Book Review – Trading Up by Michael Silverstein and Neil Fiske

Trading Up - Must read for any entrepreneur in retail

Trading Up - Must read for any entrepreneur in retail

I have read many books in the last two years, ranging from business to auto-biographies to self-help to fiction books. I just put down a book titled “Trading Up” (find it on Flipkart or Amazon) after reading it for two weeks. And what a captivating read it was! It was difficult to put it down once I started it. One reason could be that the book was about retail and shopping, and I am already interested in that because of my experience with SaleRaja and exposure to the retail world. But apart from that too, the book was very well researched and a lot of data has been presented in the book to justify the points made.

The book has tried to illustrate how middle class consumers are ‘trading up‘ to buy high quality products that deliver benefits on many different levels, even at a price premium and how that is breaking the traditional price-volume demand curve. The product could be as simple as a soap and as complex as cars. The basic premise is that traditionally, the markets have had two kind of products, the conventional goods that sell at low margins and high volumes and the luxury goods which sell at high margins and low volumes. The author has remarked in the book that in many industries, there is a huge gap between these two segments.
He has called the products falling in these two categories as ‘new luxury‘ products that are technically superior and also have an emotional advantage for the consumer. He has given many examples of such companies such as Starbucks (coffee), Callaway Golf (golf equipment), American Girl (dolls), Panera Bread (bread), Belvedere (vodka), Whirlpool Duet (washing machine) and others. One distinct characteristic of these products is that they sell at high margins and high volumes, much above the traditional price-volume demand curve.
He has presented these stories as case studies of how different companies saw the huge gap in the market and came with their innovative products that created a new ‘want‘ and market for these consumers who traded up. He has backed his theories with data to substantiate them. He has also looked at some characteristics of the entrepreneurs and tried to find a common ground between them and their approaches as they created products for the new consumer.
The authors have defined some characteristics of the new consumers as below –
  1. The new middle market consumer is smart and has more disposable money than ever.
  2. The new consumer won’t mind buying products at a premium if the product is superior in quality and gives them a feeling of comfort and satisfaction.
  3. The new consumer choose which brands and products they want to be associated with, ones that define their status and personality.
  4. They are ready to buy these products at a higher price, and will trade down in other unimportant products.
Some characteristics of the companies and entrepreneurs that build these products are –
  1. They are mostly outsiders to the market, and even if not, attack the market like an outsider. They strive to set new standards for innovation, quality and providing an emotional experience for the consumer.
  2. They understand their target markets, and are aware that they will pay a premium if provided a product that can engage with its customers on an emotional level.
  3. They love what they do, and are consumers of their own products.
  4. They customize their value chains and distribution networks to deliver their products in the best possible way, and use influence marketing with celebrities rather than traditional advertising. They focus more on word of mouth marketing.
Perhaps the most important point the authors have made is people perceive value differently than previously thought. They will pay a premium and buy such a product in higher volumes even during a down economy. If the product is superior and gives much more satisfaction than the currently available products, the consumer will perceive its value differently and trade up in this category, even if it means they have to trade down in other unimportant categories.
This book, which you can buy on Flipkart or Amazon, helps a lot to understand the current changes happening not only in developed countries, but also in emerging economies like India. It not only gives examples of such companies and entrepreneurs but also explains HOW they did it? It is a must read for anybody in business or someone who plans to launch a new business soon. This sets the book apart from other business books and keeps the user hooked throughout the book. It also made me understand why my friends and peer group spend the way they do, and how can an entrepreneur (future me) develop products and services to target this ever expanding segment. In summation, I totally loved it!!

Is the Innovation ladder leaning against the right wall?

Innovation is defined as the creation of better or more effective products, technologies or ideas that makes life easier for its customers and solves a problem in the process. Innovation is the buzz word these days in business circles and the use of technology in designing innovative solutions across different sectors has never been more pronounced before.

If you see innovation discussions happening these days, most people will list the iPhone and the iPad, Facebook, the Sony Walkman and other technology related stuff on the top of their list. While such innovations have captured the media attention and earned a lot of money and market share for the respective companies behind them, there is another kind of innovation happening in the world. This new kind of innovation is happening in developing countries, even in villages, but it is not being covered by media, not being distributed across markets and countries, and not being talked about as much as iPad and other similar products.

