“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) 

Narrow your focus

al ries 2Al Ries
A rising tide lifts all boats. But a falling tide does the most damage to those boats that are poorly anchored.
In high-growth times, when things are going well, management ignores the marketing function. Why get involved when everything is upbeat?
When things are going bad, the first thing management does is to get involved in marketing activities. If sales are turning down, no CEO is going to ignore marketing.
This is the worst time for management to be involved in marketing. They don’t have the knowledge and experience to figure out what needs to be done.
In fact, their instincts are wrong. They know they need to increase sales in order to survive, so their first thought is to expand the brand.
That’s exactly the wrong approach. A downturn exposes the weakness of also-ran brands. In order to survive in a down economy, a company should narrow its focus in order to strengthen its brand, which ultimately can increase sales.
Great Wall Motor is a good example of this principle. In the year 2009, the company marketed trucks, passenger cars, minivans and SUVs, using nine different model names.
Then the company decided to focus their resources on a single model, Haval, using the strategy, “The most-economical SUV under 100,000 RMB.” (Roughly $13,000 at the time.)
Last year, Great Wall Motor sold more vehicles than any other Chinese automobile company. Furthermore, they made more net profits than the next four Chinese automobile companies combined.
The question is why does this happen? If you’re the CEO of a major corporation, chances are good you are a left brainer. Before you make a decision, you want to be supported by facts, figures, market data, consumer research. If you’ve a job in marketing, chances are good you are a right brainer. You often make decisions by “gut instinct” with little or no supporting evidence. It couldn’t be otherwise in a creative discipline like marketing.
A logical, analytical left-brainer generally won’t take a right-brainer seriously whether the economy is up or down. In China, for example, consumers saw passenger cars as “prestige” vehicles and trucks and SUVs as working vehicles for the lower class.
So if you are a logical thinker, you would want to focus on passenger cars. But a right-brainer is a holistic thinker. He or she sees the big picture. And the big picture in China back in 2009 was that every other automobile manufacturer was going to focus most of their resources on passenger cars. That’s why the better strategy for Great Wall was to do the opposite, focus on SUVs.
At the same time, low-growth times can actually benefit market leaders because it makes them relatively stronger than their weak competitors. Take the automobile industry in America. The recession of 2006 to 2008 bankrupted General Motors and severely damaged Ford. But it improved the position of imported brands like Toyota, Mercedes-Benz and BMW.
What should weaker competitors like General Motors have done? As a general principle, they should have narrowed the focus of their brands. General Motors’ leading brand, Chevrolet, has 18 different models. What’s a Chevrolet? It’s a large, small, cheap, expensive car or truck. That’s a weak position that can cause serious problems in low-growth times.
On the other hand, Toyota is the No.1 car brand in America. Mercedes-Benz is the “prestige” leader and BMW is the “driving” leader. They all did well in the downturn.
A weak brand may continue to exist in a rising economy. But not when the economy turns down. So marketing managers who manage a weak “also-ran” brand should “narrow the focus” of their brands in order to strengthen their positions.
As a starter, for example, Chevrolet should have divested itself of its truck business and concentrated on cars, preferably entry-level cars. General Motors has a truck brand called GMC that sells trucks only. That brand could be strengthened by the addition of the Chevrolet truck models as well as the Chevrolet model name for trucks, Silverado.
Look at the automobile market in Russia. Lada, the market leader, sells just six models yet has a market share of 17 percent. Chevrolet on the other hand markets 11 different models, but its market share is just 7 percent. Chevrolet’s leading model is Niva, an SUV made in Russia that has generated a lot of favorable interest. The model is often on back-order, with waits of two or three months.
If I were running Chevrolet in Russia, I would focus all my resources behind the Niva model, much like Volkswagen did with its Beetle model in the United States.
You are going to see the same things happen in smartphones. The rich will get richer (Samsung and Apple) and the poor will get poorer (BlackBerry, Motorola, Nokia and others) unless they do something dramatic like narrowing their focus to strengthen their brands.
