Allen Solly, Color Lab, Market Segmentation, Customization and Powershift

This season, Allen Solly ready to wear brand of apparels has unleashed a kind of color revolution. Take a look at its advertising campaign, ‘Catch a color and we’ll match it’. A print ad released in news daily shows a young man donning oversized shades on his nose, in twenty something is shown to be confidently crossing a road with his head turned to his right (looking at the traffic or onlookers) against the background of a Victorian structure. The picture of the model in the ad shows him in a  close up shot from tip to toe with a accentuated focus on what he is wearing- mosaic of colors- red jacket, sky blue shirt, peacock blue pocket handkerchief, mustard trouser, light brown socks, and blue shoes.  Allen Solly has launched ‘the color app’ which can be used to ‘create your signature colour’ which the company will dye for customer. It certainly is a step forward for a brand which brought the concept of ‘Friday dressing’.

Ready to wear apparels came in fixed sizes and limited range of colours.               This new strategy introduces a paradigmatic shift in the way ready to wear apparels are produced and sold. As a marketing strategy readymade brands gave customers value by way of providing something ready to wear (instant gratification) but it came with a severe limitation of limited color choice (production constraint).  This strategy involved reconciling two opposing forces that reside in any business- production seeks efficiency by reducing variety (larger production cycles of limited range) but marketing seeks effectiveness  by offering what customers want (customer differences push for choice).  Hence a business organization is typically pulled two directions- the internal forces create pressures in favor of mass production of one thing but external reality (market) seek production as per individual customer’s needs/wants.

It is for this reasons the strategy of market segmentation is called a compromise between efficiency and effectiveness.  Customer would be best served when he or she is provided with a product or service crafted or created according to his or her unique needs. That is each customer becomes a segment of ‘one’. The other extreme is when one product is offered to all customers irrespective of differences in them. This is exemplified by the classic statement that Henry Ford made “Any customer can have a car painted any colour he wants so long as it is black.” Getting close to customer requirements is inevitable in competitive markets. The best insulation against competition is to serve customers better than competition by getting closer to his or her requirements. 

Industrialization which gave birth of large corporations dismantled the one to one marketing that prevailed in old era characterized by craft (furniture, buggy, shoe, jewelry). Consider tailors of the past who provided custom fit service or shoe makers who designed shoe as per feet size.  This direct relationship was broken apart with the arrival of industrial mass production.  But it arrived with a compromise; product and production instead of customer began to assume central position in the business universe.  As competition began to intensify, business tried to juggle opposing goals by adopting a strategy called ‘mass customization’. This is an attempt by firms to deliver variety (customization as per customer needs) retaining the mass production model.  The mass customization strategy may come in different shades- made to order/ build to requirements (enabled by modular production, FMS, computerization) to giving customers an opportunity to individualize non-core aspects of a product (common in cars, houses).

Allen Solly’s strategy follows a co-creation model (also followed by Levis) by which customer is given opportunity to collaborate in production process of product by which he can create wardrobe in colors of his unique tastes and preferences.

Looked at differently it is symptomatic of a power shift- customers are now beginning to run factories without owning them.

Market, value, boundary spanners and power shift

Marketing is described in many ways including as a boundary spanning function. Marketing operates at a point where the boundary of a firm ends and market boundary begins. There is not guarantee that these two boundaries would automatically intersect with each other. It is the supreme job of marketing to make business and market meet and intersect.  Without an intersection there is unlikely to be any exchange and hence value creation.

In the old times of regulated economies and restricted supply the marketing equation was tilted in favor of suppliers. Back then consumers chased goods. Consider when brands like Bajaj, Hindustan Motors, DCM and Lifebuoy enjoyed unbridled power over their consumers. The markets/ consumer pushed themselves towards marketers. Marketing was an effortless game. Later with the adoption of pro-competition ideology industries were liberalized. This began to spoil the game for incumbent players. In competitive regime consumers don’t seek goods, rather marketers seek them. Consumers need to be pulled and attracted. Too much supply chases too few consumers. Competition strips marketers of their power. Market players win by reducing consumer’s choice set. But competition does the opposite, it expands it. The perceived similarity between Samsung, LF, Toshiba and Sony renders these companies powerless. Now the power to give sustenance stands shifted to consumers. The challenge is how to recapture it and achieve dominance of consumer.

The question arises, what are the sources of power? Power literally means ability to influence or direct behavior of others. In a marketing situation, every firm dreams of wielding power over its consumers so that they buy, buy more, buy regularly, and pay premium for its products. Alvin Toffler in his book Power Shift discusses three sources of power: violence (physical muscle based power), wealth (money-stored time and action) and knowledge (with this both other types of powers can be obtained). What source of power should a firm plug into to gain market power?

