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Amitava Chattopadhyay


Amitava Chattopadhyay
Emerging Market Multinationals - Amitava Chattopadhyay


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Growing an Industry with Negative Associations: The Case of Cannabis

A recent article in Lift Cannabis News Magazine entitled Cannabis Brand Wars got me thinking about the challenges of building a brand in a stigmatized or “underground” product category such as recreational cannabis.  While recreational cannabis use may have become legal in several US states (e.g., Colorado and Washington), and Canada maybe considering making recreational cannabis use legal, the product still carries negative associations and the image of recreational cannabis users is negative.  As such, building successful mainstream brands in this category and indeed moving the whole category mainstream, to grow the category and the brands within it, poses special challenges.

Thinking about it, it reminded me of parallels with the country-of-origin effect and a case I wrote several years ago on building the LG brand in the US–the parallel between the cannabis industry and the LG brand at the time of its introduction in the US in 2002, is that both are victims of negative stereotyping–Korean products were broadly perceived as second rate in the US at the time, and LG as a Korean brand had to overcome these. One of the key things that the LG brand did as it entered the US market in 2002, aside from significant product innovations (see my case), was to copy key design features of European white goods, as European products were seen as aspirational and superior quality by consumers in the US. LG introduced front-loading machines which was typical of European washing machines (the US brands typically featured top-loading machines which accounted for 90% of the washing machine market at the time). The styling was also deliberately and distinctively European. And, they called the washing machine line Tromm, a derivative of the German word for drum, trommel.  Importantly, their research showed that the name sounded European. These steps helped LG distance itself from its Korean roots and the negative stereotype associated with the category of “Korean products” at the time, and associate itself to a category with positive associations among local US consumers, “European products”. LG washing machines, refrigerators, and the like, went on to become, to quote senior executives at LG with whom I spoke at the time, the “Mercedes Benz” of the white goods industry, commanding the highest ASP and receiving top ratings from both Consumer Reports and the JD Powers Consumer Satisfaction Survey in the mid-2000s.

What can we learn from this for brands in the cannabis industry?  One way to overcome a negative stereotype is to strengthen the mental connections of the target category with a category that has positive associations. Some players in the cannabis industry are doing this. Thus, consider Kiva, a brand that sells cannabis infused confections. To enter their website one needs to indicate if one is over 18 years of age, drawing parallels with websites for alcoholic beverages, a mainstream and “legitimate” product category, in consumers’ minds. Moreover, the product form is a confection and confectionery is a mainstream product category. Consuming chocolates does not have negative connotations and, if anything, current thinking suggests that cocoa butter is healthy.  The consumption method itself also differs from the typical ingestion method associated with cannabis, smoking, which also has a negative connotation today, this further weakens the ties typically associated with the category.

The “About Us” tab on Kiva’s website opens with the sentence “KIVA Confections creates cannabis infused chocolate products and is one of the most recognized medical cannabis companies in California.” (emphasis added), drawing links to the pharmaceutical industry, an industry that is both mainstream and important for consumer health and well-being, the latter being a counterpoint to the negative associations consumers might typically hold about cannabis and cannabis users. This association is strengthened with the mention in the last sentence of the section that Kiva products deliver “certified amounts of medicinal cannabis“. The verbal components are further strengthened through visual images that rotate through the top of the page, images that are reminiscent of the pharmaceutical industry and appear modern and professional.

slider_inspect-1 slider_pour

The “Products” tab on the website leads to pictures of the products available, which are shown packaged in exclusive looking packages with associations to high quality and gourmet products; associations further reinforced by introducing them as “Artisan Confections”.

product-bites

Collectively, such efforts are likely to create strong associations with product categories that are acceptable, legitimate, and mainstream. As these associations become stronger over repeated exposure, they are likely to not-only be the first associations that are retrieved by consumers but they are also likely to crowd-out the extant undesirable associations–see my research on part-list cuing. Over time, as more brands adopt a similar strategy, albeit in a differentiated way, it would be reasonable to see a positive shift in consumers’ view of the cannabis category, its users, and of the brands within the category.

How to Frame Goals to Increase Motivation

Most of us have set goals for ourselves before, whether it’s losing weight, saving money or training for a marathon. Goals help us to focus our minds on achieving what we set out to do. We know that setting goals makes us more likely to attain what we want. But there are differences in what motivates people to achieve goals, which has implications for managers who have to use them to generate a behavioural response, either in customers or employees.
For some of us, we achieve our goals easily. We find ourselves highly motivated and we set out to achieve them, but maintaining them becomes a real challenge. Keeping to our weight or a grade average at school, for example, can seem the harder part of the journey. But for others, it’s the opposite. That is, we feel motivated to tend to what we’ve already achieved, with the attainment of the goal being the real struggle.

