No Frills Economy
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No Frills “One generation’s indulgence becomes the next generation’s necessity” James Twitchell, University of Florida
description
No frills economy, bottom of the pyramid, emerging markets, how to sell to non consumers
Transcript of No Frills Economy
No Frills
“One generation’s indulgence becomes the next generation’s
necessity”
James Twitchell, University of Florida
Outline
• What is No Frills Examples of No Frills
No Frills Industry Trends
• Drivers of No Frills Growing Affluent Middle Class
• How to No Frills
• Successful case studies
• Questions to ponder
Presenter
Presentation Notes
What exactly is No Frills Economy? [PAUSE] Now you may know it by the Bottom of Pyramid or BOP market. ROP. Others term it the Next Billion. Good enough market. But without trying to get too hung up of what it is or isn’t, let me show you a few examples.
Mass TransportBudget airline• Asia’s leading no-frills, low-fare
airline since 1993
• First in the region to implement ticket-less travel and unassigned seating
Low-cost European airline• Established in 1995
• Marketing strategy: “Making flying as affordable as a pair of jeans”
• Urged travelers to “cut out the tour agent”
Presenter
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EasyJet was started in 1995.
Personal Transport
38 msmall cars bought
annually in 2012, up 65 percent from a decade
earlier.
50%Projected increase of microcars in Western Europe from 2004 to
2011
A car which sells for the price of a laptop computer is transformational
=
Healthcare
• India’s third biggest pharmaceutical company
•Sale of low-priced generic drugs
•Cost-effective alternative to highly-priced originals
•Accomplished through process of reverse engineering
• Incorporated in 1961
• India’s largest pharmaceutical company
•Ranked among the top 10 generic companies worldwide
$170 $54
For Heartburn (90 pills)
Presenter
Presentation Notes
In pharmaceuticals and healthcare, we see the emergence of two big boys – Dr Reddy and Ranbaxy. These two companies are makers of generic drugs. An example shown here are pills for Heartburn, where the price differentials are significant. $170 for Merck’s, $54 for Dr. Reddy’s for essentially the same compounds.
Consumer ElectronicsMeizu Electronic Technology
•Electronics manufacturer from China since 2003
•Copy-cats of the iPod, with improvisations
•Termed ‘iPod’ killer because of its ability to function without proprietary file formats and procedures
To hit our shores this year:
Apple iPhone: • Movies • Maps • Music
$800 - $1500
Meizu M8: • Movies • Maps • Music • More
$450Meizu M6 Miniplayer
•Better camera
•GPS
•Multiple file format support
Feb 12, 2008
Presenter
Presentation Notes
In consumer electronics, we’ve seen this copy-cats strategy for as long as we can remember. Only difference TODAY, is that unlike before, these No-Frills me too products are not inferior to the originals…Here the Meizu M8 reported by gizmodo.com website has better camera, GPS, multiple file format support.
Household Appliances
Galanz
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Chose to compete against non-consumption in the domestic market
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Simple, energy-efficient product small enough for Chinese kitchens
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Moved up-market to manufacture larger machines that had more features
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Began to disrupt the microwave-oven markets in developed countries
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It took Galanz 2 years to become China’s no.1 and 6 years to global no. 1 in microwave oven production
Presenter
Presentation Notes
By 2007, Galanz produced more than 50% of world’s microwave oven. It has secured its 1st position in sales in China domestic market for 13 years successively.
Fashion Apparel
No Frills Today
No Frills Today
Mass Transport
Personal Transport
Healthcare
Electronics
Household Appliances
Banking Services
Household Consumables
FashionTelephony
Presenter
Presentation Notes
http://tech.msn.com/products/slideshow.aspx?cp-documentid=4864891&imageindex=2
Drivers
Growing Affluent Middle Class
Aggregate Consumer Power Shifts to Affluent Potentials and Rural Poor
Presenter
Presentation Notes
IBV (IBM Institute for Business Value) has defined 4 broad population groups: the Cosmopolitan Elite, Growing Middle Class, Affluent Potentials and Rural Poor. Historically, consumer products companies have focused their efforts on growing sales within the top two facets of this diamond. But it may be the Affluent Potentials and Rural Poor who truly offer the greatest revenue and profit growth opportunities. Largely underserved.
What Does this Mean for Your Business?
1.
Massive growth opportunities is in serving the
now inadequately served markets
2.
GE, Panasonic, Nokia, Unilever, P&G starting to
shift focus to these markets
3.
By 2020, established MNCs + local players
will
make entry to these markets even more difficult
4.
Lower margins yes, but entrenching brand into
mindshare of new consumers is vital. As is
learning what frills are extras and what are must‐
have features
5.
Largely still blue ocean for services
What does it mean to go no frills?
