russian government has a controlling stake, is the largest extractor of natural gas in the world, being responsible for nearly 20% of the world’s supply. 
The gas that Gazprom sells in Russia is sold at a loss, a legacy of the communist days. But the company also provides gas to 25 European nations and this makes it very important in the scheme of global energy security. The company backed by the Russian state has been known to act whimsically in the past and shut down gas supplies during the peak of winter, which has led to major factory shutdowns in Eastern Europe. 
This is Russia’s way of trying to reassert the dominance the erstwhile Soviet Union used to have over the world, before it broke up. But even when Soviet Union was a superpower it could not trade internationally in dollars, all the time, because nobody wanted Russian roubles, everyone wanted the US dollar. 
The next step in the process is likely
to be an effort to price the natural gas which Russia sells through Gazprom in Europe in terms of its own currency, the rouble. Vladamir Putin has spoken out against the dollar in the past, calling for dropping the dollar as an international reserve currency. 
This makes it highly likely that Russia might start selling its gas in terms of roubles. Countries which buy gas from Russia would need to start accumulating roubles as a part of their international reserves. Hence, there is a high chance of the rouble emerging as a regional reserve currency in Europe and thus undermine the importance of the dollar to some extent. Whether that happens remains to be seen. 
The most likely currency to displace the dollar as the international reserve currency is the Chinese yuan. But that process, if it happens, will take a long time. As Warner writes in The Telegraph “
this process is on a very long fuse and basically depends on China eventually displacing the US as the world’s largest economy.” 
While the future of the Chinese yuan as an international reserve currency is very optimistic, it is highly unlikely that the yuan will replace the dollar as an international reserve in a hurry. For that to happen the Chinese government will have set the yuan free and allow the market forces to determine its value, which is not the case currently. 
The People’s Bank of China, the Chinese central bank, intervenes in the market regularly to ensure that the yuan does not appreciate in value against the dollar, which would mean a huge inconvenience for the exporters. An appreciating yuan will make Chinese exports uncompetitive and that is something that the Chinese government cannot afford to do. 
These are things that China is not yet ready for. Hence, even though yuan has a good chance of becoming an international reserve currency it is not going to happen anytime soon. Economist Andy Xie believes that “
There is no alternative to the dollar as a trading currency in Asia.” He feels that the yuan will replace the dollar in Asia but it will take at least thirty to forty years. 
Meanwhile, the Russians can go and take a walk.

The article originally appeared on www.FirstBiz.com on March 7, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Why minority investors protesting against Maruti Suzuki stinks of hypocrisy

maruti-logoVivek Kaul 
The minority shareholders of Maruti Suzuki are not a happy lot these days.
They are protesting against the decision of Maruti Suzuki’s parent company Suzuki, to establish a car plant in Gujarat, under its wholly owned Indian subsidiary, Suzuki Gujarat. The cars produced by Suzuki Gujarat will be sold to Maruti Suzuki.
This has not gone down well with the minority investors. The
Business Standard reports that seven mutual funds (HDFC MF, Reliance MF, UTI MF, DSP BlackRock MF, SBI MF, Axix MF and ICICI Prudential MF) have written to the company against this proposal of setting up a new car plant in Gujarat under the aegis of Suzuki Gujarat. The Life Insurance Corporation(LIC) of India, the big daddy of Indian stock markets, has also sought details on this from Maruti Suzuki.
There are various questions that are being raised on this decision.
Analysts point out that that Maruti Suzuki currently has around Rs 7,000 crores of cash. Why is this cash not being utilized to make cars, rather than just buy them from a subsidiary and then sell them? Also, the depreciation benefits on setting up a new plant would help the company bring down its effective rate of tax, the analysts point out. In short, it makes immense sense for the company to set up a new car plant, instead of buying cars from a subsidiary of its parent company.
The analysts further point out that with this move, Maruti Suzuki might be in considerable danger of being regarded just as a trading company, which buys cars and then sells them, rather than a manufacturing company. If this were to happen, the stock would be de-rated.
As a fund manager told the Business StandardTrading concerns (companies) trade at significantly lower PEs [price to earning ratios] than manufacturing ones.”
News reports suggest that the Securities and Exchange Board of India (Sebi) is looking into the issue, given that it is a related party transaction. Suzuki owns 56.21% of Maruti Suzuki and it owns 100% of Suzuki Gujarat.
