Mahesh Rao: Product Segmentation - Differentiate Or Perish
Industry expert and design consultant MAHESH RAO, Bangalore, puts forth his views on the importance of product segmentation and cautions against the temptation to venture into unknown territory for short-term gains.
When times are tough in a downturn, one hears a common refrain that ‘you must focus on your business.’ But what does one mean by ‘focus’?
Personally, focus for me would mean that you must be sure of what you don’t want to do in life. For, it is extremely difficult to do everything for everybody, and you cannot please everyone all the time. You feel proud to be referred to as a national or international player in your industry, but at what cost? One cannot cater to a cross-section of people, especially when the economic situation is not so healthy.
Most businesses do an in-depth study of the regions they want to tap, check consumer profiles, study their own product and how it may fare in the market and so on.
This is where we come to the question of product segmentation – it is a very tricky topic, though. Keep focus on the core businesses to maintain growth.
But before we look into what is product segmentation, we need to take care of two aspects that come into play in our business decisions – your ego and the business ego. What will you give weightage to? To make money, one has to listen to the voice of business ego. Your ego... well that is another story.
I would like to draw inferences from the automobile and garment industries.
In the automobile industry, take for instance the case of Toyota that ranked tenth in popularity, and in profit terms it was number one – Toyota’s Camry and Corolla dominate the roads in USA even today. But way back in the late 1950s, when Toyota set its foot in America, Ford and Chevy ruled the roads. So what was the reason for Toyota’s turnaround and how did it earn profits? Toyota is known for investing a lot of time in research and understanding the product. They plan ahead of time and understand what consumers actually want. Plus, they kept a stringent eye on improving their product on a constant basis to eliminate waste, and avoid over-production. Above all, they respect consumers, and their network of distributors, dealers and suppliers.
Another important point is that novelty in luxury is a transient affair. What is luxury today may be slotted as the mid-segment product tomorrow. The Maruti 800, for instance, was considered a luxury in the year 1986. Today, it is just a so-called “classic” vehicle at the bottom end of the segment.
So what are the takeaways?
Deeper understanding of consumers is crucial. Understand the ground realities
and study the segments of the consumer. Every time a new segment emerges, a new product gets developed to cater to the consumer’s new needs and new aspirations in the context of luxury goods.
This helps you define the segment that you want to cater to.
Costs to the company and optimum utilisation of the resources are the major
factors that can yield you profits. Run up a check list: identify the segment, estimate the cost of the segment; examine the utilisation of your factory and whether you are offering the right product to the right segment. Assess the ideal capacity and the industry’s capacity to buy your inventory. Your company, in short, should be a performing asset.
The tendency to build huge capacities in manufacturing or in inventory compels us to utilise them by outsourcing jobs or giving discounts to offload the inventory. In the process, we kill each other’s business.
Match up the resources with demand. Don’t let the company resources lie idle. You are only as strong as the weakest link in the chain. You must ensure that you do not have any non-performing assets. What will then tempt you is going for vertical growth in order to keep the machinery humming. In the long run, you just may run up huge bills and be laden with jobs that you were not meant to do in the first place.
Jewellery not sold as luxury
The jewellery industry can also learn a lot from the garment industry that has developed a successful business model. In the Indian garment industry, many brands have grown without hurting each other’s business growth.
Each service provider specialises in different aspects of the industry. A manufacturer, distributor, retailer, agent and stockist all perform specific roles, and each professional gets handsome returns on investments depending on the capacity utilised. There are no territorial encroachers. There are strategic alliances and they all work in harmony.
In India, the basic necessities of a common man are – roti (food), kapda (clothing) and makaan (shelter). In my opinion, we can easily say that jewellery is the fourth necessity.
Despite a nation that eyes jewellery as an adornment and an investment, most of us jewellers only dispense jewellery. We do not create a desire to buy jewellery. Jewellers rarely engage in brand-building exercises. They do not lay enough emphasis on advertisements. Jewellery is not sold as a luxury item, but as a necessity and therefore, include jewellery as the fourth major necessity.
As jewellers, there is lot of scope for us to understand different segments of customers and cater to their needs through smaller business modules.
I would like to quote an example of a top gold jewellery manufacturer from the southern region. He produces jewellery for others through a fixed distribution network, and does not retail. He adheres to his principles and goes through organised channels, doing what he does best. Similarly, one should recognise one’s core strengths and align with the industry’s state of affairs and work in tandem.
For example, a jeweller specialising in kundan-meena jewellery must work on ensuring that he enhances the product by way of research and design and optimum utilisation of resources. He shouldn’t be tempted to enter into other categories, like cutting and polishing or any other segment for quick gains. This way, he dilutes his business and by undercutting others in the industry, he will only work at less-thanoptimum capacities. Focusing on your strengths will help you define your role in the industry; differentiate you from others, and help your products stand out. Re-jig your business in a manner that is profitable to all. Times are challenging and markets are sluggish. In my opinion, we need to look at other industries that are doing well and learn from their strategies. Surely, we can adapt some good practices from them?
As jewellers, there is lot of scope for us to understand different segments of customers and cater to their needs through smaller business modules.”