♦ Create new buying power for new
customers♦ Price as the starting point♦
6 Sigma overshooting. Reverse engineer to further strip
costs and frills♦
Understanding what masses really want‐
discerning frills
from must haves
Giving new consumers…
… New buying power
Creating Buying Power
Disruptive Innovation with PRICE as the starting point
6 Sigma overshooting. Reverse engineer to further strip costs and frills
Create new buying power with new group of consumers
Understanding what masses need and want and can do without
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Capturing new share of non-consumers as oppose to selling down to existing consumers
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Tata Motors target are motorcyclists, public transport commuters of yesterday
Creating Buying Power
Presenter
Presentation Notes
It’s about making previously unaffordable stuff buyable!
“Ask one billion people, and 99 percent of them are
going to say they want a car.”
Jagdish Khattar, MD of Maruti Suzuki India
“The Problem is… How many can
afford it?”
Presenter
Presentation Notes
Maruti Suzuki India – country’s largest car manufacturer
Creating Buying Power
Disruptive Innovation with PRICE as the starting point
6 Sigma overshooting. Reverse engineer to further strip costs and frills
Create new buying power with new group of consumers
Understanding what masses need and want and can do without
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Presenter
Presentation Notes
“Tianfu” low specs PC targeted at Chinese farmers
Price as the Starting Point
Pricing a average car
R & D/Design
Engine
Body frame
Braking system
Parts
Overheads
Assembly
Wholesalermarkup
Advertisement and marketing
$81,000Disruptive Innovation with PRICE as the starting point
6 Sigma overshooting. Reverse engineer to further strip costs and frills
Create new buying power with new group of consumers
Understanding what masses need and want and can do without
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Dealermarkup
Presenter
Presentation Notes
In the old paradigm of business, pricing is done by adding up fixed and variable costs, overheads, etc. After distributor and dealer mark-ups, consumer decides if he/she wants to pay the final selling price. Now,…
Price as the Starting Point
Pricing an average car
Radio
Automatic Braking System
Cruise controlTraction control warning lights
Advanced airbag system
Remote controlled side mirrors
Intermittent windshield wipers
Leather seats
Power steering
Advertisement & Branding
$81,000
Pricing the Nano
$2,500
No tubes in tires saves weight and
money
Body panels glued instead of weldedWheels hooked
onto body to save costs
Manual windows
No air conditionerLight-weight to enhance fuel performance
No radio
Presenter
Presentation Notes
With No Frills Economy, Price IS the starting point. How much can the middle class pay? And work backwards, reverse engineering to fit the price point. ….sometimes referred to as constrained innovation. NB: Heard there is a youtube video that shows how unsafe Nano really is? BUT REMEMBER, THESE WERE CYCLISTS OR MOTORCYCLISTS before. Still represents an upgrade.
6 Sigma overshooting
Disruptive Innovation with PRICE as the starting point
6 Sigma overshooting. Reverse engineer to further strip costs and frills
Create new buying power with new group of consumers
Understanding what masses need and want and can do without
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Overshooting:
1. Standards
2. Features
“Perfection of quality to what extent? The difference may NOT be discernible to this new group of consumers and even if it was, they most certainly will not be willing to pay for the marginal difference.”
Presenter
Presentation Notes
Let me explain the title. Previously, in the old paradigm of firms predominantly catering to the developed world, there’s been an obsession with 6 Sigma standards. As many of you know, 6 Sigma is a… 6 Sigma: measure of quality that strives for near perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving towards six standard deviations between the mean and the nearest specification limit) in any process -- from manufacturing to transactional and from product to service.
OverFrilled?Trends: Phone Features over the years
Communication
Time Messaging
Communication
Organizer Infrared
Bluetooth Camera Games Time
Messaging Communication
Maps and GPS Microsoft
Office Instant
messaging Internet
Organizer Infrared
Bluetooth Camera Games Time
Messaging Communication
“I am looking for a simple cell phone. I don't need a digital camera, Internet, fancy ring tones, or any of that stuff. I just want to be able to send and receive calls…Does such a cell phone exist?”
Presenter
Presentation Notes
This is especially true for electronic products. Think of your cellphone. Features keep increasing. Why? Because that’s the only way to charge the same or more for each new generation of phones. Are these extra features even wanted by the consumer?
Daily Updates December 2005
No-frills, low- tech cell phones come to EuropeAfter spending billions of euros on acquiring new 3G (third-generation) mobile broadband licenses, billions more on building the sophisticated wireless networks and still more on promoting the high-speed data service, numerous mobile phone operators in Europe are now launching new no-frills, low-tech cell phones and services.
Mad Dash for the Low EndNokia leads in cell phones for the masses. But rivals are hoping to steal market shareNews February 7, 2008, 5:00PM EST
by Jack Ewing
Emerging Lessons
Handset makers learn that the poor want style, FM radio and more -- at a low priceBy DIONNE SEARCEY February 12, 2008
"We thought there would be demand," says Kai Oistamo, Nokia's executive vice president of devices. "But the speed of growth has beaten all expectations."
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0
50
100
150
200
Million
2006 2010
Analyst Projection of Ultra Low Cost Market
Ultra Low CostDevices
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…let alone the AFFLUENT POTENTIALS and RURAL POOR in these new markets. Even in Europe, there’s been a rise in demand for new no-frills cell phones.
