Prior to joining INSEAD, V Padmanabhan has been a part of the B-school faculty at Washington University and Stanford University. Known as one of the top 250 most highly cited scholars in the world in economics and business, Paddy’s current research focuses on opportunities and challenges in developing economies, economic rises and their implications, pricing and supply chain management.
Q: When we talk of marketing, a lot has changed with the onset of social media and e-commerce. How have things changed since the business leaders of today were once your young students? How relevant are the old ways of marketing today?
A: The internet is all around us. But the fundamentals of business don’t change. It’s not rocket science, but in the midst of all the hype and hoopla surrounding the internet, social media, m-commerce, you tend to forget a lot of the fundamentals. It is true that with social media platforms, you are now able to do a lot of things that you couldn’t do before. To give you a case in point, in a lot of situations, the consumers themselves were a lot more passive in terms of the roles they played. In the world we are in today, consumers are a critical part of the conversation. As a company today, if you can’t figure out how you can engage with consumers, you’re not going to be very successful. The challenge now is to satisfy consumers with exactly what they are looking for keeping in mind their curiosity, self expression, etc. With these new media we can create conversations that we couldn’t have created before. But how do we as organizations, managers use these to learn? The thing we have to keep in mind is that e-commerce, m-commerce and social media can help developing economies leapfrog and break through a whole bunch of bottlenecks. In economies like India, Kenya, Philippines, it’s the mobile phone that is actually allowing people to do things that can make the economy grow. An Indian or Kenyan can in fact do a lot more things on their mobile phones than the average guy in France.
Q: Has the way selling is done changed because of the platforms you mention?
A: All of these innovations and disruptions do both things; they create opportunities and challenges. Now everyone has a mobile and a twitter account, if a company doesn’t take care of a customer they can just tweet to their followers. The impact of that is much worse than
one customer not buying your products. The same goes if a customer loves your product—he can promote it.
Q: Numbers on online buying keep going up. I want to talk about competitive pricing. There is this intense competition on trying to sell at the lowest possible price. Do you have a rule of thumb on the right pricing ideology?
A: You hear everyone say that the pressure on pricing is just increasing and margins are falling. Everyone criticizes the impact of online platforms on prices. But there is a flipside to this. Because of these platforms, many more people are able to see the things available in the
market. Two minutes is what it takes now to close a sale because customers know how much a product costs. Earlier, many customers would just wait to buy something because they didn’t know exactly how less they could buy a product for. Because of a lack of access, people would wait a long time on these things. These things would make the whole business ecosystem a lot more efficient. You may not make as much of a margin now but you can also eliminate a whole bunch of costs and attract many more customers. You needed high margins earlier because your costs were higher. Because people are able to close sales faster, the amount of inventory one needs to keep is plummeting. The way things are now, you can run a much leaner operation. Early on when you think about showrooming, the CEO of Target was going red in the face saying that he was going to ban people from walking into a store and taking out their mobile phones—it was a wrong way to look atthings. The way to think about it is, what can you do for me on the plus side. Think about what happened to the airline industry. Everyone looks at retail and says that the internet is disrupting it. In aviation, the internet disrupted the industry completely. Now everyone pays the lowest possible fare on an airline seat. Companies had to realize that they need to be competitive on prices but also provide the right services that customers will pay them for.
Q: Does that theory differ for Indian customers who seem to be a lot more price-sensitive?
A: A lot of people were worried that internet retail will not take off in India because you will not get the cash. Companies had to depend on cash on delivery because a lot of people don’t have credit cards. But when I spoke to some of our INSEAD alumni that are at e-commerce platforms, one of the things that they tell me is that their return rates are actually going down instead of going up. If we deliver what we promise to deliver, then people are willing to pay. People in a developing economy are definitely more price sensitive. Earlier, the mindset was that I also want the lowest price and I want all the services free. Consumers in developing economies had the ‘be happy that I am buying
your product, I am not going to pay for anything more’ attitude. That is however slowly changing. People eventually realize that it makes sense to pay for good service. Is it happening as fast as service providers would like? That’s an open question. It is definitely changing and will continue to change.
V Padmanabhan is the Professor of Marketing and the John H. Loudon Chaired Professor of International Management at INSEAD–Singapore