The Companies Act 2013, defines a material related party transaction as one which in aggregate exceeds the higher of 5% of the annual turnover of a company or 20% of its networth. A report in the Mint suggests that Maruti Suzuki will take approval from its minority shareholders on this.
Prima facie it seems correct that the minority shareholders are protesting. But the question is where are they when the government of India is ripping the public sector units? Take the case of Coal India, which on January 14, 2014, declared an interim dividend of Rs 29 per share. The government owns 90% of the company and as a result got a total dividend of Rs 16,485.71 crore.
The government also earned a dividend distribution tax of Rs 3,113.05 crore, thus netting a total of Rs 19,598.76 crore.
This dividend was essentially declared to help the government meet its fiscal deficit target. Fiscal deficit is the difference between what a government earns and what it spends. The money handed over to the government of India could have been used to produce more coal and thus help India become self sufficient when it came to the consumption of coal.
ICICI Prudential MF is one of the seven mutual funds which have written to Maruti Suzuki Ltd. Data from
www.valueresearchonline.com shows that as on January 31, 2014, the mutual fund owned Rs 72.91 crore worth of Coal India shares through the ICICI Prudential Dynamic Fund. Why was there not a whiff of protest from ICICI Prudential MF, when the government decided to rip off Coal India? Like it owns shares in Maruti Suzuki, it also owns shares in Coal India. The same was the case with LIC, which owned 1.83% of Coal India’s shares as on December 31, 2013.
Or take the case of ONGC being forced to pick up 5% stake in the Indian Oil Corporation from the government of India.
This is expected to cost ONGC around Rs 2,500 crore. This is nothing but a move by the government to strip the company of the cash it has on its books.
Data from
www.valueresearchonline.com shows that HDFC Mutual Fund, as on January 31, 2014, owned shares of ONGC worth Rs 207.23 crore, through HDFC Top 200 fund. It also owned shares worth Rs 165.08 crore through HDFC Equity Fund. Why did HDFC MF not protest when the government was busy ripping off ONGC? LIC decided to keep quiet in this case as well. As on December 31, 2013, the insurance major held 7.82% of the total number of shares of the company. No mutual fund has protested against the government forcing public sector banks to pay interim dividends. As has been noted here on FirstBiz, the public sector banks are not in great shape. . As the latest RBI Financial Stability Report points out“Among the bank-groups, the public sector banks continue to have distinctly higher stressed advances at 12.3 per cent of total advances, of which restructured standard advances were around 7.4 percent.”
The stressed asset ratio is the sum of gross non performing assets plus restructured loans divided by the total assets held by the banks. In this scenario where the stressed assets of public sector banks are on the higher side, it makes sense that these banks not be forced to declare interim dividends. The money thus saved should be used to shore up their capital.
Given these reasons, the protest of mutual funds and LIC against Maruti Suzuki, basically stinks of hypocrisy.
The article originally appeared on www.FirstBiz.com on March 5, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

For 250 Years, Strategy Has Been About How Much More We Can Sell: Niraj Dawar

Dawar-08_smNiraj Dawar, Professor at the Ivey Business School (Canada and Hong Kong), is a renowned marketing strategy expert who has also been on the faculty of leading business schools in Europe and Asia. He works with senior leadership in global companies and has executed assignments for BMW, HSBC, Microsoft, Cadbury, L’Oreal, and McCain on three continents, as well as with start-ups in the biotech and information space.  His publications have appeared in the Harvard Business Review, the M.I.T. Sloan Management Review and in the leading academic journals. Most recently he has authored Tilt: Shifting Your Strategy from Products to Customers (Harvard Business Review Press, Rs 1250). In this interview he tells Forbes India why the opportunities of capturing value in the downstream are relatively neglected and have huge payouts when they are recognised. 
Your follow up question to managers often is that why do your customers buy from you rather from your competitors. This is after you have asked them what business are you in. Why do you do that?
The reason I ask that question is to encourage managers to ask themselves that question because it really allows you to understand that the reasons that customers buy are related to the interaction between the firm and the customers. The reasons are often about reliability, trust, relationships, comfort, the ease of doing business and reputation. In fact, very rarely does the answer to this question has anything to do with better products or cheaper prices. The reasons are almost entirely between the softer aspects of the interaction between the buyers and the sellers.
What is the centre of gravity of a business as you talk about in your book Tilt?