These differences, in the ease with which we pursue attainment goals versus maintenance goals, depend on how the individual sees themselves in relation to others. In our recent paper Pursuing Attainment versus Maintenance Goals: The Interplay of Self-Construal and Goal Type on Consumer Motivation, Haiyang Yang, Antonios Stamatogiannakis and I found that people from more independent cultures, such as the United States for example, find attaining goals more motivating than maintaining them and those from more interdependent cultures, such as China, were more motivated by maintenance than attainment.

Pursuing Attainment versus Maintenance Goals: The Interplay of Self-Construal and Goal Type on Consumer Motivation

This research examines how self-construal (i.e., independent vs. interdependent) and goal type (i.e., attaining a new state vs. maintaining the current state) are conceptually linked and jointly impact consumer behavior. The results of five experiments and one field study involving different operationalizations of self-construal and goal pursuit activities, suggest that attainment (maintenance) goals can be more motivating for participants with a more independent (interdependent) self-construal, and that differences in salient knowledge about pursuing these goals are one potential mechanism underlying this effect. This interaction effect was found within a single culture, between cultures, when self-construal was experimentally manipulated or measured, and when potential confounding factors like regulatory focus were controlled for. Importantly, the effect was shown to impact consumers’ goal pursuit behaviors—losing vs. maintaining weight—in the field. These findings add to theory and offer insights, to both consumers and managers, on how the goal types can be leveraged.

Winning in Emerging Markets: Lessons from Peru’s Big Cola!

The last fortnight saw the second quarter announcements of performance from both the Coca Cola Company and PepsiCo.

Although PepsiCo significantly outperformed Coca Cola’s negative 1% growth in net sales (and a 3% decline in profits) by reporting a top line growth of 4% (and a higher profit rate), they both seriously underperformed when compared to AJE, the Peruvian purveyor of Big Cola. AJE with global sales of $2bn is a minnow compared to Coca Cola or Pepsico, but according to the Financial Times, “AJE’s global sales grew at an average of 22 per cent a year from 2000 to 2013”!

The AJE Group and its brand Big Cola, interestingly owes its foundation to the reign of terror by the guerrilla movement Sendero Luminoso (Shining Path) in the 1980s, which led the Añaños family to flee their farm. Forced to think of how to survive, and seeing the withdrawal of the soft drink giants from the market, the five siblings (four brothers and one sister) started making an orange flavored beverage they called Kola Real in 1988 in their courtyard, bottling it in recycled beer bottles, and selling it door-to-door to neighborhood residents and mom and pop outlets in the city of Ayacucho!

Kola-Real

The product caught on, and in 1991, the Añaños siblings founded the AJE Group to bottle and expand the business, expanding to smaller cities like Huancayo, Bagua, and Sullana first, then pretty much throughout Peru in a step-by-step fashion, before finally arriving in the Peruvian capital, Lima, in 1999.

In 2000 it began international expansion, targeting neighboring Venezuela and Ecuador. In 2002 it entered Mexico, followed by the countries of Central America in 2004. Around the same time, it also started to add to its brand portfolio. In 2001 it added bottled water under the brand name Cielo, in 2005 Pulp, a citrus fruit drink, and in 2006, Sporade, a hydrating drink. That same year, it also set up its corporate headquarters in Madrid, Spain. In 2010 it entered India, Vietnam, and Indonesia. Today, it is present throughout Latin America and the United States. In Asia it has expanded in to Thailand as well. And aside from Kola Real, Cielo, Pulp, and Sporade, it also owns Cifrut, Volt, and the Big Cola brands.

Big Cola Cielo Sporade

From the very beginning, AJE focused on serving less affluent consumers, offering lower prices; as an example, to enter Lima in 1999, the Kola Real campaign positioned the brand as “The Fair Price Drink”. And Kola Real prices are approximately 25% lower than that of its main MNC competitors’ offerings. To keep prices low, AJE needs to keep costs low. It does so by paying close attention to its entire value chain, stripping costs aggressively wherever possible. For instance, AJE manufactures its own beverages, unlike its MNC competitors like Coca Cola and PepsiCo, which rely on an extensive network of independent bottlers, because this allows them to produce their beverages at a lower cost.

