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INTERNATIONAL JOURNAL OF SCIENTIFIC PROGRESS AND RESEARCH (IJSPR) ISSN: 2349-4689
Issue 150, Volume 50, Number 01, August 2018
www.ijspr.com IJSPR | 1
Innovation, Networking and Emerging Markets
Dr. K. R. Subramanian,
Professor of Management & Senior
Consultant – Operations, Credait.com
ABSTRACT- Network markets are quite widespread in the 21st
century and remind us of the information age brought by
revolution in information processing. Industrial revolution had
earlier taught generations of how to compete in markets. Today,
organizations need to understand the dynamics of a digital
networked society and find new ways of marketing. This
research paper attempts to outline basic concepts relevant to
facing competition in these markets and sell products and
services. The prominent characteristic of network markets is
that the value of the product increases with the number of
adopters through networking. The marginal increase in value
that these adopters attain when one more person joins the
network is called a network effect. In short, the size of the
network (installed base) creates a benefit, which is independent
of any product features, quality, or even the image of the
product—and this changes the nature of competition. Net
working creates a force of customer response and accelerates
the effect through the net work. The present research paper
addresses this emerging area of knowledge and focuses on
technological innovation as a strategy in these markets,
particularly product and systems innovation. The challenging,
unpredictable, and often cutthroat competition in emerging
markets is literally a challenge for the emerging network
markets
Key Words- Network marketing, information processing
and digital technologies, early adopters, competition, and
technological innovations and strategic marketing.
I. INTRODUCTION
Currently, most studies of network markets have focused
on the dynamics of competition in emerging markets.
While some network theories assert that incompatible
technologies compete intensely in emerging markets, but
when consumers expect one technology to become larger
than any other, they adopt that technology en masse,
abandoning any other. That point where consumers expect
a technology to win is called a tipping point because the
market tips to adopt that technology to the exclusion of
any other. One of the most noticeable aspects of
competition in these markets is that it becomes a do or die,
proposition. Competition is particularly intense because
just one technology remains adopted. If one firm has
proprietary access to that technology, the end result is one
monopoly and monopoly profits. The other competitors are
vanquished and retain virtually no market share. Moreover,
such a monopolistic position appears quite sustainable,
since network effects deter others from competition. As a
result, these monopolists have been considered
invulnerable. Thus, the term winner-takes-all characterizes
this type of competition. The winning firm, that which
owns the most popular technology, takes “all” the profits.
Figure 1: Progress Toward Digital Literacy And Inclusion
In Emerging Markets.
Michael Porter’s work is particularly relevant here because
he built upon economic theory to produce a framework for
strategy formulation that has proven remarkably durable.
Some have suggested that network markets challenge that
framework. Porter (2001) himself, however, demonstrated
that his models apply to Internet and information-related
markets. His frameworks clearly provide valuable insights
to any industry. Traditional strategic frameworks simply
do not address the unique facets of competition in network
markets. They fail to capture the essence of competing in
these markets. Like the “dark side” of the Star Wars series,
the “demand side” of competition—the demand-side
economies of scale that characterize network markets—are
unfamiliar to many and present unique challenges.
We know some of the basic dynamics of competition in
emerging markets, but far less about how to compete in
markets that have already tipped. We know something
about competing through compatible standards—and open
systems—but far less about competing through
incompatible and radical innovation, particularly in
monopolized markets. Finally, we need to know more
about how characteristics of demand and supply affect
competition in these markets. In 2014, the usage and
purchase of mobile devices overtook desktop computers as
the most common digital platform in the United States. A
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similar trend has been observed in developing countries.
Despite limited fixed-line Internet access and relatively
high costs associated with computer ownership, mobile
usage in developing countries has increased by more than
20 percent in five years, quickly becoming the primary
way people engage online. This expansion of mobile
Internet has revolutionized the way people interact and do
business.
In a digital age, the ubiquity of mobile Internet creates
tremendous opportunities for individuals and communities.
But unlocking these social and economic opportunities
requires mobile designers to constantly prioritize the
underlying cultural context of the products they design.
II. OBJECTIVES AND METHODOLOGY
Current business environment is throwing up several
challenges to marketing and sale of products and services.
