Product Superiority Doesn't Always Win

One of the most significant changes that a Western company needs to make in their sales positioning strategy in emerging markets, as well as in established markets, is taking a solutions approach to their pitch. Being known for having an innovation advantage, the West is often accustomed to winning business based on having a better, or the best, product compared to other competitor's products. However, customers are demanding more before they say yes to simply the merits of a product. They are looking for a more encompassing solution—one that addresses their unique needs and that fits into local market dynamics and requirements.

One Size Does Not Fit All

Know your new target segment (market segmentation).

You've established yourself and created a known brand in your primary target markets, so you presume you can take your currently successful formula and use it to expand directly into new markets. It's already proven to be a desirable product here, so why not over there, too? Besides, you have extra inventory and your current customer base has moved on to the next version. Maybe this less-advanced market will want to buy your product!

This quick logic is not so easy to apply—or at least, not in terms of creating successful outcomes. The dump-and-run attitude or recycling approach has damaged relationships between some Western companies and emerging-market countries and has left a bad impression with prospective customers there. This has led some to emerging markets choosing to purchase from other vendors simply because the vendors are not American or Western, regardless of the strength of the vendor's product or solution. That's how bad the experience has been.

An example of one size not fitting all comes from a company that positioned a high-powered core switch to a customer in an emerging African country for a communications network build-out. Upon presenting all of the features and comparative advantages of the product, it was clear that this was a great, high-end, robust solution. However, at the end of the presentation, the only thing the customer wanted to know was if this company had a solution that would get around the sporadic power surges in the country. Because the country did not have the luxury of reliable and consistent electricity flows, when the power was turned off and then back on, the customer experienced strong power surges that caused equipment to short-circuit and fizzle out. Investing millions of dollars in high-end networking equipment that did not adjust for this contingency was a deal-breaker for the customer, regardless of the superiority of the product.

Needless to say, this was frustrating for the vendor, who was ill prepared for this question and without a good answer. The company's product had a lot of great features and functionality but it did not have the one basic feature this customer needed: power-surge protection. If this vendor had taken the time to truly understand the needs and challenges of the customer, this capability may have been incorporated into the product. Also, if the vendor had anticipated selling to this market originally, as opposed to recycling a product created for a developed market, the pitch may have been more successful.

At times Western companies have taken the attitude that a less-developed country does not need up-to-date products. However, they fail to recognize that targeting emerging markets can generate the opportunity to leapfrog directly to the latest product, because the solution does not need to be based on an evolution of existing solutions. For example, in the telecommunications world there has been a surge in the build-out of wireless communications infrastructure in emerging markets because there isn't a significant wired infrastructure to be replaced. Why go with copper wire, which can be stolen from the ground, when you can jump straight into the latest technology and go completely wireless?

It is important to know and respect your customer segment, understand what its needs are, and offer something suited to it rather than taking the recycling route, which may just backfire.

Evolve Your Offers into Solutions: Free Fries and Extra Ketchup (Remember?)

Western companies often depend solely on the merits of their products: the feature-functionality, the differentiation when compared to other similar products, the reasons that this unique product is so essential to the prospective customer, and all of the benefits of having or using this product. These are all good positioning and sales approaches, and are absolutely in line with solid marketing fundamentals; however, this is not always enough to make the sale, nor to close the deal.

As discussed in Chapter 8, some customer segments want more bells and whistles or extras in the sales proposal or during the sales process, particularly if a product is commoditized or is becoming more so. (Note that sometimes it is just the customer's perception that your product or product category is a commodity, based on their basic needs.)

The important extras might include free or customized sales support, or training and education on the product. Or it could be assistance implementing the solution, particularly if the product is complex or technology-centric. Or it could be bundling more into the business side of the transaction, such as assistance with financing the purchase of your solution. Other times, what matters the most is customer treatment, relationship building, being heard, and being accommodated. While these factors are particularly relevant to emerging markets, they are also applicable to some segments of developed markets as well.

Western companies have to get better at looking at the bigger offer—the psychology behind the deal—the free stuff, the extra padding, the courteous and hospitable demeanor that makes it easier for the customer to choose you. Companies that have had success with premium-positioned products and premium branding often forget to try harder or to try in a different way when they are expanding into new or different market segments, particularly in emerging markets.

Develop Targeted, Market-Appropriate Products

Let's tie this back to our segmentation exercise. You have sliced and diced the potential markets in new ways and analyzed the opportunities, and you have decided which segments are strategic for your business. Part of this analysis should have included identification of your customers' requirements and how your product or idea would suit their needs or be relevant to them.

We also previously acknowledged the importance of respecting a segment's unique needs and satisfying them if you can. This may require product development or modification. You need to ensure that your product or offer is competitive with other solutions and that it is actually currently available. This sounds very fundamental but requires genuine thought. We often assume that success in one market can be replicated and can produce similar results in another.

You also need to determine if entering a particular market will be worth your while—in terms of market share, revenues, political standing—whatever your primary goal is for going after this market. And most importantly with respect to this last point, considering time range is important, especially for emerging markets. If you know that entering a particular market is a longer-term play or an expansion for the future, anticipate and plan accordingly.

