by Dave Sutton
Chapter 10
Entering New and Emerging Markets
hen the popular casual shoe brand Crocs entered the India market in 2007, it assumed the conditions for rapid and profitable growth were in
place. Crocs struck an exclusive joint venture deal with a local partner, which subsequently evolved into a franchising arrangement as leadership wanted to capitalize on an opportunity to expand quickly. However, despite preliminary enthusiasm, the arrangement was far from successful. After eight years, the brand only had 30 stores in India. Because sales didn’t meet expectations, Crocs was forced to cancel the exclusive franchising agreement and recently announced the closure of 12 stores.
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“We planned out a strategy of having a few, but strong, franchisees and shedding some of the partners that don’t, can’t, or won’t want to grow with us whatever reason.”
— Nissan Joseph, GM of Crocs India
Crocs India still has a presence in 100 cities across the country through its ecommerce channel, its exclusive stores, department stores, footwear chains, and mom & pop retailers. However, the company wasted several years and sig- nificant marketing investments. Crocs India must focus now on building more reliable distribution channels, making more effective marketing investments, and re-engaging Indian customers through local subsidiaries. So, where did they go wrong?
“Here lies one who meant well, tried a little, failed much: surely that may be his epitaph, of which he need not be ashamed.”
– Robert Lewis Stevenson, Across the Plains
The Traditional Approach to Global Emerging Market Entry
For decades, many multinational brands have tried to venture into emerging markets. To limit risk, companies often partner with a local distributor, a critical first step to market entry success. In most cases, distributors achieve quick wins and rapid sales growth by placing the products in their existing network. The novelty of having new offerings in the channel leads to initial success. However, rapid revenue growth often turns into disappointment soon thereafter. Why does this happen?
To minimize their risk, brands only invest a tiny percentage into local market- ing. They assume the distributor will pay marketing and brand building from its share of the profits. This challenge presents itself as the company attempts to sustain the growth and the “blame-game” starts between company managers and the distributor.
Faced with declining sales, the company terminates the distribution agree- ment and blames the failure on the distributor and its lack of product knowledge,
hands-on involvement, or financial ineptitude. This is often a hasty, misinformed decision that leads to compounding mistakes.
Because the company blames the distributor for mediocre performance, it then believes it has the market knowledge and capabilities to launch its own sub- sidiary in the country. This is an expensive and disruptive process that often leads to market exit as the company overplays its hand, fails to recognize its blind spots, and overestimates its understanding of the market.
This is a common phenomenon for multinationals expanding into new emerg- ing markets like India.
In our experience at TopRight, we have witnessed too many multinational brands rush to sell and scale, and then fail. Successful global emerging market entry requires a step-by-step, disciplined emerging market strategy that estab- lishes a foundation for sustained growth. The graphic below illustrates the tradi- tional approach that multinational brands take for entering an emerging market.
Following this traditional approach, the negative outcomes are predictable:
• Local market doesn’t understand the brand story and the core values of the brand
• Overly complicated communication strategy confuses the market
• Marketing investment is focused on closing deals rather than condition- ing the market
• e-Commerce channels are misused—failing to educate and serve customers
• After sales customer service is insufficient—leading to customer dissatisfaction
• Negative word of mouth spreads quickly in emerging markets
• Distributors cut prices to liquidate and dump excess inventory in the market
Not surprisingly, initial sales success is rarely sustained and the potential to tarnish the brand image is high.
The Transformational Approach to Emerging Market Entry
Let’s examine a multinational brand that successfully penetrated the India market and fared much better than Crocs.
In 1997, Faber saw an opportunity in the developing Indian market. The com- pany made an entry through a local distributor with one product: kitchen hoods. It increased brand strength by expanding its offerings to other products like built- in hobs and premium cooking ranges in early 2000. Through a joint-venture, Faber later established a decorative chimney manufacturing plant.
Today, Faber is India’s No.1 Hoods and Hobs brand. Over 250 employees pro- duce more than 300 products in the local plant with current production capacity of 150,000 hoods, 100,000 hobs, and 50,000 other kitchen appliances per annum. Recognizing the importance of an extensive network towards building a long- term success story, Faber has over 2,000 retail counters for sales and service across the country. It has achieved economies of scale and has been able to sustain a competitive edge against most of the cooking equipment brands worldwide.
Unlike Crocs, the Faber leadership team identified the right local partner who was the right fit for the company’s global emerging market strategy. The company collaborated with the local partner, encouraged the distributor to lead all initia- tives, and made investments in a disciplined, phased manner. Faber retained con- trol of the marketing strategy from the beginning and actively anticipated market changes, resulting in a better brand image, less crisis, and consistent growth.