That the marketing has become a competitive field is also
nothing new. But the real challenges today are the game
changing nature of Technologies and Innovation. In the
information age, as they call the present age of mobiles
and hand held devices which are proliferating all the
computer applications and making technologies obsolete
overnight by something new, the pace of change has
become uncontrollable and corporate managers are toying
with several ideas to find solutions to this game changing
environment. Innovations are always welcome to the
general public because they make their lives that much
easier. But along with it comes the competitive pressure to
absorb new technologies and participate in the process of
making profits. With these environmental challenges
business wants to go on as usual. Because of the
availability of digital technologies the information gets
transmitted at a fast pace due to the mobile culture and
texting. Markets are evolving, marketing strategies are
rewritten, and on the whole there is not a single day that
passes of as ordinary or eventless. However for the
purpose of the current research paper following limited
objectives has been identified for further exploration:
1. Environmental changes bringing innovations and
net working.
2. How the focus has changed to innovative
marketing strategies.
3. The role of networking in evolving strategies in
the current environment.
4. A brief review of how companies are facing to the
current challenges.
5. Conclusions and recommendation.
Though network markets are not new, the challenges posed
by current environment particularly with digital
technologies are unprecedented. Today, most of the
companies and players in the market have caught on to the
realities of the digital revolution. Each company and
competitor tries to impress their customers through better
ways of presenting the product and positioning them.
Apart from being no-nonsense in their approach, every
company wants to create a better impression of their
offerings. Presently in the information age and wide spread
usage and availability of several digital devices and their
interconnectivity through modern technologies, the
challenge is who will run faster and find new ways to
captivate customer. This is the central theme of this
research paper. Several methodologies like a field survey
were considered, but ultimately this was reduced to the
current method of an extensive desk survey and research.
Sufficient literature was available and the only challenge
that remained was to collate the information and do the
data analysis. This has been done satisfactorily to arrive at
the conclusions and recommendations.
III. REVIEW OF LITERATURE
To redirect demand, your customer value proposition
(CVP) must solve a problem more effectively, simply,
accessibly, or affordably than the alternatives. In
developing markets, we have found, the components of a
CVP that matter most are affordability and access.
Western companies know that they need to come up with
lower-cost offerings in emerging markets, but they too
often limit themselves to providing less for less. In 2001,
for instance, a 300 ml bottle of Coke cost 10 rupees—a
day’s wages, on average, and a luxury the company
estimated only 4% of the population could afford. To reach
the other 96%, it introduced a 200 ml bottle and cut the
price in half, shaving margins to make Coke more
competitive with common alternatives such as lemonade
and tea.
A far more robust approach to creating an affordable
emerging market offering is to trade off expensive features
and functions that people don’t need for less-expensive
ones they do need. To get that right requires a clear
understanding of the context in which the offering will be
sold—which calls for further fieldwork, preferably of a
collaborative rather than a merely observational kind. This
is good product-development advice in any market. In fact,
it applies to indigenous players operating close to home,
like Godrej, as well as to Western companies confronting
the unfamiliar. Godrej company team designed and built a
prototype cooling unit from scratch and tested it in the
field with consumers. Then, in February 2008, more than
600 women in Osmanabad, a city in India’s Maharashtra
state, gathered to participate in a co-creation event.
Working with the original prototypes and several others
that had followed, they collaborated with Godrej on every
aspect of the product design. They helped plan the interior
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arrangements, made suggestions for the lid, and provided
insights on color (eventually settling on candy red).
The result was the ‘Chotukool’ (“little cool”), a top-
opening unit that, at 1.5 x 2 feet and with a capacity of 43
liters, has enough room for the few items, users want to
keep fresh for a day or two. With only 20 (rather than the
usual 200) parts, it has no compressor, cooling tubes, or
refrigerant. Instead it uses a chip that cools when a current
is applied and a fan like those that prevent desktop
computers from overheating. Its top-opening design keeps
most of the cold air inside when the lid is opened. It uses
less than half the energy of a conventional refrigerator and
can run on a battery during the power outages that are
common in rural villages. At just 7.8 kilograms, it’s highly
portable, and at $69, it costs half what the most basic
refrigerator does. Because it’s the right size for the job,
easier to move, and more reliable in a power outage than a
conventional fridge, it surpasses the higher-end offering on
the performance measures that matter most to these
consumers.
Accessibility was the key to successful marketing of this
product it is not surprising that portability is important to
potential ChotuKool customers, given that they move
frequently. And because populations in emerging markets
tend to be dispersed, obtaining goods and services can be
more difficult than in the West. This creates opportunities
for companies that solve challenges of access. Targeting
this market has two great advantages. First, it’s easier to
upgrade the solution to a job people are already trying to
do than to create sufficient customer demand where none
yet exists—as would-be vendors of purified water and
other seemingly essential offerings have found to their
dismay. Second, it’s easier to reach people who are already
spending money to get their jobs done. That’s essentially
what Ratan Tata did with the $2,500 Nano. He didn’t ask,
“How can I get people who’ve never bought any form of
transportation to buy a car?” He asked, “How can I
produce a better alternative for people who hire motor
scooters to transport their families?” The goal is to redirect
existing demand by offering a clear path from an
unsatisfactory solution (through innovation) to a better
one. Tata Electric car is proposed to be re-launched soon.
