By Olu Akanmu (June 2004)
The practice of marketing in Nigeria is entering a new era of challenges that has no precedent in the history of the current generation. The objective context of the marketing programs of business organizations with regards to the environment of such program is witnessing fundamental shifts necessitating a rethink of the way we do marketing. It implies a return to the basics of successful traditions of marketing practice while raising the marketing game to new and higher level of strategy. The combined forces of Democracy, Deregulation and Digitalization which I call the (3D forces) on the business environment is changing the economic structure of many industries with potential seismic effects. Marketing as one of the leading functions of business cannot insulate itself from these potential seismic effects. It must adapt (and where possible take advantage) of the 3D forces to fulfill its mission in business organizations to win in the market place.
Five years of democracy and political stability has led to increased level of “Business Confidence” in Nigeria. Business Confidence is a macroeconomic index that measures the level of confidence of people to invest and spend based on their sentiment and perception of the “conducive-ness” of the business environment. Foreign Direct Investment (FDIs) is increasing led by the huge investments in the telecom sector. The manufacturing has also witnessed new FDIs through Nigeria Breweries, Guinness and companies like Nestle. Empirical evidence suggests that national capital stashed away in savings in foreign countries are beginning to return to Nigeria in the form of private investments. The capital market is growing rapidly occasioned by the new level of business confidence and the increased savings level of the middle class.
The economy grew by more than 10% last year, a feat unprecedented in the last decade. There is now a more structured approach to macroeconomic management. While the gains of economic growth and the spiral effects of FDIs might not have yet trickled to the bottom of the economic ladder, empirical evidence suggest clearly that the middle class is growing with increasing prosperity. A dipstick index of the increasing economic prosperity of the middle class is the number of new cars on the road especially on Lagos 3rd mainland bridge every morning.
We are witnessing the entry of new firms into Nigeria competing in existing industries and sometimes opening up new industry niches and categories. The entry mode of these firms rage from licensing, agency relationships and sometimes full business entry. Some firms that divested in the days of military rule are returning. In the manufacturing sector, some of the old multinationals have who divested, returned to significantly increase equity in their local subsidiary and take their full control. Intra and inter industry category competition is on the increase.
A higher level of marketing and business excellence is now expected of the Nigeria managers. During the days of military rule, the local subsidiaries of international firms were virtually abandoned by their international headquarters as they scaled down on their investments. The quality of human capital and professional excellence declined in many sectors. Marketing standards and practice fell in Nigeria from the lofty levels of the past. This trend is now reversing as we witness new investments in development of marketing talents in many industries. International exposure and secondments of marketing talents is on the increase. There is an increasing change of leadership and generational shifts with returnee secondments, Nigeria repatriates or expatriate Marketing Directors who are expected to bring world-class practice to their companies. The driver of this trend is recognition by the international firms that they virtually increased the level of their investments in Nigeria, at the same time and at nearly the same scale as their rivals. This implies a higher level of competition that demands a higher level of marketing excellence if the firms are to achieve their expected returns on investment.
The momentum of deregulation that started towards the end of military rule has picked up significantly under the democratic dispensation. We are witnessing fundamental changes in the economic structure of old regulated industries in telecommunications, energy and financial services. Monopoly power is falling with its attendant inefficiencies. Regulatory barriers, which protected old monopolies, are crumbling. New entrepreneurial players are entering the old protected industries fundamentally changing the rule of the industry game. In the financial services sector, deregulation and regulatory reforms is leading to the convergence of the old banking and insurance industries with a new dispensation of universal banking. Insurance industry practitioners will have to rethink the rule of success under the new emerging convergence. It is interesting that the biggest forays into the converged service fields between insurance and banking is being led by the new generation banks steeled in the art of taking advantage of deregulation, learnt in their own industries.
Deregulation has increased the bargaining power of customers as new entrepreneurial players enter old protected industries. Customers are having many choices of services to fulfill the same need. Deregulation is leading to a new level of competition with the customer as the ultimate beneficiary. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. There will be many manifestations of organized customer power. It may take the forms of unions or outright industry customer associations. The customer may no longer be very atomized. The organized association of customers supported by Customer rights advocacy movements will change traditional marketing thoughts and practice especially in newly deregulated industries.
