Well, almost all! It was three years and three months ago when I had covered this concept passing a conclusive judgement on the intellectual incompetence of consumers around the world. And the wonder is, while releasing this iconic issue of 4Ps B&M that contains the exclusive ICMR survey of India’s 100 Most Valuable Brands, I realised that even after so many years, nothing has changed globally, and therefore I decided to bring to you the same editorial once again in toto! All consumers surely still remain fools! Seriously believe that, and you’ve got the most astoundingly rocking and smashingly successful marketing campaign! But don’t blame me, blame Dr. Daniel Kahneman of Princeton University, who received the Nobel Prize in Economics in 2002-03, for emphatically proving the above mentioned statement... His ‘Prospect Theory’ suggests that rather than undertaking decisions just based on ‘logical reasoning’ (namely, choosing the better product over the worse), humans also include a critical factor known as ‘intuition’, which is the main reason for consumers behaving irrationally and many a time even foolishly while purchasing products and services. Some years ago, even Dr. John Nash (of Nash Equilibrium fame) won the Nobel Prize for theorising a similar concept.
Most interestingly, the ‘Prospect Theory’ has its mirror image in the competitive strategy theory propounded by Dr. Michael Porter, where he postulates that all the global theories of competitive strategies and tactical warfare can be summarised into one electrifying word, ‘positioning’, and consecutively, into another word that is mind-bogglingly changing paradigms of marketing battles in global industries and consumer spaces. And that word is ‘perception’. Porter aggressively argues that consumers do not make decisions based on which product is better, but based on which product is “perceived” as better. Amusingly, across industries, more often than not, the product which is actually worse off in quality is the one which sells more, and many times, despite being priced higher.
And it’s been the same for quite a few years. For example, in 2006, the cell phone manufacturer that had the number one rank in quality in India was Sony Ericsson (IDC survey 2006); while the company which sold the most cell phones was Nokia (with a jaw dropping 79% market share, compared to a pathetic 5% of Sony Ericsson; the figures are 64% for Nokia and 6% for Sony Ericsson in June 2009), in spite of lagging behind Sony Ericsson in quality, and in spite of a majority 60% of their sales being in the costlier priced segments. Similarly in automobiles, Toyota has been consistently ranked as number one in quality, year after year (JD Power Surveys) and in 2009 was ranked the third Most Admired Corporation globally by Fortune. But still, despite being ranked relatively way below Toyota in quality, despite not even featuring in Fortune’s Top 50 Most Admired Corporations list, despite being bankrupt, the company that has consistently been the world’s largest passenger car manufacturer for years is General Motors (August 2009 global market share: GM 18.9%, Toyota 17.5%). And if speed & technological excellence were the factors of quality, then while Ferrari has won six of the past nine years’ F-1 Grand Prix Championship, its parent Fiat’s market share globally is 3.6% only. The ‘Judgement of Paris’ wine tasting competition in 1976, covered by TIME magazine’s George Taber, which was held again in May 2006 in London, proved that California wines tasted better than French, and by miles. Guess which sells more? But obviously, the French.
The strategy these global leaders use is ‘perception’! Play on consumers’ irrationality, and one can easily change their perception about eating cancer causing burgers, drinking liver destroying alcohol, consuming pesticide infested cold drinks, munching on fungal infected and worm strewn chocolates, smoking life destroying cigarettes, doing dope etc. etc. etc.; the list is never ending and extends even to football. In the history of FIFA World Cup Finals since 1930, only three times has a team that had the best quality player (that is, the player who won the Golden Boot award for scoring the most goals) gone ahead to win the tournament! For the sake of it, guess who is the most successful footballer of all times scoring the most goals in the history of international football. Obviously, the “perceived” answer is Pele, right? Wrong! The man is Daei Ali of Iran (109 goals). With 77 goals, Pele is not even second in the list (Ferenc Puskas from Hungary is, with 84 goals)! So are all consumers fools? Like I mentioned, I know of at least two people who’ve got Nobel Prizes proving just that! And none of them is a consumer like you or me!
Most interestingly, the ‘Prospect Theory’ has its mirror image in the competitive strategy theory propounded by Dr. Michael Porter, where he postulates that all the global theories of competitive strategies and tactical warfare can be summarised into one electrifying word, ‘positioning’, and consecutively, into another word that is mind-bogglingly changing paradigms of marketing battles in global industries and consumer spaces. And that word is ‘perception’. Porter aggressively argues that consumers do not make decisions based on which product is better, but based on which product is “perceived” as better. Amusingly, across industries, more often than not, the product which is actually worse off in quality is the one which sells more, and many times, despite being priced higher.
And it’s been the same for quite a few years. For example, in 2006, the cell phone manufacturer that had the number one rank in quality in India was Sony Ericsson (IDC survey 2006); while the company which sold the most cell phones was Nokia (with a jaw dropping 79% market share, compared to a pathetic 5% of Sony Ericsson; the figures are 64% for Nokia and 6% for Sony Ericsson in June 2009), in spite of lagging behind Sony Ericsson in quality, and in spite of a majority 60% of their sales being in the costlier priced segments. Similarly in automobiles, Toyota has been consistently ranked as number one in quality, year after year (JD Power Surveys) and in 2009 was ranked the third Most Admired Corporation globally by Fortune. But still, despite being ranked relatively way below Toyota in quality, despite not even featuring in Fortune’s Top 50 Most Admired Corporations list, despite being bankrupt, the company that has consistently been the world’s largest passenger car manufacturer for years is General Motors (August 2009 global market share: GM 18.9%, Toyota 17.5%). And if speed & technological excellence were the factors of quality, then while Ferrari has won six of the past nine years’ F-1 Grand Prix Championship, its parent Fiat’s market share globally is 3.6% only. The ‘Judgement of Paris’ wine tasting competition in 1976, covered by TIME magazine’s George Taber, which was held again in May 2006 in London, proved that California wines tasted better than French, and by miles. Guess which sells more? But obviously, the French.
The strategy these global leaders use is ‘perception’! Play on consumers’ irrationality, and one can easily change their perception about eating cancer causing burgers, drinking liver destroying alcohol, consuming pesticide infested cold drinks, munching on fungal infected and worm strewn chocolates, smoking life destroying cigarettes, doing dope etc. etc. etc.; the list is never ending and extends even to football. In the history of FIFA World Cup Finals since 1930, only three times has a team that had the best quality player (that is, the player who won the Golden Boot award for scoring the most goals) gone ahead to win the tournament! For the sake of it, guess who is the most successful footballer of all times scoring the most goals in the history of international football. Obviously, the “perceived” answer is Pele, right? Wrong! The man is Daei Ali of Iran (109 goals). With 77 goals, Pele is not even second in the list (Ferenc Puskas from Hungary is, with 84 goals)! So are all consumers fools? Like I mentioned, I know of at least two people who’ve got Nobel Prizes proving just that! And none of them is a consumer like you or me!
that was an amazing n mind boggling piece of article Sir , Kudos!!
ReplyDeleteI don't have even iota of doubt that article was good, And as it is well said in india "Jo Dikhta Hai, Vo Bikta Hai" and that's what Sony Ericson, Toyota, and obviously Daei Ali were unable to achieve.
ReplyDeleteBuzz word of making a product hit is play with people's mind i.e..Perception.
ReplyDeletehighly informative piece of blog, to top it all currently the thing going through my mind is it the same in sport shoe business among the top 3, from what I perceive Reebok sells the most even though being the least technologically advanced according to me in INDIA
ReplyDeleteGood subject and loooong paras...
ReplyDelete