Network markets are arguably much more prevalent this
century, given the central role of new communication and
information processing technologies in our lives; many of
us have had to choose among mobile phone operators, for
example. Whether innovation in a network market is likely
to capture share and profits clearly depends on several
factors. Prominent among these are (a) market structure—
whether the market remains competitive or is dominated
by a monopolist; (b) the position of the innovator—peer,
challenger, or monopolist; and (c) the type of innovation—
the extent of compatibility and improvement it provides
relative to competitors’ products. Radical innovation
provides large improvements and incremental innovation,
small ones.
Figure 2: Tata NANO – an affordable car/ the proposed
electric car
As we review what we do and do not know about
competing through innovation in network markets, we find
challengers may be better off adopting more risk, not less.
Both incompatible and radical innovation can offer higher
expected returns than compatible and incremental
innovation, respectively. Such prescriptions underestimate
the powerful role of innovation as a strategy and the
competitive process by which new technology periodically
replaces the old. Fax machines, for example, are now
largely replaced by “scan and send” technologies in
computer systems. Network effects clearly raise the bar for
challengers, and they may confound some of what we
know about competition, but they do not negate the entire
body of knowledge that management scholars and
economists have painstakingly accumulated.
Figure 3: Competing strategy in emerging markets
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Our knowledge of how to compete in emerging network
markets has clearly progressed, as described earlier.
However, management scholars have paid far less
attention to competition in network markets. These
markets have a very high barrier to entry, since network
effects amplify traditional barriers such as economies of
scale and capital requirements. Innovation is a way of
competing in these markets that appears to have been
underestimated. New entrants and fringe competitors can
topple the incumbent to capture significant market share,
but the way they do this—the extent to which innovation is
not only compatible, but also radical—matters. Moreover,
we need a more comprehensive review of market
characteristics—consumer value and production
functions—to understand how challengers can compete.
The properties of network markets are simply more
complex than initially envisioned. More in-depth analyses
can bridge the gap between critiques of network
externalities theory and its potential to help firms compete.
Consistent with these critiques—which point to omitted
variables—firms need to analyze additional characteristics
of markets and technologies when formulating a strategy
to “take back” a network market. In combination, these
characteristics render some types of innovation far more
likely to succeed than others. Such analysis can help
challengers determine whether their product should be
compatible with the dominant firm’s product and the
extent of improvement they should provide—how much
additional product benefit.
When consumers expect a product will attract the most
consumers, they will buy that product, which causes the
market to tip and that product to have the largest installed
base. In competitions between systems that exhibit indirect
network effects, consumer expectations about the
availability, price, and quality of some components can be
determinative when other components must be bought
first. If consumers do not expect software components to
be available, for example, they will not buy hardware
components and, hence, the overall system. Expectations
regarding these components determine which
technological system wins the market. As a result, firms
have strong incentives to build expectations about their
own products and tear down expectations about rival
products. Some of the legitimate ways firms build
expectations are through sources of competitive advantage
such as established reputations, well-known brand names,
and visible access to capital. Firms without the previously
mentioned sources of competitive advantage are more
likely to pursue an open systems strategy in which
technological specifications are made available to
encourage compatible product development and larger
networks. These firms are more likely to prefer to compete
through compatible products. Compatibility has been
broadly defined as the ability of a product to work well
with another. We come across a phenomenon that plays a
big part in adoption decisions: the fear of being stranded. If
consumers adopt the losing technology, their prior
investments in learning, skills, hardware, and software
libraries lose substantial value. They will not be able to
access future improvements associated with the winning
technology.
In the last decade of the last century, the prevailing thought
was that all was won or lost after a network market tipped
to a dominant firm. Challengers—those fringe competitors
with tiny shares and new entrants—could not compete.
This is where 21st-century scholars have their work cut out
for them: How can firms compete through innovation in
network markets after a winning firm has become
entrenched and network effects amplify barriers to entry?
Some of the more visible network markets are those in
which the size of the network benefit has clearly
overwhelmed the size of product benefits that challengers
have tried to compete with (the market for desktop
operating systems, for example, which Microsoft has
dominated). However, history indicates that—even in
these markets— innovation that provides an overwhelming
advantage over existing technology can topple incumbent
dominance and establish a new network. Video
communications, for ex-ample, can topple the dominance
of telecommunications networks, and so forth. Product
benefits, and strategies such as product differentiation, are
still relevant in network markets. They merely have a
higher threshold to overcome; large rather than
incremental improvements must often be provided.