Digitalization or digital technology’s most profound effect will be in the convergence of industries and categories. Industry practitioners are aware of the emerging convergence and overplay of telecommunications, financial service and entertainment industries. This global trend may have a unique manifestation in Nigeria occasioned by our peculiar social development and infrastructure challenges. The understanding of the unique manifestation of this convergence can provide real advantages for industry players. Competitive radar screen will have to be widened to include non-traditional competitors who will use the power of technology to enter other industries.
Network industries are emerging requiring the co-operation of many specialized players to deliver service, especially in telecommunications and financial service industry. Network industries turn the rule of traditional marketing on its head. Traditional marketing is competitive and sometimes adversarial. It has little space for co-operative strategies, which are critical in network industries. The emerging Automated Teller Machine (ATM) Services of Banks is a good example. The value of a network is a function of its size. The more ATM places that a bankcard could be used, the better its value. Yet no single bank can open branches with ATMs in virtually every corner where the ATM service could be required. Banks therefore need to ensure the inter-connect of their individual ATM cards. In essence, this ensures that all ATM machines and locations are available to all bankcards irrespective of the bank that issued the card. This increases the value of ATMs to customers.
In order to achieve the above, banks must co-operate to interconnect their systems while competing to acquire customers for ATM card issuance. Essentially, the banks must compete and co-operate, a new strategy trend that has been described as “Co-opetition”. Co-operative skills in marketing are perhaps more difficult to develop compared to traditional adversarial competitive marketing. System interconnection implies the need for agreements on standards, the trading-off of individual interest in legacy systems for the collective bigger wins and the control of institutional egos.
Co-opetition strategies are also emerging in the insurance and banking industries in the new dispensation of universal banking. Co-opetiton strategies requires recognizing the limits of ones ability, clear organizational objective and goals, understanding the goal and interest of other players, searching for win-win solutions that grows the cake and makes it bigger to divide.
Players in the energy industries going through seismic shifting deregulation will also need to master co-opetition strategies. The breadth of competencies required to deliver service makes it imperative that they must co-operate and compete. The power sector will be particularly interesting in the coming years. The dynamics of competition, co-operation, regulation and reforms will test traditional strategy thoughts.
Strategic Business Positioning
The new intense nature of competition occasioned by the 3D forces makes it imperative for businesses to define for themselves clear industry positioning strategies. There is always a strong tendency on the part of firms in many industries to compete in the same way, target the same customers with the same offerings, deliver them in the same way and ultimately price their service in the same way. This “commoditization” tendency ultimately leads to price war, driving prices down along with industry profitability. Commoditization tendency also implies that firms make no strategic choice of customer segments to serve (and which ones they will not) based on their unique differentiating assets. The financial service industry provides a good example of many firms that compete in the same way by chasing the same type of customers with the same type offerings. Yet, there are other firms in the same industry who are pursuing clear differentiating and positioning strategies, clear choice of market segments to serve while developing supportive organizational capability and competency programs. On the long term, most of the firms with commodity competitive strategies are likely to be consolidated and swallowed by players with scale economy advantages. Many of the small commodity players will run out of competitive gas, as they witness declining profit and ultimately destroy economic value.
It is imperative that new entrants in deregulated industries differentiate themselves from incumbents with large assets who are likely to play a pricing game. Incumbents are also likely to use their market power to dictate the competition rules. New entrants must however enter the industry with a view to change such rules, as the existing industry competition rules will always sustain the leadership of incumbents. If new entrants must change the rules of competition to their advantage, they must build new types of differentiating assets that allows them to stake strong claims to unique market positions and serve their choice of customer segments uniquely.
