Brands … What matters the most

 

Brands!!! Companies spend billions of dollars in creating and establishing brands. Every product has a market leader with strong brand presence. Products with top brands dominate the sales in each sector. That makes me wonder why brands are so important and why they are relevant.

I am not a big fan of branding as a consumer. I believe many times established brands charge more just because of brand name. The brand associates itself with certain lifestyle and hence those products are priced higher than other products with similar application without offering any significant technological or material advantage. But still people buy those brands with huge price premiums. May be one reason is knowledge.

Compare two products a digital camera and soap detergent. Assume that you are buying these two products for same dollar value ($1000 each). What is your thought process? Do you care which brand to buy for soap? I personally do not care that much but I do care which digital camera I am buying. I am thinking why? As said if I am having same dollar value to spend then I must be spending same time on both the products. There comes the part of knowledge. We all know from years of experience that there is no special technology in Soap. Manufacturers may claim 100 different reasons but basic product is same and even if you buy unknown brand you are certain to get a usable product. (Provided you really don’t search for a bad one).

Digital camera is different. There are so many specification differences, feature sets and minute details that consumer is not aware of. You are not comfortable and confident to judge the product based on specifications only as you are not having detailed knowledge of the product. So the best way is to go for popular brand and assume market is right.

So brands benefit from lack of knowledge on part of consumer. If consumer is extremely knowledgeable then he will look at specifications, components used to build the equipment and decide which product to buy. This is another reason why brands usually do not work well in business to business environment. Businesses have skilled purchase managers who knows exactly what they want, who knows from experience what specs product should have and what performance is expected. 

So as consumers get more knowledgeable, the process of establishing your brand will get difficult, companies have to come out with truly innovative products to win over consumers and price premiums enjoyed by established brands will certainly come under pressure.

Signing off

Nikhil Parchure

Land Fights Part 2

I am really happy to read the following article in Mint.

http://epaper.livemint.com/ArticleImage.aspx?article=21_07_2011_010_001&mode=1

Tata steel has looked at land acquisition as a challenge and not a problem. I am delighted with the approach also requesting all readers to take a look at earlier post http://nikhilparchure.blogspot.com/2011/06/land-fightshurdle-or-challenge.html and comment.

Thank you

Authority

 

Recent events have prompted me to write my views about authority. Supreme Court in India ordered setting up of an investigation agency to investigate black money scandals. Now that according to me is overriding authority. It may sound rosy and nice but according to me it is clear case of taking decisions beyond someone’s authority. Courts have responsibility to make decisions based on rules created by government. Primary function of court is to judge the cases which are presented in-front of it and give verdicts. It cannot order actions which are not prescribed by law, court cannot control investigation agency. If the power to appoint agency or investigate is with government then it is not right for court to interfere in the matter. There is clear conflict of interest with the fact that the court which is judging the matter is also investigating the matter.

This problem is faced in business as well. The issue of overriding one’s decision making powers. Let me give an example. Rob (Fictitious name) is a plant manager at a company facility. He is at middle level management where workers report directly to him and he takes day to day decisions on his own. His plant is doing good but top management decides to shuffle some things, bring in new processes and systems. Rob really cannot understand why management is doing it and thinks decision at top level is fuelled by greed for more profits, misinformation and not by logic. As it happens with many mid-level managers, he does not know the whole story. He starts to look at things as hostile and starts to do all types of work-around. He starts taking decisions which are above his pay grade. He becomes instant hero in his plant. Everyone admires him for quick decision making and quick resolution of the issues. (By now you may be thinking what is wrong with this.) But some issues arise after 6 months. Company faces law suit from consumer groups. Later top management understands that Rob was by passing rules and was taking decisions which were above his authority level. End result is Rob gets fired, company pays heavy fines and eventually many more lose their jobs because company burdened by fines and charges decides to shut the plant.

So on the surface quick decision making and populist decisions may look good but there are some hidden dangers. Such decisions may work wonders but there is also equal chance of blunder. I covered similar topic in earlier blog post as well (Read Systems Thinking here: http://nikhilparchure.blogspot.com/2010/10/system-thinking.html ). For companies it is not worth to take this gamble. Amount of money required for defending lawsuits, paying fines and settling claims is very large. The cost is just too much compared to benefits that can be provided by autonomy to mid-level management. So now companies are becoming more and more restrictive and it is difficult to find the balance between freedom required for growth and restrictions required for survival.

I have experienced this struggle very closely; temptation to bypass processes and do quick fixes is very high. It does not back fire most of the time but when it does then it’s a costly one.

Signing off

Nikhil