BOP-graphic

AJE was also a first mover in to PET bottles, which are ubiquitous today. Not only were these bottles cheaper but they were lighter and less fragile, making them much less expensive to buy, use, and distribute. To keep costs low, AJE invests in partnering with micro-entrepreneurs who use their own transport to distribute AJE’s brands. 92% of AJE’s sales are through such direct partnerships, with only the remaining 8% going through wholesalers, who are more expensive. This distribution model not only helps AJE keep costs low, but also 1. enables them to penetrate deep in to its markets, going to remote locations which remain un- or underserved by their MNC competitors, and 2. penetrate new markets rapidly.

AJE’s success is not just due to lower costs, it also adapts to local markets. For instance, in Asia, it sells a Big Cola without caffeine, to adapt to local market needs. Or when, in Indonesia, the currency weakened, it launched a 300 ml pack priced at Rp 2000 to remain attractive to its target consumers. Today, four short years after entering Indonesia, AJE holds almost 40% of the Indonesian carbonated soft drink market of 1 billion liters per annum!

AJE’s success has drawn the attention of the big MNC operators, who have tried competing by aggressively offering promotional prices and increased spending on advertising. However, this only works in the short term; poorer consumers revert back to AJE’s brands once the promotional prices are withdrawn.

What is interesting is that the dominant MNCs in this space, Coca Cola and PepsiCo, seem unable to deliver growth in the way AJE does or come up with a clear response to AJE’s success. What can we learn from AJE’s success story? There are lessons for both wanna be AJEs, or the so-called EMNCs, as well as for MNCs. These lessons have been detailed in our book The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and Building Brands, and here we review the key points that jump out from AJE’s story:

Lessons for EMNCs

  1. Identify a target customer group that is underserved—in the case of AJE, these are consumers at the bottom of the pyramid, who number 4 billion, and those who live in less accessible locations.
  2. To avoid head-on competition, penetrate deep in to emerging markets; traditional MNCs target the affluent in the metropolises and bigger cities.
  3. Focus relentlessly on costs, stripping costs from all elements of the value chain.
  4. Lower costs through owning your own manufacturing.
  5. Leverage the lower costs to not only price lower, but also to innovate and localize your offering to meet local needs.
  6. Expand slowly but systematically, initially expanding the product range to increase the share of wallet of existing customers.
  7. Expand in the next stage by targeting the same target segment as targeted at home, across geographies.

Lessons for MNCS

  1. MNCs have vastly larger budgets and thus far it seems that, that is what they are leveraging to try and compete through promotional pricing and brand building. Perhaps they are better off in shifting these vast budgets away from promotion pricing, which does not work with bottom of the pyramid consumers, to brand building.
  2. The freed up dollars can be used to develop low cost brands, perhaps leveraging the master brand, and creating a brand architecture that can successfully reach down to the bottom of the pyramid.
  3. Exploit the superior market knowledge that has been accrued over the years of presence in many emerging markets to develop localized offerings, again where possible leveraging the brand architecture.
  4. Transfer knowledge more effectively across geographies. After all, EMNCs like AJE do not have the organization structures or processes to be able to do this as effectively.
  5. Learn from the EMNCs and cut costs relentlessly across the value chain. MNCs simply do not do this well.

Surprisingly, PepsiCo and Coca Cola do not seem to be sensitive to these learnings! The future of growth is in the emerging markets and among the bottom of the pyramid consumers there. Failure to learn these lessons and deploy strategies based on them to compete effectively in these markets and among bottom of the pyramid consumers is likely to be perilous for the future!

 

When Persistence Backfires

Pushy customer service representatives trying to drastically alter the decisions of consumers can end up being a costly headache.

When Ryan Block, a product manager at AOL, tried to cancel his personal Comcast internet service, he hadn’t banked on a 20-minute verbal wrestling match with a customer service rep hell-bent on retaining him.

Refusing to accept his request to disconnect, the rep repeatedly asked, “Help me understand why you don’t want faster internet,” insisting that “I’m trying to help you. You’re not letting me help you.” Getting tired of the uphill struggle, Block recorded the final eight minutes of the call and shared the audio file with his 83,000 Twitter followers. The audio file went viral, being played 4 million times in the next two days.

Customer service failures in the Internet age can be costly!

An internet cancellation horror story has gone viral and is causing Comcast a heartburn! According to the BBC, Ryan Block, a technology journalist, wanted to cancel his Comcast internet service. The call to cancel his service turned into a 20-minute ordeal.

The Comcast “retention specialist” who handled the call refused to accept his request and repeatedly asked “Help me understand why you don’t want faster internet?”, insisting that “I’m trying to help you. You’re not letting me help you.”  Mr Block recorded the final eight minutes of the call and shared the audio with his 83,000 Twitter followers. Here is what happened next: the audio file had almost 4 million plays within two days!

