BUSINESS
Confidence trick?
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S. RAMACHANDER looks at the world of marketing and promotion.
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RITU RAJ KONWAR
What marketers and consumers want ... to be in control.
MARKETING is probably the best example of a globally approved confidence trick. Shocking? Well, read on, as I am not about to launch into a left-wing tirade against all free market institutions, nor suggest that all marketing is done out of sheer self-interest at the cost of a poor unsuspecting consumer. After all I have made a living out of it one way or another for a lifetime so I am not about to bite the hand that has fed me and dismiss the whole field outright. Rather, I am merely going to point out a side of it that is perhaps not readily apparent, and like the tree in front of the house, is so taken for granted that it is never even glanced at until one fine morning you find it is gone!
Look at it this way. What does it feel like when you have made a good purchase, say a new apartment at a couple of lakhs of rupees less than what you were prepared to pay for it, or sell off a car at a good bit more than what you thought anyone might pay for it? Or suddenly discover that thanks to the competitive offerings of airlines, you could actually afford to fly to Goa on a holiday if you booked your flight a month in advance? Clearly it is a sense of elation that you have had a good deal, if not actually ripped off someone else. Naturally, some of us are left wondering what took people so long to offer us this deal on a flight ticket — and whether we were being taken for a ride by the airlines for so long?
It took a Southwest Airlines in the United States and a Ryan Air in Europe to point out that you need not pay four to five times more just to get from place `A' to place `B' in reasonable comfort, on time and without losing your baggage.
As Michael O'Leary pointed out with great delight to Tim Sebastian the other day on BBC's "Hard Talk", what the low-budget airlines have been doing is to demonstrate that there is good business to be had at the bulk end of the market, and that the State-supported giants like British Airways, Air France and Lufthansa were passing on their inefficiencies to the customer all this while. But that is not the whole story by any means.
What do you think is the picture from the other side of the telescope? Who makes the highest and most consistent profits in the business? The answer is totally counter-intuitive. For the past 14 years only these two airlines which charged rock-bottom prices for a no-frills service, have made consistent and sustained profits in the whole of the Western world. All the others have made huge losses and some have crashed out altogether. How does this happen? The secret is as simple as it is hard to copy. It consists of a business model that delivers something close to what the air traveller is willing to accept as the bare minimum of comfort and service — and charge him a price that leaves him feeling it was an absolute steal. In some cases, these successful airlines manage to fill their aircraft to the brim with passengers paying only $50 where the so-called regular airlines would have charged $300 or more for a full-fare ticket. There are books written on the subject, articles and Harvard case studies and so on, so I won't go too much into detail. If you want to use the technical economist's language, the price that is being "discovered" in the process of both the supplier and the consumer getting a great deal (amounting to an apparent mutual con trick) is the "market-clearing price".
Nonetheless, what is of interest to us as managers is that increasingly in many industries, some one is re-discovering this reality through a low-cost business model, which shares the surplus with the consumer in a novel and imaginative way. More to the point, in the process of doing this, markets are being re-defined and services such as mobile-telephony or computing or long-distance phone calls are reaching a far wider population than ever before. Call it democratisation of the market place if you will, this is the single most important beneficial fall-out of the process of liberalisation and de-regulation. Wherever prices come down dramatically, volumes have increased tremendously. The key is obviously to find the special recipe, which in your industry or service would help deliver this (apparently) mutual rip-off situation!
Now one might well ask why this has not happened before. That is a story in itself partly to do with technological feasibility and partly the policies governing industries and imports but I suspect it is as much a matter of looking for something new and relevant to do — and cheaply at that. So the natural next question for the marketer is: how do we find this key for any given business. Which is why when the consumer seems to be particularly willing and eager to splurge, as in the festive season, lower price and promotion-driven strategies will gain in popularity by the day. I would say this does support the conclusion that perhaps there is something inherently acceptable in the outcome of marketing, despite all the criticism heaped on it by the socialists and green movement activists. The difference in this case is that it is a mutual confidence trick in which there is no operator and victim, or one might say, both parties to a deal play both the roles. It is the only case other than a happy marriage where both parties end up feeling content that they have had a good transaction (or relationship) — or at least the best possible under the circumstances.
One of the essential conditions under which the marketers have always lived, but often forgotten because it was so obvious, is that it is an inherently tense relationship — and a paradoxical one. Consumers want the best for themselves and conventional wisdom has it that marketers want the best for their shareholder's value accretion as well. To a casual or ideologically biased observer, these two seem to be in conflict at the best of times, but they need not be. Marketing thus could be the only case where two parties to a deal are both left feeling simultaneously that they have had a good deal (or even put one over the other!) Marketing is about the intelligent juggling of an algebraic sum — for those who enjoy clothing everything in jargon — of the producer's surplus and the consumer's surplus.
Once you concede this essential paradox you can move on to its derivative: that marketers and consumers both love to feel "in control", the former because of their so-called power of media expenditure and the latter because she can vote with her feet. Therefore when marketers en masse feel something is going wrong or something ain't quite what it used to be, it simply means that there has been an unaccustomed shift in the balance of power — maybe with technology playing the catalyst in some cases, and in some others, sheer abundant availability and choice. From airlines to banks to motor cars, there is evident and significant excess of supply over demand — and this is likely to remain so as long as we go, however haltingly, down the road of deregulation and freeing up of the world's largest markets as in China and India.
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