Stripping away “frills”
$300PricePrice1. Personalized
entertainment screens
2. Meals on board
3. Magazines
4. More legroom
5. BA ground crew
6. Booking agents
7. Prime location airport and within terminal
$8001. None
2. On purchase
3. Minimal or none
4. Standard seats
5. Shared ground crew
6. DIY everything
7. Airports located at outskirts and worst locations within terminal
Presenter
Presentation Notes
No magazines (less weight, lower fuel costs) Lower baggage weight allowance (less weight, lower fuel costs) No entertainment DIY booking DIY printing of tickets Not at major airports Ryanair actually carried more than double the amount of passengers than BA for September.
• Displays of luxury are taboos and hair grooming is often a woman’s only indulgence
• Many low-income women prefer a single soap for hair and body
In India…
Hindustan Lever Ltd., began selling an inexpensive, general-purpose soap, called Breeze 2-in-1, with special ingredients for healthy hair. It gained
48.5% market share.
Understanding Masses
Disruptive Innovation with PRICE as the starting point
6 Sigma overshooting. Reverse engineer to further strip costs and frills
Create new buying power with new group of consumers
Understanding what masses need and want and can do without
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Presenter
Presentation Notes
Example of Understanding the market, what they need, but more importantly, what they can do without.
Good EnoughTrifecta
1. Less expensive2. Easier to use3. Portable
Case Study 1: Flip Ultra
Low quality 640 x 480
Small viewing screen
No color adjustment features
No optical zoom
SUCCESS: Best selling camcorder in US with 17% market share in 2 yrs
When asked why the Flip has succeeded where Sony have failed Fleming-Wood: "I think it's because we have a better product." What's odd is that executives at Sony and Canon would likely say the same thing — after all, their models have far more features and often produce sharper images. But he is using a different definition of "better." He now defines quality entirely in terms of ease of use — how easy it is to shoot and share the video.
Compromise:
Presenter
Presentation Notes
Pure Digital Technologies Significantly less expensive than other digital video cameras. Easier to use, not only for shooting video but also for uploading clips to the Internet. Portable of web-sharing abilities made video available anytime, anywhere We now favor flexibility over high fidelity, convenience over features, quick and dirty over slow and polished. Having it here and now is more important than having it perfect. These changes run so deep and wide, they're actually altering what we mean when we describe a product as "high-quality." Suddenly what seemed perfect is anything but, and products that appear mediocre at first glance are often the perfect fit.
Case Study 2: MP3
Reduced size of audio files =
shareability = Easier to
manage/personalize music
Quality of sound
Good EnoughTrifecta
1. Free2. Ease of use3. Portability
Low audio quality
Worse than CD
Compromise:
SUCCESS: MP3 ubiquitous today. Can we imagine life without it?
Presenter
Presentation Notes
By reducing the size of audio files, MP3s allowed us to get music into our computers. This in turn let us listen to, manage, and manipulate tracks on our PCs, carry thousands of songs in our pockets, purchase songs from our living rooms, and share tracks with friends and even strangers. And as it turned out, those benefits actually mattered a lot more to music lovers than the single measure of quality. Now essential attributes like convenience and shareability. To a degree, the MP3 follows the classic pattern of a disruptive technology, as outlined by Clayton Christensen in his 1997 book The Innovator's Dilemma. Disruptive technologies, Christensen explains, often enter at the bottom of the market, where they are ignored by established players. These technologies then grow in power and sophistication to the point where they eclipse the old systems.
Case Study 3: Skype
Good EnoughTrifecta
1. Free2. Ease of use3. Extras
Net-based calls laggy
Connection cut in mid conversation
Poor sound quality
SUCCESS:
Skype accounts for 8 % of international calling minutes. Added nearly 38 million users in 2Q of 2009, a 42 % increase over the same period last year.
Compromise:
Presenter
Presentation Notes
2. Easy to download/easy to use. Click of button. 3. Extra features: With webcam, can see friend while talking. Can turn conversations into shareable MP3s.
Case Study 4: Netbooks
Small storage
Low processing power
Poor graphics capability
SUCCESS:
Netbook shipments were up sevenfold in the first quarter of 2009.
Compromise:
Good EnoughTrifecta
1. Cheaper2. Ease of use3. Portable
No Frills
As A Business
No Frills – A Franchise?• The ‘Easy Group’ was founded in 1998• Focused on taking away frills to make a product more affordable• Franchised business to expand model; rapid growth
Founder: Stelios Haji- loannou
We want to hear from you…
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Is your industry subject to a No Frills Disruptive Innovation?
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What new brands can or have emerged from your industries?
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Do you think it No Frills is more likely to occur with products or services?
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What kinds of services are primed for No Frills Disruptive Innovation?
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Does No Frills benefit large firms or small ones? Incumbent or new entrant?
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What top 3 factors will stop you from going after this market?
End
Disposable Everything! - quicker replacement cycles
• Razor blades• Furniture• Mobile phones• Clothes• Cars• Computers• Software