Differentiation is a strategy that can work in network
markets, if it reflects market demand. Incompatibility can
be more profitable—given varied preferences in the
market—than a head-on competition to meet the same
preferences, which can dissipate profits.
Some mathematical function reflects the relationship
between network size and network effects, how much
benefit all users (members) obtain as each new user is
added to a network. Increases to the size of the network
simply fail to add value at some particular threshold,
which means multiple networks (parties) can coexist. We
see this all the time—in markets for incompatible video
game consoles, for example. Yet, Microsoft’s sustainable
dominance of the market for desktop operating systems
has led some to gloss over this aspect of network markets.
It is difficult for multiple operating systems to coexist
because the threshold at which network effects wane is
quite high. Moreover, preferences for desktop operating
system functions do not vary substantially; they have been
relatively homogeneous. Even here, however, niches can
be found.
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The greater the network size the dominant firm provides,
the greater the product benefit the challenger must provide.
Moreover, characteristics such as switching costs, R&D
cost structures, and technological uncertainty impose
additional risks and costs on investors and consumers.
Therefore, the challenger must decide how radical its
product needs to be to compensate for all of these costs.
Ultimately, the degree of product benefit a challenger
provides determines whether it can surmount the “net”
entry barrier—the traditional barriers to entry amplified by
network effects. In sum, these characteristics affect
expected returns from radical and incremental innovation,
rendering one of these strategies more preferable than the
other. See Figure 4 – an example of an Indian company
which can claim to be a radical innovator for reasons such
as: Designing and marketing in rural India “chotukool” – a
refrigerator for the masses (see details in earlier pages),
Creating and preserving greenery by converting marshland
in Vikroli in Mumbai – where the company has its HQ and
manufacturing facilities, for which initiatives the company
received the FORBES leadership award in 2017. (See
pictures in Figure 4)
Figure 4: Godrej (India) Company is a radical innovator
Consumers will simply not switch to a new and
incompatible technology unless it offers significant
improvements in performance. Conversely, they will
switch if the challenger provides sufficient benefits.
Switching costs are those costs consumers perceive they
will
Incur if they replace one product with another. They
include psychological costs—such as a fear of
incompatibility—the cost of learning new skills to replace
those rendered obsolete, as well as the cost of replacing
physical components. They occur in both network and non
network markets. Switching costs and the degree of
incompatibility need not be related. Many people prefer
brand-name pharmaceuticals even though the compositions
of generic drugs are virtually identical. Moreover,
switching costs depend on the specific market for which a
firm is competing. Professional programmers, for example,
incur fewer switching (learning) costs than
nonprofessionals when upgrading software products.
Whatever the source, if the market a challenger targets has
switching costs, it must provide product benefits that
compensate consumers for those costs as well as forgone
network benefits. When switching costs are high, radical
innovation should be the preferred strategy, since it is the
only type of innovation capable of providing a large
enough product benefit. Incremental innovation simply
provides too little improvement to convince buyers to
incur switching costs and give up the greater network
benefit of the larger network. Radical innovation should be
more profitable than incremental innovation; expected
returns should be higher.
Radical innovation already carries a high degree of risk,
and this type of cost structure adds to that. Such
innovations have a low probability of success. However, in
this context incremental innovations have no chance of
success. Moreover, firms often fund dozens of projects,
knowing that only one needs to succeed. These firms treat
each project as an option, which they can cut short—not
fully fund—when other projects indicate more promise.
Alternatively, entrepreneurs can bet the farm on one
“shot,” knowing radical innovation offers them a greater
chance of success than incremental innovation.
Established companies entering emerging markets should
take a page from the strategy of start-ups, for which all
markets are new: Instead of looking for additional outlets
for existing offerings, they should identify unmet needs—
“the jobs to be done” in our terminology—that can be
fulfilled at a profit. Emerging markets teem with such jobs.
Even the basic needs of their large populations may not yet
have been met. In fact, the challenge lies less in finding
jobs than in settling on the ones most appropriate for your
company to tackle. Consumers there are defined not so
much by any particular income band as by a common
circumstance: Their needs are being met very poorly by
existing low-end solutions, because they cannot afford
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even the cheapest of the high-end alternatives. Companies
that devise new business models and offerings to better
meet those consumers’ needs affordably will discover
enormous opportunities for growth.
