Local partners understand the supply chain better: Mark Vandenbosch

Interview with Associate Dean, Programs, Ivey Business School

It is wise to enter a new market with a partnership mindset, even if that is not what MNCs choose to go with in the end, Mark Vandenbosch tells Devina Joshi

Until a while ago, products used to be the hero of a corporate's success story. Is an exceptional product really enough to be a sustainable competitive advantage today? How can companies create value beyond products?

Think of any product. Outside of pharmaceuticals and a few other categories, the differentiation in products is negligible, and the ability of firms to copy what other firms are doing has never been at a higher level. Whether that is a product, a software, an app… all of these are easily replicable. You really need to have a great product, but that's just entry-stakes, which at least allows you to play.

Years ago, we did research where we went to companies and asked them the specific question, "Why do customers buy from you as opposed to your competitor?" You'd think that if the product is the hero, they would list that. It didn't matter if it was airlines or consumer packaged goods companies or business-to-business firms… only about three points out of 10 might have had to do with product or product quality. But more than half the reasons given had to do with relationships: 'we're easy to work with', 'we have a global presence' etc.

All of these had to do with customer interface. It was about how easy is it to deal with this company, and how it can save us time or money.

According to a McKinsey report, 57 per cent of the nearly one billion households with earnings higher than $20,000 a year will live in emerging markets in 15 years' time. Clearly, emerging markets are important for MNCs, but are companies making a mistake in focusing on large cities, and not smaller towns where the growth is likely to come from?

I think in the near future we are going to see more and more multinationals transferring strengths from one emerging market to another as opposed to moving from the West to an emerging market. Take Unilever. What it has done in local markets in India is similar to what it did in the local markets of Brazil. It has taken the notion of understanding customer insights at the local level very seriously and has built businesses around it. Mahindra & Mahindra has learnt how to be profitable - it understands customer interfaces in emerging markets, and replicates that in other places. Or take Airtel and what it is doing in Africa.

A lot of companies have tried the whole 'You're doing it wrong; I'll show you how it's done' route and failed. For example, TESCO has been spotty in terms of bringing the UK shopping experience to other markets because it hasn't understood the local markets well.

Do you think some global companies are guilty of underestimating local partnerships in emerging markets, and therefore struggle?

You go to Starbucks here in India and it looks the same as what it would in Canada or the US, because that is the formula they want to apply. That being said, navigating around government structure, regulations, supply chain management, taxation etc, is incredibly local. So while Starbucks may look the same, it requires an understanding of the back-end supply mechanisms.

McDonald's' biggest strength is its real estate footprint. It may have thousands of stores in North America, but it is the largest landlord of real estate in Western Europe for example. That location advantage is something that it has learnt by understanding the local environment. Sometimes local partners understand the local nuances of how the customer works, but I do think they also understand the supply chain better. Local partnerships need not be the only way to do it, but from a cultural acceptance and regulatory point of view, it is wise to go in with a partnership mindset, even if that is not what you choose in the end.

Loyalty programmes in India are at a very nascent stage; the concept of coalition loyalty has met with limited success here. Would you say it is one of the most underrated disciplines of marketing?

Canada is probably the world leader in coalition programmes. The US doesn't have any. Why? There is a business aspect to the idea. Coalition loyalty is only one means to get to the loyalty space. Coalition programmes work when everyday purchases are consolidated. That includes grocery, fuel, banking arrangements and pharmacy. India is much more of a local, cash market. So I won't get that scale of purchases to warrant putting together a system to collect all this information, which will cost a lot of money to scale it up. And when the share of wallets is not consolidated in that way, it is a market that is not necessarily ready for it.

Companies with a high Net Promoter Score (NPS) do not necessarily gain in terms of revenues, according to a Bain study, because feelings of loyalty don't necessarily transform into purchases. Do you subscribe to this view?

Companies that start out small satisfy their target audience well. Now a customer outside of that orbit may think this is not exactly what she wants but as the company is doing it so well, she may give it a try as her current company isn't doing it so well. What ends up happening is that as I grow on market share, I am not satisfying any one person very well. I may be better than the next best alternative, but I may not be exactly what people want. So when you think of your NPS question, the opposite holds truer: if you have a lousy score, you will lose customers. But if you have a great NPS, that doesn't necessarily mean you will gain sales. You may just gain on advocacy.

MARKETING GURU

• Vandenbosch earned his BA from the Western University and his PhD from the University of British Columbia. He has held visiting professorships at IMD in Switzerland and INSEAD in France
   
• Vandenbosch's research interests centre on competitive strategy, product management and marketing research. His work has appeared in various journals, including International Journal of Research in Marketing, Journal of Business Research and MIT Sloan Management Review
   
• He has taught in-company programmes for Tetra Pak, Cisco Systems, Nestle among others