Saturday, June 6, 2015

Maggi in India : a fiasco by non-market strategies and short-term incentives

What can I say? The more I read about Maggi in newspaper, on WhatsApp, Facebook and Twitter and more I hear about it in news media, I can't help think of this one guy Jeff Timmons and the class of 'Business Government and Society' that we took with him at IE Business School.
This is a classic failure of a huge corporate like Nestle to recognize the importance of Business Government Society paradigm and hence also a classic case of its non-market strategy failure.

Before we go into that, let me put things in perspective for my layman readers. These days Business is not just a barter or a trade. It means more, it involves more. The first part - which almost every company works with, the market in which this business operates. And then, from the Porter's five forces to the modern day tools of big 4 consulting firms, there is so much thinking that goes into becoming successful into this market.

But this is not where it all ends these days. Thanks to the improved regulations, increased public awareness, easy access to the internet, rise of social media and continuous availability of news media - there is also a non-market environment that each business needs to operate within these days. This environment consists of dealing with the governments, its regulations, the society and its elements like activists, social media, etc. And hence, any business needs to now have not only a market strategy, but an integrated strategy encompassing both the market and the non-market challenges.

So, what happened with Maggi in India?

Lets start with its Market environment. Found this link on Quartz India with decent amount of details about Maggi's market share, etc and the relevant references.
http://qz.com/420932/charted-how-maggi-rules-indias-noodle-market/
I am just going to build on all this information.
Total market share in noodles market: 63%
Contribution towards Nestle India's revenues:  nearly 30%
Size of Market: India is the second largest market for Nestle's Maggi brand
Retail Sales: $623 million in 2014

So, what do we have? A market leader, with a great brand name, and a well-known campaign, "Mummy bhuuk lagi - Maggi chahiye mujhe abhi. Bas do minute aur Maggi tayaar'. which appeals to all those kids and also busy moms, across the country and makes them want Maggi more and more. In fact, even when we make noodles of other brands, we refer to them as 'Today we made, say 'Top Ramen' Maggi or we made Maggi from home made noodles'. Get the vibe?

This huge market size and the brand popularity means a huge barrier to entry for everyone else. And so, Ching's tried 'Hunger ki Bajao' to compete with Maggi and finally settled with creating a niche for themselves in the Chinese Noodles and Soups space, Saffola is happy finding itself in the healthy Oats and Oat products space, and so on.

So, the question for any strategist would be - how to break or overcome this barrier to entry, created by Maggi?

Well, how about we try playing around this giant in the non-market environment?
I haven't done enough research to claim on who would have inspired these tests by the Government regulators, for Maggi noodles, so lets just not build a conspiracy theory blaming any competitors just yet :-)

But the fact is, when Maggi had become invincible in the Market environment, the other actors involved in the game, decided it's about time to change the arena. So, Maggi noodles were tested by one of the state authorities, and were found to have excessive MSG and lead content than the required configuration suggests, and that brought out the needed shift in arena.

And who was truly responsible for this shift? firstly and fore-mostly the Maggi management. I mean firstly they didn't see it coming thanks to excessive focus on short-term incentives. yes, I am directly trying to place a blame of short-term vision here. For a company who is continuously a market leader, it is so easy for its leaders to want only to stay the leader, only to maintain the market share numbers, despite new competitions. And when the brand is already popular and the product is already a house-hold name, what more can be done? How about making the product more want-able?

MSG [also called Ajinomoto in many places] as most of us would know makes us salivate more, giving a feeling of increased tastiness. It is the same Chinese salt as people refer to it in India, and is the secret behind your corner Indo-Chinese stall's recent success and also your Daalcha-Rice chef's secret recipe. So, why not make people like Maggi more by increasing the percentage of MSG a little more? And hence ensure that the market share is maintained and numbers look great and bonuses this year are unharmed? Plus, this is cheaper than launching a whole range of new products in response to growing popularity of Ching's or Saffola Oats.

And THIS is the short term vision, for short term incentives and gains, that I claimed about earlier.

Well, what was done was done. Now, there was one state that imposed a temporary ban on Maggi and announced that it has excessive MSG and lead. The very public nature of this announcement should have been a trigger to generate a non-market strategy response from Nestle India. It was a clear signal to them, that now, their product is facing non-market elements and response should have been appropriate. Instead, as the news media in India is already calling it, the response was at the most 'delayed'.
Instead of taking control of the social media disturbances and forwards, and instead of mitigating the reputation risk, Maggi decided to wait till the other states started declaring their temporary bans and their similar findings. Only after almost 6 Indian states decided to ban Maggi until further notice, Maggi spoke something on lines of, 'We are taking our products off the shelves to avoid scare. And, Our products are safe to consume'.
This response was needed almost 2 weeks back right after the first ban. Then, it would have shown Leadership, it would have shown Social Responsibility, it would have contained the damage to Reputation. Then, it would have probably avoided those notices to celebrities endorsing Maggi in TV and media.

Now, everyone knows its banned at so many places already, so what difference does recalling the product makes anyways? Now, its just a company doing what it has to do anyways. Now, the parents are already worried, packets of Maggi are already burnt on streets, social media is already buzzing with jokes about what was the most favorite snack of so many Indians until recently.

A classic failure to recognize, limit and respond to a non-market threat. A classic failure due to short-term incentives alignment.

What this failure will lead to is even more dangerous. Read a small news today about people questioning, why Nestle India charges so much for its Cerelac and other Baby Food Products, or Why it is only made available in medical stores and specialty stores? In other words, this non-market failure is now slowly creeping into the Market environment for various other Nestle brands.

Please understand that decision to whether make a product available for masses in volume everywhere at a lower price, or whether to make it available in specialty stores as a premium product, is a strategic decision, is a market decision; It affects the bottom-line of the company, and now a threat of non-market environment looms over Nestle India, questioning these various strategic decisions for its other brands as well.

Anyways, what should be interesting in coming days is to see how the competitors use this window of opportunity and of course, how quickly Maggi can bring this whole fiasco to a closure. And, this won't be achieved by just making the global leaders come down to India.

The new integrated [market and non-market] strategy needs to make sure that the 7 year-old kid who used to finish her lunch box only if mummy gives Maggi in it, trusts the brand all over again.

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