If you look at the activities of a firm all the way from sourcing of their raw materials, transformation of those materials, production, innovation, and supply chains—then towards the downstream, customer acquisition, customer retention and customer satisfaction, those are all activities that the firm engages in. Not all of those activities contribute equally to the cost of the business. And not all those activities contribute equally to the value that the customer buys, sees, and pays for. And not all of those activities contribute equally to the competitive advantage of the company.
So what are you suggesting?
If we can answer the following three questions i.e. which of these activities accounts for the bulk of their cost? Which of those activities accounts for the value that the customer sees, pays for, comes back for, and becomes loyal for? And which of these activities accounts for the source of competitive advantage? If we can answer those three questions then we start to locate the centre of gravity of a business along the spectrum of value creation activities. And I believe that increasingly that the centre of gravity of successful firms is going to reside in the downstream activities, in the activities related to customer acquisition, customer retention and customer satisfaction.
Could you explain that through an example?
Imagine all Coca Cola’s assets i.e. there trucks, their supply chains, their factories, all their physical assets were to go up in flame overnight. How likely is it that they would be able get financing to start operations tomorrow? And the answer if you were to ask any reasonable manager would be that it is very likely that they would be able to get financing to start operations again tomorrow.
If you take the second half of the thought experiment and imagine that a colourless, odourless gas leaks out of a weapons research laboratory somewhere and it envelopes the world and seven billion consumers forget about the brand name Coca Cola and all of its associations. Now how likely is it that Coca Cola can get financing to start operations again tomorrow? The answer is quite unlikely. When you compare those two situations what you recognise is that sources of competitive advantage do not reside inside the four walls of the company but out there in the minds of the consumers. And they have to do with the brand and the reputation, and not the product. And that’s how a company’s centre of gravity can be assessed. So Coca Cola’s centre of gravity clearly resides in the market place.
Any other example?
If you take the entire pharmaceutical industry and map the companies according to their centre of gravity, the centre of gravity of some companies resides in the massive sales forces that they have, in the relationships they have with doctors, whereas for some other pharmaceutical companies their distinct advantage lies in the laboratory, in creating new molecules, in patenting them. The question I have is, which of these companies is in the driver’s seat? Who is acquiring whom? The answer is that the companies which have downstream assets i.e. the relationships with the doctors and the subscribers, are the ones acquiring those that have the patents. And not the other way around.
You talked about the centre of gravity of companies shifting downstream. Can you talk a little more about that?
Take Coca Cola once again. In most cities around the world you can buy a can of Coca Cola as a pack of 24 in a supermarket and it will cost you about 25 cents per can. Now consider an individual who is in a park on a hot sultry day and he has been out for two hours. He wants a Coke. He sees a vending machine and he can easily drop two dollars into the vending machine and get a can. The vending machine delivers to the customer a can of Coca Cola, at the point of thirst, in a single serve and chilled. For those reasons, single serve, at the point of thirst and chilled, the premium that is charged is 700%.
And the customer willingly pays for it…
Yes, there is a 700% price premium and the customer willingly pays that premium. Where does the value come from? The value came from a downstream activity of ‘how’ as opposed to ‘what’. It pays for the company to recognise these sources of value and to create ways of delivering and capturing that value. Many companies fail to recognise that. They build a product and they think that is the value they have created without recognising that there are opportunities around the product to develop offerings which are customised to the situation and the context of what the customer is looking for. Think about it this way, many companies spend a huge amount of money doing business process re-engineering, or reorganising their operations, or making their supply chain and operations more efficient. The result is a 2-5% cost saving,which might double their margins, which is huge. But think of the opportunities in the downstream where you capture 700% growth in value. If you compare these two, I believe that the opportunities of capturing value in the downstream are relatively neglected and have huge payouts when they are recognised.
Why are they neglected?
They are neglected because we have spent the last 250 years building factories, since Richard Arkwright, in the middle of the 18th century England, built the first one. Having built the factory one of the things he realised was that by streaming together all of the innovations in the textile industry like the spinning jenny, the flying shuttle, he reduced the cost of producing textiles by 90%. Even though he had reduced the per unit cost of production that came with the cost of leveraging. He had borrowed money to build these factories. So at the end of the month he had to pay interest regardless of whether he was able to sell or not. What happened was that his business became driven and obsessed with just one question, how much of this stuff can we sell. That was his obsession because everything else depended on that question.
And that’s carried on since then?
