| Log in

How to sell a fridge to an Eskimo

21 January, 2016

I came across two fairly unexpected news items recently. First, Renault Kwid clocked more than 85,000 bookings within four months of launch, making it one of the most successful small-car launches in recent memory outside of the Maruti-Hyundai duo. Second, Godrej Properties launched its flagship The Trees project in Mumbai and sold about 300 apartments, or 70 per cent of the inventory on offer, in less than a week for Rs 700 crore ($106 million).

Let’s put things in perspective. Renault had less than two per cent share of the Indian car market for 2014. For December 15, Renault had a 4.5 per cent volume share overall and a 10 per cent share of the segment. Even Hyundai, despite its strong brand in India, has not been able to shake the Alto market. Other products like Nissan’s Datsun Go have sunk without causing much stir. Meanwhile, Godrej’s apartment sales happened in a market (Mumbai) that apparently has about 30 months of unsold inventory with estimated industry net sales of about $6 billion and where prices are stagnant or declining.

I was intrigued by the exceptional performance of these two products in otherwise tough markets and wondered if some lessons can be gleaned out of these.

Let’s analyse Renault Kwid first. As I went through online reviews and spoke with a few people, what emerged was that Renault Kwid is being seen as a great value-for-money product – more space, lots of features and better drivability at a reasonable price point. More importantly, it is positioned as a “great product at a fair price” vs “cheap”, so people are actually buying status or respect, versus choosing an Alto or Nano’s tyrannical “itne mein itna ich milega (for this price, you only get so much)”.

In case of Godrej’s The Trees, the first thing to note is that it’s not cheap. It is actually priced at a slight premium to prevailing neighbourhood rates (and is at a considerable premium to the vicinity if you factor in the four-year time to possession that is being promised), though still remaining a tad cheaper than South and Central Mumbai suburbs. The average all-inclusive cost of the apartment starts around half-a-million dollars, steep by any standards.

Why it did so well in an otherwise terrible market for home sales boiled down to two reasons – (a) Promise of open spaces and greenery in a city starved of public spaces and gardens, and (2) No increase in commute time to key business districts of the city (thanks largely to some recently constructed connectivity options). So the product offered “open spaces living without suffering on commute time”.

Which brings me to an interesting question entrepreneurs should be asking themselves about their business – ‘What are we selling?’

Is BigBasket selling ‘grocery at a cheap price’ or is it really selling ‘monthly time-save on non-value added task of buying grocery’? If BigBasket thinks it is selling grocery at a cheap price it should worry about discounts, but can afford to be less anxious about having the full breadth of product options. On the other hand, if it is selling monthly time save, not having the entire range of product options or a situation where products are out of stock can kill repeat purchases. But as long as you are broadly competitively priced, you can afford to worry less about discounts.

Next, is Oyo Rooms selling ‘low-priced hotel rooms’ or is it selling ‘promised room standards at a reasonable price point’? The answer to this question will determine whether Oyo Rooms should worry more about low prices or meeting promised room standards. Similarly, is Housejoy selling ‘electrician services’ (or any other service it offers), or ‘hassle- and haggle-free problem resolution’? One can go on here, but I think I have made my point.

The answer to this simple question – ‘what am I selling?’ – requires deep consumer insights and introspection. Businesses that get it right will enjoy higher customer loyalty, increased market share, better pricing power and eventually create a winning business. Because it’s not weak markets that do you in most of the time, it’s usually poor product-market fit.

An Eskimo will buy a fridge if you tell him it will prevent food from freezing. The question is, do you understand your customer enough to get your value proposition right?

(Nitin Bhatia is managing director at Signal Hill Capital Advisory India Pvt. Ltd.)


View Comments
Ford Bets Big On India, To Build Plant In Gujarat

Ford Bets Big On India, To Build Plant In Gujarat

Reuters 6 years ago
Ford Motor Co plans to build a $900 million production plant in India, doubling...
GE Capital part exits Titagarh Wagons with modest returns

GE Capital part exits Titagarh Wagons with modest returns

Anuradha Verma 3 years ago
GE Capital has part-exited its almost eight-year-old investment in Kolkata-based...
Housing sales rise 8% for the first time in 10 quarters: PropTiger

Housing sales rise 8% for the first time in 10 quarters: PropTiger

PTI 2 years ago
Housing sector, which is facing a huge demand slowdown, witnessed an 8 per cent...
2 Comments
mohit . 2 years ago

very well captioned, very well written. looking forward to read such more articles & facts from your end.

ashok dang . 2 years ago

It is a very good analysis and will help a lot in case followed by the companies.

How to sell a fridge to an Eskimo

Powered by WordPress.com VIP