All the three sources of powers exist in a business system but it all depends upon the top management which source of power a firm plugs into. The source of muscle or violence power is likely to be production because it controls maximum number of people and physical resources. The wealth power rests with finance (money is power culture or money is most important resource and goal). It is because of their power these two departments often enjoy major sway in decision process. Firms differ in their orientations depending upon which department dominates or drives decision dynamics. Finance and production heads were once considered to be the most influential positions for their assumed significance. They derived their strength from their control over traditional sources of power that stemmed from muscle/violence/ wealth. This was in sync with the realities of agrarian and industrial economy. However environment over time has undergone subtle but profound change. The issue is can business survive by remaining plugged into same source of power in future?   

The businesses and products/ value prima facie appear same as before. But observe minutely, they are in reality not. Both supply and demand side of marketing equation have changed. The mass markets have transformed into smaller segments, niches and micro segments. Mass production with big factories, assembly lines and larger production runs are replaced by flexible and customized production. The concept of big large corporation with one production location have taken shape of hollow organization or networked systems. Unlike the past, the value is now co-created with consumer’s active involvement in product design and production processes. Have these developments altered the hierarchy of power sources in business or their effectiveness stands changed?

These changes on the demand and supply side have made the boundary spanning (information gathering and dissemination) the most important function. The stability of the environment has vanished. Present is usually not a linear extension of past. Things happen sudden and fast. Accordingly, businesses need to be as flexible and fast. This demands discovering and developing the core and shedding the non-core. Organizations therefore are now becoming ‘plug in-plug out systems’. They are coalitions of creators with one in lead role. Information is core to such system. Consider sports shoe companies like Nike and Reebok. Both of these names lead networks. They focus on the most critical value adding activity- design- and the rest is outsourced. Explore how much of a car is actually produced by the company whose badge it displays. A computer on your desktop is a fruit of collaboration.  

What value to create depends entirely upon knowledge & insights of consumer trends and micro movements in tastes and preferences? It is here the role of boundary spanners-marketing department- becomes critical. Marketing is the source of knowledge and if knowledge is the ultimate form of power then it must be brought to the centre of value creation edifice. Marketing (voice of consumer) in other words should dictate what business a business enterprise should be in. But this is not easy to achieve. It is not easy for a department which neither controls material/men nor wealth (traditional source of powers) to assume organization driving role.

Production and wealth is free floating resources. China has become the factory of the world and investment bankers chase good idea. Knowledge is the ultimate source of power-business power. So if a business is not performing well find out whether you are still plugged into old source of power. Instead of drawing more power from the old ineffective source, get plugged into new effective source of power. ‘Right’ is better than ‘more’.

Cross badging, consumer segments and killing two birds with one arrow

Market segmentation sits at the heart of marketing strategy. Segmentation is essential because consumers are not homogeneous. That is, they respond differently to one market offering. Segmentation is in a way a compromise between effectiveness and efficiency. Mass marketing is efficient strategy because one product is offered to all consumers irrespective of their difference. However, customization is effective because product is designed as per unique needs and wants of each consumer. But constraints at the production end often obstruct firms in their path to customization. Flexible operations permit variations of a product in which common production platform is used. This a common practice in durable products like cars, computers, televisions, mobiles and air-conditioners. This way a firm manages to extend multiple responses to cater to different consumer groups. Consider HUL has four different detergents that cater to different segments: Wheel for economy, Rin (whiteness seekers) and Surf for mid price, Surf Excel for the top end quality.

Segmentation is proper when it is based on real consumer differences. Real differences manifest in heterogeneous demand. This prevents use of one strategy (marketing stimuli) in different segment. Effectively it implies in marketing you can’t kill two birds with one arrow. Wheel does not offer correct solution to the needs of Surf Excel consumers and vice versa. Often segmentation studies reveal interesting picture of consumer differences. As consumers move up the income ladder, consumption begins to acquire psycho-cultural overtones. Consumer preferences begin to shift from real product differences to symbolic because they want their brands to reflect their personality and lifestyle. Quality excellence is essential first step in marketing to these segments as a result it ceases to be a differentiator. Consider the case of luxury perfumes, clothing, bags, shoes, and bikes. Most Italian brands provide exceptional quality of fit and fabric but their differentiation lies in heritage and signature. Similar is the case with Swiss watch brands.

One of the strategies to fire at two targets with one bullet is cross badging. This involves when a product of one firm is also sold by another firm in cosmetically changed form. One of the old examples of this strategy has been GM’s Prizm and Toyota Corolla. Geo Prizm was same as Corolla in terms of basic design. This strategy allows a firm to increase market participation by increasing its bouquet without making corresponding investment product development. Prizm allows GM to participate in sub-compact sedan segment and Toyota gains by getting a cut from sales pie of its modified Corolla. But moves of this kind can damage the cross badged brand in absence of appropriate equity insulating measures. Although Prizm and Corolla are same cars with different names yet the latter sells much better. Brand name ‘Prizm’ itself insulates Toyota from possible damage to its equity and at the same time it does not allow GM to directly plug into its huge trust (built quality) factor.