Here is a graphic representation of the transformational approach that Faber took as they entered the Indian market.
Following the transformational approach, many of the emerging market risks can be mitigated and the negative outcomes can be avoided:
• Local market understands the brand story and how it makes them “a hero”
• Simple and clear communication strategy is easy for the market to embrace
• Some of the marketing investment is focused on conditioning the market
• e-Commerce channels are enablers to educate and serve customers
• After sales customer service is robust and identifies advocates—leading to customer delight
• Positive word of mouth spreads quickly in emerging markets
• Distributors understand that price cutting to liquidate and dump excess inventory in the market must be avoided
In contrasting these two brand examples, there is an important lesson to be learned. Emerging market entry mistakes are not just related to selecting the wrong distribution partner. You could select exactly the right partner and still fail. Success relies on your marketing mindset and the discipline that you exer- cise as you enter a new market. To increase the likelihood of success, multina- tional brands should embrace a transformational marketing approach from the beginning. The winning strategy lies in continuous changes during and after market entry by anticipating and adapting to challenges.
It’s easy to make mistakes. But as we learned with Faber in India, a practi- cal, strategic and systematic emerging market entry playbook is required to help brands reduce their risks, maximize their ROI, compete efficiently, and win in emerging marketplaces. With a global vision, hands-on experience, and local network, you can acquire valuable market information, undertake comprehen- sive market analyses, formulate appropriate entry strategy, find best routes-to- market, establish distribution channels, and rapidly grow your business in new and emerging markets.
Chapter 11
Extending Your Brand
magine walking into a grocery store, choosing your items, and walking out.
No lines. No checkout. No price checks. No money changing hands.
If that seems like grocery-shopping heaven, then you’re going to love the latest from Amazon: “Just Walk Out Shopping”. Completely rethinking the shop- ping experience, Amazon Go employs innovative technology to create a seam- less, unique, and delightful customer experience. This strategic use of technol- ogy removes all of the friction in the Customer’s BuyWay—enabling a customer to walk into the store, grab their groceries, and walk-out without the hassle of checkout lines.
Understanding buying habits of individual consumers to provide more per- sonalized marketing has been a challenge for grocery stores and retailers for years.
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Amazon Go solves this problem with an analytics-first approach to the in-store customer experience. Not only does this fuel individualized marketing, it also provides Amazon with the highly-coveted singular view of individual customer buying habits, both online and offline. Although this isn’t Amazon’s first attempt at brick and mortar, it’s a logical fit and aligns with the current brand values of convenience and innovation. As we now know, Amazon Go was just a rehearsal for the main act: Amazon’s acquisition of Whole Foods Markets.
Are you ready to have your granola and freshly-ground coffee gently placed at your doorstep by a drone? That dream may have become one step closer with this deal. Considering the volume and distribution of Whole Foods stores, this acqui- sition will also mean a much faster expansion of Amazon’s Walkout Technology. Combined, these two strategic moves by Amazon may turn out to be one of the great brand extension examples of all time (or potentially the biggest flop if they fail to personify their strategy!).
A brand extension strategy (found at the #TopRight corner of the matrix below), leverages the parent brand to enter a new product category.
When compared to the launch of a new brand, this strategy adds incremental value and reduces risk and costs. Like the Amazon example, brand extension is more common for firms whose current brand equity is strong enough to influ- ence the existing customer base and grant permission to extend into new product and service categories.
There are many conditions for success that must be in place to execute a suc- cessful brand extension strategy. The general consensus is that when brand equity is high, the chances of a successful brand extension increase. Based on this fact, there are higher chances of a positive launch for well-known brands. On the other hand, there are a number of examples in the market of how even the most well- known and well-established brands have failed. Almost 84% of brand extensions fail and, of the successes, only 54% survive after the third year, proving that the success relies on a number of factors. Brand extensions in the hospitality industry serve as good support for these statistics.
Consider the example of the global market leader in quick serve restaurants: McDonald’s. Do you remember when McDonalds launched their now infamous “Golden Arch” hotel with the catchy tagline: “be with us”? The four-star hotel located in Zurich that closed just two and a half years later? Well, we can attribute one of the reasons of the failure to a low brand association between the parent brand and a four-star type of hotel. Although the venture loosely related to the company’s food business and relied on many of its core hospitality competencies, such as franchising and real estate management, the McDonald’s brand doesn’t square with the image of a four-star hotel. That brand extension was just a “bridge too far” in the mind of the customer. Why would I trust a purveyor of burger and fries to handle my travel accommodations?