Companies are like plants. Overtime, plants expand in every direction so a good gardener trims them back from time to time. Companies need to do the same. Keep cutting back on products and markets that are not performing well. Narrow the focus to both strengthen the core brands and increase their market share.
Look at the smartphone category. Apple basically markets one new model to replace an existing mode which is then discontinued. Yet the last time I checked, its competitor, BlackBerry, markets 15 different models. Which company is more successful?
But narrowing focus is easier said than done. Listen. Most CEOs we have dealt with take the position that they know what marketing strategies are best for their companies. They don’t want marketing managers to tell them what to do. They want marketing managers who will execute their strategies.
That’s why they seldom take the time to ask marketing managers for their advice and counsel. Most times, marketing managers have to force their way into boardrooms in order to present their ideas. I’ve been in those meetings. And it’s obvious that the chief executive and his or her staff has already made their minds up on what strategic directions to take. They just attend the meetings to placate marketing managers who often wind up frustrated.
Also, during low growth times, companies end up with metric madness. If you run a company by the numbers, you’ll eventually run the company into the ground. You might be successful in the short term, but never in the long term, as the financial crisis demonstrates.
The banking industry is a good example of an industry run by the numbers. And yet the banking industry was the one industry that did the worst in the recent recession. Left-brain managers are verbal, logical and analytical. Nothing wrong with that, as long as management also takes the remedy to counteract its overemphasis on mathematics.
Almost everything about marketing is the opposite of the typical manager’s approach to running a business. Marketing is illogical and definitely not analytical. Marketing is intuitive and holistic. We’re concerned, however, that this message is being ignored by the marketing community which seems to be drifting from right to left. From a right-brain approach to a left-brain approach. The hot topic among marketing managers today is ROI, return on investment.
Another mistake that some companies make during recessions or low-growth environment is that they introduce cheaper versions of their existing brands. Packard was the leading luxury car brand in America for many years. But during the depression in the 1930s, Packard started selling relatively inexpensive vehicles. Its major competitor, Cadillac, kept it prices relatively high, although selling far fewer vehicles than Packard. As a result, Packard is long gone and Cadillac is still alive.
I don’t know enough about Indian corporations to make specific suggestions, but as a general rule, if a company is losing market share or losing money, it needs to change its marketing strategy.
That runs counter to the normal thinking which is (1) The strategy is right, but (2) It’s the execution that is wrong. So chief executives tend to react to trouble by firing lower-level managers in charge of executing corporate strategy.
Then too, if a company changes its corporate strategy, it can reflect unfavourably on the chief executive. From an ego point of view, that’s a strong reason to focus on execution rather than strategy.
Also, there are few other things remembering. Does it make sense to launch new products in a low growth environment? Yes and no. Yes, it’s a good time to launch new markets for a market leader. Its competitors are weakened and are less likely to have a good response.
No. It’s a bad time to launch new products for a company that’s not a market leader. That drains resources from the company’s core business. Also, its worth remembering while launching new products that advertising today doesn’t have the credibility to launch new products. Only PR has that credibility. Regardless of the environment, companies should start with PR and then switch to advertising after the new product or brand has achieved some recognition among consumers. Our philosophy is: PR first, advertising second.
To conclude, the one message that marketers need to remember in times of low growth is to narrow your focus.

 (Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (along with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He 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)
The article originally appeared in Business Today in the edition dated January 19, 2014
(As told to Vivek Kaul) 

Story of a home-grown David: How AAP trumped the mighty

Vivek Kaul  
One of the fundamental rules of forecasting is to make as many forecasts as possible and then publicise the ones you get right. On August 4, 2012, I wrote a piece on Firstpost, in which I compared what would become Aam Aadmi Party(AAP) to a disruptive innovation.
The term disruptive innovation was coined by Clayton Christensen, who happens to be a professor of strategy at Harvard Business School. He defines it as “innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example of a disruptive innovation is Micromax. Micromax and a host of other Indian phone makers built up significance presence in the smartphone market, while the biggest player Nokia was busy elsewhere.
Bharti Beetel, which produced India’s first landline phones which had buttons on them, did not wake to the opportunity of the mobile phone market. This despite the fact that its sister company Airtel was India’s biggest mobile phone service provider.
RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies. Sony did not capture the mp3 player market because it feared that it would play havoc with all the music rights that it owned.
When it comes to low cost airlines Southwest Airlines first woke up to the opportunity. None of the bigger players in the market like Pan American, British Airways, Lufthansa, Delta etc, saw the opportunity at that point of time. Even in an Indian case, a rank outsider Indigo has captured the low cost market, instead of incumbents like Air India and Jet Airways, which continue to make huge losses.
There are scores of such examples in business, where the biggest player(or players) in the market has been rattled by a new player. AAP is a similar disruptive innovator. In the August 2012 piece, I had said that what “works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.”
And this works to the advantage of the disruptive innovator, which can quietly keep doing its thing. The bigger player is not interested because the market that the disruptive innovator is catering to is too small for them to take seriously. Take the case of smartphones. Smartphones have been around since the late 1990s, but they only took off in the last few years. Hence, Nokia never got around to take them very seriously.
When Sony first launched pocket transistors they catered primarily to teenagers. This led to RCA ignoring the market, because the bigger market was elsewhere. Apple’s first personal computers were targeted towards the youth, leading to the existing players who manufactured minicomputers ignoring the market completely.
Along similar lines, the Bhartiya Janata Party and the Congress, looked at AAP as a party which catered to the frustrations of the middle class. And given that the middle class in this country does not care to vote, the existing political parties felt that there was no point in paying attention to what the AAP was upto.
In fact, Sheila Dikshit, the chief minister of Delhi for the last fifteen years said so in several interviews. In an 
interview to the Open magazine published in early November, Dikshit said that “he(i.e. Arvind Kejriwal, the National Convener of the AAP) is not even on our radar.” In a rally without referring to Kejriwal, she even called him ‘barsaat ka keeda’.In another interview to Tehelka, Dikshit said “My reaction to the Aam Aadmi Party is nothing..absolutely nothing.” By the time Congress woke up to the threat from the AAP, it reacted the only way it could, by ordering a probe into the foreign funding sources of the party.
The Bhartiya Janata Party also woke up around mid October, six weeks before the election, and decided to project Dr Harshvardhan as its chief ministerial candidate. 
As the India Today reported on the issue “Highly-placed sources in the BJP have told indiatoday.in that the party wanted to go into the elections with a leader who had a clean image and that made it go with the doctor.”
The only possible explanation for this change is the fact that the BJP came to realise slightly late in the day, that the AAP was no pushover. Hence, it had to project a chief ministerial candidate with a clean image. And this got Dr Harshvardhan into the picture.
The fact that it wasn’t taken seriously by its opponents allowed the AAP to go about building itself right from scratch in Delhi. The results suggest that what the AAP has managed to do in a small span of a little over a year is unprecedented. No other political party established right from scratch has ever won the number of seats that it has, since independence, in its very first election.
On various discussions that happened across television channels yesterday political analysts brought up the example of NT Rama Rao. NT Rama Rao stormed to power by winning the January 1983 assembly elections in Andhra Pradesh. His Telgu Desam Party won 199 out of the 294 assembly seats. In comparison, AAP’s performance looks pale.
But its worth remembering here that NT Rama Rao was the biggest Telgu film-star at that point of time. He may have been contesting elections for the first time, but everyone in Andhra Pradesh knew who he was. And given how crazy Andhra Pradesh was and continues to be about cinema, NTR did not have to start right from scratch like AAP did in Delhi.
Some others also compared AAP’s success to the defeat that Mamata Banerjee handed out to the Left Front in West Bengal in 2011. While what Mamata did was huge, it is worth remembering that it took her almost three decades to do that. And when she moved out of the Congress Party to form the Trinamool Congress, a large section of the Congress Party moved with her. This meant that there was some sort of organisation that was present at the ground level when Mamata seriously thought of taking on the Left parties on her own.
When the success of AAP is looked at with these factors in mind, it really is unprecedented.