Cross badging is a common practice in car industry. For instance Maruti’s A Star is corss badged as Nissan Pixe in Europe and Toyota IQ goes as Aston Martin Cygnet. In India the cross badging is employed to its maximum by Nissan Motor and Renault. Do you get confused between a Nissan Micra and Renault Pulse; Nissan Sunny and Renault Scala. If yes, then cross badging strategy has not worked well. The internal similarity in terms of production systems is fine but if brands have overlapping image it is a sure recipe of branding disaster. Confusion is the biggest enemy of branding. Consider the case of Skoda Rapid and Volkswagen Vento. Do get confused? Probably not, their brand imagery acts to insulate one from the other although they come from the same stable.

Cross alliances and technology sharing permits firms to cross badge products with an unprecedented ease. But the real reasons for cross badging should not be internal. The differences in the market or consumers should be at the center of cross badging decisions not the manufacturing.

Luxury, Merc A Class, and Class & Mass Dichotomy

A recent news item in The Economic Times began with words, ‘Mercedes Benz launched its ‘A Class’ luxury hatchback in India…to competitive luxury car market.  The new Merc A Class is a compact car priced between Rs 21.93 lakh and Rs 22.73 lakh. The car is meant to target the affluent youth.  Mercedes Benz expects to sell about 100-150 units of A Class in a month.

Luxury is a complex phenomenon. Luxury brands create and command value disproportionate to good or service (embedded functionality) that they sell. In this regard high price is both an indicator and ingredient of luxury brands. This means luxury and low price are mutually exclusive. The exclusiveness and prestige on the socio-psychological plane is to a great extent is created by a price meant to exclude majority. Therefore exclusion by creating barriers to reach (un-affordability) and access (distribution) are crucial aspects of luxury brand building. Luxury brands thrive on the paradigmatic opposition between ‘class’ and ‘mass’; ‘function’ and ‘aesthetic’ and ‘form and content’. This dichotomy is essential to luxury brand building. Luxury branding is about adding layers meaning in disguise aimed to make an impact without saying anything. The purveyors of luxury therefore refrain from using verbal communication. They talk through a language comprised of symbols and signs.

The paradigmatic opposition between luxury and non-luxury stems from certain codes that set them apart: conspicuous value, uniqueness, hedonistic pleasure and quality. (1) The conspicuousness or visibility value originates from a brand’s ability to signal status wealth associated with a class (Veblen’s conspicuous consumption).  Luxury brands act as class markers.  For instance the one who drives a Rolls Royce belongs to top layer of economic hierarchy. (2) Scarcity and rarity of something endows it with uniqueness accordingly especially commissioned to master makers of jewelry, watches and carpets. This fits with human desire for uniqueness. (3) Luxury brands serve human needs to experience a certain affective states. The pleasure/ joy of indulgence in a luxury brand derived from tradition, heritage and authenticity. The sheer feel and joy of sporting a Cartier necklace or a Tiffany ring is unparalleled. Finally, quality and workmanship is essential building block for luxury brands. It is a sine qua non. Both Mercedes and BMW have lot to their credit in perfecting quality of automobile. BMW for a long period of time positioned their brand as the ‘ultimate driving machine’. This campaign has now been taken to a higher level and BMW now promises its owners an unmatched ‘joy’ / ‘pleasure’ (hedonic benefit) of driving.

The launch of Merc A class at a price point which puts the brand within the reach of a larger set of potential customers makes perfect sense considering the share objectives.  But many non-luxury companies like Hyundai and Toyota have cars which are priced higher than entry level Mercedes. This intersecting point presents an interesting dilemma for a potential car buyer. The purchase motivation beyond a certain price band is governed predominantly by symbolic considerations. The buyer ‘cross over’ so achieved by this strategy is likely certainly likely to expand the brand ownership. But fundamental question that needs to be addressed the psychographic fit of this customer segment with the target segment. 

• Luxury is a two way street.  Brands develop their sign value from cultural resource located in the form of prestige groups within a society.  The highly selective brand owner group and its lifestyle feed back into the symbolism of luxury brands.  A large part of its symbolism is based on ‘how a brand is used’ (how a car is driven by a new money and old money) – which represents intangible core of the brands. It is this intangible core which holds a lure for luxury buying customers who seek non-material cultural transformation. Mercedes A Class prima facie violates many luxury codes. The lure of market share is genuine but it can potentially be a mirage.