Tuesday, February 25, 2014

Why the customer is always right!

When I first read the NY Times article, "Putting Customers in Charge of Design" I was not surprised by how Blank Label was putting "consumer preference" first. This shift of focus on consumer wants has been slowly yet gradually gathering pace. Essentially, by allowing consumers to design their own products, the company is placing each individual's preferences at the highest priority. Nike is a company that has been doing this effectively for years. In fact in 2007 Nike even came up with the maxim, "The Consumer Decides" and effectively included it as one of the 11 points that defined the company. Many critics were skeptic of the profitability of producing individual products for consumers primarily due to a lack of economies of scale. However, by 2010 the results were beginning to show. Under the banner of Nike iD the customization aspect of Nike's business grew to 20 % of their entire business, justifying the shift towards consumer focus.

This consumer focus though is not only limited to companies that produce personal items such as clothing, shoes etc but is the way forward for companies regardless of product type. One would think that large scale consumer goods companies such as Unilever would not be able to revise designs and ingredients for niche markets. However, that is exactly what they are doing. In an  interview with Nitin Paranjpe, the CEO of Unilever Hindustan (India), he explains that they are, "driving a culture that makes us even more obsessed about consumers by trying to get more intimate with them." There was a sustained effort by the organization to meet each of their customers and to try and incorporate their input into any future design.

This "consumer focus" was also adopted by neighboring Unilever Pakistan. While I was there, the sales for Unilever's premier tea brand, Lipton were falling. The reason being that business in Karachi, Pakistan's largest city and thus home to the largest number of tea consumers, was falling. One of the main consumer insights was that the people of Karachi preferred a stronger blend of tea, one which was offered by Lipton's competitor, Tapal. As a result of this insight a new product, released specifically for Pakistan was launched known as Mega Daane. This was a landmark achievement as the Global Unilever almost never sanctioned products that would be marketed in one country alone, yet it is a testament to the global team's consumer focus that they delivered on consumer demands.

I was also intrigued whether companies such as Blank Label could operate within a developing economy and whether people would be willing to pay the premium for such products. I was pleasantly surprised that several websites that catered to Pakistan specifically were " up and running". The market leader of these is juufoo.com. It has a very detailed custom design page and offers really cheap shirts for around $4-5 .

Lastly, I was also intrigued by how people were moving manufacturing to the home from the factory as discussed in, " The Kitchen-Table Industrialists". I was more interested though in how profitable such enterprises were due to the low scale of production. After looking at Forbes list of the most profitable home based businesses I was disappointed to find that primarily such enterprises were services based, such as consultation etc. The only business which employed any scale of equipment were those that were for repairing appliances etc. This is what led to me my question for this week,

How profitable is small scale manufacturing and what point does it become more profitable for the company to expand out of the home? And if it does expand out of the home, doesn't it indirectly point to the lack of longevity of kitchen-table industrialists in the first place?

I would be obliged if I could get any insight on the above mentioned queries.

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