Incumbents on their part must recognize that industry rules are changing and reform to adapt to them. This is however easier said than done. There is usually an initial “stickiness” of the economic power of incumbents even when the objective conditions of their market power are rapidly dissolving. This tends to make incumbents arrogant and blind to the new reality of the rise of customer power and new competition. This reinforces the tendency of incumbent players to compete as if industry conditions will remain static. If incumbents are to maintain their leadership in deregulated markets, they must lead their industry in changing the rules of competition, reform their competitive strategies, sometimes cannibalize their existing products by new customer-oriented services. The rule is “attack yourself before someone else does”, divide the cake but keep them in the house. If the history of deregulated industries all over the world is anything to go by, this is difficult for incumbents to do.
Is The Rise Of Customer Power A Threat To Business?
The defining paradigm of the new dispensation of the convergence of the 3D forces is the rise of customer power in many industries. Organizations that are not customer-centric may perceive the new ascendancy of customer power as a threat. Yet, the emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. Many organizations shall however claim to be customer champions. The true customer champions are however those organizations that truly serve and champion customer interest. They are those who make the right business trade-offs in favour of the customer. Customers will truly know the organizations that champion their interest. They will easily discern between reality and advertising claim.
The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.
Customer Relationship Management
Many service businesses, as a result of the new ascendancy of customer-power, shall adopt some form of Customer Relationship Management Program (CRM). CRM shall become very fashionable pushed by hard selling IT and management consultants. Yet, this shall not constitute competitive edge for many firms as such CRM programs become industry generics. The experience of IT development and adoption in the service industry is showing that technology on its own may be necessary for competitive edge. It is however not a sufficient condition. A business must define for itself clear differentiation and positioning strategy aligned to its choice of customer segments and how it wants to serve them uniquely. CRM program is effective only if it is a tool of this well-defined business strategy.
CRM program is a business asset. It is however the total and unique configuration of all assets and resources of a firm, aligned to a defined differentiation strategy that truly builds sustainable competitive advantage. These assets and resources include people, knowledge and organization culture, finance, systems and processes among others. Unique organization culture aligned to serve the customer in unique and better ways could be far more critical than generic CRM programs. Organizations will not become customer-centric just because they have CRM programs. Building a true “Customer-Champion” culture supported by good CRM program can be a most powerful strategy under the new dispensation of the ascendancy of customer power.
Managing Inter-Category Competition
Inter-category competition has increased. Competition is no longer between soft drinks, or between beer brands. There is a new type of competition between soft drinks, beer, cigarettes and re-charge cards. Share of pocket analysis is now as critical as share of market analysis. This type of inter-category competition is not what we are traditionally used to in Nigeria marketing practice. Competitive radar screen and marketing planning must today factor-in developments in other industries and categories.
If brands are to survive this new type of inter-category competition, they must build strong emotional market positions that are bigger than their rational categories. In essence, brand-marketing programs must address questions such as “ How do we make soft drinks bigger than refreshment?” How do we make beer bigger than “highness?” Brands must find ways to tap into higher timeless emotional and self-expressive human values to build the necessary resilience against share-of-pocket competition from other categories.
The convergence of the 3D forces with new investments and increased competition implies that there are now more advertisers than we have previously known. Telecommunications have taken over from soft drinks as the leading category in share of media voice. Demand for media space is accelerating. The demand is however not backed by a commensurate growth in media supply. The economics of supply and demand of media space is therefore leading to accelerating media-space inflation. Media clutter is now very high. It is becoming increasingly difficult for brand messages to penetrate the competitive noise and clutter of media. Media compliance levels are falling especially on radio. Every one wants the radio drive-time belt with limited media space. Most of such scheduled radio ads are aired after 9am when the target audience delivery target can no longer be achieved.
Breaking through media clutter with brand messages require a return to the basics of advertising message strategy. Advertising messages must tell the consumer very clearly what is in it for him that he cannot get somewhere else. It must be driven by an alignment of what is unique about the brand and relevant consumer insight or motivation for choice within the category. Simplicity is the hallmark of great creative strategy. The customer does not have to do complicated and abstract thinking to understand advertising messages. Brand messages must be delivered with clear consumer benefits in simple and easy comprehensible creative executions.