Offer Unique Benefits for Less
In Kenya, for example, banking services are scarce and
transferring money is complicated and expensive. Without
access to traditional services, many people must use unsafe
alternatives such as hawala—an unregulated network of
brokers operating on the honor system—or transport cash
by bus. The UK-based Vodafone solved this problem by
developing a secure, low-cost mobile money-transfer
service. Called M-PESA (M for “mobile” and PESA from
the Swahili word for “money”), the system is operated by
Safari.com, Kenya’s leading mobile network. Customers
register free with an authorized M-PESA agent—typically
a Safari.com dealer, but sometimes a gas station, food
market, or other local shop. Once registered, they can
deposit or withdraw cash at the agent or transfer money
electronically to any mobile phone user, even if the
recipient is not a Safaricom subscriber. Since its launch, in
March 2007, the service has acquired more than 9 million
customers—40% of Kenya’s adult population. As of June
2010, the Economist reported, M-PESA customers could
conduct transactions at some 17,900 retail outlets, more
than half of them in rural areas. That figure dwarfs the
total number of bank branches, post offices, and Post
Banks—which is only about 840 nationwide.
Village Laundry Service—which was founded in
Bangalore , India uses the Chamak brand—was aimed
squarely at the emerging middle market. After a lot of
experimentation a novel solution with all the other
elements of the business model was found that makes
Chamak’s services affordable and profitable. The model
allows the company to charge 40 rupees (about $1) per
kilogram of clothing—little more than what dhobis charge
and significantly less than what professional laundries and
dry cleaners do (sometimes 90 rupees per garment).
Village Laundry Service currently has 5,000 customers
patronizing some 20 booths in Mumbai, Bangalore, and
Mysore. The company expects to reach breakeven in late
2011. Of course, as with any new business, how Village
Laundry Service performs over the long term will depend
on a number of hard-to-predict factors.
IV. CONCLUSIONS AND RECOMMENDATION
Leadership is no ‘cake walk’ – it has to be earned by
corporate commitment and action visible for the public.
The examples quoted from India and Kenya which for
emerging markets for product innovation are exemplary.
We need more of this consciousness in the business world.
The environmental changes are clear and somewhat loud.
Businesses cannot earn profits as a matter of routine, but
they need to innovate their marketing through networking
and getting a real feel and pulse of the consumers.
Marketing has never before been as strategic as of current
times because it brings out the best of talent in companies
in their innovation efforts. Because of the proliferation of
digital devices, communication is faster and product
approval/disapproval also happens at the same speed. This
is the consciousness that is needed in the current times so
that organizations awake quickly to competitor moves and
combat them.
The speed of changes happening in the business
environment calls for innovative strategies, some of which
have been explained and illustrated in the review of
literature. Examples of Tata and Godrej companies are
relevant along with the strategic initiative on mobile
banking services in Kenya. Marginal improvements in
Products and promotion are not going to help as much as
fresh concepts in product features to appeal to new market
segments not explored hitherto. That is how the Godrej
refrigerator and Tata electric car are going to fare.
Companies have started networking thanks to the digital
connectivity. Communication modes have changed
societal values and preferences. Networking has become
the preferred way to communicate between persons and
also for companies to communicate with customers.
Because of time constraints people do not look at news
paper or TV commercials as much as mobile telephones.
Digital messaging in short sentences has become the order
of the day and people communicate their emotions through
these devices which provide suitable images to express
different emotions to choose from. The only thing is they
may not be the real representation of an emotion, but the
nearest equivalent. These are times for quick fixes.
Many companies are looking for unique and skewed
market segments (NICHE) where their offerings can give
customer benefits not offered by even the nearest
competitor. Such niches soon are captured by competitors
and so the companies look for unique product offerings
and new market segments hitherto unexplored so that their
offerings are unparalleled. This is the networking market
philosophy.
V. CONCLUSION AND RECOMMENDATION
In conclusion, we see that networking is the new
marketing phenomenon that is catching up fast. There is
scope for more pointed as well as extensive research by
marketers. The author would recommend a healthy
collaboration among competitors for finding new avenues
and ways of marketing beneficial for all. There is no
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substitution for innovation, but it involves a lot of
Research and development expenditure, which may not be
affordable to many companies who enter the market or
their size do not permit a large spread. Industry
associations may also participate in a collaborative effort
to identify new skewed market segments and product
offerings which may be useful for new comers. Network
size and spread may be the determining factor.
However one inescapable conclusion is that the field is
nascent and innovation being the key entrepreneurial
ventures would be welcome.
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