On the other hand, if you are a “luxury boutique” type of hotel guest, would you consider staying at hotels by Equinox (the luxury fitness gym operator), West Elm and Restoration Hardware (home good retailers)? You might be thinking: these are all non-hospitality brands so why should I consider them for my hotel selection? In fact, all three have entered the hospitality industry. These brands are venturing into the risky world of brand extensions, planning to launch bou- tique hotels in different locations in the U.S over the next several years.
In a widely competitive environment, companies are trying to expand their reach to new customers, reinforce their value, and efficiently grow their busi- ness. Among the various types of organic growth strategies, a brand development approach highlights existing and new opportunities.
Are these going to become successful brand extensions? Will customers give them permission to extend into these new offerings? It’s hard to tell at this point.
What about luxury brands like Armani, Versace, Bulgari and Ferragamo? All of these companies possess very high brand equity and they are relevant in a luxury niche that could succeed in the hospitality industry. Yet their potential for success might also be questioned. One of the key reasons: all of them are strong luxury brands, but operating hotels is clearly not their core competency. Bulgari, on the other hand, had a different strategy, which set them apart from the pack and made their brand extension more successful. The difference? The company created a joint venture with a hospitality expert: Marriott hotels, which reduces their risk and increases their probability of success.
The reality is that there are many examples of successful brand extensions, and the benefits from the extensions are huge. Beyond offering new sources of revenue, a successful brand extension can create business diversification, achieve marketing efficiencies between categories, increase brand equity, enhance brand associations and accelerate the speed to market the new category.
But it turns out that there are several conditions for success that must be maintained for you to succeed. So, here are six tips to help guide you on your brand extension journey:
1. Measure Brand Equity
One of the biggest concerns when implementing brand extensions is the risk of causing brand dilution, that is, when the new product category fails and presents a negative impact on the brand as a whole. Thus, the first step is to have a Brand Equity measurement in place in order to track possible future impacts.
2. Measure the potential risks
Run a scenario analysis to identify the positive or negative effects on the business and brand equity. The goal is to implement a brand extension whose risk of failure does not exceed any marketing efficiencies.
3. Leverage your core competencies
The new product should leverage all the skills and know-how from the current business and marketing operations in order to gain a competi- tive advantage in the new category. By identifying the business key com- petencies, the brand will be able to gain efficiencies and create market differentiation.
4. Invest in Marketing Research
In the eagerness to grow the business, brands forget about making sure the new category has market potential, that there are clear opportunities or unmet customer needs. When identifying key opportunities, make sure to understand prospect and current customers and estimate their accep- tance for potential brand acceptance. Use marketing research also to test the possible new brand extensions.
5. Make the brand extension a logical fit
The new product must be a logical fit to the brand, compatible, expected and follow the current brand story. The link between the new product and the parent brand should be easily tracked. The biggest brand extension pitfalls fall into this category.
6. Create a Brand Extension Strategy
After making sure the story follows a smooth path between both catego- ries, make sure you develop a brand management plan and a compelling go-to-market strategy that will connect with your audience across multiple touchpoints on the Customer BuyWay.
There will always be uncertainty about how successful a brand extension can be. Will West Elm and Restoration Hardware leverage its furniture know-how and integrate it successfully in the hospitality industry? And, will Equinox have a successful connection between the hospitality industry and its health and well- ness experience? Each of these brands plan to launch new hotel locations before 2020. Until then, we will continue analyzing whether their brand extension strat- egies will pay off or not.
Moving your busin
ess to TopRight performance with a successful brand extension strategy requires a deep understanding of your brand and your cus- tomers. Not only should you assess if the new business is a logical fit, but also you must refine your brand story and communicate to your customers to validate that you’ve earned their permission to make the transformation into a completely new market or category.
Chapter 12
Creating Remarkable Customer Experiences
hat if creating remarkable customer experiences was as easy as pushing a button?
The “Easy Button” has become a marketing icon for Staples, the office supply retailer. It is a wonderfully simple manifestation of their Brand Story and it clearly and succinctly communicates the brand promise of being “easy to do business with”—a perfect example of a six-second story. But let’s face it: we’re talking about a red plastic button that says, “that was easy” when you press it. At last count, Staples has sold over 8 million of these things. Impressive indeed, but what real, measurable impact has that had on Staples’ customer experience (CX)?
With an 800-lb gorilla like Amazon breathing down your neck every day, you need more than a red plastic toy to win in a highly competitive and commoditiz- ing market.
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When Faisal Masud joined Staples as Chief Digital Officer in 2015, his man- date was clear: follow B2B shoppers moving online and meet their demands by doubling down on digital… and make it easy!