Let's look at Apple as an example. It took the world by storm with its innovative products. It invented products that most people hadn't imagined. They were luxury entertainment items that became must-haves for many, even though they weren't cheap. Apple created a new look, a new concept, and helped the music industry overcome the theft of music artists' creations with iTunes…so much innovation on so many fronts. As CEO Tim Cook said, when asked what he thought of Apple's culture of innovation, “It's never been stronger. It's deeply embedded in the DNA of the company. There's no better place for innovation but there is no formula.”¹

As Apple seemingly reached a peak or neared a saturation point in its current market, it announced in 2013 that it was going to pursue emerging markets with a new, more cost-friendly product. The financial markets were surprised and worried—reporters on CNBC were in a panic—what would this do to Apple's margins? What about the typical Western short-term view and desire to appease shareholders' quarterly expectations? When Tim Cook was asked about creating affordable phones for emerging markets during a Goldman Sachs interview, his reply was confident, “We're managing Apple for the long term. I know people care about quarters, and we care. But the decisions we make are not for the 90-day clock.”²

Intention to address emerging markets is one thing; however, market response is sometimes another. Apple launched the iPhone 5c (a lower-end version of the iPhone 5S) initially to address emerging Asia-Pacific markets, including China, at a lower price point. However, it was not as successful as anticipated because the price was not as low as other competitive options and, in addition, the consumer was still expecting the complete level of innovation that Apple is known for.

This is a great example of how brand equity and brand association hold true to the identity of the product, regardless of a market's economic or demographic profile. Market segmentation and associated pricing is also a very complex positioning exercise and requires testing and adjustments based on consumer response.

Rapid Time-to-Market

A company expanding into new and uncharted territory will often find it difficult to commit because there are so many unknowns. However, hesitation or a slow approach—dabbling, if you will—may lead to failure, depending on your goal. When a company has achieved success in developed markets and is looking to expand into emerging markets, it can seem like starting over again. As previously stated, there is a different set of rules, a different set of customer requirements, a different way of doing business (often involving a slower pace, more nurturing of the customer, and sometimes corruption). And oftentimes the risks are higher, the potential returns are not as predictable, and those returns may take longer to realize.

Many unknowns can result in companies taking a wait-and-see approach or a less committed course. But while you are busy deciding if a market is worth your full effort, your emerging competitors may have already tackled and penetrated that arena and perhaps established themselves as market leaders. By that time you'll have to play catch-up, and you may potentially lose the market-share ranking you sought. You may fail at establishing your goal of a certain level of market presence, and possibly miss achieving other goals, such as a political demonstration of goodwill to the host country.

Be decisive about the segments you want to target (your must-win segments) and then commit! Consider whether they are key strategic targets aligned to market-share goals: Are there political agendas or competitive blocking tactics that you can use to quash the competition? Define what your goals are for being in this market—and a political goal alone can be a very valid one.

Move quickly. Once you have decided with 100 percent certainty that you want to play in this market, know what you have to do to accomplish your goals and do it right. And make sure you budget for enough up-front investment and expect no return for some time. Allow yourself ample time to be successful.

Finally, make a product this segment wants to buy. Having the perfect product is less important than time-to-market when demand is high and time-to-delivery is a must. Time-to-market is having your product ready for offer; time-to-delivery is giving the product (or implementing the solution) to the customer by the date promised.

Essentially, it is important to recognize what the consequences are if you do not move quickly into your desired or contemplated market. If you don't get there first, someone else will—and can you afford that in the long run? The following case study describes how a high-tech firm had just that experience.

Product Development Efficiencies

It's one thing to create and deliver new, tailored products and solutions for emerging markets, but it is another thing to manufacture them in a profitable manner that is also consistent with your brand positioning.

Positioning of Your Product and the Message You Send

When deciding on manufacturing options, also consider your positioning strategy and what your customer base is expecting. Take a premium product, for example. Let's take it one step higher and call it a premium luxury item. When customers buying such products pay large sums of money for your goods, it is important to understand the different psychological reasons underlying their purchases.

In the high-end handbag industry, for example, brand recognition is the motivation—I have this kind of handbag, my choice is noticeable, and I want people to know that I have been able to acquire this brand. In this case status is what the customer cares primarily about, and there is less concern about where the product was made. One might call this the low-end of the high-end luxury market.

Other types of customers may pay a lot of money for a product because they assume they are purchasing a product with a high level of workmanship, expertise, and care in its manufacturing. Quality and not necessarily the brand or label is the greater concern; in this case the motivation behind the purchase is more about the substance or promise behind the brand.

The lesson comes down to knowing your customers. Know what motivates them, and in turn you will know what their propensity to pay will be. This will help you in your decision-making when it comes to your manufacturing choices, quality and feature levels, and your pricing options.

Of course, this is usually easier said than done. You will have those consumers who are bargain hunters and love to get the best deal, but will also cast judgment on manufacturing overseas in emerging-market countries. When you ask them if they are willing to pay more for the item if it is manufactured in the United States, there is often a pause.

Compete Hard

Emerging entrants are often not the usual competitors when it comes to head-to-head product comparisons, where battling for customer mindshare on a feature-to-feature (functionality) basis is the norm. Taking the functionality approach with emerging competitors can be somewhat risky for a number of reasons:

• They can or may implement new features in very short time frames.
• They can falsely claim to have the customer-requested features or functionality and will work hard to make sure those features are available when it comes time to test or deploy the solution.
• They may also make false claims about your solution or use inaccurate competitive intelligence, and the customer may be unaware of the true facts.

In order to compete successfully with emerging entrants, it is important to know the current true details of their product offerings. Being involved with or aware of objective third-party performance testing is an effective approach to gaining credibility with your customers and serving in a consultative manner. By helping your customers do the job of evaluating options, you save them time, effort, and possible disappointments down the road when the solution is implemented.