Thursday, December 8, 2011

The arrogance of market leaders

Fall of the mighty: BPL realised the value of investing in technology, but more significantly invested in the brand. So what went wrong? (Above) A file photo of the launch of a BPL TV _ G. R. N. SOMASHEKAR

“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” - William Pollard

It is 5.30 a.m. on the first day of the Australian Test cricketing season and I am sitting in front of my TV set as I have done for several years now to watch a lightweight contest between two ordinary teams, one of which has three youngsters making their test debut. As both teams strive for success on a cloudy day at The Gabba, my mind wanders to other examples of success and failure from the world of business. While success is rare and difficult to achieve, we need to remember that history is full of successful people who have lost their way due to arrogance and leading brands which have led their popularity to blind them to the pitfalls on the road to sustaining success. Let's take a look at some of the brands that have been consumed by arrogance or short-sightedness and see if there is any learning for our own future conduct.

Timekeeper to the nation gets its prediction wrong
In 1968, when I passed my matriculation exam from that wonderful school Don Bosco, Egmore, my grandmother (God bless her memory) gifted me with a HMT Sona watch. I can still remember my enormous pride at getting an HMT watch. I am sure countless young Indians like me remember their first and only watch which, more often than not, was made by this successful market leader. A whole generation of young and old Indians knew no other brand. I remember my uncle religiously winding his HMT watch every day. He never gave my aunt a fraction of the attention he gave his trusted HMT watch. But in all fairness, his watch never talked back to him or gossiped, only faithfully told him the time, day after day for the 84 years of his life.

HMT could justifiably and proudly claim to be “timekeepers to the nation”. But the winds of competition were getting ready to wake the giant who was living in denial. In 1987, Titan launched its range of Quartz watches with great advertising. An India starved of style, and which was going to Dubai and Singapore to get good watches, suddenly discovered a mind-boggling range of elegant quartz watches and HMT found itself on slippery ground, for the first time.

HMT clearly did many things wrong. Its marketing and production functions never seemed to work together or even see eye to eye. I used to work in Mudra in those days and we launched a brilliant advertising campaign for its new, macho brand of watches called ‘Roman'. The watches were extremely well designed, and came with even more provocative advertising with the line “If you are a man, raise your hand”. While Titan's brand associations were classy, elegant and sophisticated, it also cued a slightly effeminate image and this is where the opportunity presented itself to launch a brand of men's watches.

Instead of basking in a great launch we had the mortification of seeing consumers going to the HMT outlets and asking for the new watch only to find the stocks not being available. While marketing wanted the brand to be sold and stocked, the factory had other ideas and the brand and the company suffered as a result. HMT's greatest failure was its inability to spot the trend that Quartz was going to rule the Indian markets. The company's senior management pooh-poohed Titan's preoccupation with Quartz and went about opening plants to manufacture mechanical watches! Was it arrogance or ignorance? Not even time can tell!

Believes in the best but underestimates competition
A lot of my early success in my career in advertising was because of my association with the BPL brand as I handled its advertising from different agencies from 1983 onwards. The company, British Physical Laboratories, which started out with medical equipment, tied up with Sanyo, for its electronics products. The flagship product was the colour television. The till then sluggish colour television market in India took off with the staging of the Asian Games in Delhi as that rare event, followed by the Olympics in 1984, paved the way for an entertainment-starved country to recognise that sports watched in colour was an experience to be savoured. Since then the colour TV market has not looked back.

BPL realised even then the value of investing in technology, but more significantly, invested in the brand. It outspent the competition, came out with superior products, built an extensive dealer network and became the leading brand of colour television in the country. Where is the leading brand of the early nineties today? Does it exist? What went wrong? Was it because it was a single-product company that stretched itself too thin with too many weak products such as VCRs, audio systems, refrigerators, washing machines and vacuum cleaners? Was it because the company did not have resources to invest in its consumer brands because it had diversified into sectors that needed heavy investment? Or was it one of the real victims of economic liberalisation as a whole host of global brands gleefully entered the country? To my mind, the brand's greatest failing was a refusal to recognise the possible threat from the Korean brands Samsung and LG. ‘What can a Korean brand do? If it is a Japanese brand we can accept your views,' they said, even though the research seemed to point to the growing relevance of these new entrants to the Indian consumer. Maybe both HMT and BPL were complacent about their competition when they should have been paranoid about the other brands instead of underestimating them completely.

Today's leader takes its time
Yet the reality is that leadership or success can be a deceptive feeling that can lull you into a false sense of security. I speak of SBI, India's premier bank. I was selling a flat in Bangalore to my tenant, a very pleasant gentleman holding a very senior position in a multinational software company. He is clearly a high net worth individual and an excellent borrower whom most banks would love to lend to. He had chosen to go to State Bank of India for only one reason - the interest rate was 2 per cent lower than the competition.

In fact, it was a simple transaction. I already have a loan on the property, so the documents are with another nationalised bank which had already certified that all the documents were with it and would be handed over once the loan was closed. Of course, I am not a customer but the seemingly needless demands that the bank made again and again makes me wonder why anyone should deal with it. It has taken close to three months to get the loan sanctioned and the bank makes me wonder how it will ever compete with other banks if they drop their interest rates by as much.

Surely if the bank followed all these procedures with such painstaking precision, then it should not have a single non-productive asset! But clearly it has a high proportion as my stocks in the bank are worth much less now than they were a few months ago! Has not the bank heard of speed being a competitive advantage in today's world? What happened to good old banker's judgement of the creditworthiness of customers and the safety of the documents already being with another nationalised bank? Is the bank, formerly known as Imperial Bank, still living in the days of the Raj? Nearly thirty years ago, I was bitterly disappointed at not making it to the SBI as a probationary officer. Boy, am I glad I didn't! Imagine what I would have grown up to be in the bank!

Early warning signals
All around us are examples of failure of companies and brands that have ignored the voice of the consumer and have gone on in their own merry way without realising that their market share has been on shifting sands and they can soon be in trouble as some of the examples stated in this piece. I think the greatest problem that successful companies face is “living in denial”. Even when someone points out the possible risks in the environment, the leader refuses to believe that there is a problem. “It can't happen to us” is a familiar refrain and like the husband who is the last to know about his wife's infidelity, leaders of successful companies too seem to be the last ones to recognise the problem and often it can be too late.

So are you reading the warning signs? Or are you living in denial?

Share your thoughts in the comments section.

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