While the first kind of innovation is mostly happening for business reasons and are focussing on making life more comfortable for its users (and not necessarily solving any critical problems), the second kind of innovation is happening mostly sporadically but for solving serious problems like hunger and poverty. In the first scenario, life would have continued for people as usual even if the innovation hasn’t happened (albeit in a less efficient way) while in the second scenario, there would have been serious issues of disease, health and death (and they have been) in the absence of the said innovation.

An example of the second kind of innovation is a simple Tippy Tap, which is a low cost, low tech, low water usage device to promote hand washing with soap. While most of the world talk about solving problems like accessing emails on the go, do we realize that 3.5 million children under the age of 5 die each year of diarrheal and respiratory infections, with 1000 deaths in India daily. Do not think I have put an extra zero, there are indeed thousand deaths daily. Now that is a real problem, purely avoidable just by washing hands with soap, and Tippy Tap intends to solve this problem. Now you decide what is a bigger, or better, or more needed innovation. (See how to build a Tippy Tap)

Are we solving the right problems?

Are we solving the right problems?

While we can always term the iPad, Facebook and other such technological innovations as innovations, they don’t solve any big or critical problems. You can call them innovations as a new approach to markets but not for problem solving. They focus on the opportunity and the market size, but NOT on any real problem. If we look more, most of the time real problem solvers are not from the business sector but they could be local people, academicians, social workers or just plain anybody. While the only innovation highlighted by the media has been done by businessmen. Now I don’t think anybody believes only businessmen can innovate!

I am in no way trying to discredit technological innovations, as the Sony Walkman revolutionized the music industry by allowing people to carry music on the go. But nobody complaint about the need of a portable music player, and it did not solve any problem. Similarly, Amazon did not solve any problem. People had been shopping offline for ages, and nobody complained. Yet Amazon changed the way shopping is done forever, and there are 100s of Amazon clones coming up everyday. Users never asked for a social network before Facebook, neither did they ask for online video sharing or a service to tweet what they were doing every second. But all these are hugely successful products now.

Mahatama Gandhi said that “I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away.” If we follow his simple words in our day to day actions, we will see real innovation.

The question I am asking here is that either all the commercial innovation happening is not innovation at all, and if they are, is the innovation ladder is leading against the wrong wall as of now? As most of the problem solvers or real innovators are not from the business world, we  need to provide them with skills straining, investment and venture capital help, advice about R&D and intellectual property rights, and the right guidance to be able to scale their innovative solutions so that they make a dent to a ‘real‘ problem.

Five Values exemplified in the book “Banker to the Poor” by Muhhamad Yunus

Among some of the best books that I have read is ‘Banker to the Poor‘ (buy from Flipkart or Amazon) by Muhammad Yunus. It is the story of how he created Grameen Bank with the vision of easy credit availability to those who need it the most. It is a fascinating read, and it is impossible not to take something away from it. He saw a vision, and against all odds, ran Grameen as a business and gave micro-credit to the world. He changed the way the world looked at banking. Apart from the economics, he and Grameen Bank has had a huge social impact in Bangladesh, with millions of households being empowered to live a life they love. For his efforts, Muhammad Yunus was awarded the Nobel Peace Prize in 2006.

There are many traditional human values which have been exemplified in this book, and by Grameen Bank and Muhammad Yunus. These are the values which are common to most successful people, most winners alike, be it in the field of sports, business, politics, or social change. I am listing below the five basic values which the story of Grameen and Mr Yunus very clearly demonstrate –

1. Vision

Muhammad Yunus describes the poverty situation in Bangladesh in this book as “There are many ways for people to die, but somehow dying of starvation is the most unacceptable of all. It happens in slow motion. Second by second, the distance between life and death becomes smaller and smaller, until the two are in such close proximity that one can hardly tell the difference.” He started the Grameen Bank and his microlending experiments with a vision to eradicate this poverty, from his country and from this world. He saw credit as a very basic human right, and went to provide it to the poorest of the poor. He saw the vision of a poverty free world where credit was easily available to those who are most in need of it. He had this vision in Bangladesh, an Islamic country where business and money is looked down upon. Most of his borrowers are women, even when the purdah is still prevalent in rural Bangladesh. He started a bank when nobody in Bangladesh supported him. But he had a vision, and no obstacle can deter him from his vision.