A higher level of excellence in media planning is required. Media buying must become more scientific, based on audience delivery metrics and effectiveness. It is not just about buying cheap. It is also about buying into the right critical audience belts. Scientific media planning technologies are now available in Nigeria. Its quality however needs to be seriously improved to the standards of the first world. This requires an industry-wide co-operation of all stakeholders including the media organizations.
As media gets saturated and cluttered, strategically relevant sponsorships can provide real edge in brand communications. Sponsorships is however not a charity. It must be such that generates positive associations for the brand and support its intended market position.
The fast food category provides a very good case study of the need to move from the marketing of tangibles to experience under the new dispensation. The combination of increasing middle class prosperity and changing work-lifestyles is driving the growth of the fast food category. Foreign brands are entering the market to wrestle market share from local entrenched players. Product parity is increasing. Brand and service differentiation can no longer be achieved at the rational level of snacks; chicken and pizza as there are growing number of players offering such products. Brand differentiation has to move in this category from products to the “experience of eating”.
Fast food category brands must explore opportunities to differentiate on the basis of emotional experience of family, love, friendship, success, fun and many more. The eating ambience must deliver unique emotional experience beyond the products they sell. The experience of eating must be transferred to the branded food packs when taken-away. When the meal is taken outside the restaurant, in an office or home, the food pack must make the customer feel his location as a virtual extension of the unique eating experience of the restaurant.
The paradigm shift in the coffee category marketing internationally provides important lessons for fast food industry players. Brands like Starbucks have emerged from no-where with an experiential service proposition that overturned competition rules in coffee marketing. Coffee has become bigger than the rational benefit of “mental alertness”. Coffee today means friendship. Customers express the same emotion when they say “let’s do coffee in the afternoon” as when they say “lets have beer together in the evening”.
The re-nascent big screen cinema industry also provides opportunity for experiential brand differentiation. The motivation to go to the movies is beyond the movie itself. It is the experience of friendship, of being together, and the experience of family. The big screen movie experience is a bonding opportunity between friends and the rekindling of family feelings. The emerging national big screen cinema brands must understand this on time, and build a truly differentiated and sustainable experiential brand. It is inevitable in the near to medium term, that foreign brands will enter this category to exploit the increasing prosperity of the middle class. These foreign brands will be able to source better content and achieve rational differentiation, dissolving quickly the brand equity of the national brands. The national brands as we have seen in the fast food category, must therefore begin at their inception to connect higher emotional values of family, fun and friendship to differentiate. The earlier they start, the stronger their potential to own and lock those emotional segments from the inevitable entrant international brands.
All service businesses should explore experiential marketing differentiation opportunities especially in categories witnessing increasing product parity.
The convergence of the 3D forces of democracy, deregulation and digitalization is leading to profound changes in economic structure of industries. The convergence is creating a new type of competition that our generation is not used to. The new type of competition stretches some of the traditional principles of competitive marketing. The defining paradigm of this new competition is the rise of organized customer power. This organized customer power implies the need for a new type of dialogue between the firm and the customer, compared to the little or no dialogue of the past.
The new ascendancy of customer power provides new industry leadership opportunities for true customer champions. Businesses that align their interest with that of the customer will find a most un-usual partnership in the organized customer advocacy groups who will also champion the firm’s interest. The new dispensation provides opportunity for a new type of partnership between the customer-champion firm and the customer. This partnership will provide strong competitive edge that will eventually lead to industry leadership for the true customer-champions.
Since the lecture was delivered in June, this year, there has been major regulatory development in financial services industry. The banking sector is going through major consolidation driven by the N25 billion minimum capitalization rules. The financial services industry especially banking may be entering a new period in which resource advantage, as a basis of competition would be seriously eroded. The landscape could be filled with several financial institutions with good capital (resource) to play. Resource advantage gaps could be significantly narrowed. Building market-based competitive advantage based superior service offering driven by superior market-insights would be critical in the coming future. The learning capability of the organization, how it processes that learning to develop superior market insight that informs its service offerings may be the most critical competitive advantage in the emerging future in financial services.
Olu Akanmu, delivered this lecture at 1ST Brandwagon bi-monthly lecture series. June, 2004. Olu Akanmu can be reached on email@example.com