 

Comcast

Ryan Block

Ryan Block

 

What this signals, aside from the fact that in today’s environment, making a consumer angry can have serious consequences for a brand, is that consumers are widely dissatisfied with major telecommunications providers.

This is not just in the US; it’s global.  For example, in India, my father had been trying for months to cancel his internet subscription with a company that shall remain nameless (only because a friend who is a senior executive, at my request, stepped in and stopped the incessant harassing phone calls to him to ask why he wasn’t paying his mounting subscription bills, although he had gone in person to hand over a letter requesting the termination of the service).

Interestingly, when my father had tried to terminate the service over the phone, the service representative simply refused to accept that the service was very slow! An experience very similar to that of Mr. Block.

Now, what did Comcast do?  Well they stirred up another hornets nest by offering to take “quick action”, when apologizing to Mr. Block.  Why did the apology backfire?  Well, the “quick action” and apology were the good part, the bad part was Comcast informed Mr. Block that they were going to take action against the representative concerned.

Making a scapegoat out of a hapless service representative rather than look to see why this happened and find a solution to prevent this from happening again, doesn’t play well with consumers. They see it for what it is, finding a convenient scapegoat, a person likely to be just like them.

The fact of the matter is that companies train the service representatives on how to respond to customers.  Second, they incentivize employees to perform in line with the training. As much as 75% of a representative’s salary can depend on the success of the so called “retention representative’s” ability to halt a cancellation!  According to a post on Reddit by a person claiming to be a Comcast employee, if a retention representative fails to reverse at least 75%, they get nothing!  This puts the representative in an hapless situation, leading to behaviors such as the one experienced by Mr. Block and my father.

Clearly, all the bad press is taking its toll on the Comcast brand! As one measure, we can see that it’s stock price has dropped by approximately $1 since the story broke.  That’s about 2% of its value, which comes in around $2.8 billion!  So, quick action is good, but the quick action should be to find the real cause of the problem and fix it!  Not a knee jerk reaction to find and chastise a hapless scapegoat who is equally a victim of the companies “system”.

Looking at MNC’s, the top ranked companies are originating from the United States or are present in the United States. What enhances the success of these firms in the United States market and not other markets?

North American airlines a nightmare

Service levels on North American airlines have become appalling! And I am here referring to pretty much all the carriers I have tried in the recent past, be they United Airlines, American Airlines, or Air Canada.

Let’s start with check in! They close flights one hour before departure time! Not a minute’s grace. I arrived one hour before according to my watch but 58 minutes according to United and was bumped from the flight to Chicago earlier this morning! To boot, a lot of the staff are rude. I was told by the woman at the check-in counter that I had to go stand by as all flights to Chicago were full. I asked if I could be rerouted and the woman at the counter snapped, “No point asking me in different ways, the flights are full!” The odd thing is that she was wrong as two hours later I had been rerouted by a kindly gate agent! United should reward Laura Sharpe, the very helpful lady who is going to get me to Chicago today. Sadly, I cannot remember the name of the rude, incompetent, and unhelpful woman who checked me in this morning at 7:18 am in Vancouver. I guess she just wasn’t a lady. Perhaps if United will see this blog and can put two and two together and kick this woman’s sorry butt out of the company, since all she is doing is getting United a bad name.

Since I knew the next United flight to Chicago was also full, and at the time, I did not have the re-routed flight, I approached Air Canada. The woman at Air Canada didn’t seem to understand that I was willing to buy a fresh ticket, paying hard cold cash to Air Canada! She kept saying that my ticket was on United so she couldn’t help! Incredible, I understand that I speak English with a foreign accent but my students seem to understand my English perfectly well, but the Air Canada employee clearly couldn’t. Perhaps she needs some training in listening or perhaps education in English! More likely, she just couldn’t be bothered to look in her computer if indeed she could take my money and get me to Chicago today.

I am now sitting in the Air Canada lounge and I cannot but help overhear the lady on the next seat having a conversation on the phone with some North American airline representative over the phone. She has moved along in her frustrated conversation to ask for a “manager”. The manager’s comments to her elicited the reaction “you can’t be serious that, that is a rule”. I guess I am not the only person who is frustrated.

I travel a lot on Singapore Airlines. They close the check-in counter only 40 minutes before the flight and the gate just 10 minutes before. Perhaps United, Air Canada, American Airlines and more generally all North American airlines should take courses from SQ and learn how they manage to get their passengers on board without requiring them to come so much earlier!

The moral of the story is don’t fly North American carriers if you can help it. Within North America, sadly there is no option. This is what keeps these hideous carriers afloat. A free market would see them go under.


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