Yunus with his borrowers

Yunus with his borrowers

2. Patience

There is a famous quote by Gordon Livingston, “Only bad things happen quickly. Virtually all the happiness-producing processes in our lives take time, usually a long time: learning new things, changing old behaviors, building satisfying relationships, raising children. This is why patience and determination are among life’s primary virtues. ” You will not find a better example which demonstrates patience than the story of Grameen Bank. Muhammad Yunus started his experiments in 1974, starting with a $27 loan to 42 people. He continued his experiment from village to village asking the government banks for help only to find closed doors. The Grameen Bank was established only in 1983 and he had to face several hurdles from the government and big banks every step of the way. It was only due to his patience and determination that he turned his dream into a reality.

3. Perseverance

The initial days of his micro-lending experiments were rocky. Nobody believed that he can do what he was saying, and his numbers always fell on deaf ears. He never got funds from the government banks, and Grameen was formally formed only in 1983 after years of perseverance. He continuously had to execute his pilot projects on a bigger and bigger scale just to prove his concept, which he did without frustration and anger. He turned conventional banking practices upside down by lending to the poorest, people who have no collateral and to women who form now 98% of the bank’s lending population. Inspite of all this, he persevered and continued his efforts. He changed his strategies, tactics, and goals over and over, but he never changed or give up on his vision.

The story of Yunus and Grameen Bank

The story of Yunus and Grameen Bank

4. Adherence to Principles

Right from the start, Yunus created a culture of hard work, integrity and simplicity for all his employees. He mentions in the book how his branch managers go out into villages and talk to people about their problems and not just about their business. Simplicity is evident in Grameen branches all over Bangladesh. The pay is minimal to the employees and they have to undergo a training living with the poorest. He created the Sixteen Decisions, which asked borrowers to modify their traditional ways of living. The 16 decisions are –

  1. We shall follow and advance the 4 principles of the Grameen Bank – discipline, unity, courage, and hard work – in all walks of our lives.
  2. Prosperity we shall bring to our families
  3. We shall not live in a dilapidated house. We shall repair our houses and work toward constructing new houses at the earliest opportunity.
  4. We shall grow vegetables all year round. We shall eat plenty of them and sell the surplus.
  5. During the plantation season, we shall plant as many seedlings as possible
  6. We shall plan to keep our families small. We shall minimize expenditures. We shall look after our health.
  7. We shall educate our children and ensure that they can earn to pay for their education.
  8. We shall always keep our children and the environment clean
  9. We shall build and use pit latrines
  10. We shall drink water from tube wells. If they are not available, we shall boil water or use alum to purify it.
  11. We shall not take any dowry at our sons’ weddings; neither shall we give any dowry at our daughter’s wedding. We shall keep the center free from the curse of the dowry. We shall not practice child marriage.
  12. We shall not commit any injustice, and we will oppose anyone who tries to do so.
  13. We shall collectively undertake larger investments for higher incomes
  14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
  15. If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline
  16. We shall introduce physical exercises in all our centers. We shall take part in all social activities collectively.

These principles, along with the credit from Grameen, empowered the villagers day after day to live up the vision of Muhammad Yunus of a poverty free future.

5. Innovation

All through his fight for micro-credit to the poorest and his journey with Grameen Bank, Muhammad Yunus challenged traditional practices and continuously innovated to find a way through the different challenges he faced. One of his innovation was to focus on lending to women, as they are more likely to think about the benefit to the whole family. All this in a Bangladesh where women were not even allowed to touch money. Whatever traditional banks did, he did the opposite. He loaned to the poorest of the poor, he loaned to people in groups, not individually. He gave loans without any collateral or security, and without paperwork. He simplified loan repayments by weekly meetings of self-help groups. By all these innovations, Grameen and Mr Yunus effected a paradigm shift in the financial banking system.