Another point that comes out here is what marketing gurus Al and Laura Ries make in their book 
The Fall of Advertising and the Rise of PR. In the last few decades the biggest brands have been made through public relations and not through advertising. As Al Ries told me in a October 2008 interview that I did for the Daily News and Analysis (DNA) “Almost all of the recent brand successes have been public relations (PR) successes, not advertising successes…In its first 10 years, Starbucks spent less than $10 million (total) on advertising which is a small amount in a country of 300 million people. The Body Shop has never advertised. Yet recently, L’Oreal paid $1.1 billion to buy the company…Red Bull today is a worldwide brand with $3.3 billion in annual sales, yet the company does little advertising. Same is true about Google, Facebook, Twitter, which are now some of the biggest brands in the world.”
In fact, the success of AAP is a very good example of the same. The party did not have enough money to go through the conventional advertising route of advertising on television and in newspapers. They came up with innovative ways of advertising which did not need a lot of money, like getting their volunteers to stand with banners of the party at strategic traffic points. They also advertised on autorickshaws, which was a cheap and effective way of reaching a large number of people.
In fact, they got spectacular coverage in the media by exposing corruption in business and crony capitalism. Arvind Kejriwal and the AAP were on the front pages of newspapers all over the country, for fairly long periods of time, over the last one year due to this. In the end, this strategy was overused, businessmen cracked the whip and finally a large section of the media stopped covering there exposures. The door to door campaign in Delhi that it carried out was also a spectacular public relations exercise.
As I said earlier, the big boys never really took the AAP seriously. They asked all the practical questions. Where would the AAP raise all the money to fight an election? How would they be able to put an effective organisation in place, in such a short period of time? How would they manage to achieve all that we have achieved in the last sixty to hundred years, in a period of one year?
The party did this and a lot more.
It raised money directly from people, something that has been unheard of in Indian politics. The party also innovated when it came to reaching out to people, something expected from a disruptive innovator. It organised small 
mohalla sabhas attended by a few hundred people at a time, all across Delhi. Of course, existing political parties used to large rallies, did not see much worth in organising events where at best a few hundred people turned up.
The AAP also used social media very effectively when it came to drumming up support, something no one other than Narendra Modi, has tried to do.
The question is will the AAP be able to replicate its success in Delhi through other parts of the country? The answer is not simple. The incumbent politicians would like to believe that it will be very difficult for the AAP to play the game of caste so important in large parts of the country.
But what should give them hope is the fact that the larger political parties are still not taking them seriously. A senior BJP leader said on NDTV India yesterda that comparing BJP with AAP was like comparing “
Raja Bhoj with Gangu Teli”. Another BJP leader challenged them to win even a single seat out of the 48 Lok Sabha seats in Maharasthra.
This tells us that the incumbent politicians are still not taking AAP seriously and feel that they will find it difficult to replicate their success outside Delhi. How successful AAP is outside Delhi, only time will tell us.
To conclude, AAP’s spectacular debt in Indian democracy was best summarised by anchor Punya Prasun Bapai on Aaj Tak yesterday, when he said “
Jhadu, Tiranga Ke Saath Lehra Raha Hai”.
The article originally appeared on www.firstpost.com on December 9, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

What Nokia could have done to prevent its fall

nokia-logo Vivek Kaul  
Companies like human beings have a limited lifespan. Professor Richard Foster of the Yale University estimates that the average lifespan of a company listed in the S&P 500 in the United States is only around 15 years now. This has fallen from around 67 years in the 1920s.
Why has the lifespan of companies shortened so dramatically in the last 100 years? Marketing guru Al Ries and his daughter Laura have an explanation in their book War In the Boardroom. As they write “The biggest mistake of logical management types is their failure to see the rise of a new category. They seem to believe that categories are firmly fixed and a new one seldom arises.”
The most recent example of this phenomenon is Nokia. The company was the largest seller of mobile phones in the world until Samsung overtook it in 2012. Even now it sells nearly 15% of the world’s mobile phones, but has only 3% share in the lucrative smart phone category.
