I have a lot of "faux pas" that could potentially fill up a full book, in 2 volumes. But I will hold on to some of those for in-person sharing over coffee and cocktails. So this will be my last "faux pas with chutzpah" blog on LinkedIn. The next edition will be a chronicle of some learnings from fortunate success stories.
CONTEXT
This last one is what retrospectively seems like a rookie error. During my 2 1/2 stint in China, our core business were local cooking sauces. We operated a local-flavor sauce brand that had a healthy market share in the mid-tier price segment. We were a top 3 share player but the gap between us and the top 2 was large. For context, these are cooking sauces and not dipping sauces (like Maggi chili sauce, that would usually come to mind).
One of the reasons for our share gap vs. the top 2 competitors was that they played in the low-price tier segment, giving them access to larger, more frequent usage customer base. The texture of the sauce between the mid-tier and low-tier price segment was different. Think of it as the mid-tier being a thicker sauce while the low tier being a thinner sauce. So obviously the flavor that the two delivered in the top dishes they were cooked with, were markedly different.
One of the levers, obviously, to grow our market share was to branch into the low-price tier segment. This comes with its own set of challenges 1. The factories are not geared to produce this texture of sauce, so the production capability is limited to relying on an external production facility or work with the limited modification that can happen with the existing in-house production lines. 2. This limits the product design capabilities, since one needs to build the "formulation" backwards, from the production capability. 3. Low-price = low cost available for creation = low ability to build a point of difference in the formulation.
THE MISTAKE
This led to the following - relying on limited modifications to internal production lines, leading to a simple formulation that delivered the category generic "thinner" texture and basic flavor profile. It severely restricted the ability to infuse any point of difference, in terms of ingredients used or any emotive or functional taste benefits.
We knew this but we also drank the self-convincing cool-aid that just delivering a low-cost sauce, with our brand awareness and the right price point, with enough commission for retailers would be enough to attract retailers and customers.
Of course, the low-price extension struggled to take off, because it was missing a compelling product differentiator that delivered "value". We were delivering cheap but without something to differentiate the product, we were just not delivering "value" to both customers and retailers.
THE LEARNING
There will be times when there is a need to play in the "value" segment, where the bulk of the market in developing countries usually sits. But it is important to remember to deliver "value" and not just "cheap" in developing the product. It needs a point-of-difference, either in the product, the packaging or both.
It is important to remember "cheap" and "different" are not choices.
Comments