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7 Innovations which make IPL fun to watch

Business, Bollywood and Cricket

Business, Bollywood and Cricket

The IPL has taken the country by storm for the third year in the running. But more so, it has taken cricket by storm. If you ask somebody what is IPL and he replies – “It is India’s domestic T20 cricket tournament”, you can’t be more wrong. IPL is the perfect mixture of glamour, fun and entertainment making it a complete package for cricket and bollywood crazy Indians. No doubt it is such a success in a country like ours, where cricket, apart from being a sport, also unites Indians like nothing else. T20s will continue after the IPL too (for the rest of the year), but an IPL match will only come back next year.

Here are the list of 7 top innovations which make an IPL match stand out from (normal) T20 matches –

1. Cheerleaders – Cheerleading is basically an US phenomena that include elements of tumbling, dance, cheers, jumps and stunting to direct spectators of events to cheer. The cheerleaders in IPL have also been imported from US, and dressed in “attractive” dressing, are as much an attraction in the stadium, as the match itself. As expected, some self-righteous Indians have made a controversy out of their clothing and moves, but that is for another post. (You can read about an earlier controversy surrounding the IPL here..)

2. Time Outs – Year 2009 saw the IPL moving to South Africa, and to compensate for lost revenues, Lalit Modi introduced the timeout of seven and a half minutes after 10 overs of each innings to show more ads in the limited time that T20 has for advertisers. Obviously, he called it the strategy break for teams to restrategise… In 2010, IPL modified the concept to introduce two timeouts in each innings of total five minutes duration. And the timing was left to batting and fielding sides to chose. So, more unpredictability and more eyeballs for advertisers. And the time-out itself was sponsored by a Mobile Handset company.

3. Sponsored Commentary – Commentary was once a boring job, just reporting on the events of the match. But IPL made it compulsory for commentators to brand a six as a “DLF Maximum“, a catch as a “Karbonn Kamaal Catch“, any interesting moment as a “Citi Moment of Success“, and so on. In the future there could also be an “XYZ Special Wicket” or a “ABC Amazing run-out”. It can stretch as far as the imagination goes. Looks like it is never enough when it comes to advertising.

4. Microphones – Interesting placement of cameras and microphones have added a new dimension to cricket. IPL has, for the first time, involved the umpires in the game. Umpires, at the start of the match, are wired up with the DJ at the stadium, and hence, instead of just calling a dull “play“, he starts the match with asking “Are you ready batsman? Are you ready bowler? Are you ready Bangalore?” which is heard and cheered by the whole stadium and TV viewers.

Apart from this, during the match, umpires and players are wired up with the commentators and there is an interactive chat with the commentators during the match, which can be about serious cricket matters or it can be funny. Like the commentators teasing the fielder about the 40 degree temperature on the stadium or about the last ball where they misfielded. Or the commentators asking the umpires how did he manage to take his head out of that straight shot hit by Gilly. ICC might mean serious cricket, but IPL means fun (and a lot of it) !!

5. Cameras – Interesting placement of cameras like the overhead rolling camera view in 2009 and the cameras on the “MRF” blimp in 2010 have given interesting angles for viewers to see their favorite players on TV and on multiple large screens on the stadium itself.

6. IPL Nights – As you have seen and read in newspapers, IPL matches are often followed by IPL Nights, which are big parties which happen after the match. These parties include everything from fashion shows to music to booze and continue till early in the morning. There are cricketers, team owners, businessmen, models and bollywood celebrities all enjoying and relaxing after the match. There are Rs 40,000/- tickets which allow you an exclusive entry to these parties, apart from watching the match from the best location in the stadium.

7. Youtube’s Fun Feed – This is one thing which I think most of you must have missed. IPL is streaming its matches live (well… almost live) on youtube, and apart from the usual television feed, there is another feed called the “Fun Feed“. This is basically live telecast of the match but from a totally entertainment point of view. IPL has a former Miss Universe hosting this feed, and it includes interviews of Team Owners, Celebrities, the cheerleaders, players, and of spectators about the match. Even the match is shown from different interesting camera angles. In short, the focus is more on the happenings in the stadium (entertainment) apart from the cricket itself.

If you have noticed some other interesting stuff going on in IPL matches which I have missed, make sure to drop in as comments below…