Despite being the largest player in the market, Nokia did not see the rise of smart phones. In fact, this lack of foresight allowed brands like Micromax and Karbonn to rise in the Indian market. Nokia’s failure is not surprising, given that the history of business is littered with many such examples. RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies.
Some of the biggest minicomputer companies did not see the rise of the personal computer. None of the big airline companies around the world thought there was a market for low cost airlines, until Southwest Airlines walked away with the market.
Closer to home, Hindustan Lever (now Hindustan Unilever) did not believe that there was a market for a low cost detergent. Nirma captured that market, though to its credit Hindustan Lever fought back brilliantly with its Wheel brand. Bharti Beetel, changed the entire landline market in India by selling phones which had buttons on them. But by the time it entered the mobile phone market it was too late.
So why do established companies fail to see the rise of a new category? Clayton Christensen, a professor at the Harvard Business School has offered an explanation for this, in the research that he has done over the years. Established companies have a way of doing things (their existing resources, processes, profit model, value proposition they offer and so on). Anything new that comes along threatens that status quo.
Take the case of Sony. The rise of digital music threatened the vast music catalogue that the company owned. And if it launched a digital music player, people would simply copy music instead of buying it. Kodak was the first company to make a digital camera. But it did not take the concept seriously because any camera that did not use “photo films”, threatened the ‘existing’ business model of the company.
What also happens at times is that the initial market is too small. Smartphones have been around since the late 1990s, but they only took off in the last few years. This ensured that Nokia did not take the new category too seriously because there was money to be made elsewhere.
Christensen feels that the only way big companies can be serious about the rise of new categories is to create a separate organisation within the organisation. He gives the example of IBM, which was the only big company around to benefit from the rise of the personal computers(PCs).
IBM set up a separate organisation in Florida, with the mission to create and sell PCs successfully. The organisation had its own engineers and its own sales channel, and thus did not threaten IBM’s existing way of doing things. When minicomputers went totally out of fashion in the late 1980s, IBM was the only big company around to compete in the PC market.
The moral of the story is that big companies in order to survive need to keep making small bets, which are not a part of the existing organisational set up, and see what works.
The column originally appeared in the Business Standard Strategist dated November 11, 2013
(Vivek Kaul is the author of Easy Money (Sage, 2013). He can be reached at [email protected])

‘By introducing cheaper iPhones, Apple will lose its high end position’

al ries 2Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He 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 Vivek Kaul on why by introducing a cheaper iPhone, Apple will lose its position at the high end. And conversely, it won’t sell very many inexpensive phones because of competition from Chinese and Taiwanese companies.
Apple has come with a low cost iPhone 5C to appeal to the price conscious consumer. Is it a strategy that is going to work?
Yes and no. The strategy will generate additional sales of the iPhone 5C, but in the long term it will damage the iPhone brand.
You have been of the view that extensions tend to cheapen the brand. Will something like that play out in this case?
Yes, it will definitely cheapen the brand. 
Why do you say that?
Here’s what normally happens when a new category develops. Apple pioneered a new category called “touchscreen smartphones” with its iPhone brand. Initially, the new product was a big improvement over existing keyboard smartphones like the BlackBerry. This made the iPhone one of the most successful new products ever launched. At one point, it made Apple the world’s most-valuable company. Then competitors entered the market, especially Samsung. Over time, the two brands (Samsung and iPhone) became quite similar, but consumers preferred the iPhone.
Because the iPhone is a better brand. Not a better product. The next development, a development that happens to every new category, is that the category divides into two categories. One at the high end and one at the low end. Any brand that tries to both ends of the market is bound to suffer.
Can you give us any examples?
Cadillac once was the largest-selling luxury vehicle in the American market. Then it tried to broaden its market by introducing lower-priced vehicles. Today, Cadillac is not considered in the same category as Lexus, Mercedes-Benz and BMW. These three brands each outsell Cadillac by a wide margin. It won’t happen overnight. But long-term, we believe the same thing will happen to the iPhone. By introducing cheaper iPhones, it will lose its position at the high end. And conversely, it won’t sell very many inexpensive phones because of competition from Chinese and Taiwanese companies.
