The Quality of Market Performance

The Economic Times - January 2002

It is corporate results time again, and stock market analysts are busy analysing the state of the markets - the markets that they spend their time worrying about and the markets that I spend my time worrying about. I used to wonder if there really was a connect between the two, a thought that was wonderfully captured in an Economic Times headline of a few years ago: "The Sensex is driven by neither sense nor sex"! However this is a new age, and I can't but help notice how much more involved and aware stock market analysts and fund managers are about what is happening in consumer markets.

They know their retail audit data very well and have more up to date analyses of segment and category wise aggregate demand than I do; they track market shares with the same tenacity as brand managers, and they ask a gamut of searching big picture questions: why are rural consumers not buying detergent but shelling out money for motorcycles, is the Indian woman finally ready to join the world of the living and consume processed foods, and killer questions like "what is the size of the Indian middle class" and "what do you think the consumer durables sector can be expected to grow at, given consumer finance trends and low growth in agriculture".

It is now time to move from focusing on the macro consumer demand picture to zooming in on the micro company picture. The fact is that when the tide was coming in strongly, it swept everybody closer to the shore, irrespective of their swimming capability. The mental model of an average industry performance with a few outliers worked well. But in a receding tide, while everyone is getting battered, the stronger swimmers will emerge in far better shape when the tide begins to turn again. There will be some that will get swept away if the tide takes much longer to turn, and there will be others who will be too exhausted from just hanging in there to show much progress when the good times come.

Since analysts presentations are beginning to get more frequent, formal and serious, here are some suggestions for what analysts might ask for, in the realm of really understanding (1) a company's reported market standing and performance and (2) its fundamental competitive strength in the market and (3) the quality and clarity of its market strategy. The first thing to ask for should be details of the quality of the company's market performance, and not just the quantity. A company that has discounted or 'schemed' its way to showing large volume improvements or has stuffed its pipeline should not get more credit than one that has shown very modest growth, but for reasons of consumer pull, or reasons of well thought out price - volume trade offs. Dropping price per se, is not heresy, but there has to be a strategic logic for it. Further, a company that has a better quality customer base must get more marks than one that has the same volume and value but is made up of a more rag tag bunch of customers. The director of a leading consumer goods company illustrated this point in a recent interview, by saying that they would rather control 50% of the market through having the top two or three brands than control 50% through having 5 or 6 brands with lower market share. Companies should be asked to provide some evidence of consumer loyalty - even in a brand promiscuous category, there is a notion of loyalty and retention. It just ensures that a customer or a percentage point of market share acquired is here to stay and act as fuel for further growth. Finally, there is the issue of brand strength. Companies must be asked to provide periodic evidence of brand health in terms of metrics like competition benchmarked brand image and brand commitment. We are at an era when golden great brands of yesteryear are slipping because they have not overhauled themselves in response to new competition or new customers with different world views.

The second thing to analyse is whether there is a clear market strategy that the company has. This should not be a "see what programs and policies I have adopted to improve market share for each category or brand". It should be a clear statement of the market strategy fundamentals i.e. "these are the market spaces which I have defined as my primary and secondary playgrounds", "this is my way of playing the game in each of these playgrounds" and "here's why I think I should win". The last one is particularly important - companies often say that they should win because they pay attention to quality, cost and customer delight. The question is one of how they believe that they do it better than their competition. The issue is not of a mere value proposition, to use a hackneyed phrase, but that of a rivalry proposition. And there must be some substantiation of why they believe they can deliver this proposition better than the next guy.

Finally a company that has demonstrated evidence of seeing market shifts (either of the market structure kind or of the consumer behaviour kind) earlier than the others and acted on it must get more credit than one that did not. In the same vein, a fast follower must get more credit than one resistant to change. However a blind follower of the leader must get less credit unless they can provide sound logic for why the leaders actions are relevant in their own company's context as well.