For 250 years strategy has been about how much more of this stuff can we sell. We have not asked the question what else do our customers need. We have not asked the question why do our customers buy from us and not from our competitors. These are downstream questions. The upstream question is how much more of this stuff can we sell or can we make a better product. We have had the factory at the centre of business. What I am arguing in Tilt is that the customer is at the centre of business.
So where does the title of your book Tilt fit into this?
Tilt is a shift in the centre of gravity from the upstream to the downstream. And I am arguing because costs, value and competitive advantage have shifted from the upstream to the downstream, management attention and strategy need to be focused on the downstream rather than the upstream. And that is why the title.
Do you see companies tilting?
I do see companies tilting. There are a lot of examples of things that companies can do to tilt. But I don’t see one single company doing all of those things. In other words, there are lots of opportunities even for companies that are doing one or two things well, to do the other things well. So Tilt is an incomplete project. It is happening but it is far from complete.
You also talk about some marketing myths in your book. Lets talk about some of those myths.
Does a better product always win?
No a better product does not always win. If you look at the innovation graveyard, it is full of better products. What matters is the ability of a company to change and influence the customer’s criteria of purchase. Let me give you an example. For the last 25 years everybody has known that Gillette’s next product will be a razor with one more cutting edge. Why is it then that competitors have not pre-empted Gillette and come up with the next cutting edge before Gillette? Introduce five cutting edges when Gillette only had four.
Why has that not happened?
The answer is that customers only find it credible when it comes from Gillette. So four blades are better than three only if Gillette says so. There is no value for competitors to develop a better product unless Gillette develops a better product. What is driving innovation is not the better product. It is consumer’s acceptance of the better product. So downstream reasons not upstream reasons drive innovation. So is a better product the answer? No. Understanding customer’s criteria of purchase is the answer. Influencing that criteria of purchase is the answer.
Any other examples? 
In case of mobile phones very recently the chip has become very important just like it became important in the PC industry during the 1990s. Now people are suddenly paying attention to questions like is it a single core or a dual coe? In fact, now we are upto quad core. Why are the cores important? There are technical reasons why they are important. For example, a mobile phone can shut down half the CPU if you are making a phone call rather than using graphics. Why is that important in a mobile phone? Because it saves battery life. And it allows you to have more functionalities with less battery life. You don’t have to recharge it as often. If you have a dual core it is a battery saving feature. If you have a quad core, it is an even better battery saving feature because you can shut-down three cylinders and run on only one cylinder when you don’t need the other three. When you need the other three they fire up quickly and you have all the four cylinders running. So its essentially that.
What is the point you are trying to make? 
Right now we are upto quad core. And everyone wants a quad core phone. In China there is a company called Meizu and it has just launched an octa core phone. Consumer acceptance for octa core phones, even though everyone knows that the next logical step is octa core, is not there unless Samsung or Apple introduce octa core phones. Then it will become a criteria. Exactly like the blades. So what is more important? Is it technology? Or is the consumer’s criteria of technology? The answer is marketing. It is the downstream not the upstream.
The next marketing myth I wanted to ask you about is does it make sense to listen to your customers? 
Not always. For a long time we were told that you needed to go and ask customers what they wanted. So you had focus groups. You ran surveys. You had questionnaires. All these were ways of finding out what does the customer want. That is really old technology. Today you find out what the customer wants primarily based on customer behaviour. What do they click on? Which products do they compare? Which pictures do they look for? How much do they pay today? How much are they going to pay tomorrow for same product? What is their price elasticity of demand? What is their cost elasticity of demand? You need to get deep into customer behaviour today simply by observing behaviour as opposed to asking.
Can you give us an example?
So Zara for example places products on the shelf. They will put 300 units in the store across 10-15 stores. If these units fly out of the shelf, then they put in 30,000. If they don’t sell, then they stop that product. They put in hundreds of new products every month. What flies they put in more of. What doesn’t fly, they cull. This approach is very different from asking the customer what he actually wants. In fact, it is cheaper and quicker for Zara to actually make the product and put it on the shelf and see if it actually sells, rather than ask the customer if you like the product.
But the thing with Zara maybe that it has a short turn around time, which may not be possible for other industries…
The answer is that it is becoming possible for more and more industries. In the textile business, the lead time used to be six months to a year. You had to plan the next winter season in January. And, showed that the model could be broken. They went down to a lead time of three weeks. I think there are many industries which are sitting ducks because of the long lead times that they have. They are still using the old technology of what do you think customers will want. And that is not viable.

 The article originally appeared in Forbes India edition dated March 7, 2014