By launching a cheaper version of the iPhone, Apple seems to have started following Samsung’s strategy of having smart phones at various price points. If it’s a strategy that works for Samsung why can’t it work for Apple? After all Samsung has 31% of the smartphone market and Apple has only 14%.
The smartphone market is only six years old. It’s early on in the development of the category. IBM was the first company to introduce a 16-bit, serious personal computer. For several years, IBM had 50 percent or so of the personal-computer market. But because of line extension, IBM’s market share gradually declined until it was less than 10 percent of the market. And so, IBM threw in the towel and sold its money-losing business to Lenovo. Will the same thing happen to Samsung? Perhaps. But it all depends on how smart the competition becomes. If competitors develop narrowly focused brands at the high end and narrowly-focused brands at the low end, Samsung will be the ultimate loser.
Some analysts are of the view that a cheaper iPhone would cannibalize sales of the expensive models. Would that be the case? And even if that is the case isn’t it better that Apple cannibalizes its own sales rather than let someone else do it?
Certainly some cannibalization will take place. But Apple could have used a better strategy than line extension. It could have introduced a cheaper iPhone with a different brand name. Take Toyota, for example. Rather than introduce an expensive Toyota, the company introduced the Lexus. At one point, Lexus was the largest-selling luxury vehicle in America. Currently it’s the No.3 brand. When a category diverges, it is much better to cover the diverging category with separate brands rather than by line extending the company’s existing brand.
When I interviewed your daughter Laura a few months back she told me very clearly that “long-term, we see Apple as the leader in the high-end smartphone category and Samsung the leader in the “basic” smartphone category. Apple would make a mistake in introducing less-expensive smartphones. That would undermine its position at the high end.” Do you see that playing out now? Or would that be too far fetched a statement to make?
That was an astute statement, but apparently Apple management didn’t take Laura’s advice to keep the brand focused at the high end. A brand needs to stand for something to become successful in today’s competitive environment. What’s an iPhone? Is it a high-end phone or a low-end phone? A brand can be successful at either end of the market but not at both ends.
A growing view seems to suggest that Apple has lost its ability to innovate after the death of Steve Jobs. Would you agree with something like that?
Yes. No brand can appeal to everyone. Steve Jobs famously said there are some customers he doesn’t want. (He was commenting on why Apple wouldn’t introduce a netbook, or inexpensive laptop computer.)
Can you give us other examples where extensions have cheapened the brand?
Motorola introduced a $1,400 cellphone called “StarTAC” that rapidly became a very popular high-end cellphone brand. Then the company introduced cheaper versions of the StarTAC phone which undermined its high-end position. (We worked with Motorola at the time and pleaded with them not to introduce the less-expensive StarTAC phones.) Today, Motorola is just another cellphone brand without much of a position. Mercedes-Benz used to be known as the world’s leading high-end automobile brand. But the company keeps introducing low-end models that undermine its high-end perception. Today, BMW outsells Mercedes-Benz on the global market.
On a slightly different what do you think of Microsoft taking over the telecom business of Nokia. Nokia has lost out on the smart phone market. Will Microsoft’s taking over help them in capturing a greater market share in the smart phone market?
Microsoft would have to create a new smartphone category to kickstart the Nokia brand. (Much like Apple did with the touchscreen smartphone.) But that’s incredibly difficult to do in a category that has had so money spent on research & development. Microsoft is unlikely to profit from its Nokia investment. But there’s a larger point to be made. Every company needs a focus for the same reasons that every brand needs a focus.
How do you explain that in the context of Microsoft?
Microsoft is a “software” company. It should not be trying to get into the hardware business. That unfocuses the company and makes it very difficult to manage. Look at Apple, a company focused on selling hardware only. Sure, the company needs software developers to create its hardware products, but that’s a different matter. Look at Apple’s competitors in the American market. Both Dell and Hewlett-Packard are hardware companies trying to get into software and services. And not very successfully. Last year, Dell’s profit margin was 4.2 percent versus Apple’s 26.7 percent. And last year, Hewlett-Packard lost $12.7 billion. 
The interview originally appeared on www.firstpost.com on September 12, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)