Racing To The Bottom

I always get a kick out of opening the morning newspaper and reading about some high end brand setting up shop in India. Usually, halfway through the article they will throw out some crazy goal of setting up 100 locations in 10 cities in 2 years. I just shake my head and laugh at how ridiculous those goals are. It shows that the company has no clue about India, they probably sent some business development guy on a 10 day trip who stayed at the Taj Palace in South Bombay and at the Taj Mansingh in New Delhi. On the plane ride back, a 100 slide PowerPoint deck was created and thus the Indian expansion plans were created.

Pro Tip: If you are planning to launch a high end brand in India, park yourself in Indore as your base for 6 months to get a sense of what India is really like. Then decide if setting up 100 locations in 10 cities in 2 years is feasible, let me save you some time – it’s not feasible.

In the early 90’s in the US, the three major Japanese automakers (Honda, Nissan and Toyota) found a gap in the high end automotive space. They decided to go up market and launch separate brands for their new luxury brands. Honda launched Acura, Nissan launched Infiniti and Toyota launched Lexus. It was a massive success and Lexus today is one of the top luxury car brands in the US and consistently gets rated by JD Powers as the leader in quality and customer satisfaction.

If selling to the top of the pyramid in large numbers is years away, what does a company do in the meantime for their India strategy? Go down market. People always have a negative connotation of “going down market” or believe it means selling to people at the very bottom of the pyramid. Many companies think selling products at the lower rungs of the pyramid might impact their overall brand image which they fiercely want to protect. But, with the sluggish global economy many companies are re-adjusting to a new normal and looking at going down the pyramid to increase sales.

Two companies that have started to re-adjust in India are American Express (AmEx) and Nissan. AmEx is a marquee name I would have NEVER imagined selling to consumers in the middle of the pyramid. AmEx recently launched their AmEx Payback card that has a yearly fee of Rs. 750 (USD $13) and a minimum income of USD $5,000. This is from the same company that has the Centurion (Black Card) which is invitation only and one of the most expensive cards to have. But then again if you are worth a couple billion what’s a USD $2,500 yearly fee. The logic behind the AmEx Payback card is to get new college grads in the habit of using credit cards and hopefully they will move up to the higher level AmEx cards as their income increases.

Forbes India recently did a cover story on Nissan’s plans for India which includes relaunching the Datsun brand for consumers who are in the middle of the pyramid. Nissan will use the Datsun brand in countries where they want to sell lower priced cars. In India, the Datsun brand will be squarely competing against the 800-pound gorilla which is Maruti. A quote from the article:

You shouldn’t build a car for the emerging markets with development costs of first world countries

The quote can be applied to almost any product/service being sold in an emerging country like India. As the global economy slowly moves along, I think more and more companies will adopt a similar strategy to AmEx and Nissan. Get people hooked to your lower end product and then as their income rises they move to your more pricer higher end products/services.